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. Sparks Company decided to redeem the bonds on January 1, 2015. What amount of gain or loss would Sparks report on their 2015 income statement?

The statement "Bond prices vary inversely with changes in the market rate of interest" means that if the

Larson Company issued $750,000 of 8%, 5-year bonds at 106. Assuming straight-line amortization and annual interest payments, what is the amount of the amortization at each interest payment point?

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

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 (iv)?

On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?

Peterson Company billed its customers a total of $840,000 for the month of November. The total includes a 5% state sales tax. Instructions (a) Determine the proper amount of revenue to report for the month. (b) Prepare the general journal entry to record the revenue and related liabilities for the month.

Dominic's Salon has total receipts for the month of $30,210 including sales taxes. If the sales tax rate is 6%, what are Dominic's sales for the month?

During the month of March, Preston Company's employees earned wages of $90,000. Withholdings related to these wages were $6,885 for Social Security (FICA), $14,200 for federal income tax, $6,200 for state income tax, and $600 for union dues. The company incurred no cost related to these earnings for federal unemployment tax, but incurred $1,300, for state unemployment tax. Instructions (a) Prepare the necessary March 31 journal entry to record wages expense and wages payable. Assume that wages earned during March will be paid during April. (b) Prepare the entry to record the company's payroll tax expense.

Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?

When the effective-interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Maria Gomez is discussing the advantages of the effective-interest method of bond amortization with her accounting staff. What do you think Maria is saying?

The following totals for the month of April were taken from the payroll records of Noll Company. The journal entry to record the monthly payroll on April 30 would include a

What is a convertible bond? (b) Discuss the advantages of a convertible bond from the standpoint of the bondholders and of the issuing corporation.

Shannon Company issued $1,000,000, 8%, 10-year bonds on December 31, 2013, for $960,000. Interest is payable annually on December 31. Shannon uses the straight-line method to amortize bond premium or discount. Instructions Prepare the journal entries to record the following events. (a) The issuance of the bonds. (b) The payment of interest and the discount amortization on December 31, 2014. (c) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Bonds that are secured by real estate are termed

Notes payable are often used instead of accounts payable.

The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be

Brewer Company has the following selected accounts after posting adjusting entries: Instructions (a) Prepare the current liability section of Brewer Company's balance sheet, assuming $12,000 of the mortgage is payable next year. (b) Comment on Brewer's liquidity, assuming total current assets are $450,000.

Bonds with a face value of $400,000 and a quoted price of 104¼ have a selling price of