Exam 7: Accounting for Liabilities

Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 7% annual interest rate. Riley earned cash revenue of $1,700 in Year 1 and $1,400 in Year 2. Assume no other transactions.The amount of net income on the Year 2 income statement would be:

Bonds payable are usually classified on the balance sheet as:

The effective rate of interest for a particular bond issue is the market rate of interest for other investments with similar levels of risk.

Why does the recording of a taxable sale increase a company's liabilities?

On May 1, Year 1, Arrow Company borrowed $10,000 from the State Bank at 9 percent annual interest. The note issued by Arrow had a one-year term. In addition, Arrow reported cash revenue of $3,400 in Year 1 and $800 in Year 2 from sales. Interest is paid when the note is due. - Arrow's net income for Year 1 and Year 2 would be

Payment of interest on a note payable is considered a financing activity on the statement of cash flows.

If the stated interest rate for bonds is the same as the market rate of interest, the bonds will be issued at their face value.

What is the effect of the recognition of warranty expense on the statement of cash flows?

Which of the following items is not classified as a current asset?

Victor Company issued bonds with a $250,000 face value and a 6% stated rate of interest on January 1, Year 1. The bonds carried a 5-year term and sold for 95. Victor uses the straight-line method of amortization. Interest is payable on December 31 of each year.The amount of interest expense appearing on the December 31, Year 3 income statement would be:

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NASierra Mining is the defendant in a $3 million lawsuit involving damage to the environment. Sierra's attorneys have advised the company that the outcome of the lawsuit is probable, and the likely settlement will be $750,000.

Denver Company issued bonds with a face value of $56,000 and a stated interest rate of 8%. The bonds have a life of five years and were sold at 102.50. If Denver amortizes discounts and premiums using the straight-line method, the amount of interest expense each full year would be:

Which of the following represents the impact of a taxable cash sale of $400 on the accounting equation if the sales tax rate is 5%?

On January 1, Year 1, Daniels Company issued bonds with a face value of $500,000, receiving $496,000 cash. When the bonds mature, Daniels will have to pay the face value of the bonds to the bondholders.

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. The accrual of interest on December 31, Year 1 will:

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn December 31, Year 1, Flagler Corporation had a balance of $20,000 on a line-of-credit with City Bank. Flagler made a payment of $11,200, which included $10,000 on the principal and $1,200 interest. Show the effects of this transaction on Flagler's financial statements.

When the stated interest rate of a bond is lower than the market rate of interest, will the bond sell at a premium or at a discount?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn December 31, Year 1, Ravenswood Company made an annual payment on a long-term installment note payable. Show how this annual payment affected Ravenswood's financial statements.

Moreno Company began Year 1 with a balance of $300 in Sales Tax payable. During the year, the company recorded taxable sales of $92,500. The ending balance in Sales Tax payable was $445 Moreno's sales tax rate is 4%. Required:How much sales tax did Moreno collect during Year 1?How much sales tax did Moreno pay during Year 1?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAKelly Company sells goods to customers with a three-year warranty. During Year 1, Kelly sold $800,000 of goods. On December 31, Year 1, Kelly made the appropriate year-end adjustment to record the warranty expense related to the goods sold during the year. During Year 2, Kelly paid $4,000 cash to satisfy warranty claims. Show the effects of the Year 1 adjustment to record warranty expense.