ACCT 101 Chapter 9 Liabilities Flashcards

Questions and Answers

Cash inflows and outflows related to bonds payable and notes payable are reported on which section of the statement of cash flows?

Financing Activities and Operating Activities depending on whether these liabilities are current or long-term

Financing Activities section (correct)

Investing Activities section

Operating Activities section

What are the two major classifications of leases?

Operating and Capital (correct)

Short-term and Capital

Short-term and Long-term

Operating and Investing

What can be concluded about the effective (market) rate of interest for $200,000 face value, 6% bonds issued for $196,000?

It is impossible to determine from the given data.

It is equal to 6%.

It is more than 6%. (correct)

It is less than 6%.

Which of the following leases would not be classified as a Capital Lease?

ABC leased a vehicle from GHI. Signup and view all the answers

Which of the following would be included in the journal entry for the conversion of convertible notes payable into common stock?

Credit Paid in Capital in Excess of Par - Common $65,000 Signup and view all the answers

How much cash did Debtor Corporation receive when the bonds were issued?

$1,920,000 Signup and view all the answers

Which of the following would be included in the journal entry to record cash sales and sales tax?

Debit to Cash $212,000 Signup and view all the answers

What is included in the journal entry when Dalton Company issues bonds?

A credit to Premium on Bonds Payable for $1,250 Signup and view all the answers

What is Eagle's earnings per share for the year?

$8.41 Signup and view all the answers

These bonds sold at ________ based on their market rate of interest.

a discount Signup and view all the answers

Study Notes

Cash Flows from Liabilities

Cash inflows and outflows related to bonds payable and notes payable are recorded in the Financing Activities section of the statement of cash flows.
Operating Activities concern transactions tied to net income, while Investing Activities relate to long-term asset changes.

Lease Classifications

Leases are classified into two main categories: Operating and Capital.
Short-term, long-term, and investing are not valid classifications for leases.

Effective Interest Rate

For bonds issued below face value, the effective (market) interest rate is greater than the stated rate.
Lot Company’s bonds issued for $196,000 imply an effective interest rate over 6%, indicating investor demand for a higher return.

Capital vs. Operating Leases

A lease is considered an Operating Lease if it does not transfer title, does not include a bargain purchase option, and its term is less than 75% of the asset's useful life.
ABC's lease of a vehicle from GHI is classified as an Operating Lease based on these criteria.

Conversion of Convertible Notes

When convertible notes payable are converted, a credit to Paid in Capital in Excess of Par - Common is recorded for any value exceeding the par value of the stock.
For Chief Distributors, the conversion of notes payable resulted in a $65,000 credit to this account.

Bonds Issuance and Cash Received

Debtor Corporation's issuance of $2,000,000 bonds at 96 resulted in cash collected of $1,920,000, calculated by multiplying the face value by the issuance percentage (96%).

Sales Transactions and Journal Entries

For a cash sale of $200,000 with 6% sales tax, the total cash debited would equal $212,000, combining sales revenue with the tax collected.
The associated journal entries would credit Sales Revenue and Sales Tax Payable accordingly.

Premium on Bonds Payable

Issuing bonds at a premium indicates that the cash received exceeds the bonds' face value.
Dalton Company’s bond issuance at 102.5 involved a credit of $1,250 to Premium on Bonds Payable, reflecting the amount above par.

Earnings per share for Eagle's Auto is calculated as Net Income ($715,000) divided by common shares outstanding (85,000), resulting in $8.41.

Bond Issuance at Discount

Bonds sold at a discount occur when the market interest rate exceeds the stated interest rate, signaling that investors demand a lower purchase price.
Debtor Corporation’s issuance reflected a market rate of 9% against a stated rate of 8%, confirming the bonds were sold at a discount.

Description

Test your knowledge of liabilities in accounting with these flashcards based on Chapter 9 of ACCT 101. Focus on key concepts like the Financing Activities section of cash flows. Perfect for students preparing for exams or needing a quick review.