Accounting Test 3 (Chapter 10)

In what denomination are bonds typically issued? Entry field with correct answer $1,000 $1,000,000 $100,000 $10,000

1000

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of Entry field with correct answer $291,006. $291,075. $292,500. $291,750.

291750

Which one of the following is not a typical current liability? Entry field with correct answer Bonds payable FICA taxes payable Sales taxes payable Unearned revenue

bonds payable

When a bond is sold at a premium, at what amount is it reported on the balance sheet? Entry field with correct answer Premium value Interest value Market value Carrying value

carrying value

A corporation issues $1,000,000 of 8%, 5-year bonds. The 8% rate of interest is called the __________ rate. Entry field with correct answer yield effective market contractual

contractual

Nashville Rail Co. issued $100,000 in 10-year bonds in 2009 at 103. The final interest payment was made and recorded. What entry will CityplaceNashville record for the redemption of its bonds at maturity? Entry field with correct answer Bonds Payable 100,000 Cash 100,000 Bonds Payable 103,000 Cash 103,000 Bonds Payable 103,000 Premium on Bonds Payable 3,000 Cash 100,000 Bonds Payable 103,000 Gain on Bonds Redemption 3,000 Cash 100,000

100000

Ozone Inc. sells bonds with a face value of $1,000,000 and a contract interest rate of 9% for $800,000. The bonds will mature in 10 years. Using the straight line method of amortization of the bonds' discount, how much interest expense will be recognized in year 1? Entry field with correct answer $90,000 $70,000 $108,000 $110,000

110000

A retail store didn't enter sales taxes separately on the cash register and credited the Sales Revenue account for the total amount received from sale. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $420,000, what is the amount of the sales taxes owed to the taxing agency? Entry field with correct answer $21,000 $20,000 $420,000 $400,000

20000

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is Entry field with correct answer Cash 200,000 Notes Payable 200,000 Cash 200,000 Interest Expense 6,000 Notes Payable 200,000 Interest Payable 6,000 Interest Expense 6,000 Cash 194,000 Notes Payable 200,000 Cash 200,000 Interest Expense 6,000 Notes Payable 206,000

20000

Sosa Corporation issued 10-year bonds with a face value of $400,000 and a contractual rate of interest of 6% at 99 on July 1. What is the total cost of borrowing for Sosa Corporation? Entry field with correct answer $640,000 $400,000 $244,000 $240,000

244000

The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be Entry field with incorrect answer $15,000. $7,500. $3,750. $2,500.

2500

Scribner Company issued $400,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date? Entry field with correct answer $36,800 $4,800 $32,000 $27,200

27200

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%? Entry field with incorrect answer $400,000 $280,000 $4,000,000 $120,000

280000

Winrow Company received proceeds of $565,500 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $600,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. Winrow Company decided to redeem the bonds on January 1, 2015. What amount of gain or loss would Winrow report on its 2015 income statement? Entry field with correct answer $33,600 gain $27,600 gain $27,600 loss $33,600 loss

33600 loss

Andre Company collected $4,515 from cash sales to customers, which includes both sales revenue and 5% sales taxes. How much should be recognized as sales revenue? Entry field with correct answer $4,300 $4,000 $4,289.25 $4,515

4300

On January 1, 2014, $2,000,000, 10-year, 10% bonds, were issued for $1,940,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is Entry field with incorrect answer $6,000. $500. $19,400. $1,616.

500

Brazen Inc. sells bonds with a face value of $1,000,000 and a contract interest rate of 9% for $1,200,000. The bonds will mature in 10 years. Using the straight line method of amortization of the bonds' premium, how much interest expense will be recognized in year 1? Entry field with correct answer $108,000 $110,000 $70,000 $90,000

70000

RS Company borrowed $70,000 on December 1 on a 6-month, 12% note. Which statement is true at December 31? Entry field with correct answer Neither the note payable nor the interest payable is a current liability. The interest payable is a current liability, but the note payable is not. Both the note payable and the interest payable are current liabilities. The note payable is a current liability, but the interest payable is not.

Both the note payable and the interest payable are current liabilities.

Hanlin Enterprises issued 2,000 bonds with a face value of $1,000 each at 97. What is the entry to record the issuance? Entry field with correct answer Cash 2,000,000 Discount on Bonds Payable 60,000 Bonds Payable 1,940,000 Cash 2,060,000 Discount on Bonds Payable 60,000 Bonds Payable 2,00,000 Cash 1,940,000 Discount on Bonds Payable 60,000 Bonds Payable 2,000,000 Cash 1,940,000 Bonds Payable 1,940,000

Cash 1,940,000 Discount on Bonds Payable 60,000 Bonds Payable 2,000,000

The cash register tape indicates cash sales are $2,000 and sales taxes are $155. What journal entry is needed to record this information? Entry field with correct answer Cash 2,155 Sales 2,155 Cash 2,155 Sales 2,000 Sales Taxes Payable 155 Cash 2,000 Sales 2,000 Cash 2,000 Sales Tax Expense 155 Sales 1,155

Cash 2,155 Sales 2,000 Sales Taxes Payable 155

Four thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is Entry field with correct answer Cash 4,000,000 Premium on Bonds Payable 80,000 Bonds Payable 4,080,000 Cash 4,080,000 Bonds Payable 4,080,000 Cash 4,080,000 Premium on Bonds Payable 80,000 Bonds Payable 4,000,000 Cash 4,080,000 Discount on Bonds Payable 80,000 Bonds Payable 4,000,000

Cash 4,080,000 Premium on Bonds Payable 80,000 Bonds Payable 4,000,000

A cash register tape shows cash sales of $6,000 and sales taxes of $300. The journal entry to record this information is Entry field with incorrect answer Cash 6,000 Sales Revenue 6,000 Cash 6,300 Sales Tax Revenue 300 Sales Revenue 6,000 Cash 6,000 Sales Tax Expense 300 Sales Revenue 6,300 Cash 6,300 Sales Revenue 6,000 Sales Taxes Payable 300

Cash 6,300 Sales Revenue 6,000 Sales Taxes Payable 300

To be classified as a current liability, how or when must a debt be expected to be paid? Entry field with correct answer By creating other current liabilities Out of existing current assets Beyond one year Either out of existing current assets or by crediting other current liabilities

Either out of existing current assets or by crediting other current liabilities

On September 1, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Which journal entry will Banner Co. make on December 31 before issuing its financial statements? Entry field with correct answer Interest Expense 1,575 Interest Payable 1,575 Interest Expense 2,625 Notes Payable 2,625 Interest Expense 6,300 Notes Payable 6,300 Interest Expense 2,100 Interest Payable 2,100

Interest Expense 2,100 Interest Payable 2,100

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30? Entry field with correct answer Interest Expense 6,000 Cash 6,000 Interest Payable 3,000 Interest Expense 3,000 Interest Expense 6,000 Interest Payable 6,000 Interest Expense 3,000 Interest Payable 3,000

Interest Expense 3,000 Interest Payable 3,000

On September 1, 2014, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Interest was properly accrued on December 31, 2014. What entry is needed to record the payment of the note and accrued interest on the due date? Entry field with correct answer Notes Payable 72,625 Cash 72,625 Interest Payable 2,625 Notes Payable 70,000 Cash 72,625 Interest Expense 2,625 Notes Payable 70,000 Cash 72,625 Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625

Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625

Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate? Entry field with correct answer The market interest rate exceeds the contractual interest rate. No relationship exists between the market and contractual rates. The contractual interest rate and the market interest rate are the same. The contractual interest rate exceeds the market interest rate.

The contractual interest rate exceeds the market interest rate.

At what point and how are sales taxes charged to customers recorded? Entry field with correct answer At the time the sale takes place as an expense At the time of the sale as a liability At the time collected from the customer as unearned revenue At the time of the sale as revenue

at the time of the sale as a liability

If bonds have been issued at a discount, then over the life of the bonds the Entry field with correct answer carrying value of the bonds will increase. unamortized discount will increase. interest expense will increase, if the discount is being amortized on a straight-line basis. carrying value of the bonds will decrease.

carrying value will increase

Bonds that may be exchanged for common stock at the option of the bondholders are called Entry field with correct answer callable bonds. options. stock bonds. convertible bonds.

convertible bonds

On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a Entry field with correct answer credit to Discount on Bonds Payable, $16,000. credit to Discount on Bonds Payable, $8,000. debit to Interest Expense, $120,000. debit to Interest Expense, $240,000.

credit to Discount on Bonds Payable, $16,000.

On January 1, 2014, Slice Corp. issues $200,000 of 5-year, 7% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds? Entry field with correct answer Credit to Cash for $14,000 Credit to Bonds Payable for $200,000 Credit to Bond Interest Expense of $14,000 Debit to Bonds Payable for $200,000

credit to bonds payable for 200000

Yanik Corporation issues 4,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 97. The journal entry to record the issuance will show a Entry field with correct answer debit to Cash of $4,000,000. credit to Bonds Payable for $3,880,000. debit to Discount on Bonds Payable for $120,000. credit to Cash for $3,880,000.

debit bonds

Hulse Corporation retires its $600,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $622,470. The entry to record the redemption will include a Entry field with correct answer credit of $7,530 to Gain on Bond Redemption. debit of $30,000 to Premium on Bonds Payable. debit of $22,470 to Premium on Bonds Payable. credit of $22,470 to Loss on Bond Redemption.

debit of $22,470 to Premium on Bonds Payable.

The following totals for the month of April were taken from the payroll records of Metz Company. Salaries $30,000 FICA taxes withheld 2,295 Income taxes withheld 6,600 Medical insurance deductions 1,200 Federal unemployment taxes 240 State unemployment taxes 1,500 The entry to record accrual of employer's payroll taxes would include a Entry field with correct answer credit to Payroll Tax Expense for $4,035. debit to Payroll Tax Expense for $4,035. credit to FICA Taxes Payable for $1,740. credit to Payroll Tax Expense for $1,740.

debit to Payroll Tax Expense for $4,035.

The following totals for the month of April were taken from the payroll records of Noll Company. Salaries $60,000 FICA taxes withheld 4,590 Income taxes withheld 12,500 Medical insurance deductions 2,250 Federal unemployment taxes 160 State unemployment taxes 1,080 The journal entry to record the monthly payroll on April 30 would include a Entry field with incorrect answer debit to Salaries and Wages Payable for $60,000. debit to Salaries and Wages Expense for $40,660. debit to Salaries and Wages Expense for $60,000. credit to Salaries and Wages Payable for $60,000.

debit to Salaries and Wages Expense for $60,000.

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at Entry field with incorrect answer either discount or premium. a discount. a premium. par.

discount

When a bond is sold at a premium, at what value is it reported on the balance sheet? Entry field with correct answer face value plus any premium face value minus any amortized premium interest value plus any premium market value plus face value

face value plus any premium

Federal unemployment taxes are paid by both the employer and the employee. Entry field with correct answer True False

false

Sales taxes are an expense to the retailer. Entry field with correct answer True False

false

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount Entry field with correct answer that cannot be determined. greater than face value. less than face value. equal to face value.

greater than face value

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of Entry field with correct answer interest paid over the life of the bond minus the amount of premium at sale point. interest paid over the life of the bond plus the amount of premium at sale point. interest paid over the life of the bond. premium at sale point.

interest paid over the life of the bond minus the amount of premium at sale point.

What is the effect of amortizing a bond discount? Entry field with correct answer It increases the carrying value of the bonds. It decreases bond interest expense. There is no effect on the bond interest expense. It decreases the maturity value of the bonds.

it increases the carrying value of the bonds

What is the nature of a bond premium? Entry field with correct answer It increases the cost of borrowing. It reduces the cost of borrowing. None of these. It doesn't change the cost of borrowing.

it reduces the cost of borrowing

The time period for classifying a liability as current is one year or the operating cycle, whichever is longer. shorter. probable. possible.

longer

Bonds payable with a face value of $200,000 and a carrying value of $196,000 are redeemed prior to maturity at 102. Which of the following willl result? Entry field with correct answer Gain on redemption of $8,000 Gain on redemption of $4,000 Loss on redemption of $4,000 Loss on redemption of $8,000

loss on redemption 8000

Which one of the following is not a typical current liability? Entry field with correct answer Salaries payable Current maturities of long-term debt Interest payable Mortgages payable

mortgages payable

Which of the following is not a typical current liability? Entry field with correct answer Unearned passenger ticket revenue Current maturities of long-term debt Prepaid rent Federal unemployment taxes payable

prepaid rent

What term is used for bonds that have specific assets pledged as collateral? Entry field with correct answer Convertible bonds Callable bonds Secured bonds Discount bonds

secured bonds

Unearned revenue is a type of current liability. Entry field with correct answer True False

true

When a bond premium is amortized over time, the carrying value of the bonds decreases over time. Entry field with correct answer True False

true

A current liability is a debt that can reasonably be expected to be paid Entry field with correct answer out of cash currently on hand. out of currently recognized revenues. within one year, or the operating cycle, whichever is longer. between 6 months and 18 months.

within one year, or the operating cycle, whichever is longer.