Question 1

A deferred tax liability that is due in 5 years is classified as a

Accepted Answer

A) long-term liability. 
B) current liability. 
C) stockholders' equity account. 
D) long-term asset. 
E) current asset.

Question 2

Health insurance,life insurance,and other employee benefits paid to employees (excluding pensions)upon retirement are referred to as other postretirement benefits.

Accepted Answer

A) True 
 B)False

Question 3

Bond prices can change very much,even though periodic interest payments will occur and the principal amount of the bond will be paid at maturity.

Accepted Answer

A) True 
 B)False

Question 4

Prepare journal entries, if needed, for the following scenarios:
1)Token Company is involved in a lawsuit with Bednam Industries for faulty parts. Token Company is not sure whether they need to journalize a transaction for the amount. Token Company's attorney has stated that it is probable that Token Company will lose the lawsuit and be expected to pay $2 million in damages.
2)Highlights Salon is involved in a lawsuit with Key Color. Highlights' attorney has stated that it is probable that Highlights will win $150,000.
3)Kepler Industries is involved in a lawsuit. Kepler Industries is expected to lose the lawsuit and pay $1.2 million. The probability of loss is very high.

Accepted Answer

The answer of Prepare journal entries, if needed, for the...

Question 5

Underwriters are a group of investment bankers who buy an entire bond or stock issue from a corporation and then sell the issue to the general investing public.

Accepted Answer

A) True 
 B)False

Question 6

Revenue collected in advance is usually a current asset.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements regarding temporary differences is false?

Accepted Answer

A) Temporary differences can result in deferred liabilities and deferred assets. 
B) Deferred tax liabilities are found on the balance sheets of nearly every company. 
C) For most companies,the primary source of deferred taxes is timing differences related to depreciation. 
D) The deferred tax liability equals the temporary difference times the tax rate. 
E) Temporary differences result in the cancellation of taxes.

Question 8

Westerfelt Shops issued 3,000 debentures on January 1,20X9.The debentures were 12-year,7% debt,which paid interest semi-annually,every June 30 and December 31.The face value of each debenture is $1,000.If the market rate of interest is 7% on January 1,20X9,what is the journal entry to record the issuance of the bonds?

Accepted Answer

A)  $\begin{array} { l l l } 
\text { Cash } & 3,060,000 & \
\text { Eonds Tayable } & & 3,000,000 \
\end{array}$ 
B) $\begin{array}{lccc}
\text {  Fonds Tayable } & 3,000,000 & \
\text { Cash } & & 3,000,000 \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Eonds Receivable } & 3,000,000 & \
\text { Cash } & & 3,000,000 \
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Eonds Receivable } & 3,000,000 & \
\text { Eonds Payable } & & 3,000,000
\end{array}$ 
E) Cannot be determined from the information given

Question 9

T.J.West,publishes the Bunstelle Times.In June,he collected $96 in advance for 1-year subscriptions.He delivered the first issue in July.Assume one issue is published per month.The journal entry to record the delivery of the magazines in July would be

Accepted Answer

A)  $\begin{array}{lcc}
\text {  Cash } & 8.00 & \
\quad \text { Subscription Revenue } & & 8.00 \
\end{array}$ 
B)  $\begin{array}{lccc}
\text { Unearned Subscription Revenue } & 8.00 & \
\quad \text { Subscription Revenue } & & 8.00 \
\end{array}$ 
C) $\begin{array}{lccc}
\text {  Prepaid Subscriptions } & 8.00 & \
\quad \text { Subscription Revenue } & & 8.00\
\end{array}$ 
D) $\begin{array}{lccc}
\text {  Prepaid Stibscriptions } & 8.00 & \
\quad\text {  Cash } & &8.00  \
\end{array}$ 
E) $\begin{array}{lccc}
\text {  Cash } & 8.00 & \
\quad\text {  Prepaid Stibscriptions } & &8.00  \
\end{array}$

Question 10

On the day of issuance of bonds,the proceeds to the issuer may be above par or below par,depending on market conditions.If the proceeds are above par,the bonds have been sold at a discount.

Accepted Answer

A) True 
 B)False

Question 11

What is the present value of $2,000 with 16% interest,to be received in 18 years?

Accepted Answer

A) $161.61 
B) $150.30 
C) $155.83 
D) $148.48 
E) $138.20

Question 12

Milton Manufacturing manufactures and sells ornamental statues.Because of good styling and marketing,sales have grown briskly.Milton has no pre-existing deferred tax liability.During 20X3,the following transactions occurred: 1.On January 1,20,000 new shares of common stock were sold at $100 per share.
2)Half of the proceeds from the stock sale were immediately invested in tax-free bonds yielding 8% per annum.The bonds were held throughout the year,resulting in interest revenue of $1,000,000 × .08 = $80,000.
3)Sales for the year were $9,000,000,with expenses of $4,300,000 reported under GAAP (not including income tax expense).
4)Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What is the total amount of the permanent difference?

Accepted Answer

A) $-0-. 
B) $80,000. 
C) $500,000. 
D) $85,000. 
E) $580,000.

Question 13

The Fangled Company prepared the following income statement: fangled Company
Income Statement
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { Fangled Company }$
$ \quad$$ \quad$$ \quad$$ \quad$$ \quad$$\text { Income Statement }$
$\text { For The Year Ended December 31, } 20 \times 3$

$\begin{array}{lr}
\text { Sales } & \$ 240,000 \
\text { Cost of Goods Sold } & \underline{103,000} \
\text { Gross Profit } & \$ 137,000 \
\text { Operating Expenses } & \underline{82,000} \
\text { Operating Income } & \$ 55,000 \
\text { Interest Expense } & \underline{\$ 2,000} \
\text { Income before Taxes } & \$ 53,000 \
\text { Income Tax Expense } &\underline{ \$ 27,000 }\
\text { Net Income } &\underline{ \$ 26,000} \

\end{array}$
What is the interest-coverage ratio for Fangled Company at December 31,20X3?

Accepted Answer

A) 8.33. 
B) 0.25. 
C) 14.00. 
D) 27.50. 
E) 28.50.

Question 14

________ are subject to redemption before maturity at the option of the issuer.

Accepted Answer

A) Debentures 
B) Mortgage bonds 
C) Callable bonds 
D) Sinking fund bonds 
E) Convertible bonds

Question 15

Chris buys a note from a municipality that promises to pay $1,500 at the end of each of 3 years.How much should Chris pay for the note if she desires a rate of return of 8%,compounded annually?

Accepted Answer

A) $4,000 
B) $3,866 
C) $3,905 
D) $3,950 
E) $3,750

Question 16

A lease is a contract whereby an owner grants the use of property to a second party in exchange for rental payments.

Accepted Answer

A) True 
 B)False

Question 17

At the beginning of 20X3,Shingles Roofing had a liability for warranties of $7,000 on the books.During 20X3,Shingles Roofing had sales of $310,000.The company estimates that the cost of servicing products under warranty will average 2.5% of sales.Expenditures (all in cash)to satisfy warranty claims during 20X3 were $6,200,of which $2,500 was for products sold in 20X3.
a.Prepare the journal entries for sales revenue and the related warranty expense for 20X3.Assume
all sales are for cash.
b.Prepare the journal entry for the warranty expenditures.
c.Compute the December 31,20X3,ending balance in the Liability for Warranties account.

Accepted Answer

The answer of At the beginning of 20X3,Shingles Roofing had...

Question 18

Smith Lots,Inc.,operates in a state where there is a 6% sales tax.If a customer pays cash for merchandise with a sales price of $500,what effect will this transaction have on Smith Lots' balance sheet? (Ignore the effect on cost of goods sold.)

Accepted Answer

A) Assets increase by $530,current liabilities increase by $30,and stockholders' equity increases by $500. 
B) Assets increase by $500,and stockholders' equity increases by $500. 
C) Assets increase by $500,long-term liabilities increase by $30,and stockholders' equity increases by $500. 
D) Assets increase by $500,current liabilities increase by $30,and stockholders' equity increases by $470. 
E) Assets increase by $530,long-term liabilities increase by $30,and stockholders' equity increases by $500.

Question 19

Which of the following statements is false?

Accepted Answer

A) Well-known examples of returnable deposits are those for returnable containers such as soft-drink bottles and beer kegs. 
B) Companies that receive deposits record them as a form of receivable. 
C) The account,Deposits Payable,is a current liability of the company receiving the deposit. 
D) Ordinarily,the recipient of the cash deposit may use the cash for investment purposes from the date of deposit to the date of its return to the depositor. 
E) None of the above

Question 20

Under the effective-interest method of amortization,the amount of discount amortized each interest period is equal to

Accepted Answer

A) the amount of interest expense plus the cash paid for interest. 
B) the amount of interest expense less the cash paid for interest. 
C) the total discount divided by the number of interest payments to be made. 
D) the total amount of interest expense divided by the number of interest payments to be made. 
E) the amount of the decrease from the cash payment.

Exam 9: Liabilities and Interest

A deferred tax liability that is due in 5 years is classified as a

Health insurance,life insurance,and other employee benefits paid to employees (excluding pensions)upon retirement are referred to as other postretirement benefits.

Bond prices can change very much,even though periodic interest payments will occur and the principal amount of the bond will be paid at maturity.

Underwriters are a group of investment bankers who buy an entire bond or stock issue from a corporation and then sell the issue to the general investing public.

Revenue collected in advance is usually a current asset.

Which of the following statements regarding temporary differences is false?

T.J.West,publishes the Bunstelle Times.In June,he collected $96 in advance for 1-year subscriptions.He delivered the first issue in July.Assume one issue is published per month.The journal entry to record the delivery of the magazines in July would be

On the day of issuance of bonds,the proceeds to the issuer may be above par or below par,depending on market conditions.If the proceeds are above par,the bonds have been sold at a discount.

What is the present value of $2,000 with 16% interest,to be received in 18 years?

________ are subject to redemption before maturity at the option of the issuer.

Chris buys a note from a municipality that promises to pay $1,500 at the end of each of 3 years.How much should Chris pay for the note if she desires a rate of return of 8%,compounded annually?

A lease is a contract whereby an owner grants the use of property to a second party in exchange for rental payments.

Smith Lots,Inc.,operates in a state where there is a 6% sales tax.If a customer pays cash for merchandise with a sales price of $500,what effect will this transaction have on Smith Lots' balance sheet? (Ignore the effect on cost of goods sold.)

Which of the following statements is false?

Under the effective-interest method of amortization,the amount of discount amortized each interest period is equal to