Exam 7: Accounting for Liabilities

Payless,Inc's gross payroll was $100,000 for the current pay period.Federal income tax (FIT)withheld totals $20,000.The FICA (Social Security)rate is 6.2% and the Medicare rate is 1.45%. Part A: Show the effect of paying its employees (do not record the employer’s payroll taxes): Part B: How much cash will Payless,Inc.have to pay to the government for Federal income taxes,Social Security,and Medicare on the gross payroll of $100,000?

On January 1,2011,Zenith,Inc.signed a $200,000,5%,20-year mortgage note to buy a new office building.The mortgage will be repaid in a series of twenty equal annual installment payments.Calculate the amount of each payment.Round your answer to the nearest dollar.

Suppose you want to repay $1,000,000 over 10 years and you know the interest rate is 12%.If you are willing to make a payment of the same amount at the end of every quarter for 10 years,how much will each payment be?

Stephen's Storage Company needed some long-term financing and arranged for a 20-year,$100,000,9% mortgage loan on January 1,2011.Annual payments of $10,955 will be made on December 31 each year. Part A: Prepare an amortization schedule for the first two loan payments: Part B: Show the effect on the accounting equation of each of the events listed below: Part C: For each item listed below,fill in the correct dollar amount in the column that represents the financial statement where the item will appear.

On SEPTEMBER 30,2011,Ace Electronics issued $100,000 of 10-year,8% bonds at 100.The bonds pay interest semiannually on September 30 and March 31.These bonds sold at 100,which is ________.

Premium on bonds payable is ________.

On SEPTEMBER 30,2011,Ace Electronics issued $100,000 of 10-year,8% bonds at 100.The bonds pay interest semiannually on September 30 and March 31.How much cash did Ace Electronics receive when the bonds were issued?

On December 31,IOU Corporation issued $100,000 of 10-year,8% bonds at 98.The bonds pay interest annually on December 31.How much cash will bondholders receive when the bonds mature? (Assume that the final payment of interest has already been made separately.)

On December 31,2011,Bill's Hooks,Inc.issued $10,000 worth of 8% bonds at 88.The market rate of interest at the time of issue was 10%.These are 10-year bonds with interest paid annually at December 31.The company uses the effective-interest method to amortize the discount.For each item listed below,fill in the correct dollar amount in the column that represents the financial statement where the item will appear.Round amounts to the nearest penny.

Interest is the cost of using someone else's money.

Jason Argo is making plans to finance a series of projects.Calculate the amount of the payments involved in each of the situations described below.Assume all payments are made at the end of the period.Round amounts to the nearest penny. 1.He will purchase a truck for $20,000,to be repaid in equal semiannual payments over the next 5 years.The bank has quoted an interest rate of 10%. 3.He will sell old equipment for $2,000.Joe is willing to accept quarterly payments for the next 3 years at an annual interest rate of 12%. 4.He will purchase land and building for $150,000,with a down payment of $30,000 and semiannual payments for the next 20 years at an interest rate of 8%.

Z Best,Inc.sold a 5-year,$1,000,zero-interest bond for $497.18 when the market rate of interest was 15%.The total cost of borrowing $497.18 is ________.

On January 1,2011,Alpha Enterprise signed a $100,000,6%,20-year mortgage note to buy a new warehouse.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

Junque Bondz,Inc.issued 15-year bonds with a face value of $50,000.The bonds carry a 7% stated interest rate and pay interest once a year.They were issued when the market interest rate was 8% and sold for $45,720.18. Required: a.Complete the amortization schedule for the first two years of the bond issue using the effective interest method. 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 discount on the bonds will be $______________ and the carrying value of the bonds will be $_______________.

On January 1,Bank,Rupp & Baroque,Inc.issued $50,000 worth of 10-year,9% bonds for $48,890.These bonds sold at ________.

The owners of The Country Gentleman,a western clothing store,would like to raise money for expansion.They think the business can get a better interest rate by going to the financial markets and selling $100,000 worth of 10-year bonds.The interest rate for bonds has been fluctuating between 6% and 8%,so they decide to sell the bonds for 7%,which will be paid once a year. Required: a.Calculate the price at which the bonds are sold if the market interest rate is 6%. b.Calculate the price at which the bonds are sold if the market interest rate is 7%. c.Calculate the price at which the bonds are sold if the market interest rate is 8%.

On October 31,2011,Bondable,Inc.issued $20,000 of 10-year,6% bonds at 100.The bonds pay interest annually on October 31.On its income statement for the year ended December 31,2011,the year the bonds were issued,Bondable will show Interest expense of ________.

On January 1,2011,Alpha Company issued $1,000,000 of 5%,20-year bonds to buy a new computerized accounting system.The market rate of interest was 6%.The bonds pay interest annually on December 31.These bonds sold at a _____ because the market rate of interest is _____ than the stated interest rate.

On January 1,2011,BondZ,Inc.issued $100,000 worth of 9%,20-year bonds at 100.Interest is paid annually on December 31.Complete the table below for the first TWO YEARS of the bonds.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.

On January 1,Wok 'n' Roll,Inc.issued $50,000 worth of 8%,20-year bonds for $52,950.These bonds sold at ________.