Question 1

Madson Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 75,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

Accepted Answer

The answer of Madson Company typically sells subscriptions on an...

Question 2

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

Accepted Answer

If a company issues more equity, the ownership of existing stockholders is diluted, which means their earnings per share may decrease. This can lead to a drop in the stock price, as investors may perceive the value of their shares to be less. Therefore, stockholders may be reluctant to finance expansion through issuing more equity.

Question 3

Corporations are granted the power to issue bonds through

Accepted Answer

Corporations are granted the power to issue bonds through state laws, which govern the incorporation and operation of businesses within a particular state. State laws generally require corporations to receive approval from a state agency, such as the secretary of state or the state securities regulator, before issuing bonds to the public.

Question 4

The following totals for the month of March were taken from the payroll records of Kern Company.  The entry to record accrual of employer's payroll taxes would include a

Accepted Answer

The answer of The following totals for the month of...

Question 5

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

Accepted Answer

Callable bonds give the issuer the option to retire the bonds early at a stated dollar amount prior to maturity. Early retirement bonds, options, and debentures are not accurate descriptions of this type of bond.

Question 6

The following totals for the month of April were taken from the payroll records of Metz Company.  The entry to record the accrual of federal unemployment tax would include a

Accepted Answer

The answer of The following totals for the month of...

Question 7

Bonds that are issued against the general credit of the borrower are called

Accepted Answer

Debenture bonds are unsecured bonds that are issued against the general credit of the borrower. Callable bonds can be redeemed by the issuer prior to maturity, secured bonds have specific assets pledged as collateral, and term bonds have a specific maturity date.

Question 8

The following totals for the month of March were taken from the payroll records of Kern Company.  The entry to record the accrual of federal unemployment tax would include a

Accepted Answer

The answer of The following totals for the month of...

Question 9

Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?

Accepted Answer

The cash received from customers as reservations are made is considered unearned because the service (the stay at the bed and breakfast) has not yet been provided. Therefore, the cash should be recorded as Cash Unearned Service Revenue until the service is provided, at which point it can be recognized as Service Revenue.

Question 10

Which of the following is not an advantage of issuing bonds instead of common stock?
A) Stockholder control is not affected
B) Earnings per share on common stock may be lower
C) Tax savings result
D) Each of these answer choices is an advantage.

Accepted Answer

The other three options (stockholder control, tax savings, and being able to issue debt without diluting ownership) are advantages of issuing bonds instead of common stock. However, issuing bonds typically results in a lower cost of capital, which would actually increase earnings per share on common stock, making option B incorrect.

Question 11

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Accepted Answer

A bond certificate typically includes information about the issuer, face value, interest rate, maturity date, and any other relevant terms and conditions of the bond.

Question 12

Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?

Accepted Answer

When clients pay one-half of the consulting fees up front, the cash received is recorded as Unearned Service Revenue because the consulting services have not yet been performed. When the consultation is concluded and the remaining balance is paid, the Unearned Service Revenue account is decreased and Service Revenue account is increased to reflect the revenue earned from the consultation. Therefore, the correct entry is Cash Unearned Service Revenue and Service Revenue. Option A is not correct because Unearned Service Revenue needs to be decreased and Service Revenue needs to be increased at the conclusion of the consultation. Option C is incorrect because Prepaid Service Revenue implies that the service was already performed, but payment was received in advance, which is not the case here. Option D is incorrect because an entry is required to reflect the revenue earned from the consultation.

Question 13

Mohling Company typically sells subscriptions on an annual basis, and publishes eight times a year. The magazine sells 45,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

Accepted Answer

The answer of Mohling Company typically sells subscriptions on an...

Question 14

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Accepted Answer

The annual interest payment on the bonds is 5% of $8,000,000, which is $400,000. Since the corporation is able to deduct the interest payment from its taxable income, the tax savings would be 30% of $400,000, which is $120,000. Therefore, the net cash cost of borrowing after taking into account the tax savings would be $400,000 - $120,000 = $280,000.

Question 15

The following totals for the month of March were taken from the payroll records of Kern Company.  The entry to record the payment of net payroll would include a

Accepted Answer

The answer of The following totals for the month of...

Question 16

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Accepted Answer

Bonds require the issuer to pay interest on a periodic basis regardless of the company's earnings or financial situation. This can put a strain on the company's cash flow and may result in default if the company is unable to meet its interest payments.

Question 17

The following totals for the month of March were taken from the payroll records of Kern Company.  The journal entry to record the monthly payroll on March 30 would include a

Accepted Answer

The answer of The following totals for the month of...

Question 18

Bonds that may be exchanged for common stock at the option of the bondholders are called

Accepted Answer

Convertible bonds can be exchanged for common stock at the option of the bondholder. Option refers to the right to buy or sell something at a certain price within a certain period of time. Stock bonds are not an actual financial instrument, and callable bonds can be redeemed by the company at a certain price, but cannot be exchanged for stock by the bondholder.

Question 19

Bonds that are secured by real estate are termed

Accepted Answer

Mortgage bonds are secured by real estate, while serial bonds are issued with staggered maturity dates, debentures are unsecured bonds, and convertible bonds can be converted into common stock.

Question 20

Secured bonds are bonds that

Accepted Answer

Secured bonds are backed by specific assets pledged as collateral by the issuer. In the event of default, bondholders have a claim on these assets. Choices A, B, and D do not accurately describe secured bonds.

Quiz 10: Reporting and Analyzing Liabilities

Madson Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 75,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

Corporations are granted the power to issue bonds through

The following totals for the month of March were taken from the payroll records of Kern Company. The entry to record accrual of employer's payroll taxes would include a

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

The following totals for the month of April were taken from the payroll records of Metz Company. The entry to record the accrual of federal unemployment tax would include a

Bonds that are issued against the general credit of the borrower are called

The following totals for the month of March were taken from the payroll records of Kern Company. The entry to record the accrual of federal unemployment tax would include a

Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to one-half of the rate for their stay. How should the sisters account for the cash received as reservations are made?

Which of the following is not an advantage of issuing bonds instead of common stock? A) Stockholder control is not affected B) Earnings per share on common stock may be lower C) Tax savings result D) Each of these answer choices is an advantage.

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?

Mohling Company typically sells subscriptions on an annual basis, and publishes eight times a year. The magazine sells 45,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions?

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

The following totals for the month of March were taken from the payroll records of Kern Company. The entry to record the payment of net payroll would include a

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

The following totals for the month of March were taken from the payroll records of Kern Company. The journal entry to record the monthly payroll on March 30 would include a

Bonds that may be exchanged for common stock at the option of the bondholders are called

Bonds that are secured by real estate are termed

Secured bonds are bonds that