Exam 7: Accounting for and Presentation of Liabilities

The balance of the Estimated Warranty Liability account was $12,000 on January 1, 2016, and $13,600 on December 31, 2016. Based on an analysis of warranty claims during the past several years, this year's warranty provision was established at 3% of sales, and sales during the year were $800,000.Required: (a.) What amount of warranty expense will appear on the income statement for the year ended December 31, 2016? (b.) What were the actual costs of servicing products under warranty during the year?

The purpose of reporting Current Maturities of Long-Term debt is to:

When a company issues a bond at a premium:

On April 15, 2017, Melissa purchased $60,000 of Verbecke Co.'s 12%, 20-year bonds at face amount, with interest being paid on December 31 each year. Verbecke Co. has paid interest due on the bonds regularly. On April 15, 2021, market interest rates had risen to 14% and Melissa is considering selling the bonds.Required: Using the present value tables in Chapter 6 of the textbook, calculate the market value of Melissa's bonds on April 15, 2021.

An Accounts Payable normally results from which of the following transactions?

Bonner's, Inc. borrowed $36,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was:

Ariana Co. issued $6,000,000 face amount of 15%, 20-year bonds on April 1, 2017. The bonds pay interest on a semi-annual basis on June 30 and December 31 each year.(a.) Assume that market interest rates were slightly lower than 15% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? (b.) Independent of part (a), assume that the proceeds were $5,940,000. Write the journal entry or use the horizontal model to show the effects of issuing the bonds.(c.) Assume that the bonds were issued for $5,940,000 as in part (b). Calculate the interest expense that Ariana Co. will show with respect to these bonds in its income statement for the year ended December 31, 2017, assuming that the discount of $60,000 is amortized on a straight-line basis.

When a company issues a bond at a discount:

A transaction that is likely to cause an increase in a current liability is:

A loan discount is:

Assume that Wallywill, Inc. offered its customers, which are primarily retail stores who sell its products, an advertising allowance equal to 8% of the amount of purchases from Wallywill during December, if the retail store would spend the money for advertising in January. Wallywill Inc.'s sales in December totaled $15,000,000, and it was expected that 70% of those sales were made to retailers who would take advantage of the advertising allowance offer.Write the journal entry or use the horizontal model to show the effect of the accrual that should be made as of December 31 with respect to the advertising allowance offer.

The noncurrent Deferred Tax Liability account arises because:

The largest item of the Deferred Tax Liability for most companies is caused by:

A working capital loan will generally:

Which of the following is not sometimes associated with bonds?

Interest on a Note Payable is most appropriately accrued:

In consolidated financial statements:

The amortization of bond discount:

When bonds are issued at a premium:

On November 1, 2016, an advance rent payment of $15,000, representing a six-month prepayment (for the rental period beginning on that date) was received in cash from the company's tenant.Required: Use the horizontal model (or write the journal entries) to record the effects of the following items: (a.) The six months of rent collected in advance on November 1, 2016.(b.) The adjustment that will be made at the end of each month to show the amount of rent "earned" during the month.