Question 1

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following is a claims exchange transaction?

Accepted Answer

A)  Accrued interest on a note payable. 
B)  Issued a note to purchase equipment. 
C)  Repaid principal on a note payable. 
D)  Paid interest on a note payable. 
A)  Accrued interest on a note payable. 
B)  Issued a note to purchase equipment. 
C)  Repaid principal on a note payable. 
D)  Paid interest on a note payable. A

Question 3

Jones Company issued bonds with a $200,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7½% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of interest expense shown on Jones's December 31, Year 1 income statement would be:

Accepted Answer

A)  $16,200. 
B)  $21,000. 
C)  $15,000. 
D)  $13,800. 
A)  $16,200. 
B)  $21,000. 
C)  $15,000. 
D)  $13,800. A

Question 4

If a company has issued bonds at a premium, the amount of interest expense reported on the income statement each year will be greater than the amount of cash paid to bondholders for interest.

Accepted Answer

A) True 
 B)False

Question 5

The effective interest rate method of amortizing bond premium or discount results in a constant amount of interest expense every period.

Accepted Answer

A) True 
 B)False

Question 6

On January 1, Year 1, Sheffield Co. issued bonds with a face value of $200,000, a term of ten years, and a stated interest rate of 6%. The bonds were issued at 105, and interest is payable each December 31. Sheffield uses the straight-line method to amortize the bond discount. The carrying value of the bonds that would be reported on the December 31, Year 4 balance sheet is:

Accepted Answer

A)  $204,000. 
B)  $200,000. 
C)  $205,000. 
D)  $206,000. 
A)  $204,000. 
B)  $200,000. 
C)  $205,000. 
D)  $206,000.

Question 7

On January 1, Year 1, Daniels Company issued bonds with a face value of $500,000, receiving $496,000 cash. These bonds were issued at a discount.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

Accepted Answer

A)  Interest Payable. 
B)  Wages Payable. 
C)  Accounts Payable. 
D)  Bonds Payable. 
A)  Interest Payable. 
B)  Wages Payable. 
C)  Accounts Payable. 
D)  Bonds Payable.

Question 9

Jones Company issued bonds with a $200,000 face value on January 1, Year 1. The five-year term bonds were issued at 97 and had a 7½% stated rate of interest that is payable in cash on December 31st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information: The amount of cash outflow from operating activities shown on Jones's December 31, Year 2 statement of cash flows would be:

Accepted Answer

A)  $15,000. 
B)  $16,200. 
C)  $13,800. 
D)  $17,400. 
A)  $15,000. 
B)  $16,200. 
C)  $13,800. 
D)  $17,400.

Question 10

If a company uses the effective interest method of amortizing a bond premium, the carrying value of the bond will:

Accepted Answer

A)  decrease by equal amounts each year. 
B)  decrease by smaller amounts each year. 
C)  decrease by larger amounts each year. 
D)  be lower than the face value of the bond until maturity. 
A)  decrease by equal amounts each year. 
B)  decrease by smaller amounts each year. 
C)  decrease by larger amounts each year. 
D)  be lower than the face value of the bond until maturity.

Question 11

The party who borrows money in a note payable is known as the:

Accepted Answer

A)  Maker. 
B)  Payee. 
C)  Issuer. 
D)  Both Maker and Issuer. 
A)  Maker. 
B)  Payee. 
C)  Issuer. 
D)  Both Maker and Issuer.

Question 12

Vogle Company purchased $8,000 of equipment by making a $500 down payment and issuing a note for the remainder. As a result of this event, assets increased by $8,000.

Accepted Answer

A) True 
 B)False

Question 13

Johansen Company issued a bond at a discount. Which of the following choices accurately reflects how the issue would affect Johansen's financial statements?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D

Question 14

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:

Accepted Answer

A)  $17,500. 
B)  $12,500. 
C)  $14,250. 
D)  $15,000. 
A)  $17,500. 
B)  $12,500. 
C)  $14,250. 
D)  $15,000.

Question 15

Contingent liabilities are only recognized if they arise from past events.

Accepted Answer

A) True 
 B)False

Question 16

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 cash flow from operating activities on the December 31, Year 3 statement of cash flows would be:

Accepted Answer

A)  $17,500. 
B)  $15,000. 
C)  $14,250. 
D)  $12,500. 
A)  $17,500. 
B)  $15,000. 
C)  $14,250. 
D)  $12,500.

Question 17

Indicate whether each of the following statements about bonds is true or false.
_____ a) The carrying value of a bond increases over time if the bond was issued at a premium.
_____ b) At the end of the term of the bonds, the carrying value of a bond issue is equal to the issue price.
_____ c) If bonds are sold below face value, the difference between the issue price and the face value is called the bond discount.
_____ d) The payment of interest is an operating activity on the statement of cash flows.
_____ e) The issuance of bonds does not appear on the statement of cash flows.

Accepted Answer

a) This is false. The carrying value of

Question 18

Davis Corporation borrowed $50,000 on January 1, Year 1. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for Year 1 that is reduction of principal is $3,587.

Accepted Answer

A) True 
 B)False

Question 19

When do the effects of product warranties appear on the statement of cash flows?

Accepted Answer

A)  When the sale of merchandise is made. 
B)  When the warranty obligation is recognized. 
C)  When there is a settlement of a warranty claim made by a customer. 
D)  None of these answer choices are correct. 
A)  When the sale of merchandise is made. 
B)  When the warranty obligation is recognized. 
C)  When there is a settlement of a warranty claim made by a customer. 
D)  None of these answer choices are correct.

Question 20

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 total liabilities that would appear on Riley's December 31 balance sheets for Year 1 and Year 2, respectively, would be:

Accepted Answer

A)  $36,000 and $0. 
B)  $37,890 and $0. 
C)  $37,890 and $38,520. 
D)  $1,890 and $630. 
A)  $36,000 and $0. 
B)  $37,890 and $0. 
C)  $37,890 and $38,520. 
D)  $1,890 and $630.

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Which of the following is a claims exchange transaction?

If a company has issued bonds at a premium, the amount of interest expense reported on the income statement each year will be greater than the amount of cash paid to bondholders for interest.

The effective interest rate method of amortizing bond premium or discount results in a constant amount of interest expense every period.

On January 1, Year 1, Daniels Company issued bonds with a face value of $500,000, receiving $496,000 cash. These bonds were issued at a discount.

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

If a company uses the effective interest method of amortizing a bond premium, the carrying value of the bond will:

The party who borrows money in a note payable is known as the:

Vogle Company purchased $8,000 of equipment by making a $500 down payment and issuing a note for the remainder. As a result of this event, assets increased by $8,000.

Johansen Company issued a bond at a discount. Which of the following choices accurately reflects how the issue would affect Johansen's financial statements?

Contingent liabilities are only recognized if they arise from past events.

When do the effects of product warranties appear on the statement of cash flows?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 7: Accounting for Liabilities

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Which of the following is a claims exchange transaction?

If a company has issued bonds at a premium, the amount of interest expense reported on the income statement each year will be greater than the amount of cash paid to bondholders for interest.

The effective interest rate method of amortizing bond premium or discount results in a constant amount of interest expense every period.

On January 1, Year 1, Daniels Company issued bonds with a face value of $500,000, receiving $496,000 cash. These bonds were issued at a discount.

Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?

If a company uses the effective interest method of amortizing a bond premium, the carrying value of the bond will:

The party who borrows money in a note payable is known as the:

Vogle Company purchased $8,000 of equipment by making a $500 down payment and issuing a note for the remainder. As a result of this event, assets increased by $8,000.

Johansen Company issued a bond at a discount. Which of the following choices accurately reflects how the issue would affect Johansen's financial statements?

Contingent liabilities are only recognized if they arise from past events.

When do the effects of product warranties appear on the statement of cash flows?

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters