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A measure of a company's solvency is the:
A measure of a company's solvency is the:
The times interest earned is computed by dividing:
The times interest earned is computed by dividing:
Liquidity ratios measure a company's:
Liquidity ratios measure a company's:
The relationship between current assets and current liabilities is:
The relationship between current assets and current liabilities is:
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Parker Company issued ten-year, 9%, bonds payable in 2014 at a premium. During 2014, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will:
Parker Company issued ten-year, 9%, bonds payable in 2014 at a premium. During 2014, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will:
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When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by:
When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by:
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When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by:
When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by:
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If bonds are originally sold at a discount using the straight-line amortization method:
If bonds are originally sold at a discount using the straight-line amortization method:
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Which of the following statements regarding the effective interest method of accounting for bonds characteristics is false?
Which of the following statements regarding the effective interest method of accounting for bonds characteristics is false?
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When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by multiplying the:
When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by multiplying the:
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The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that:
The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that:
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The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n):
The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n):
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Which of the following statements best describes the behavior over time of the components of equal mortgage payments?
Which of the following statements best describes the behavior over time of the components of equal mortgage payments?
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Liabilities are classified on the balance sheet as current or:
Liabilities are classified on the balance sheet as current or:
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Most companies pay current liabilities:
Most companies pay current liabilities:
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A current liability is a debt that can reasonably be expected to be paid:
A current liability is a debt that can reasonably be expected to be paid:
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Which of the following most likely would be classified as a current liability?
Which of the following most likely would be classified as a current liability?
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Failure to record a liability will probably:
Failure to record a liability will probably:
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Very often, failure to record a liability means failure to record a(n):
Very often, failure to record a liability means failure to record a(n):
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Current liabilities are due:
Current liabilities are due:
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Liabilities are classified as current or long-term based on their:
Liabilities are classified as current or long-term based on their:
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Which of the following is not a current liability on December 31, 2014?
Which of the following is not a current liability on December 31, 2014?
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With an interest-bearing note, the amount of assets received upon issuance of the note is generally:
With an interest-bearing note, the amount of assets received upon issuance of the note is generally:
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As interest is recorded on an interest-bearing note, the Interest Expense account is:
As interest is recorded on an interest-bearing note, the Interest Expense account is:
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The interest charged on a $250,000 note payable, at the rate of 6%, on a 90-day note would be:
The interest charged on a $250,000 note payable, at the rate of 6%, on a 90-day note would be:
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The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be:
The interest charged on a $250,000 note payable, at the rate of 6%, on a 60-day note would be:
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The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be:
The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be:
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Interest expense on an interest-bearing note is:
Interest expense on an interest-bearing note is:
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Sales taxes collected by a retailer are recorded by:
Sales taxes collected by a retailer are recorded by:
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Unearned Rent Revenue is:
Unearned Rent Revenue is:
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The amount of sales tax collected by a retail store when making sales is:
The amount of sales tax collected by a retail store when making sales is:
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A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a:
A company receives $176, of which $16 is for sales tax. The journal entry to record the sale would include a:
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A company receives $261, of which $21 is for sales tax. The journal entry to record the sale would include a:
A company receives $261, of which $21 is for sales tax. The journal entry to record the sale would include a:
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The current portion of long-term debt should:
The current portion of long-term debt should:
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Sales taxes collected by a retailer from a customer are expenses of the:
Sales taxes collected by a retailer from a customer are expenses of the:
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A retailer that collects sales taxes is acting as an agent for the:
A retailer that collects sales taxes is acting as an agent for the:
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Sales taxes collected by a retailer are reported as:
Sales taxes collected by a retailer are reported as:
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Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?
Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?
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From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that:
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that:
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Secured bonds are bonds that:
Secured bonds are bonds that:
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A legal document that indicates the name of the issuer, the face value of the bond and such other data is called:
A legal document that indicates the name of the issuer, the face value of the bond and such other data is called:
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Stockholders of a company may be reluctant to finance expansion through issuing more equity because:
Stockholders of a company may be reluctant to finance expansion through issuing more equity because:
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Which of the following is not an advantage of issuing bonds instead of common stock?
Which of the following is not an advantage of issuing bonds instead of common stock?
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Bonds that are secured by real estate are termed:
Bonds that are secured by real estate are termed:
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Bonds that may be exchanged for common stock at the option of the bondholders are called:
Bonds that may be exchanged for common stock at the option of the bondholders are called:
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Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called:
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called:
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Bonds that are issued against the general credit of the borrower are called:
Bonds that are issued against the general credit of the borrower are called:
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Corporations are granted the power to issue bonds through:
Corporations are granted the power to issue bonds through:
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Bonds are not always categorized as:
Bonds are not always categorized as:
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Which of the following statements concerning bonds is not a true statement?
Which of the following statements concerning bonds is not a true statement?
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The contractual rate of interest is usually stated as a(n):
The contractual rate of interest is usually stated as a(n):
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When authorizing bonds to be issued, the board of directors does not specify the:
When authorizing bonds to be issued, the board of directors does not specify the:
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Bonds with a face value of $300,000 and a quoted price of 102¼ have a selling price of:
Bonds with a face value of $300,000 and a quoted price of 102¼ have a selling price of:
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The present value of a bond is also known as its:
The present value of a bond is also known as its:
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All of the following statements regarding convertible bonds are true except:
All of the following statements regarding convertible bonds are true except:
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The contractual interest rate on a bond is often referred to as the:
The contractual interest rate on a bond is often referred to as the:
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If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at:
If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at:
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If the market rate of interest is greater than the contractual rate of interest, bonds will sell:
If the market rate of interest is greater than the contractual rate of interest, bonds will sell:
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The interest expense recorded on an interest payment date is increased:
The interest expense recorded on an interest payment date is increased:
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If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount:
If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount:
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If the market rate of interest is lower than the contractual interest rate, the bonds will sell at:
If the market rate of interest is lower than the contractual interest rate, the bonds will sell at:
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If bonds are issued at a premium, the stated interest rate is:
If bonds are issued at a premium, the stated interest rate is:
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The present value of a $10,000, 5-year bond will be less than $10,000 if the:
The present value of a $10,000, 5-year bond will be less than $10,000 if the:
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The market value (present value) of a bond is a function of all of the following except the:
The market value (present value) of a bond is a function of all of the following except the:
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The market rate of interest is often called the:
The market rate of interest is often called the:
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If bonds are issued at a discount, it means that the:
If bonds are issued at a discount, it means that the:
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Selling the bonds at a premium has the effect of:
Selling the bonds at a premium has the effect of:
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When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of:
When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of:
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The statement 'Bond prices vary inversely with changes in the market rate of interest' means that if the:
The statement 'Bond prices vary inversely with changes in the market rate of interest' means that if the:
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The carrying value of bonds will equal the market price:
The carrying value of bonds will equal the market price:
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Over the term of the bonds, the balance in the Discount on Bonds Payable account will:
Over the term of the bonds, the balance in the Discount on Bonds Payable account will:
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The sale of bonds above face value:
The sale of bonds above face value:
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In the balance sheet, the account Premium on Bonds Payable is:
In the balance sheet, the account Premium on Bonds Payable is:
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In the balance sheet, the account Discount on Bonds Payable is:
In the balance sheet, the account Discount on Bonds Payable is:
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Bond discount should be amortized to comply with:
Bond discount should be amortized to comply with:
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The journal entry to record the issuance of bonds at a discount will include a:
The journal entry to record the issuance of bonds at a discount will include a:
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If bonds have been issued at a discount, then over the life of the bonds the:
If bonds have been issued at a discount, then over the life of the bonds the:
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When bonds are retired before maturity:
When bonds are retired before maturity:
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Restoration Company issued bonds that had the following data associated with them: interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?
Restoration Company issued bonds that had the following data associated with them: interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?
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Study Notes
Liabilities Overview
- Liabilities are classified as current or long-term based on their due date.
- Current liabilities are debts expected to be settled within one year or the operating cycle.
Current Liabilities
- Common examples include accounts payable and dividends payable.
- The current portion of long-term debt is reclassified as a current liability when due.
- Current liabilities are typically settled using current assets.
Recording Liabilities
- Failing to record a liability may result in overstated net income.
- Unrecorded liabilities often correlate with unrecorded expenses.
- Important journal entries for liabilities include recognizing interest expenses and sales taxes payable.
Interest and Notes
- Interest on notes payable is recorded as an increase in Interest Payable.
- Calculating interest involves the principal amount, interest rate, and duration.
- Interest expense accumulates over the life of the note, impacting financial statements.
Sales Tax Management
- Sales taxes collected by retailers are recorded as current liabilities.
- Retailers act as agents for the government when collecting taxes.
- Proper entry for sales tax includes crediting Sales Taxes Payable.
Bonds Overview
- Bonds can be secured by assets or unsecured (debenture bonds).
- Bonds may also be callable or convertible based on issuer options.
- The contractual interest rate is a fixed percentage, while market rates can affect bond pricing.
Amortization of Discounts and Premiums
- Discount bonds require amortization to match interest expense to actual payments.
- Premium bonds reduce the total interest cost over their life compared to interest payments.
- Carrying values of bonds adjust according to the amortization method used.
Financial Ratios and Analysis
- Times interest earned measures solvency by comparing income to interest expenses.
- Liquidity ratios assess a company’s short-term debt paying ability using current assets and liabilities.
- Solvency ratios indicate a company's long-term financial health.
Importance of Accurate Reporting
- Accurate recording of liabilities affects net income and retained earnings.
- Any discrepancies between recorded and actual liabilities can mislead investors and stakeholders.
- Regular assessments and adjustments are vital for maintaining accurate financial statements.### Amortization Methods for Bonds
- Interest expense in the straight-line amortization method equals cash paid for interest plus the amortized discount.
- For a bond sold at a discount, the unamortized discount is subtracted from the face value for carrying value.
- Interest expenses in the initial years are equal to paid interest when using the straight-line method.
Effective Interest Method
- GAAP mandates the effective interest method for bond accounting.
- Interest expenses decrease over time for discounted bonds using this method.
- Carrying value of discounted bonds increases as they mature when adopting the effective interest method.
- This method applies a constant percentage to carrying value for calculating interest expense.
Bond Premium Amortization
- For the effective-interest method applied to bond premiums, interest expense is calculated by using the carrying value and effective interest rate.
- Amortization of bond premium leads to reported interest expense being less than cash paid for interest.
Comparison of Amortization Methods
- The effective-interest method is preferred over the straight-line method as it yields a more uniform interest rate throughout the bond's life.
Behavior of Mortgage Payments
- With equal mortgage payments, the share of principal repayment grows while interest expense decreases over time.
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Description
This quiz provides an overview of liabilities, distinguishing between current and long-term classifications. It covers examples of current liabilities, the importance of accurate recording, and the implications of interest expenses. Test your understanding of how liabilities impact financial statements.
