Chapter 10 AC 210

Long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books for more than one _________

year

From the issuing company's perspective, a bond is a liability. From a bondholder's perspective, the bond is a(n)

asset

The debt-to-asset ratio is calculated by dividing total liabilities by total _______

assets

If a company forgets to record the journal entry to accrue interest expense, then its net income is too _________ and its liabilities are too ________ A) low; low B) high; high C) high; low D) low;high

C

A bond's stated interest rate is A) always expressed as an annual interest rate B) increased when the market price of the bond falls C) used to calculate interest payments D) affected by the price investors pay for the bond

A and C

Unsecured bonds A) debentures B) callable bonds C) convertible bonds D) term E) serial bonds

A

A bond discount is A) reported on the income statement as a loss on the insurance of a bond B) a result of the interest payments being less than the cost of borrowing C) essentially free money D) a result of the interest payments being more than the cost of borrowing

B

6% stated rate and 6% market interest rate A) investors will pay face value B) premium - investors will pay more than face value C) discount - investors will pay less than face value

A

XYZ Warehouse operates in state with a 6% sales tax. For convenience, XYZ Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. What will be the effect if XYZ Warehouse fails to make an adjustment for sales tax? A) liabilities will be understated B) net income will be understated C) net income will be overstated D) liabilities will be overstated E) assets will be understated

A and C

The issuing company can pay off the bonds at any time A) debentures B) callable bonds C) convertible bonds D) term E) serial bonds

B

The journal entry to record employer payroll taxes affects A) liabilities and stockholders' equity B) assets only C) assets and liabilities D) liabilities only

A

6% stated interest rate and 8% market interest rate A) investors will pay face value B) premium - investors will pay more than face value C) discount - investors will pay less than face value

C

A bond's maturity date is the date on which the A) face value of the bonds are paid B) insurance price of the bonds is paid C) bond are issued

A

What does the IRS call a corporate income tax return? A) Form 1120 B) Form 401K C) Form 10Q D) Form 10K E) Form 1040

A

The issue price of a bond is A) based on what the market is willing to pay B) determined by the company issuing the bonds C) determined by the financial advisers D) based on a present value calculation

A and D

Which accounts are credited when the journal entry to pay employees is recorded? A) FICA Payable B) cash C) withheld income tax payable D) salaries and wages expense

A, B, and C

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; medicare $8.70; federal income tax $58; and state income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month how would ABC record the payroll deductions? A) salaries and wages expense decreases $113.90 B) current assets increase $113.9 C) current liabilities increase $113.90

C

Amortizing a bond discount will ______ the discount balance and _____ the carrying value of the bond so that when the bond matures the carrying value will ______ the face value

decrease; increase; equal

When the times interest earned ratio is less than 1.0, a company is

not generating enough income to cover its interest expense

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ________ A) debit to inventory $500 B) credit to cash of $500 C) credit to accounts payable of $500 D) credit to inventory of $500 E) credit to notes payable of $500

A and C

On September 1, ABC company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity when the note is repaid, assuming adjusting entries were made correctly at December 31 but have not been made since then would include a(n) A) credit to cash of $52,250 B) debit to interest expense of $1,250 C) debit to interest expense of $2,250 D) credit to cash of $50,000 E) debit to notes payable of $50,000 F) debit to interest payable of $1,000

A, B, E, and F

If ABC Company issues 100 of its $1,000 bonds at a price of 105, the journal entry to record the transaction includes A) a credit to Premium on Bonds Payable of $5,000 B) a debit to Cash of $105,000 C) a debit to discount on bonds payable of $5,000 D) a debit to cash of $10,500,000 E) a credit to bonds payable of $100,000 F) a debit to cash of $95,000

A, B, and E

A bond premium A) arises when interest payments are less than the cost of borrowing B) is reported as a gain on the insurance of a bond C) arises when interest payments are higher than the cost of borrowing D) is essentially free money

C

ABC Corporation issued bonds that pay interest each March 1 and September 1. The corporation's December 31 adjusting entire may include a A) debit to cash B) credit to cash C) credit to interest payable D) credit to interest expense

C

Bonds that can be exchanged for shares of stock in the issuing company A) debentures B) callable bonds C) convertible bonds D) term E) serial bonds

C

The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes A) liabilities to decrease B) stockholders' equity to increase C) stockholders' equity to decrease D) liabilities to increase E) assets to increase F) assets to decrease

C, D, and F

In 2008, ABC Company issued $100,000 of 20-year bonds at face value. Ten years later, in 2018, the company retired the bonds early by purchasing them in the open market at $101,000. The entry to record this transaction includes a A) debit to bonds payable of $101,000 B) credit to gain on bond retirement of $1,000 C) debit to bonds payable of $100,000 D) credit to cash of $100,000 E) credit to cash of $101,000 F) debit to loss on bond retirement $1,000

C, E, and F

Bond issue that matures on a single date A) debentures B) callable bonds C) convertible bonds D) term E) serial bonds

D

Bonds that are backed by collateral are A) debentures B) convertible C) callable D) secured

D

The Discount on Bonds Payable account A) has a normal credit balance B) is an expense account C) is a miscellaneous revenue account D) is a contra account to bounds payable E) is expensed only at the bond's maturity

D

Bonds that mature in installments A) debentures B) callable bonds C) convertible bonds D) term E) serial bonds

E

The entry to record the payment of previous purchases made on account includes a A) debit to inventory B) debit to cash C) credit to accounts payable D) credit to accounts receivable E) debit to accounts payable F) debit to accounts receivable G) credit to cash

E and G

T/F Your employer is allowed to keep the amounts deducted from your gross pay

False

The discount on a bond is _______ and ________ the discount each period.

amortized; decreases

Under US GAAP, if a company violates covenants on a long-term debt but renegotiates the loan before releasing its financial statements, the debt remains classified as long-term. Under IFRS, the company must reclassify that long-term debt as a ________ liability

current

Whether a bond is issued at par, premium or discount, when the bond matures the amount paid equals the _______ value

face

Bonds are issued at a discount when the bond's stated interest rate is _______ the market interest rate

lower than

The debt-to-asset ratio indicates A) the percentage of assets financed by debt B) a higher ratio means lower financing risk C) a higher ratio means better performance D) a higher ratio means greater financing risk

A and D

The entry to record the issuing of a note payable for cash results in a(n) A) increase in assets B) decrease in assets C) increase in stockholders' equity D) decrease in liabilities E) increase in liabilities F) decrease in stockholders' equity

A and E

Which of the following are current liabilities? A) note payable due in 3 months B) accounts payable C) note payable due in 23 months D) accounts receivable E) salaries and wages payable

A, B, and E

Employees' gross earnings differ from their net pay because of _______ A) FICA taxes B) corporate income taxes C) sales taxes D) accounts payable E) payroll deductions F) federal and state income taxes

A, E, and F

6% stated interest rate and 4% market interest rate. A) investors will pay face value B) premium - investors will pay more than face value C) discount - investors will pay less than face value

B

On November 30, Burrows, Inc. issued 2 notes payable at 6% per year for $10,000 each. One is a 3-month, 6%, note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be A) greater for the 6-month note B) the same amount for both notes C) greater for the 3-month note

B

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation? A) liabilities increase and stockholders' equity increases B) liabilities decrease and stockholders' equity increases C) both assets and stockholders' equity increase D) liabilities increase and stockholders' equity decreases

D

The following 12%, $1,000 notes have varying periods to maturity but all were issued on December 1. Which of the following are the correct calculations of interest for these notes on December 31 of this same year? A) a 2-year note's interest equals $1,000 x 12% x 1/2 B) a 4-month note's interest equals $1,000 x 12% x 1/4 C) a 2-year note's interest equals $1,000 x 12% x 1/24 D) a 3-month note's interest equals $1,000 x 12% x 1/3 E) a 4-month note's interest equals $1,000 x 12% x 1/12 F) a 3-month note's interest equals $1,000 x 12% x 1/12

A, E, and F

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are Social Security $37.20; Medicare $8.70; Federal income tax $58; and state income tax $10. Assuming that John gets paid in cash and payroll deductions will be paid the following month, how would ABC record his gross pay? A) cash increases $600 B) salaries and wages expense increases $600 C) cash decreases $600 D) salaries and wages payable increases $600

B

For investors, credit rating agencies provide independent, easy-to-use measurements or relative credit risk. The most well-known credit rating agencies are A) securities and exchanges B) standard & poor's C) sarbanes-oxley D) Moodys

B and D

On November 1, 2018, 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, 2019. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, 2018, ABC's year end, would include a A) credit to note payable of $1,000 B) credit to interest payable of $1,000 C) debit to interest payable of $6,000 D) debit to interest expense of $1,000 E) credit to cash of $1,000

B and D

Which accounts are credited when Payroll Tax Expense is debited? A) withheld income tax payable B) FICA payable C) cash D) unemployment tax payable

B and D

As of December 31, 2018, $110 of interest had been accrued on a 12%, 1-year, $1000 note payable. On January 31, 2019, the entry to record the payment of the note's principal and interest requires a A) $1,120 debit to cash and $120 credit to interest expense and $1,000 credit to notes payable B) $1,200 debit to notes payable and $1,200 credit to cash C) $120 debit to interest expense, $1,000 debit to notes payable and a $1,120 credit to cash D) $110 debit to interest payable, $10 debit to interest expense, $1,000 debit to notes payable and a $1,120 credit to cash E) $1,110 debit to notes payable and $1,110 credit to cash F) $1,120 debit to cash and $110 credit to interest payable, $10 credit to interest expense, and $1,000 credit to notes payable

D

On November 1, 2018, 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, 2019. The journal entry on November 1, 2018 would include which of the following? A) credit to note payable $106,000 B) debit to cash $100,000 C) debit to interest expense $6,000 D) credit to note payable $100,000

B and D

Under US GAAP, a contingent liability should A) be reported on the balance sheet if the loss may possibly occur and be reasonably estimated B) not be reported if the loss is remote and unable to be estimated C) be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated D) be reported on the balance sheet if the loss will probably occur and can be reasonably estimated

B, C, and D

Gross earnings for the period pay are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income Tax $18,000 and State income tax $3,850. What is the net pay to employees? A) $100,000 B) $78,150 C) $70,000 D) $61,850 E) $130,000

C