Chapter 9
Match the following terms with the correct definition. a. Convertible bonds b. Premium on bond c. Callable bonds d. Debentures e. Term bonds f. Serial bonds g. Discount on bond h. Stated interest rate i. Market interest rate 1. Bonds that all mature at the same time 2. Interest rate investors are expecting to receive for similar bonds of equal risk 3. Unsecured bonds backed only by the good faith of the borrower 4. Amount of a bond's issue price over its maturity value 5. Bonds that may be converted into the common stock of the issuing company at the option of the investor 6. Amount of a bond's maturity value over its issue price 7. Interest rate that determines the amount of cash interest the borrower pays and the investor receives 8. Bonds in the same bond issuance that mature at different times 9. Bonds that the issuer may call or pay off at a specified price before maturity
1. - E. 2. - I. 3. - D. 4. - B 5. - A 6. - G 7. - H 8. - F 9. - C
Identify the section of the balance sheet in which the following accounts would be located: Current Assets (CA), Long-Term Assets (LTA), Current Liabilities (CL), or Long-Term Liabilities (LTL). 1. Bonds payable (due in 4 years) 2. Interest payable 3. Leased equipment 4. Discount on bonds payable 5. Accumulated depreciation on leased equipment 6. Lease payable (due in four years) 7. Mortgage notes payable (due in 10 years)
1. LTL 2. CL 3. LTA 4. LTL 5. LTA 6. LTL 7. LTL
The accounting records of Claytown Arts showed a balance of $10,000 in Estimated warranty payable at December 31, 2017. In the past, Claytown Arts' warranty expense has been 4 percent of sales. During 2018, Claytown Arts made sales of $468,000 on account and paid $9,000 to satisfy warranty claims. Requirement 2. What balance of Estimated warranty payable will Claytown Arts report on its balance sheet at December 31, 2018? What amount of warranty expense will Claytown Arts report on its income statement for the year ended December 31, 2018? What amount of warranty expense will Claytown Arts report on its income statement for the year ended December 31, 2018? The company will report $ ________ of warranty expense on its income statement.
18,720
Mike's Boats guarantees its boats for three years or 1,500 hours, whichever comes first. Industry experience indicates that Mike's can expect warranty costs will equal 8 percent of sales. Assume in its first year, Mike's Boats had sales totaling $595,000, receiving cash for 24 percent of sales and notes receivable for the remainder. Warranty payments totaled $17,200 during the year. Requirement 3. What amount of warranty expense will Mike's report during its first year of operations? Mike's will report warranty expense of $ ________ during its first year of operations. Does the warranty expense for the year equal the year's cash payments for warranties? The warranty expense for the year _________ the year's cash payments for warranties. Which accounting principle addresses this situation? The accounting principle which addresses this situation is the __________
47,600 does not equal matching principle.
On April 1, 2018, Nailtique Nail Salons issued $450,000 of 15-year, 7 percent bonds payable. The bonds were sold for $432,000. The bonds pay interest each September 30 and March 31, and any discount or premium is amortized using straight-line amortization. Requirement 1. Fill in the blanks to complete each statement. a. Nailtique Nail Salons' bonds are priced at (express the price as a percentage) _____%. b. When Nailtique Nail Salons issued its bonds, the market interest rate was ________ 7 percent. c. The amount of bond discount or premium is $ ________ .
96 higher than 18,000
When a company settles a warranty claim by replacing the defective goods, the journal entry will include a debit to _______ and a credit to _______. A. Estimated Warranty Payable, Inventory B. Estimated Warranty Payable, Cash C. Warranty Expense, Cash D. Warranty Expense, Inventory
A. Estimated Warranty Payable, Inventory
Which of the following would be considered a contingent liability? A. Pending litigation B. Salaries payable C. Estimated Warrenty Payable D. Federal income tax payable
A. Pending litigation
Which of the following would be considered an estimated liability? A. Warranties payable B. Sales tax payable C. Pending litigation D. Notes payable
A. Warranties payable
If the likelihood of an obligation is remote: A. no action is necessary in the accounting treatment. B. the disclosure with explanation is put into the financial statement footnotes. C. the obligation with the estimated dollars is recorded and put into the footnotes. D. the obligation with the estimated dollars is recorded on the Balance Sheet.
A. no action is necessary in the accounting treatment.
By NOT accruing warranty expense: A. reported liabilities will be understated and net income will be overstated. B. reported expenses will be understated and net income will be understated. C. reported expenses will be overstated and reported liabilities will be understated. D. reported liabilities will be overstated and net income will be understated.
A. reported liabilities will be understated and net income will be overstated.
Bonds that are backed by collateral are: A. secured bonds. B. callable bonds. C. convertible bonds. D. unsecured bonds.
A. secured bonds.
What are leases that are treated as financed purchases called? A. Operating leases B. Capital leases C. Revenue leases D. Expense lease
B. Capital leases
A $170,000 bond issue sold at 93 will cost: (Round your final answer to the nearest dollar.) A. whatever cost is negotiated. B. $182,796 C. $158,100 D. $170,000
C. $158,100
On October 31, 2018, Scout Co. recorded their semi−annual bond interest expense that contained a credit to Discount on bonds payable of $1,400. The adjusting entry on December 31, 2018 will show a credit to Discount on bonds payable of: (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) A. $933 B. $700 C. $467 D. $1,400
C. $467
A company signs a note payable for $4,500 at 9% for 65 days. How much interest (to the nearest cent) will the company owe using a 360−day year? (Round your final answer to the nearest cent.) A. $405.00 B. $79.71 C. $73.13 D. $72.12
C. $73.13
Which of the following would be treated as a rental agreement? A. Capital leases B. Revenue leases C. Operating leases D. Expense leases
C. Operating leases
A $450,000 issue of bonds that sold for $393,000 matures on August 1, 2025. The journal entry to record the payment of the bond on the maturity date is to: A. debit Cash, $450,000; credit Bonds payable, $450,000. B. debit Cash, $393,000; credit Bonds payable, $393,000. C. debit Bonds payable, $450,000; credit Cash, $450,000. D. debit Bonds payable, $393,000; credit Cash, $393,000.
C. debit Bonds payable, $450,000; credit Cash, $450,000.
Bonds from the same bond issue that mature at different times are called: A. term bonds. B. unsecured bonds. C. serial bonds. D. convertible bonds.
C. serial bonds.
Bonds payable minus the Discount on bonds payable yields the: A. annual interest. B. maturity value. C. principle amount. D. carrying amount.
D. carrying amount.
A $35,000 bond issue with a stated interest rate of 5%, when the market rate of interest is 7%, means that the bond will sell for: A. $35,000 B. more than $35,000. C. $45,000 D. less than $35,000.
D. less than $35,000.
Assume that on March 1, 2018, Alaska Corp. issues 10 percent, 10-year bonds payable with a maturity value of $1,200,000. The bonds pay interest on February 28 and August 31, and Alaska amortizes any premium or discount using the straight-line method. Alaska's fiscal year end is December 31. Requirement 2. If the market interest rate is 11.5 percent when Alaska Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain. The 10 percent bonds issued when the market interest rate is 11.5 percent will be priced at __________. They are _____________ in this market, so investors will pay _______________ to acquire them.
a discount unattractive less than maturity value
Assume that on March 1, 2018, Alaska Corp. issues 10 percent, 10-year bonds payable with a maturity value of $1,200,000. The bonds pay interest on February 28 and August 31, and Alaska amortizes any premium or discount using the straight-line method. Alaska's fiscal year end is December 31. Requirement 1. If the market interest rate is 9.5 percent when Alaska Corp. issues its bonds, will the bonds be priced at par, at a premium, or at a discount? Explain. The 10 percent bonds issued when the market interest rate is 9.5 percent will be priced at _________ They are ________ in this market, so investors will pay ___________ to acquire them.
a premium. attractive more than maturity value
Allison Supply, Inc., is planning to issue long-term bonds payable to fund a major expansion. For each of the following questions, identify whether the bond price involves a discount, a premium, or par value. a. The stated interest rate on the bonds is 6 percent, and the market interest rate is 7 percent. What type of price can Allison Supply, Inc., expect for the bonds? b. Allison Supply, Inc. could raise the stated interest rate on the bonds to 8 percent (market rate is 7 percent). In that case, what type of price can Allison Supply, Inc., expect for the bonds? c. At which type of bond price will Allison Supply, Inc., have total interest expense equal to the cash interest payments? d. At which type of price will Allison Supply, Inc.'s total interest expense be less than the cash interest payments? e. At which type of price will Allison Supply, Inc.'s total interest expense be greater than the cash interest payments?
a. Discount price b. Premium price c. Par value d. Premium price e. Discount price
Determine whether the following bonds payable will be issued at par, at a premium, or at a discount: a. The market interest rate is 5 percent. Wilson, Corp., issues bonds payable with a stated rate of 6 1/2 percent. b. Apex, Inc., issued 6 1/2 percent bonds payable when the market rate was 7 1/4 percent. c. Huntwood Corporation issued 9 percent bonds when the market interest rate was 9 percent. d. Billings Company issued bonds payable that pay cash interest at the stated rate of 5 percent. At the date of issuance, the market interest rate was 6 1/4 percent.
a. premium b. discount c. par d. discount
Clark, Inc., issued $480,000 of 15-year, 6 percent bonds payable on January 1. Clark, Inc., pays interest each January 1 and July 1 and amortizes any discount or premium by thestraight-line method. Clark, Inc., can issue its bonds payable under variousconditions: Requirement 2. Which condition results in the most interest expense for Clark, Inc.? Explain in detail. The __________ results in the most interest expense. The reason for this is because Clark ______________
discount price of $425,000 receives $425,000 and must pay back $480,000 at maturity.
On April 1, 2018, Nailtique Nail Salons issued $450,000 of 15-year, 7 percent bonds payable. The bonds were sold for $432,000. The bonds pay interest each September 30 and March 31, and any discount or premium is amortized using straight-line amortization. Requirement 3. At what amount will Nailtique Nail Salons report the bonds on its balance sheet at December 31, 2018? c. On its balance sheet at December 31, 2018, the company will report the bonds at ___________ of $ __________.
the carrying amount 432,900