Exam 10: Reporting and Analyzing Liabilities

Sparks Company received proceeds of $423,000 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $400,000, pay interest annually on December 31st, and have a call price of 102. Sparks uses the straight-line method of amortization. What is the amount of interest Sparks must pay the bondholders in 2013?

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?

A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to $420,000, what is the amount of the sales taxes owed to the taxing agency?

All of the following statements regarding convertible bonds are true except

Hogan Company has $1,000,000 of bonds outstanding. The unamortized premium is $14,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

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

In a recent year Ley Corporation had net income of $150,000, interest expense of $30,000, and a times interest earned ratio of 8. What was Ley Corporation's income before taxes for the year?

A current liability must be paid out of current earnings.

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

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. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?

When bonds are retired before maturity,

The calculation of interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

An unsecured bond is one that is issued against the general credit of the borrower.

Mantle Publications publishes a golf magazine for women. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). During December 2013, Expert Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2014. Financial statements are prepared monthly. Instructions (a) Prepare the December 2013 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31, 2014. The January 2014 issue has been mailed to subscribers.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell at a discount.

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating.

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

Sales taxes collected from customers are a ______________ of the business until they are remitted to the taxing agency.

In a monthly mortgage payment, the same amount is recorded as interest expense as in the previous month's payment.