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est-bearing note paya bscriptions and airline

est-bearing note paya bscriptions and airline

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I. Write "T" if the statement is True and write "F" if otherwise 1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized. 2. Magazine subscriptions and airline ticket sales both result in unearned revenues. 3. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis. 4. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale. 5. A company must accrue a liability for sick pay that accumulates but does not vest. 6. Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted. 7. Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment. 8. Companies should recognize the expense and related liability for compensated absences in the year earned by employees. 9. Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred. 10. The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. 11. The interest rate written in the terms of the bond indenture is called the effective yield or market rate. 12. Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense. 13. A bond may only be issued on an interest payment date. 14. The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond. 15. If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate. 16. The implicit interest rate is the rate that equates the cash received with the amounts received in the future. 17. If a company plans to refinance long-term debt or retire it from a bond retirement fund, it should report the debt as current. 18. The times interest earned ratio is computed by dividing income before interest expense by interest expense. 19. The basic accounting issue for a lessee is the revenue recognition during the lease term. 20. Economic life estimates, residual values, and bargain price options are features of lease agreements that can be manipulated to support the lease being classified as an operating lease.
Transcribed Image Text:I. Write "T" if the statement is True and write "F" if otherwise 1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized. 2. Magazine subscriptions and airline ticket sales both result in unearned revenues. 3. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis. 4. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale. 5. A company must accrue a liability for sick pay that accumulates but does not vest. 6. Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted. 7. Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment. 8. Companies should recognize the expense and related liability for compensated absences in the year earned by employees. 9. Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred. 10. The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements. 11. The interest rate written in the terms of the bond indenture is called the effective yield or market rate. 12. Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense. 13. A bond may only be issued on an interest payment date. 14. The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond. 15. If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate. 16. The implicit interest rate is the rate that equates the cash received with the amounts received in the future. 17. If a company plans to refinance long-term debt or retire it from a bond retirement fund, it should report the debt as current. 18. The times interest earned ratio is computed by dividing income before interest expense by interest expense. 19. The basic accounting issue for a lessee is the revenue recognition during the lease term. 20. Economic life estimates, residual values, and bargain price options are features of lease agreements that can be manipulated to support the lease being classified as an operating lease.
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