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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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!