Exam 7: Accounting for Liabilities

The adjusting entry to record the amount of interest owed on a bond affects how many of the financial statements?

How should companies estimate and report warranty expense?

WhackCo began business on January 1,2011.Show the effect of the following events:

On January 1,2011,Ajax Corporation signed a $1,000,000,7%,10-year mortgage note to buy a new warehouse.The note will be repaid in 10 equal annual installments of $142,378.Over the 10-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

On January 1,2011,Bondz,Inc.issued $1,000,000 of 5%,10-year bonds when the market rate of interest was 6%.The bonds pay interest annually on December 31.To calculate the amount of cash that Bondz received,you must use a discount rate of ________.

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 did IOU Corporation 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.These bonds sold at 98 because ________.

Team Shirts borrowed $50,000 at 6% for two years,to be repaid in equal monthly installments over the life of the loan.Calculate the amount of the monthly payments.

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.Alpha uses the effective interest method of amortization.On its income statement for the year ended December 31,2011,Alpha will show interest expense of ________.

Use the following information taken from a financial website to answer the following question(s): -Refer to the information above.Will the carrying value of Ford MTR's bonds increase or decrease with each interest payment?

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense for B.Rich's December salary will Payless record when it pays these taxes?

Compounded,Inc.wants to borrow $100,000 for 10 years at 7% annual interest.The loan will be repaid in ten equal annual payments at the end of each year.How much will each payment be?

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.Nadir uses the effective interest method of amortization.On its statement of cash flows for the year ended December 31,2011,Nadir will show ________ cash paid for ________ activities.

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.How much cash did Xanadu receive when the bonds were issued?

Calculate the proceeds for each of the following bond issues AND put an X in the appropriate box to show if the bonds sell at a premium,at a discount,or at par:

A series of equal payments in which the payment is made at the end of each period is a(n)________.

In December 2011,B.Rich worked for Payless,Inc.and earned $10,000.Federal income tax withholding is 20%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much cash will Payless pay the government for Medicare tax because of B.Rich's December earnings?

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 amount that Alpha Enterprise will show on its balance sheet for mortgage payable will ________.

Financial leverage ________.

Use the following information taken from a financial website to answer the following question(s): -Refer to the information above.Will IBM's annual interest expense be higher or lower than the amount of cash paid to investors for interest?