Acct 284 chpt 10
____ Liabilities are potential liabilities that arise as a result of past transactions or events and are reported on the balance sheet if the loss will probably occur and can be reasonably estimated. (Enter one word per blank.)
Contingent
Which method of bond amortization amortizes the premiums/discounts accurately and is considered a conceptually superior method?
effective-interest
If a company forgets to record the journal entry to accrue interest expense, then its net income is too ______ and its liabilities are too ______.
high; low
When using the effective-interest method of bond amortization, Interest Expense ______ each payment if the bonds were issued at a discount.
increase
The stated rate is the rate used to determine the ______.
interest payment
A bond's stated interest rate is ______. (Check all that apply.)
always expressed as an annual interest rate used to calculate interest payments
The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to ____ ____
bonds payable
____ _____ is a liability that represents the amount the company owes to others as a result of issuing a promissory note.
notes payable
If ABC Company issues 100 of its $1,000 bonds at a price of 110.00, i.e., $1,100 each, the journal entry to record the transaction includes a ______. (Select all that apply.)
credit to Bonds Payable of $100,000 credit to Premium on Bonds Payable of $10,000 debit to Cash of $110,000
A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is ______.
issued
A bond with an issue price of $10,100 and a face value of $10,000 was issued at ______.
premium
The stated rate ______.
remains the same throughout the life of the bonds
On November 1, Deli Llama, Inc. issued 2 notes payable at 12% per year for $10,000 each. One is a 3-month note and the other is a 2-year note. The amount of interest owed at December 31 will be ______.
the same amount for both notes
The issue price of 1,000, 5%, $1,000 bonds issued at 100.00 equals ______.
$1,000,000
A bond with a face value of $1,000 has a current price quote of 102.880. What is the bond's current price in dollars?
$1,028.80
Ace Electronics signed a 10-year, $100,000, 4% note payable on January 1. When the note is signed, Ace should record a liability of ______.
$100,000
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. What is John's net pay?
$486.10
Acme Enterprises began the new year owing its suppliers $3,000 for merchandise purchased last year. Acme then sold half of this merchandise for $5,000 on account. Two weeks later, Acme paid its suppliers $1,000 and bought another $4,000 of merchandise on account. Acme now has an Accounts Payable balance of ______.
$6,000
The entry to record the initial borrowing of cash by issuing a promissory note includes a debit to ______ and a credit to ______.
Cash; Notes Payable
____ are financial instruments, traded on established exchanges, that specify future payments a company promises to make in exchange for receiving a sum of money now. (Enter one word per blank.)
Bonds
If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a debit to ______.
Cash and a credit to Bonds Payable of $100,000
True or false: The bond issue price is determined by the company issuing the bonds.
False
ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?
The issue price will be above the bond's face value.
If ABC Company issues 100 of its $1,000 bonds at a price of 105.00, i.e., 105%, the journal entry to record the transaction includes ______. (Select all that apply.)
a debit to Cash of $105,000 a credit to Premium on Bonds Payable of $5,000 a credit to Bonds Payable of $100,000
A $1,000 bond was issued at 107.26. The 107.26 is ______.
a percent and means the bond sold for $1,072.60
If a bond's stated rate is 6% and the market rate is 4%, this bond will sell at ______.
a premium
The debt-to-asset ratio is calculated by dividing total liabilities by total ____
assets
If an adjusting entry is required for interest owed, then the ______ will report ______. (Check all that apply.)
balance sheet; Interest Payable balance sheet; Notes Payable income statement; Interest Expense
ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______. (Check all that apply.)
debit to Inventory of $500 credit to Accounts Payable of $500
The journal entry to record the payment of salaries and wages to employees includes a ______. (Select all that apply.)
debit to Salaries and Wages Expense credit to FICA Payable credit to Withheld Income Tax Payable credit to Cash
Bond premium is the amount by which a bond's issue price ______ its face value.
exceeds
Accruing a liability always involves recording both a(n)______ and a liability.
expense
If a bond's stated rate is 4% and the market rate is 4%, this bond will sell at ______.
face value
the ____ ____ is the payment made when a bond matures.
face value
The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable instead of Notes Payable. The effect of recording this entry causes ______. (Select all that apply.)
liabilities to be understated assets to be understated
Bonds are issued at a discount when the bond's stated interest rate is ______ the market interest rate.
lower than
When a company records a debit to Bonds Payable and a credit to Cash, it is the bonds' ______.
maturity date
Under US GAAP, a contingent liability should ______. (Enter one word per blank.)
not be reported if the loss is remote and unable to be estimated be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated be reported on the balance sheet if the loss will probably occur and can be reasonably estimated
When the times interest earned ratio is less than 1.0, a company is ______.
not generated enough
the _____ rate on a bond is the rate used to determine the interest payments. (Enter one word per blank.)
stated
Net pay is calculated by ______.
subtracting payroll deductions from gross pay
For an investor, bonds are attractive investments because ______.
they can be traded on established bond exchanges interest is higher than bank savings accounts
True or false: Companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate.
true
Which type of contingent liability would most likely be found on a balance sheet prepared under US GAAP?
Probable contingent liability that can be estimated
What are the key events with notes payable? (Check all that apply.)
Recording principal paid Recording interest paid Accruing interest incurred but not paid Establishing the note
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?
Salaries and Wages Expense increases $600.
True or false: A classified balance sheet separates liabilities into current and non-current categories.
True
The debt-to-assets ratio best answers which financial question?
What is the percentage of assets financed by debt?
_____ _____ on a classified balance sheet report the obligations that will be paid or met within the company's operating cycle or within 1 year, whichever is longer. (Enter one word per blank.)
current liabilities
When using the effective-interest method of bond amortization, Interest Expense ______ each payment if the bonds were issued at a premium.
decreases
A bond's maturity date is the date on which the ______.
face value of the bonds are paid
During the year, a $1,000,000 lawsuit was filed against a US company for unsafe working conditions. Management and the attorneys feel that it is not likely that the company will lose the case. The plaintiff who filed the lawsuit has offered to settle for $600,000. Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000. What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?
0
At the beginning of the year, a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%. During the year, the firm's assets increased by $40,000, and its liabilities increased by $36,000. What is the debt-to-assets ratio at the end of the year?
0.6 or 60%
A company's debt-to-assets ratio is 0.7 or 70%. If the company issues common stock for cash, then the debt-to-assets ratio will ______.
decrease
What effect will issuing more bonds have on the times interest earned ratio over time?
decrease
Accounts (or trade) Payable is debited when ______ and credited when ______.
paid; purchases are made on credit
Which accounts are credited when the journal entry to pay employees is recorded? (Select all that apply.)
Withheld Income Tax Payable Cash FICA Payable
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? (Select all that apply.)
A 4-month note's interest equals $1,000 x 12% x 1/12 A 3-month note's interest equals $1,000 x 12% x 1/12 A 2-year note's interest equals $1,000 x 12% x 1/12
Employees' gross earnings differ from their net pay because of ______.
payroll deductions
Employees' gross earnings differ from their net pay because of ______. (Select all that apply.)
payroll deductions FICA taxes federal and state income taxes