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Accounting 1210 Quiz Three - Chapter 10 and 15 1. A determinable liability is one which a. has uncertainty with the timing of the due date b. has uncertainty about the amount which is owed c. has a known payee d. has an amount which is due within one year. 2. The relationship of current assets to current liabilities is used in evaluating a company's a. profitability. b. revenue-producing ability. c. short-term debt paying ability. d. long-range solvency. 3. A note payable is in the form of a. a contingency that is reasonably likely to occur. b. a written promissory note. c. an oral agreement. d. a standing agreement. 4. As is a. b. c. d. interest is recorded on an interest-bearing note, the Interest Expense account increased; the Notes Payable account is increased. increased; the Notes Payable account is decreased. increased; the Interest Payable account is increased. decreased; the Interest Payable account is increased. 5. HST (goods and services tax) collected by a retailer is recorded by a. crediting HST Recoverable. b. debiting HST Expense. c. crediting HST Payable. d. debiting GST Payable. 6. Property taxes are generally based on a. income before tax. b. property values. c. gross sales. d. gross wages. 7. The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense a. when the product is brought in for repairs. b. in the period in which the product was sold. c. at the end of the warranty period. d. only if the repairs are expected to be made within one year. 1 8. Under Canadian GAAP for Private Enterprises a contingent liability must be accrued in the financial statements if a. it can be reasonably estimated and unlikely to occur. b. it can be reasonably estimated and likely to occur. c. it is likely to occur but cannot be reasonably estimated. d. the amount of the potential loss is greater than the balance in the cash account. 9. Under IFRS, if the company has a contingent liability a. the amount must be disclosed in the notes but not disclosed on the balance sheet b. the amount must be disclosed in the notes and shown on the balance sheet c. The amount should be shown on the balance sheet but not disclosed in the notes d. The amount should not be disclosed on either the balance sheet or in the notes. 10. Gross earnings a. is the net compensation received by employees. b. is the total wage cost for an employee. c. excludes any bonuses paid to employees. d. is the total compensation earned by an employee. 11. Which one of the following payroll costs does not result in an expense for the employer? a. CPP (Canada Pension Plan) b. Federal and provincial personal income tax c. Employment Insurance (EI) d. QPP (Quebec Pension Plan) 12. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that a. bond interest is deductible for tax purposes. b. interest must be paid on a periodic basis regardless of earnings. c. income to shareholders may increase as a result of trading on the equity. d. the bondholders do not have voting rights. 13. Shareholders of a company may be reluctant to finance expansion through issuing more equity because a. leveraging with debt is always a better idea. b. their earnings per share may decrease. c. the price of the shares will automatically decrease. d. dividends must be paid on a periodic basis. 14. Bonds that can be retired by the issuer at a stated dollar amount before they mature are known as a. redeemable bonds. b. convertible bonds. c. retractable bonds. d. bearer bonds. 2 15. Bonds that mature at a single specified future date are called a. coupon bonds. b. term bonds. c. serial bonds. d. debentures. 16. The contractual rate of interest is always stated as a(n) a. monthly rate. b. daily rate. c. semi-annual rate. d. annual rate. 17. The present value of a bond is also known as its a. face value. b. deferred value. c. future value. d. market price. 18. A $1,000 face value bond with a quoted price of 97 is selling for a. $1,000. b. $970. c. $907. d. $97. 19. $5 million, 5%, 10-year bonds are issued at face value. Interest will be paid semiannually. When calculating the market price of the bond, the present value of a. $500,000 received for 10 periods must be calculated. b. $5 million received in 10 periods must be calculated. c. $5 million received in 20 periods must be calculated. d. $250,000 received for 10 periods must be calculated. 20. The carrying value of bonds will equal the market price a. at the close of every trading day. b. at the end of the fiscal period. c. on the date of issue. d. every six months on the date interest is paid. 21. Which is one of the main differences between a note payable and a bond payable a. a fixed maturity date b. interest payments c. security d. not usually traded on a public stock exchange 3 22. 23. The entry to record an installment payment on a long-term note payable is a. Mortgage Notes Payable Cash b. Interest Expense Cash c. Mortgage Notes Payable Interest Expense Cash d. Bonds Payable Cash A lease where the intent is temporary use of the property by the lessee and the lessor retains the risks and rewards of ownership is called a. off-balance sheet financing. b. an operating lease. c. a capital or finance lease. d. a purchase of property. 24. When the discount on bonds is amortized, the annual interest expense will a. remain the same over all interest periods. b. increase each interest period. c. decrease each interest period. d. fluctuate depending on the market rate of interest. 25. A company's creditors would be MOST interested in its a. debt to total assets ratio. b. interest coverage ratio. c. liquidity. d. solvency. 26. Seaboard Company receives its annual property tax bill of $18,660 for the 2014 calendar year on May 31, 2014, and it is payable on July 31, 2014. Seaboard has a December 31 fiscal year end. Instructions: a) Prepare the journal entries on May 31, July 31, and December 31, 2014, assuming that the company makes monthly adjusting entries. (Assume property tax expense in 2013 was $1,475 per month.) b) What is recorded on Seaboard's December 31, 2014, balance sheet and income statement for the year ended December 31, 2014, in regard to property taxes? 27. On April 1, Hoadley Company borrows $90,000 from Northwest Provincial Bank by signing a 6-month, 10%, interest-bearing note. Hoadley's year end is August 31. 4 Instructions Prepare the following necessary entries associated with the note payable on the books of Hoadley Company: (a) The entry on April 1 when the note was issued. (b) Any adjusting entries necessary on May 31 in order to prepare the quarterly financial statements. Assume no other interest accrual entries have been made. (c) The adjusting entry at August 31 to accrue interest. (d) The entry to record payment of the note at maturity. 28. During April 2011, DMZ Company incurred the following transactions. This is DMZ's first period of operations, and they plan to use the periodic method of accounting for inventory. Apr 1 Purchased a new automobile for $36,500; the automobile was paid for with a 2year 5% note payable. Interest is due monthly on the 1st day of each month and the principal due as follows: 50% due in 1 year, the remainder due in 2 years. Apr 5 Sold merchandise to Customer A on account for $72,000 plus 5% GST; terms n/30. Apr 6 Customer A returns one-half of the merchandise purchased on Apr 5 and receives a credit on account. Apr 13 Customer A paid their account balance in full. Apr 25 Sold merchandise to Customer B for $102,900 including 5% GST; terms n/30. Apr 28 Received $22,000 from Customer C for services to be provided in May. Apr 30 Recorded any adjusting entries required related to April transactions. In addition to liabilities arising from the above transactions, DMZ's Accounts Payable balance at April 30, 2011 is $65,000. Instructions: (a) (b) Record the above transactions. Prepare the current liabilities portion of DMZ's balance sheet at April 30, 2011. 29. Duane Herman sells exercise machines for home use. The machines carry a 4-year warranty. Past experience indicates that 6% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $45 for labour and $75 for parts per unit. During 2012, 2,500 exercise machines were sold at an average price of $800. During the year, 60 of the machines that were sold were repaired at the average price per unit. The opening balance in the Warranty Liability account is zero. Instructions (a) Prepare the journal entry to record the repairs made under warranty. (b) Prepare the journal entry to record the estimated warranty expense for the year. Determine the balance in the Warranty Liability account at the end of the year 30. 5 Taylor Company's payroll for the week ending January 15 amounted to $50,000 for Office Salaries and $120,000 for Store Wages. The following deductions were withheld from employees' salaries and wages: Federal and Provincial Income Taxes.......................................... $41,600 CPP............................................................................................. 5,420 EI................................................................................................ 4,590 Union Dues................................................................................. 1,800 United Way.................................................................................. 1,200 Instructions Prepare the journal entry to record the weekly payroll ending January 15 and also the employer's benefits expense on the payroll. 31. On January 1, 2010, Andrews Corporation issued $900,000, 8%, 5-year bonds dated January 1, 2010, at to yield 9%. The bonds pay semi-annual interest on January 1 and July 1. The company has a December 31 year end. Instructions (a) Calculate the selling price of the bond. (b) Prepare all the journal entries that Andrews Corporation would make related to this bond issue through January 1, 2011. 32. On January 1, 2010, Callahan Corporation issued $600,000, 9%, 5-year bonds, dated January 1, 2007, at 104. The bonds pay interest semi-annually on January 1 and July 1. The company has a December 31 year end. Assume amortization of $1,700 and $2,100 respectively for the first two semi-annual interest periods. Instructions Prepare the journal entries that Callahan Corporation would make related to the bond issue on the dates indicated below: January 1, 2010, July 1, 2010, December 31, 2010, January 1, 2011 33. Hanna Manufacturing Limited receives $240,000 on January 1, 2010 when it issues a 6%, 3-year note payable to finance the purchase of equipment. The terms provide for annual payments each December 31. The first payment is due December 31, 2010. Instructions Prepare the journal entries to record the note and the first two installment payments assuming: (a) the payment is a fixed principal payment of $80,000. (b) the payment is a blended payment of $89,786.76. 34. Presented below are two independent situations: (a) Hillman Corporation purchased $150,000 of its bonds on June 30, 2011, at 102 and immediately retired them. The amortized cost of the bonds on the retirement date 6 was $137,700. The bonds pay semi-annual interest and the interest payment due on June 30, 2011, has been made and recorded. (b) Dalton, Inc. purchased $200,000 of its bonds at 96 on June 30, 2011, and immediately retired them. The amortized cost of the bonds on the retirement date was $196,500. The bonds pay semi-annual interest and the interest payment due on June 30, 2011, has been made and recorded. Instructions For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds. 35. Three plans for financing a $20,000,000 corporation are under consideration by its organizers. The bonds will be issued at their face value and the income tax rate is estimated at 30%. 6% Bonds $8 Preferred Shares, issued at $100 Common Shares, issued at $10 Total Plan 1 $20,000,000 $20,000,000 Plan 2 $10,000,000 10,000,000 $20,000,000 Plan 3 $10,000,000 5,000,000 5,000,000 $20,000,000 It is estimated that profit before interest and taxes will be $4,000,000. Instructions For each plan, determine the expected profit and the earnings per share. END OF QUIZ 7