Accounting Unit 3
Omar Inc. has 6%, $200,000 face amount bonds outstanding. The bonds were issued at a discount. At the end of the current fiscal period, unamortized bond discount is $4,500. The total bond-related liability reported on Omar's balance sheet should be: Multiple choice question. $4,500 $200,000 $204,500 $195,500
$195,500
The formula to calculate an activity-based depreciation rate is: cost/actual production during the year. (cost - residual value)/actual production during the year. cost/estimated total production. (cost - residual value)/estimated total production.
(Cost- residual value) / estimated total production
The formula for straight-line depreciation is (cost + residual value)/service life. service life/(cost + residual value). (cost - residual value)/service life. cost/service life.
(cost - residual value)/ service life
Where is the account accumulated depreciation on equipment found on the financial statements? As an asset account on the balance sheet As a contra account to equipment on the balance sheet As an expense account on the income statement As a liability account on the balance sheet
As a contra account to equipment on the balance sheet.
The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to Blank______ and a credit to Blank______. Multiple choice question. Cash; Bonds Receivable Bonds Payable; Cash Cash; Bonds Payable Notes Payable; Cash
Cash; Bonds Payable
Lark Corporation believes it is probable the company will lose a lawsuit for $10,000. The journal entry to record the contingent loss will include a Multiple choice question. credit to contingent liability for lawsuit $10,000. debit to contingent liability for $10,000. credit to retained earnings $10,000. credit to lawsuit expense $10,000.
credit to contingent liability for lawsuit $10,000.
Another name for the acid-test ratio is the ____________ ratio. (Enter only one word.)
current
Deferred revenues and sales tax payable typically are reported as _______ liabilities.
current
The __________ portion of long-term debt is the amount that will be paid within the next year. (Enter only one word.)
current
A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n) Multiple choice question. bond. maturable asset. obligation payment. common stock.
bond
A corporation that wishes to borrow from the general public rather than a bank will issue common stock notes payable bonds preferred stock
bonds
Which of the following statements is correct? Multiple choice question. Bonds may be retired at maturity or retired early. Bonds can be retired only at maturity. Bonds for which the effective interest rate rises must be retired early.
bonds may be retired at maturity or retired early
Liabilities are classified as Multiple choice question. current and long-term. operating and investing. operating and nonoperating. revenues and expenses.
current and long-term
The portion of a long-term liability that will be paid within the next year is referred to and reported as the: Multiple choice question. current debt current portion of long-term debt long-term debt total current liability
current portion of long-term debt
Which of the following must employers by law withhold from their employees' pay? Multiple choice question. Health insurance contributions contributions toward retirement funds Federal income taxes unemployment taxes
federal income taxes
When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ________ value of the asset sold. fair net realizable book net present
book
The original cost of an asset minus accumulated depreciation is residual value. book value. goodwill. disposal value.
book value
The formula for calculating the double-declining-balance method is historical cost less residual value x 2/estimated service life. book value at beginning of the year less residual value x 2/ estimated service life. book value at beginning of year x 2/estimated service life historical cost x 1/service life.
book value at beginning of year x 2/ estimated service life.
A(n) ___________ liability is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
contingent
Werner issues bonds at a discount. The related Discount account should be classified as a(n) _______- _________
contra liability
Which of the following are examples of fringe benefits provided by employers to their employees? Multiple select question. contributions to retirement and other savings accounts reduced or no-cost company-provided services payment of insurance premiums on employees behalf payment for services provided by employee to employer FICA matching contributions
contributions to retirement and other savings accounts reduced or no-cost company-provided services payment of insurance premiums on employees behalf
__________ bonds are retired when the bondholder exchanges them for the issuing company's stock.
convertible
On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries? Multiple choice question. Debit interest expense $12,000 Credit cash $5,000 Credit cash $6,000 Debit interest expense $10,000
credit cash $5,000
Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries? Credit equipment $80,000 Credit gain on exchange of asset $40,000 Credit accumulated depreciation $60,000 Debit accumulated depreciation $60,000 Credit equipment $100,000 Debit equipment $80,000 Debit equipment $65,000
credit gain on exchange of asset $40,000 debit accumulated depreciation $60,000 Credit equipment $100,000 Debit equipment $80,000
Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should Multiple choice question. credit notes payable $5,000. debit notes payable $5,000. credit notes expense $5,000. debit notes receivable $5,000.
credit notes payable $5,000
Which of the following are not required to be deducted from an employee's paycheck? Federal unemployment tax (FUTA) Charitable contributions Federal income tax State unemployment tax (SUTA) Social Security Medicare taxes
federal unemployment tax charitable contributions state unemployment tax
Additional benefits such as health insurance, retirement benefits, or life insurance that are paid by the employer are called ________ benefits.
fringe
Which of the following may be classified as contingent liabilities? Multiple select question. Future litigation losses Product warranties Deferred revenues Deposits from customers Frequent flyer program awards
future litigation losses product warranties frequent flyer program awards
Bonds will be issued at a premium if the stated interest rate is Multiple choice question. equal to the market interest rate. greater than the market interest rate. fluctuating on the day of issuance. less than the market interest rate.
greater than the market interest rate
The term referring to a company having a sufficient amount of cash to pay its current debts is Multiple choice question. solvency. liquidity. security. consistency.
liquidity
The true interest rate used by investors to value a bond issue is referred to as the: Multiple choice question. prime interest rate nominal interest rate market interest rate stated interest rate
market interest rate
A common reason for redeeming a bond prior to its maturity date is that Multiple choice question. market interest rates increased. market interest rates decreased. the market price of bonds decreased.
market interest rates decreased
Which of the following may be a proper income statement classification of contingent events? Multiple select question. non-operating expense operating expense discontinued operations contra-revenue
non-operating expense operating expense
The ________ rate of interest is used to compute the cash interest paid to bondholders. (Enter one word per blank)
stated
The rate of interest printed on the face of a bond is referred to as the ________ interest rate. (Enter one work per blank)
stated
Which depreciation methods allocate the cost of long-term assets based on time? straight-line activity methods declining-balance valuation method
straight-line declining-balance
The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the MACRS straight-line method. double-declining-balance method. units-of-output method.
straight-line method
Bonds that require payment of the full principle amount of the bond at the end of the loan term are referred to as Multiple choice question. serial bonds term bonds convertible bonds
term bonds
Which of the following are common characteristics or provisions of bonds? Multiple select question. perpetual or periodic term or serial secured or unsecured convertible indefinite or redeemable
term or serial secured or unsecured convertible
Which statement is true about the straight-line method of depreciation? 1) It recognizes expense proportionately with the amount of use of the asset. 2) It is an accelerated method of depreciation. 3) It allocates an equal amount of depreciation to each year the asset is used. 4) It is the preferred method for companies expecting to use the asset more in its early years of life.
3) it allocates an equal amount of depreciation to each year the asset is used.
Which of the following are included in FICA taxes? Multiple select question. A 1.45% Medicare tax A 5.4% SUTA tax A 6.2% FUTA tax A 6.2% social security tax
A 1.45% Medicare Tax A 6.2% social security tax
The journal entry to retire old equipment that is not fully depreciated includes a: debit to accumulated depreciation debit to loss credit to loss credit to equipment debit to cash
Debit to accumulated depreciation debit to loss credit to equipment
The journal entry to retire old equipment that is not fully depreciated includes a: debit to loss credit to loss debit to cash credit to equipment debit to accumulated depreciation
Debit to loss Debit to accumulated depreciation Credit to equipment
Financing with _________ requires borrowing, whereas financing with ______________requires issuing shares of stock. (Enter one word per blank.)
Debt Equity
Which of these payroll taxes are paid only by the employer? (Check all that apply.) FUTA SUTA Medicare Social Security
FUTA SUTA
What is the formula for the profit margin ratio? Net income divided by average shareholders' equity. Net income divided by average total assets. Gross profit divided by sales. Net income divided by net sales.
Net income divided by net sales.
ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes Blank______. a debit to Interest expense of $6,000 a debit to Interest expense of $500 a credit to Cash of $6,000 a credit to Interest payable of $500 a credit to Cash of $500
a debit to Interest expense of $500 a credit to Interest payable of $500
ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes Blank______. a debit to Interest expense of $6,000 a debit to Interest payable of $6,000 a credit to Interest expense of $6,000
a debit to Interest expense of $6,000 a credit to Cash of $6,000
ABC Airlines collects $300 for a round-trip ticket from Chicago to Los Angeles and back. How does ABC Airlines record the $300 collected in advance? A debit to Cash of $300 and a credit to Revenue of $300. A debit to Revenue of $300 and a credit to Cash of $300. A debit to Deferred Revenue of $300 and a credit to Cash of $300. A debit to Cash of $300 and a credit to Deferred Revenue of $300.
a debit to cash of $300 and a credit to deferred revenue of $300.
Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include: Multiple select question. A debit to discount on bonds payable for $2,000 A credit to bonds payable for $100,000 A debit to loss on bond issuance A credit to discount on bonds payable for $2,000
a debit to discount on bonds payable for $2,000 a credit to bonds payable for $100,000
Deferred revenue is classified as Multiple choice question. a revenue an expense a liability an asset
a liability
Periodic payments on installment notes typically include (Select all that apply.) Multiple select question. an increase in stockholders' equity a portion that reduces the outstanding loan balance. a portion that reflects interest. installment fees.
a portion that reduces the outstanding loan balance a portion that reflects interest
In a private placement of bonds, bonds may be sold to Multiple choice question. the general public. a single large investor. an underwriter who sells it to individual investors.
a single investor
A(n) __________ payable is a short-term liability that occurs when a company purchases goods and does not immediately pay with cash. (Enter only one word.)
account
Which of the following are commonly used depreciation methods? Multiple select question. Activity-based Value-based Declining-balance Straight-line Increasing-balance
activity-based declining-balance straight-line
Allocating the cost of intangible assets to expense is referred to as ___________.
amortization
Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n) Multiple choice question. 6 month rate. annual, 12 month rate. a 3 month rate.
annual, 12 month rate
Candy Corporation has $100,000 of 8% bonds that were issued in Year 1 at face amount. When the bonds are repaid at the maturity date, the journal entry will require which of the following entries? Multiple select question. Debit bonds payable $100,000 Credit bonds payable $100,000 Debit cash $100,000 Credit cash $100,000
debit to bonds payable $100,000 credit cash $100,000
On November 1, Year 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, Year 2. The journal entry on November 1, Year 1 would include which of the following? Multiple select question. Credit to Note Payable $106,000 Debit to Cash $100,000 Debit to Interest Expense $6,000 Credit to Note Payable $100,000
debit to cash $100,000 credit to Note Payable $100,000
If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a Multiple choice question. debit to Cash of $100,000 and a credit to Bonds payable of $100,000. debit to Cash of $100,000 and a credit to Bonds payable of $99,000 and to Premium on bonds payable of $1,000. debit to Bonds payable of $100,000 and a credit to Cash of $100,000.
debit to cash of $100,000 and a credit to bonds payable of $100,000
The two types of financing are Multiple select question. debt financing. operating financing. investing financing. equity financing.
debt financing equity financing
Payroll withholdings Blank______. (Select all that apply.) Multiple select question. are amounts added to employees' gross earnings to determine their net pay increase the amount of cash an employee receives decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay are voluntary
decrease the amount of cash an employee receives are amounts subtracted from employees' gross earnings to determine their net pay
Common current liabilities include: deferred revenues prepaid insurance notes payable due in two years the current portion of long-term debt sales tax payable
deferred revenues the current portion of long-term debt sales tax payable
Which of the following does not differ among the different depreciation methods? Total depreciation recognized over the asset's service life. Depreciation recognized during the last year of the asset's service life. Depreciation recognized during the earlier years.
depreciation recognized over the asset's service life.
Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to: Multiple select question. A debit to loss on bond issuance for $2,000 Discount on bonds payable for $2,000 Cash for $100,000 Cash for $98,000
discount on bonds payable for $2,000 cash for $98,000
Which of the following are employer payroll costs? Multiple select question. Employee contributions to retirement savings Employer portion of Medicare tax Federal income tax withholding Federal and state unemployment taxes
employer portion of Medicare tax federal and state unemployment taxes
The carrying value at maturity is equal to the face amount of bonds issued at: Multiple choice question. discount and premium only face amount, discount, and premium face amount only face amount and discount only face amount and premium only
face amount, discount, and premium
True or false: At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond. true false
false Reason: The stated rate is not always equal to the market rate of interest.
Which of the following are payroll withholdings that are subtracted from gross pay to arrive at take-home pay? Health insurance paid by the employee Employer contribution for social security taxes Federal income taxes Federal and state unemployment taxes Employee contributions to retirement plans
health insurance paid by the employee federal income taxes employee contributions to retirement plans
Loans requiring periodic payments of interest and principle are referred to as ________ notes.
installment
Amortization refers to the allocation of the cost of __________ assets to expense.
intangible
Which of the following is true regarding a debenture bond? Multiple choice question. It is secured by the faith and credit standing of the issuer. It is secured by an outside third party. It is secured by the issuer's long-term assets.
it is secured by the faith and credit standing of the issuer
Companies use accelerated depreciation for tax purposes because it is required by the IRS. it does a better job of matching expenses to revenues of the period. it reduces taxable income in the early years of the asset's life and provides better cash flows.
it reduces taxable income in the early years of the asset's life and provides better cash flows.
A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) Multiple choice question. direct purchase plan. indenture. contingent contract. lease.
lease
A(n) ________ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time. (Enter one word per blank)
lease
Use of MACRS for tax purposes usually results in ____________ income tax in the earlier years of an asset's life.
less
Cabot Inc. has 6%, $100,000 face amount bonds outstanding. The bonds were issued at a discount. At end of the current fiscal period, unamortized bond discount is $1,200.The balance sheet presentation of Cabot's bonds should include: Multiple select question. Less discount on bonds payable of $1,200 Bonds payable of $100,000 Carrying value of $101,200
less discount on bonds payable of $1,200 bonds payable of $100,000
A(n) ___________ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events. (Enter one word per blank)
liability
Amounts that are subtracted from an employee's gross pay are referred to as Multiple choice question. employee costs. payroll withholdings. payroll taxes. net pay.
payroll withholdings
Dorothea Inc. is selling all of its bonds to a large pension fund. This an example of a(n) ________ placement
private
The depreciable cost of an asset is the asset's cost minus its estimated __________ value.
residual
________ value is the amount the company expects to receive for the asset at the end of its service life.
residual
When a corporation repurchases its bonds from the bondholders, the corporation ________ the bonds.
retired
An asset__________ occurs when an asset is no longer useful, but cannot be sold.
retirement
An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) Blank______ account. expense liability asset revenue
revenue Reason: The credit is to revenue and represents the amount of Deferred revenue (a liability) that has been earned and no longer owed.
Lester Corp. sells merchandise to a customer for $1,000. The company also collects state and local sales taxes of 6% and 4%, respectively. At the time of sale, Lester should record the following credit amounts. Multiple select question. sales revenue of $1,100. sales revenue of $1,000. sales taxes payable of $100.
sales revenue of $1,000 sales taxes payable of $100
Dorothea Inc. is selling all of its bonds to a large pension fund. This an example of a(n) unsecured secured convertible
secured
Most corporate bonds pay interest Multiple choice question. annually monthly. quarterly semiannually.
semiannually
What are the two criteria used to determine whether a contingent liability is reported in the financial statements? Multiple select question. The payment date The ability to estimate the amount of payment The percentage of the payment to total income The likelihood of payment
the ability to estimate the amount of payment the likelihood of payment
Callable bonds can be redeemed at the choice of Multiple choice question. the bond issuer. both the bond issuer and bondholder. the bondholder.
the bond issuer
The formula for calculating declining balance depreciation is the depreciation rate per year times the book value at the beginning of the year. the cost less the residual value. the cost less the residual value less the accumulated depreciation.
the book value at the beginning of the year.
The depreciable cost is.... cost of the asset minus depreciation expense. cost of the asset plus the residual value. the cost of the asset minus the residual value. historical cost less accumulated depreciation.
the cost of the asset minus the residual value.
Straight-line deprecation is calculated as the depreciable cost divided by the estimated service life of the asset. the residual value of the asset. the cost of the asset.
the estimated service life of the asset.
Payroll withholdings are Multiple choice question. the items subtracted from an employee's gross pay to arrive at take-home pay. the employer's portion of taxes paid for social security and Medicare. the payments submitted for both the employee and employer to the government for taxes.
the items subtracted from an employee's gross pay to arrive at take-home pay.
Which of the following is an important criteria used to determine the reporting of a contingent liability? Multiple choice question. The classification of the related expense or loss The effect on key balance sheet ratios The likelihood of future payment or loss The potential effect on financial statement users
the likelihood of future payment or loss
Total depreciation recorded over an asset's service life is: highest when the double-declining balance method is used lowest when the straight-line method is used lowest when the activity-based method is used the same regardless of the depreciation method used
the same regardless of the depreciation method used.
Straight-line and declining balance methods allocate the cost of a long-term asset based on ____________ , while an activity-based method allocates the cost of an asset based on its ________
time activity
Other terms used for an activity-based depreciation method are: base depreciation method units of output method productivity method units of production method
units of output method units of production method
Taxes subtracted from employees' pay and remitted to the government on their behalf are called Multiple choice question. remittance payment taxes. withholding taxes. employer payroll taxes. retirement contribution taxes.
withholding taxes.