Review of Long Term Liabilities, Review of Cash Flows

The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet​ date, and the remaining portion is long term.

False

The investing activities section of the statement of cash flows reports cash receipts and payments that increase or decrease​ long-term liabilities.

False

The issuance of a note is​ recorded, on the books of the​ borrower, by crediting Cash and debiting Notes Receivable.

False

The issue price of a bond whether it is issued at​ par, premium, or discount has an effect on the principal repayment at maturity.

False

The statement of cash flows is dated the same as the balance sheet.

False

When preparing the statement of cash flows using the indirect​ method, a decrease in current liabilities is added to the net income to arrive at net cash provided by operating activities.

False

When preparing the statement of cash flows using the indirect​ method, a loss on the sale of plant assets must be shown as a subtraction from the investing activities section.

False

When preparing the statement of cash flows using the indirect​ method, depreciation expense is subtracted from net income under operating activities.

False

While preparing a statement of cash flows using the indirect​ method, an increase in current assets is added to net income to arrive at net cash provided by operating activities.

False

The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the​ entity's business.

True

The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.

True

The statement of cash flows is the link between the​ accrual-based income statement and the cash reported on the balance sheet.

True

The statement of cash flows shows where cash came from and how cash was spent.

True

Unlike cash​ dividends, which are optional payments to​ stockholders, the interest payments on bonds are required.

True

When a bond is​ matured, the carrying value always equals the face value.

True

When bonds are retired at​ maturity, assuming the last interest payment has already been​ recorded, the journal entry includes a debit to the Bonds Payable account and a credit to the Cash account.

True

When preparing the statement of cash flows by the indirect​ method, it is necessary to adjust for​ non-cash expenses such as depreciation expense.

True

A note payable can be classified either as a​ long-term liability or a​ short-term liability, depending on the discretion of the accountant.

False

Bonds are​ short-term debt issued to multiple lenders called​ bondholders, usually in increments of​ $1,000 per bond.

False

If a bond is issued at a​ discount, the issue price is greater than face value.

False

Investors and management use the statement of cash flows to evaluate a​ firm's profitability.

False

On July​ 1, 2018, Shannon Equipment Dealer issued​ $590,000 of​ 6% bonds payable that mature in seven years. These bonds were issued at face value and pay interest each June 30 and December 31. Each semiannual interest payment will be higher than the interest expense.

False

The balance sheet shows the balance in Bonds Payable plus any discount or minus any premium.

False

The balance sheet shows why cash increased or decreased.

False

On January​ 1, 2018, Statewide Sales issued​ $29,000 in bonds for​ $20,700. These are​ six-year bonds with a stated rate of​ 12% and pay semiannual interest. Statewide Sales uses the​ straight-line method to amortize the Bond Discount. Immediately after the issue of the​ bonds, the ledger balances appeared as​ follows After the second interest payment on December​ 31, 2018, what is the balance of Discount on Bonds​ Payable? (Round any intermediate calculations to two decimal​ places, and your final answer to the nearest​ dollar.)

debit of​ $6,917

On January​ 1, 2018, Brazos Company purchased equipment and signed a​ six-year mortgage note for​ $97,000 at​ 15%. The note will be paid in equal annual installments of​ $25,631, beginning January​ 1, 2019. On January​ 1, 2019, the journal entry to record the first installment payment will include a​ ________. ​ (Round your answer to the nearest whole​ number.)

debit to Interest Expense for​ $14,550

Great Lake Glassware Company issues​ $1,121,000 of its​ 12%, 10-year bonds at 99 on February​ 28, 2018. The bonds pay interest on February 28 and August 31. Assume that Great Lake uses the​ straight-line method for amortization. The journal entry to record the first interest payment on August​ 31, 2018 includes a​ ________.

debit to Interest Expense for​ $67,821

The cash flows from investing activities is completed by reviewing the​ long-term liabilities section of the balance sheet.

False

The change in cash is the key reconciling figure for the statement of cash flows and must match the change in cash reported on the comparative income statements.

False

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.

True

If bonds with a face value of $207,000 are issued at 95, the amount of cash proceeds is​ ________.

$196,650

On March​ 1, 2018, Barker Services issued a 77​% long term notes payable for $16,000. It is payable over a 4 year term in $4,000 annual principal payments on March 1 of each year plus​ interest, beginning March​ 1, 2019. How will the notes payable be shown on the balance sheet dated December​ 31, 2018?

$4000 shown as current liability and $12,000 shown as long term liability

On November​ 1, 2018, Arch Services issued​ $313,000 of​ eight-year bonds with a stated rate of​ 12% at par. Interest payments occur each April 30 and October 31. On December​ 31, 2018, Arch made an adjusting entry to accrue interest at​ year-end. What is the amount of Interest Expense that will be recorded on December​ 31, 2018?​ (Do not round any intermediate​ calculations, and round your final answer to the nearest​ dollar.)

$6,260

On December​ 31, 2018, Country Living Sales has​ 10-year Bonds Payable of​ $89,000 and Discount on Bonds Payable of​ $2,350. How will this be shown on the December​ 31, 2018 Balance​ Sheet?

Bonds Payable​ $89,000 less Discount on Bonds Payable​ $2,350 for a carrying amount of​ $86,650

On March​ 1, 2018, Lewis Services issued a​ 6% long-term notes payable for​ $18,000. It is payable over a​ 3-year term in​ $6,000 principal installments on March 1 of each​ year, beginning March​ 1, 2019. Which of the following entries needs to be made on March​ 1, 2018?

Cash 18,000 ​ Long-Term Notes Payable ​18,000

Which of the following is true of the statement of cash​ flows?

It covers a span of time and is dated the same as the income statement.

Which of the following is true of the Discount on Bonds Payable​ account? The bonds are due in ten years.

It is subtracted from the Bonds Payable balance and shown with​ long-term liabilities on the balance sheet.

Which of the following statements accurately describes the statement of cash​ flows?

It is the link between the​ accrual-based income statement and the cash reported on the balance sheet.

Which of the following statements is true of a bond that is issued at a​ discount?

The bond will be issued for an amount less than the face value.

A mortgage payable is a​ long-term debt that is backed with a security interest in specific property.

True

An amortization schedule details each loan​ payment's allocation between principal as well as interest and the beginning and ending balances of the loan.

True

Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

True

Installment payments for mortgages generally contain both an amount for principal repayment and an amount for interest.

True

On March​ 1, 2018, Vintage Services issued an​ 8% long-term notes payable for​ $22,000. It is payable over a​ 16-year term in​ $1,375 principal installments on March 1 of each​ year, beginning March​ 1, 2019. Each yearly installment will include both principal repayment of​ $1,375 and interest payment for the preceding​ one-year period. The journal entry to pay the first installment will include a debit to Interest Expense for​ $1,760.

True

On the maturity​ date, the bondholder is paid the face amount of the bond plus the last interest payment.

True

The Current Portion of​ Long-Term Notes Payable would normally be shown on the balance sheet under current liabilities.

True

The balance in the Bonds Payable account is a credit of​ $67,000. The balance in the Discount on Bonds Payable account is a debit of​ $2,650. The​ bond's carrying amount is​ $64,350.

True

The financing activities section of the statement of cash flows includes paying dividends and making payments on​ long-term liabilities.

True

The financing section of the statement of cash flows involves transactions relating to the equity accounts and the​ long-term liability accounts.

True

The activities that are included in the operating activities section of the statement of cash flows are​ ________.

activities that create revenue or expenses

The reason investors buy bonds is to​ ________.

earn interest

The statement of cash flows helps users​ ________.

evaluate management decisions

Which of the following will be shown under the investing activities section of the statement of cash​ flows?

issued a​ 10-year note receivable to a third party

The date on which the principal amount is repaid to the bondholder is known as the​ ________.

maturity date

Wisconsin Farm Equipment Company sold equipment for cash. The income statement shows a loss on the sale of​ $7,000. The net book value of the asset was​ $28,900. Which of the following statements describes the cash effect of the​ transaction?

positive cash flow of​ $21,900 from investing activities

One of the purposes of the statement of cash flows is to​ ________.

predict the ability of a company to pay debts and dividends

On January​ 1, 2019, Commercial Equipment Sales issued​ $28,000 in bonds for​ $15,700. These are​ six-year bonds with a stated interest rate of​ 10%, and pay semiannual interest on June 30 and December 31. Commercial Equipment Sales uses the​ straight-line method to amortize the Bond Discount. What amount is debited to Interest Expense on June​ 30, 2019?

​$2,425

Which of the following is the amount the borrower must pay back to the bondholders at​ maturity?

principal amount

A​ business's cash receipts and cash payments for a specific period are reported on​ a(n) ________.

statement of cash flows

Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance​ sheet? (Assume the indirect method is​ used.)

the operating activities section

Which of the following sections of the statement of cash flows include activities that affect net income on the income​ statement?

the operating activities section

Crystal Glassware Company issues​ $1,042,000 of its​ 14%, 10-year bonds at 97 on February​ 28, 2019. The bonds pay interest on February 28 and August 31. Assume that Crystal uses the​ straight-line method for amortization. What net amount will be reported for the bonds on the August​ 31, 2019 balance​ sheet?

​$1,012,303

On March​ 1, 2018, Mandy Services issued a​ 3% long-term notes payable for​ $15,000. It is payable over a​ 3-year term in​ $5,000 principal installments on March 1 of each​ year, beginning March​ 1, 2019. Each yearly installment will include both principal repayment of​ $5,000 and interest payment for the preceding​ one-year period. What is the amount of total cash payment that Mandy will make on March​ 1, 2019?

​$5,450

The balance in the Bonds Payable account is a credit of​ $67,000. The balance in the Discount on Bonds Payable account is a debit of​ $3,350. What is the​ bond's carrying​ amount?

​$63,650

Arkansas Corp. is preparing its statement of cash flows using the indirect method. It provides the following information about transactions for the​ year: Plant​ assets, net—beginning ​balance: $111,000 Plant​ assets, net—ending ​balance: $148,000 Equipment was purchased for​ $65,000 with cash. Equipment with a net asset value of​ $12,000 was sold for​ $18,000. Depreciation Expense of​ $16,000 was recorded during the year. What was the amount of net cash provided by​ (used for) investing​ activities?

​($47,000)

Which of the following is the typical order of the sections on a statement of cash​ flows?

​operating, investing, financing