Solved by verified expert :1.
Auerbach Inc. issued 10% bonds on
October 1, 2013. The bonds have a maturity date of September 30, 2023 and a
face value of $600 million. The bonds pay interest each March 31 and
September 30, beginning March 31, 2014. The effective interest rate
established by the market was 12%.
Assuming that Auerbach issued the
bonds for $531,180,000, what would the company report for its net bond
liability balance at December 31, 2013, rounded to the nearest thousand? (Do
not round your intermediate calculation.)
$532,115,000
$516,180,000
$546,180,000
$599,000,000
2.
On June 30, 2013, Hardy Corporation
issued $9.0 million of its 12% bonds for $8.2 million. The bonds were priced
to yield 14%. The bonds are dated June 30, 2013, and mature on June 30, 2020.
Interest is payable semiannually on December 31 and July 1. If the effective
interest method is used, by how much should the bond discount be reduced for
the six months ended December 31, 2013?
$23,000
$34,000
$32,500
$40,500
3.
On January 1, 2013, Zebra Corporation
issued 1,800 of its 11%, $1,000 bonds at 97.7. Interest is payable
semiannually on January 1 and July 1. The bonds mature on January 1, 2023.
Zebra paid $52,000 in bond issue costs. Zebra uses the straight-line amortization
method. What is the bond carrying value reported in the December 31, 2013,
balance sheet?
$1,762,740.
$1,782,740.
$3,292,000.
$3,240,000.
4.
On January 1, 2013, an investor paid
$298,000 for bonds with a face amount of $318,000. The contract rate of interest
is 11% while the current market rate of interest is 14%. Using the effective
interest method, how much interest income is recognized by the investor in
2014 (assume annual interest payments and amortization)? (Round your answer
to the nearest dollar amount.)
$32,780.
$38,804.
$42,664.
$41,720.
5.
On April 1, 2013, Austere Corporation
issued $350,000 of 13% bonds at 107. Each $1,000 bond was sold with 50
detachable stock warrants, each permitting the investor to purchase one share
of common stock for $16. On that date, the market value of the common stock
was $12 per share and the market value of each warrant was $4. Austere should
record what amount of the proceeds from the bond issue as an increase in
liabilities?
rev:
04_15_2013_QC_29302
$229,000
$0
$429,800
$304,500
6.
Nickel Inc. bought $500,000 of
3-year, 8% bonds as an investment on December 31, 2012 for $540,000. Nickel
uses straight-line amortization. On May 1, 2013, $100,000 of the bonds were
redeemed at 116. How much, and what type of gain or loss, most likely results
from this redemption? (Do not round your intermediate calculation.)
rev: 11_28_2012
$8,889 ordinary loss.
$8,889 ordinary gain.
$8,889 extraordinary gain.
$8,889 extraordinary loss.
7.
On March 1, 2013, E Corp. issued
$1,000,000 of 9% nonconvertible bonds at 101, due on February 28, 2023. Each
$1,000 bond was issued with 25 detachable stock warrants, each of which
entitled the holder to purchase, for $80, one share of Evan’s $20 par common
stock. On March 1, 2013, the market price of each warrant was $6. By what
amount should the bond issue proceeds increase shareholders’ equity?
$0.
$150,000.
$166,000.
$10,000.
8.
On January 1, 2008, F Corp. issued
2,500 of its 9%, $1,000 bonds for $2,596,000. These bonds were to mature on
January 1, 2018, but were callable at 101 any time after December 31, 2011.
Interest was payable semiannually on July 1 and January 1. On July 1, 2013, F
called all of the bonds and retired them. The bond premium was amortized on a
straight-line basis. Before income taxes, F’s gain or loss in 2013 on this
early extinguishment of debt was:
$25,000 loss.
$73,000 gain.
$18,200 gain.
$27,800 gain.
9.
During 2013 Marquis Company was
encountering financial difficulties and seemed likely to default on a $320,000,
9%, four-year note dated January 1, 2011, payable to Third Bank. Interest was
last paid on December 31, 2012. On December 31, 2013, Third Bank accepted
$260,000 in settlement of the note. Ignoring income taxes, what amount should
Marquis report as a gain from the debt restructuring in its 2013 income
statement?
$31,200.
$88,800.
$0.
$60,000.
10.
What
is the effective interest rate (rounded) on a 3-month, non interest-bearing
note with a stated rate of 12.7% and a maturity value of $208,000?
13.1%
3.18%
12.2%
12.7 %
11.
On June 1, 2013, Dirty Harry Co.
borrowed cash by issuing a 6-month noninterest-bearing note with a maturity
value of $480,000 and a discount rate of 9%. Assuming straight-line
amortization of the discount, what is the carrying value of the note as of
September 30, 2013? (Round all calculations to the nearest whole dollar
amount.)
$472,800.
$444,000.
$458,400.
$516,000.
12.
On January 1, 2013, G Corporation
agreed to grant all its employees two weeks paid vacation each year, with the
stipulation that vacations earned each year can be taken the following year.
For the year ended December 31, 2013, G’s employees each earned an average of
$770 per week. A total of 590 vacation weeks earned in 2013 were not
taken during 2013. Wage rates for employees rose by an average of 8 percent
by the time vacations actually were taken in 2014. What is the amount of G’s
2014 wages expense related to 2013 vacation time?
$36,344
$0
$454,300
$490,644
13.
Peterson
Photoshop sold $1,400 in gift cards on a special promotion on October 15,
2013, and sold $2,100 in gift cards on another special promotion on November
15, 2013. Of the cards sold in October, $140 were redeemed in October, $350
in November, and $420 in December. Of the cards sold in November, $210 were
redeemed in November and $490 were redeemed in December. Peterson views the
probability of redemption of a gift card as remote if the card has not been
redeemed within two months. At 12/31/2013, Peterson would show an unearned
revenue account for the gift cards with a balance of:
$0
$2,100
$1,400
$1,890
14.
Clark’s Chemical Company received
customer deposits on returnable containers in the amount of $101,000 during
2013. Eleven percent of the containers were not returned. The deposits are
based on the container cost marked up 15%. What is cost of goods sold
relative to this forfeiture? (Round your final answer to the nearest whole
dollar amount.)
$9,661.
$74,067.
$1,449.
$0.
15.
Slotnick Chemical received customer
deposits on returnable containers in the amount of $230,000 during 2013.
Fifteen percent of the containers were not returned. The deposits are based
on the container cost marked up 15%. How much profit did Slotnick realize on
the forfeited deposits? (Round your final answer to the nearest whole dollar
amount.)
$4,500.
$34,500.
$0.
$5,175.
16.
Funzy Cereal includes one coupon in
each package of Wheatos that it sells and offers a toy car in exchange for
$2.00 and 4 coupons. The cars cost Funzy $2.50 each. Experience indicates
that 30% of the coupons eventually will be redeemed. During the last month of
2013, the first month of the offer, Funzy sold 10.50 million boxes of Wheatos
and 2.50 million of the coupons were redeemed. What amount should Funzy
report as a promotional expense for coupons on its December 31, 2013, income
statement?
$1,575,000.
$ 0.
$393,750.
$196,875.
17.
Captain Cook Cereal includes one
coupon in each package of Granola that it sells and offers a puzzle in exchange
for $2.70 and 2 coupons. The puzzles cost Captain Cook $3.30 each. Experience
indicates that 25% of the coupons eventually will be redeemed. During the
last month of 2013, the first month of the offer, Captain Cook sold 7.30
million boxes of Granola and 710,000 of the coupons were redeemed. What
amount should Captain Cook report as a liability for coupons on its December
31, 2013, balance sheet? (Round your answer to the nearest whole dollar
amount.)
$669,000.
$ 0.
$334,500.
$1,839,750.
18.
Barbara
Muller Services (BMS) pays its employees monthly. The payroll information
listed below is for January 2013, the first month of BMS’s fiscal year.
Assume none of the employees’ earnings reached $7,000 during the month.
Salaries
$108,000
Federal
income taxes to be withheld
36,000
Federal
unemployment tax rate
.80%
State
unemployment tax rate (after FUTA deduction)
5.40%
Social
security tax rate
6.2%
Medicare
tax rate
1.45%
The
journal entry to record payroll for the January 2013 pay period will include
a debit to payroll tax expense of:
$14,958
$63,738
$6,696
$8,262
19.
On January 1, 2013, Gibson
Corporation entered into a four-year operating lease. The payments were as
follows: $24,000 for 2013, $20,000 for 2014, $17,000 for 2015, and $14,000
for 2016. What is the correct amount of lease expense for 2014?
$24,000.
$20,000.
$18,750.
$22,000.
20.
On January 1, 2013, Wellburn
Corporation leased an asset from Tabitha Company. The asset originally cost Tabitha
$340,000. The lease agreement is an operating lease that calls for four
annual payments beginning on January 1, 2013, in the amount of $43,000. The
other three remaining payments will be made on January 1 of each subsequent
year. Which of the following journal entries should Tabitha record on January
1, 2013?
Cash
43,000
Lease receivable
43,000
Cash
43,000
Unearned rent revenue
43,000
Cash
43,000
Rent revenue
43,000
Cash
43,000
Rent expense
43,000
21.
Refer to the following lease
amortization schedule. The 10 payments are made annually starting with the
inception of the lease. Title does not transfer to the lessee and there is no
bargain purchase option or guaranteed residual value. The asset has an
expected economic life of 12 years. The lease is noncancelable.
Payment
Cash
Payment
Effective
Interest
Decrease
in balance
Balance
101,456
1
14,000
14,000
87,456
2
14,000
6,997
7,003
80,453
3
14,000
6,436
7,564
72,889
4
14,000
5,831
8,169
64,720
5
14,000
5,178
8,822
55,898
6
14,000
4,472
9,528
46,370
7
14,000
3,710
10,290
36,079
8
14,000
2,886
11,114
24,966
9
14,000
?
?
?
10
14,000
?
?
?
What
would the lessee record as annual depreciation on the asset using the
straight-line method? (Round your answer to the nearest dollar.)
$14,000.
$10,146.
$10,210.
$8,746.
22.
Refer to the following lease
amortization schedule. The 10 payments are made annually starting with the
inception of the lease. Title does not transfer to the lessee and there is no
bargain purchase option or guaranteed residual value. The asset has an
expected economic life of 12 years. The lease is noncancelable.
Payment
Cash
Payment
Effective
Interest
Decrease
in balance
Balance
63,282
1
10,000
10,000
53,282
2
10,000
6,394
3,606
49,676
3
10,000
5,961
4,039
45,638
4
10,000
5,477
4,523
41,114
5
10,000
4,934
5,066
36,048
6
10,000
4,326
5,674
30,373
7
10,000
3,645
6,355
24,018
8
10,000
2,882
7,118
16,901
9
10,000
?
?
?
10
10,000
?
?
?
What
is the total effective interest paid over the term of the lease?
$36,718.
$63,282.
$100,000.
$53,282.
23.
On January 1, 2013, Calloway Company
leased a machine to Zone Corporation. The lease qualifies as a direct
financing lease. Calloway paid $230,000 for the machine and is leasing it to
Zone for $31,000 per year, an amount that will return 9% to Calloway. The
present value of the minimum lease payments is $230,000. The lease payments
are due each January 1, beginning in 2013. What is the appropriate interest
entry on December 31, 2013?
Interest receivable
17,910
Interest revenue
17,910
Cash
17,910
Interest receivable
17,910
Interest receivable
20,700
Interest revenue
20,700
Cash
20,700
Interest revenue
20,700
24.
ABC Company leased equipment to Best
Corporation under a lease agreement that qualifies as a direct financing
lease. The cost of the asset is $124,000. The lease contains a bargain
purchase option that is effective at the end of the fifth year. The expected
economic life of the asset is 10 years. The lease term is five years. The asset
is expected to have a residual value of $2,600 at the end of 10 years. Using
the straight-line method, what would Best record as annual depreciation?
$24,280.
$12,400.
$12,660.
$12,140.
25.
N Corp. entered into a nine-year
capital lease on a warehouse on December 31, 2013. Lease payments of $29,000,
which includes real estate taxes of $1,400, are due annually, beginning on
December 31, 2014, and every December 31 thereafter. N Corp. does not know
the interest rate implicit in the lease; N’s incremental borrowing rate is
10%. The rounded present value of an ordinary annuity for nine years at 10%
is 6. What amount should N report as capitalized lease liability at December
31, 2013?
$165,600.
$174,000.
$248,400.
$261,000.
26.
On
December 31, 2013, B Corp. sold a machine to Royal and simultaneously leased
it back for one year. Pertinent information at this date follows:
Sales
price
$729,000
Carrying
amount
666,000
Present
value of lease rentals
72,700
($6,300
for 12 months at 12%)
Estimated
remaining useful life
12 years
In B’s
December 31, 2013, balance sheet, the deferred revenue from the sale of this
machine should be:
$0.
$72,700.
$663,000.
$9,700.
27.
Warren Co. recorded a right-of-use
asset of $860,000 in a 10-year lease under which no profit was recorded at
commencement by the lessor. The interest rate charged the lessee was 10%.
Under the new ASU, the balance in the right-of-use asset after 2 years will
be:
$1,040,600.
$688,000.
$696,600.
$946,000.
28.
Red
Co. recorded a residual asset of $115,000 in a 10-year lease under which no
profit was recorded at commencement by the lessor. The interest rate charged
the lessee was 10%. Under the new ASU, the balance in the residual asset
after 2 years will be:
$80,000.
$103,500.
$139,150.
$126,500.
