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ABC Company received $9,631 for its 5-year,10% bonds with a total face value of $10,000.The market rate of interest was 11%.The bonds pay interest annually on December 31.Approximately how much interest expense will ABC Corporation record on the first annual interest payment date using the effective-interest method?


A) $1,059
B) $1,000
C) $1,074
D) $963.10

E) A) and B)
F) B) and C)

Correct Answer

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On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:


A) debit Interest Expense for $543, debit Premium on Bonds Payable for $157, and credit Interest Payable for $700.
B) debit Interest Expense for $700, credit Premium on Bonds Payable for $157, and credit Interest Payable for $543.
C) debit Interest Expense for $700, debit Premium on Bonds Payable for $157, and credit Interest Payable for $543.
D) debit Interest Expense for $543 and credit Interest Payable for $543.

E) None of the above
F) A) and D)

Correct Answer

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Sales taxes are recorded by the retailer as:


A) Sales Tax Expense.
B) Sales Tax Payable.
C) Sales Revenue.
D) Sales Returns and Allowances.

E) B) and C)
F) A) and B)

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When a company has a contingent liability that is remote in likelihood,the company should:


A) include a description in the notes to the financial statements.
B) record the amount of the liability times the probability of its occurrence.
C) record the amount of the liability as a long-term liability on the balance sheet.
D) exclude the information about the contingent liability from its financial statements and notes.

E) A) and B)
F) B) and D)

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Use the information above to answer the following question.The journal entry to record this transaction would include the receipt of cash on November 1 a credit to:


A) Cash
B) Unearned Revenue
C) Dance Lessons Revenue
D) Dance Lessons Payable

E) A) and B)
F) B) and C)

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The entry to record the initial borrowing of cash by issuing a promissory note causes a(n) :


A) increase in stockholders' equity.
B) decrease in assets.
C) decrease in stockholders' equity.
D) increase in liabilities.

E) A) and D)
F) C) and D)

Correct Answer

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Engstrom Company makes a sale and collects a total of $378,which includes an 8% sales tax.What is the amount that will be credited to the Sales Revenue account?


A) $378
B) $350
C) $406
D) $348

E) A) and B)
F) All of the above

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A 10-year bond that pays interest annually was issued at a $5,000 premium.The entry to record the payment of interest using straight-line amortization will include a ______ to Premium on Bonds Payable for ______ each period.


A) credit; $500
B) debit; $500
C) debit; a greater amount each period
D) credit; a lower amount each period

E) All of the above
F) None of the above

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The gross earnings for all employees is credited to Salaries and Salaries and Wages Payable.

A) True
B) False

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Which of the following statements about a 10-year bond issued at a discount is not correct?


A) At the end of ten years, the balance in the Discount on Bonds Payable account will equal zero.
B) At the end of ten years, the carrying value will equal the face value.
C) At the end of ten years, the total interest expense will reflect the market rate of interest.
D) At the end of ten years, the total interest expense will equal the total interest paid.

E) A) and C)
F) A) and B)

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If a company's gross salaries and wages are $12,000,and it withholds $1,800 for income taxes and $800 for FICA taxes,the journal entry to record the employees' pay should include a:


A) debit to Salaries and Wages Expense for $9,400.
B) debit to Salaries and Wages Payable for $9,400.
C) credit to Salaries and Wages Payable for $12,000.
D) credit to Salaries and Wages Payable for $9,400.

E) B) and C)
F) A) and D)

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Bonds that are backed with a pledge of the company's assets are called:


A) debenture bonds.
B) convertible bonds.
C) secured bonds.
D) registered bonds.

E) B) and C)
F) None of the above

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When the times interest earned ratio increases,the likelihood of default on liabilities decreases.

A) True
B) False

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On January 1,2016,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 5%,the company receives $52,723 for the bonds. Required: Fill in the table assuming the company uses effective-interest bond amortization. On January 1,2016,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 5%,the company receives $52,723 for the bonds. Required: Fill in the table assuming the company uses effective-interest bond amortization.

Correct Answer

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On October 1,2015,Bill Burns borrowed $170,000 from the New National Bank on a 6-month,6% note.Assuming no interest has been recorded yet,what is the amount of accrued interest as of December 31,2015?


A) $5,100
B) $2,550
C) $10,200
D) $7,650

E) B) and C)
F) A) and D)

Correct Answer

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Bonds that are backed by collateral are referred to as:


A) debentures.
B) secured.
C) callable.
D) convertible.

E) A) and B)
F) B) and D)

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Accruing a liability always involves ______ expenses and ______ liabilities.


A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing

E) None of the above
F) C) and D)

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An entertainment company received $6 million in cash for advance season ticket sales.Prior to the beginning of the season,these sales should be recorded as a liability.

A) True
B) False

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Employees' gross earnings differ from their net pay because of:


A) unemployment taxes.
B) payroll deductions.
C) accounts payable.
D) corporate income taxes.

E) A) and B)
F) None of the above

Correct Answer

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John Smith works 40 hours for ABC Corp.for $15 per hour.Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal income tax $58; and State income tax $10.The entry to record his net pay would cause which of the following to change as described?


A) Salaries and Wages Expense increases by $600.
B) Salaries and Wages Expense decreases by $600.
C) Salaries and Wages Payable increases by $600.
D) Salaries and Wages Payable decreases by $600.

E) All of the above
F) None of the above

Correct Answer

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