Question 1

A company purchases inventory costing $8,000 by issuing a one-year, 10% short-term note payable. What is the total amount of cash the company will pay at maturity, including interest?

Accepted Answer

$8,800

Question 2

Home Depot makes cash sales totaling $200,000 and collects a 5% sales tax. What is the correct journal entry to record the day's sales and sales tax?

Accepted Answer

Debit Cash $$210,000; Credit Sales Revenue 200$$,000; Credit Sales Tax Payable $10,000

Question 3

Which of the following is NOT considered a payroll liability?

Accepted Answer

Sales Tax Payable

Question 4

Wortham Publishing sold a one-year subscription for $2,400 plus 9% sales tax. How much cash did the company collect at the time of sale?

Accepted Answer

$2,616

Question 5

A company estimates that 3% of its $100,000 sales will require warranty repairs. What is the journal entry to record the estimated warranty expense?

Accepted Answer

Debit Warranty Expense $$3,000; Credit Estimated Warranty Payable 3$$,000

Question 6

If a contingent liability is probable and the amount can be reasonably estimated, what is the appropriate accounting treatment?

Accepted Answer

Accrue the liability in the financial statements

Question 7

A company issues $$100,000 of 9% five-year bonds when the market interest rate is 10%. The bonds are issued at a discount for 96$$,149. What is the amount of the discount on bonds payable?

Accepted Answer

$3,851

Question 8

Which method divides the total bond discount or premium into equal periodic amounts over the bond's term?

Accepted Answer

Straight-Line Amortization Method

Question 9

A $1,000 face value bond is quoted at 101.5. What is the amount received by the issuer?

Accepted Answer

$1,015

Question 10

If the stated interest rate on a bond is 8% and the market rate is 10%, at what price will the bond be sold?

Accepted Answer

At a discount

Question 11

Which of the following best describes the carrying amount of a bond issued at a discount as it approaches maturity?

Accepted Answer

It increases toward the face value

Question 12

A company issues $$100,000 of 9% five-year bonds at a premium for 104$$,100 when the market rate is 8%. What is the journal entry to record the issuance?

Accepted Answer

Debit Cash $$104,100; Credit Bonds Payable 100$$,000; Credit Premium on Bonds Payable $4,100

Question 13

Using the effective interest method, how is the interest expense for a bond calculated for a period?

Accepted Answer

Multiply the market interest rate by the carrying amount of the bond

Question 14

A company accrues interest expense of $600 on a short-term note payable at year-end. What is the correct journal entry?

Accepted Answer

Debit Interest Expense $$600; Credit Interest Payable 600$$

Question 15

Which of the following is true about the current portion of long-term debt?

Accepted Answer

It is the amount of principal payable within one year

Question 16

Black & Decker estimated $$3,000 in warranty expense for the year and replaced defective products costing 2$$,800. What is the balance in Estimated Warranty Payable after these transactions?

Accepted Answer

$200

Question 17

Which of the following contingent liabilities should be disclosed in the notes but not accrued?

Accepted Answer

Reasonably possible contingent liabilities

Question 18

A company issues $50,000 of 9% bonds at par. What is the semiannual interest payment?

Accepted Answer

$2,250

Question 19

Which of the following statements about bond premium amortization is correct?

Accepted Answer

The carrying amount of the bond decreases toward face value as the premium is amortized

Question 20

A company pays $2,250 in interest on January 1 for bonds issued at par. What is the correct journal entry?

Accepted Answer

Debit Interest Payable $$2,250; Credit Cash 2$$,250

Liabilities: Current, Contingent, and Long-Term (Bonds) – Financial Accounting Study Notes

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