Chapter 8-9 Financial Accounting

Multple Choice Questions Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021? Multiple Choice $0. $6 million. $1.5 million. $4.5 million.

$1.5 million.

Concept Overview Questions Caddell Corporation borrows $100,000 from a bank on August 1, Year 1, by signing an 8 percent, six-month note for the amount borrowed plus accrued interest due six months later on February 1, Year 2. Which of the following is recorded on August 1, Year 1? Multiple Choice $104,000 debit to Cash $104,000 debit to Notes Payable $100,000 credit to Cash $100,000 credit to Notes Payable

$100,000 credit to Notes Payable

Multple Choice Questions Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month? Multiple Choice $6,000. $3,042. $500. $2,542.

$2,542.

Concept Overview Questions Windsor, Inc., issues 7%, 10-year bonds with a face amount of $1 million on January 1, Year 1, for $932,048, when the market rate of interest is 8%. Interest expense associated with this bond for the first semiannual period is: Multiple Choice $32,622 $35,000 $37,282 $40,000

$37,282

Multple Choice Questions A company issues $50,000 of 4% bonds, due in 5 years, with interest payable semiannually. Assuming a market rate of 3%, the bonds issue for $52,306. Calculate the carrying value of the bonds after the first semiannual interest payment. Multiple Choice $49,000. $52,091. $51,521. $51,306.

$52,091. cash interest = $ 50,000*4%*6/12 = 1,000 Interest Expenses = 52,306* 3%*6/12 = 784.59 Bond Premium amortization = 1000-784.59= 215.41 Bond Carrying Value After First semiannual interest Payment = 52,306-215,41 = $52,091 (Answer)

Concept Overview Questions The payroll related information for Smart Packers is provided below. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.) Federal and state income tax withheld $20,000 Health insurance premiums paid by employer $10,000 Contribution to retirement plan paid by employer $15,000 FICA tax rate (Social Security and Medicare) 7.65% Federal and state unemployment tax rate 6.20% What is the amount of Salaries Payable for the month? Multiple Choice $72,350 $100,000 $80,000 $64,700

$72,350

Concept Overview Questions Windsor Corporation borrows $100,000 from a bank on November 1, Year 1, by signing a 9 percent, six-month note for the amount borrowed plus accrued interest due six months later on May 1, Year 2. What is the interest expense per month on this note? Multiple Choice $750 $1,000 $1,200 $3,000

$750

Multple Choice Questions A company issues $50,000 of 4% bonds, due in 5 years, with interest payable semiannually. Assuming a market rate of 3%, the bonds issue for $52,306. Calculate interest expense as of the first semiannual interest payment. Multiple Choice $1,570. $1,000. $375. $785.

$785. Interest expense = Issue price*Market rate = 52306*3%*6/12 Interest expense = 785

Homework Questions On January 1, Year 1, a company issues $400,000 of 5% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year.Assuming the market interest rate on the issue date is 6%, the bonds will issue at $360,800. Complete the first three rows of an amortization schedule. (Round your final answers to the nearest whole dollar.)

---Line 1 Date: 01/01/ Year 1 Carry Value: 360,800 ---Line 2 Date: 06/30/Year 1 Cash Paid: 10,000 Interest Expense: 10,824 Increase in carrying Value: 824 Carry Value: 361,624 ---Line 3 Date: 12/31/ Year 1 Cash Paid: 10,000 Interest Expense: 10,849 Increase in carrying Value: 849 Carry Value: 362,473 Interest Payment: 400,000 X 5% X 1/2 = $10,000 --carrying value X market interest rate x 1/2-- Discount On Bond: 400,000-360,800= 39,200 --Amortization of discount or premium= interest exp- interest paid--

Homework Questions On January 1, Year 1, a company issues $400,000 of 5% bonds, due in 15 years, with interest payable semiannually on June 30 and December 31 each year.Assuming the market interest rate on the issue date is 6%, the bonds will issue at $360,800. Record the bond issue on January 1, Year 1, and the first two semiannual interest payments on June 30, Year 1, and December 31, Year 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest whole dollar.) Record the bond issue. Record the first semiannual interest payment. Record the second semiannual interest payment.

---Record the bond issue. Debit - Cash: 360,800 - Discount on Bonds Payable: 39,200 Credit - Bonds Payable: 400,000 ---Record the first semiannual interest payment. Debit: - Interest Expense: 10,824 Credit: - Cash: 10,000 - Discount Bond Payable: 824 ---Record the second semiannual interest payment. Debit: - Interest Expense: 10,849 Credit: - Cash: 10,000 - Discount Bond Payable: 849

Homework Questions On January 1, Year 1, a company issues $500,000 of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.Assuming the market interest rate on the issue date is 5%, the bonds will issue at $562,757. Record the bond issue on January 1, Year 1, and the first two semiannual interest payments on June 30, Year 1, and December 31, Year 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your final answers to the nearest whole dollar.) Record the bond issue. Record the first semiannual interest payment. Record the second semiannual interest payment.

---Record the bond issue. Jan 01 Debit: -Cash$562,757 Credit: -Premium on Bonds Payable $62,757 -Bonds Payable $500,000 ---Record the first semiannual interest payment. June 30 Debit: -Interest Expense $14,069 -Premium on Bonds Payable $931 Credit: -Cash $15,000 ---Record the second semiannual interest payment. Dec. 31 Debit: -Interest Expense $14,046 -Premium on Bonds Payable $954 Credit: -Cash$15,000

Homework Questions During January, Luxury Cruise Lines incurs employee salaries of $2.6 million. Withholdings in January are $198,900 for the employee portion of FICA, $390,000 for federal income tax, $162,500 for state income tax, and $26,000 for the employee portion of health insurance (payable to Blue Cross Blue Shield). The company incurs an additional $161,200 for federal and state unemployment tax and $78,000 for the employer portion of health insurance. Required: 1.-3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).) Record the employee salary expense, withholdings, and salaries payable. Record the employer-provided fringe benefits. Record the employer payroll taxes.

---Record the employee salary expense, withholdings, and salaries payable. Jan 31: Debit: -Salaries expense: $2,600,000 Credit: -Income tax payable: $552,500 ----(=390000+162500) -FICA tax payable: $198900 - Accounts Payable (Blue Cross/Blue Shield): $26000 - Salaries payable: $1822600 ---Record the employer-provided fringe benefits. Jan 31: Debit: -Salaries expense: $78000 Credit: -Accounts Payable (Blue Cross/Blue Shield): $78000 ---Record the employer payroll taxes Jan 31: Debit: Payroll tax expense: $360100 Credit: -FICA tax payable: $198900 -Unemployment tax payable: $161200

Homework Questions On November 1, Year 1, a company borrows $59,000 cash from Community Savings and Loan. The company signs a three-month, 6% note payable. Interest is payable at maturity. The company's year-end is December 31. Required: 1.-3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record the issuance of note. Record the adjusting entry for interest. Record the repayment of the note at maturity.

---Record the issuance of note. Debit: -Cash: $59,000 Credit: -Notes Payable: $59,000 ---Record the adjusting entry for interest. Interest expense on December 31 = Note payable x Interest rate x Time period = 59,000 x 6% x 2/12 = $590 Dec 31: Debit: -Interest Expense: $590 Credit: -Interest Payable: $590 ---Record the repayment of the note at maturity. Interest expense on February 1 = Note payable x Interest rate x Time period = 59,000 x 6% x 1/12 = $295 Feb 01: Debit: -Note Payable: 59,000 -Interest Expense: 295 -Interest Payable: 590 Credit: Cash: 59,885

Multple Choice Questions The acid-test ratio is Multiple Choice Cash, current investments, and accounts receivable divided by current liabilities. Current assets divided by current liabilities. Cash and current investments divided by current liabilities. Cash, current investments, accounts receivable, and inventory divided by current liabilities.

Cash, current investments, and accounts receivable divided by current liabilities.

Homework Questions Selected financial data regarding current assets and current liabilities for ACME Corporation and Wayne Enterprises are as follows: ACME Corporation/ Wayne Enterprises ($ in millions) -----Current assets----- Cash and cash equivalents: 549/ 335 Current Investments: 6/ 411 Net Receivables: 738/ 256 Inventory: 10,681/ 9,109 Other Current Assets: 1,207/ 305 --Total Current Assets: 13,181/ 10,416 -----Current Liabilities----- Current Debt: 9,121/ 4,463 Accounts Payable: 1,857/ 1,111 Other Current Liabilities: 1,165/ 2,523 --Total Current Liabilities: 12,143/ 8,097 Required: 1-a. Calculate the current ratio for ACME Corporation and Wayne Enterprises. (Enter your answers in millions. For example, $5,500,000 should be entered as 5.5.)

Current Ratio/ACME/Wayne: Line 1: Total Current Assets : 13,181 / 10,416 ________________________________________________________ Line 2:Total Current Liabilities : 12,143/ 8,097 Current Ratio= "Total Currents Assets" divided by "Total Current Liabilities" Acme: 1.085 Wayne: 1.286 Wayne has the better current Ratio. ------------------------------------------------------ Acid Ratio/ACME/Wayne: Acid Ratio= "Quick Assets" divided by "Current Liabilities" Quick assets = Cash and cash equivalents + Current investments + Net receivables Line 1: Quick Assets : 1,333 / 1,002 ________________________________________________________ Line 2:Total Current Liabilities : 12,143/ 8,097 Acme: 1,333 Wayne: 1,002 Wayne has the better current Ratio.

Concept Overview Questions On January 1, Year 1, McClurg Corporation issues 5%, 11-year bonds with a face amount of $70,000 for $76,180. The market interest rate is 4%. Interest is paid semiannually on June 30 and December 31. Complete the necessary journal entry for the issuance of the bonds by selecting the account names from the drop-down menus and entering the associated dollar amounts. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record the issuance of 5%, 11-year bonds with a face value of $70,000 for $76,180.

Debit Cash $76,180 credit B/P $70,000 credit premium on B/P $6,180

Concept Overview Questions On January 1, Year 1, St. Clair Corporation issues 7%, 11-year bonds with a face amount of $90,000 for $83,497. The market interest rate is 8%. Interest is paid semiannually on June 30 and December 31. Complete the necessary journal entry for the issuance of the bonds by selecting the account names from the drop-down menus and entering the associated dollar amounts. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record the issuance of 7%, 11-year bonds with a face value of $90,000 for $83,497.

Debit Cash for $83,497 Debit Discount on Bonds Payable for $6,503 Credit to Bonds Payable $90,000

Concept Overview Questions On January 1, Year 1, McClurg Corporation issues 5%, 11-year bonds with a face amount of $70,000 for $76,180. The market interest rate is 4%. Interest is paid semiannually on June 30 and December 31. Complete the necessary journal entry for the issuance of the bonds by selecting the account names from the drop-down menus and entering the associated dollar amounts. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) Record the first semi-annual interest payment for 5%, 11-year bonds with a face value of $70,000.

Debit interest expense $1,524 debit premium on b/p $226 credit cash $1,750

Multple Choice Questions Which of the following increases an employer's payroll costs? Multiple Choice Employer's FICA contribution. Federal income tax. FICA withholding from the employee. State income tax.

Employer's FICA contribution.

Concept Overview Questions Social Security and Medicare taxes withheld from employees' paychecks are collectively referred to as ________. Multiple Choice FICA taxes Fringe benefits State income taxes Unemployment taxes

FICA taxes

Multple Choice Questions Which of the following is paid by both the employee and the employer? Multiple Choice Federal unemployment taxes. FICA taxes. State unemployment taxes. Personal income taxes.

FICA taxes.

Multple Choice Questions The cash paid for interest on bonds payable is calculated as: Multiple Choice Face amount times the stated interest rate. Carrying value times the market interest rate. Face amount times the market interest rate. Carrying value times the stated interest rate.

Face amount times the stated interest rate.

Concept Overview Questions A company receives cash in November, Year 1 for services to be performed in January, Year 2. The company increases both assets and service revenue in November, Year 1. True False

False

Concept Overview Questions The rate of interest specified in a bond contract as the interest rate to be paid by the company to investors in the bond is known as the market rate. True False

False

Concept Overview Questions Paying dividends to stockholders reduces taxable income because dividends are an expense. True False

False Paying dividends to stockholders does not reduce taxable income because dividends are not an expense.

Multple Choice Questions Which of the following are withheld from an employee's salary? (Select all that apply.) Check All That Apply Employee portion of health insurance Federal and state income taxes Federal and state unemployment taxes FICA taxes

Federal and state income taxes Employee portion of health insurance FICA taxes

Concept Overview Questions Which of the following are payroll costs for employers? (Select all that apply.) Check All That Apply Employee contribution to retirement plan Employer contribution to retirement plan Employee portion of FICA taxes Employer portion of FICA taxes Federal and state income taxes Federal and state unemployment taxes

Federal and state unemployment taxes Employer portion of FICA taxes Employer contribution to retirement plan

Concept Overview Questions Which of the following is not a measure of liquidity? Multiple Choice Acid-Test Ratio Current Ratio Gross Profit Ratio Working Capital

Gross Profit Ratio

Multple Choice Questions If bonds are issued at a discount, over the life of the bonds, interest expense will: Multiple Choice Remain unchanged. Decrease. The effect cannot be determined from the information given. Increase.

Increase

Multple Choice Questions Bonds issued at a discount are: Multiple Choice Issued above face value. Riskier bonds sold at a bargain price. Issued at face value. Issued below face value.

Issued below face value.

Multple Choice Questions A company's capital structure refers to: Multiple Choice Its mixture of current versus long-term liabilities. Its mixture of current versus long-term assets. Its mixture of paid-in capital versus retained earnings. Its mixture of liabilities and stockholders' equity.

Its mixture of liabilities and stockholders' equity.

Multple Choice Questions Which of the following statements regarding liabilities is true? Multiple Choice Liabilities result from future transactions. Liabilities are always payable in cash. Liabilities represent probable future sacrifices of benefits. Liabilities are all reported as current in the balance sheet.

Liabilities represent probable future sacrifices of benefits.

Multple Choice Questions Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n): Multiple Choice Expense. Revenue. Liability. Asset.

Liability.

Multple Choice Questions Interest expense is recorded in the period in which: Multiple Choice The interest is paid. The interest is incurred. The interest is paid or incurred. The interest is paid and incurred.

The interest is incurred.

Concept Overview Questions Bonds that require payment of the full principal at a single maturity date are known as term bonds. True False

True

Concept Overview Questions In an installment note, a portion of each installment payment goes towards interest, and the remaining portion represents a reduction of the outstanding loan balance. True False

True

Concept Overview Questions The amortization schedule for a bond issued at a discount has a carrying value that increases over time. True False

True

Concept Overview Questions All else equal, the higher the debt to equity ratio, the higher the risk of bankruptcy. True False

True Because higher amount of debt capital usage increases the Interest Burden and If an organisation is not able to recover the same , an organisation can be declared as Bankrupt.

Concept Overview Questions Delta Corporation has a higher times interest earned ratio than Gamma Corporation. From this information, we can assume that Delta is relatively better able to meet its interest payments. True False

True Formula:- EBIT(earnings before interest and taxes)/total interest Expense. The ratio indicates how many times a company could pay the interest with its before tax income,So obviously the higher ratios are considered more favorable. A higher time interest earned ratio is favorable because it means that the company presents less of risk to investors and creditors in term of solvency. For an investor or creditors perspective,an organisation that has a time interest earned ratio greater than 2.5 is considered an acceptable risk.

Multple Choice Questions Which of the following is not deducted from an employee's salary? Multiple Choice FICA taxes. Unemployment taxes. Income taxes. Employee portion of insurance and retirement payments.

Unemployment taxes.

Multple Choice Questions A company issues $50,000 of 4% bonds, due in 5 years, with interest payable semiannually. Assuming a market rate of 3%, the bonds will be issued at Multiple Choice maturity value. face value. a premium. a discount.

a premium.

Concept Overview Questions Wylie Company issues $100,000 of 5% bonds when the market rate of interest is 6%. These bonds will issue: Multiple Choice at face amount. at a premium. at a discount.

at a discount

Concept Overview Questions When a bond's stated rate of interest is more than the market rate of interest, the bonds will issue: Multiple Choice at face amount. at more than face amount. at less than face amount.

at more than face amount.

Concept Overview Questions On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. Interest is paid semiannually on June 30 and December 31. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. The journal entry for the issuance of the bonds will include a: Multiple Choice debit to Bonds Payable for $105,000 debit to Cash for $105,000 credit to Bonds Payable for $100,000 credit to Cash for $100,000

credit to Bonds Payable for $100,000

Concept Overview Questions Banner Corporation receives $30,000 in May, Year 1 to manufacture and deliver its product in September, Year 1. At the time the product is delivered, Banner will _____. Multiple Choice debit Deferred Revenue and credit Sales Revenue debit Cash and credit Sales Revenue debit Cash and credit Accounts Receivable debit Sales Revenue and credit Deferred Revenue

debit Deferred Revenue and credit Sales Revenue

Concept Overview Questions On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. Interest is paid semiannually on June 30 and December 31. The first payment of interest on June 30 will include a: Multiple Choice debit to Interest Expense for $2,500 debit to Interest Expense for $5,000 credit to Bonds Payable for $2,500 credit to Bonds Payable for $5,000

debit to Interest Expense for $2,500

Concept Overview Questions Return on assets measures: Multiple Choice the amount of debt for each $1 of assets. the amount of debt for each $1 of stockholders' equity. the amount of income generated for each $1 of assets. the amount of income generated for each $1 of liabilities.

the amount of income generated for each $1 of assets.

Concept Overview Questions A bond will issue at a discount when: Multiple Choice the market rate of interest is more than the stated rate of interest. the market rate of interest is less than the stated rate of interest. the market rate of interest is equal to the stated rate of interest.

the market rate of interest is more than the stated rate of interest.

Multple Choice Questions If Speedy Travel, Inc. borrows $50 million on September 1 for one year at 9% interest, how much interest expense should it record by December 31 of that same year? Multiple Choice $0. $1.5 million. $3.0 million. $4.5 million.

$1.5 million.

Concept Overview Questions The payroll related information for Smart Packers is provided below. The company has a total payroll for the month of January of $100,000 for its 30 employees. Use the information provided to answer the following questions. (Assume that none of the employees earn more than $7,000 in January.) Federal and state income tax withheld $20,000 Health insurance premiums paid by employer $10,000 Contribution to retirement plan paid by employer $15,000 FICA tax rate (Social Security and Medicare) 7.65% Federal and state unemployment tax rate 6.20% What is the amount of Payroll Tax Expense for the month? Multiple Choice $7,650 $33,850 $15,300 $13,850

$13,850

Multple Choice Questions Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month? Multiple Choice $2,542. $3,042. $6,000. $500.

$500.

Multple Choice Questions On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. What is the amount of interest expense to report in 20X2? Multiple Choice $0 $12,000 $24,000 $8,000

$8,000

Homework Questions On January 1, Year 1, a company issues $500,000 of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.Assuming the market interest rate on the issue date is 5%, the bonds will issue at $562,757. Complete the first three rows of an amortization schedule. (Round your final answers to the nearest whole dollar.)

---Line 1 Date: 01/01/ Year 1 Carry Value: $562,757 ---Line 2 Date: 06/30/Year 1 Cash Paid: $15,000 Interest Expense: $14,069 Decrease in carrying Value: $931 Carry Value: $561,826 ---Line 3 Date: 12/31/ Year 1 Cash Paid: $15,000 Interest Expense: $14,046 Decrease in carrying Value:$954 Carry Value: $560,872

Concept Overview Questions Bonds that are not supported by specific assets but instead backed only by the "full faith and credit" of the issuing company are known as: Multiple Choice secured bonds. serial bonds. term bonds. unsecured bonds.

unsecured bonds.

Concept Overview Questions Clarendon Corporation has a $5 million liability at December 31, Year 1, of which $1 million is payable in Year 2. In its December 31, Year 1 balance sheet, the company will report the $5 million debt as a: Multiple Choice $5 million current liability. $5 million long-term liability. $1 million current liability and $4 million long-term liability. $4 million current liability and $1 million long-term liability.

$1 million current liability and $4 million long-term liability.

Multple Choice Questions Which of the following ratios measures financial leverage? Multiple Choice The debt to equity ratio. The times interest earned ratio. The return on assets ratio. The inventory turnover ratio.

The debt to equity ratio.