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Exam 10: Liabilities

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Question 81

Multiple Choice

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The amortization of a bond premium:

A) Decreases the carrying amount of a bond and increases interest expense.
B) Decreases the carrying amount of a bond and decreases interest expense.
C) Increases the carrying amount of a bond and increases interest expense.
D) Increases the carrying amount of a bond and decreases interest expense.

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Question 82

Multiple Choice

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Each of the following must be disclosed in the financial statements, except:

A) The total amounts of long-term debt maturing in each of the next five years.
B) The company's debt ratio and interest coverage ratio for the current year.
C) Provisions, when a reasonable possibility exists that a material loss has been incurred.
D) The fair value of noncurrent liabilities when this value is significantly different from the amount shown in the statement of financial position.

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Question 83

Multiple Choice

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On 1 November of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:

In estimating annual pension expense, which of the following factors would not be taken into consideration?

Sinking funds usually appear on the statement of financial position as:

When a company sells bonds between interest dates they will pay which of the following at the first interest payment date?

A commitment, such as a contract to pay a football player $50,000,000 a year for five years, should be listed as a noncurrent liability.

When bonds are issued at a discount, the borrower must pay more at maturity than the amount originally received.

Junk bonds are attractive to investors because they carry a high rate of interest and are usually convertible into a specified number of shares.

Contingent liabilities stem from past events.

On 1 April, year 1, Cricket Corporation issues $60 million of 12%, 10-year bonds payable at par. Interest on the bonds is payable semiannually each 1 April and 1 October. -Interest expense on this bond issue reported in Cricket's year 1, income statement is:

On 1 November, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately. -How much must Noble pay South Bank on 1 May, Year 2, when the note matures?

On 1 March 2011, five-year bonds are sold for $508,026 that have a face value of $500,000 and an interest rate of 10%. Interest is paid semi-annually on 1 March and 1 September. Using the straight-line amortization method, prepare the borrower's journal entries on 1 March 2011 1 September 2011 31 December 2011 1 March 2012

The average employee of Girard Corporation earns gross pay of $175,000 per year. The following table shows the relative size of various payroll amounts by expressing each as a percentage of total wages and salaries expense (gross pay) : $\begin{array} { | l | l | } \hline \text { Workers' compensation insurance } & 6 \% \\\hline \begin{array} { l } \text { Social security and medical care taxes } \\\text { (employer's portion) }\end{array} & 8 \% \\\hline \begin{array} { l } \text { Pension and other postretirement costs } \\\text { expense (paid by employer) }\end{array} & 5 \% \\\hline \text { Unemployment taxes expense } & 2 \% \\\hline\end{array}$ In addition, Girard pays $825 per month per employee for group health insurance. -Which of the following is the largest payroll-related expense incurred by Girard?

Is the present value of an amount

The 31 December 2014, adjusting entry for this note includes:

On 1 September, 2014, Able Company purchased a building from Regal Corporation by paying $2,000,000 cash and issuing a one-year note payable for the balance of the purchase price. Interest on the note is stated at an annual rate of 9% and is paid at maturity. In its 31 December 2014, statement of financial position, Able correctly presented the note and interest payable as follows $\begin{array} { | l | l | } \hline \text { Interest payable } & \$ 180,000 \\\hline \text { Notes payable, 9\%, due 1 September 2015 } & \$ 6,000,000 \\\hline\end{array}$ -The adjusting entry at 31 December 2014, with respect to this note included:

Fully amortizing installment notes

Operating and finance leases Berkeley Corporation wants to expand operations and is considering various leasing arrangements for additional equipment. Berkeley's management has heard the terms finance lease and operating lease mentioned by the accounting department and wants clarification of these terms before signing any lease contracts. (a) Briefly explain the difference between a finance lease and an operating lease from a lessee's (Berkeley's) point of view. Your answer should include the financial statement impact of each type of lease. (b) How does a lessee determine whether a specific lease contract is an operating lease or a finance lease? Include at least three of the indicators or situations of a finance lease specified by IAS 17 in your answer. (c) Which of the above two types of leases is sometimes referred to as "off-balance-sheet financing?" Briefly explain.

Off balance sheet financing may involve either: