Exam 7: Accounting for Liabilities

Merryworth,Inc.had $2,000,000 in total assets,of which $600,000 are current assets,and $1,200,000 in total liabilities,of which $400,000 are current liabilities.Calculate the debt-to-equity ratio.Round your answer to the nearest whole percent.

Ace Electronics,Inc.needed some long-term financing and arranged for a 20-year,$200,000,8% mortgage loan on January 1,2011.Equal annual payments of $20,370 will be made on December 31 each year. Required: a.Record the first loan payment made on December 31,2011 in the accounting equation below.Fill in both the correct dollar amount and the letter of the account title from the list of accounts below. b.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 1,2011,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.Over the 20-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.

The primary risk associated with long-term debt is the risk of not being able to make the debt payments.

On December 31,2010,Crystal Palace,Inc.issued $100,000 worth of 9% bonds at 107.The market rate of interest at the time of issue was 8%.These are 10-year bonds with interest paid semiannually on June 30 and December 31.The company uses the effective-interest method to amortize the discount. 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 A: 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 31,2010 will be $____________________. 3.The carrying value of the bonds at December 31,2011 will be $____________________.

Terry's Wear 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%. a.Calculate the present value of the bond issue. b.Were these bonds issued at a premium or at a discount? c.What is the amount of the premium or discount on the bond issue? d.Calculate the amount of the amortization of the bond premium or discount for the first year,using the effective interest method.

Premium on bonds payable is a(n)________.

Discount on bonds payable is a(n)________.

Buzz Corporation issued $50,000 worth of 10-year,8% bonds for $48,359.66.The 8% is the ________.

Beta Company borrowed $20,000 at 8% for 6 years.The loan requires annual payments of $4,326.31.When Beta Company makes the first annual payment: 1.how much of the first payment will be interest? 2.how much of the payment will be used to reduce the principal of the loan?

Brooke's Bike Company sold $3,780 worth of mountain bikes in June.Warranty expense is estimated to be 2% of sales.During June,Brooke's Bikes replaced two faulty parts under warranty.The parts cost a total of $100.The warranty expense for June was ________.

In its first month of business,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that 1% of its sales will be uncollectible and that warranty costs will be approximately $100 on its sales.Fish Nets' financial statements should include ________.

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 statement of cash flows for the year ended December 31,2011,Alpha will show ________ cash paid for ________ activities.

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.With each annual interest payment the unamortized ________ will grow ________.

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.After the first payment,Mortgage payable will have a balance of ________.

Buzz Corporation issued $50,000 worth of 10-year,8% bonds for $48,359.66.The $48,359.66 is the ________.

On November 30,2011,Just in Thyme,Inc.issued $10,000 of 20-year,9% bonds at 100.The bonds pay interest semiannually on May 31 and November 30.On its statement of cash flows for the year ended December 31,2011,Just in Thyme will show Cash paid for interest of ________.

Robert,the accountant,has to calculate the net pay for each of Dotson Company's three employees.Robert has gathered the following information about payroll for the period: Required: Calculate the net paycheck for each of the employees.Assume that FICA (Social Security)taxes are withheld at the rate of 6.2% of gross earnings and that Medicare taxes are withheld at the rate of 1.45% of gross earnings.

Convertible bonds give the bondholder the option of exchanging the bond for common stock.

The primary risk associated with long-term debt is the risk of ________.