Intro to Accounting Chapter 10

The Discount on Bonds Payable Account

is a contra account to Bonds Payable

When a company records a debit to Bonds Payable and a credit to Cash,

it is the bond's maturity date

ABC Company issues a bond with a face value of $100,000 at par on January 1. The bond carries a stated annual interest rate of monthly financial statements, it must make an adjusting entry on January 31 that includes a

-credit to Interest Payable of $500 -debit to Interest Expense of $500

XYZ borrowed $50,000 this year. Half of the loan will be repaid next year and the remainder will be paid the following year, which is longer than XYZ's operating cycle. On its balance sheet at the end of this year, XYZ will show

-current portion of long-term debt of $25,000 -long-term debt of $25,000

The early retirement of a bond includes

-payment of cash -elimination of the liability -recording of a gain or a loss

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 journal entry to record the payment of salaries and wages for work performed in the current accounting period causes

-stockholder's equity to decrease -assets to decrease -liabilities to decrease

The debt-to-asset ratio indicates

-the percentage of assets financed by debt -a higher ratio means greater financing risk

Bonds sell at:

1. a premium if the stated rate is greater than the market rate of interest 2. a discount if the stated rate is less than the market rate, and 3. par if the stated and market rate are equal

The journal entry to record employer payroll taxes affects

liabilities and stockholder's equity (The entry increases Payroll Tax Expense and increase liability)

When the times interest earned ratio is less than 1.0, a company is

not generating enough income to cover its interest expense

An end-of-period adjusting entry that debits Unearned Revenue most likely will credit a

revenue account

The debt-to asset ration is calculated by dividing total liabilities by

total assets

Liabilities are classified as current if they

will be paid within the company's operating cycle or within 1 year, whichever is longer

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

Which accounts are credited when Payroll Tax Expense is debited?

-Unemployment Tax Payable -FICA Payable

A bond's stated interest rate is

-always expressed as an annual interest rate

The issue price of a bond is

-based on what the marked it willing to pay -based on a present value calculation

Accruing a liability always involves recording both a

expense and a liability

The law requires who to pay FICA taxes?

both employee and employer

Discounts on Bonds Payable are recorded as

contra-liabilities

Which accounts are credited when the journal entry to pay employees is recorded?

-Withheld Income Tax Payable -FICA Payable -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 $18,000 and State Income Tax $3,850. What is the net pay to employees?

$70,000

What kind of account is Unearned Revenue?

Liability Account

A bond with an issue price of $10,100 and a face value of $10,000 was issued at

a premium

What does the IRS call a corporate income tax return?

Form 1120

The times interest earned ratio equals Net Income plus Interest Expense and Income Tax Expense, divided by

Interest Expense

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31, 2019. Assuming the November 1 transaction was properly recorded, how would the December 31, 2018, year-end adjusting entry affect the accounting equation?

Liabilities increase and stockholder's equity decreases

Sales tax are recorded by the retailer as

Sales Tax Payable

The premium on a bond is

amortized and decreased each period

A bond premium

arises when interest payments are higher than the cost of borrowing

The carrying value of bonds payable equals

bonds payable minus any discount on bonds payable

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a

debit to Cash and a credit to Bonds Payable

The entry to record the initial borrowing of cash by issuing a promissory note includes a

debit to cash and a credit to Notes Payable

Amortizing a bond premium will

decrease the premium balance and decrease the carrying value of the bond so that when the bond matures the carrying value will equal the face value

Whether a bond is issued at par, premium or discount, when the bond matures the amount paid equals the

face value

Issuing a note payable for cash immediately results in a

increase in assets and an increase in liabilities

Bonds that are backed by collateral are

secured

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

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?

$46.80

As of December 31. 2018, $110 of interest had been accrued on a 12%, 1-year, $1,000 note payable. On January 31, 2019, the entry to record the payment of the note's principal and interest requires a

-$1,000 debit to Notes Payable -$1,120 credit to Cash -$10 debit to Interest Expense -$110 debit to Interest Payable

Which of the following are current liabilities?

-Accounts Payable -Salaries and Wages Payable -Notes Payable due in 3 months

What are the key events for the issuer of notes payable?

-Accruing interest incurred but not paid -Recording interest paid -Establishing the note -Recording principal paid

Employees' gross earnings differ from their net pay because of

-FICA taxes -federal and state income taxes -payroll deductions

Under US GAAP, a contingent liability should

-be reported on the balance sheet if the loss will probably occur and can be reasonably estimated -not be reported if the loss is remote and unable to be estimated -be in the notes to the financial statements if the loss may possibly occur and can be reasonably estimated

In 2008, ABC Company issued $100,000 of 20-year bonds at face value. Ten years later, in 2018, the company retired the bonds early by purchasing them in the open market at $101,000. The entry to record this transaction includes a

-credit to Cash of $101,000 -debit to loss on Bonds Retirement of $1,000 -debit to Bonds Payable of $100,000

ABC purchased $500 of merchandise on account. ABC's journal entry to record the this transaction includes a

-debit to Inventory of $500 -credit to Accounts Payable of $500

If ABC Company issues 100 of its $1,000 bonds at a price of 110, i.e., $1100 each, the journal entry to record the transaction includes

a credit to Premium on Bonds Payable of $10,000

A bond's maturity date is the date on which the

face value of the bonds are paid

From the issuing company's perspective, a bond is a liability. From a bondholder's perspective, the bond is a

investment

The discount on a bond

is amortized and decreases the discount each period