Q&A Hero

Q: The factor for the present value of an annuity at 8% for 10 years is 6.7101. This implies that an annuity of ten $15,000 payments at 8% yields a present value of $2,235.

Q: The present value of an annuity can be best or quickly computed as the sum of the individual future values for each payment.

Q: Compounded means that interest during a second period is based on the total amount borrowed plus the interest accrued in the first period.

Q: Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Q: A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Q: A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

Q: One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Q: # Copyright 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 10-48

Q: ____________________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.

Q: _________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

Q: ___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Q: _____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Q: ____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

Q: _______________ bonds are bonds that mature at more than one date, often in a series, and thus are usually repaid over a number of periods.

Q: ______________ bonds are bonds that are scheduled for maturity on one specified date.

Q: _______________ bonds have specific assets of the issuing company pledged as collateral.

Q: On January 1, Year 1 Cleaver Company borrowed $85,000 cash by signing a 7% installment note that is to be repaid with 4 annual year-end payments of $25,094, the first of which is due on December 31, Year 1. (a) Prepare the company's journal entry to record the note's issuance. (b) Prepare the journal entries to record the first installment payment.

Q: Mandarin Company has 9%, 20-year bonds outstanding with a par value of $500,000 and a carrying value of $475,000. The company calls the bonds at $482,000. Calculate the gain or loss on the retirement of these bonds.

Q: A company holds $150,000 par value of bonds with a carrying value of $147,950. The company calls the bonds at $151,000. Prepare the journal entry to record the retirement of the bonds.

Q: On January 1, a company issued 10%, 10-year bonds with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, based on an annual market rate of 8%. Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

Q: Strider Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on January 1, Year 1. Interest is to be paid semiannually on each June 30 and December 31. The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%. (a) Prepare the general journal entry to record the issuance of the bonds on January 1, year 1. (b) Show how the bonds would be reported on Strider's balance sheet at January 1, Year 1. (c) Assume that Strider uses the effective interest method of amortization of any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, Year 1. (d) Assume instead that Strider uses the straight-line method of amortization of any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, Year 1.

Q: On August 1, a company issues 6%, 10 year, $600,000 par value bonds that pay interest semiannually each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.

Q: On March 1, a company issues 6%, 10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

Q: A company issues 6%, 5 year bonds with a par value of $800,000 and semiannual interest payments. On the issue date, the annual market rate of interest is 8%. Compute the issue (selling) price of the bonds.. The following information is taken from present value tables: Present value of an annuity for 10 periods at 3% 8.5302 Present value of an annuity for 10 periods at 4% 8.1109 Present value of 1 due in 10 periods at 3%................... 0.7441 Present value of 1 due in 10 periods at 4% 0.6756

Q: Johanna Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on January 1. Interest is payable each June 30 and December 31. (a) Prepare the general journal entry to record the issuance of the bonds on January 1. (b) Prepare the general journal entry to record the first interest payment on June 30.

Q: On October 1 of the current year a corporation issued (sold) $1,000,000 of its 12% bonds at par plus accrued interest. The bonds were dated July 1 of this year. What amount of bond interest expense should the company report on its current year income statement?

Q: Sharma Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000. Calculate the company's debt-to-equity ratio.

Q: On January 1, Haymark Corporation leased a truck, agreeing to pay $15,252 every December 31 for the six-year life of the lease. The present value of the lease payments, at 6% interest, is $75,000. The lease is considered a capital lease. (a) Prepare the general journal entry to record the acquisition of the truck with the capital lease. (b) Prepare the general journal entry to record the first lease payment on December 31. (c) Record straight-line depreciation on the truck on December 31, assuming a 6-year life and no salvage value.

Q: On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Q: Wasp Corporation has a loan agreement that provides it with cash today, and the company must pay $25,000 one year from today, $15,000 two years from today, and $5,000 three years from today. Wasp agrees to pay 10% interest. The following are factors from a present value table: Interest rate Periods 10% 1 0.9091 2 0.8264 3 0.7513 What is the amount of cash that Wasp receives today?

Q: Companies may use a special bank account solely for the purpose of paying employees, by depositing an amount equal to the total employees' net pay into the account each pay period and drawing the employees' payroll checks on the account. This account is a(n): A.Federal depository bank account. B.Employee's Individual Earnings account. C.Employees' bank account. D.Payroll register account. E.Payroll bank account.

Q: A payroll register does not include: A.Pay period dates. B.Hours worked. C.Gross pay and net pay. D.Deductions. E.Employer tax expenses.

Q: Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year. The journal entry on December 31 to record the bonuses is: A.Debit Estimated Bonus Payable $32,500; credit Cash $32,500. B.Debit Employee Bonus Expense $32,500; credit Bonus Payable $32,500. C.No entry since the bonuses are not paid until January. D.Debit Employee Bonus Expense $32,500; credit Prepaid Employee Bonus $32,500. E.Debit Unearned Bonuses $32,500; credit Bonus Payable $32,500

Q: A company has a selling price of $1,800 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all printers sold will be returned under the warranty at an average cost of $150 each. During November, the company sold 30,000 printers, and 400 printers were serviced under the warranty at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November? A.$26,000 B.$45,000 C.$55,000 D.$60,000 E.$90,000

Q: The deferred income tax liability: A.Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government. B.Is a contingent liability. C.Can result in a deferred income tax asset. D.Is never recorded. E.Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.

Q: A company sold $12,000 worth of bicycles with an extended warranty. It estimates that 2% of these sales will result in warranty work. The current period's entry to record the warranty expense is: A.Debit Warranty Expense $240; credit Cash $240. B.Debit Prepaid Warranties $240; credit Warranty Expense $240. C.Debit Estimated Warranty Liability $240; credit Cash $240. D.Debit Sales Allowances $240; credit Estimated Warranty Liability $240. E.Debit Warranty Expense $240; credit Estimated Warranty Liability $240.

Q: Estimated liabilities commonly arise from all of the following except: A.Warranties. B.Vacation benefits. C.Income taxes. D.Employee benefits. E.Unearned revenues.

Q: Triston Vale is paid on a monthly basis. For the month of January of the current year, he earned a total of $5,210. FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $885.70. What is the amount of the employer's payroll taxes expenses for this employee? A.$1,284.27 B.$312.60 C.$398.57 D.$711.17 E.$1,596.87

Q: Gary Marks is paid on a monthly basis. For the month of January of the current year, he earned a total of $8,288. FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,375.17. What is the amount of the employer's payroll taxes expenses for this employee? A.$2,009.21 B.$1,131.31 C.$2,506.48 D.$420.00 E.$1,054.04

Q: An employee earned $128,500 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $117,000 maximum per year and the rate for FICA Medicare 1.45%. The employer's total FICA payroll tax for this employee is: A.$9,117.25. B.$9,830.25. C.$879.75. D.$8,950.50. E.$0, since the FICA tax is only deducted from an employee's pay.

Q: Which of the following is not true regarding the unemployment insurance program? A.It requires withholding from the employee wages B.It is administered by each state. C.It provides unemployment benefits to qualified workers. D.It adjusts rates paid by employers based on their merit rating. E.It is a joint federal and state program.

Q: All of the following are employer payroll taxes except: A.Social Security tax equal to that withheld from employees. B.Medicare tax equal to that withheld from employees. C.State unemployment tax. D.Federal unemployment tax. E.Federal income tax equal to that withheld from employees.

Q: Employer payroll taxes: A.Are added expenses beyond that for the wages and salaries earned by employees. B.Represent the federal taxes withheld from employees. C.Represent the social security taxes withheld from employees. D.Are paid by the employee. E.Are payable for up to a maximum $117,000 of employee earnings.

Q: The rate that a state assigns reflecting a company's stability or instability in employing workers is the: A.FICA rate. B.Tax withholding rate. C.Pay rate. D.Credit rating. E.Merit rating.

Q: The Wage and Tax Statement given to each employee annually is: A.Form 940. B.Form 941. C.Form 1040 D.Form W-2. E.Form W-4.

Q: Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45% for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings? A.$1,375.02 B.$746.50 C.$962.06 D.$1,027.86 E.$680.70

Q: Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,260. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,325.17. What is the total amount of taxes withheld from the Portia's earnings? A.$3,097.17 B.$2,443.21 C.$1,957.06 D.$1,722.00 E.$1,495.36

Q: An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $117,000. The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee's annual FICA taxes amount is: A.$2,294.00. B.$536.50. C.$2,830.50. D.$1,757.50. E.$8,950.50

Q: Recording employee payroll deductions may involve: A.Liabilities to the employer. B.Liabilities to federal and state governments. C.Expenses for state unemployment. D.Expenses for the gross wages and salaries. E.Expenses for the employer portion of any medical insurance.

Q: FICA taxes include: A.Social Security and Medicare taxes. B.Charitable giving. C.Employee state income tax. D.Federal and state unemployment taxes. E.Employee federal income tax.

Q: The employer should record deductions from employee pay as: A.Employee receivables. B.Payroll taxes. C.Current liabilities. D.Wages payable. E.Employee payables.

Q: Employers' responsibilities for payroll do not include: A.Providing each employee with an annual report of his or her wages subject to FICA and federal income taxes along with the amount of these taxes withheld. B.Filing Form 941, the Employer's Quarterly Federal Tax Return. C.Filing Form 940, the Annual Federal Unemployment Tax Return. D.Maintaining individual earnings records for each employee. E.Recording an expense for the employee Federal Income Tax withholding.

Q: On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? A.Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120. B.Debit Cash $9,240; credit Notes Payable $9,240. C.Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000. D.Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240. E.Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.

Q: On December 1, Victoria Company signed a 90-day, 6% note payable, with a face value of $15,000. What amount of interest expense is accrued at December 31 on the note? A.$0 B.$75 C.$900 D.$225 E.$300

Q: Short-term notes payable: A.Cannot replace an account payable. B.Can be issued in return for money borrowed from a bank. C.Are not negotiable. D.Are a conditional promise to pay. E.Rarely involve interest charges.

Q: The correct times interest earned computation is: A.(Net income + Interest expense + Income taxes)/Interest expense. B.(Net income + Interest expense " Income taxes)/Interest expense. C.(Net income " Interest expense " Income taxes)/Interest expense. D.(Net income " Interest expense + Income taxes)/Interest expense. E.Interest expense/(Net income + Interest expense + Income taxes expense).

Q: If the times interest earned ratio: A.Increases, then risk increases. B.Increases, then risk decreases. C.Is greater than 1.5, the company is in default. D.Is less than 1.5, the company is carrying too little debt. E.Is greater than 3.0, the company is likely carrying too much debt.

Q: Times interest earned is calculated by: A.Multiplying interest expense by income. B.Dividing interest expense by income before interest expense. C.Dividing income before interest expense and income taxes by interest expense. D.Multiplying interest expense by income before interest expense. E.Dividing income before interest expense by interest expense and income taxes.

Q: Interest expense is not: A.Incurred on current liabilities. B.Likely to stay the same when sales change. C.A fixed expense. D.Likely to fluctuate when sales change. E.A factor in determining a company's borrowing risk.

Q: Uncertainties such as natural disasters are: A.Not contingent liabilities because they are future events not arising from past transactions or events. B.Contingent liabilities because they are future events arising from past transactions or events. C.Disclosed because of their usefulness to financial statements. D.Estimated liabilities because the amounts are uncertain. E.Reported in the same way as debt guarantees.

Q: Debt guarantees are: A.Never disclosed in the financial statements. B.Considered to be contingent liabilities. C.A bad business practice. D.Recorded as liabilities even though it is highly unlikely that the original debtor will default. E.Considered to be current liabilities.

Q: Contingent liabilities are recorded or disclosed unless they are: A.Probable and estimable. B.Remote. C.Reasonably possible. D.Probable and not estimable. E.Possible and estimable.

Q: A contingent liability is: A.Always of a specific amount. B.A potential obligation that depends on a future event arising from a past transaction or event. C.An obligation not requiring future payment. D.An obligation arising from the purchase of goods or services on credit. E.An obligation arising from a future event.

Q: If a company has advance ticket sales totaling $2,000,000 for the upcoming football season, the receipt of cash would be journalized as: A.Debit Sales, credit Unearned Revenue. B.Debit Unearned Revenue, credit Sales. C.Debit Cash, credit Unearned Revenue. D.Debit Unearned Revenue, credit Cash. E.Debit Cash, credit Revenue.

Q: Which of the following do not apply to unearned revenues? A.Also called deferred revenues. B.Amounts received in advance from customers for future delivery of products or services. C.Also called collections in advance. D.Also called prepayments. E.Amounts to be received in the future from customers for delivery of products or services in the current period.

Q: When a company is obligated for sales taxes payable, it is reported as a(n): A.Estimated liability. B.Contingent liability. C.Current liability. D.Business expense. E.Long-term liability.

Q: Accounts payable are: A.Amounts owed to suppliers for products and/or services purchased on credit. B.Long-term liabilities. C.Estimated liabilities. D.Not usually due on specific dates. E.Always payable within 30 days.

Q: All of the following are true of known liabilities except: A.Include accounts payable, notes payable, and payroll. B.Are obligations set by agreements, contracts, or laws. C.Are measurable. D.Are definitely determinable. E.May depend on some future event occurring.

Q: In order to be reported, liabilities must: A.Be certain. B.Sometimes be estimated. C.Be for a specific amount. D.Always have a definite date for payment. E.Involve an outflow of cash.

Q: All of the following statements regarding uncertainty in liabilities are true except: A.Liabilities can involve uncertainty in whom to pay. B.A company can create a liability with a known amount even when the holder of the note may not be known until the maturity date. C.A company can have an obligation of a known amount to a known creditor but not know when it must be paid. D.A company only records liabilities when it knows whom to pay, when to pay, and how much to pay. E.A company can be aware of an obligation but not know how much will be required to settle it.

Q: Obligations to be paid within one year or the company's operating cycle, whichever is longer, are: A.Current assets. B.Current liabilities. C.Earned revenues. D.Operating cycle liabilities. E.Bills.

Q: All of the following statements regarding liabilities are true except: A.A liability is a probable future payment of assets or services. B.Unearned future wages to be paid to employees should be recorded as liabilities. C.For a liability to be reported, it must be a present obligation that results from a past transaction or event, and requires a future payment of assets or services. D.Information about liabilities is more useful when the balance sheet identifies them as either current or long term. E.Liabilities can involve uncertainty in whom to pay.

Q: An employee earnings report is a cumulative record of each employee's hours worked, gross earnings, deductions, and net pay.

Q: The report that shows the pay period dates, hours worked, gross pay, deductions, and net pay of each employee for every pay period is the payroll register.

Q: Companies with many employees rarely use a special payroll bank account from which to pay employees.

Q: Each employee records the number of withholding allowances claimed on the withholding allowance certificate that is filed with the employer, which is the form W-4.

Q: A liability is incurred when income is earned because income tax expense is created by earning income.

Q: A known obligation of an uncertain amount that can at least be reasonably estimated is reported as an estimated liability.

Q: FUTA requires employers to pay a federal unemployment tax on all salary or wages paid to each employee.

Q: Deposits of amounts payable to the federal government may be paid through federal depository banks.