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Exam 10: Liabilities

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Question 101

Multiple Choice

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Any balance in an unearned revenue account is generally reported as a(n)

A) current liability.
B) long-term debt.
C) revenue.
D) unearned liability.

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

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Question 102

Multiple Choice

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When the effective-interest method of bond premium amortization is used, the

A) amount of premium amortized will get larger with successive amortization.
B) carrying value of the bonds will increase with successive amortization.
C) interest paid to bondholders will increase after each interest payment date.
D) interest rate used to calculate interest expense will be the contractual rate.

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

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Question 103

True/False

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The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment.

The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

Reliable Insurance Company collected a premium of $36,000 for a 1-year insurance policy on May 1.What amount should Reliable report as a current liability for Unearned Insurance Revenue at December 31?

The carrying value of bonds will equal the market price

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

A bond discount must

Kingery Sales Company has the following selected accounts after posting adjusting entries: Instructions Prepare the current liability section of Kingery Sales Company's balance sheet, assuming $16,000 of the mortgage is payable next year.

A company whose current liabilities exceed its current assets may have a liquidity problem.

On January 1, 2021, Morris Enterprises issued 9%, 5-year bonds with a face amount of $900,000 at par.Interest is payable annually on January 1. Instructions Prepare the entries to record the issuance of the bonds and the first annual interest accrual on December 31.

Sales taxes collected by the retailer are recorded as a(n)

A corporation issues $500,000, 8%, 10-year bonds on January 1, 2021 for $479,000.Interest is paid annually on January 1.If the corporation uses the straight-line method of amortizing bond discounts, the amount of bond interest expense to be recognized on December 31, 2021, is

Valerie's Salon has total receipts for the month of $20,670 including sales taxes.If the sales tax rate is 6%, what are Valerie's sales for the month?

The interest charged on a $400,000, 90-day note payable, at the rate of 8%, would be

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

On January 1, Dade Corporation issued $3,000,000, 7%, 5-year bonds with interest payable on December 31.The bonds sold for $3,216,288.The market rate of interest for these bonds was 6%.On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for

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

On January 1, 2021, Bose Company issued bonds with a face value of $600,000.The bonds carry a stated interest of 7% payable each January 1. Instructions a.Prepare the journal entry for the issuance assuming the bonds are issued at 95. b.Prepare the journal entry for the issuance assuming the bonds are issued at 105.

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