chapter 10: liabilities
the debt-to-asset ratio indicates _____
the percentage of assets financed by debt a higher ratio means greater financing risk
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
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 the year; balance sheet
bonds are issued at a discount when the bond's stated interest rate is _____ the market interest rate
lower than
_____ is a liability that represents the amount the company owes to others as a result of issuing a promissory note
notes payable
the stated rate _____
remains the same throughout the life of the bonds
sales taxes are recorded by the retailer as _____
sales tax payable
net pay is calculated by _____
subtracting payroll deductions from gross pay
the entry to record the issuance of bonds at face value includes a debit to cash and a credit to _____
bonds payable
which of the following are long-term liabilities?
bonds payable due in 20 years notes payable due in 3 years
the entry to record the early retirements of bonds when the cash paid is more than the bonds' carrying value will include a _____
debit to a loss on early retirement
geez 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
what effect will issuing more bonds have on the times interest earned ratio over time?
it will decrease
assets are financed with _____ and stockholders' equity
liabilities
the journal entry to record employer payroll taxes affects _____
liabilities and stockholders' equity
a bond's issue price is determined by the _____
investors
the discount on bonds payable account _____
is a contra account to bonds payable
a bond's issue price is the amount of money that a lender pays (and the company receives) when a bond is _____
issued
match the interest rates with the related bond prices
6% stated interest rate and 4% market interest rate- premium: investors will pay more than face value 6% stated interest rate and 6% market interest rate- investors will pay face value 6% stated interest rate and 8% market interest rate- discount: investors will pay less than face value
T/F: the bond issue price is determined by the company issuing the bonds
False
a $1,000 bond was issued at 107.26. the 107.26 is _____
a percent and means the bond sold for $1,072.60
which accounts are credited when the journal entry to pay employees is recorded?
cash FICA payable withheld income tax payable
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
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
_____ liabilities are potential liabilities that arise as a result of past transactions or events are are reported on the balance sheet if the loss will probably occur and can be reasonably estimated
contingent
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
T/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
long-term liabilities are accounted for in the same way as short-term liabilities, except that long-term liabilities are on the books fro more than one _____
year
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
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
the entry to record the issuance of 100, $1,000 bonds for 98,000 includes a _____
credit to bonds payable for $100,000 debit to cash fro $98,000 debit to discount on bonds payable for $2,000
_____ is a current liability that represents the amount owed for goods or services purchased on credit and is generally interest free
accounts payable
the discount on a bonds payable becomes _____
additional interest expense over the life of the bonds
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
the issue price of a bond is _____
based on what the market is wiling to pay based on a present value of calculation
discounts on bonds payable are recorded with a debit and are _____
contra-liabilities
bonds that can be exchanged for stock are called ______ bonds
convertible
if abc company issues 100 of its $1,000 bonds at a price of 105.00, ie. 105%, the journal entry to record the transaction includes _____
credit to premium on bonds payable of $5,000 a debit to cash of $105,000 a credit to bonds payable of $100,000
_____ 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
accounts (or trade) payable is a _____ and increases when _____ and decreases when _____
current liability; purchases are made on credit; bills are paid
a liability is first recorded at the amount of cash a creditor would accept to immediately settle the liability, which _____ interest
excludes
if a $1,000 bond is issued at 100,000, then the bond is sold at _____
face value
if a company receives $100,000 cash in exchange for issuing 100 bonds at $1,000, the bonds were issued at _____
face value
T/F: your employer is allowed to keep the amounts deducted from your gross pay
false
market rates of interest ______
fluctuate due to changes in economic events
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 amortization of a bond discount makes the carrying value of the bond _____ over time
increase
the entry to record the initial borrowing of cash by issuing a promissory note causes a(n) _____
increase in assets increase in liabilities
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 _____
liabilities to be understated assets to be understated
when a company records a debit to bonds payable and a credit to cash, it is the bonds' _____
maturity date
when the times internet earned ratio is less than 1.0, a company is _____
not generating enough income to cover its interest expense
US corporations pay federal taxes on _____
payroll & income
employees' gross earnings differ from their net pay because of _____
payroll deductions FICA taxes federal and state income taxes
a bond that was issued at face value will have a carrying value that _____ with each interest payment.
remain the same
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
which of the following are current liabilities?
salaries and wages payable note payable due in 3 months accounts payable
abc inc issued $100,000 of 10%, 5-year bonds on January 1 for $92,280. interest is paid annually and December 31. when abc records the first interest payment, which will be greater the debit to interest expense or the credit to cash?
the debit to interest expense will be greater because the market rate is greater than the stated interest rate
abc company is 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 internet rates have on the bond issue price?
the issue price will be above the bond's face value
on November 1, deli llama inc. issued 2 notes payable 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 journal entry to record the payment of salaries and wages to employees includes a _____
credit to cash debit to salaries and wages expense credit to withheld income tax payable credit to FICA payable
issuing a note payable for cash immediately results in a(n)
increase in assets and an increase in liabilities
issuing a note payable for cash immediately results in a(n) _____
increase in assets and an increase in liabilities
accruing a liability always involves _____ expenses and _____ liabilities
increasing; increasing
the times interest earned ratio equals net income plus interest expense and income tax expense, divided by _____
interest expense
the adjusting entry to record interest accrued on a note payable is debit _____
interest expense and credit interest payable
if an entry is recorded that debits interest payable and interest expense and credits cash, what must be the case?
interest incurred from the current and prior period is being paid
the stated rate is the rate used to determine the _____
interest payment
