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Exam 10: Reporting and Analyzing Liabilities

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Question 71

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A company receives $261, of which $21 is for sales tax. The journal entry to record the sale would include a a debit to Sales Taxes Expense for $21. B) debit to Sales Taxes Payable for $21. C) debit to Sales Revenue for $261. D) debit to Cash for $261.

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Question 72

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(Ethics) Wishbone Company maintains two separate accounts payable computer systems. One is known to all the users, and is used to process payments to vendors. Employees enter the vendor code, or the name and address of new vendors, the amount, the account, and so on. The other system is a secret one. It is used to cross-check the vendors against an approved vendor list. If a vendor is not listed as approved, the payment process is halted. Internal audit employees seek to verify the existence of a bona fide claim by the vendor. All inquiries are made at the top management level, and very discreetly. No one but top management, the internal audit staff, and the Board of Directors of the company is even aware of the second system. Required: Is it ethical for a company to have a secret system like the one described? Explain.

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Secret systems that seek to verify the i...

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Question 73

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Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

The times interest earned is computed by dividing net income by interest expense.

Bonds with a face value of $300,000 and a quoted price of 102¼ have a selling price of

Regardless of whether the straight-line method or the effective-interest method is used, the carrying value of a bond issued at a discount will decrease continually over the bond's life.

During the month, a company sells goods for a total of $106,000, which includes sales taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue and $6,000 in Sales Tax Expense.

When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by

Herman Company received proceeds of ₤471,250 on 10-year, 8% bonds issued on January 1, 2012. The bonds had a face value of ₤500,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. Herman Company decided to redeem the bonds on January 1, 2014. What amount of gain or loss would Herman report on its 2014 income statement?

On January 1, Weatherholt Inc. issued $4,000,000, 9% bonds for $3,756,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jean Loptein uses the effective-interest method of amortizing bond discount. At the end of the first year, Weatherholt should report unamortized bond discount of

Collins Company borrowed $750,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $195,327 and carried an annual interest rate of 9.5%. What is the amount of expense Collins must recognize on its 2014 income statement? A) $71,250. B) $59,463. C) $52,693. D) $46,555.

The board of directors of Lauber Corporation are considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 200,000 shares of $5 par value common stock that is selling for $25 per share on the open market. Lauber Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $500,000 if the new factory equipment is purchased. Instructions Prepare a schedule that shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

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

Over the term of the bonds, the balance in the Discount on Bonds Payable account will

Metropolitan Symphony sells 200 season tickets for $40,000 that includes a five-concert season. The amount of Unearned Ticket Revenue after the third concert is $24,000.

If $180,000, 6%, bonds are issued on January 1, and pay interest annually, the amount of interest paid will be $10,800.

Selling the bonds at a premium has the effect of

If the straight-line method of amortization is used, the amount of yearly interest expense will increase as the bonds approach maturity.

When determining the value of a bond using present value, what are the two components used in the calculation?

The 2014 financial statements of Harper Co. contain the following selected data (in millions) . The debt to assets ratio is