Chapter 9—Liabilities Key
1. Current liabilities are:
2. The journal entry to record the issuance of a note for the purpose of borrowing funds is:
3. The journal entry to record the payment of an ordinary note is:
4. The interest charged by the bank, at the rate of 9%, on a 3-month, discounted note payable for $100,000 is:
5. Grayson Bank agrees to lend the Trust Company $100,000 on January 1. Trust Company signs a $100,000,
12%, 9-month note. What entry will Trust Company make to pay off the note and interest at maturity assuming
that interest has been accrued to September 30?
6. Which of the following would most likely be classified as a current liability?
7. The amount of federal income taxes withheld from an employee’s gross pay is recorded as a:
8. The portion of long-term debt due within one year should:
9. Moore Company has the following information for the pay period of December 15 – 31, 2012:
Salaries
$18,000
Federal income tax
$2,700
State income tax
$2,160
FICA
$1,017
Salaries are paid on December 31, 2012. On December 31st, Cash would be recorded for:
10. Moore Company has the following information for the pay period of December 15 – 31, 2012.
Salaries
$18,000
Federal income tax
$2,700
State income tax
$2,160
FICA
$1,017
Salaries are paid on December 31, 2012. On December 31st, Salaries Expense would be recorded for:
11. Jensen Company
Jensen Company has the following information for the pay period of December 15 – 31, 2012:
Salaries
$10,000
Federal income tax
$1,500
State income tax
$1,200
FICA
$565
Refer to the information provided for Jensen Company. Salaries are paid on December 31, 2012. On December 31st, Cash would be recorded for:
12. Jensen Company
Jensen Company has the following information for the pay period of December 15 – 31, 2012:
Salaries
$10,000
Federal income tax
$1,500
State income tax
$1,200
FICA
$565
Refer to the information provided for Jensen Company. Salaries are paid on December 31, 2012. On December 31st, Salaries Expense would be
recorded for:
13. Long-term liabilities generally include:
14. Bonds are sold at a premium if the:
15. When will bonds sell at a discount?
16. When bonds are issued by a company, the accounting entry shows an:
17. When bonds are sold for less than the face amount, this means that the:
18. The Discount on Bonds Payable account is shown on the balance sheet as:
19. The Premium on Bonds Payable account is shown on the balance sheet as:
20. Paris Company issued bonds in the amount of $500,000 with a stated interest rate of 8%. If the interest is
paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the
life of the bonds?
21. When determining the amount of interest to be paid on a bond, which of the following information is
necessary?
22. On January 1, 2012, Action Inc. issued $1,000,000 of 10% bonds at face value. These bonds are due in 10
years with interest payable semi-annually on June 30 and December 31. What is the amount of interest paid in
2012?
23. On January 2, 2012, Senate Inc. issued $10,000,000 of 10-year, 9% bonds at 87. How much of the discount
will be amortized in the first year under the straight-line method?
24. If bonds were initially issued at a premium, the carrying value of the bonds on the issuer’s books will:
25. Which of the following statements regarding amortization is true?
26. On the issuance date, the Bonds Payable account had a balance of $80,000,000 and Premium on Bonds
Payable had a balance of $5,000,000. What was the issue price of the bonds?
27. Barnes Company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The bond markets
and the financial press are likely to report the bond issue price as:
28. If bonds are issued at 101.25, this means that:
29. The Collins Company sold $200,000 of 10-year bonds for $190,000. The stated rate on the bonds was 8%
and interest is paid annually on December 31. What entry would be made on December 31 when the interest is
paid? (Numbers are omitted.)
30. Bonds with a face amount $1,000,000, are sold at 106. The entry to record the issuance is:
31. Bonds with a face amount $1,000,000, are sold at 98. The entry to record the issuance is:
32. Victor Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will
show a:
33. The Miracle Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the
issuance will show a:
34. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would
sell at an amount:
35. Which of the following would describe a callable bond?
36. If a company’s bonds are callable:
37. Which of the following lease conditions would result in a capital lease to the lessee?
38. On January 2, 2012, Tech Metals Co. leased a mining machine from BX Leasing Corporation. The lease
qualifies as an operating lease. The annual payments are $50,000 at the end of each year, and the life of the
lease is 10 years. What entry would Tech Metals Co. make when the machine is delivered by BX Leasing
Corporation.?
39. Which of the following accounts would not appear on the balance sheet of a lessee company recording a
capital lease?
40. Which of the following statements regarding contingent liabilities is true?
41. International Corporation leased a building from Domestic Company. The 10-year lease is recorded as a
capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line
42. Rating Corporation’s balance sheet showed the following amounts for its liability accounts: Accounts
Payable, $100,000; Bonds Payable, $150,000; Taxes Payable, $20,000; and Deferred Income Tax Liability,
$5,000. Total assets was $500,000. The debt to assets ratio is:
43. Pointe Corporation’s balance sheet showed the following amounts for its liability accounts: Notes payable,
$130,000; Bonds Payable, $800,000; Accrued Expenses, $20,000; and Deferred Income Tax Liability,
$120,000. Total assets was $1,470,000. The debt to assets ratio is:
44. IBD Corporation has Current Assets of $200,000, Long Term Assets of $300,000, Current Liabilities of
$100,000, Long Term Liabilities of $200,000, Paid in Capital of $150,000, and Retained Earnings of $50,000.
Calculate IBD’s debt to assets ratio?
45. Britt Company
Selected data from Britt Company’s financial statements are provided below:
2012
2011
2010
Cash
$ 22,000
$ 14,000
$ 7,000
Accounts receivable
42,000
16,000
57,200
Inventory
22,000
83,000
50,000
Prepaid expenses
23,000
18,000
20,800
Total current assets
109,000
131,000
135,000
Total current liabilities
$ 65,000
$ 72,000
Net credit sales
221,000
326,000
Cost of goods sold
168,000
299,000
Net cash flows from operating activities
16,000
29,000
Refer to the selected financial data for Britt Company. Britt’s current ratio for 2012 is:
46. If a company’s current ratio is 3.0 and the current liabilities are $100,000, then the current assets are:
47. Faultless, Inc.
Selected data from Faultless’ financial statements are provided below:
2012
2011
Current Assets
$6,000
$3,000
Long-Term Assets
7,000
4,000
Current Liabilities
2,000
3,000
Long-Term Liabilities
7,000
0
Stockholders’ Equity
4,000
4,000
Net Sales
9,500
9,100
Net Income
1,000
500
Refer to the financial information presented for Faultless, Inc. What is the debt to assets ratio for Faultless in the year 2011 and 2012?
48. Refer to the financial information presented for Faultless, Inc. What is the company’s current ratio for
2012?
49. If current assets amount to $150, total assets are $350, current liabilities are $65, and total liabilities are
$100, then the current ratio is:
50. Bassell Enterprises has long-term assets of $800, current liabilities of $500, and long-term liabilities of
$600. If the current ratio is 2.5, then current assets must be:
51. Max’s Tire Center
Selected data from the financial statements of Max’s Tire Center are provided below.
2012
2011
Total liabilities
$ 150,000
$ 138,000
Current liabilities
45,000
42,000
Total liabilities & equity
500,000
490,000
Cash flow from operations
160,000
90,000
Net sales
370,000
360,000
Capital expenditures
80,000
30,000
Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a horizontal analysis of Max’s balance sheet?
52. Refer to the selected data provided for Max’s Tire Center. Which of the following would result from a
vertical analysis of Max’s balance sheet in 2012?
53. Time Value of Money Tables
Use the information provided in the time value of money tables in the text to answer the question(s) that follow.
Refer to the Time Value of Money Tables. Homestead Company issued $1,000,000, 7-year, 8%, bonds with
interest payable semiannually. The market rate was 6%. The issuance price of the bonds is:
54. Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of
the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue
price of the bond?
55. The bond issue price is determined by calculating the:
56. Under the effective interest method, the cash paid on each interest payment date will:
57. Which of the following statements about bond accounting under the effective interest method is correct?
58. If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective
interest method will:
59. Tyson Construction Inc.
Use the information provided for Tyson Construction Inc. to answer the following question(s) using the
effective interest method.
On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay
interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%.
Refer to the information provided for Tyson Construction Inc. The interest expense on the bonds at June 30,
2012 is:
60. Tyson Construction Inc.
Use the information provided for Tyson Construction Inc. to answer the following question(s) using the
effective interest method.
On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay
interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%.
Refer to the information provided for Tyson Construction Inc. Determine the cash interest to be paid on June
30, 2012.
61. Tyson Construction Inc.
Use the information provided for Tyson Construction Inc. to answer the following question(s) using the
effective interest method.
On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay
interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%.
Refer to the information provided for Tyson Construction Inc. What is the carrying value of the bonds after the
first interest payment is made on June 30, 2012?
62. Tyson Construction Inc.
Use the information provided for Tyson Construction Inc. to answer the following question(s) using the
effective interest method.
On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay
interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%.
Refer to the information provided for Tyson Construction Inc. What is the carrying value of the bonds at the
end of ten years before the final maturity payment is made?