Question 1

Kaila Company sells computers with a 6-month warranty. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $600 per unit. During January, the company sold 100,000 computers at $5,250 each, and 1,500 computers were turned in for repairs during that same month. The total actual repairs costs amounted to $555,000 from the computer parts inventory. The balance in the Estimated Warranty Liability Account on January 1 was $45,000.
What is the balance in the Estimated Warranty Liability Account at the end of January 2019?

Accepted Answer

11ee7640_e1c3_6f24_90da_0f811d41ee04_TBCB1007_00

Question 2

Bean Company sells computers with a 6-month warranty. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $800 per unit. During January, the company sold 100,000 computers at $7,000 each; 1,500 of those computers were turned in for repairs during that same month. The total actual repairs costs amounted to $740,000 from the computer parts inventory. The balance in the Estimated Warranty Liability Account on January 1, 2019 was $60,000.
What is the balance in the Estimated Warranty Liability Account at the end of January 2019?

Accepted Answer

11ee7640_e1c3_9635_90da_dd5d3527387d_TBCB1007_00

Question 3

Eva Company provides a 12-month warranty on all their products. During 2019, they had total sales of $1,050,000, and estimated warranty costs to be 3% of sales. On January 1, 2019, the Estimated Warranty Liability account had a debit balance of $4,500, and it had a credit balance of $7,500 on December 31, 2019.
What was the actual cost of repairs covered under warranties during 2019?

Accepted Answer

11ee7640_e1c3_9636_90da_69dff57133fe_TBCB1007_00

Question 4

Emma Company provides a 12-month warranty on all their products. During 2019, they had total sales of $1,400,000, and estimated warranty costs to be 3% of sales. On January 1, 2019, the Estimated Warranty Liability account had a debit balance of $6,000, and it had a credit balance of $10,000 on December 31, 2019.
What was the actual cost of repairs covered under warranties during 2019?

Accepted Answer

11ee7640_e1c3_bd47_90da_e1b5141ad70a_TBCB1007_00

Question 5

Joseph Company issues bonds with a par value of $1,350,000 on their issue date. The bonds mature in 5 years and pay 6% annual interest in semiannual payments. On the issue date, the market rate of interest (annual) is 8%.
Compute the price of the bonds on their issue date. (If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c3_bd48_90da_417bebaf5f4b_TBCB1007_00 N = (5 x 2) = 10 I = (8% / 2) = 4
Semi-annual interest payments: $1,350,000 x (0.06 x 1/2) = $40,500

Question 6

Darlene & Joe Company issues bonds with a par value of $1,800,000 on their issue date. The bonds mature in 5 years and pay 6% annual interest in semiannual payments. On the issue date, the market rate of interest (annual) is 8%.
Compute the price of the bonds on their issue date. (The answer assumes the use of a financial calculator. (If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c3_e459_90da_29cbe4c00762_TBCB1007_00 N = (5 x 2) = 10 I = (8% / 2) = 4
Semi-annual interest payments: $1,800,000 x (0.06 x 1/2) = $54,000

Question 7

Cottle Corporation issued $600,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated annual rate of 8 percent.
If the market rate of annual interest at the time the bonds are sold is 6 percent, what will be the issue price of the bonds? (If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c3_e45a_90da_27a8b7e05b1e_TBCB1007_00 N = (15 x 2) = 30 I = (6% / 2) = 3
Semi-annual interest payments: $600,000 x (0.08 x 1/2) = $24,000

Question 8

Brooks Corporation issued $800,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated annual rate of 8 percent.
If the market rate of annual interest at the time the bonds are sold is 6 percent, what will be the issue price of the bonds? (The answer assumes the use of a financial calculator. If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c4_0b6b_90da_9bbb5bd12f2a_TBCB1007_00 N = (15 x 2) = 30 I = (6% / 2) = 3
Semi-annual interest payments: $800,000 x (0.08 x 1/2) = $32,000

Question 9

When the market rate of interest was 10%, Gloria Corporation issued $1,800,000, 12%, 8-year bonds that pay interest semiannually.
The selling price of this bond issue was: (If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c4_0b6c_90da_950e3cd45ea3_TBCB1007_00 N = (8 x 2) = 16 I = (10% / 2) = 5
Semi-annual interest payments: $1,800,000 x (0.12 x 1/2) = $108,000

Question 10

When the market rate of interest was 10%, Gloria Corporation issued $2,400,000, 12%, 8-year bonds that pay interest semiannually.
The selling price of this bond issue was: (If PV tables are used, select the closest answer from the options provided.)

Accepted Answer

11ee7640_e1c4_0b6d_90da_c17bf2edba3d_TBCB1007_00 N = (8 x 2) = 16 I = (10% / 2) = 5
Semi-annual interest payments: $2,400,000 x (0.12 x 1/2) = $144,000

Question 11

On January 1, 2019, Camire Company issues $540,000, 15 year, 8% bonds (paying semiannual interest) for $645,842, when the annual market rate of interest is 6%.
If the company uses the effective interest method of amortization, the journal entry to record the semi-annual interest on June 30 will include a:

Accepted Answer

Semi-annual interest payments: $540,000 x (0.08 x 1/2) = $21,600
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Question 12

On January 1, 2019, Food Design Company issues $960,000, 15 year, 8% bonds (paying semiannual interest) for $1,148,164, when the annual market rate of interest is 6%.
If the company uses the effective interest method of amortization, the journal entry to record the semi-annual interest on June 30 will include a:

Accepted Answer

Semi-annual interest payments: $960,000 x (0.08 x 1/2) = $38,400
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Question 13

Dance Company issued 6%, 5 year bonds, with par value of $2,400,000, paying semiannual interest for $2,205,339. The annual market rate of interest on the date of issue was 8%.
Assuming effective interest method of amortization, calculate the bond interest expense on the first interest payment date.

Accepted Answer

Semi-annual interest payments: $2,400,000 x (0.06 x 1/2) = $72,000
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Question 14

Prior to maturity, Candy Apple Red Company called and retired a $1,200,000, 8% bond issued at 102. If the unamortized premium on the bonds is $3,000, the journal entry will include a:

Accepted Answer

Note that since we are not given the amount of cash paid to retire the bonds, we do not know the cash amount or whether there's a gain or a loss on retirement. However, the journal entry to record the retirement would include:
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Question 15

Bowling Green Associates has outstanding Bonds Payable, with a par value of $120,000, and carrying value of $116,800.
If Bowling Green purchases the bonds in the open market at a price of 98.0 and retires them, which of the following is true?

Accepted Answer

Purchase of bonds on the market: Par Value x Market Price = Amount paid
$120,000 x 98% = $117,600
 11ee7640_e1c4_5991_90da_cd6bbae34767_TBCB1007_00

Question 16

Foxrun Associates has outstanding Bonds Payable, with a par value of $120,000, and carrying value of $116,700.
If Foxrun purchases the bonds in the open market at a price of 97.0 and retires them, which of the following is true?

Accepted Answer

Purchase of bonds on the market: Par Value x Market Price = Amount paid
$120,000 x 97% = $116,400
 11ee7640_e1c4_80a2_90da_b1f7556452a6_TBCB1007_00

Question 17

Hickenlooper Company retired a $900,000, 7% bond issue at 98. If the unamortized discount is $7,200, the entry will include a:

Accepted Answer

Entry to record retirement of Bonds:
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Question 18

Hicks Company's Bonds Payable has a balance of $1,200,000 and Discount on Bonds Payable has a balance of $15,000.
If the issuing corporation retires the bonds at a market price of 97, what is the amount of gain or loss on retirement?

Accepted Answer

Book value of Bond $1,200,000 - $15,000= $1,185,000
Retirement Price = $1,200,000 x 0.97 = $1,164,000
Gain on Retirement = $1,185,000 - $1,164,000 = $21,000

Question 19

Charlie Company's Bonds Payable has a balance of $2,700,000 and Discount on Bonds Payable has a balance of $33,750.
If the issuing corporation retires the bonds at a market price of 97, what is the amount of gain or loss on retirement?

Accepted Answer

Book value of Bond = $2,700,000 - $33,750 = $2,666,250
Retirement Price = $2,700,000 x 0.97 = $2,619,000
Gain on Retirement = $2,666,250 - $2,619,000 = $47,250

Question 20

Quechua Company borrowed $90,000 cash on January 1, 2019, by signing an 8% mortgage note that is to be repaid in 10 equal annual end-of-year payments. The first payment is due on December 31, 2019.
The journal entry to record the first payment will include:

Accepted Answer

Computation of mortgage note payments:
Interest expense: $90,000 x 8% = $7,200
 11ee7640_e1c4_a7b3_90da_5ffd02551ed4_TBCB1007_00 Journal entry to record the first payment:
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Quiz 10: Accounting for Liabilities

When the market rate of interest was 10%, Gloria Corporation issued $1,800,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was: (If PV tables are used, select the closest answer from the options provided.)

When the market rate of interest was 10%, Gloria Corporation issued $2,400,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was: (If PV tables are used, select the closest answer from the options provided.)

Dance Company issued 6%, 5 year bonds, with par value of $2,400,000, paying semiannual interest for $2,205,339. The annual market rate of interest on the date of issue was 8%. Assuming effective interest method of amortization, calculate the bond interest expense on the first interest payment date.

Prior to maturity, Candy Apple Red Company called and retired a $1,200,000, 8% bond issued at 102. If the unamortized premium on the bonds is $3,000, the journal entry will include a:

Bowling Green Associates has outstanding Bonds Payable, with a par value of $120,000, and carrying value of $116,800. If Bowling Green purchases the bonds in the open market at a price of 98.0 and retires them, which of the following is true?

Foxrun Associates has outstanding Bonds Payable, with a par value of $120,000, and carrying value of $116,700. If Foxrun purchases the bonds in the open market at a price of 97.0 and retires them, which of the following is true?

Hickenlooper Company retired a $900,000, 7% bond issue at 98. If the unamortized discount is $7,200, the entry will include a:

Hicks Company's Bonds Payable has a balance of $1,200,000 and Discount on Bonds Payable has a balance of $15,000. If the issuing corporation retires the bonds at a market price of 97, what is the amount of gain or loss on retirement?

Charlie Company's Bonds Payable has a balance of $2,700,000 and Discount on Bonds Payable has a balance of $33,750. If the issuing corporation retires the bonds at a market price of 97, what is the amount of gain or loss on retirement?

Quechua Company borrowed $90,000 cash on January 1, 2019, by signing an 8% mortgage note that is to be repaid in 10 equal annual end-of-year payments. The first payment is due on December 31, 2019. The journal entry to record the first payment will include: