ACCT_311/S.Ward/FINAL_EXAM [Ch.6 &23?]

Bonds which do not pay interest unless the issuing company is profitable are called a. income bonds b. term bonds c. debenture bonds d. secured bonds

a. income bonds

In 2024, Crane Dynamic Corporation began selling anew line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year -- 3% Second year -- 5% Sales and actual warranty expenditures for 2024 and 2025 are presented below: 2024 Sales -- $619,00 2025 Sales -- $813,000 2024 Expenditures -- $21,300 2025 Expenditures -- $49,300 What is the total estimated warranty liability at the end of 2025? a. 43,960 b. 65,260 c. 114,560 d. 22,660

a. 43,960 (619,000 * (3% + 5%) + (813,000 * (3% + 5%) - (21,300 + 49,400)

Company A rents office space to Company B. If Company B pays Company A for one year's rent in advance on June 1.. a. Company A will record Unearned Rent Revenue and Company B will record Prepaid Rent b. Company A will record Rent Revenue and Company B will record Rent Expense c. Company A will record Prepaid Rent and Company B will record Unearned Rent Revenue d. Company A will record Rent Expense and Company B will record Rent Revenue

a. Company A will record Unearned Rent Revenue and Company B will record Prepaid Rent

A lawsuit has been filed against Oriole Company for wrongful termination. Oriole's legal counsel has encouraged the company to settle it is likely they will lose the case. The amount of the loss is estimated to be between $586,00 and $1,032,000. Legal counsel believes that the case could be settles for $852,000. Oriole should report a. a contingent liability for $852,000 b. an estimated liability for $586,000 c. a contingent loss of $1,032,000 d. no loss or liability until the case is settled

a. a contingent liability for $852,000 contingent liability should be reported on the BS and a loss contingency should be reported on the IS

The terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture b. bond debenture c. registered bond d. bond coupon

a. bond indenture

Typical contingencies include all of the following except a. bonds payable b. estimate cost of premiums c. obligations under warranties d. environmental liabilities

a. bonds payable

Federal income taxes withheld by the employer on behalf of the employee are recorded as a. current liabilities b. expenses c. revenues d. receivables

a. current liabilities

If bond are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used b. be less than it would have been had the effective-interest method of amortization been used c. be than same as what it would have been had the effective-interest method of amortization been used d. be less than that stated (nominal) rate of interest

a. exceed what it would have been had the effective-interest method of amortization been used

Crane Company offers a cash rebate of $4 on each $10 package of protein powder sold during 2024. Historically, 20% of their customers mail in the rebate form. During 2024, 3,012,000 packages are sold, and 282,000 $4 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2024 financial statements? a. $1,128,000 ; $1,281,600 b. $2,409,600 ; $1,281,600 c. $2,409,600 ; $1,128,000 d. $1,128,000; $2,409,600

b. $2,409,600 ; $1,281,600

Blossom Company offers a cash rebate of $5 on each $10 package of protein powder sold during 2024. Historically, 20% of their customers mail in the rebate form. During 2024, 3,032,000 packages are sold, and 271,000 $5 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2024 financial statements? a. $1,355,000; $1,677,000 b. $3,032,000; $1,677,000 c. $3,032,000; $1,355,000 d. $1,355,000; $3,032,000

b. $3,032,000; $1,677,000 3,032,000 - 1,355,000

On January 1, Blue Inc. issued $5,021,000, 9% bonds for $4,755,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Blue uses the effective-interest method of amortizing bond discount. At the end of the first year, Blue will report a carrying value of the bonds payable of a. $4,781,600 b. $4,778,610 c. $242,390 d. $4,805,210

b. $4,778,610 (5,021,000 * 9%) - (4,755,000 * 10%) = 23,610 4,755,000 + 23,610 = 4,778,610

On January 1, 2025 Novak Inc. issued $5,012,000, 9% bonds for $4,715,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Novak uses the effective-interest method of amortizing bond discount. At December 31, 2025, Novak should report unamortized bond discount of a. 267,300 b. 276,580 c. 249,850 d. 246,880

b. 276,580 5,012,000 - 4,715,000 = 297,000 5,012,000 * 9% = 451,080 451,080 - (4,715,000 * 10%) = 20,420 297,000 - 20,420 = 276,580

On January 1, Culver Inc, issued $3,282,000, 11% bonds for $3,263,200. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Culver uses the effective-interest method of amortizing bond premium. At the end oft he first year, Culver should report the bonds at a carrying value of a. 3,230,582 b. 3,228,500 c. 3,265,268 d. 3,230,380

b. 3,228,500 (3,282,000 * 11%) - (3,263,200 * 10%) = 34,700 3,263,200 - 34,700 = 3,228,500

On June 30,2025, Martinez Co. had outstanding 10%, $5,820,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balance in the bond discount account on June 30, 2025 was $200,000. On June 30, 2025, Martinez acquired all of these bonds at 102 and retired them. What amount of gain or loss would Martinez record on this early extinguishment of debt? a. 593,640 gain b. 316,400 loss c. 200,000 gain d. 382,000 loss

b. 316,400 loss 5,820,000 - 200,000 = 5,620,000 (5,820,000 * 1.02) - 5,620,000 = 316,400

Culver Company issues $15,300,000, 9.80%, 20-year bonds to yield 10% on January 1, 2025. Interest is paid on June 30 and December 31. The proceeds from he bonds are $15,037,466. Culver uses effective interest amortization. What amount of interest expense will Culver record for the June 30,2025 payment? a. 749,700 b. 751,873 c. 765,000 d. 1,503,746

b. 751,873 (15,037,466 * 6/12 * 10%)

Which of the following is not an example of a current liability at December 31, 2026? a. Dividends Payable b. Bonds Payable, due 12/28 c. Utilities Payable d. Salaries and Wages Payable

b. Bonds Payable, due 12/28

Which of the following is not true about the discount on short-term notes payable? a. The Discount on notes Payable account is a contra account tot he liability, Notes Payable, and has a debit balance. b. The Discount on Notes Payable account should be reported as an asset on the balance sheet. c. When there is a discount on a note payable, the amount of cash received will be less than the face value of the note. d. The amortization of Discount on Notes Payable increases interest expense.

b. The Discount on Notes Payable account should be reported as an asset on the balance sheet.

On January 1, Culver Inc. issued $102,430,000,6% bonds at 104. The journal entry to record the issuance of the bonds will include a. a credit to Bond payable for $106,527,200 b. a credit to Premium on Bonds Payable for $4,097,200 c. a debit to Cash for $102,430,000 d. a credit to Interest Expense for $4,097,200

b. a credit to Premium on Bonds Payable for $4,097,200 you would also debit Cash for 106,527,200 and credit Bonds Payable for 102,430,000

Ivanhoe Company issued a 90-day zero-interest-bearing note with a face amount of $6,200 on November 1, The present value of the note is $5,630. About the note, the adjusting journal entry at December 31 will require a. a credit to Discount on Note Payable for $190 b. a debit to Interest Expense for $380 c. a credit to Cash for $570 d. none of these answers are correct

b. a debit to Interest Expense for $380 6200 - 5630 = 570 (570/90 days)*60 days = 380 you would dr Interest Expense and cr Discount on Notes Payable

Sunland Inc. is being sued by former employees as a result of negligence on the company's part. Sunland's lawyers state that it is probable that the company will lose the suit and be found liable for. judgment costing the company anywhere form $100,224,000 to $ 200,341,000. However, the lawyer states that the most probable cost is $127,479,000. As a result of the above facts, Sunland should accrue a. a loss contingency of $100,224,000 and disclose an additional contingency of up to $100,224,000. b. a loss contingency of $127,479,000 and disclose an additional contingency of up to $72,862,000. c. a loss contingency of $127,479,000 but not disclose any additional contingency. d. no loss contingency but disclose a contingency of $100,224,000 to $200,341,000

b. a loss contingency of $127,479,000 and disclose an additional contingency of up to $72,862,000.

Which of the following sets of conditions would give rise to the accrual of a contingency under current general accepted accounting principles? a. amount of loss is reasonably estimable and the event occurs infrequently b. amount of loss is reasonably estimable and occurrence of the event is probable c. event is unusual in nature and occurrence of the event is probable d. event is unusual in nature and event occurs infrequently

b. amount of loss is reasonably estimable and occurrence of the event is probable

The printing costs and legal fees associated with the issuance of bonds should a. be expensed when incurred b. be reported as a reduction to the issue amount of the bond payable and then amortized to expense over the life of the bond c. be accumulated in a deferred charge account and amortized over the life of the bonds d. not be reported as an expense until the period the bonds mature or are retired

b. be reported as a reduction to the issue amount of the bond payable and then amortized to expense over the life of the bond

A bond for which the issuer has the right to call and retire the bond prior to maturity is a a. convertible bond b. callable bond c. retirable bond d. debenture bond

b. callable bond

The numerator in the times interest earned ratio is a. net income b. net income plus interest expense and income tax expense c. net income plus interest expense d. net income plus income tax expense

b. net income plus interest expense and income tax expense

A loss related to general or unspecified business risks is a. always accrued b. not accrued c. sometimes accrued d. usually accrued

b. not accrued

A bond that matures in installments is called a a. term bond b. serial bond c. callable bond d. bearer bond

b. serial bond

Employer payroll taxes include all of the following except.. a. federal unemployment taxes b. state income taxes c. FICA taxes d. state unemployment taxes

b. state income taxes

Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that a. the market rate of interest exceeded the stated rate b. the stated rate of interest exceeded the market rate c. the market and stated interred rates coincided d. no necessary relationship exists between the two interest rates

b. the stated rate of interest exceeded the market rate

In determining the amount to be accrued for a contingency when there is a range of possible amounts of loss and no amount within the range is a better estimate than any other mount, the liability should be measured a. using the midpoint of the range between the lowest possible loss and the highest possible loss b. using the minimum amount of the loss in the range c. using an average of the lowest possible loss and the highest possible loss d. using the maximum amount of the loss in the range

b. using the minimum amount of the loss in the range

A debenture bond is also known as a. a real estate bond b. a convertible bond c. an unsecured bond d. secured bond

c. an unsecured bond

T/F The effective interest method calculates bond interest expense by multiplying the carrying value of the bonds at the beginning of the period by the stated rate of interest.

false multiple by the effective-interest rate

Marigold Company issues $21,500,000, 5.80%, 20-year bonds to yield 6% on January 1, 2025. Interest is paid on June 30 and December 31. The proceeds from the bonds are $21,003,032. The company uses effective-interest amortization. Interest expense reported on the 2025 income statement will total a. 1,177,963 b. 1,247,000 c. 1,260,380 d. 1,290,000

c. 1,260,380 (21,003,032 * 6% * 6/12) = 630,091 (21,500,000 * 5,8% * 6/12) = 623,500 21,003,032 + (630,091 - 623,500) = 21,009,623 (21,009,623 * 0.6% * 6/12) = 630,289 630,091 + 630,289 = 1,260,380

On June 30, 2025, Cheyenne Co. had outstanding 9%, $6,540,000 face amount, 15-year bonds maturing on June 30, 2027. Interest is payable on June 30 and December 31. The unamortized balance in the bond discount on June 30, 2025 was $228,900. On June 30, 2025, Cheyenne acquired all of these bonds at 95 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? a. 6,474,600 b. 6,245,700 c. 6,311,100 d. 6,147,600

c. 6,311,100 6,540,000 - 228,900

Which of the following statements is false? a. When rights are vested, an employer has an obligation to make payment to an employee. b. Unemployment taxes are paid by the employer. c. Compensated absences are usually reported as a long-term liability. d. The liability for compensated absences should be recognized in the year ended.

c. Compensated absences are usually reported as a long-term liability. they are usually reported as a current liability

Wildhorse Company issued a 90-day zero-interest-bearing note with a face amount of $3,237. The present value of the note is $2,858. The journal entry to record the issuance of the note will include a. a credit to Notes Payable for $2,858 b. a debit to Interest Expense for $379 c. a debit to Cash for $2,858 d. none of these answers are correct

c. a debit to Cash for $2,858 dr. Cash 2858 dr. Discount on Notes Payable 379 cr. Notes Payable 3237

A liability for compensated absences is a. accrued under all conditions b. disclosed in a note only c. accrued only if specific conditions are met d. never accrued but may be disclosed if desired

c. accrued only if specific conditions are met

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company a. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. b. wishes to confine all information related to the debt to the income statement and the statement of cash flow. c. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. d. is in violation of generally accepted accounting principles.

c. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.

If a bond sells at 97, the market interest rate is a. equal to the stated rate b. les then the stated rate c. greater than the stated rate d. equal to the coupon rate

c. greater than the stated rate means it sold at 97% of face value.. so at a discount

When a bond sells at a premium, interest expense will be a. equal to the bond interest payment b. greater than the bond interest payment c. less than the bond interest payment d. none of these answer choices are correct

c. less than the bond interest payment

Which of the following is not an acceptable treatment for the presentation of current liabilities? a. listing current liabilities in order of maturity b. listing current liabilities according to amount c. offsetting current liabilities against assets that are to be applied to their liquidation d. showing currently maturing long-term debt as part of current liabilities

c. offsetting current liabilities against assets that are to be applied to their liquidation

Current liabilities are defined as obligations whose liquidation is reasonably expected to a. be paid within a year b. require the use of current assets c. require the use of current assets or the creation of other current liabilities d. require the distribution of cash

c. require the use of current assets or the creation of other current liabilities

Gain contingencies include all of the following except a. possible receipts of donations and gifts b. pending court cases where the probable outcome is favorable c. possible refund from he government in tax disputes d. all are correct

d. all are correct

Which of the following is included in employer payroll taxes? a. FICA taxes b. federal unemployment taxes c. state unemployment taxes d. all are correct

d. all are correct

On August 31, 2024, Cullumber university sold $416,000 in season tickets for the school's 5-game home football season. As each game is played, how much revenue will Cullumber recognize? a. 0 b. 104,000 c. 93,600 d. 83,200

d. 83,200 416,000/5

Which of the following factors need not be considered in determining whether a liability should be recorded with respect to pending or threatened litigation? a. the time period in which the cause of action occurred b. the probability of an unfavorable outcome c. the ability to make a reasonable estimate of the loss d. all of the above

d. all of the above

Which of the following statements regarding current liabilities is false? a. a zero-interest bearing note is reported at the face amount less the unamortized discount. b. cash dividends should be reported as a liability when they are declared by the board of directors. c. unearned revenues represent advance payments for goods or services form customers. d. Discount on notes payable represents interest revenue to the issuer.

d. Discount on notes payable represents interest revenue to the issuer. it would be interest expense

A large anticipated insurance recovery is reported as a. an accrued amount b. deferred revenue c. an account receivable with additional disclosure explaining the nature of the contingency d. a disclosure only

d. a disclosure only because it is a gain contingency

Accrued liabilities are disclosed int he financial statements by a. a footnote to the statements b. showing the amount of savings among the liabilities but not extending it to the liability total c. an appropriation of retained earnings d. appropriately classifying them as regular liabilities in the balance sheet

d. appropriately classifying them as regular liabilities in the balance sheet

Which of the following is not an example of "off-balance-sheet financing"? a. non-consolidated subsidiary b. special purpose entity c. operating leases (term < 1 year) d. capital leases

d. capital leases

The interest rate written in the terms of the bond indenture is known as the a. effective rate b. market rate c. yield rate d. coupon rate, nominal rate, or stated rate

d. coupon rate, nominal rate, or stated rate

Under the effective interest method, interest expense a. always increases each period the bonds are outstanding b. always decreases each period the bonds are outstanding c. is the same annual amount as straight-line interest expense int he earlier years d. is the same total amount as straight-line interest expense over the term of the bonds

d. is the same total amount as straight-line interest expense over the term of the bonds

The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the a. stated rate b. nominal rate c. coupon rate d. market rate

d. market rate

Note disclosures for long-term debt generally include all of the following except a. assets pledged as security b. call provisions and conversion privileges c. restrictions imposed by the creditor d. names of specific creditors

d. names of specific creditors

Gain contingencies are record when a. it is probable that a benefit will be received b. the amount of the gain can be reasonably estimated c. it is probable that a benefit will be relied, and the amount of than can be reasonably estimated d. none are correct

d. none are correct gain contingencies are never recorded

Liabilities are a. accounts having credit balances as a result of closing entries. b. deferred credits that are recognized and measured in conformity with generally accepted accounting principles c. obligations to transfer ownership shares to other entities in the future d. obligations arising from past transactions and payable in assets or services in the future.

d. obligations arising from past transactions and payable in assets or services in the future.

T/F If a company elects the fair value option for its long-term liabilities, a decrease in the fair value of its. bond payable will result in an unrealized holding loss.

false it would be a gain

T/F: Boomchickapop Company elects the fair value option for a long-term note payable. In 2025, the company will report an unrealized holding gains as a component of Other Comprehensive Income.

false

T/F State and federal unemployment taxes are imposed on both employers and employees.

false only on the employer

T/F In accounting for short-term debt expected to be refinanced to long-term debt, GAAP uses the financial statement issuance date to determine whether the debt should be classified as a short-term or long-term.

false GAPP uses the balance sheet date

T/F When the effective interest rate of a bond is lower than the stated interest rate, the bond sells at a discount.

false it is at a premium

T/F Best-efforts underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount.

false it is firm underwriting

T/F Bellingham Inc. sold bonds with a face value of $100,000,000 and a stated interest rate of 8% for $92,278,000, to yield 10%. If the company uses the effective interest method of amortization, interest expense for the first six months would be $4,000,000.

false it would be (10% * 6/12 * 92,278,000) = 4,613,900 the 4,000,000 represent the cash payment for interest (100,000,000 * 6/12 * 8%)

T/F A bond is a type of long-term note payable.

true

T/F Gains and losses on early extinguishment of debt are reported as other gains and losses on the income statement.

true

T/F The entry to record the collection of sales tax by a retailer may include credits to both Sales Revenue and Sales Tax Payable.

true

T/F The discount on a short-term zero-interest bearing note represents interest.

true the difference between the amount of cash received and the face value of a zero-interest note is recorded as a Discount on Notes Payable

T/F When revenue from gift card breakage is recorded, no cost of goods sold is recognized.

true no goods are transferred or services performed

T/F Gain contingencies are not recorded.

true they are disclosed in the notes only when there is a high probability that a material gain will become a reality