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30 Cards in this Set
- Front
- Back
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Which of the following is NOT an estimated liability? a. Product warranties b. Allowance for bad debt c. Income taxes d. Vacation pay |
b. Allowance for bad debts |
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Recording estimated warranty expenses in the year the related products are sold BEST follows which accounting principle? |
expense recognition (matching) |
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Accounts payable turnover for Big Blue, Inc. increased from 10 to 12 during 2014. Which of the following statements best describes what this means? |
The company paid its accounts payable MORE QUICKLY in 2014, signaling a stronger liquidity position |
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Packard was organized to sell a single product that carries a 45-day warranty against defects. Engineering estimates indicate that 2% of the units sold will prove defective and require an average repair cost of $45 per unit. During Packards first month of operations, total sales were 900 units; by the end of the month, 5 defective units have been repaired. The liability for product warranties at month-end should be... |
Unit Sales x Defective % x Avg repair cost = Warranty expense then Warranty expense - repairs made = set war lia =585 |
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A contingent liability should be recorded in the accounts... |
If the amount can be reasonably estimated AND if the related future event will probably occur |
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An insecure bond is a ... |
debenture bond |
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The Discount on Bonds Payable account... |
is a CONTRA account to Bonds Payable |
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The discount on a bond payable becomes... |
Additional interest expense over the life of the bonds |
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A bond that matures in installments is called a... |
Serial Bond |
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The carrying value of Bonds Payable equals... |
Bonds Payable - Discount on Bonds Payable |
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Dart Corporation's leverage ratio increased from 2.5 in 2013 to 3.0 in 2014. Without looking at the financial statements, which statement best describes what may have occurred? |
The company incurred new debt financing in 2014, but it may or may not have been more profitable |
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McVay Corporation issued $100,000 of 4.5% 10-year bonds. The bonds are dated and sold on January 1, 2015. Interest payment dates are January 1 and July 1. The bonds are issued for 96,103 to yield the market interest rate of 5%. McVay Corp uses the EFFECTIVE-INTEREST method. What is the !amount of interest expense! that McVay Corp will record on July 1, 2015, the first semiannual interest payment date? |
Bond carrying amount x Market rate of interest x portion of the year, semiannually=6/12 = interest expense =$2403 |
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McVay Corporation issued $100,000 of 4.5% 10-year bonds. The bonds are dated and sold on January 1, 2015. Interest payment dates are Jan 1 and July 1. The bonds are issued for $96,103 to yield the market interest rate of 5%. McVay Corp uses the EFECTIVE-interest method. The interest expense that McVay Corp will record on July 1 is $2,403, and the interest payment is $2250. What is the !amount of discount amortization! that McVay Corp will record on July 1, 2015, the first semiannual interest payment date? |
Interest expense - interest payment = discount amortization =$153 |
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McVay Corp issued $100,000 of 4.5%, 10 year bonds. The bonds are dated and sold on Jan 1, 2015. Interest payment dates are January 1 and July 1. The bonds are issued for $96,103 to field the market interest rate of 5%. McVay Corporation uses the effective-interest method. What is the !total cash payment for interest! for each 12-month period? |
Maturity value of bonds x standard interest rate % = Interest Payment 100,000 x 4.5% = |
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McVay Corp issued $100,000 of 4.5%, 10-year bonds. The bonds are dated and sold on Jan 1, 2015. Interest payment dates are Jan 1 and July 1. The bonds are issued for $96,103 to yield the market interest rate of 5% sing the STRIAGHT LINE AMORTIZATION, the carrying amount of McVay Corp's bonds at Dec 31, 2015 is... |
Par value of the bonds - Cash received on issuance = discount amount then discount / number of interest periods = amortization of discount subtract amortization from discount amount = discount amount balance Bonds payable - discount account balance = bonds carrying amount 100000 - 96103 = 3897 3897 / 20 bc10x2 = 195 x2 periods = 390 100000 - 3507 = 96,493 |
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For the purpose of classifying liabilities as current or concurrent, the term OPERATING CYCLE refers to... |
The time period between purchase of merchandise and the conversion of this merchandise back to cash |
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Failure to accrue interest expense results in... |
An OVERstatement of NET INCOME and an UNDERstatement of LIABILITIES |
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Tennis Shoe Warehouse operates in a state with a 6.5% sales tax. For convenience, Tennis Show Warehouse credits Sales Revenue for the total amount (selling price plus sales tax) collected from each customer. If Tennis Shoe Warehouse fails to make and adjustment for sales taxes... |
NET income will be OVERstated and LIAbilities will be UNDERstated |
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What kind of account is Unearned Revenue? |
Liability Account |
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An end-of-period adjusting entry that debits Unearned Revenue most likely will credit... |
A revenue |
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Maridell's Fashions has a debt that has been properly reported as long-term liability up to the present year (2014). Some of this debt comes due in 2014. If Maridell's Fashions continues to report the current position as a long-term liability, the effect will be to.. |
Overstate the current ratio |
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A bond with a face amount of $10,000 has a current price quote of 102.875. What is the bond's price? |
Face value x Issue price = Bond's price / 100 $10,000 x 102.875 = 1028750 / 100 = $10287.50 |
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Bond carrying value equals Bonds Payable... |
Plus premium on Bonds Payable AND Minus Discount on Bonds Payable |
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What type of account is Discount on Bonds Payable and what is its normal balance? |
Contra liability; Debit |
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Day Company sells $400,000 of 5%, 10-year bonds for 97 on April 1, 2014. The market rate of interest on that day is 5.5% interest is paid each year on April 1. The entry to record the sale of the bonds on April 1 would be as follows: |
Cash 388,000 Discount on Bonds Payable 12,000 Bonds Payable 400,000 |
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Day Comp sells $400,000 of 5%, 10-year bonds for $388,000 on April 1, 2014. The market rate of interest on that day is 5.5%. Interest is paid each year on April 1. Day Comp uses the straight line AMORTIZATION method. The amount of interest expense for each year will be... |
first, face value x interest rate = interest payment then, = 20,000 (face value - issue price) / number of years = amortization expense = 1200 lastly, interest payment + discount amortization = interest expense = $21200 |
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Truitt Corporation issued $400,000 of 3% 10-year bonds payable on January 1st, 2014, for $367,297. The market interest rate when the bonds were issued was 4%. Interest is paid semiannually on January 1 and July 1. The first payment is July 1st, 2014. Truitts journal entry to record the interest expense on July 1 2014 will include a... |
Credit to discount on Bonds Payable |
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Amortizing the discount on bonds payable... |
Increasing the recorded amount of interest expense |
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The journal entry on the maturity date to record the payment of $1,500,000 of bonds payable that were issued at a $70,000 discount includes... |
a debit to Bonds Payable for $1,500,000 |
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Is the payment of the face amount of a bond on its maturity date regarded as an operating activity, an investment activity, or a financing activity? |
Financing activity |
