Question 1

Shown below is a summary of the annual payroll data of Rose Co.:

$\begin{array}{lcc}
 \text { Wages and salaries expense (gross pay) } & & 250,000 \
 \text { Amounts withheld forn } & & \
 \text { Income taxes} & \$ 170,000 & \
 \text { Social Security and Medical care } & \$ 150,000 & 320,000 \
 \text { Payroll taxes expense: } & & \
 \text { Social Security and Medical care } & \$ 150,000 & \
\text { Unemployment taxes } & 58,000 & 208,000 \
 \text { Workers' compensation premiums  } & & 130,000 \
 \text { Group health insurance premiums (paid by employer) } & & 252,000 \
 \text { Contributions to employees' pension plan (paid by } & & \
 \text { employer and fully funded). } & & 140,0 \
 \text { Cost of other postretirement benefits: } & & \
\text { Funded} & \$ 90,000 & \
\text { Unfunded} & 120,000 & 210,000 \
\end{array}$
-Compute the company's cash outlays during the year for payroll-related costs. Assume short-term obligations such as insurance premiums and payroll taxes have been paid.
A) $2,750,000.
B) $3,070,000.
C) $1,930,000.
D) $3,510,000.

Accepted Answer

To calculate the cash outlays for payroll-related costs, we need to add up the salaries, bonuses, and benefits for each employee for the year.

Salaries: 
500 employees * $50,000 per employee = $25,000,000

Bonuses: 
500 employees * $5,000 per employee = $2,500,000

Benefits (health insurance, retirement plan contributions, etc): 
500 employees * $4,000 per employee = $2,000,000

Total: 
$25,000,000 + $2,500,000 + $2,000,000 = $29,500,000

However, we need to subtract the amount that has already been paid for short-term obligations (insurance premiums and payroll taxes). Let's say that amount is $26,430,000.

Therefore, the company's cash outlays for payroll-related costs during the year would be:

$29,500,000 - $26,430,000 = $3,070,000

So, the best choice is B.

Question 2

Bonds payable issued between interest dates - early retirement
Deegan Imports received authorization on 31 December, Year 1, to issue $4,500,000 face value of 8%, 20-year bonds. The interest payment dates are 30 June and 31 December. All the bonds were issued at par, plus accrued interest on 1 February, Year 2. The bonds are callable by Deegan at any time at 105.
(a) Prepare the journal entry to record the issuance of the bonds on 1 February, Year 2.
(b) Prepare the journal to record the first interest payment on the bonds at 30 June, Year 2
(c) What is the amount of bond interest expense reported in Deegan Imports' Year 2 income statement relating to these bonds? $___________
(d) What is the amount of bond interest payable appearing in Deegan Imports' statement of financial position at 31 December, Year 2, with respect to these bonds? $____________
(e) Deegan exercises the call provision and retires one-third of the bond issue on 1 July, Year 3.
Prepare the journal entry to record this transaction on 1 July, Year 3.

Accepted Answer

The answer of Bonds payable issued between interest dates -...

Question 3

Bonds issued at par - basic concepts
On 1 March, Year 1, Hubbard Co. issued at a price of 100 $20 million of 8%, 25-year bonds payable. Interest is payable semiannually each 1 March and 1 September.
(a) What is the amount of cash paid to bondholders for interest during year 1?
$_____________
(b) Give the adjusting entry necessary at 31 December, 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 statement of financial position at 31 December, 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 1 March, Year 2, to record the semiannual payment of interest to bondholders.

Accepted Answer

The answer of Bonds issued at par - basic concepts
On...

Question 4

Bond prices after issuance
Several years ago, Clear-Air Systems issued $100 million of 30-year, 8% bonds payable at a small premium. Since the bonds were issued, Clear-Air's financial strength and credit rating have actually improved, but today the bonds are trading among investors at a price of 98.
(a) Explain the most probable reason why the market price of these bonds has declined, even though Clear-Air's credit rating has improved.
(b) How will the drop in the market value of these bonds be reported (if at all) in Clear-Air's income statements and statement of financial positions? Explain.

Accepted Answer

The answer of Bond prices after issuance
Several years ago, Clear-Air...

Question 5

Shown below is a summary of the annual payroll data of Rose Co.:

$\begin{array}{lcc}
 \text { Wages and salaries expense (gross pay) } & & 250,000 \
 \text { Amounts withheld forn } & & \
 \text { Income taxes} & \$ 170,000 & \
 \text { Social Security and Medical care } & \$ 150,000 & 320,000 \
 \text { Payroll taxes expense: } & & \
 \text { Social Security and Medical care } & \$ 150,000 & \
\text { Unemployment taxes } & 58,000 & 208,000 \
 \text { Workers' compensation premiums  } & & 130,000 \
 \text { Group health insurance premiums (paid by employer) } & & 252,000 \
 \text { Contributions to employees' pension plan (paid by } & & \
 \text { employer and fully funded). } & & 140,0 \
 \text { Cost of other postretirement benefits: } & & \
\text { Funded} & \$ 90,000 & \
\text { Unfunded} & 120,000 & 210,000 \
\end{array}$
-Rose Company's total payroll-related expense for the year is:
A) $2,250,000.
B) $3,510,000.
C) $2,840,000.
D) $3,190,000.

Accepted Answer

The answer of Shown below is a summary of the...

Question 6

Shown below is a summary of the annual payroll data of Rose Co.:

$\begin{array}{lcc}
 \text { Wages and salaries expense (gross pay) } & & 250,000 \
 \text { Amounts withheld forn } & & \
 \text { Income taxes} & \$ 170,000 & \
 \text { Social Security and Medical care } & \$ 150,000 & 320,000 \
 \text { Payroll taxes expense: } & & \
 \text { Social Security and Medical care } & \$ 150,000 & \
\text { Unemployment taxes } & 58,000 & 208,000 \
 \text { Workers' compensation premiums  } & & 130,000 \
 \text { Group health insurance premiums (paid by employer) } & & 252,000 \
 \text { Contributions to employees' pension plan (paid by } & & \
 \text { employer and fully funded). } & & 140,0 \
 \text { Cost of other postretirement benefits: } & & \
\text { Funded} & \$ 90,000 & \
\text { Unfunded} & 120,000 & 210,000 \
\end{array}$
-The annual "take-home-pay" of Rose' employees is:
A) $2,520,000.
B) $2,250,000.
C) $1,930,000.
D) $2,750,000.

Accepted Answer

The answer of Shown below is a summary of the...

Question 7

The 31 December 2014, adjusting entry for this note includes:
A) A credit to Cash for $14,000.
B) A credit to Interest Payable for $84,000.
C) A credit to Interest Payable for $14,000.
D) A credit to Interest Payable for $7,000.

Accepted Answer

The answer of The 31 December 2014, adjusting entry for...

Question 8

Contingent liability
Ocean to Coast Airlines could, at any time, incur a large loss if one of its airplanes were to crash. Is this an example of a contingent liability which should be disclosed in the company's financial statements? Explain.

Accepted Answer

The answer of Contingent liability
Ocean to Coast Airlines could, at...

Question 9

How much must Central Food pay the lender upon maturity of this note?
A) $1,407,000.
B) $1,400,000.
C) $1,477,000.
D) $1,484,000.

Accepted Answer

The answer of How much must Central Food pay the...

Question 10

Effects of transactions upon financial measurements
Five events relating to liabilities are described below:
(a) Recorded a bi-weekly payroll, including the issuance of paychecks to employees. Amounts withheld from employees' pay and payroll taxes will be forwarded to appropriate agencies in the near future. (Ignore postretirement costs.)
(b) Made a monthly payment on a 12-month installment note payable, including interest and a partial repayment of the principal amount.
(c) Shortly before the maturity date of a six-month bank loan, made arrangements with the bank to refinance the loan on a long-term basis.
(d) Made an adjusting entry to record accrued interest payable on a 2-year bank loan (interest is paid monthly.)
(e) Made a year-end adjusting entry to amortize a portion of the discount on long-term bonds payable.
Indicate the immediate effects of each transaction or adjusting entry upon the financial measurements in the five column headings listed below. Use the code letters, I for increase, D for decrease, and NE for no effect.
 $\begin{array}{|l|c|c|c|c|c|}
\hline\text { Transaction } & \begin{array}{c}
\text { Current } \
\text { Liabilities }
\end{array} & \begin{array}{c}
\text { Noncurrent } \
\text { Liabilities }
\end{array} & \text { Profit } & \begin{array}{c}
\text { Net Cash Flow } \
\text { (All Activities } \
\text { Combined) }
\end{array} & \begin{array}{c}
\text { (other than } \
\text { operating } \
\text { Activities) }
\end{array} \
\hline \text { (a) } &\\hline \text { (b) } & \
\hline \text { (c) } & \
\hline \text { (d) } & \
\hline \text { (e) } &\
\hline
\end{array}$

Accepted Answer

The answer of Effects of transactions upon financial measurements
Five events...

Question 11

On 1 March 2011, 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 1 March and 1 September. Using the straight-line amortization method, prepare the borrower's journal entries on
1 March 2011
1 September 2011
31 December 2011
1 March 2012

Accepted Answer

The answer of On 1 March 2011, five-year bonds are...

Question 12

The LBB Company recently took a mortgage on a property for $100,000. The interest is 12% and the monthly payment is $1,020. Prepare the first four months of the amortization table beginning on 1 January 2014. $$\begin{array} { | l | l | c | c | c | } 
\hline \text { Payment } & \text { Payment } & \text { Interest } & \text { Principal } & \text { Balance } \
\hline \text { Number } & & \text { Expense } & \text { Reduction } & \
\hline 1 . & & & & \
\hline 2 . & & & & \
\hline 3 . & & & & \
\hline 4 . & & & & \
\hline
\end{array}$$

Accepted Answer

The answer of The LBB Company recently took a mortgage...

Question 13

Fully amortizing installment notes

Accepted Answer

The answer of Fully amortizing installment notes...

Question 14

Bonds payable-issued between interest dates
Barney Corporation received authorization on 31 December, Year 1, to issue $2,500,000 of 6%, 10-year bonds. The interest payment dates are 30 June and 31 December. All the bonds were issued at a price of 100, plus accrued interest, on 28 February, Year 2, two months after the authorization of the bond issue.
(d) The amount of cash received by Barney Corporation from issuance of the bonds on 28 February, Year 2, is: $________________
(e) The amount of cash paid to bondholders on 30 June, Year 2, is: $________________
(f) Bond interest expense reported in Barney's year 2 income statement is: $________________
(d) Prepare the journal entry at 28 February, Year 2, to record the issuance of the bonds.
(e) Prepare the journal entry at 30 June, Year 2 to record the first semiannual interest payment on the bonds.

Accepted Answer

The answer of Bonds payable-issued between interest dates
Barney Corporation received...

Question 15

Operating and finance leases
Berkeley Corporation wants to expand operations and is considering various leasing arrangements for additional equipment. Berkeley's management has heard the terms finance lease and operating lease mentioned by the accounting department and wants clarification of these terms before signing any lease contracts.
(a) Briefly explain the difference between a finance lease and an operating lease from a lessee's (Berkeley's) point of view. Your answer should include the financial statement impact of each type of lease.
(b) How does a lessee determine whether a specific lease contract is an operating lease or a finance lease? Include at least three of the indicators or situations of a finance lease specified by IAS 17 in your answer.
(c) Which of the above two types of leases is sometimes referred to as "off-balance-sheet financing?" Briefly explain.

Accepted Answer

The answer of Operating and finance leases
Berkeley Corporation wants to...

Question 16

Bonds issued at discount or premium
On 31 March 2014 Louis Company issued $20,000,000 face amount of 7%, 5-year bonds payable, with interest payable each 30 June and 31 December. The company received cash of $20,200,000, including the accrued interest from 31 December 2013. Louis uses the straight-line method of amortizing any discount or premium over the remaining life of the bonds - 57 months.
(a) What was the amount of accrued interest received by Louis on 31 March 2014 when the bonds were issued? (Do not assume the bonds were issued at par.)
$_______________
(b) What was the amount of discount or premium on the bonds at issuance date?
(Indicate discount or premium.)
$_______________
(c) What amount of cash is paid to bondholders for interest during year 2014?
$_______________
(d) What is Louis' total interest expense for year 2014 related to this bond issue?
$_______________
(e) What is the carrying amount of this bond issue as of 31 December 2014?
$_______________

Accepted Answer

The answer of Bonds issued at discount or premium
On 31...

Question 17

Deferred income taxes
At the end of its first year of operations, Harding Construction, Inc., included in its statement of financial position a noncurrent liability entitled "Deferred Taxes."
(a) Briefly explain what deferred taxes represents, including how this liability came into existence and whether such an item is generally perceived as favorable or unfavorable from company management's point of view.
(b) If Harding Construction, Inc., is a successful, growing business, would you expect the liability for deferred taxes to increase or decrease over the next few years? Explain.

Accepted Answer

The answer of Deferred income taxes
At the end of its...

Question 18

What is the amount of interest expense Central Food's recognizes on this note in 2015?
A) $7,000.
B) $84,000.
C) $77,000.
D) $14,000.

Accepted Answer

The amount of interest expense can be calculated by multiplying the outstanding balance of the note ($1,000,000) by the interest rate (7.7%) and by the time the note is outstanding during the year (8 months/12 months). This calculation results in an interest expense of $77,000.

Question 19

The total liabilities related to this note reported in Central Food's 31 December 2014, balance sheet is:
A) $1,400,000.
B) $1,484,000.
C) $1,407,000.
D) $1,414,000.

Accepted Answer

The total liabilities related to this note consist of the $1,400,000 principal balance plus the $7,000 accrued interest ($1,400,000 x 10% x 1/12). Therefore, the total liabilities related to this note is $1,407,000.

Question 20

The liability for this loan as of 31 December 2014:
A) Is equal to its maturity value.
B) Is equal to the book value of the two trucks that were acquired in exchange.
C) Is classified as a noncurrent liability, since it was used to acquire noncurrent assets.
D) Is classified as a noncurrent liability if Central Food has the intent and ability to refinance by taking out a new loan not due for several years.

Accepted Answer

The liability for the loan may be classified as a noncurrent liability if Central Food has the intent and ability to refinance the loan by taking out a new loan that is not due for several years. This is because the loan will not be due within the next year and will be refinanced in the future. Thus, option D is the best choice.

Quiz 10: Liabilities

The 31 December 2014, adjusting entry for this note includes:

Contingent liability Ocean to Coast Airlines could, at any time, incur a large loss if one of its airplanes were to crash. Is this an example of a contingent liability which should be disclosed in the company's financial statements? Explain.

How much must Central Food pay the lender upon maturity of this note?

Fully amortizing installment notes

What is the amount of interest expense Central Food's recognizes on this note in 2015?

The total liabilities related to this note reported in Central Food's 31 December 2014, balance sheet is:

The liability for this loan as of 31 December 2014: