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Exam 10: Reporting and Analyzing Liabilities

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Question 141

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On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

A) debit to Interest Expense, $120,000.
B) debit to Interest Expense, $240,000.
C) credit to Discount on Bonds Payable, $16,000.
D) credit to Discount on Bonds Payable, $8,000.

E) C) and D)
F) All of the above

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Question 142

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On May 15, Holt's Clothiers borrowed some money on a 4-month note to provide cash during the slow season of the year. The interest rate on the note was 8%. At the time the note was due, the amount of interest owed was $1,200. Instructions (a) Determine the amount borrowed by Holt's. (b) Assume the amount borrowed was $54,000. What was the interest rate if the amount of interest owed was $900? (c) Prepare the entry for the initial borrowing and the repayment for the facts in part (a).

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Question 143

Multiple Choice

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Oliver Company issued $800,000 of 6%, 5-year bonds at 98. Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?

In a recent year Garvey Corporation had net income of $100,000, interest expense of $20,000, and tax expense of $30,000. What was Garvey Corporation's times interest earned for the year?

Which of the following is not a current liability on December 31, 2014?

Garrison Company issued $2,000,000, 7%, 20-year bonds on January 1, 2014, at 105. Interest is payable annually on January 1. Garrison uses straight-line amortization for bond premium or discount. Instructions Prepare the journal entries to record the following events. (a) The issuance of the bonds. (b) The accrual of interest and the premium amortization on December 31, 2014. (c) The payment of interest on January 1, 2015. (d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is

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?

The carrying value of bonds will equal the market price

The interest expense recorded on an interest payment date is increased

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. What entry will Drake Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?

Parker Company issued ten-year, 9%, bonds payable in 2014 at a premium. During 2014, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will

The board of directors may authorize more bonds than are issued.

Interest expense on an interest-bearing note is

McDonald's financial statements contain the following selected data (in millions). Instructions (a) Compute the following values and provide a brief interpretation of each. (1) Working capital. (3) Debt to assets ratio. (2) Current ratio. (4) Times interest earned. (b) The notes to McDonald's financial statements show that subsequent to this year the company will have future minimum lease payments under operating leases of $10,513.8 million. If these assets had been purchased with debt, assets and liabilities would rise by approximately $9,400 million. Recompute the debt to assets ratio after adjusting for this. Discuss your result.

As interest is recorded on an interest-bearing note, the Interest Expense account is

Sparks Company received proceeds of $423,000 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $400,000, pay interest annually on December 31st, and have a call price of 102. Sparks uses the straight-line method of amortization. What is the amount of interest expense Sparks will show with relation to these bonds for the year ended December 31, 2014?

Gomez Corporation issues 600, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a

Hensley, Inc. reports the following liabilities (in thousands) on its January 31, 2014, balance sheet and notes to the financial statements. Instructions Prepare the liabilities section of Hensley's balance sheet as at January 31, 2014.

Finney Company borrowed €1,600,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of €416,698 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014? A) €1,600,000 B) €1,045,458 C) €1,335,302 D) €1,296,000