Deck 10: Liabilities

Question 1

Indicate the best answer for each question in the space provided.
On November 30, Year 1, Central Food purchased two trucks for a total of $140,000, issuing a one-year, 6% note payable, all due at maturity. The interest on this loan is stated separately.

-Refer to the above data. The December 31, Year 1, adjusting entry for this note includes:

A) A credit to Cash for $1,400.
B) A credit to Interest Payable for $8,400.
C) A credit to Interest Payable for $1,400.
D) A credit to Interest Payable for $700.

Answer 1

A credit to Interest Payable for $700.

Question 2

Indicate the best answer for each question in the space provided.
On November 30, Year 1, Central Food purchased two trucks for a total of $140,000, issuing a one-year, 6% note payable, all due at maturity. The interest on this loan is stated separately.

-Refer to the above data. The total liabilities related to this note reported in Central Food's December 31, Year 1, balance sheet is:

A) $140,000.
B) $148,400.
C) $140,700.
D) $141,400.

Answer 2

$140,700.

Question 3

Indicate the best answer for each question in the space provided.
On November 30, Year 1, Central Food purchased two trucks for a total of $140,000, issuing a one-year, 6% note payable, all due at maturity. The interest on this loan is stated separately.

-Refer to the above data. What is the amount of interest expense Central Food's recognizes on this note in Year 2?

A) $700.
B) $8,400.
C) $7,700.
D) $1,400.

Answer 3

$7,700.

Question 4

Indicate the best answer for each question in the space provided.
On November 30, Year 1, Central Food purchased two trucks for a total of $140,000, issuing a one-year, 6% note payable, all due at maturity. The interest on this loan is stated separately.

-Refer to the above data. How much must Central Food pay the lender upon maturity of this note?

A) $140,700.
B) $140,000.
C) $147,700.
D) $148,400.

Question 5

Indicate the best answer for each question in the space provided.
On November 30, Year 1, Central Food purchased two trucks for a total of $140,000, issuing a one-year, 6% note payable, all due at maturity. The interest on this loan is stated separately.

-Refer to the above data. The liability for this loan as of December 31, Year 1:

A) Is equal to its maturity value.
B) Is equal to the book value of the two trucks that were acquired in exchange.
C) Is classified as a long-term liability, since it was used to acquire non-current assets.
D) . Is classified as a long-term liability if Central Food has the intent and ability to refinance by taking out a new loan not due for several years.

Question 6

Shown below is a summary of the annual payroll data of Rose Co.:


-Refer to the above data. Rose Company's total payroll-related expense for the year is:

A) $2,250,000.
B) $3,510,000.
C) $2,840,000.
D) $3,190,000.

Question 7

Shown below is a summary of the annual payroll data of Rose Co.:


-Refer to the above data. Compute the company's cash outlays during the year for payroll-related costs. Assume short-term obligations such as insurance premiums and payroll taxes have been paid.

A) $2,750,000.
B) $3,070,000.
C) $1,930,000.
D) $3,510,000.

Question 8

Shown below is a summary of the annual payroll data of Rose Co.:


-Refer to the above data. The annual "take-home-pay" of Rose' employees is:

A) $2,520,000.
B) $2,250,000.
C) $1,930,000.
D) $2,750,000.

Question 9

Shown below is a summary of the annual payroll data of Rose Co.:


-Refer to the above data. Amounts paid during the year to retirees for pension and other postretirement benefits total:

A) $140,000.
B) $350,000.
C) $230,000.
D) None of above.

Question 10

Shown below is a summary of the annual payroll data of Rose Co.:


-Refer to the above data. When a company has a fully-funded pension plan:

A) The dollar amounts paid to retirees are greater than the amounts recognized as pension expense by the employer.
B) Pension expense is equal to the cash payments made to retirees during the current period.
C) No pension expense is recognized in the income statement.
D) It does not use the services of a trustee to operate the pension plan.

Question 11

Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.
-Prepare the journal entry to record issuance of the bonds on April 1, Year 2.

Question 12

Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.
-Prepare the journal entry to record the first semiannual interest payment on the bonds at June 30, Year 2.

Question 13

Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.

-What is the amount of bond interest expense that appears in Seaview's Year 2 income statement relating to these bonds?
$_________________________

Question 14

Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.
-What is the amount of accrued bond interest expense that appears in Seaview's balance sheet at December 31, Year 2, with respect to these bonds?
$_________________________

Question 15

Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.
-Seaview exercises the call provision and retires one-half of the bond issue on July 1, Year 4. Prepare the journal entry to record this transaction on July 1, Year 4.

Question 16

On December 1, Year 1, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.
-How much of the first payment made on December 31, Year 1, is allocated to repayment of principal?
$________

Question 17

On December 1, Year 1, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.
-What is the total liability related to this mortgage to be reported in Fisher's balance sheet at December 31, Year 1? (Do not separate into current and long-term portions.)
$________

Question 18

On December 1, Year 1, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.
-The portion of the second monthly payment made on January 31, Year 2, which represents interest expense is (round to the nearest whole number):
$________

Question 19

On December 1, Year 1, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.
-What is the aggregate amount paid by Fisher over the 30?year life of the mortgage?
$________

Question 20

On December 1, Year 1, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.
-Over the 30-year life of the mortgage, the total amount Fisher will pay for interest charges is
$________