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Exam 10: Liabilities

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Question 31

True/False

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Straight line method of amortization is required under IFRS. BT: Knowledge

A) True
B) False

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Question 32

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

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

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

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Question 33

Multiple Choice

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A typical balance sheet provides no information regarding which of the following questions?

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 is calculated as the present value of:

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books.The journal entry for the interest payment should:

A premium on a bond increases the interest expense of the loan to the issuer. BT: Comprehension

A company typically records the amount owed to suppliers for goods or services when:

Which of the following would help a company improve its quick ratio without necessarily lowering the liability risk to a creditor?

Match the term and the definition.Not all definitions will be used. _____ Current liabilities _____ Effective interest method of amortization _____ Security _____ Times interest earned ratio _____ Stated interest rate _____ Seniority _____ Long-term liabilities _____ Liquidity _____ Quick ratio _____ Contingent liability A.A bond feature that puts a creditor ahead of other creditors in order of payment. B.Current liabilities divided by current assets. C.These are liabilities that have to be paid in one year or less. D.Net income before taxes and interest expense divided by interest expense. E.The percent of assets that are in cash. F.The amount of all the liabilities currently on the balance sheet at the close of the period. G.A bond feature that requires the borrower to carry insurance on debt. H.Where interest expense is the market interest rate times the bond's carrying value. I.Net income after taxes and interest expense divided by interest expense. J.These are liabilities that do not have to be paid within the upcoming year. K.The ability to pay current obligations. L.A bond feature that allows a creditor to seize assets if debt is not properly repaid. M.Also known as the yield of a bond. N.This type of liability is uncertain; it exists only if some other condition occurs. O.Liquid assets divided by current liabilities. P.Where interest expense is the stated interest rate times the bond's carrying value. Q.A method by which companies pay off bonds in order of age. R.Also known as the contract rate of a bond.

Some bonds mature in instalments.Bonds containing such feature are called:

Which of the following are generally recorded as liabilities on the balance sheet?

Which of the following methods of amortizing bond premium or discount is required by IFRS:

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

Match the term and the definition.Not all definitions will be used. _____ Convertibility _____ Coupon rate _____ Discount _____ Callability _____ Maturity _____ Market interest rate _____ Straight-line amortization _____ Premium A.A bond feature that changes the interest rate on the bond with market conditions. B.When a bond is issued for a price less than its face value. C.Also known as the face value or par value of a bond. D.Refers to the percent of company debt that is long-term instead of current. E.A bond feature that allows creditors to exchange the bond for company stock. F.Spreads a bond discount or premium evenly over the lifetime of the bond. G.Another name for the stated interest rate on a bond. H.A bond feature that lets creditors examine financial data and demand new loan conditions. I.The amount a company receives when it sells a bond; also known as issue price. J.The face value of a bond multiplied by the percent of its life that has passed. K.When a bond is issued for a price greater than its face value. L.A bond feature that allows the borrowing company to pay off a bond whenever it wishes. M.Also known as the yield of a bond. N.The time at which the face value of a bond must be paid to the lender. O.Is multiplied by the market interest rate to calculate the interest expense on a bond. P.Spreads the face value of the bond evenly over the lifetime of the bond. Q.The percent of interest expense that is actually paid out to the creditor.

Match the appropriate variable or variables to each space in the appropriate equation.Note: you may use a variable more than once and some variables might not be used.

On January 1,2009,IBM sells $2 million of 8% bonds at face value with interest to be paid at the end of each year.Prepare the journal entries and show any changes to assets,liabilities,and shareholders' equity on the following dates: a.January 1,2009 (the initial bond sale). b.March 31,2009 (the end of the first quarter). c.December 31,2009 (the payment of interest at the end of the year; assume that the interest owed for each of the four quarters has been properly accrued).

Which of the following statements is not true?

The three key pieces of information that are stated on the bond certificate are:

Calculate the Quick ratio and the times interest earned ratio for the following company. \begin{array}{c}\text { Gil's Fish and Tackle, Inc.}\\\text { Balance Sheet}\\\text { At December 31, 2007}\\\begin{array}{lr}\text { Assets }\\\text { Cash } & \$ 22,200 \\\text { Accounts Receivable (less allowance) } & 169,100 \\\text { Inventories } & 68,300 \\\text { Property, Plant, and Equipment } & 102,800 \\\text { Long-term Investments } & 30,000 \\\text { Total Assets } & \$ 392,400\\\\\text { Liabilities }\\\text { Accounts Payable } & \$ 49,200 \\\text { Current Portion of Long-Term Debt } & 68,800 \\\text { Bonds Payable } & 100,000 \\\\\text {Total Liabilities}&\underline{218,000}\\\\\text { Shareholders' Equity }\\\text { Contributed Capital } & 100,000 \\\text { Retained Earnings } & 74,400 \\\text { Total Equity } & \underline{174,400} \\\\\text { Total Liabilities and Equity } &\underline{ \$ 392,400}\\end{array}\end{array} $\begin{array}{c}\text {Gil's Fish and Tackle, Inc. }\\\text {Income Statement}\\\text { For the year ended December 31,2007}\\\begin{array}{lr}\text {Operating Revenue}\\\text {Sales Revenue}&\underline{\$2,765,000}\\\text {Operating Revenue}&\underline{2,765,000}\\\text {Operating Expenses}\\\text { Wages Expense } & 1,850,500 \\\text { Operating and Admin. Expenses } & 286,700 \\\text { Amortization Expense } & \underline{335,400} \\\quad \text { Operating Expenses } & \underline{2.472 .600}\\\\\text { Operating Income } & 292,400\\\\\text { Other Expenses } & \\ \text { Interest Expense } &\underline{17.000} \\\\\text { Income Before Income Tax Expense } & \mathbf{2 7 5 , 4 0 0} \\\text { Income Tax Expense } & 103.800 \\& \\\text { Net Income } & \$ 171.600\end{array}\end{array}$

Some bonds require the borrowing company to maintain certain financial standards as demonstrated by its financial statements.This feature is known as: