ACCTG 3600 Ch. 8 & 9

On June 30, Filipovic Corp. borrows $100,700 from Helena Savings and Loan with a 10-month, 6% note.

Cash 100700 Notes Payable 100700

Anne Corp. issued $411,000 5% bonds. The bonds were issued at 92. If an amount box does not require an entry, leave it blank.

Cash 378120 Discount on Bonds Payable 32880 Bonds Payable 411000

Anne Corp. issued $411,000 5% bonds. The bonds were issued at par

Cash 411000 Bonds Payable 411000

Anne Corp. issued $411,000 5% bonds. The bonds were issued at 102. If an amount box does not require an entry, leave it blank.

Cash 419220 Bonds Payable 411000 Premium on Bonds Payable 8220

How is the current ratio calculated?

Current Assets/Current Liabilities

Which of the following is not an example of an accrued liability? a. Accounts payable b. Interest payable c. Wages payable d. Property taxes payable

a. Accounts Payable

Which of the following is true? a. No journal entries or footnotes are necessary if the probability of a contingent liability is remote. b. A contingent liability should always be recorded in the footnotes to the financial statements. c. A contingent liability should always be recorded within the financial statements. d. A company can choose to record a contingent liability either within its financial statements or in the footnotes to the financial statements.

a. No journal entries or footnotes are necessary if the probability of a contingent liability is remote

When a credit is made to the income taxes payable account related to taxes withheld from an employee, the corresponding debit is made to: a. Wages Expense b. Taxes Expense c. Taxes Payable d. Cash

a. Wages Expense

When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period a. minus the premium amortization for the period. b. plus the premium amortization for the period. c. plus the discount amortization for the period. d. minus the discount amortization for the period.

a. minus the premium amortization for the period.

Sean Corp. issued a $40,000, 10-year bond, with a stated rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period? a. $800 b. $1,600 c. $3,200 d. $4,000

b. 1600

Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds? a. $120,000 b. $60,000 c. $30,000 d. $6,000

b. 60000

Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually. a. Amortization of the premium for the first interest period will be $1,464. b. Amortization of the premium for the first interest period will be $613. c. Interest payments to bondholders each period will be $5,000. d. Interest payments to bondholders each period will be $6,464.

b. Amortization of the premium for the first interest period will be $613

To record warranties, the adjusting journal entry would be: a. a debit to Warranty Liability and a credit to Warranty Expense. b. a debit to Warranty Expense and a credit to Warranty Liability. c. a debit to Warranty Expense and a debit to Cash. d. a debit to Warranty Liability and a credit to Cash.

b. a debit to Warranty Expense and a credit to Warranty Liability

Warranty expense is: a. recorded as it is incurred. b. recorded in the period of sale. c. capitalized as a warranty asset. d. None of these choices is correct .

b. recorded in the period of sale

If bonds are issued at 101.25, this means that a. a $10,000 bond sold at par value plus $101.25. b. a $10,000 bond sold for $101.25. c. a $1,000 bond sold for $1,012.50. d. the bond rate of interest is 101.125% of the prime rate of interest.

c. a $1000 bond sold for $1012.50

The premium on bonds payable account is shown on the balance sheet as a. a contra asset. b. a reduction of an expense. c. an addition to a long-term liability. d. a subtraction from a long-term liability.

c. an addition to a long-term liability.

Bonds are a popular source of financing because a. a company having cash flow problems can postpone payment of interest to bondholders. b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. c. bond interest expense is deductible for tax purposes, while dividends paid on stock are not. d. the bondholders can always convert their bonds into stock if they choose.

c. bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

Bonds are sold at a premium if the a. market rate of interest was more than the prime rate at the time of issue. b. issuing company has a better credit rating than other companies in the same business. c. market rate of interest was less than the coupon rate at the time of issue. d. company will have to pay a premium to retire the bonds.

c. market rate of interest was less than the coupon rate at the time of issue.

When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period a. plus the premium amortization for the period. b. minus the premium amortization for the period. c. plus the discount amortization for the period. d. minus the discount amortization for the period.

c. plus the discount amortization for the period.

The Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.) a. Interest Expense (debit) Cash (credit) b. Interest Expense (debit) Bonds Payable (credit) Cash (credit) c. Interest Expense (debit) Discount on Bonds Payable (debit) Cash (credit) d. Interest Expense (debit) Discount on Bonds Payable (credit) Cash (credit)

d. Interest Expense (debit) Discount on Bonds Payable (credit) Cash (credit)

When should a contingent liability be recognized? a. When a reasonable estimation can be made b. When the contingent liability is probable c. Neither "when a reasonable estimation can be made" nor "when the contingent liability is probable" d. "When a reasonable estimation can be made" and "when the contingent liability is probable"

d. "When a reasonable estimation can be made" and "when the contingent liability is probable"

What best describes the discount on bonds payable account? a. A liability b. An expense c. An asset d. A contra liability

d. A contra liability

ABC Advisors is being sued by a former customer. ABC's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be reported in the financial statements? a. Current liability of $750,000 and Expense of $750,000. b. Long-term liability of $750,000 and Expense of $750,000. c. No disclosure is required. d. No effect on the balance sheet or income statement, but described in the footnotes.

d. No effect on the balance sheet or income statement, but described in the footnotes.

The result of using the effective interest method of amortization of the discount on bonds is that a. the cash interest payment is greater than the interest expense. b. the amount of interest expense decreases each period. c. the interest expense for each amortization period is constant. d. a constant interest rate is charged against the debt carrying value.

d. a constant interest rate is charged against the debt carrying value

When bonds are issued by a company, the accounting entry typically shows an a. increase in liabilities and a decrease in stockholders' equity. b. increase in assets and an increase in stockholders' equity. c. increase in liabilities and an increase in stockholders' equity. d. increase in assets and an increase in liabilities.

d. increase in assets and an increase in liabilities

Which of these could not involve a liability? a. purchasing inventory on credit. b. using services. c. purchasing goods. d. purchasing a vehicle for cash.

d. purchasing a vehicle for cash