Accy 2036 Ch. 10 learnsmart
After a company has issued its bonds, the daily fluctuations of market rates of interest ________
Are not considered transactions and thus not recorded in the company's accounting records
Term
Bond issue that matures on a single date
The entry to record the issuance of bonds at face value includes a debit to Cash and a credit to __________ ___________
Bonds Payable
Convertible bonds
Bonds that can be exchanged for shared of stock in the issuing company
Serial bonds
Bonds that mature in installments
_______ 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 reasonable estimated
Contingent
________ _______ 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
Current Liabilities
A(n) _________ note requires the borrower to pay equal payments over the note's life to maturity with each payment consisting of interest and principal
installment
On the maturity date, the bondholders of $100,000 of bonds that were issued at a $90,000 will receive _______
$100,00 in cash plus the interest owed
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
Payroll deductions __________
Decrease the amount of cash an employee receives Are amounts subtracted from employees' gross earnings to determine their net pay
Which of these payroll taxes are paid only by the employer?
FUTA SUTA
What does the IRS call a corporate income tax return?
Form 1120
Under US GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not." Which framework will report more contingent liabilities on the balance sheet?
IFRS
If an adjusting entry is required for interest owed, then the ____ will report _____
Income statement; Interest Expense Balance Sheet; Notes Payable Balance Sheet; Interest Payable
The times interest earned ratio equals Net Income plus Interest Expense and Income Tax Expense, divided by ___________
Interest Expense
Assets are financed with _____ and stockholder's equity
Liabilities
XYZ Warehouse operates in a state with 6% sales tax. For convenience, XYZ Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. What will be the effect if XYZ Warehouse fails to make an adjustment for sales tax?
Liabilities will be understated Net income will be overstated
What factors are needed to determine the amount of installment payments?
Original principal Number of years frequency of payments interest rate
True or False: Companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate
True Bonds issue at a discount when the stated interest rate is lower than the market interest rate
True or False: Under US GAAP, contingent liabilities are recorded if the estimated loss is probable. Under IFRS, contingent liabilities are recorded if the estimated loss is "more likely than not"
True IFRS threshold for recording contingent liabilities is lower than that of GAAP
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 ________
a credit to Premium on Bonds Payable of $5,000 a credit to Bonds Payable of $100,000 a debit to Cash of $105,000
The debt-to-asset ratio indicates __________
a higher ratio means greater financing risk the percentage of assets financed by debt
on October 1, 2019 an installment note was issued with annual payments due on September 30. given a year-end of December 31, 2020, the adjusting entry to accrued interest owed will be _____
a lesser amount than the previous year's
A $1,000 bond was issued at 107.26. The 107.26 is _______
a percent and means that bond was sold for $1,072.60
The debt-to-asset ratio is calculated by dividing total liabilities by total ___________
assets
Under US GAAP, if a company violates loan covenants on long-term debt but renegotiates the loan before releasing its financial statements, the debt remains classified as long-term. UnderIFRS, the company must reclassify that long-term debt as a(n) ___________ liability
current
The law requires _________ to pay FICA taxes
both employee and employer
The entry to record the payment of 6-months of interest on a note in which 2 months of interest was recorded as an adjusting entry in the prior accounting period includes _______
credit Cash for 6 month's of interest debit Interest Payable for 2 months of interest debit Interest Expense for 4 months of interest
When are installment notes payable commonly used?
credit card loans home mortgages student loans
For investors, the ________ provide independent, easy-to-use measurements of relative credit risk
credit rating agencies
The entry to record the early retirement of bonds when the cash paid is less than the bonds' carrying value will include a __________
credit to a Gain on Early Retirement
On the maturity date, the journal entry to record the payment of $1,000,000 of bonds payable that were issued at a $70,000 discount includes a ________
debit to Bonds Payable of $1,000,000 credit to Cash of $1,000,000
On November 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31 of the following year. The journal entry on November 1, would include which of the following?
debit to Cash $100,000 credit to Note Payable $100,000
If ABC Company issued its $5,000,000, 8% bonds payable at a discount and uses the straight-line method of amortization, then the ___________
debit to Cash is less than the credit to Bonds Payable credit to Discount on Bonds Payable will be the same each payment market rte of interest must be greater than the stated rate of interest
The entry to record the issuance of 100, $1,000 bonds for 98.000 includes a __________
debit to Discount on Bonds Payable for $2,000 debit to cash for $98,000 credit to Bonds Payable for $100,000
When a bond is sold at a premium and is amortized using the effective-interest method, each subsequent interest payment will result in a ________ compared to the prior payment
debit to Premium on Bonds Payable for a greater amount debit to Interest Expense for a smaller amount credit to Cash for the same amount lower carrying value
ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______
debit to inventory of $500 credit to accounts payable of $500
A bond that was issued at a premium will include a _________
debit to the Premium on Bonds Payable each interest payment
6% stated interest rate and 8% market interest rate
discount - investors will pay less than face value
The straight-line method of amortization ______________
distorts the financial results somewhat because it produces an equal Interest Expense each period despite a change in the bond's carrying value evenly allocates the amount of bond premium or discount over each period of a bond's life
Which method of bond amortization amortizes the premiums/discounts accurately and is considered a conceptually superior method?
effective-interest
When recording the adjusting entry to accrue the interest owed on a bond that was issued at face value, the debit to Interest Expense will be ________
equal to the credit to Interest Payable
Accruing a liability involves recording both a(n) _____ and a liability
expense
Whether a bond is issued at par, premium or discount, when the bond matures the amount paid equals the ___________ value
face
If a $1,000 bond is issued at 100.00, then the bond sold at __________
face value
Using the effective-interest method on a bond issued at a discount, the entry to record each interest payment will include a debit to Interest Expense that is _______ the credit to Cash
greater than
A bond that was issued at a discount will have a carrying value that _______ with each interest payment
increases
If a company issues its bonds at a discount and uses the straight-line method of amortization, then the carrying value of the bond will _____ with each interest payment
increases by the same amount
Bonds are financial ___________ that outline the future payments a company promises to make in exchange for receiving a sum of money now
instruments
An amortization schedule for a $10,000 installment note with a 6% interest fully repaid in a 4 annual installments of $2,886 will include the following amounts for the 1st installment payment.
interest expense of $600 ending note payable of $7,714 repaid principal on note payable of $2,286
The stated rate is the rate used to determine the _____
interest payment
6% stated interest rate and 6% market interest rate
investors will pay face value
A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is _________
issued
Current portion of Long-Term Debt reports the amount of _______ and is reported on the _______
long-term debt that is reclassified because it is due within a year balance sheet
When the times interest earned ratio is less than 1.0, a company is __________
not generating enough income to cover its interest expense
Bond Carrying value equals Bonds Payable _________
plus Premium on Bonds Payable minus Discount on Bonds Payable
6% stated interest rate and 4% market interest rate
premium - investors will pay more than face value
Each installment payment on an installment note consists of interest and _____________
principal
A bond that was issued at face value will have a carrying value that _______ with each interest payment
remains the same
An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) _________ account
revenue
Face Value
stated rate equals the market rate of interest
Premium
stated rate is greater than the market rate of interest
Discount
stated rate is less than the market rate of interest
When using the straight-line method of bond amortization, Interest Expense ________ each payment
stays the same
Callable bonds
the issuing company can pay off the bonds at any time
Bond Amortization
the process that causes the balance in Premium on Bonds Payable to decline each period
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
Debentures
unsecured bonds
The debt-to-assets ratio best answers which financial question?
what is the percentage of assets financed by debt?
Long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books for more than one ______
year