Accounting Ch 8

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The bond obligates the issuing company to pay the par value of the bond at a specific future time called the:
A) issue date.
B) due date.
C) maturity date.
D) payment date.

C) maturity date

If at the end of the year, a company has a short-term note payable outstanding that was entered into earlier in the current year:
A) short-term notes payable and interest payable will appear on the balance sheet and interest expense will appear on the income statement.
B) short-term notes payable will appear on the balance sheet and interest expense and interest payable will appear on the income statement.
C) short-term notes payable will be the only item appearing on the balance sheet.
D) none of the above will occur.

A) short term notes payable and interest payable will appear on the balance sheet and the interest expense will appear on the income statement

The interest rate that the bond issuer pays the bondholders and that is stated on the bond certificate is the:
A) stated rate.
B) market rate.
C) contract rate.
D) both A and C.

D) both the stated rate and the contract rate

Monthly sales were $150,000. Warranty costs are estimated at 5% of monthly sales. In the month of sale, the company should record a debit to:
A) Warranty Payable for $7,500.
B) Warranty Expense for $7,500.
C) Sales for $7,500.
D) none of the above. No entry is required since the actual liability amount is not known

B) warranty expense for $7,500

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current liabilities? How much as long-term liabilities?
Current Liabilities Long-Term Liabilities
A) $0 $45 million
B) $7.5 million $40 million
C) $15 million $30 million
D) $45 million $0

C) 15 million, 30 million

Another term for the face value of a bond is:
A) principal.
B) maturity value.
C) par value.
D) all of the above.

D) all of the above

A company has a probable contingent gain that can be reasonably estimated. How should this contingency be reported?
A) It should be ignored until the actual gain materializes.
B) It should either be recorded on the financial statements or reported in the notes to the financial statements.
C) It should be accrued and reported in the financial statements.
D) It should be reported in the notes to the financial statements.

A) it should be ignored until the actual gain materializes

Under the effective-interest method of amortization, interest expense each period can be calculated by multiplying the:
A) carrying value of the bonds times the effective-interest rate for the appropriate time period.
B) carrying value of the bonds times the stated interest rate for the appropriate time period.
C) face value of the bonds times the stated interest rate for the appropriate time period.
D) face value of the bonds times the effective-interest rate for the appropriate time period.

A) carrying value of the bonds times the effective-interest rate for the appropriate time period

Which of the following accounts represents a deferred revenue?
I. Interest Revenue
II. Income Tax Payable
III. Unearned Subscription Revenue
A) I only
B) II only
C) III only
D) Both II and III

C) III only

A $3,000, 7.5% bond is quoted at 97.5. How much cash is received when the bond is issued?
A) $3,225
B) $3,000
C) $2,925
D) $2,775

C) 2925

A $3,000, 7.5% bond is quoted at 97.5. How much cash is received when the bond is issued?
A) $3,225
B) $3,000
C) $2,925
D) $2,775

B) gross pay only

Coleman Company paid $750 cash to replace a part on equipment sold under warranty. To recognize the payment, which of the following are correct?
A) Debit Warranty Payable and credit Cash
B) Debit Warranty Expense and credit Cash
C) Debit Equipment Expense and credit Cash
D) Debit Parts Expense and credit Cash

A) Debit Warranty Payable and Credit Cash

Obligations that are due beyond one year or after the company's normal operating cycle if longer than a year are:
A) current liabilities.
B) estimated liabilities.
C) long-term liabilities.
D) current installment of long-term debt.

C) long-term liabilities

A company has a contingent loss that can be estimated, but the chance of it occurring is remote. How should this contingency be reported?
A) It should not be accrued or reported in the notes to the financial statements.
B) It should be accrued and reported on the financial statements and reported in the notes to the financial statements.
C) It should be accrued and reported on the financial statements.
D) It should be reported in the notes to the financial statements.

A) it should not be accrued or reported in the notes to the financial statements

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The total cash paid for interest at maturity of the note (using a 360 day year) is:
A) $70.
B) $97.50.
C) $1,300.
D) $13,000.

B) 97.50

A bond with a stated interest rate of 8% and a market rate of 7% was issued at a price reflecting the market interest rate. As the bond matures the:
A) premium on Bonds Payable decreases.
B) discount on Bonds Payable decreases.
C) premium on Bonds Payable increases.
D) discount on Bonds Payable increases.

A) premium on bonds payable decreases

At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction current liabilities:
A) increase and current assets decrease.
B) increase and equity increases.
C) increase and equity decreases.
D) decrease and equity decreases.

C) increase and equity decreases

At the maturity date of a bond payable:
A) the discount on bonds payable will have been amortized to zero.
B) the premium on bonds payable will have been amortized to zero.
C) the carrying value of the bonds will always be equal to the par value of the bonds.
D) all of the above will occur.

D) all of the above will occur

The beginning balance in the Warranty Payable account was $50,000. Sales were $900,000 and warranty costs were estimated at 7% of sales. During the year, $55,000 was paid to settle warranty claims. As a result of these transactions, what is the amount of warranty expense for the year and what is the ending balance in Warranty Payable?
Warranty Expense Warranty Payable
A) $50,000 $63,000
B) $63,000 $58,000
C) $55,000 $63,000
D) $113,000 $58,000

B) 63000, 58000

Sam's Shoe Emporium issued a $10,000, 10-year, 10% bond dated January 1, at 97. The journal entry to record the issuance of the bond includes a:
A) debit to cash for $9,700.
B) debit to cash for $10,000.
C) credit to bonds payable for $9,700.
D) debit to premium on bonds payable for $300.

A) debit to cash for 9,700

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