Acc122 Exam1 Review: Long-term Liabilities

Questions and Answers

What is the amount of cash proceeds if bonds with a face value of $206,000 are issued at 109?

$206,000

$224,540 (correct)

$188,991

$224,431

What determines the amount of cash interest that the borrower pays each year?

Market conditions on the day of payment

Stated interest rate (correct)

Market interest rate

Effective interest rate

What is the journal entry for the interest payment made on December 31, 2026, for $52,000 of 2% bonds issued at face value?

Interest Expense $520; Cash $520

Cash $520; Interest Expense $520

Cash $1,040; Interest Expense $1,040

Interest Expense $1,040; Cash $1,040 (correct)

What is the carrying amount of a bond with a credit balance in Bonds Payable of $67,000 and a debit balance in Discount on Bonds Payable of $2,750?

$64,250 Signup and view all the answers

If Finney Services issued $200,000 of 10% bonds at 92, what will be the cash proceeds received?

$184,000 Signup and view all the answers

What would be the interest payment per semiannual period for the $200,000 bonds issued at 10%?

$1,000 Signup and view all the answers

How would the journal entry appear if the interest payment is missed for the $200,000 bonds?

Interest Expense would be debited and Interest Payable credited Signup and view all the answers

If a bond is issued at a discount, what does that indicate about the market interest rate compared to the coupon rate?

Market interest rate is higher than the coupon rate Signup and view all the answers

What does the horizontal analysis reveal about long-term liabilities from 2025 to 2026?

Long-term liabilities decreased by 22.22% Signup and view all the answers

In vertical analysis of a Balance Sheet, the base amount is always:

Total assets Signup and view all the answers

A Gross Profit percentage of 47.0% indicates that gross profit represents what portion of net sales?

47% of net sales Signup and view all the answers

What is the total operating income for Bates, Inc. in 2026?

$1,900 million Signup and view all the answers

Which of the following figures represents net income for the year 2026?

$1,270 million Signup and view all the answers

What percentage is the cost of goods sold as a part of net sales for Bates, Inc. in 2026?

53.0% Signup and view all the answers

What total amount is included under current assets for 2026?

$86,000 Signup and view all the answers

The total current liabilities for 2026 amount to:

$57,000 Signup and view all the answers

What journal entry should Bevis Services record on December 1, 2025 for signing a 5% notes payable of $28,000?

Cash 28,000 Notes Payable 28,000 Signup and view all the answers

What is the correct journal entry for Samuels Bakery Company's first yearly payment on December 31, 2026?

Mortgages Payable 34,510 Interest Expense 55,000 Cash 89,510 Signup and view all the answers

Which statement accurately describes a bond issued at a discount?

The bond will be issued for an amount less than the face value. Signup and view all the answers

What is the total amount paid in cash by Samuels Bakery Company for the property purchase?

$100,000 Signup and view all the answers

How much will Samuels Bakery Company pay in total yearly for the mortgage, including both principal and interest?

$89,510 Signup and view all the answers

What is the interest expense for Samuels Bakery Company in the first year of the mortgage?

$55,000 Signup and view all the answers

What is the principal amount of each installment Bevis Services will pay for the notes payable?

$5,600 Signup and view all the answers

What happens to the value of a bond when it is issued at a premium?

It is issued for an amount greater than face value. Signup and view all the answers

What is the correct journal entry to record the issuance of bonds?

Cash 184,000; Discount on Bonds Payable 16,000; Bonds Payable 200,000 Signup and view all the answers

When Triston Company retires the bond, what is the journal entry if the last interest payment has been recorded?

Bonds Payable 30,000; Cash 30,000 Signup and view all the answers

What is the total value of the bonds if the premium on bonds payable is $3,300?

$72,300 Signup and view all the answers

What is the correct entry to record the retirement of the bonds if Nolen Services retires them early for $67,300?

Bonds Payable 69,000; Premium on Bonds Payable 3,300; Cash 67,300 Signup and view all the answers

Which entry correctly shows the relationship between cash and bonds payable when a bond is issued at a discount?

Cash 184,000; Bonds Payable 200,000; Discount on Bonds Payable 16,000 Signup and view all the answers

What will be the cash balance when bonds with a face value of $30,000 are retired for $30,000?

$30,000 Signup and view all the answers

If Nolen Services records a cash payment of $67,300 for bonds having a face value of $69,000, what does this indicate?

The bonds contained a premium. Signup and view all the answers

What effect does retiring bonds at a premium have on the Bonds Payable account?

It decreases the balance of Bonds Payable. Signup and view all the answers

What is the calculated free cash flow for the company?

$105,000 Signup and view all the answers

How much did the company earn from the gain on sale of equipment?

$16 Signup and view all the answers

What was the total income before taxes for Vandy Corporation?

$149 Signup and view all the answers

What is the total amount of cash and cash equivalents in the ending balance?

$31 Signup and view all the answers

What is the difference between total assets and total liabilities at the ending balance?

$97 Signup and view all the answers

How much does Vandy Corporation have in retained earnings?

$97 Signup and view all the answers

What was the gross margin for Vandy Corporation?

$315 Signup and view all the answers

What is the selling and administrative expense for the company?

$182 Signup and view all the answers

Which of the following contributes to the total assets of Vandy Corporation?

Cash and cash equivalents Signup and view all the answers

What amount was paid in income taxes by the company?

$45 Signup and view all the answers

What is the total liabilities amount reported in the ending balance?

$394 Signup and view all the answers

What was the net operating income for Vandy Corporation?

$133 Signup and view all the answers

Which account represents the amount that Vandy Corporation owes to suppliers at the end of the reporting period?

Accounts payable Signup and view all the answers

What constitutes long-term assets for the company?

Property, plant, and equipment Signup and view all the answers

Study Notes

Long-Term Liabilities Overview

Bevis Services signed a 5-year, 5% notes payable for 28,000,withprincipalinstallmentsof28,000, with principal installments of 28,000,withprincipalinstallmentsof5,600.
The entry on December 1, 2025, requires recording Cash and Notes Payable both at $28,000.
Samuels Bakery Company made a property purchase for 650,000,with650,000, with 650,000,with100,000 cash and a 10-year mortgage at 10%; the first payment includes 34,510towardprincipaland34,510 toward principal and 34,510towardprincipaland55,000 for interest.

Bond Issuance and Repayment

Bonds issued at a discount have a selling price under their face value.
If bonds with a 206,000facevalueareissuedat109,proceedsamountto206,000 face value are issued at 109, proceeds amount to 206,000facevalueareissuedat109,proceedsamountto224,540.
Annual borrower cash interest payments are based on the stated interest rate.
Paxton Planning Services issued 52,000of252,000 of 2% bonds at face value, with annual interest payments of 52,000of21,040.

Bond Carrying Amount

Bond carrying amount is calculated by subtracting the Discount on Bonds Payable from the Bonds Payable balance, resulting in 64,250fora64,250 for a 64,250fora67,000 bond with a $2,750 discount.

Early Bond Retirement

Triston Company’s 30,000bondat107simplifiesbondretiremententryasBondsPayableat30,000 bond at 107 simplifies bond retirement entry as Bonds Payable at 30,000bondat107simplifiesbondretiremententryasBondsPayableat30,000 without additional gains or losses.
Nolen Services retired bonds early for $67,300 with accounting involving Bonds Payable and Premium on Bonds Payable.

Financial Analysis

Vertical analysis of a balance sheet uses total assets as the base amount.
Horizontal analysis showed Vandy Corporation's long-term liabilities decreased by 22.22%, calculated from the change between 54,000and54,000 and 54,000and42,000.

Income Statement Analysis

Bates, Inc. reported 6,355millioninnetsalesin2026,withagrossprofitof6,355 million in net sales in 2026, with a gross profit of 6,355millioninnetsalesin2026,withagrossprofitof2,985 million, indicating a gross profit margin of 47.0%.

Key Concepts

Cash proceeds from bonds reflect market conditions and interest rates.
Different accounting entries are required for bond issuance, interest payments, and retirements, impacting cash flows and financial statements.
Financial analyses provide insight into a company's leverage and operational efficiency based on liabilities and earnings.

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Description

Prepare for the Acc122 Exam1 with this review focused on long-term liabilities. The quiz covers concepts related to notes payable and the recording of financial entries. Test your understanding of the entries that need to be recorded in specific financial scenarios.