Question 1

A company receives $95 for merchandise sold to a consumer, of which $5 is for sales tax. The $5 of sales tax:
A) increases sales revenue.
B) increases current liabilities.
C) increases selling expenses.
D) is not recorded.

Accepted Answer

The answer of A company receives $95 for merchandise sold...

Question 2

What adjusting entry should Backyard make on June 30 before preparing its annual financial statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of What adjusting entry should Backyard make on...

Question 3

During one pay period, your company distributes $130,500 to employees as net pay. The income tax withholdings were $19,000 and the FICA withholdings were $5,000. The total compensation expense to the company for this pay period, excluding any unemployment taxes, was:
A) $149,500.
B) $130,500.
C) $154,500.
D) $159,500.

Accepted Answer

The answer of During one pay period, your company distributes...

Question 4

If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would be issued at an amount:
A) less than face value.
B) equal to the face value.
C) greater than face value.
D) equal to the face value minus a discount.

Accepted Answer

The answer of If the market rate of interest is...

Question 5

At the beginning of the quarter, your company borrows $20,000 by signing a four-year promissory note that states an annual interest rate of 8% plus principal repayments of $5,000 each year. Interest is paid at the end of the second and fourth quarters, whereas principal payments are due at the end of each year. How does this new promissory note affect the current and non-current liability amounts reported on the balance sheet at the end of the first quarter? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of At the beginning of the quarter, your...

Question 6

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates rise in the economy so that similar financial investments pay 9%, IBM will:
A) not be able to issue the bonds because no one will buy them.
B) receive a higher issue price to compensate buyers for the lower stated interest rate.
C) have to accept a lower issue price to attract buyers.
D) have to reprint the bond certificates to change the stated interest rate to 9%.

Accepted Answer

If interest rates rise in the economy, investors will demand a higher return on their investments, leading to lower demand for bonds with a lower interest rate. IBM will have to offer a lower issue price to attract buyers to its 7% bonds.

Question 7

A corporate bond with a face value of $1,000 is issued at 107. This means that the bond actually sold for:
A) $107 dollars, and the stated interest rate was higher than the market interest rate.
B) $1,070 dollars, and the stated interest rate was higher than the market interest rate.
C) $107 dollars, and the stated interest rate was lower than the market interest rate.
D) $1,070 dollars, and the stated interest rate was lower than the market interest rate.

Accepted Answer

A bond issued at 107 means that the bond is being issued at 107% of its face value, which is $1,000 in this case. Therefore, the bond was sold for $1,070 ($1,000 x 107%). If the stated interest rate is higher than the market interest rate, it means the bond is more attractive to investors and can be sold at a premium.

Question 8

On January 1, which of the following journal entries will be made by Backyard to record the proceeds and issue of the note?  
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

Option B correctly records the proceeds and issuance of the note. The company received $100,000 in cash, which is recorded as a debit to Cash. They issued a note for $100,000, which is recorded as a credit to Notes Payable.

Question 9

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates fall in the economy so that similar financial investments pay 5%, IBM will:.
A) not be able to issue the bonds because no one will buy them.
B) receive a higher issue price as buyers compete for the bonds.
C) have to accept a lower issue price to attract buyers.
D) have to reprint the bond certificates to change stated interest rate to 5%.

Accepted Answer

The answer of IBM is planning to issue $1,000 bonds...

Question 10

A company typically records the amount owed to suppliers for goods or services when:
A) they are ordered.
B) a verbal commitment to buy has first been made.
C) they are paid for.
D) the goods or services are received.

Accepted Answer

The company typically records the amount owed to suppliers for goods or services when the goods or services are received. This is known as the accrual basis of accounting, which records transactions when they occur, not when the payment is made.

Question 11

The three key pieces of information that are stated on a bond certificate are:
A) the interest payment, the face value of the bond, and the credit rating of the company.
B) the market interest rate, the price of the bond, and the maturity date.
C) the stated interest rate, the face value of the bond, and the maturity date.
D) the interest payment, the issue price of the bond, and the credit rating of the company.

Accepted Answer

The three key pieces of information stated on a bond certificate are the stated interest rate, the face value of the bond, and the maturity date. The stated interest rate determines the amount of interest paid to the bondholder, the face value of the bond is the amount of money that the bondholder will receive at maturity, and the maturity date is the date when the bond will be repaid. The credit rating and market interest rate are not necessarily stated on the bond certificate, although they may be important factors to consider when evaluating the bond's risk and return. The issue price of the bond is the price paid by the initial buyers of the bond and is not necessarily relevant to subsequent investors.

Question 12

A company has liquid assets of $600,000 and current liabilities of $500,000. What is the effect on the quick ratio if the company records an accrual adjustment for salaries of $100,000 and pays accounts payable in the amount of $50,000?
A) The quick ratio will not change as a result of either of these transactions.
B) The accrual adjustment will cause the quick ratio to decrease and the payment of accounts payable will not affect the quick ratio.
C) The accrual adjustment will cause the quick ratio to increase and the payment of accounts payable will not affect the quick ratio.
D) The accrual adjustment and the payment of accounts payable will both cause the quick ratio to decrease.

Accepted Answer

The accrual adjustment increases current liabilities, decreasing the quick ratio. Paying accounts payable reduces both liquid assets and current liabilities equally, leaving the quick ratio unchanged.

Question 13

On October 1, you borrow $200,000 in order to build a new facility. The loan is for 10 years, at 7% interest, and semiannual interest payments are due each April and October. The journal entry to record the issuance of the promissory note should:
A) debit Notes Payable for $200,000, debit Interest Expense for $14,000, credit Cash for $200,000, and credit Interest Payable for $14,000.
B) debit Accrued Interest for $14,000 and credit Cash for $14,000.
C) debit Cash for $200,000 and credit Notes Payable for $200,000.
D) debit Cash for $200,000, debit Interest Expense for $14,000, credit Notes Payable for $200,000, and credit

Accepted Answer

The journal entry to record the issuance of the promissory note should debit Cash for $200,000 and credit Notes Payable for $200,000. The interest expense and interest payable will be recorded when the semiannual interest payments are made. Option A incorrectly records the interest expense and interest payable upfront. Option B only records the interest payable and doesn't account for the Notes Payable. Option D incorrectly records the interest expense upfront.

Question 14

Your company issues $500,000 in bonds at an issue price of 98. The company will record:
A) a debit of $490,000 to cash, a debit of $10,000 to a contra-liability account to reflect the discount, and a credit of $500,000 to bonds payable.
B) a debit of $490,000 to cash, a debit of $10,000 to a contra-asset account to reflect the discount, and a credit of $500,000 to bonds payable.
C) a debit of $500,000 to bonds payable, a credit of $10,000 to a contra-liability account to reflect the discount, and a credit to cash of $490,000.
D) a debit of $490,000 to bonds payable, a debit of $10,000 to a contra-asset account to reflect the discount, and

Accepted Answer

The bonds are issued at 98% of face value, so cash received is $490,000. The $10,000 difference is recorded as a discount on bonds payable, a contra-liability account, and bonds payable is credited for the full $500,000.

Question 15

A company pays $18,000 in interest on notes, consisting of $12,000 interest that accrued during the last accounting period and $6,000 of interest accumulated during this accounting period but not previously recorded on the books. The journal entry for the interest payment should:
A) debit Interest Expense for $18,000 and credit Cash for $18,000.
B) debit Cash for $18,000 and credit Interest Payable for $18,000.
C) debit Interest Expense for $6,000, debit Interest Payable $12,000 and credit Cash for $18,000.
D) debit Interest Payable for $12,000, debit Accrued Interest $6,000 and credit Cash for $18,000.

Accepted Answer

Interest payable for the $12,000 accrued during the last accounting period should already be on the books, so it only needs to be moved from Interest Payable to Interest Expense when it is paid. The $6,000 accumulated during the current accounting period was not previously recorded, so it needs to be recorded as a separate debit to Interest Expense. The entire amount is paid in cash, so Cash is credited for the total amount of $18,000. Therefore, the correct journal entry is debit Interest Expense for $6,000, debit Interest Payable $12,000 and credit Cash for $18,000.

Question 16

Accrued liabilities could include all of the following except:
A) salaries payable.
B) current portion of long-term debt.
C) income tax payable.
D) interest payable.

Accepted Answer

The current portion of long-term debt is typically classified as a current liability, but it is not considered an accrued liability. Accrued liabilities typically represent expenses that have been incurred but not yet paid or recorded, such as salaries, income taxes, and interest.

Question 17

If a company's gross wages are $12,000, and it withholds $1,800 for income taxes and $800 for FICA taxes and other deductions, the journal entry to record the employees' pay should include a:
A) debit to Wages Expense for $9,400.
B) debit to Wages Payable for $9,400.
C) credit to Wages Payable for $12,000.
D) credit to Cash for $9,400.

Accepted Answer

The net pay (gross wages minus withholdings) is $9,400, which is the amount paid to employees, so Cash is credited for this amount.

Question 18

What journal entry will Backyard make when paying off the note and interest at maturity if the company's year-end is June 30? (Hint: Backyard's records were adjusted on June 30). 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of What journal entry will Backyard make when...

Question 19

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books. The journal entry for the interest payment should:
A) debit Interest Expense $9,000 and credit Cash $9,000.
B) debit Cash $9,000 and credit Interest Payable $9,000.
C) debit Interest Expense $3,000, debit Interest Payable $6,000, and credit Cash $9,000.
D) debit Interest Payable $6,000, debit Accrued Interest $3,000, and credit Cash $9,000.

Accepted Answer

The company owes $6,000 of interest from the last accounting period, which has already been accrued on the books. Therefore, this amount should be debited to Interest Expense. However, the $3,000 of interest that has accumulated during this accounting period has not yet been accrued on the books. Therefore, it should be debited to Interest Payable. The total amount of interest paid in cash is $9,000, which should be credited to Cash. Hence, the correct journal entry is to debit Interest Expense $3,000, debit Interest Payable $6,000, and credit Cash $9,000.

Question 20

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should:
A) debit Interest Expense for $3,000 and credit Interest Payable for $3,000.
B) debit Cash for $3,000 and credit Accrued Interest for $3,000.
C) debit Interest Expense for $6,000 and credit Cash for $6,000.
D) debit Interest Expense for $6,000 and credit Notes Payable for $6,000.

Accepted Answer

Since you borrowed $200,000 at 6% interest, your annual interest expense is $12,000 ($200,000 x 6%). However, since you are paying half the interest in April and October, your quarterly interest expense is $3,000 ($12,000/4). 
On December 31, 2010, you need to record the accrued interest expense for the quarter. This means you need to debit Interest Expense for $3,000 (since you owe the interest expense but haven't paid it yet) and credit Interest Payable for $3,000 (since you owe the interest to your creditor). Option A matches this requirement.

Quiz 10: Reporting and Interpreting Liabilities

A company receives $95 for merchandise sold to a consumer, of which $5 is for sales tax. The $5 of sales tax:

What adjusting entry should Backyard make on June 30 before preparing its annual financial statements?

During one pay period, your company distributes $130,500 to employees as net pay. The income tax withholdings were $19,000 and the FICA withholdings were $5,000. The total compensation expense to the company for this pay period, excluding any unemployment taxes, was:

If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would be issued at an amount:

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates rise in the economy so that similar financial investments pay 9%, IBM will:

A corporate bond with a face value of $1,000 is issued at 107. This means that the bond actually sold for:

On January 1, which of the following journal entries will be made by Backyard to record the proceeds and issue of the note?

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates fall in the economy so that similar financial investments pay 5%, IBM will:.

A company typically records the amount owed to suppliers for goods or services when:

The three key pieces of information that are stated on a bond certificate are:

A company has liquid assets of $600,000 and current liabilities of $500,000. What is the effect on the quick ratio if the company records an accrual adjustment for salaries of $100,000 and pays accounts payable in the amount of $50,000?

On October 1, you borrow $200,000 in order to build a new facility. The loan is for 10 years, at 7% interest, and semiannual interest payments are due each April and October. The journal entry to record the issuance of the promissory note should:

Your company issues $500,000 in bonds at an issue price of 98. The company will record:

A company pays $18,000 in interest on notes, consisting of $12,000 interest that accrued during the last accounting period and $6,000 of interest accumulated during this accounting period but not previously recorded on the books. The journal entry for the interest payment should:

Accrued liabilities could include all of the following except:

If a company's gross wages are $12,000, and it withholds $1,800 for income taxes and $800 for FICA taxes and other deductions, the journal entry to record the employees' pay should include a:

What journal entry will Backyard make when paying off the note and interest at maturity if the company's year-end is June 30? (Hint: Backyard's records were adjusted on June 30) .

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books. The journal entry for the interest payment should:

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should: