Question 1

In the balance sheet, the account Discount on Bonds Payable is

Accepted Answer

A)  added to bonds payable. 
B)  deducted from bonds payable. 
C)  classified as a stockholders' equity account. 
D)  classified as a revenue account.

Question 2

Current liabilities are due

Accepted Answer

A)  but not receivable for more than one year. 
B)  but not payable for more than one year. 
C)  and receivable within one year. 
D)  and payable within one year.

Question 3

The following totals for the month of April were taken from the payroll records of Metz Company.  The entry to record the accrual of federal unemployment tax would include a

Accepted Answer

A)  credit to Federal Unemployment Taxes Payable for $240. 
B)  credit to Federal Unemployment Taxes Expense for $240. 
C)  credit to Payroll Tax Expense for $240. 
D)  debit to Federal Unemployment Taxes Payable for $240.

Question 4

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Accepted Answer

A)  is less than the amount of cash to be paid for interest for the period. 
B)  exceeds the amount of cash to be paid for interest for the period. 
C)  equals the amount of cash to be paid for interest for the period. 
D)  has no predictable relationship with the amount of cash to be paid for interest for the period.

Question 5

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

Accepted Answer

A)  GAAP requires use of the effective interest method. 
B)  The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used. 
C)  Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. 
D)  The effective interest method applies a constant percentage to the bond carrying value to compute interest expense.

Question 6

Presented below are two independent situations:
(a) Morten Corporation purchased $480,000 of its bonds on June 30, 2014, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $431,100. The bonds pay annual interest and the interest payment due on June 30, 2014, has been made and recorded.
(b) McEvoy, Inc., purchased $330,000 of its bonds at 96 on June 30, 2014, and immediately retired them. The carrying value of the bonds on the retirement date was $321,000. The bonds pay annual interest and the interest payment due on June 30, 2014, has been made and recorded.
Instructions
For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds.

Accepted Answer

The answer of Presented below are two independent situations:
(a) Morten...

Question 7

All of the following are true regarding financial statement analysis ratios associated with liabilities except

Accepted Answer

A)  a high times interest earned ratio indicates that a company is more likely to meet interest payments as scheduled. 
B)  high liquidity ratios mean that lines of credit should be high to compensate. 
C)  if a company's current ratio is lower than the industry average, then it may lack liquidity. 
D)  unrecorded obligations causing sizeable differences between liquidity and solvency ratios can be ignored.

Question 8

When there are material differences between the results of using the straight-line method and using the effective-interest method of amortization, the effective-interest method should be used.

Accepted Answer

A) True 
 B)False

Question 9

Liabilities are classified on the balance sheet as current or

Accepted Answer

A)  deferred. 
B)  unearned. 
C)  long-term. 
D)  accrued.

Question 10

Four thousand bonds with a face value of $1,000 each, are sold at 97. The entry to record the issuance is

Accepted Answer

The answer of Four thousand bonds with a face value...

Question 11

Downs Company issued $400,000 of 8%, 5-year bonds at 106, which pays interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

Accepted Answer

A)  $184,000 
B)  $136,000 
C)  $112,000 
D)  $160,000

Question 12

The following totals for the month of March were taken from the payroll records of Kern Company.  The entry to record the payment of net payroll would include a

Accepted Answer

A)  debit to Salaries and Wages Expense for $34,074. 
B)  debit to Salaries and Wages Payable for $37,206. 
C)  debit to Salaries and Wages Payable for $34,074. 
D)  credit to Cash for $34,074.

Question 13

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 14

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. Interest expense for the year ended December 31, 2013 was

Accepted Answer

A)  $19,600. 
B)  $22,400. 
C)  $33,600. 
D)  $0.

Question 15

Bonds are not always categorized as

Accepted Answer

A)  callable or convertible. 
B)  term or serial. 
C)  secured or unsecured. 
D)  secured or debenture.

Question 16

A $600,000 bond was retired at 98 when the carrying value of the bond was $618,000. The entry to record the retirement would include a

Accepted Answer

A)  gain on bond redemption of $18,000. 
B)  loss on bond redemption of $18,000. 
C)  loss on bond redemption of $30,000. 
D)  gain on bond redemption of $30,000.

Question 17

A current liability is a debt that can reasonably be expected to be paid

Accepted Answer

A)  within one year, or the operating cycle, whichever is longer. 
B)  between 6 months and 18 months. 
C)  out of currently recognized revenues. 
D)  out of cash currently on hand.

Question 18

Mohling Company typically sells subscriptions on an annual basis, and publishes eight times a year. The magazine sells 45,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

Accepted Answer

The answer of Mohling Company typically sells subscriptions on an...

Question 19

Which of the following most likely would be classified as a current liability?

Accepted Answer

A)  Dividends payable 
B)  Bonds payable in 5 years 
C)  Three-year notes payable 
D)  Mortgage payable as a single payment in 10 years

Question 20

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

Accepted Answer

The answer of Moss County Bank agrees to lend the...

Exam 10: Reporting and Analyzing Liabilities