Accounting Final

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Bonds that give the issuer the option to retire them at a stated dollar amount before maturity is known as
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Terms in this set (154)
Bonds that give the issuer the option to retire them at a stated dollar amount before maturity is known as
Callable Bonds
A $1,000 bond trading at 102 1/2 means that
The bond traded is bought or sold at $1,025
Secured Bonds:
Have specific assets to the issuer pledged as collateral
Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection are called
Coupon Bonds
Bonds issued in the names and addresses of their holders are called
Registered Bonds
The legal contract between the bond issuer and the bondholders is called
Bond Indenture
Bonds that mature at more than one date and thus are usually repaid over a number of periods are known as
Serial Bonds
A legal agreement that helps protect a lender if a borrower does not make required payments on notes or bonds is called
Mortgage
A liability requiring a series of payments to the lender is referred to as
Installment Notes
Which of the following is true regarding long-term notes payable
1. The notes (carrying) book value at any time equals its face value minus any unamortized discount or plus any premium
2. Notes payable are usually issued by a single lender
3. Over the life of a note, the interest expense allocated to each period is computed by multiplying the market rate at issuance by the beginning- of- period note balance
The carrying value of bonds at maturity always equals:The par value of the bondOn January 1, Sustainable Energy Corporation issues bonds that have a $100,000 par value, mature in 8 years, and pay 12% interest per year. Interest payments are paid to bondholders semiannually on June 30 and December 31. How much interest does Sustainable Energy Corporation pay to bondholders every six months if the bonds are sold at par?$6,000On January 1, Forward Company issues bonds that have a $25,000 par value, mature in 5 years, and pay 10% interest per year. Interest payments are paid to bondholders semiannually on June 30 and December 31. How much interest does Forward Company pay to bondholders every six months if the bonds are sold at par?$1,250The document which bondholders receive that is evidence of the issuing company's debt is reffered to as:Bond CertificateA pension plan:Is an agreement for the employer to provide benefits (payments) to employees after they retireA disadvantage of bond financing isBonds pay periodic interest and require the repayment of par value at maturityAn advantage of a bond isBonds do not effect owner controlWhat is true about bondsInterest on bonds is tax deductibleA bondholder that owns a $1,000, 10%, 10-year bond hasThe right to receive $1,000 at maturityCollateral for a bond or note canReduce the risk of loss in comparison with unsecured debtsThe party that has the right to exercise a call option on callable bond isThe bond issuerWhich of the following accurately describes a debentureA type of bond which is backed by the issuer's general credit standing and is riskier than secured debtA company's total liabilities divided by its total equity is called thedebt-to-equity ratioThe debt-to-equity ratio:Is a measure used to assess the risk of a company's financing structureCharger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):1.25A bond is issued at par value whenThe market rate of interest is the same as the contract rate of interestWhen a bond sells at a premium:The contract rate is above the market rateA bond sells at a discount when theThe contract rate is below the market rateMorgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semiannually. The amount paid to the bondholders for each semiannual interest payment is.$33,750A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:Debit Bond Interest Expense $22,000 Credit Cash $22,000On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:Debit Cash $1,864,097 Debit Discount on Bonds Payable $135,903 Credit Bonds Payable $2,000,000Amortizing a bond discountAllocates a portion of the total discount to interest expense each interest periodThe Discount on Bonds Payable is aA contra liability with a normal debit balanceA discount on bonds payableoccurs when a company issues a bonds with a contract rate less than the market rateThe effective interest methodAllocates total bond interest expense over the bond's life in a way that yields a constant interest rateA company issues bonds with a $100,000 par value, an 8% annual contract rate, semiannual interest payments, and a five-year life. The bonds sold for $107,850. The entry to record the issuance of the bonds will include:A credit to Premium on Bonds Payable of $7,850A Premium on Bonds Payable is anAdjunct Liability AccountA company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:Credit to Premium on Bonds PayableIf an issuer sells bonds at a premiumThe carrying value decreases from the issue price to the par value over the bond's termA company issues 8% bonds with a par value of $40,000 at par on January 1. The market rate on the date of issuance was 7%. The bonds pay interest semiannually on January 1 and July 1. The cash paid on July 1 to the bondholder(s) is:$1,600Bonds that can be exchanged for a fixed number of shared of the issuing corporations stock are known asConvertible BondsBonds that give the issuer the option of retiring them at a stated dollar amount before the maturity dateCallable BondsClabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300. If the company calls these bonds at a price of $95,000, the gain or loss on retirement is:$2,300 GainChang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000. If the company calls these bonds at a price of $201,000, the gain or loss on retirement is:$2,000 GainOn July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the appropriate journal entry to record the issuance of the note?Debit Cash $250,000 Credit Notes Payable $250,000On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment?$20,000***On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of the first annual payment goes toward principal reduction of the note?$17,258On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the journal entry to record the first annual payment?Debit Interest Expense $20,000 Debit Notes Payable $17,258 Credit Cash $37,258What is true regarding convertible bonds1. Convertible bonds can be exchanged for a fixed number of shared of the issuing corporation's stock 2. Holders of convertible bonds have the potential to profit from increases in stock price 3. Holders on convertible bonds can receive the par value if they hold the debt to maturity 5. Holders of convertible bonds receive interest while the debt is heldWhat is false regarding convertible bondsHolders of convertible bonds can choose how many shares of stock to receive at conversionLong-Term InvestmentsCan include funds designated for a special purpose, such as investments in land not used in the company's operationsShort-Term Investments includeSecurities that management intends to convert to cash within one year or the operating cycle, whichever is longer, and are readily convertible to cashDebt securities that a company intends and is able to hold until maturity are known asHeld-to-maturity securitiesLong-Term Investments includeInvestments that are not readily convertible to cash or are not intended to be converted to cash in the short termStrickland Corporation has invested in debt securities. Strickland intends to actively buy and sell this investment for profit. This investment is classified as:A trading securityWhich of the following statements regarding stock investments with insignificant influence is false?They report a realized gain (or loss) in a permanent asset account, Fair Value Adjustment - StockWhich of the following about debt securities is falseThey reflect an owner relationshipAt acquisition, debt securities areRecorded at costAt the end of the accounting period, the owners of debt securities:Must record any interest earned on the debt securities during the period***A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay interest on March 1 and September 1. The amount of interest accrued on December 31 (the company's year-end) would be:$1,000A company paid $37,800 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:$40,000A company paid $37,800 cash to acquire stock investments with insignificant influence. The correct entry to record the purchase of the investment isDebit Stock investments $37,800 Credit Cash $37,800Kendall Corporation purchased at par value, $75,000 of Sherm Company's 8% bonds that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. When the bonds mature, Kendall should prepare the following journal entry. (Assume semiannual interest was separately recorded)Debit cash $75,000 Credit Debt-Investments- Held-to-Maturity (HTM) $75,000Kendall Corporation purchased $160,000 of Barker Company's 7% bonds at par value that mature in 10 months. The bonds pay interest semiannually on June 1 and December 1. Kendall plans to hold the bonds until they mature. The journal entry to record Kendall's purchase of the bonds is:Debit Debt Investments- HTM $160,000 Credit Cash $160,000Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and are classified as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?Debit Cash $2,000 Credit Interest Revenue $2,000Accounting for long-term investments in equity securities with controlling influence uses theConsolidation MethodThe controlling investor of a long-term investment with controlling interest is called theParentThe investee company in a long-term investment with controlling interest is called theSubsidiaryA controlling influence over the investee is based on the investor owning voting stock exceeding50%Long-Term investments cannot includeSecurities with maturity dates within 3 monthsConsolidation financial statementsShow the financial statements of all entities under the parent's control, including all subsidiariesComprehensive income does not includeDividends paid to shareholdersShort-Term investments in held-to-maturity debt securities are accounted for using theCost method without amortizationLong-Term investments in held-to-maturity debt securities are accounted for using theCost method with amortizationAdvanced Sports Medicine purchases 55% of the voting common stock of Athletics Incorporated. After the purchase, Advanced Sports Medicine has a controlling influence over Athletics Incorporated. Which method does Advanced Sports Medicine use to account for its investment in Athletics Incorporated?Consolidation MethodAdvanced Sports Medicine purchases 55% of the voting common stock of Athletics Incorporated. After the purchase, Advanced Sports Medicine has a controlling influence over Athletics Incorporated. What type of financial statements does Advanced Sports Medicine prepare after the acquisition?Consolidated financial statementWhich of the following is an equity securityCompany common stockDeRozen Company purchases 1,000 common shares (40%) of Tours of Toronto Incorporated as a long-term investments for $100,000 cash on July 1. Tours of Toronto paid $15,000 in total cash dividends on November 1 and reported net income of $150,000 for the year ended December 31. Prepare DeRozen's journal entry to record the purchase of common shared of Tours of TorontoDebit Equity Method Investments $100,000 Credit Cash $100,000DeRozen Company purchases 1,000 common shares (40%) of Tours of Toronto Incorporated as a long-term investment for $100,000 cash on July 1. Tours of Toronto paid $15,000 in total cash dividends on November 1 and reported net income of $150,000 for the year ended December 31. Prepare DeRozen's journal entry to record the receipt of its share of Tours of Toronto's November 1 dividends.Debit Cash $6,000 Credit Equity Method Investments $6,000Cloverton Corporation had net income of $30,000, net sales of $1,000,000, and average total assets of $500,000. Its return on total assets is:6%A company has net income of $250,500, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:16.7%A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of $8,000,000. Its return on total assets equals:33.25%Investments can be classified as all but which of the followingIntangible InvestmentsInvestments in debt securities that the company actively manages and trades for profit are referred to as short-term debt investments inTrading securitiesInvestments in trading securitiesAre reported as current assetsA decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called anUnrealized LossHeld-to-maturity securities areDebt securities that a company intends and is able to hold to maturityAvailable-for-sale debt securities areReported at fair value on the balance sheetTrading (debt) securities areRecorded at cost and then reported at fair value on the balance sheetWhat is true pertaining to available-for-sale debt securities1. Recorded at cost when acquired 2. Earn interest that is reported in the income statement 3. Classified as either short-term or long-term securities 4. Reported at fair value on the balance sheetWhat is false regarding Available-to-sale securitiesUnrealized gain or loss for the available-for-sale (ASF) portfolio is reported on the income statementJ.P. Industries purchased Yang's notes for $143,375 as a long-term investment. The investment is classified as available-for-sale. J.P.'s entry to record the purchase transaction would include a:Debit Debt Investments - Available-for-sale (AFS) for $143,375Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 cash. Gonzalez has 500,000 shares of stock currently outstanding. Lessington's entry to record the purchase would include a:Debit to Stock Investments for $150,000On March 15, Alan Company purchased 10% of Cameo Corportions stock for $35,000. This is the company's first and only stock investment. On Alan's June 30 year-end the stock had a fair value of $34,000. Alan should do which of the followingRecord a debit to the Unrealized Loss-Income AccountIf a company owns between 20% and 50% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?Equity MethodMotorCity, Incorporated purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:Debit to Equity Method Investments for $232,000McVeigh Corporation owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record the cash dividend received from Gondor would include a:Credit to Equity Method Investments for $41,200Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:Debit Cash $9,000 Credit Equity Method Investments $9,000Bledsoe Incorporated purchases debt investments as trading securities at a cost of $175,000 on October 27. This is the first and only purchase of such securities. At December 31, these securities had a fair value of $181,000. The journal entry to record the purchase of these debt securities would include a:Debit to Debt Investments- Trading for $175,000Brogdon Company purchases debt investments as trading securities at a cost of $100,000 on June 15. This is the first and only purchase of such securities. At December 31 these securities had a fair value of $102,000. The December 31 year-end fair value adjusting entry for the trading securities' portfolio includes a:Credit to Unrealized Gain- Income for $2,000Which of the following statements regarding accounting for equity investments with controlling influence is false?These investments are accounted for using fair values with unrealized gains and losses reported in other comprehensive incomeWhich of the following statements regarding accounting for stock investments with insignificant influence is false?The investment account equals the acquisition cost plus the share of investee income plus the share of investee dividendsWhich of the following statements regarding accounting for trading debt securities is false?An unrealized gain or loss is recorded with an adjusting entry when the securities are soldWhich of the following statements regarding other comprehensive income is false?Other comprehensive income is not considered when calculating comprehensive incomeLandmark Corporation buys $300,000 of Schroeter Company's 8%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans and has the ability to hold the bonds for the 5-year life. The journal entry to record the purchase should include:A debit to debt investments- Held-to-maturity $300,000Landmark Corporation buys $300,000 of Schroeter Company's 8%, 5-year bonds payable, at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. When the bonds mature, the journal entry to record the proceeds will be:Debit Cash $300,000 Credit Debt Investments-Held-to-Maturity $300,000On February 15, Jewel Company buys notes of Marcelo Corporation for $200,110. The investment is classified as long-term available-for-sale securities. This is the company's first and only investment in available-for-sale securities. The journal entry to record the purchase on February 15 is:Debit Debt Investments-Available-for-Sale $200,110 Credit Cash $200,110On February 15, Jewel Company buys bonds of Marcelo Corporation for $200,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On December 31, the bonds had a fair value of $200,300. The entry to record the year-end adjustment is:Debit Fair Value Adjustment- Available For Sale $300 Credit Unrealized Gain- Equity $300How do you calculate depreciation expense using the units-of-methodDepreciation Per Unit= (Cost- Salvage)/Total Units Depreciation expense= Depreciation per unit (answer from above) * units produced in that periodHow do you calculate Double-Declinging BalanceStep 1: Straight-Line Rate= 100% Divide Useful Life Step 2: Double Declining Balance Rate = 2 * Straight Line Rate (Answer from step 1) Step 3: Depreciation Expense= Double-Declining Balance Rate (Answer From Step 2) * Beginning Period book ValueRevenue ExpendituresAre costs that do not materially increase a plant asset's life or capabilities.Another name for a capital expenditure is:Balance sheet expenditure.Extraordinary repairs:Are expenditures that extend an asset's useful life beyond its original estimate.Which of the following is an example of an extraordinary repair?Replacing the roof on a manufacturing warehouse.Betterments:Are expenditures that make a plant asset more efficient or productive.An asset's book value is $18,000 on December 31, Year 5. Assuming the asset is sold on December 31, Year 5 for $15,000, the company should record:A loss on sale of $3,000.An asset is said to be fully depreciated when:Accumulated depreciation equals the asset's cost.Natural resources are:Assets that are physically consumed when used such as standing timber, mineral deposits, and oil and gas fields.Depletion is:The process of allocating the cost of a natural resource to the period when it is consumed.A company purchased a mine at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this mine. The salvage value of the mine is expected to be $250,000. If 150,000 tons of ore are mined and sold during the first year, the journal entry to record the depletion is:Debit Depletion Expense $93,750; credit Accumulated Depletion $93,750.Amortization is:The allocation of the cost of an intangible asset to expense over its estimated useful life.Owning a patent:Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.Holding a copyright:Gives its owner the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years.A leasehold is:The rights the lessor grants to the lessee under the terms of a lease.The meaning of goodwill in accounting is:The amount by which a company's value exceeds the value of its individual assets and liabilities.The correct times interest earned computation is:(Net income + Interest expense + Income taxes)/Interest expense.Employers' responsibilities for payroll include1. Providing each employee with an annual report of his or her wages subject to Federal Insurance Contributions Act (FICA) and federal income taxes alone with the amount of these taxes withheld 2. Filing Form 941, The employers' Quarterly Federal Tax Return 3. Filing From 940, The Annual Federal Unemployment Tax Return 4. Maintaining individual earnings records for each employeeGross Pay isTotal compensation earned by an employee before any deductionsThe employer should record payroll deductions asCurrent LiabilitiesFederal Insurance Contributions Act (FICA) taxes includeSocial Security and Medicare TaxesThe amount of federal income taxes withheld from an employees paycheck is determined byThe employees income and number of withholding allowances the employee claimsRecording employee payroll deductions may involveLiabilities to federal and state governmentsThe Federal Insurance Contributions Act (FICA) requires that each file aForm 941An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $137,700. The Federal Insurance Contributions Act (FICA) tax rate for Social Security is 6.2% and the Federal Insurance Contributions Act (FICA) tax rate for Medicare is 1.45%. The employee's annual Federal Insurance Contributions Act (FICA) taxes amount is:$2,830.50Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,540. The Federal Insurance Contributions Act (FICA) tax for social security is 6.2% of the first $137,700 earned each calendar year, and the Federal Insurance Contributions Act (FICA) tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. His net pay for the month is:$3,511.99The Annual Federal Unemployment Tax Return isForm 940The Wage and Tax Statement given to each employee annually isW-2A bank that is authorized to accept deposits of amounts payable to federal government is aFederal Depository BankAn employer's federal unemployment taxes (FUTA) are reportedAnnuallyThe rate that a state assigns based on a company's stability in employing workers is theMerit RatingEmployer Payroll TaxesAre an added expense beyond wages and salaries earned by employeesWhich of the following is an employer payroll tax1. Social Security tax equal to the withheld from employees 2. Medicare tax equal to that withheld from employees 3. State Unemployment Tax Federal Unemployment TaxWhat is not a payroll taxFederal income tax equal to that withheld from employeesEmployees earn vacation pay at a rate of one day per month. The company estimated and must expense $1,500 of accrued vacation benefits for the year. Which of the following is the necessary year-end adjusting entry to record accrued vacation benefits?Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The company shouldRecognize warranty expense and liability in the year of the saleA company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The current period's entry to record the warranty expense is:Debit Warranty Expense $240 Credit Estimated Warranty Liability $240A deferred income tax liabilityResults when the income tax expense reported on the income statement differing from the amount of the income taxes payable to the governmentWhat is not a characteristic of a general partnershipBusiness Income TaxA partnership that has general and limited partners, where the limited partners have no personal liability beyond the amounts they invest in the partnership is aLimited PartnershipA partnership which protects innocent partners from malpractice or negligence claims resulting from acts of another partner isLimited Liability PartnershipPat and Nicole formed Here and There as a limited liability company. The internal revenue service will tax the limited liability company (LLC) asA partnershipA partnership in which all partners have mutual agency and unlimited liability is calledGeneral PartnershipWhich of the following business types has the advantage of limited liability and no additional business income taxLimited Liability Company (LLC)In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowanceCan make up for unequal capital contributions