Question 1

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is possible.

Accepted Answer

A) True 
 B)False

Question 2

Use the information above to answer the following question.If the effective interest method of amortization is used,how much total interest expense would be recorded in 2013?

Accepted Answer

A)  $1,000
B)  $1,080
C)  $800
D)  $864

Question 3

A company sells a bond with a face value of $10,000 and receives a premium of $800.Using the Simplified Approach (Effective-interest Method) ,the company would make the following journal entry:

Accepted Answer

A)  Debit Cash for $10,800 and credit Bonds Payable,Net for $10,800.
B)  Debit Cash for $10,800,credit Bonds Payable,net for $10,000,and credit Premium on Bond Payable for $800.
C)  Debit Cash for $10,000,debit Interest Expense for $800,credit Bonds Payable,net for $10,000,and credit Premium on Bonds Payable for $800.
D)  Debit Cash for $10,000,debit Interest Expense for $800,credit Bonds Payable for $10,000 and credit Premium on Bonds Payable for $800.

Question 4

Current liabilities are due:

Accepted Answer

A)  but not receivable for more than one year or the current operating cycle,whichever is longer.
B)  but not payable for more than one year or the current operating cycle,whichever is longer.
C)  and receivable within the current operating cycle or one year,whichever is longer.
D)  and payable within the current operating cycle or one year,whichever is longer.

Question 5

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Using the effective-interest method of amortization and rounding to the nearest dollar,the interest expense for the first year ended December 31 would be:

Accepted Answer

A)  $700.
B)  $543.
C)  $667.
D)  $759.

Question 6

Sales tax collected by a company is normally reported as:

Accepted Answer

A)  a current liability.
B)  income tax expense.
C)  an asset.
D)  an operating expense.

Question 7

When the effective-interest method of amortization is used,what happens to interest expense as a bond moves toward maturity?

Accepted Answer

A)  Interest expense falls for bonds sold at either a discount or a premium.
B)  Interest expense rises for bonds sold at a discount and falls for bonds sold at a premium.
C)  Interest expense rises for bonds sold at either a discount or a premium.
D)  Interest expense falls for bonds sold at a discount and rises for bonds sold at a premium.

Question 8

Use the information above to answer the following question.What journal entry will Backyard make when paying off the note and interest at maturity if the company's year-end is June 30? (Hint: Backyard's records were adjusted on June 30) .

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option D

Question 9

The threshold for recording contingent liabilities under IFRS is lower than that under GAAP.

Accepted Answer

A) True 
 B)False

Question 10

Accrued liabilities could include all of the following except:

Accepted Answer

A)  salaries payable.
B)  current portion of long-term debt.
C)  income tax payable.
D)  interest payable.

Question 11

A company has liquid assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the quick ratio for the company?

Accepted Answer

A)  0.5
B)  7.5
C)  0.3
D)  2.0

Question 12

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

Accepted Answer

A)  debit Interest Expense for $543,debit Premium on Bonds Payable for $157,and credit Interest Payable for $700.
B)  debit Interest Expense for $700,credit Premium on Bonds Payable for $157,and credit Interest Payable for $543.
C)  debit Interest Expense for $700,debit Premium on Bonds Payable for $157,and credit Interest Payable for $543.
D)  debit Interest Expense for $543 and credit Interest Payable for $543.

Question 13

Use the information above to answer the following question.The entry to record the issuance of the bonds on January 1,2014,would include:

Accepted Answer

A)  a credit to Discount on Bonds Payable of $57,500.
B)  a debit to Cash of $442,500.
C)  a debit to Bonds Payable of $500,000.
D)  a credit to Premium on Bonds Payable of $90,000.

Question 14

Using straight-line amortization,when a bond is sold at a premium:

Accepted Answer

A)  the amortized premium is added to the interest payable to calculate interest expense.
B)  bonds payable rises by a constant amount each year.
C)  interest expense is calculated by subtracting the amortized premium from the interest payment that is to be made.
D)  interest expense rises each year.

Question 15

Which of the following does not create a liability?

Accepted Answer

A)  Buying goods and services on credit.
B)  Obtaining a short-term loan.
C)  Issuing long-term debt.
D)  Remitting sales tax to the government.

Question 16

Payroll taxes paid by employees include which of the following?

Accepted Answer

A)  Federal income tax,federal unemployment tax,and Medicare.
B)  Social security tax,federal unemployment tax,and state unemployment tax.
C)  FICA taxes,federal unemployment tax,and state unemployment tax.
D)  Federal income tax,state income tax,and Medicare.

Question 17

Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued at 104 on January 1,2014,implying an annual market interest rate of 8%.Assuming that interest is computed annually,at what carrying value should the total liability for these bonds be reported two years later on December 31,2015,if the effective-interest method of amortization is used?

Accepted Answer

The answer of Bonds with a stated interest rate of...

Question 18

Which one of the following statements regarding amortization of discounts and premiums is not true?

Accepted Answer

A)  Under straight-line amortization,when a bond is sold at a premium,the annual premium amortization is the total premium divided by the number of years until bond maturity.
B)  When a bond is sold at a discount,interest expense recorded using the effective-interest method is less than the interest paid on the bond.
C)  The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization.
D)  When a bond discount is amortized using the effective-interest method,the promised interest payment is less than the interest expense,so the bond liability will increase as a result of the contra-liability account decreasing.

Question 19

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Accepted Answer

A)  less than face value.
B)  equal to the face value.
C)  greater than face value.
D)  equal to the face value minus a discount.

Question 20

If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Accepted Answer

A) True 
 B)False

Exam 10: Liabilities

Which of the following does not create a liability?

Correct Answer
verified

A company sells a bond with a face value of $10,000 and receives a premium of $800.Using the Simplified Approach (Effective-interest Method) ,the company would make the following journal entry:

Correct Answer
verified

Correct Answer
verified

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

Correct Answer
verified

Use the information above to answer the following question.If the effective interest method of amortization is used,how much total interest expense would be recorded in 2013?

Correct Answer
verified

Payroll taxes paid by employees include which of the following?

Correct Answer
verified

If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Correct Answer
verified

Current liabilities are due:

Correct Answer
verified

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Correct Answer
verified

Use the information above to answer the following question.What journal entry will Backyard make when paying off the note and interest at maturity if the company's year-end is June 30? (Hint: Backyard's records were adjusted on June 30) .

Correct Answer
verified

Using straight-line amortization,when a bond is sold at a premium:

Correct Answer
verified

The threshold for recording contingent liabilities under IFRS is lower than that under GAAP.

Correct Answer
verified

Accrued liabilities could include all of the following except:

Correct Answer
verified

When the effective-interest method of amortization is used,what happens to interest expense as a bond moves toward maturity?

Correct Answer
verified

Correct Answer
verified

A company has liquid assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the quick ratio for the company?

Correct Answer
verified

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is possible.

Correct Answer
verified

Sales tax collected by a company is normally reported as:

Correct Answer
verified

Which one of the following statements regarding amortization of discounts and premiums is not true?

Correct Answer
verified

Use the information above to answer the following question.The entry to record the issuance of the bonds on January 1,2014,would include:

Correct Answer
verified

Exam 10: Liabilities

Which of the following does not create a liability?

Correct AnswerverifiedShow Answer

A company sells a bond with a face value of $10,000 and receives a premium of $800.Using the Simplified Approach (Effective-interest Method) ,the company would make the following journal entry:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.If the effective interest method of amortization is used,how much total interest expense would be recorded in 2013?

Correct AnswerverifiedShow Answer

Payroll taxes paid by employees include which of the following?

Correct AnswerverifiedShow Answer

If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Correct AnswerverifiedShow Answer

Current liabilities are due:

Correct AnswerverifiedShow Answer

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.What journal entry will Backyard make when paying off the note and interest at maturity if the company's year-end is June 30? (Hint: Backyard's records were adjusted on June 30) .

Correct AnswerverifiedShow Answer

Using straight-line amortization,when a bond is sold at a premium:

Correct AnswerverifiedShow Answer

The threshold for recording contingent liabilities under IFRS is lower than that under GAAP.

Correct AnswerverifiedShow Answer

Accrued liabilities could include all of the following except:

Correct AnswerverifiedShow Answer

When the effective-interest method of amortization is used,what happens to interest expense as a bond moves toward maturity?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company has liquid assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the quick ratio for the company?

Correct AnswerverifiedShow Answer

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is possible.

Correct AnswerverifiedShow Answer

Sales tax collected by a company is normally reported as:

Correct AnswerverifiedShow Answer

Which one of the following statements regarding amortization of discounts and premiums is not true?

Correct AnswerverifiedShow Answer

Use the information above to answer the following question.The entry to record the issuance of the bonds on January 1,2014,would include:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified