Answered: For a liability to exist, a. a past…

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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Question

Multiple Choice
Identify the choice that best completes the statement or answers the question.

For a liability to exist,

a.	a past transaction or event must have occurred.
b.	the exact amount must be known.
c.	the identity of the party owed must be known.
d.	an obligation to pay cash in the future must exist.

10.

The effective interest rate on bonds is higher than the stated rate when bonds sell

a.	at face value.
b.	above face value.
c.	below face value.
d.	at maturity value.

11.

The effective interest rate on bonds is lower than the stated rate when bonds sell

a.	at maturity value.
b.	above face value.
c.	below face value.
d.	at face value.

12.

When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

a.	actual amount of interest paid.
b.	book value of the bonds multiplied by the stated interest rate.
c.	book value of the bonds multiplied by the effective interest rate.
d.	maturity value of the bonds multiplied by the effective interest rate.

13.

On July 1, 2002, TJR issued 2,000 of its 8 percent, $1,000 bonds for $1,752,000. The bonds were issued to yield 10 percent. The bonds are dated July 1, 2002, and mature on July 1, 2012. Interest is payable semiannually on January 1 and July 1. Using the effective-interest method, how much of the bond discount should be amortized for the six months ended December 31, 2002?

a.	$15,200
b.	$12,400
c.	$9,920
d.	$7,600

14.

On January 1, 2003, $50,000 of 20-year, 6 percent debentures were issued for $56,275.20. Interest payment dates on the bonds are January 1 and July 1. The amount of premium to be amortized on July 1, 2003, when using the straight-line method is

a.	$313.76.
b.	$156.88.
c.	$776.50.
d.	$93.11.

15.

If a $6,000, 10 percent, 10-year bond was issued at 104 plus accrued interest two months after the authorization date, how much cash was received by the issuer?

a.	$6,000
b.	$6,240
c.	$6,340
d.	$6,600

16.

ABC Corporation is authorized to issue $500,000 of 6 percent, 10-year bonds dated July 1, 2003, with interest payments on December 31 and June 30. When the bonds are issued on November 1, 2003, ABC Corporation receives cash of $515,000, including accrued interest. The journal entry to record the issuance of the bonds would include

a.	$15,000 bond premium.
b.	$5,000 bond premium.
c.	$15,000 bond discount.
d.	no bond premium or discount.

17.

The sum-of-the-years'-digits method of depreciation is being used for a machine with a five-year estimated useful life. What would be the fraction applied to the cost to be depreciated in the fourth year?

a.	4/5
b.	2/5
c.	4/15
d.	2/15

18.

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

a.	less than current market value.
b.	greater than cost.
c.	greater than book value.
d.	less than book value.

19.

Dewey Company purchased a machine that was installed and placed in service on January 2, 2001, at a total cost of $480,000. Residual value was estimated at $80,000. The machine is being depreciated over ten years by the double-declining-balance method. For the year 2002, Dewey should record depreciation expense of

a.	$64,000.
b.	$76,800.
c.	$80,000.
d.	$96,000.

20.

On February 12, Laker Company purchased a tract of land as a factory site for $175,000. An existing building on the property was razed and construction was begun on a new factory building in March of the same year. Additional data are available as follows:

Cost of razing old building ..........................	$ 35,000
Title insurance and legal fees to purchase land ......	12,500
Architect's fees .....................................	42,500
New building construction cost .......................	875,000

The recorded cost of the completed factory building should be

a.	$910,000.
b.	$917,500.
c.	$930,000.
d.	$952,500.

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