Exam 7: Accounting for Liabilities

When a company borrows money for longer than one year,that obligation is called a long-term liability.

Tom wants to borrow $15,000 in order to expand Tom's Wear.If he repays the money in forty equal monthly installments,he can get an interest rate of 6%.How much interest will he pay over the life of the loan?

Monthly mortgage payments cause assets and liabilities to decrease and shareholders' equity to remain the same.

When a bond sells at a premium,its stated interest rate is ________.

Prima,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 6% and sold for $54,856.38. 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 premium on the bonds will be $______________ and the carrying value of the bonds will be $_______________.

Explain how payroll affects the liabilities of a firm.

Explain the difference between a bond discount and a bond premium.

When a bond sells for 98,the bond is selling at ________.

Monthly mortgage payments cause assets and liabilities to decrease and shareholders' equity to increase.

What is a bond,and why do companies issue bonds?

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.How much payroll tax expense for Bob's December salary will be reported on Scrooge & Marley's income statement for the year ended December 31,2010?

China Company borrowed $20,000 at 8% for 10 years.The loan requires annual payments of $2,717.35.When China Company makes the first annual payment: a.how much of the first payment will be interest? b.how much of the first payment will be used to reduce the principal of the loan?

On December 1,2010,IOU Corporation borrowed $100,000 at 12%.Both the interest and principal are due in 3 months on February 28,2011. Required: 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.

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.These bonds sold at ________.

Z Biz sold a 5-year,$1,000,zero-interest bond for $497.18 when the market rate of interest was 15%.The present value of the principal is ________.

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 will bondholders receive on December 31,2011,the first interest payment date?

Mini Storage Company needed some long-term financing and arranged for a $100,000, 10-year mortgage loan on January 1,2010.The annual interest rate is 9%,with a payment of $15,582 made December 31 each year. Required: 1.Complete the amortization schedule for the first TWO YEARS of the note. 2.Complete the table below for the first TWO YEARS of 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.

Put an X in the appropriate box to show whether the bond described will be issued at a premium,at a discount,or at par:

In December 2010,Bob Cratchit worked for Scrooge & Marley and earned $1,000.Federal income tax withholding is 10%.The FICA rate is 6.2% and the Medicare tax is 1.45%.What is Bob's gross pay?