Exam 3

Victor Company issued bonds with a $250,000 face value and a 6% stated rate of interest on January 1, Year 1. The bonds carried a 5-year term and sold for 95. Victor uses the straight-line method of amortization. Interest is payable on December 31 of each year. The carrying value of the bond liability on the December 31, Year 3 balance sheet was:

$245,000.

On May 1, Year 1, Arrow Company borrowed $10,000 from the State Bank at 9 percent annual interest. The note issued by Arrow had a one-year term. In addition, Arrow reported cash revenue of $3,400 in Year 1 and $800 in Year 2 from sales. Interest is paid when the note is due. The cash flow from operating activities Arrow would report on the Year 1 and Year 2 statements of cash flows would be

$3,400 / $(100)

Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Wayne uses the straight-line method of amortization. Interest is paid annually on December 31. Assuming Wayne issued the bond for 102½, the amount of interest expense appearing on the Year 1 income statement would be:

$34,500.

The Platte Corporation issues a 5-year note payable on January 1, Year 1 for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal. Which of the following correctly shows the effects of the December 31, Year 2 payment (rounded to the nearest whole dollar)?

(1,156)=951, 205 n/a 205 205 (951) ... OA

Which of the following statements regarding contingent liabilities is true?

- A contingent liability is a potential obligation arising from a past event. - The amount or existence of a contingent liability depends on some future event. - For reporting purposes, contingent liabilities are sorted into three categories depending on the likelihood of their becoming actual liabilities.

Which of the following statements are true?

- Most businesses provide information about their bill-paying ability by classifying their assets and liabilities according to liquidity. - The more quickly an asset is converted to cash or consumed, the more liquid it is considered.

When a company recognizes a cash payment for interest expense on a bond that was issued at a premium, __

- total assets decrease -the statement of cash flows shows a cash outflow for operating activities - the cash payment is greater than the interest expense

Which of the following statements are true?

-A bond certificate describes the company's obligation to repay the principal. -The amount due at bond maturity is called the face value of the bond. -Cash interest payments are based on the stated interest rate.

Which of the following statements are true?

-Assets like accounts receivable, inventory, equipment, buildings, land may be pledged as collateral for business loans. -Creditors may demand executives to pledge personal assets as well as business assets as security for loans.

Financial accounting provides information used primarily by ___

investors creditors

When a company increases the amount borrowed on a line of credit, net income ______ and net cash flow from ______ activities increases.

is not affected, financing

ch 10

learnsmart

GAAP requires ______ on public financial statements.

midstream costs to be reported separately from upstream and downstream costs

When compared to financial accounting, managerial accounting uses _

more estimates and fewer facts

If the likelihood of a future obligation arising is remote, ___

no liability is shown in the financial statements or related notes

A line of credit __

normally has fluctuating interest rates. is normally renewable on a one year term

A payment on an installment loan will be shown in the ______ activities sections of the statement of cash flows.

operating financing

A company experienced an event that caused total assets and liabilities to decrease and a cash outflow to appear on the statement of cash flows. This event could have been ___

paying off an accrued interest payable paying off the principal balance of a loan

When the market rate of interest is lower than the stated rate of interest, bonds will sell at a(n)

premium

Which of the following would be included in manufacturing overhead?

Factory utilities Depreciation on manufacturing assets Rent on manufacturing facilities Indirect materials Indirect labor

Which of the following costs should not be recorded as an expense in the period incurred?

Insurance on factory building

Warranty obligations ____

are reported in financial statements have uncertain timing and amounts

Recognizing accrued interest expense affects the __

balance sheet income statement

Issuing a note to borrow money affects the _

balance sheet statement of cash flows

Borrowing money by issuing a bond increases ___

bonds payable cash

The IMA's overarching ethical principles include __

fairness responsibility honesty objectivity

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

results in bonds being issued at a premium.

If the likelihood of a future obligation arising is reasonably possible, but not likely; or if it is probable, but cannot be reasonably estimated, _

the estimated amount must be disclosed in the notes to the financial statements

Riley Company borrowed $30,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $960 in Year 1 and $1,090 in Year 2. Assume no other transactions. The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be:

$1,010 outflow

Currie Company borrowed $20,000 from the Sierra Bank by issuing a 10% three-year note. Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042. Based on this information, the amount of the interest expense associated with the second payment would be:

$1,396.

During its first year of operations, Connor Company paid $36,040 for direct materials and $18,800 in wages for production workers. Lease payments and utilities on the production facilities amounted to $7,800. General, selling, and administrative expenses were $8,800. The company produced 5,800 units and sold 4,800 units for $15.80 a unit. The average cost to produce one unit is which of the following amounts?

$10.80

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What is the amount of finished goods inventory on the balance sheet at year-end?

$20,000

On January 1, Year 1, Sheffield Company issued bonds with a face value of $200,000, a term of ten years, and a stated interest rate of 6%. The bonds were issued at 105, and interest is payable each December 31. Sheffield uses the straight-line method to amortize the bond discount. The carrying value of the bonds that would be reported on the December 31, Year 4 balance sheet is:

$206,000. $200,000 × 105% = $210,000 issue price; $10,000 premium/10 years = $1,000 annual amortization of bond premium; Amortization for years Year 1 − Year 4 = $1,000 × 4 years = $4,000; Carrying value on December 31, Year 4 = $210,000 − $4,000 = $206,000

Jones Company issued bonds with a $300,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7.00% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

$22,800. $300,000 × 0.070 = $21,000 interest payment; $9,000 discount ÷ 5 years = $1,800 yearly amortization; $21,000 + $1,800 = $22,800 interest expense

Weller Company issued bonds with a face value of $400,000, a 10% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 8%. Interest is paid annually on December 31. Assuming Weller issued the bonds for $453,681, the carrying value of the bonds on the December 31, Year 3 balance sheet would be closest to:

$441,651.

ucker Company's work in process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount?

$5,500

The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 at 98. The interest payments are due on December 31 each year. Gordon uses the straight-line method of amortization. Which of the following answers shows the effect of the bond issuance on the financial statements?

$68,600= 68,600 n/a

During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What was Silverman's net income for the first year in operation?

$7,000

James Company borrowed $40,000 on a one-year notes payable at 8%. Interest and principal are to be repaid at the end of the note term. If the note was issued on October 1 of Year 1, the amount of accrued interest on the December 31, Year 1 financial statements is __

$800 Reason: $40,000 × 8% × (3 ÷ 12)

Jones Company issued bonds with a $130,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7.00% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

$9,880. $130,000 × 0.070 = $9,100 interest payment; $3,900 discount ÷ 5 years = $780 yearly amortization; $9,100 + $780 = $9,880 interest expense

Current liabilities include ___

10 years bonds due in 5 months wages payable accounts payable

Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%:

All of these answer choices are correct.

Which of the following represents the impact of a taxable cash sale of $950 on the accounting equation if the sales tax rate is 4%?

An increase to cash for $988, an increase to sales tax payable for $38, and an increase to sales revenue for $950.

Which of the following would not be included in manufacturing overhead?

Depreciation of selling and administrative facilities Selling and administrative costs Direct materials Direct labor

All lawsuits in which a company has been named a defendant should be either disclosed in the company's notes to the financial statements, or recognized as a liability on its balance sheet.

F

Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.

F

At what level is information aggregated in managerial accounting?

Local on subunits of the organization

Identify the costs that are included in manufacturing a product.

Materials Labor Overhead

Jack Company issued a $12,000 note payable on September 1, Year 1 for a one year term at 5% interest. The company prepares financial statements on December 31 of each years. In Year 2, Jack will recognize __

a cash outflow from financing activities of $12,000 a cash outflow from operating activities of $600 $400 of interest expense

Jack Company issued a $12,000 note payable on September 1, Year 1 for a one year term at 5% interest. The company prepares financial statements on December 31 of each years. In Year 2, Jack will recognize __

a cash outflow from operating activities of $600 a cash outflow from financing activities of $12,000 $400 of interest expense

If the likelihood of a future obligation arising is probable (likely) and its amount can be reasonably estimated, __

a liability must be recognized in the financial statements

A company recorded an event that caused assets, liabilities and cash flow from financing activities to increase, but had no affect on net income. This event could have been due to ___

borrowing money with a two year term to maturity

Indirect costs ____

cannot be cost-effectively traced to products and services

Simms Accountants charged a client $2,000 cash plus tax for services provided in a state where the service sales tax rate is 6%. As a result of this event, the ______.

cash account increases by $2,120 sales tax liability account increases by $120

Recording a cash payment for product costs decreases _

cash and increases inventory

Balance sheets that distinguish between current and noncurrent items are called ______ balance sheets.

classified

IMA standards include __

credibility competence confidentiality integrity

Recognizing accrued interest expense ___

decreases net income is a claims exchange transaction

Purchasing materials with cash _

decreases operating cash flow increases inventory decreases cash does not affect liabilities

When a company records a cash payment for manufacturing costs, total assets _

do not change

Costs incurred after the manufacturing process is complete are called ______ costs.

downstream

Selling and advertising costs are considered ______ costs.

downstream

Costs such as transportation-out, sales commissions, uncollectible accounts receivable, and advertising costs are sometimes called:

downstream costs.

External users (outsiders) rely on ______ data.

economic financial

Managerial accounting provides information used primarily by _

employees executives

At what level is information aggregated in financial accounting?

global on the company as a whole

Warranties normally ____

guarantee repair or replacement cover a specific time period are based on estimates

Payments on installment loans ____

include a payment for interest -include a repayment of a portion of the principal balance

Recognizing a warranty expense affects the __

income statement balance sheet

Recognizing depreciation on manufacturing equipment results in __

increased inventory no change to the income statement

Paying production workers with cash ___

increases inventory decreases cash decreases operating cash flow

A systematic problem-solving philosophy that encourages front line workers to achieve zero defects is known as:

total quality management (TQM).

Costs incurred before the manufacturing process begins are called ______ costs.

upstream

When establishing sales prices or measuring profitability, managers may fail to include ______ costs in the decision.

upstream downstream

Inventory holding costs include __

warehouse space obsolescence financing diminished motivation