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Exam 7: Accounting for Liabilities

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Question 21

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The post-closing trial balance of Chest Company includes the following account balances as of the end of the year: $\begin{array}{lr}\text {Cash}&\$20,000\\\text {Marketable secuxities}&32,000\\\text {Account receivable}&48,000\\\text {Inventory}&80,000\\\text { Equipment } & 140,000 \\\text { Accumulated depreciation } &\$88,000 \\\text { Land } & 200,000 \\\text { Accounts payable } &72,000 \\\text { Unearned revenue } & 8,000 \\\text { Motes payable - due in } 6 \text { months } &40,000 \\\text { Bonds payable - due in 20 years}&80,000\\\text { Common stock}&100,000\\\text { Retained earnings}&132,000\end{array}$ Required: Use the trial balance of Chester Company to prepare the current assets and current liabilities sections of Chester's balance sheet at December 31, Year 1.

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Current assets:
- Cash: $20,000
- Market...

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Question 22

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The effective interest rate method of amortizing bond premium or discount results in a constant amount of interest expense every period.

A) True
B) False

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Question 23

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Joseph Company is preparing to repay a one-year note on May 1, Year 1. The first step in this process is to accrue eight months of interest expense.

Houston Company borrowed $20,000 from Dallas Company on March 1, Year 1. Houston is to repay the principal and interest on March 1, Year 2. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Houston's Year 1 financial statements?

Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%:

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, Flagler Corporation signed a contract with City Bank for a line of credit that permitted Flagler to borrow up to $50,000. Indicate the effects of signing this contract.

Baby Beach Company experienced an event that had the following effects on its financial statements. -Which of the following events could have caused these effects?

Jones Company issued bonds with a $290,000 face value on January 1, Year 1. The five-year term bonds were issued at 98 and had a 7.00% stated rate of interest that is payable in cash on December 31^st of each year. Jones amortizes the bond discount using the straight-line method. Based on this information:The amount of cash outflow from operating activities shown on Jones's December 31, Year 2 statement of cash flows would be:

In September of Year 1, Hansen Company issued a note payable to borrow money from its bank. Principal and interest on the note would come due in June Year 2. Interest expense on this note must be accrued at the end of Year 1 for the period from issuance of the note to the last day of the accounting period.

Compute the amount of cash a company will receive from the following bond issues.________ Issued $200,000 of 5-year, 8% bonds at 98.________ Issued $800,000 of 4-year, 9% bonds at 95.________ Issued $400,000 of 10-year, 8% bonds at 102 ½.________ Issued $100,000 of 5-year, 12% bonds at 103.

How do the issuance of a note payable, accrual of interest, and repayment of the note's principal and interest each affect a company's Statement of Cash Flows?

If a company uses the effective interest method of amortizing a bond discount, the interest expense that is recognized each year will:

A line of credit is an agreement that allows a company to borrow a set amount of money for a period of two to five years.

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, Torrance Company issued $100,000 of bonds at face value. Interest is paid in cash on December 31 of each year. Indicate the effects of the payment of interest on December 31, Year 1.

A classified balance sheet is one that distinguishes between operating and non-operating assets.

What is the purpose of establishing a line of credit?

Bluestone Company issued bonds with a face value of $500,000 on January 1, Year 1 at 90. How would this event affect the company's financial statements?

Which of the following is a claims exchange transaction?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAAllen Company purchased a $30,000 machine by making a $5,000 cash down payment and issuing a $25,000 note payable for the remaining balance.

Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue: