Chapter 10 – Liabilities
CHAPTER 10 NAME #
10-MINUTE QUIZ B SECTION
Shown below is a summary of the annual payroll data of Rose Co.:
Wages and salaries expense (gross pay)
$2,250,000
Amounts withheld from employees’ pay:
Income taxes …………………………………………………..
$170,000
Social Security and Medicare …………………………...
$150,000
320,000
Payroll taxes expense:
Social Security and Medicare …………………………...
$150,000
Unemployment taxes ……………………………………….
58,000
208,000
Workers’ compensation premiums …………………………….
130,000
Group health insurance premiums (paid by employer)
252,000
Contributions to employees’ pension plan (paid by
employer and fully funded) ………………………………
140,000
Cost of other postretirement benefits:
Funded ……………………………………………………………
$90,000
Unfunded …………………………..…………………………...
120,000
210,000
1 Refer to the above data. Rose Company’s total payroll–related expense for the year is:
a $2,250,000. b $3,510,000. c $2,840,000. d $3,190,000.
2 Refer to the above data. Compute the company’s cash outlays during the year for
payroll-related costs. Assume short-term obligations such as insurance premiums and
payroll taxes have been paid.
a $2,750,000. b $3,070,000. c $1,930,000. d $3,510,000.
3 Refer to the above data. The annual ”take–home-pay” of Rose’ employees is:
a $2,520,000. b $2,250,000. c $1,930,000. d $2,750,000.
4 Refer to the above data Amounts paid during the year to retirees for pension and other
postretirement benefits total:
a $140,000. b $350,000. c $230,000. d None of above.
5 Refer to the above data. When a company has a fully-funded pension plan:
a The dollar amounts paid to retirees are greater than the amounts recognized as
pension expense by the employer.
b Pension expense is equal to the cash payments made to retirees during the current
period.
c No pension expense is recognized in the income statement.
d It does not use the services of a trustee to operate the pension plan.
Chapter 10 – Liabilities
Financial and Managerial Accounting, 17e 10-9
CHAPTER 10 NAME #
10-MINUTE QUIZ C SECTION
Seaview Industries received authorization on December 31, Year 1, to issue $7,000,000 face value of 6%,
10–year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par,
plus accrued interest, April 1, Year 2. The bonds are callable by Seaview Industries at any time at 102.
1 Prepare the journal entry to record issuance of the bonds on April 1, Year 2.
2 Prepare the journal entry to record the first semiannual interest payment on the bonds at June 30,
Year 2.
3 What is the amount of bond interest expense that appears in Seaview’s Year 2 income statement
relating to these bonds?
$_________________________
4 What is the amount of accrued bond interest expense that appears in Seaview’s balance sheet at
December 31, Year 2, with respect to these bonds?
$_________________________
5 Seaview exercises the call provision and retires one-half of the bond issue on July, 1, Year 4.
Prepare the journal entry to record this transaction on July 1, Year 4.
Chapter 10 – Liabilities
CHAPTER 10 NAME #
10-MINUTE QUIZ D SECTION
On December 1, 2009, Fisher Corporation incurs a 30-year, $400,000 mortgage liability upon
purchase of a warehouse. This mortgage is payable in monthly installments of $4,116, which include
interest computed at the rate of 12% per year. The first monthly payment is made on December 31,
2009.
1 How much of the first payment made on December 31, 2009, is allocated to repayment of principal?
$________
2 What is the total liability related to this mortgage to be reported in Fisher’s balance sheet at December
31, 2009? (Do not separate into current and long-term portions.)
$________
3 The portion of the second monthly payment made on January 31, 2010, which represents interest
expense is: $________
4 What is the aggregate amount paid by Fisher over the 30-year life of the mortgage?
$________
5 Over the 30–year life of the mortgage, the total amount Fisher will pay for interest charges is
$________
Chapter 10 – Liabilities
Financial and Managerial Accounting, 17e 10–11
SOLUTIONS TO CHAPTER 10 10-MINUTE QUIZZES
QUIZ A QUIZ B
QUIZ C
1
Cash …………………………………………………………………………………….. 7,105,000
Bonds Payable ………………………………………………………………….. 7,000,000
Bond Interest Payable ……………………………………………………….. 105,000
Issued $7,000,000 face value bonds at par,
plus three months’ accrued interest.
($7,000,000 x 6% x 3/12 = $105,000)
3
Chapter 10 – Liabilities
QUIZ D
Chapter 10 – Liabilities
Assignment Guide to Chapter 10
Brief
Exercises
Exercises
Cases
Net
1-10
1-15
1
2
3
4
5
6
7
8
1
2
3
4
5
Time estimate (in minutes)
<15
<15
40
40
25
30
30
30
40
40
30
20
25
20
20
Difficulty rating
E
E
M
M
S
M
M
M
M
M
M
S
M
M
S
Learning Objectives:
2, 3
√
√
1. Define liabilities and distinguish between
current and long-term liabilities.
2. Account for notes payable and interest
expense.
1
2, 3
3. Describe the costs and the basic
accounting activities relating to payrolls.
2, 4, 5
4. Prepare an amortization table allocating
payments between interest and principal.
1, 2, 3, 6
5. Describe corporate bonds and explain
the tax advantage of debt financing.
2
2, 3, 7, 8, 9, 10
√
√
6. Account for bonds issued at a discount
or premium.
3, 4, 5, 6, 8
2, 3, 9, 10
√
√
7. Explain the concept of present value as it
relates to bond prices.
8. Explain how estimated liabilities, loss
contingencies, and commitments are
disclosed in financial statements.
3
9. Evaluate the safety of creditors’ claims.
7
11, 15
10.
Describe reporting issues related to
leases, postretirement benefits, and
deferred taxes.
9, 10
12, 13, 14