ACG2021 Chapter 8

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Florida International University *

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2021

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Accounting

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May 14, 2024

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ACG2021 Chapter 8 1. All of the following are reported as current liabilities except: BONDS PAYABLE DUE IN 18 MONTHS 2. Which of the following is not a liability? ALLOWANCE FOR BAD DEBTS 3. Notes payable due in six months are reported as: CURRENT LIABILITIES ON THE BALANCE SHEET 4. For the purpose of classifying liabilities as current or noncurrent, the term operating cycle refers to: THE TIME PERIOD BETWEEN THE PURCHASE OF MERCHANDISE AND THE CONVERSION OF THIS MERCHANDISE BACK TO CASH 5. Connors Company paid $700 cash to make a repair on equipment it sold under a one- year warranty in the prior year. The entry to record the payment will debit: ACCRUED WARRANTY PAYABLE AND CREDIT CASH 6. Accounts payable turnover for Maskette Industries increased from 10 to 12 during its most recent fiscal year. which of the following statements best describes what this means? THE COMPANY PAID ITS ACCOUNTS PAYABLE MORE QUICKLY DURING THE YEAR, SIGNALING A STRONGER LIQUIDITY POSITION 7. What is accounts payable turnover? PURCHASES ON ACCOUNT DIVIDED BY AVERAGE ACCOUNTS PAYABLE, A MEASURE OF LIQUIDITY, A MEASURE OF THE NUMBER OF TIMES A YEAR A COMPANY IS ABLE TO PAY ITS ACCOUNTS PAYABLE 8. Orrville & Company has an accounts payable turnover of 4.3, while Websteria Industries has an accounts payable turnover of 7.2. Which company is more liquid? WEBSTERIA INDUSTRIES 9. On Pine Branch Department Stores’ most recent balance sheet, the balance of its inventory at the beginning of the year was $19,000. At the end of the year, the inventory balance was $22,500. During that year, its cost of goods sold was $62,000. All purchases of inventory throughout the year were on account. What was the total of Pine Branch’s purchases during the year? $65500 10. The balance of Lock Corporation’s accounts payable at the beginning of the most recent year was $48,000. At the end of the year, the accounts payable balance was $51,000. Lock’s sales revenue for the year was $3,140,000, while its cost of goods sold for the year was $1,584,000. Calculate Lock’s days’ payable outstanding (DPO) for the year. Assume inventory levels are constant throughout the year. If the credit terms from Lock’s suppliers are n/30, how would you interpret Lock’s DPO? 11.41 SINCE THE CREDIT TERMS ARE N/30, LOCK IS PAYING AHEAD OF SCHEDULE, WHICH IS USUALLY CHARACTERISTICS OF A COMPANY WITH GREAT LIQUIDITY.

11. A company reports purchases of $392,000, a beginning accounts payable balance of $25,000, and an ending accounts payable balances of $55,000. All purchases were on account. The company’s accounts payable turnover would be closest to 9.8 12. Eugenia Corporation accrues the interest expense on a short-term note payable at the end of its fiscal year. Due to this transaction: CURRENT LIABILITIES WILL INCREASE AND STOCKHOLDERS’ EQUITY WILL DECREASE 13. Fisher- Wallace Corporation signed a six-month note payable on October 23,2021. What accounts relating to the note payable will be reported on its financial statements for the fiscal year ending December 31, 2021? Notes payable and interest payable will be reported on the balance sheet. 14. Failure to accrue interest expense results in AN OVERSTATEMENT OF NET INCOME AND AN UNDERSTATEMENT OF LIABILITIES 15. Gravel Corporation borrowed $250,00 from a bank on January 1, 2022, by signing a 10%, six-month note. The journal entry made by Gravel on January 1, 2022, will debit: CASH FOR $250,000 AND CREDIT NOTES PAYABLE FOR $250,000 16. Landers Corporation borrows cash by signing a $120,000, 6%, nine-month note on December 1 with its local bank. The total cash paid for interest (only) at the maturity of the note by Landers will be $5400 17. Jackson Bank lends Jabbour Clothing company $125,000 on September 1. Jabbour signs a $125,000, 6% six months note. The journal entry made by Jabbour on December 31, its fiscal year-end, is DEBIT INTEREST EXPENSE AND CREDIT INTEREST PAYABLE FOR $2500 18. The current pay period ends on Friday, January 2, yet the company’s fiscal year-end is on Wednesday, December 31. If the company does not make the proper adjusting entry to accrue payroll expenses at year-end, what would be the impact? OPERATING INCOME WILL BE OVERSTATED. 19. Adventure Co. was organized to sell a single product that carries a 45-day warranty against defects. Engineering estimates indicate that 8% of the units sold will prove defective and require an average repair cost of $45 per unit. During Adventure’s first month of operations, total sales were 1,000 units; by the end of the month, six defective units had been repaired. The liability for product warranties at month-end should be $3,330. 20. When a company receives cash from customers before earning the revenue, UNEARNED REVENUE will be credited.

21. Sanders Company sold inventory with a selling price of $4,900 to customers for cash. It also collected sales taxes of $245. The Journal entry to record this information includes a DEBIT TO CASH OF $5,145 22. Tennis Shoe Warehouse operates in a state with a 6.5% sales tax. For convenience, Tennis Shoe Warehouse Credits Sales Revenue for the total amount (selling price plus sales tax) collected from the each customer. If Tennis Shoe Warehouse fails to make an adjustment for sales taxes, NET INCOME WILL BE OVERSTATED AND LIABILITIES WILL BE UNDERSTATED. 23. What kind of account is Unearned Revenue? LIABILITY ACCOUNT 24. An end-of-period adjusting entry that debits Unearned Revenue most likely will credit A REVENUE 25. Potential liabilities that depend on future events arising out of past events are called CONTINGENT LIABILITIES 26. A contingent liability should be recorded in the accounts IF THE AMOUNT CAN BE REASONABLY ESTIMATED AND IF THE RELATED FUTURE EVENT WILL PROBABLY OCCUR. 27. Which of the following statements is false? ALL CONTINGENT LIABILITIES SHOULD BE REPORTED AS LIABILITIES ON THE FINANCIAL STATEMENTS, EVEN THOSE THAT ARE UNLIKELY TO OCCUR. 28. Which of the following tasks would be least likely to be successfully performed by a bot? MARKETING CAMPAIGN DESIGN Chapter 9 1. Mooney Company issued $350,000, 6%, eight-year bonds for 112, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year? $386,750 2. A bond with a face value of $300,000 and a quoted price of 95 has a selling price of $285,000. 3. Mission Furniture issued $500,000 in bonds payable at par. The journal entry to record a semiannual interest payment on these bonds would debit Interest Expense and credit Cash. 4. Bonds with an 8% stated interest rate were issued when the market rate of interest was 5%. This bond was issued at A premium 5. Krause corporation issued $2,500,000, 10 year 6% bonds for $2,250,000 on January 1, 2022. Interest is paid semiannually on January 1 and July 1. The corporation uses the straight-line method of amortization. Krause’s fiscal year ends on December 31. the amount of discount amortization on July 1, 2022, would be $12,500.

6. the discount on bonds payable account IS A CONTRA ACCOUNT TO BONDS PAYABLE 7. the discount on bond payable becomes ADDITIONAL INTEREST EXPENSE OVER THE LIFE OF THE BOND 8. the carrying value of bonds payable equals BONDS PAYABLE MINUS DISCOUNT ON BONDS PAYABLE. 9. A bond with a face amount of $12,000 has a current price quote of 109.75. What is the bond’s price? $13,170.00 10. The carrying value on bonds equals Bonds Payable PLUS PREMIUM ON BONDS PAYABLE AND MINUS DISCOUNT ON BONDS PAYABLE 11. What type of account is Discount on Bonds Payable and what is its normal balance? Contra liability; Debit 12. Amortizing the discount on bonds payable increases the recorded amount of interest expense 13. The journal entry on the maturity date to record the retirement of bonds with a face value of $1,000,000 that were issued at a $60,000 discount includes a debit to Bonds Payable for $1,000,000 14. The 8% bonds issued when the market interest rate is 7% will be priced at a premium. they are attractive in this market, so investors will pay more than par value to acquire them. 15. the 8% bonds issued when the market interest rate is 9% will be priced at a discount. they are unattractive in this market, so investors will pay less than par value to acquire them 16. If bonds are issued at a discount and the effective-interest method is used, the amount of interest expense increases each period as the bonds approach maturity 17. When the effective-interest method is used, the amount of bond discount amortized each interest period is equal to the amount of interest expense less the cash paid for interest. 18. Woodward Corporation issued $500,000, 6%, 10-year bonds on January 1, 2022, for $581,758 when the market interest rate was 4%. Interest is paid semiannually on January 1 and July 1. The corporation uses the effective-interest method to amortize bond discounts and premiums. the total amount of bond interest expense recognized on July 1, 2022, would be closest to $11,635 19. When a company retires bonds early, the gain or loss on the retirement is the difference between the cash paid and the carrying value of the bonds. 20. Joana Corporation retires its bonds at 104 on January 1, after the payment of interest. The face value of the bond is $600,000. the carrying value of the bonds at retirement is $618,000. The entry to record the retirement will include a debit of $18,000 to premium on bonds payable 21. Corporate bonds that can be exchanged for shares of the corporations’ common stock if certain conditions are met are called convertible bonds 22. Which of the following is not one of the criteria for determining whether a lease is a finance lease? The asset cost is greater than $100,000. 23. Which of the following items is most likely a short-term liability accounts payable

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