CH 7,8,9 ac221

When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period

minus the premium amortization for the period.

When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period

plus the discount amortization for the period.

When reporting liabilities on a balance sheet, in theory, what measurement should be used?

present value of the future outflow

(Appendix 9A) The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount.

what could not involve a liability?

purchasing a vehicle for cash

warranty expense is

recorded in the period of sale

When depreciation is recorded each period, what account is debited? The fixed asset account involved

depreciation expense

The cost principle requires that companies record fixed assets at:

historical cost

To record warranties, the adjusting journal entry would be

a debit to Warranty Expense and a credit to Warranty Liability.

When should a contingent liability be recognized?

"When a reasonable estimation can be made" and "when the contingent liability is probable"

Chapman Inc. purchased a piece of equipment which it depreciates on a straight-line basis. The useful life is 10 years and the residual value is estimated to be $12,000. Chapman's annual depreciation expense is $11,000. What was the original cost of the building?

$122,000

(Appendix 7A) Murnane Company believes a machine that was originally purchased for $100,000 and has a current book value of $70,000 is impaired due to recent technological advances. Murnane expects the machine to generate future cash flow of $10,000 and has estimated the fair value of the machine to be $55,000. What is the loss from impairment?

$15,000

Heston Company acquired a patent on January 1 for $75,000. The patent has a remaining legal life of 15 years, but Heston expects to receive benefits from the patent for only 5 years. What amount of annual amortization expense does Heston record related to the patent?

$15,000

In 2019, Drew Company issued $200,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Drew calculate the interest expense for the first year on the bonds using the effective interest method?

$189,640 x 6.73%

Jerabek Inc. sold one of its fixed assets for $15,000 that had a cost of $55,000 and accumulated depreciation of $35,000. What was the resulting gain or loss from the sale of the asset?

$5,000 loss

Bradley Company purchased a machine for $34,000 on January 1. It depreciates the machine using the straight-line method over a useful life of 8 years and a $2,000 residual value. After using the machine for 2 years, Bradley revised its estimate of residual value to $1,000 and shortened the machine's useful life to 4 more years. What is the revised amount that Bradley should record for depreciation expense?

$6,250

Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?

$60,000

Anniston Company purchased equipment and incurred the following costs: Purchase price $60,400 Cost of trial runs 340 Installation costs 240 Sales tax 3,620 What is the cost of the equipment?

$64,600

Willow Corporation's balance sheet showed the following amounts: current liabilities, $5,000; bonds payable, $1,500; lease obligations, $2,300. Total stockholders' equity was $6,000. The debt to equity ratio is

1.47

Cox Inc. acquired a machine for $340,000 on January 1, Year 1. The machine has a salvage value of $9,000 and a 5-year useful life. Cox expects the machine to run for 10,000 machine hours. The machine was actually used for 1,500 hours in 2019 and 1,800 hours in 2020. What would be the balance in the accumulated depreciation account at the end of the second year, if the straight-line method were used?

132,400

Cox Inc. acquired a machine for $800,000 on January 1, Year 1. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020. What amount would Cox record as depreciation expense at December 31, Year 2, if the double-declining-balance method were used?

192,000

Cox Inc. acquired a machine for $800,000 on January 1, Year 1. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020. What amount would Cox record as depreciation expense for Year 1 if the units-of-production method were used (Note: Round your answer to the nearest dollar)?

218,400

Installment bonds differ from typical bonds in what way?

A portion of each installment bond payment pays down the principal balance.

Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.

Amortization of the premium for the first interest period will be $613

Kramerica Inc. sold 350 oil drums to Thompson Manufacturing for $75 each. In addition to the $75 sale price per drum, there is a $1 per drum federal excise tax and a 7% state sales tax. What journal entry should be made to record this sale?

Debit Accounts Receivable 28,438; credit Excise Taxes Payable (Federal) 350; credit Sales Taxes Payable (State) 1,838; credit Sales Revenue 26,250.

Kinsella Seed borrowed $249,000 on October 1, 2023, at 10% interest. The interest and principal are due on October 1, 2024. In addition to a debit to Note Payable for $249,000, what should the journal entry for repayment on October 1, 2024 include?

Debit Interest Expense $18,675; debit Interest Payable $6,225; credit Cash $24,900.

Kinsella Seed borrowed $225,000 on October 1, 2023, at 10% interest. The interest and principal are due on October 1, 2024. What journal entry should be recorded on December 31, 2023?

Debit Interest Expense 5,625; credit Interest Payable 5,625

Howton Paper Company purchased $1,400,000 of timberland for its paper operations. Howton estimates that there are 10,000 acres of timberland, and it cut 2,000 acres in the current year. The land is expected to have a residual value of $200,000 once all the timber is cut. Which of the following is true with regard to depletion?

Depletion will cause Howton's timber inventory to increase.

Payroll taxes typically include all of the following except

Federal excise taxes

Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false?

If the lease term is one year or longer, a liability must be recognized

What best describes the discount on bonds payable account?

a contra liability

ABC Advisors is being sued by a former customer. ABC's lawyers say that it is possible, but not probable, that the company will lose the lawsuit and the trial should last approximately 18 more months. Should ABC lose, they will most likely have to pay approximately $750,000. How should this lawsuit be reported in the financial statements?

No effect on the balance sheet or income statement, but described in the footnotes.

Which of the following is not an intangible asset?

Research and Development

Normal repair and maintenance of an asset is an example of what?

Revenue Expenditure

Which of the following statements is true regarding depreciation methods?

The use of a higher estimated life and a higher residual value will lower the annual amount of depreciation expense recognized on the income statement.

No journal entries or footnotes are necessary if the probability of a contingent liability is remote.

True

The result of using the effective interest method of amortization of the discount on bonds is that

a constant interest rate is charged against the debt carrying value

Which of the following is not an example of an accrued liability?

accounts payable

The premium on bonds payable account is shown on the balance sheet as

an addition to a long term liability

Bonds are a popular source of financing because

bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

Which of the following is not a current liability?

bonds payable due in 5 years

How is the current ratio calculated?

current assets/ current liabilities

The average age of the fixed assets is computed by dividing accumulated depreciation by depreciation expense.

true

All of the following represent taxes commonly collected by businesses from customers except

unemployment taxes

When a credit is made to federal income taxes withholding payable account related to taxes withheld from an employee, the corresponding debit is made to

wages expense