Exam 10: Reporting and Analyzing Liabilities

On January 1, 2014, Hannigan Company issued bonds with a face value of $600,000. The bonds carry a stated interest of 7% payable each January 1. a. Prepare the journal entry for the issuance assuming the bonds are issued at 97. b. Prepare the journal entry for the issuance assuming the bonds are issued at 102.

Total interest cost for a bond issued at a premium equals the total of the periodic interest payments added to the premium.

The following partial amortization schedule is available for Courtney Company who sold $500,000, five-year, 10% bonds on January 1, 2014 for $520,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (i)?

The current carrying value of Kennett's $600,000 face value bonds is $597,750. If the bonds are retired at 102, what would be the amount Kennett would pay its bondholders?

Which of the following statements regarding the effective interest method of accounting for bonds characteristics is false?

Collins Company borrowed $750,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $195,327 and carried an annual interest rate of 9.5%. What is the amount of expense Collins must recognize on its 2014 income statement?

An installment note calling for equal total payments each period will result in a principal portion that decreases in each successive period.

Keller Company issued a five-year interest-bearing note payable for $200,000 on January 1, 2013. Each January the company is required to pay $40,000 on the note. How will this note be reported on the December 31, 2014, balance sheet?

A cash register tape shows cash sales of $6,000 and sales taxes of $300. The journal entry to record this information is

The 2014 financial statements of Harper Co. contain the following selected data (in millions). Current assets $ 90 Total assets 160 Current liabilities 40 Total liabilities 75 Cash 8 Interest expense 5 Income taxes 10 Net income 16 The debt to assets ratio is

Warner Company issued $4,000,000 of 6%, 10-year bonds on one of its interest dates for $3,454,800 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

Most notes are not interest bearing.

Bonds may be redeemed (retired) before maturity by the issuing corporation. Explain why a company would decide to retire bonds before maturity and the necessary steps to record the redemption.

The carrying value of a bond is equal to the market price on the date of sale.

The following totals for the month of April were taken from the payroll records of Noll Company. Salaries $60,000 FICA taxes withheld 4,590 Income taxes withheld 12,500 Medical insurance deductions 2,250 Federal unemployment taxes 160 State unemployment taxes 1,080 The entry to record the payment of net payroll would include a

Moss County Bank agrees to lend the Sadowski Brick Company $300,000 on January 1. Sadowski Brick Company signs a $300,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

Finney Company borrowed €1,600,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of €416,698 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?

The board of directors of Lauber Corporation are considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 200,000 shares of $5 par value common stock that is selling for $25 per share on the open market. Lauber Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $500,000 if the new factory equipment is purchased. Instructions Prepare a schedule that shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.

Payroll taxes include the employer's share of Social Security taxes as well as state and federal unemployment taxes.