Questions and Answers
All of the following are current liabilities except:
What is the accrued interest at December 31, 2014, for an $88,500, 12%, one-year note borrowed on September 1, 2014?
$3,540
At December 31, both the notes payable and interest payable from a $70,000, 12% note borrowed on December 1 are current liabilities.
True
What is the amount of sales taxes owed to the taxing agency if the total receipts amounted to $126,000 with a sales tax rate of 5%?
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What amount should Sensible Insurance Company report as a current liability for Unearned Service Revenue at December 31?
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The amount of sales tax collected by a retailer is recorded in the:
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Discount on Bonds Payable is a contra account.
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If a company issues a $100,000, 12%, 10-year bond that pays interest semiannually when the market interest rate is 10%, how would the bond sell?
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What would be the gain or loss on redemption for Bryce Company with $500,000 of bonds outstanding and an unamortized premium of $7,200 if redeemed at 101?
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Study Notes
Current Liabilities
- Current liabilities include sales taxes payable, unearned rental revenue, and current maturities of long-term debt.
- All provided answer choices in the context of liabilities were identified as current liabilities.
Accrued Interest Calculation
- Maggie Sharrer Company borrowed $88,500 at a 12% interest rate on September 1, 2014.
- Accrued interest by December 31, 2014, amounts to $3,540, calculated using the formula: $88,500 x 12% x (4/12).
Notes Payable
- RS Company borrowed $70,000 on December 1, 2014, with a 6-month, 12% note.
- As of December 31, both the notes payable and the accrued interest payable are classified as current liabilities.
Sales Tax Calculation
- A retail store did not separately ring sales tax; with a 5% sales tax rate and total receipts of $126,000, sales tax owed is $6,000.
- The net sales amount is calculated as $126,000 / 1.05, resulting in $120,000 of sales leading to $6,000 in sales tax owed.
Unearned Service Revenue
- Sensible Insurance Company collected an $18,000 premium for a yearly insurance policy starting April 1.
- By December 31, $4,500 is reported as a current liability for Unearned Service Revenue, with 3 months of unearned revenue remaining.
Sales Tax Account
- The sales tax collected by retailers is recorded in the Sales Taxes Payable account.
Discount on Bonds Payable
- A Discount on Bonds Payable is classified as a contra account, reducing the bond's carrying amount.
Bond Pricing
- A $100,000 bond with a 12% interest rate, when the market interest rate is 10%, will sell for more than its face value due to the lower market rate relative to the contractual rate.
- Bonds in this situation are issued at a premium.
Gain or Loss on Bond Redemption
- Bryce Company has outstanding bonds totaling $500,000 with an unamortized premium of $7,200.
- If redeemed at 101 (i.e., $505,000), the gain on recreation is calculated as $507,200 (carrying value) - $505,000 (redemption cash) = $2,200 gain.
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Description
Test your knowledge with these flashcards covering Chapter 10 of Acct 100. The questions focus on current liabilities and interest calculations on notes. Perfect for mastering key concepts in accounting!
