ACG2021 practice final exam

The company has $6,417 of interest payable that is a long-term liability. Interest payable = $700,000 x .11 x 1/12 = $6,417

A company borrowed $700,000 on December 1 by issuing a 24-month, 11% note. Both the note and the interest will be paid when the note matures. Which statement is true at December 31?

The amount of sales can be computed by dividing total cash received by one plus the sales tax rate. The computation is as follows: $3,250/(1 + .04) = $3,125.The sales tax payable is the difference between what was charged the customer and the amount recorded as sales revenue: $3,250 - 3,125 = $125.

A company does not segregate sales and sales taxes when it charges customers at the register. Its register total for a given day is $3,250, which includes a 4% sales tax. How much should be recognized as sales revenue and sales taxes payable, respectively?

$1,000 loss The loss equals the excess of the cash paid over the carrying value (i.e., $515,000 - 514,000 = $1,000). Carrying value = Principal plus unamortized premium = $500,000 + 14,000 = $514,000The company can redeem this bond at 103 which means it can redeem this bond by paying the bondholder 103% of the bond's principal value.Cash paid to redeem the bonds = $500,000 x 1.03 = $515,000

A company has bonds with a principal value of $500,000 outstanding. The unamortized premium on the bonds is $14,000. The company redeemed the bonds at 103. What is the company's gain or loss on the redemption?

$4,200,000 Solution: Buildings and accumulated depreciation are the only amounts included under Property, plant & equipment. Accumulated depreciation is a contra asset. Plant assets = $5,800,000 - $1,600,000 = $4,200,000

A company has the following asset account balances: Buildings, $5,800,000 Accumulated depreciation, $1,600,000 Patents, $1,050,000 Inventory, $1,000,000 Goodwill, $4,000,000 How much will be reported on the balance sheet under property, plant & equipment?

$442,000 Solution:Amortization per year = ($460,000 - 400,000)/10 years = $6,000 per yearRemaining premium after three years = $60,000 - (6,000 x 3) = $42,000Carrying value of bonds = Face value of bonds + premium on bonds - discount on bondsCarrying value after three years = $400,000 + 42,000 = $442,000

A company received proceeds of $460,000 on 10-year, 10% bonds issued on January 1, 20X1. The bonds had a face value of $400,000, pay interest annually on December 31, and have a call price of 101. The company uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 20X4?

credit to Sales Revenue for $261. The journal-entry to record the sale, including sales taxes is as follows:Debit: Cash for $282 Credit: Sales Revenue for $261 Credit: Sales Taxes Payable for $21

A company receives $282, of which $21 is for sales tax. The journal entry to record the sale and sales tax would include a

3.23 Solution:Liabilities are classified as current if they will be paid with current assets within one year or the current operating cycle, whichever is longer. Examples of current liabilities include accounts payable, notes payable due in 12 months or less months, income tax payable, salaries and wages payable, the portion of mortgage payable due next year, and rent payable. Current liabilities = $12,000 + 42,000 + 6,000 + 18,000 + 4,000 = $82,000

A company reports the following selected accounts and balances after posting adjusting entries: Accounts payable, $12,00010-month, 8%, note payable, $42,000Income tax expense, $5,000Salaries and wages expense, $23,0003-year, 10% note payable, $200,000Salaries and wages payable, $6,000Mortgage payable ($18,000 due next year), $1,000,000Rent payable, $4,000 Its current assets are $265,000 at year-end. How much is its current ratio at year-end?

$9,000 (i) Interest to be paid = Face value x bond's stated interest rate = $100,000 x 10% = $10,000(ii) Interest expense = Interest to be paid minus premium amortization (see below) = $10,000 - 1,000 = $9,000(iii) Premium amortization = Premium/Amortization period = $10,000/10 years = $1,000 per year(iv) Unamortized premium = $10,000 - 1,000 = $9,000

A company sold $100,000, 10-year, 10% bonds on January 1, 20X1 for $110,000 and uses a bond amortization schedule to summarize details about the bond. The bonds pay interests annually. The company uses straight-line amortization. A partial amortization schedule appears below:

Debit to Cash for $6,650 Solution: The fee is 5% times $7,000, or $350. The company will receive the difference between the face amount of the receivables and the fee, or $6,650. The journal entry includes a debit to cash for $6,650, a debit to Service Charge Expense for $350, and credit to sales for $7,000.

A company sold $7,000 of merchandise to customers who charged their purchases with a bank credit card. The company's bank charges it a 5% fee. Which one of the following is part of the journal entry to record this transaction?

$55,800 Solution: Net sales = Sales - Sales returns & allowances - Sales discounts Net sales = $95,000 - 2,000 = $93,000 Gross profit rate = Gross profit/Net sales 0.40 = Gross profit/$93,000 Gross profit = 0.40 x $93,000 = $37,200 Gross profit = Net sales - cost of goods sold $37,200 = $93,000 - cost of goods sold Cost of goods sold = $93,000 - 37,200 = $55,800

A company sold merchandise for $95,000. Returns from customers totaled $2,000. If the company's gross profit rate is 40%, what is the company's cost of goods sold?

Paying freight costs to deliver goods to a customer

A company uses the perpetual inventory system. Which of the following transactions neither increases nor decreases its inventory account?

14% Solution: Return on assets is calculated by dividing net income by the average total assets. Oahu's return on assets is $700,000 divided by $5,000,000 = 14%. Chapter 9, Learning objective 6: Describe methods for evaluating the use of plant assets.

A company's average total assets for the year are $5,000,000, its average total stockholders' equity for the year are $2,500,000, its net income is $700,000, its gross margin is $2,500,000, and its net sales are $10,000,000. What is its return on assets?

No journal entry is recorded on the date of record Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration

A corporation declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of record on January 31?

No journal entry is recorded on the date of record. Three dates are relevant to dividends: (i) the date of declaration, (ii) the date of record, and (iii) the date of payment. The dividend becomes a liability to the corporation on the date of declaration. The company journalizes the following on the date of declaration:It debits the Cash Dividend account (i.e., it decreases stockholders' equity) for the amount of the dividend, and it credits Dividends Payable (i.e., it increases liabilities) for the same amount. Nothing is journalized on the date of record. On the date of payment, the company journalizes the payment and reduction in the payable as follows: it debits Dividends Payable (i.e., it reduces liabilities) and credits Cash (i.e., it reduces assets) for the amount of the dividend paid.

A corporation declared a cash dividend of $1.00 per share on 20,000 shares of common stock on January 15. The dividend is to be paid one month later on February 15 to stockholders of record on January 31. Which of the following summarizes the effects of the journal entry recorded on the date of record on January 31?

Debit the Dividends account and credit the Dividends Payable account.

A corporation declared a cash dividend of $1.20 per share on 40,000 shares of common stock on April 15. The dividend is to be paid one month later on May 15 to stockholders of record on April 30. The correct entry to be recorded on the date of declaration of April 15 is:

Treasury Stock will be debited for $1,400. The journal entry to record the acquisition of a company's own stock (i.e., treasury stock) will increase the treasury stock account (i.e., a contra stockholders' equity account) and it will also decrease the cash account for the total cost to acquire. The cost of the treasury stock: 100 shares x $14/share = $1,400. Debit the Treasury Stock account to increase it.

A corporation issued 1,000 shares of its $2.00 par value common stock for $10.00 per share and later repurchased 100 of those shares for $14.00 per share. Which of the following will be recorded when the repurchase of the shares is journalized?

$279,000 Interest payments = Principal x Stated interest rate x Number of periods = $150,000 × 9% x 20 years = $270,000 The bonds were issued at 94, indicating they were issued at a 6% discount(or 6% below their face value). Premium = $150,000 x 6% = $9,000 Total cost of borrowing = $270,000 + 9,000 = $279,000

A corporation issues $150,000 of 20-year, 9% bonds at 94. What is its total cost of borrowing?

a credit to Premium on Bonds Payable for $300,000. Debit the Cash account for $5,300,000Credit the Premium on Bonds Payable account for $300,000Credit the Bonds Payable account for $5,000,000Debit the Cash account for the amount of cash collected from issuing the bonds = Face value times 106% = $5,000,000 x 107% = $5,300,000Credit the Bonds Payable account for the face value of the bonds, $5,000,000These bonds were issued for a discount (i.e., issue at 106 implies a 6% premium); credit the Premium on Bonds Payable account by the difference between the face value and the amount of cash collected from issuing the bonds, $300,000 = $5,300,000 - $5,000,000; alternatively: the discount (or premium) equals the face value time the difference between 100% and the issuance percentage (i.e., $300,000 x (106% - 100%) = $300,000

A corporation issues $5,000,000 of 30-year, 4% bonds dated January 1 at 106. The journal entry to record the issuance will include

Gain on redemption of $3,000 The company had to pay $303,000 ($300,000 x 101) for bonds with a carrying value of $306,000. The difference between the $303,000 and $306,000 is a gain on redemption.

Bonds payable with a face value of $300,000 and a carrying value of $306,000 are redeemed prior to maturity at 101. Which of the following will result?

$618,000. Equivalently, $600,000 x 103% = $618,000.

Bonds with a face value of $600,000 and a quoted price of 103 have a selling price of

$21,000. Interest paid in cash = Face value times the contractual interest rate = $200,000 x 10% = $20,000 Annual amortization of discount or premium = ($200,000 - $190,000)/10 = $1,000 per year this bond was issued as a discount: $20,000 + 1,000 = $21,000

Carrabelle Corporation issues $200,000, 10%, 10-year bonds on January 1 for $190,000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in the year issued is

should be disclosed in the notes to the financial statements.

Dividends in arrears on cumulative preferred stock

A credit balance of $38,000 Solution: Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $0 + $135,000 - $87,000 - $10,000 = $38,000. Retained earnings normally has a credit balance; it occurs when revenues exceed expenses and dividends

During its first year, a corporation earned revenues of $135,000 and incurred expenses of $87,000. The corporation also paid cash dividends of $10,000 and purchased $25,000 of equipment in exchange for cash during the first year. What is the balance in the company's retained earnings account at the end of its first year?

Common Stock will be credited for $25,000 Solution: The journal entry will increase the cash account for the total issue price of $140,000, increase the common stock account for the par value per share times the number of shares issued (i.e., 5,000 shares x $5/share = $25,000), and increase paid-in capital in excess of par value for the remainder of the sales price representing the excess received above par value (i.e., $210,000 - 25,000 = $185,000).

If a company issues 5,000 shares of $5 par value common stock for $210,000, the account

the buyer has title once the goods are given to the transporation company.

If goods in transit are shipped FOB shipping point

at a discount.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

The company records $100,000 of sales. It also accrues an estimated warranty expense as follows: Warranty expense = Sales of warranted products x Estimated warranty cost as a percentage of sales = $100,000 x 4% = $4,000 So, the company debits warranty expense and credits warranty payable for $4,000 as a year-end adjusting entry. Some customers' warranties have already been honored during the year of sale. These costs sum to $3,000. To record honoring these warranties the company would record a debit to warranty payable and a credit to cash for $3,000. The net effect of the two journal-entries is as follows: Warranty expense is $4,000 (i.e., warranty expense has a debit balance at year-end). Warranty payable is increased by $4,000 and decreased by $3,000 for a $1,000 balance at year-end (i.e., credit balance). Cash disbursements for warranties is $3,000. So, cash decreased by $3,000 during the year due to warranties.

In its first year, a company made sales of $100,000 on account. All of the customers paid their accounts before year-end. The merchandise sold is subject to product warranties. The company assumes that warranty costs will be 4% of sales. During the same year, the company replaced $3,000 of defective warranted products. It expects to replace $1,000 of the merchandise sold in the first year during the second year. The company uses the accrual-method of accounting. Which of the following is true?

Convertible bonds

What term is used for bonds that give the bondholder an option to exchange the bond for shares of the company's common stock?

Face value minus any unamortized discount

When a bond is issued at a discount, at what value is it reported on the balance sheet?

debit Sales Returns and Allowances.

When goods sold for cash are returned to the selling company, the selling company should

Preferred stock if preferred stock had been issued. Otherwise, common stock is listed first.

Which of the following accounts is listed first in the stockholders' equity section of the balance sheet?

accounts payable

Which of the following accounts normally has a credit balance?

The right to share in assets upon liquidation in proportion stockholders do not have the right to vote in the election of the company president, declare a dividend, or participate in management decisions Stockholders have certain rights, including (i) to vote in the election of the board of directors, (ii) to share in corporate earnings through receipt of dividends, (iii) to keep the same percentage ownership when new shares are issued (i.e., preemptive right), (iv) share in assets upon liquidation in proportion to their stock holdings.

Which of the following is a stockholder's right?

Continuous life

Which of the following is an advantage of the corporate organizational form?

Limited liability of stockholders

Which of the following is considered an advantage of the corporate form of organization?

Debit the Dividends Payable account and credit the Cash account

Which of the following is the appropriate general journal entry to record the payment of a previously declared cash dividend?

Accounts receivable, a 6-month note receivable, other receivables

Which of the following is the correct sequence to report receivables on the balance sheet?

The company's retained earnings decreased by the sum of the dividend and the net loss.

Which of the following is true if a corporation both declared a dividend and incurred a net loss in the current year?

Publicly-traded companies must eliminate redundant internal controls. the following are true: -Corporate executives and boards of directors of publicly-traded companies must ensure that their company's internal controls are reliable and effective. -Independent outside auditors of publicly-traded companies must attest to the internal control system. -Publicly-traded companies must develop a system of internal control.

Which of the following statements is false with regards to internal controls?

The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. Two methods exist for amortizing discounts and premiums on bonds: (1) straight-line amortization and (2) effective interest amortization. GAAP require the effective interest method if it results in materially different interest expense than the straight-line method because the effective interest method adheres to the recognition principle. It computes interest as a constant percentage multiplied against the bond carrying value. As discount is amortized, carrying value increases causing periodic interest to increase.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true?

inventory equipment accumulated depreciation buildings and land are all included

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet?

Priority voting rights

Which one of the following is not a right of preferred stockholders?

Allowance for Doubtful Accounts is debited

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?

Dividends may be paid on common stock while dividends are in arrears on preferred stock.

Which one of the following statements is incorrect?

post-closing trial balance

Which trial balance will likely list the smallest number of accounts?

Corporations

Which type of business is a separate legal entity from its owners such that its owners are not personally liable for the business' debts?

Cumulative preferred stock You Answered

Which type of stock can be in arrears?

trial balance

a list of accounts and their balances at a given time is called a

there is a relatively high chance that sales opportunities may be lost because of inventory shortages. Solution Days' sales in inventory = 365 days x Ending inventory/Cost of goods sold A low days' sales in inventory suggests there is a (i) relatively high chance that sales opportunities may be lost because of inventory shortages (e.g., not having the inventory on hand when customers want to buy it), (ii) a relatively low chance of inventory becoming obsolete before it can be sold, and (iii) the company has a relatively small amount of funds tied up in inventory.

a low day's sales in inventory may indicate

increases assets and increases liabilities.

issuing a note to a creditor

when the performance obligation is satisfied

the revenue recognition principle dictates that revenue should be recognized

does not have voting rights.

treasury stock

$52,000. Solution: Dividends to preferred stockholders include dividends in arrears plus the current year's dividend. Dividends in arrears = $12,000. Current year dividend to preferred stockholders = 12,000 x $50 x 6% = $36,000 Total paid to preferred stockholders = $12,000 + 36,000 = $48,000 Total paid to common stockholders = $100,000 - 48,000 = $52,000

A corporation's year-end balance sheet showed the following: 6% preferred stock, $50 par value, cumulative, 30,000 shares authorized; 12,000 shares issued $ 600,000 Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding 19,500,000 Paid-in capital in excess of par value--Preferred stock 60,000 Paid-in capital in excess of par value--Common stock 27,000,000 Retained earnings 7,650,000 Treasury stock (30,000 shares) 630,000 During the year, the corporation declared and paid a $100,000 cash dividend. If the company's dividends in arrears prior to the current year were $12,000, the corporation's common stockholders would receive

due date compared to the end of the current period.

A liability is classified as current or long-term based on its

$830,000 Solution: Total stockholders' equity = Retained earnings - treasury stock--common + paid-in capital in excess of par value--common - treasury stock--preferred + common stock + preferred stock + paid-in capital in excess of par value--preferred Total stockholders' equity = $375,000 - $20,000 + $60,000 - $20,000 + $200,000 + $175,000 + $60,000 = $830,000

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $375,000Treasury stock—common, $20,000Paid-in capital in excess of par value—common, $60,000Treasury stock—preferred, $20,000Common stock, $200,000Preferred stock, $175,000Paid-in capital in excess of par value—preferred, $60,000 How much is total stockholders' equity?

$845,000 Total stockholders' equity = Retained earnings - treasury stock--common + paid-in capital in excess of par value--common - treasury stock--preferred + common stock + preferred stock + paid-in capital in excess of par value--preferred Total stockholders' equity = $400,000 - $20,000 + $55,000 - $30,000 + $200,000 + $180,000 + $60,000 = $845,000

A partial list of a corporation's accounts shows the following account balances: Retained earnings, $400,000Treasury stock—common, $20,000Paid-in capital in excess of par value—common, $55,000Treasury stock—preferred, $30,000Common stock, $200,000Preferred stock, $180,000Paid-in capital in excess of par value—preferred, $60,000 How much is total stockholders' equity?

$8,400,000

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. What will be the Unearned Ticket Revenue account balance after three home games have been played?

Liquidity

A short-term creditor is primarily interested in the __________ of the borrower.

Faithful Representation

Accounting information should be neutral in order to enhance

Current liabilities, $50,000; Long-term Debt, $450,000. At the end of the first year, the note payable is $500,000 with $50,000 due within one year and $450,000 due in more than one year. The $50,000 is a current liability and the remaining $450,000 is a long-term liability

At the start of the current year, a company issued a $500,000 note to a bank. The company must pay the bank $50,000 plus interest each January 1 for the next ten years starting at the beginning of next year. The company will report the note payable on its current year's balance sheet as

decrease assets and decrease stockholders' equity

The net effects on the corporation of the declaration and payment of a cash dividend are to

must have only one owner.

The sole proprietorship form of business organization

$255 using perpetual, and $240 using periodic When using perpetual LIFO, cost of goods sold includes the last inventory acquired that was on hand at the date of sale; it does not include inventory acquired after the sale occurred.For each sale date, determine the inventory sold using LIFO for each sale of inventory; the inventory not sold during the period belongs in ending inventory.On December 12, sold 10 of the units acquired on Dec. 7 and 20 units of beginning inventory.On December 29, sold 20 of the units acquired on Dec. 20Ending inventory includes 40 units, including 30 units of beginning inventory, none of the units of inventory acquired on Dec. 7, and 10 units of inventory acquired on Dec. 29. Ending inventory = (30 x $6.00) + (10 x $7.50) = 180 + 75 = $255

A company has the following: December 1 Beginning inventory of 50 units at $6.00 per unitDecember 7 Purchased 10 units at $6.25 per unitDecember 12 Sold 30 unitsDecember 20 Purchased 30 units at $7.50 per unitDecember 29 Sold 20 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for December? What if a periodic inventory system had been used instead of perpetual?

$165,000. Solution: Category Cost Market LCM Pine $55,000 $52,000 $52,000 Maple 48,000 58,000 48,000 Walnut 77,000 65,000 65,000 Total lower-of-cost-or-market (LCM) = $165,000

A company has three categories of inventory in stock: Category Cost Market value Pine $55,000 $52,000 Maple 48,000 58,000 Walnut 77,000 65,000 Apply the lower of cost or market rule to determine the company's ending inventory.

$22,333. The cost of an asset includes its purchase price plus other costs to acquire the asset and prepare it for use. Add the freight charges and the foundation costs to the purchase price. Cost of the equipment = $72,000 + 2,000 + 3,000 = $77,000 Depreciation per year = (Cost - salvage value)/Life in year Depreciation per year = ($77,000 - 10,000)/6 years = $11,167 per year Accumulated depreciation after two years = 2 x $11,667 = $22,333

A company purchased equipment for $72,000 on January 1. Freight charges paid to acquire the equipment amounted to $2,000. There was also a cost of $3,000 for building a foundation for the equipment and installing the equipment. It is estimated that the equipment will have a $10,000 salvage value at the end of its 6-year useful life. The straight-line method of depreciation is used. What is the amount of accumulated depreciation at the end of the second year of using the asset and after adjusting entries have been recorded?

a debit to Discount on Bonds Payable for $140,000. Solution:Debit the Cash account for $6,860,000Debit the Discount on Bonds Payable account for $140,000Credit the Bonds Payable account for $7,000,000Debit the Cash account for the amount of cash collected from issuing the bonds = Face value times 98% = $7,000,000 x 98% = $6,860,000Credit the Bonds Payable account for the face value of the bonds, $7,000,000These bonds were issued for a discount (i.e., issue at 98 implies a 2% discount); debit the Discount on Bonds Payable account by the difference between the face value and the amount of cash collected from issuing the bonds, $140,000 = $7,000,000 - $6,860,000; alternatively: the discount (or premium) equals the face value time the difference between 100% and the issuance percentage (i.e., $7,000,000 x (100% - 98%) = $140,000Chapter 10, Learning objective 5, Pool 4

A corporation issues $7,000,000 of 10-year, 5% bonds dated January 1 at 98. The journal entry to record the issuance will include

credit to Preferred Stock for $1,250,000 and a credit to Paid-in Capital in Excess of Par Value for $1,875,000. Debit cash for $3,125,000 (i.e., 25,000 shares x $125 per share). Credit preferred stock for $1,250,000 (i.e., 25,000 shares x $50 per share). Credit paid-in capital in excess of par--preferred stock for $1,875,000 (i.e., 25,000 shares x $75 per share).

A corporation issues 25,000 shares of $50 par value preferred stock for cash at $125 per share. The entry to record the transaction will include a

$991,722 The semiannual interest accrues each six months. The first semiannual interest payment would be 5% (i.e., 10% per year divided by 2) times the outstanding mortgage principal as of the start of that semiannual period (i.e., $1,000,000), or $50,000 (i.e., 5% x $1,000,000). Therefore, the $58,278 payment includes $50,000 of interest and $8,278 (i.e., the remainder of the mortgage payment) to be allocated towards paying principal. Thus, the principal balance of $1,000,000 declines by $8,278 which equals a mortgage balance of $991,722Learning objective 10: Describe the accounting for long-term notes payable.

A corporation issues a $1,000,000, 10%, 20-year mortgage note. The terms provide for semiannual installment payments of $58,278. What is the remaining unpaid principal balance of the mortgage payable account after the first semiannual payment?

The first semiannual interest would be 6% (i.e., 12% ÷ 2) times $1,000,000 (i.e., the outstanding mortgage principal as of the beginning of the semiannual period (6% x $1,000,000 = $60,000). The mortgage principal is reduced by the difference between the $66,462 payment and the interest component ($60,000), resulting in a principal reduction of $6,462 ($66,462 - $60,000 = $6,462). Thus, the first semiannual mortgage payment reduces the outstanding mortgage principal balance by $6,462 from $1,000,000 to $993,538. The second semiannual payment's interest is 6% of the outstanding mortgage principal of $993,538, or $59,612. The second semiannual payment of $66,462 is allocated as $59,612 paid towards interest and the remaining $6,850 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second semiannual payment is $986,688

A corporation issues a $1,000,000, 12%, 20-year mortgage note. The terms provide for semiannual installment payments of $66,462. What is the remaining unpaid principal balance of the mortgage payable account after the second semiannual payment?

$247,793 Solution: Since interest accrues annually, the first year's interest would be $20,000 (i.e., 8% x $250,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $22,207 payment and the interest component ($20,000), resulting in a principal reduction of $2,207. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $2,207 from $250,000 to $247,793.

A corporation issues a $250,000, 8%, 30-year mortgage note. The terms provide for annual installment payments of $22,207. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$245,410 Solution:Since interest accrues annually, the first year's interest would be $20,000 (i.e., 8% x $250,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $22,207 payment and the interest component ($20,000), resulting in a principal reduction of $2,207. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $2,207 from $250,000 to $247,793. The second annual payment's interest is 8% of the outstanding mortgage principal of $247,793, or $19,823. The second annual payment of $22,207 is allocated as $19,823 paid towards interest and the remaining $2,383 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $245,410.

A corporation issues a $250,000, 8%, 30-year mortgage note. The terms provide for annual installment payments of $22,207. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

$887,689 Since interest accrues annually, the first year's interest would be $72,000 (i.e., 8% x $900,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $84,311 payment and the interest component ($72,000), resulting in a principal reduction of $12,311. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $12,311 from $900,000 to $887,689.

A corporation issues a $900,000, 8%, 25-year mortgage note. The terms provide for annual installment payments of $84,311. What is the remaining unpaid principal balance of the mortgage payable account after the first annual payment?

$877,792 Since interest accrues annually, the first year's interest would be $81,000 (i.e., 9% x $900,000) which equals the annual interest rate times outstanding mortgage principal as of the beginning of the first annual period. The mortgage principal is reduced by the difference between the $91,626 payment and the interest component ($81,000), resulting in a principal reduction of $10,626. Thus, the first annual mortgage payment reduces the outstanding mortgage principal balance by $10,626 from $900,000 to $889,374. The second annual payment's interest is 9% of the outstanding mortgage principal of $889,374, or $80,044. The second annual payment of $91,626 is allocated as $80,044 paid towards interest and the remaining $11,582 allocated towards the payment of outstanding mortgage principal. Thus, the outstanding mortgage principal after the second annual payment is $877,792.

A corporation issues a $900,000, 9%, 25-year mortgage note. The terms provide for annual installment payments of $91,626. What is the remaining unpaid principal balance of the mortgage payable account after the second annual payment?

gain on disposal of $114,000 Solution: A gain or loss on disposal of a plant asset is determined by comparing the book value of the asset with the proceeds received from its sale. If it sells a plant asset for more than its book value the company recognizes a gain. If it sells it for less than the book value the company recognizes a loss. Book value = Cost - Accumulated depreciation =$210,000 - 84,000 = $126,000 Since the sales price is less than the book value the company recognizes a loss, computed as follows: Loss = Book value of the asset sold - Sales proceeds from selling the asset Loss = $240,000 - 126,000 = $114,000

A corporation paid $210,000 for a machine four years ago. This year, the machine was completely destroyed in a fire. The accumulated depreciation on the equipment is $84,000; that amount includes depreciation for the current year. An insurance check for $240,000 was received based on the replacement cost of the equipment. No journal entry for the casualty was recorded until the company received the check from the insurance company. The company's journal-entry to record the insurance proceeds will include a

debit Mortgage Payable for $20,000.

A corporation recently paid a $50,000 installment on its 20-year mortgage. The payment reduced the mortgage's outstanding principal by $20,000. The journal entry to record this transaction includes a

$1.88 Solution:Earnings per share = (Net income less dividends to preferred shareholders)/Average number of outstanding shares of common stockEarnings per share = ($30,000 - 0)/[(14,000 shares + 18,000 shares)/2]Earnings per share = $30,000/16,000 shares = $1.88 per share

A corporation reported net income of $30,000; net sales $400,000; beginning common shares outstanding of 14,000 and ending common shares outstanding of 18,000. There were no preferred dividends. What is its earnings per share (rounded to two decimal places)?

$120,000 and $85,000 Gross profit = Sales revenue - sales discounts - sales returns and allowances - cost of goods soldGross profit =- $450,000 - 10,000 - 0 - 320,000 = $120,000Income from operations = Gross profit - operating expensesIncome from operations = $120,000 - 35,000 = $85,000

A corporation reports the following: Sales revenue, $450,000; sales discounts, $10,000; operating expenses, $35,000; cost of goods sold, $320,000; income tax expense, $10,000. How much is its gross profit and income from operations, respectively?

The company's warranty expense in the first year is $4,000. Warranty expense = Sales of warranted products x Estimated warranty cost as a percentage of sales = $100,000 x 4% = $4,000 The net effect of the two journal-entries is as follows: Warranty expense is $4,000 (i.e., warranty expense has a debit balance at year-end). Warranty payable is increased by $4,000 and decreased by $3,000 for a $1,000 balance at year-end (i.e., credit balance). Cash disbursements for warranties is $3,000. So, cash decreased by $3,000 during the year due to warranties.

In its first year, a company made sales of $100,000 on account. All of the customers paid their accounts before year-end. The merchandise sold is subject to product warranties. The company assumes that warranty costs will be 4% of sales. During the same year, the company replaced $3,000 of defective warranted products. It expects to replace $1,000 of the merchandise sold in the first year during the second year. The company uses the accrual-method of accounting. Which of the following is true?

The entry will improperly understate net income for the year.

In the current year, a company paid $250,000 to improvement to one of its buildings. If the company's accountant expensed this amount in the current year, which of the following statements is true?

13.5 Solution: ($200,000 + $20,000 + $50,000) / $20,000 = 13.50

In the current year, a corporation had net income of $200,000, interest expense of $20,000, and tax expense of $50,000. Its net sales were $1,000,000 and its cost of goods sold was $400,000. What was its times interest earned for the year?

$220,000 Solution: Times interest earned = Income before interest and taxes divided by interest expenseTimes interest earned = (Net income + interest expense + tax expense)/Interest expenseSubstitute what is known:9.00 = (Net income + 30,000 + 20,000)/30,000Solve for net income:9.00 x 30,000 = Net income + 30,000 + 20,000270,000 = Net income + 30,000 + 20,000Net income = 270,000 - 30,000 - 20,000 = 220,000Q,10,7,2

In the current year, a corporation has a times interest earned ratio of 9.00. Its interest expense is $30,000 and its tax expense is $20,000. Its net sales were $500,000 and its cost of goods sold was $200,000. What was the company's net income?

$3,000 Solution:At the end of the period, accounts receivable has a balance of $160,000 (i.e., given). The Allowance for Doubtful Accounts should be adjusted so that is will have a balance equal to $8,000 (i.e., 5% x $160,000). Prior to the adjusting entry, the Allowance for Doubtful Accounts has a credit balance of $5,000 (i.e., given). The adjusting entry records the difference of $36,000 (i.e., $8,000 - 5,000 = $3,000). This adjustment records Bad Debt Expense and the change to the Allowance for Doubtful Accounts.

Net credit sales for the year are $750,000. The end of year accounts receivable balance is $160,000. The allowance for doubtful accounts is calculated as 5% of the receivables balance. The Allowance for Doubtful Accounts has a credit balance of $5,000 before year-end adjusting entries. What is the Bad Debt Expense for the year?

$5,000. Solution: Straight-line amortization of bond premiums and discounts is similar to straight-line depreciation. Straight-line amortization and depreciation both allocate an initial equally over a period of time. This bond has a discount of $50,000 (i.e., $1,000,000 - $950,000). Using straight-line amortization, this amount is spread equally over the life of the bond. Annual amortization = $50,000/10 years = $5,000 per year. By the time the bond reaches maturity in 20 years, the discount will have been fully amortized (i.e., it will be equal to zero) and the bond's carrying value will equal its face value. Learning objective 5: Prepare the entries for the issuance of bonds and interest expense.

On January 1, Hatch Company issued $1,000,000, 10-year, 8% bonds for $950,000. Interest is to be paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discounts and premiums on bonds payable, the annual amortization amount is

$24,000

On January 1, a company issued $2,000,000 of 5-year, 10% bonds for $2,120,000. Interest is paid annually. If the issuing corporation uses the straight-line method of amortization, the annual amortization amount is

$27,200 Solution: ($400,000 x .08) − [($400,000 x .06) / 5] = $27,200

On January 1, a 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 for the first year?

$120,000 The contractual interest is 10% x $1,000,000, which is $100,000. The annual bond amortization is $800,000 less $1,000,000 divided by 10 years, which is $20,000 per year. The annual interest expense will be $100,000 plus $20,000, which is $120,000.

On January 1, a corporation sells bonds with a face value of $1,000,000 and a contractual interest rate of 10% for $800,000. The bonds will mature in 10 years. Using the straight-line method of amortization, how much interest expense will be recognized in the first year?

$7,500 The portion of the premiums not yet earned should be recognized as a liability by the company. Since there are 5 months remaining on the insurance policy, the remaining liability is 5/12 of $18,000 or $7,500.

On June 1, a company collected an $18,000 advance payment from a customer. The company will earn the payment over 12 months. What amount should the company report as a current liability at the end of the current calendar year?

Interest Expense.............. 1,000 Interest Payable.......................... 1,000 Debit: Interest Expense for $1,000 (i.e., $100,000 x 4% x 3/12)Credit: Interest Payable for $1,000 10,2,1

On October 1, a company borrows $100,000 from a bank. It signs a 4-month, $100,000, 4% note. The company uses a December 31 year-end. What adjusting entry should the company record on December 31?

disclose that a portion of retained earnings is unavailable for dividends.

Placing a restriction on retained earnings will

causing the total cost of borrowing to be lower than the bond interest paid.

Selling or issuing bonds at a premium has the effect of

to declare when a cash dividend will be paid. stockholders can: -to keep the same percentage ownership when new shares of stock are issued. -to share in assets upon liquidation in proportion to their holdings. -to vote in election of board of directors. -to share the corporate earnings through receipt of dividends

Stockholders have all of the following rights except

the board of directors.

Stockholders of a corporation directly elect

exceeds the amount of cash to be paid for interest for the period.

The amortization of a bond discount will result in reporting an amount of interest expense for an interest period that

$612,000 $600,000 x 1.02 = $612,000

The carrying value of a company's $600,000 face value bonds is $597,750. If the bonds are retired at 102, what would the corporation pay its bondholders?

on the date of issuance.

The carrying value of bonds will equal the market price of the bonds

24,920. Given the common stock account's total is $250,000 and common stock has a $10 par value per share the company the company must have 25,000 shares of common stock outstanding (i.e., $250,000/$10 per share = 25,000 shares). This company has treasury stock. Treasury stock is a corporation's own stock that has been reacquired. Treasury stock reduced the number of shares outstanding. With $1,200 of treasury stock recorded on the company's books and a $15 cost per share the company must have 80 shares of its own common stock being held as treasury stock. The number of outstanding shares equals the number of issued shares minus the number of shares reacquired (i.e., treasury shares). This company has 124,880 shares outstanding (i.e., 25,000 - 80 = 24,920).

The following data is available for a certain corporation: Common stock, par $10 (authorized 30,000 shares), $250,000 Treasury stock (at cost $15 per share), $1,200 Based on the data, how many shares of common stock are outstanding?

$2.29 Average common shares outstanding = (Beginning common shares outstanding + ending common shares outstanding)/2Average common shares outstanding = (200 shares + 220 shares)/2 = 210 sharesEarnings per share = (Net income - preferred dividends)/average common shares outstanding earnings per share = ($500 - $20)/210 shares = $2.29 per share

The following information is available for a certain corporation: Based on this information, what is the company's earnings per share (rounded to two decimals) for 2022?

$11,300 Debit: Payroll tax expense, $11,300Credit: FICA tax payable, $7,650Credit: Federal unemployment tax payable, $550Credit: State unemployment tax payable, $3,100 Employer's payroll taxes = FICA taxes + Federal unemployment taxes + State unemployment taxesEmployer's payroll taxes = $7,650 + 550 + 3,100 = $11,300.

The following totals for the month of June were taken from the payroll records of a certain company: Wages, $100,000FICA taxes withheld, $7,650Federal income taxes withheld, $17,000Federal unemployment taxes, $550State income tax withheld, $2,000State unemployment taxes, $3,100 The entry to record accrual of employer's payroll taxes would include a debit to payroll tax expense in the amount of

$11,300 Solution: The employer's payroll tax deduction includes the employer's portion of FICA taxes payable, federal unemployment taxes payable, and state unemployment taxes payable. The employer journalizes the following: Debit: Payroll tax expense, $11,300Credit: FICA tax payable, $7,650Credit: Federal unemployment tax payable, $550Credit: State unemployment tax payable, $3,100 Employer's payroll taxes = FICA taxes + Federal unemployment taxes + State unemployment taxesEmployer's payroll taxes = $7,650 + 550 + 3,100 = $11,300.

The following totals for the month of June were taken from the payroll records of a certain company: Wages, $100,000FICA taxes withheld, $7,650Federal income taxes withheld, $17,000State income tax withheld, $2,000Federal unemployment taxes, $550State unemployment taxes, $3,100 The entry to record accrual of employer's payroll taxes would include a debit to payroll tax expense in the amount of