Chapter 10 learnsmarts - AC 210
Which of the following are not required payroll deductions from an employees' gross earnings?
Charitable contributions; Federal unemployment tax; state unemployment tax
_____ 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.
Contingent
A company recorded the issuance of its bonds with a debit to Cash for $107,260 and a credit to Bonds Payable for $100,000, and a ______ on Bonds Payable for $7,260.
Credit to premium
_____ _____ 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
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 the payroll deductions?
Current liabilities increase $113.90
The adjusting entry to record interest accrued on a note payable is debit ______.
Interest expense and credit interest payable
The stated rate is the rate used to determine the ______.
Interest payment
From the issuing company's perspective, a bond is a liability. From a bondholder's perspective, the bond is a(n) _____
Investment or asset
A bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is ______.
Issued
GenZ, Inc. debited Cash and credited Bonds Payable for $100,000. Which of the following is an appropriated description for this transaction?
Issued 100, $1000 bonds at face value
Assets are financed with ___ and stockholders' equity.
Liabilities
Liabilities are classified as current if they ______.
Will be paid within the company's operating cycle or within 1 year, whichever is longer
Amortizing a bond premium will ______ the premium balance and ______ the carrying value of the bond so that when the bond matures the carrying value will ______ the face value.
decrease; decrease; equal
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 (40x15=600): 600 - 37.20 - 8.70 - 58 - 10
Deli Llama operates in a state with a sales tax. What will be the effect if it records a cash sale to a customer?
Assets will increase; stockholders' equity will increase; liabilities will increase
Which accounts are credited when the journal entry to pay employees is recorded?
Cash; FICA payable; withheld income tax payable
The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.
Cash; bonds payable
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
ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______.
Debit to inventory; Credit to accounts payable
If total assets increase but total liabilities remain the same, what is the impact on the debt-to-assets ratio?
It decreases
For investors, credit rating agencies provide independent, easy-to-use measurements of relative credit risk. The most well-known credit rating agencies are ______.
Standard and Poor's; Moody's
On the maturity date, the bondholders of $100,000 of bonds that were issued at a $90,000 will receive ______.
$100,000 in cash plus the interest owed
On November 30, Burrows, Inc. issued 2 notes payable at 6% per year for $10,000 each. One is a 3-month, 6%, note and the other is a 6-month, 6% note. The amount of interest owed at December 31 will be ______.
the same amount for both notes
As of December 31, $110 of interest had been accrued on a 12%, 1-year, $1,000 note payable. On January 31, the entry to record the payment of the note's principal and interest requires a ______.
$1,000 debit to notes payable; $110 debit to interest payable; $10 debit to interest expense; $1,120 credit to cash
Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. The journal entry to record wages paid includes a ______.
$100,000 debit to salaries and wages expense
If a bond's stated rate is 4% and the market rate is 6%, this bond will sell at ______.
A discount
A bond premium _____
Arises when interest payments are higher than the cost of borrowing
If an adjusting entry is required for interest owed, then the ______ will report ______.
Balance sheet, interest payable; balance sheet, notes payable; Income statement, interest revenue
_____ 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.
Bonds
Accrued Liabilities are ______.
Current liabilities resulting from adjusting entries that record amounts incurred but not yet paid
Assuming no previous accrual of interest has been recorded, On December 31 year-end, the adjusting entry to record the interest owed on its $100,000, 6% bonds issued at face value on January 31 with interest paid annually includes a ______.
Debit to interest expense of $5500; Credit to interest payable of $5500
A liability is first recorded at the amount of cash a creditor would accept to immediately settle the liability, which ______ interest.
Excludes
Accruing a liability always involves recording both a(n)______ and a liability.
Expense
Employees' gross earnings differ from their net pay because of _____
FICA taxes; payroll deductions; federal and state income taxes
A bond's maturity date is the date in which the _______
Face value of the bonds are paid
T or F: All payroll deductions are required by law
False
T or F: The bond issue price is determined by the company issuing the bonds.
False
Employees' gross earnings differ from their net pay because of ______.
Federal and state income taxes; FICA taxes; payroll deductions
Which of the following are not required payroll deductions from an employees' gross earnings?
Federal unemployment tax; charitable contributions; state unemployment tax
The entry to record the initial borrowing of cash by issuing a promissory note causes a(n) ______.
Increase in assets; increase in liabilities
The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes ______.
Liabilities to increase; assets to decrease; stockholders' equity to decrease
Companies that have issued bonds will report the bonds as a(n) ______.
Liability at the bonds' carrying value which is equal to the face value plus related premiums or minus related discounts
When a company records a debit to Bonds Payable and a credit to Cash, it is the bonds' ______.
Maturity date
When the times interest earned ratio is less than 1.0, a company is _____
Not generating enough income to cover its interest expense
Sales taxes are recorded by the retailer as ____
Sales tax payable
Times interest earned ratio
net income + interest expense + tax expense / interest expense
Debt-to-assets ratio
total liabilities/total assets
For investors, the ______ provide independent, easy-to-use measurements of relative credit risk.
Credit rating agencies
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 the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ______.
Credit to cash $486.10; Credit to FICA payable $45.90; Debit to wage expense $600; Credit to state and fed income tax payable of $68
ABC Corporation issued bonds that pay interest each March 1 and September 1. The corporation's December 31 adjusting entry may include a ______.
Credit to interest payable
The stated rate _____
Remains the same throughout the life of the bonds
An end-of-period adjusting entry that debits Deferred Revenue most likely will credit a(n) ______ account.
Revenue
T or F: A classified balance sheet separates liabilities into current and non-current categories.
True
T or F: Companies issue bonds at a discount when the bond's stated interest rate is lower than the market interest rate.
True
A bond's stated interest rate is ____
Used to calculate interest payments; always expressed as an annual interest rate
The debt-to-assets ratio best answers which financial question?
What is the percentage of assets financed by debt?
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
The Discount on Bonds Payable account ______.
is a contra account to Bonds Payable
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 ______.
$6000 3000 - 1000 + 4000
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 the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ______.
Debit to salaries and wages expense of $600; credit to state and federal income tax payable of $68; credit to cash of $486.10; credit to FICA payable of $45.90
ABC Airlines collected $300 for a round-trip ticket from Chicago to Los Angeles in advance. The entry to record after the flight occurs includes a debit to ______ for $300.
Deferred revenue and a credit to service revenue
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. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, ABC's year end, would include a ______.
Credit to interest payable of $1000; Debit to interest expense of $1000
On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity when the note is repaid, assuming adjusting entries were made correctly at December 31 but have not been made since then, would include a(n) ______.
Debit to notes payable of $50,000; credit to cash of $52,250; debit to interest expense of $1,250; debit to interest payable of $1,000
The entry to record the issuing of a note payable for cash results in a(n) ______.
Increase in assets; increase in liabilities
Which of the following are current liabilities?
Note payable due in 3 months; Salaries and Wages payable; Accounts payable
_____ _____ is a liability that represents the amount the company owes to others as a result of issuing a promissory note.
Notes payable
Accounts (or trade) Payable is debited when ______ and credited when ______.
Paid; purchases are made on credit
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
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
A 4-month note's interest equals $1000 x 12% x 1/12; A 2-year note's interest equals $1000 x 12% x 1/12; A 3-month note's interest equals $1000 x 12% x 1/12
Which of the following are long-term liabilities?
Note payable due in 3 years; 20-year mortgage payable