Test Three Financial Accounting

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  1. True or False: Notes and accounts receivable that result from sales transactions are often called trade receivables.
    True
  2. True or False: A service organization records a receivable at the point of sale of merchandise on account.
    False
  3. True or False: Cash (net) realizable value is the net amount the company expects to receive in cash.
    True
  4. If a company fails to record estimated bad debt expense,
    A. cash realizable value is understated.
    B. revenues are understated.
    C. receivables are understated.
    D. expenses are understated.
    D. expenses are understated.

    Note:If a company fails to record estimated bad debt expense, then expenses are understated and assets are overstated.
    (this multiple choice question has been scrambled)
  5. The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the
    A. direct write-off method.
    B. percentage-of-receivables basis.
    C. percentage-of-sales basis.
    D. percentage-of-receivables and percentage-of-sales basis.
    B. percentage-of-receivables basis.

    Note: The existing balance in the Allowance for Doubtful Accounts is considered in computing bad debt expense when using the percentage-of-receivables basis. The existing balance is ignored when using the percentage-of-sales basis.
    (this multiple choice question has been scrambled)
  6. Voight Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $128,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is
    A. $70,000.
    B. $198,000.
    C. $128,000.
    D. $58,000.
    D. $58,000.

    Note: The desired ending balance in the Allowance for Doubtful Accounts is $128,000. The current balance is $70,000, therefore the amount of the adjusting entry is $128,000 - $70,000 = $58,000.
    (this multiple choice question has been scrambled)
  7. Which of the following approaches for bad debts is best described as a balance sheet method?
    A. Percentage-of-receivables basis.
    B. Direct write-off method.
    C. Percentage-of-sales basis.
    D. Both percentage-of-receivables and direct write-off methods.
    A. Percentage-of-receivables basis.
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  8. Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is
    A. $60,000.
    B. $5,000.
    C. $55,000.
    D. $65,000.
    C. $55,000.
    (this multiple choice question has been scrambled)
  9. Hughes has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. In this situation, the amount of bad debt expense that should be reported for the year is
    A. $55,000.
    B. $65,000.
    C. $5,000.
    D. $60,000.
    B. $65,000.
    (this multiple choice question has been scrambled)
  10. Net sales for the month are $800,000, and bad debts are expected to be 1.5% of net sales. The company uses the percentage-of-sales basis. If the Allowance for Doubtful Accounts has a credit balance of $15,000 before adjustment, what is the balance after adjustment?
    A. $23,000
    B. $15,000
    C. $27,000
    D. $31,000
    C. $27,000
    (this multiple choice question has been scrambled)
  11. In 2015, Roso Carlson Company had net credit sales of $750,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2015, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2015?
    A. $40,500.
    B. $22,500.
    C. $10,050.
    D. $10,500.
    D. $10,500.
    (this multiple choice question has been scrambled)
  12. An analysis and aging of the accounts receivable of Prince Company at December 31 reveals the following data: Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment $50,000 Amounts expected to become uncollectible $65,000

    The cash realizable value of the accounts receivable at December 31, after adjustment, is
    A. $750,000.
    B. $685,000.
    C. $735,000.
    D. $800,000.
    C. $735,000.
    (this multiple choice question has been scrambled)
  13. Companies report accounts receivable on the balance sheet at
    A. cost.
    B. gross realizable value.
    C. cash (net) realizable value.
    D. face value.
    C. cash (net) realizable value.

    Note: Companies report accounts receivable at their cash (net) realizable value on the balance sheet.
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  14. Allowance for Doubtful Accounts is
    A. added to Accounts Receivable on the balance sheet.
    B. an operating expense.
    C. closed at the end of the fiscal year.
    D. a contra asset account.
    D. a contra asset account.
    (this multiple choice question has been scrambled)
  15. Under the allowance method, estimated uncollectible receivables are credited to
    A. Accounts Receivable.
    B. Bad Debt Expense.
    C. Allowance for Doubtful Accounts.
    D. Uncollectible Accounts Expense.
    C. Allowance for Doubtful Accounts.
    (this multiple choice question has been scrambled)
  16. Writing off an uncollectible account under the allowance method requires a debit to
    A. Accounts Receivable.
    B. Bad Debt Expense.
    C. Allowance for Doubtful Accounts.
    D. Uncollectible Accounts Expense.
    C. Allowance for Doubtful Accounts.
    (this multiple choice question has been scrambled)
  17. The percentage-of-sales basis of estimating uncollectibles
    A. considers the existing balance in Allowance for Doubtful Accounts.
    B. emphasizes balance sheet relationships.
    C. produces a better estimate of cash realizable value.
    D. results in a better matching of expenses with revenues.
    D. results in a better matching of expenses with revenues.
    (this multiple choice question has been scrambled)
  18. The percentage-of-receivables basis of estimating uncollectibles
    A. ignores the existing balance in Allowance for Doubtful Accounts.
    B. results in a better matching of expenses with revenues.
    C. emphasizes income statement relationships.
    D. produces a better estimate of cash realizable value.
    D. produces a better estimate of cash realizable value.
    (this multiple choice question has been scrambled)
  19. The direct write-off method
    A. estimates bad debt losses.
    B. debits Allowance for Doubtful Accounts to record write-offs of accounts.
    C. shows only actual losses from uncollectible accounts.
    D. is acceptable for financial reporting purposes.
    C. shows only actual losses from uncollectible accounts.
    (this multiple choice question has been scrambled)
  20. The balance of the Allowance for Doubtful Accounts account at January 1 of the current year was $6,800 credit. During the year, accounts receivable in the amount of $9,000 were written off. Estimated uncollectible accounts expense for the year amounts to $7,200. The balance of the Allowance for Doubtful Accounts account to be reported on the balance sheet at year-end is
    A. $8,600.
    B. $5,000.
    C. $14,000.
    D. $7,200.
    B. $5,000.
    (this multiple choice question has been scrambled)
  21. Bond Company recorded bad debt expense of $35,000 and wrote off accounts receivable of $20,000 during the current year. The net effect of these two transactions on net income was
    A. a decrease of $20,000.
    B. no effect.
    C. a decrease of $35,000.
    D. a decrease of $55,000.
    C. a decrease of $35,000.
    (this multiple choice question has been scrambled)
  22. Sanders Company has a debit balance of $7,000 in its Allowance for Doubtful Accounts before any adjustments are made. Based on a review of its accounts receivable at the end of the year, Sanders estimates that $70,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is
    A. $77,000.
    B. $63,000.
    C. $7,000.
    D. $70,000.
    A. $77,000.
    (this multiple choice question has been scrambled)
  23. True or False: The cost of land includes closing costs such as title and attorney's fees.
    True
  24. Bailey Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Bailey record as the cost of the new truck?
    A. $37,000
    B. $38,200
    C. $36,420
    D. $38,420
    D. $38,420

    Note: The cost of truck includes the purchase price, the sales tax, painting the logo on the side of the truck, and the safety testing.
    (this multiple choice question has been scrambled)
  25. Erin Danielle Company purchased equipment and incurred the following costs:
    Cash price $24,000
    Sales taxes 1,200
    Insurance during transit 200
    Installation and testing 400
    Total costs $25,800

    What amount should be recorded as the cost of the equipment?
    A. $25,400
    B. $25,200
    C. $25,800
    D. $24,000
    C. $25,800
    (this multiple choice question has been scrambled)
  26. Plant assets decline in service potential over their useful lives except for
    A. buildings.
    B. land improvements.
    C. land.
    D. equipment.
    C. land.

    Note: All plant assets decline in service potential over their useful lives except for land.
    (this multiple choice question has been scrambled)
  27. The cost of land includes all of the following except
    A. parking lots.
    B. accrued property taxes.
    C. real estate brokers' commissions.
    D. closing costs.
    A. parking lots.
    (this multiple choice question has been scrambled)
  28. A company purchased land for $100,000 cash. Accrued real estate taxes on the land, $2,000, and real estate taxes on the land for the current year, $3,000, were also paid in cash. Real estate brokers' commission was $8,000 and $10,000 was spent on demolishing the building that was on the property before construction of a new building could begin. The company was able to sell some of the salvaged materials from the demolished building for $2,000 cash. Under the historical cost principle, the cost of the land would be recorded at
    A. $100,000.
    B. $121,000.
    C. $123,000.
    D. $118,000.
    D. $118,000.
    (this multiple choice question has been scrambled)
  29. True or False: Recognizing depreciation on asset results in an accumulation of cash for replacement of the asset.
    False
  30. True or False: The Internal Revenue Service (IRS) requires the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.
    False
  31. True or False: To determine the revised depreciation expense, the company computes the asset's depreciable cost at the time of the revision and divides it by the asset's remaining useful life.
    True
  32. The balance in the Accumulated Depreciation account represents the
    A. amount to be deducted from the cost of the plant asset to arrive at its fair value.
    B. amount charged to expense since the acquisition of the plant asset.
    C. cash fund to be used to replace plant assets.
    D. amount charged to expense in the current period.
    B. amount charged to expense since the acquisition of the plant asset.

    Note: Accumulated Depreciation is a contra asset account containing total depreciation on the asset since its acquisition.
    (this multiple choice question has been scrambled)
  33. Depreciation is a process of
    A. asset valuation.
    B. cost accumulation.
    C. cost allocation.
    D. asset devaluation.
    C. cost allocation.

    Note: Depreciation is a process of allocating the cost of an asset over its useful life.
    (this multiple choice question has been scrambled)
  34. Factors that affect the computation of depreciation include all of the following except
    A. cost.
    B. book value.
    C. salvage value.
    D. useful life.
    B. book value.
    (this multiple choice question has been scrambled)
  35. Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a cost of $8,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $12,000 salvage value at the end of its 5-year useful life.
    Depreciation expense each year using the straight-line method will be
    A. $11,760.
    B. $9,600.
    C. $14,160.
    D. $9,840.
    A. $11,760.

    Note:The amount to be depreciated over the 5-year period is the cost of the asset plus the freight charges plus the construction of the foundation minus the estimated salvage value = $60,000 + $2,800 + $8,000 - $12,000 = $58,800. $58,800/5 years = $11,760 annual depreciation using the straight-line  method.
    (this multiple choice question has been scrambled)
  36. A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of $8,000 at the end of its useful life. The current year's depreciation expense is $4,000 calculated on the straight-line basis and the balance in the Accumulated Depreciation account at the end of the year is $20,000. The remaining useful life of the plant asset is
    A. 8 years.
    B. 5 years.
    C. 10 years.
    D. 3 years.
    D. 3 years.

    Note: $40,000 - $8,000 = $32,000 depreciable cost. $32,000/$4,000 = 8 year estimated useful life. If the Accumulated Depreciation account has a balance of $20,000, then the asset must be 5 years old ($20,000/$4,000). 8 years total life minus 5 years = 3 years remaining useful life.
    (this multiple choice question has been scrambled)
  37. Micah Bartlett Company purchased equipment on January 1, 2014, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2015, if the straight-line method of depreciation is used, is
    A. $80,000.
    B. $160,000.
    C. $78,000.
    D. $156,000.
    D. $156,000.

    Note: Accumulated depreciation will be the sum of two years of depreciation expense. Annual depreciation for this asset is ($400,000 - $10,000)/5 = $78,000. The sum of two years depreciation is $156,000 ($78,000 + $78,000).
    (this multiple choice question has been scrambled)
  38. Ann Torbert purchased a truck for $11,000 on January 1, 2014. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2015, can be computed by the following formula:
    A. ($10,000 / Total estimated activity) X Units of activity for 2015).
    B. ($11,000 / Total estimated activity) X Units of activity for 2014 and 2015.
    C. ($10,000 / Total estimated activity) X Units of activity for 2014 and 2015.
    D. ($11,000 / Total estimated activity) X Units of activity for 2015).
    C. ($10,000 / Total estimated activity) X Units of activity for 2014 and 2015.

    Note: The units-of-activity method takes salvage into consideration; therefore the depreciable cost is $10,000. This amount is divided by total estimated activity. The resulting number is multiplied by the units of activity used in 2014 and 2015 to compute the accumulated depreciation at the end of 2015, the second year of the asset's use.
    (this multiple choice question has been scrambled)
  39. Jefferson Company purchased a piece of equipment on January 1, 2014. The equipment cost $60,000 and had an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2015 under the double-declining-balance method?
    A. $15,000.
    B. $6,562.
    C. $11,250.
    D. $6,500.
    C. $11,250.

    Note: For the double-declining method, the depreciation rate would be 25% or (1/8 x 2). For 2014, annual depreciation expense is $15,000 = $60,000 (book value) x 25%; for 2015, annual depreciation expense is $11,250 = [($60,000-$15,000) x 25%].
    (this multiple choice question has been scrambled)
  40. Depreciable cost is the
    A. cost of an asset less its salvage value.
    B. book value of an asset.
    C. book value of an asset less its salvage value.
    D. cost of an asset less accumulated depreciation.
    A. cost of an asset less its salvage value.
    (this multiple choice question has been scrambled)
  41. The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the
    A. None of these answer choices are correct.
    B. units-of-activity method.
    C. straight-line method.
    D. declining-balance method.
    D. declining-balance method.
    (this multiple choice question has been scrambled)
  42. The method that ignores salvage value in determining the amount of depreciation until the final year of the asset's useful life is the
    A. declining-balance method.
    B. straight-line method.
    C. units-of-activity method.
    D. None of these answer choices are correct.
    A. declining-balance method.
    (this multiple choice question has been scrambled)
  43. Equipment was purchased for $800,000 on January 1, 2013. It has an estimated useful life of 8 years and a salvage value of $120,000. Depreciation is being computed using the straight-line method. What amount should be shown for the Equipment, net of accumulated depreciation, in the company's 2014 balance sheet?
    A. $715,000.
    B. $630,000.
    C. $510,000.
    D. $595,000.
    B. $630,000.

    Note: This response is incorrect as it deducts the salvage value ($120,000) and the accumulated depreciation, 2013 – 2014 ($170,000) from the cost of the equipment. Annual depreciation expense = Cost ($800,000) – salvage value ($120,000) / useful life (8 years) = $85,000. Accumulated depreciation, 2013 – 2014 = Annual depreciation expense ($85,000) x 2 years = $170,000. Amount of Equipment, net of accumulated depreciation at December 31, 2014 = Cost of equipment ($800,000) – accumulated depreciation, 2013 – 2014($170,000) = $630,000
    (this multiple choice question has been scrambled)
  44. change in the estimated useful life of equipment requires
    A. that the amount of periodic depreciation be changed in the current year and in future years.
    B. that no change be made in the periodic depreciation so that depreciation amounts are comparable over the life of the asset.
    C. that income for the current year be increased.
    D. a retroactive change in the amount of periodic depreciation recognized in previous years.
    A. that the amount of periodic depreciation be changed in the current year and in future years.

    Notes: A change in the estimated useful life of a plant asset is shown on the current and future years' financial statements; no retroactive adjustment is made.
    (this multiple choice question has been scrambled)
  45. Joe's Copy Shop bought equipment for $60,000 on January 1, 2013. Joe estimated the useful life to be 3 years with no salvage value, and the straight-line method of depreciation will be used. On January 1, 2014, Joe decides that the business will use the equipment for a total of 5 years. What is the revised depreciation expense for 2014?
    A. $10,000.
    B. $15,000.
    C. $8,000.
    D. $20,000.
    A. $10,000.

    Note:$60,000/3 years = $20,000 annual depreciation. The book value on January 1, 2014 is $40,000. $40,000/4 remaining years = $10,000 revised  depreciation expense for 2014.
    (this multiple choice question has been scrambled)
  46. When there is a change in estimated depreciation
    A. only future years' depreciation should be revised.
    B. previous depreciation should be corrected.
    C. None of the answer choices are correct.
    D. current and future years' depreciation should be revised.
    D. current and future years' depreciation should be revised.
    (this multiple choice question has been scrambled)
  47. True or False: A current liability is a debt that the company reasonably expects to pay from existing current assets.
    False
  48. The time period for classifying a liability as current is one year or the operating cycle, whichever is
    A. longer.
    B. probable.
    C. shorter.
    D. possible.
    A. longer.

    Note:Because some firms have an operating cycle longer than one year, the time period for classifying a liability as current is one year or the operating cycle, whichever is longer.
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  49. All of the following are current liabilities except
    A. unearned rental revenue.
    B. current maturities of long-term debt.
    C. sales taxes payable.
    D. all of these answer choices are current liabilities.
    D. all of these answer choices are current liabilities.
    (this multiple choice question has been scrambled)
  50. True or False: Notes payable due for payment within one year of the balance sheet date are usually classified as current liabilities.
    True
  51. Maggie Sharrer Company borrows $88,500 on September 1, 2014, from Sandwich State Bank by signing an $88,500, 12%, one-year note. What is the accrued interest at December 31, 2014?
    A. $4,425
    B. $3,540
    C. $2,655
    D. $10,620
    B. $3,540
    (this multiple choice question has been scrambled)
  52. RS Company borrowed $70,000 on December 1 on a 6-month, 12% note. At December 31
    A. neither the notes payable nor the interest payable is a current liability.
    B. both the notes payable and interest payable are current liabilities.
    C. the interest payable is a current liability but the notes payable is not.
    D. the notes payable is a current liability, but the interest payable is not.
    B. both the notes payable and interest payable are current liabilities.

    Note: Both the notes payable and interest payable are current liabilities. Notes due for payment within one year of the balance sheet date are usually classified as current liabilities.
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  53. True or False: Companies report any balance in an unearned revenue account as a current liability in the balance sheet.
    True
  54. A retail store did not ring up sales tax separately. If the
    sales tax rate is 5% and the total receipts amounted to $126,000, what
    is the amount of the sales taxes owed to the taxing agency?
    A. $6,300
    B. $126,000
    C. $6,000
    D. $120,000
    C. $6,000

    Note: The $126,000 includes both the sales and the sales tax. $126,000/1.05 = $120,000 of sales. Therefore, the sales tax = $126,000 - $120,000 = $6,000.
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  55. Janis Vick 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 Vick account for the cash received at the end of the engagement?
    A. No entry is required when the engagement is concluded.
    B. debit Cash and credit Service Revenue.
    C. debit Cash and credit Unearned Service Revenue.
    D. debit Prepaid Service Fees and Service Revenue.
    B. debit Cash and credit Service Revenue.

    Note: The cash received at the end of the engagement is recorded as a debit to Cash and a credit to Service Revenue.
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  56. Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%, the amount to be credited to Sales Revenue is
    A. $4,000.
    B. $4,289.25.
    C. $4,300.
    D. None of these answer choices are correct.
    C. $4,300.
    (this multiple choice question has been scrambled)
  57. Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on April 1. What amount should Sensible report as a current liability for Unearned Service Revenue at December 31?
    A. $18,000
    B. $4,500
    C. $13,500
    D. $0
    B. $4,500
    (this multiple choice question has been scrambled)
  58. The amount of sales tax collected by a retailer is recorded in the
    A. Sales Tax Expense account.
    B. Sales Revenue account.
    C. Sales Tax Revenue account.
    D. Sales Taxes Payable account.
    D. Sales Taxes Payable account.
    (this multiple choice question has been scrambled)
  59. Which of the following is not a payroll deduction?
    A. FICA taxes.
    B. Federal income tax.
    C. Federal unemployment taxes.
    D. State income tax
    C. Federal unemployment taxes.

    Note: Federal unemployment taxes are payroll taxes paid by the employer not the employee.
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  60. Employer payroll taxes do not include
    A. federal income taxes.
    B. federal unemployment taxes.
    C. state unemployment taxes.
    D. FICA taxes.
    A. federal income taxes.

    Note: This is one of the payroll taxes paid by employers.
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  61. True or False: Secured bonds, also called debenture bonds, are issued against the general credit of the borrower.
    False
  62. True or False: The market interest rate is the rate used to determine the amount of cash interest the borrower pays.
    False
  63. If a corporation issued $2,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
    A. $60,000
    B. $200,000
    C. $140,000
    D. $2,000,000
    C. $140,000

    Note: $2,000,000 X 10% X 70% after-tax rate = $140,000 annual net cash cost of borrowing.
    (this multiple choice question has been scrambled)
  64. Bond
    A. issuance must be approved by the board of directors.
    B. All of these answer choices are correct.
    C. contractual interest rate is also referred to as the stated rate.
    D. terms are set forth in a legal document called a bond indenture.
    B. All of these answer choices are correct.
    (this multiple choice question has been scrambled)
  65. The major disadvantages resulting from the use of bonds are that
    A. interest must be paid and the principal must be repaid.
    B. neither interest nor principal is tax deductible.
    C. interest is not tax deductible and the principal must be repaid.
    D. the principal is tax deductible and interest must be paid.
    A. interest must be paid and the principal must be repaid.
    (this multiple choice question has been scrambled)
  66. True or False: If the market rate of interest is lower than the contractual interest rate, the bonds will sell at a premium.
    True
  67. True or False: If the market rate of interest is lower than the contractual interest rate, the bonds will sell at a premium.
    True
  68. True or False: The sale of bonds above face value causes the total cost of borrowing to be more than the bond interest paid.
    False
  69. True or False: The sale of bonds above face value causes the total cost of borrowing to be more than the bond interest paid.
    False
  70. Premium on Bonds Payable
    A. is deducted from bonds payable on the balance sheet.
    B. is a contra account.
    C. is considered to be a reduction in the cost of borrowing.
    D. has a debit balance.
    C. is considered to be a reduction in the cost of borrowing.

    Note: The Premium on Bonds Payable account reduces interest expense as the premium is amortized over the life of the bonds. Therefore the premium is a reduction in the cost of borrowing.
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  71. Four-Nine Corporation issued bonds that pay interest every July 1 and January 1. The entry to accrue bond interest at December 31 includes a
    A. credit to Interest Payable.
    B. debit to Interest Payable.
    C. credit to Interest Expense.
    D. credit to Cash.
    A. credit to Interest Payable.
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  72. Discount on Bonds Payable
    A. is added to bonds payable on the balance sheet.
    B. increases over the term of the bonds.
    C. is a contra account.
    D. has a credit balance.
    C. is a contra account.
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  73. If the company issues a $100,000, 12%, 10-year bond, that pays interest semiannually when market interest rate is 10%, the bond would sell at an amount
    A. greater than face value.
    B. that cannot be determined based on the information given.
    C. equal to face value.
    D. less than face value.
    A. greater than face value.

    Note: If the market rate of interest is lower than the contractual rate of interest, investor's will have to pay more than face value for the bonds. In these cases, bonds will sell at a premium.
    (this multiple choice question has been scrambled)
  74. True or False: When the issuing company records a conversion of bonds into common stock, no gain or loss is recognized.
    True
  75. Bryce Company has $500,000 of bonds outstanding. The unamortized premium is $7,200. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
    A. $2,200 loss.
    B. $5,000 loss.
    C. $5,000 gain.
    D. $2,200 gain.
    D. $2,200 gain.

    Note: The carrying value of the bonds is $500,000 + $7,200 = $507,200. The cash used to retire the bonds is $505,000. Therefore the gain is $507,200 - $505,000 = $2,200.
    (this multiple choice question has been scrambled)

Card Set Information

Author:
nikkid080
ID:
321965
Filename:
Test Three Financial Accounting
Updated:
2016-07-20 04:56:19
Tags:
Financial
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Description:
Stark State Financial Accounting summer test 3
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