Accounting 4A: Chapter 9, 11-14 Quiz

Bon Voyage Company's trial balance shows $800,000 face value of bonds with a discount balance of $12,000. The bonds mature in 20 years. How will the bonds be presented on the balance sheet?

Bonds payable $788,000 (net of $12,000 discount) will be listed as a long-term liability.

Rivers and Streams Corporation issued $400,000 of 8% serial bonds at face value on December 31, 2018. Half of the bonds mature January 1, 2021, while the other half of the bonds mature January 1, 2029. On December 31, 2020, the balance sheet will show which of the following?

Bonds payable of $200,000 will be listed as a long-term liability. Bonds payable of $200,000 will be listed as a current liability.

Nolan Corporation has total assets of $500,000. Current liabilities are $10,000, and long-term liabilities are $90,000. What is the debt to equity ratio?

Debt to equity ratio = Total liabilities / Total equity* = $100,000 / $400,000 = 0.250 *Assets = Liabilities + Equity $500,000 = ($10,000 + $90,000) + Equity Equity = $400,000

The employee is responsible for which of the following payroll taxes?

Federal and state income tax

A stock dividend

decreases Retained Earnings.

Property, plant, and equipment are

tangible assets used in the operation of a business that have a useful life of more than one year.

At December 31, your company owes employees for four days of the five-day workweek. The total payroll for the week is $51,000. What journal entry should you make at December 31?

(D) Salaries and Wages Expense 40,800 (C) Salaries and Wages Payable 40,800

Which of the following transactions result in a decrease in stockholders' equity?

Cash dividend

Liabilities must

sometimes be estimated.

Good For You Foods has outstanding 6,000 shares of $3 par common stock, which was issued at $15 per share, and 2,000 shares of $10 par cumulative preferred stock, which was issued at par. Good For You Foods also has a deficit balance in Retained Earnings of $26,000. How much is Good For You Foods' total stockholders' equity?

$84,000

Which of the following statements about intangible assets is FALSE?

A trademark is the exclusive right to reproduce and sell a work of art.

What is the effect of the purchase of treasury stock?

Decrease the number of shares outstanding.

A company bought a new display case for $42,000 and estimated residual value to be $2,000 and the useful life to be eight years. Using straight-line depreciation, what is the book value of the display case after three years?

Straight-line depreciation = (Cost - Residual value) / Useful life = ($42,000 − $2,000) / 8 years = $5,000 per year Accumulated depreciation after three years = $5,000 per year × 3 years = $15,000 Book value at the end of the third year = Cost - Accumulated depreciation = $42,000 − $15,000 = $27,000

Rudy's Fitness Gym has Unearned Revenue of $15,000, Salaries Payable of $28,000, and Allowance for Uncollectible Accounts of $4,200. What amount would Rudy's Gym report as total current liabilities?

The company's liabilities include Unearned Revenue and Salaries Payable. Total liabilities = $15,000 + $28,000 = $43,000

Which of the following is not a characteristic of a corporation?

Unlimited liability

A $400,000 bond priced at 102 can be bought or issued for

$400,000 × 1.02 = $408,000

Stock splits

increase the number of shares of stock issued and decrease par value per share.

Backyard Emporium issued 500,000 shares of $1 par common stock at $5 per share. Which journal entry correctly records the issuance of this stock?

(D) Cash ($5 per share × 500,000 shares) 2,500,000 (C) Common Stock ($1 par value × 500,000 shares) 500,000 (C) Paid-In Capital in Excess of Par—Common ($4 per share × 500,000 shares) 2,000,000

Cooper Corporation issued its 4%, 20-year bonds payable at a price of $288,500 (face value is $300,000). The company uses the straight-line amortization method for the bonds. Interest expense for each year is

Interest Expense = Stated interest + Amortization of discount = ($300,000 × 0.04) + [($300,000 − $288,500) / 20] = $12,000 + ($11,500 / 20) = $12,000 + $575 = $12,575

Skinny Smoothies has $850,000 of 20-year bonds payable outstanding. These bonds had a discount of $42,000 at issuance, which was 8 years ago. The company uses the straight-line amortization method. The carrying amount of these bonds payable today is

Carrying amount (today) = Carrying amount (at issuance) + Discount amortized (to date)* = $808,000 + $16,800 = $824,800 *Discount amortized (to date) = ($42,000 / 20) × 8 years = $2,100 × 8 years = $16,800

A company purchased a point-of-sale self-service cash register on January 1 for $5,400. This register has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the second year of its useful life, using the double-declining-balance method?

Double-declining-balance depreciation = (Cost − Accumulated depreciation) ́ 2 ́ (1 / Useful life) For the first year of the cash register: = ($5,400 − $0) ́ 2 ́ (1 / 10 years) = $1,080 For the second year of the cash register: = ($5,400 − $1,080) ́ 2 ́ (1 / 10 years) = $864

Cloud Company has a lawsuit pending from a customer claiming damages of $128,000. Cloud's attorney advises that the likelihood the customer will win is reasonably possible. How is this contingent liability reported?

It should be described in the footnotes.

Tots Toy's owed an Estimated Warranty Payable of $2,200 at the end of 2018. During 2019, Tots Toy's made sales of $280,000 and expects product warranties to cost the company 3% of the sales. During 2019, Tots Toy's paid $5,000 for warranties. What is Tots Toy's estimated warranty payable at the end of 2019?

It should be recorded as an asset and a liability based on estimated amounts.

A company paid $150,000 plus a 6% commission and $4,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records?

Land $81,500; Land Improvements $32,600; Building $48,900

A copy machine costs $25,000 when new and has accumulated depreciation of $16,000. Suppose Prints Express junks this machine and receives nothing. What is the result of the disposal transaction?

Loss of $9,000

Cattle Company's bonds payable carry a stated interest rate of 8%, and the market rate of interest is 5%. The price of the Cattle Company's bonds will be at

a premium.

Land improvements are assets that increase the usefulness of land

and are subject to depreciation.

Retained Earnings

can be subject to appropriation by a corporation's directors to limit dividends.

A five-year, $100,000, 4% note payable was issued on December 31, 2014. The note requires principal payments of $20,000 plus interest due each year beginning December 31, 2015. The entry to record the annual payment at the end of year two on December 31, 2016, includes a

debit to Interest Expense for $3,200.

Hughes Industries signed a 20-year note payable on January 1, 2018. The note requires annual principal payments plus interest. The entry to record the annual payment on December 31, 2018 includes a

debit to Interest Expense.

On July 1, 20X8, your company borrowed $20,000 on a four-year, 6% note payable. At December 31, 20X8, a journal entry should be made to record

interest payable of $600.

Happy Pets Corporation has 10,000 shares of 5%, $20 par noncumulative preferred stock, and 37,000 shares of common stock outstanding. Ink declared no dividends in 20X4. In 20X5, Ink declares a total dividend of $54,000. How much of the dividends go to the common stockholders?

$44,000

Two years ago, Tonya Williams purchased a building for $210,000. This year, Williams gave the building, which now has a current market value of $240,000, to Beyond Corporation in exchange for 5,000 shares of $10-par common stock. Which journal entry by Beyond Corporation correctly records the issuance of this stock?

(D) Building (at market value) 240,000 (C) Common Stock ($10 par value × 5,000 shares) 50,000 (C) Paid-In Capital in Excess of Par—Common ($240,000 − $50,000) 190,000

Which of the following is the correct journal entry to record the issuance of a $250,000 face value bond at 95?

(D) Cash 237,500 (D) Discount on Bonds Payable 12,500 (C) Bonds Payable 250,000

Your company sells $50,000 of goods, and you collect sales tax of 7%. What is the journal entry to record the transaction?

(D) Cash 53,500 (C) Sales Tax Payable 3,500 (C) Sales Revenue 50,000

An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore over the next 10 years. A total of 70,000 tons are mined and sold in the current year. What is the depletion expense for the current year?

Depletion per unit = (Cost − Residual value) / Estimated total units = ($800,000 −$0) / 1,600,000 tons = $0.50 per ton Depletion expense = Depletion per unit x Number of units extracted = $0.50 per ton x 70,000 tons = $35,000

When originally purchased, a truck had an estimated useful life of seven years. The truck cost $68,000 and its estimated salvage value is $5,000. After five years of straight-line depreciation, the asset's total estimated useful life was revised from seven years to nine years, and there was no change in the estimated salvage value. What is the depreciation expense in year 6?

Straight-line depreciation = (Cost − Residual value) / Useful life = ($68,000 − $5,000) / 7 years = $9,000 per year ́ 5 years = $45,000 Revised depreciation = (Book value* − Revised residual value) / Revised useful life remaining = ($23,000 − $5,000) / 4 years = $4,500 per year *Book value = Cost − Accumulated depreciation = $68,000 − $45,000 = $23,000

As of January 1, 2019, Darnell's Deliveries owes $60,000 on a truck purchased for use by the business. The company makes principal payments of $1,000 each month plus interest at 8%. At the end of 2019, after the first 12 months' payments of principal and interest, which of the following would be included on the balance sheet for December 31, 2019?

The truck cost $60,000 and is paid in $1,000 monthly installments, plus interest, over five years. In 2019, $12,000 of principal is paid. The remaining principal balance is $48,000 ($60,000 − $12,000). Of this remaining principal balance, the portion that must be paid within one year, $12,000, is current. The remaining $36,000 ($48,000 − $12,000) will be classified as long-term. Since interest is paid each month with the principal payment, no interest payable is accrued.

During 2018, Crystal Glassware reported net income of $123,000, income tax expense of $25,000, and interest expense of $11,000. What is Crystal Glassware's times-interest-earned ratio for 2018? (Round to one decimal place.)

Times-interest-earned ratio = (Net income + Income tax expense + Interest expense) / Interest expense = ($123,000 + $25,000 + $11,000) / $11,000 = 14.5

A total asset turnover ratio of 4.5 indicates that for every $1 in average total assets invested,

the firm produced $4.50 in net sales revenue during the period.