Exam 7: Accounting for Liabilities

On January 1,2011,Sea the World Cruises,Inc.issued $100,000 worth of 8%,10-year bonds at 88.The market rate of interest at the time of issue was 10%.Interest will be paid semiannually on June 30 and December 31.Sea the World Cruises uses the effective interest method for amortizing any bond discounts or premiums. Part A: For each item listed below,fill in the correct dollar amount in the column that represents the financial statement where the item will appear: Part B: Answer the following questions assuming the company uses straight-line amortization: 1.Interest expense every six months will be $____________________. 2.The carrying value of the bonds at December 31,2011 will be $_________________. 3.The carrying value of the bonds at December 31,2012 will be $_________________.

On December 1,2010,Woodburn Corporation borrowed $150,000 at 10%.The interest and principal are due in 3 months on March 1,2011.Complete the table below for the note.Fill in the correct dollar amount AND put an X in the appropriate box to indicate the financial statement where the amount will be found.

Team Shirts issued 10-year bonds with a face value of $100,000.The bonds carry a 7% stated interest rate and pay interest once a year.They were issued when the market interest rate was 6% and sold for $107,360. Required: a.Complete the amortization schedule for the first two years of the bond issue using the effective interest method.Round to the nearest dollar. b.Put an X in the appropriate box to describe how each of these items will behave with each additional interest payment: c.Fill in the correct dollar amounts: At maturity,after the last interest payment has been made,the unamortized premium on the bonds will be $______________ and the carrying value of the bonds will be $_______________.

Part A: Show the effect on the accounting equation of each of the events listed below: Part B: For each item listed below,fill in the correct dollar amount,even if it is $0,in the column that represents the financial statement where the item will appear:

Indicate with an "X" whether each description results in the reporting of a definitely determinable liability,an estimated liability or neither on the company's Balance Sheet.Assume a December 31,2011 yearend.

A bond is ________.

Liabilities are ________.

Row,Inc.needed some long-term financing and arranged for a 10-year,$100,000,7% mortgage loan on January 1,2010.Annual payments of $14,238 will be made on December 31 each year.What effect will the payments have on the accounting equation?

In December 2011,Homer Simpson worked for Springfield Power and earned $5,000.Federal income tax withholding is 15%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much of Homer's December salary will be included in Salary expense on Springfield Power's income statement for the year ended December 31,2011?

Identify each of the liabilities listed below using the following code: a.definitely determinable liability b.estimated liability _______ 1.purchased merchandise on account _______ 2.had the employees work all month but won't pay them until next month _______ 3.owes the bank interest on an outstanding loan _______ 4.withheld $9,000 from the employees' earnings for payroll taxes _______ 5.sold 1,000,000 units during the current period and agreed to fix or replace each unit sold if it did not last two years or completely satisfy the customer _______ 6.borrowed money from a local bank

A bond is a written agreement that specifies a company's responsibility to pay interest and to repay the principal to the bondholders at the end of the term of the bond.

Matt's Rug Company began business on January 1,2011. Part A: Show the effect of the following events on the accounting equation: Part B: Write in the amount (even if $0)as of or for the Year Ended December 31,2011.Write in the one financial statement where the line item is found.

On NOVEMBER 30,2011,Just in Thyme,Inc.issued $100,000 of 20-year,9% bonds at 100.The bonds pay interest SEMIANNUALLY on May 31 and November 30.These bonds sold at 100,which is ________.

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest SEMIANNUALLY on December 31 and June 30.How much cash did Ace receive when the bonds were issued?

Calculate the present value of each of the following future amounts:

On January 1,2011,Nadir Company issued $1,000,000 of 6%,20-year bonds when the market rate of interest was 5%.The bonds pay interest annually on December 31.How much cash will bondholders receive when the bonds mature?