Exam 10: Liabilities

Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion.The litigation is expected to continue for several years,and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility.This situation is an example of:

A loss contingency is recorded in the accounting records when it is probable that a loss has been incurred and the amount of the loss is known.

On March 1,2015,five-year bonds are sold for $508,026 that have a face value of $500,000 and an interest rate of 10%.Interest is paid semi-annually on March 1 and September 1.Using the straight-line amortization method,prepare the borrower's journal entries on: March 1,2015; September 1,2015; December 31,2015; and March 1,2016.

Deferred taxes are classified as:

When a company sells bonds between interest dates they will pay which of the following at the first interest payment date?

Deferred income taxes may be classified as assets.

The amortization of a bond discount:

Which of the following is not an accurate statement regarding the distinction between debt and equity?

Loss contingencies should be recorded in the accounting records whenever it is probable that a loss has been incurred and the amount of loss might be material in amount.

The present value of an amount is:

At the end of 2015 it is discovered that the accountant for Gower Company failed to record $60,000 of interest payable which had accrued since the last interest payment date.The current ratio,quick ratio,and debt ratio,as well as the financial statements,had already been computed using the erroneous data.Correction of the accounting records will have which of the following effects?

Worker's compensation premiums are deducted from each employee's gross pay.

Fully amortizing installment note payable (mortgage) On October 31,2015,Seldon Company incurs a 30-year $600,000 mortgage liability in conjunction with the purchase of a motel.This mortgage is payable in equal monthly installments of $6,485,which include interest computed at an annual rate of 12%.The first monthly payment is made on November 30,2015.This mortgage is fully amortizing over 360 months. Complete the amortization table for the first two payments by entering the correct dollar amounts in the blank spaces provided.In addition,answer the questions which follow. (a)With respect to this mortgage,Seldon's 2015 income statement includes interest expense of $_______________,and Seldon's balance sheet at December 31,2015,includes a total liability for this mortgage of ______________.(Do not separate into current and long-term portions.) (b)The aggregate monthly cash payments Seldon will make over the 30-year life of the mortgage amount to $_______________. (c)Over the 30-year life of the mortgage,the amount Seldon will pay for interest amounts to $_______________.

Federal unemployment taxes apply to a set dollar amount of employee wages and tend to decline dramatically as the year progresses.

If a bond is selling at 103,it is selling at:

Notes payable On September 1,2015,George Hanby borrowed $100,000 from The Actors Credit Union and signed a 6%,one-year note payable,all due at maturity.The interest on this loan is stated separately.

In preparing an amortization table,it is necessary to include:

Bonds issued at par - basic concepts On March 1,Year 1,Hubbard Co.issued at a price of 100 $20 million of 8%,25-year bonds payable.Interest is payable semiannually each March 1 and September 1. (a)What is the amount of cash paid to bondholders for interest during Year 1? $________________ (b)Give the adjusting entry necessary at December 31,year 1 (if any),regarding this bond issue. (c)Interest expense on this bond issue reported in Hubbard's Year 1 income statement is: $________________ (d)With respect to this bond issue,Hubbard's balance sheet at December 31,Year 1,includes bonds payable of $________________ and interest payable of $_______________.(Indicate $0 or "none" if the item is not reported.) (e)Give the journal entry made by Hubbard on March 1,Year 2,to record the semiannual payment of interest to bondholders.

Payroll-related expenses Shown below is a summary of the annual payroll data of Revere Ironworks: (d)How were the costs of postretirement benefits determined? Which of these amounts results in a liability to Revere Ironworks,and when will this liability be paid? Will the amount of the payments be more or less than the amount now shown as a liability? Explain.

Loss contingencies stem from past events.