Question 1

On January 1, 2014, Michelin Company, a calendar-year company, is issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2014, is
A) Current liabilities, €9,000,000.
B) Long-term Debt, €9,000,000.
C) Current liabilities, €4,500,000; Long-term Debt, €4,500,000.
D) Current liabilities, €3,000,000; Long-term Debt, €6,000,000.

Accepted Answer

The answer of On January 1, 2014, Michelin Company, a...

Question 2

The adjusted trial balance for Beneteau Corporation at the end of the 2014 included the following accounts:

The total non-current liabilities reported on the statement of financial position at December 31, 2014 are
A) €9,880,000
B) €10,030,000
C) €10,120,000
D) €10,360,000

Accepted Answer

The answer of The adjusted trial balance for Beneteau Corporation...

Question 3

Susan Jones works for Trend Press, a fairly large book publishing firm. Her best friend and rival, Diane Nilson, works for Lifeline Books, a smaller publisher. Both companies issue $100,000 in bonds on July 1. Trend's bonds were issued at a discount, while Lifeline's were issued at a premium. Diane sent Susan a fax the next day. She told Susan that it was obvious who the better publisher was and the market had shown its preference! She reminded Susan again of her recent increase in salary as further proof of the superiority of Lifeline Books.
Required:
Draft a short note for Susan to send to Diane. Explain how such a result could occur.

Accepted Answer

The answer of Susan Jones works for Trend Press, a...

Question 4

Wittebury Corporation retires its £3,000,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $3,112,350. The entry to record the redemption will include
A) a credit of £37,650 to Gain on Bond Redemption.
B) a debit of £37,650 to Loss on Bond Redemption.
C) a credit of £15,000 to Bonds Payable.
D) a credit of £37,650 to Bonds Payable.

Accepted Answer

The loss on bond redemption is calculated as the difference between the redemption price (£3,150,000) and the carrying value (£3,112,350), resulting in a £37,650 loss.

Question 5

Finney Company borrowed €1,600,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of €416,698 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?
A) €1,600,000
B) €1,045,458
C) €1,335,302
D) €1,296,000

Accepted Answer

The balance is calculated by deducting the principal portion of the annual payments from the initial loan amount over two years.

Question 6

Herman Company received proceeds of ₤471,250 on 10-year, 8% bonds issued on January 1, 2012. The bonds had a face value of ₤500,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. Herman Company decided to redeem the bonds on January 1, 2014. What amount of gain or loss would Herman report on its 2014 income statement?
A) ₤23,000 gain
B) ₤28,000 gain
C) ₤28,000 loss
D) ₤23,000 loss

Accepted Answer

The answer of Herman Company received proceeds of ₤471,250 on...

Question 7

Wishbone Company maintains two separate accounts payable computer systems. One is known to all the users, and is used to process payments to vendors. Employees enter the vendor code, or the name and address of new vendors, the amount, the account, and so on. The other system is a secret one. It is used to cross-check the vendors against an approved vendor list. If a vendor is not listed as approved, the payment process is halted. Internal audit employees seek to verify the existence of a bona fide claim by the vendor. All inquiries are made at the top management level, and very discreetly. No one but top management, the internal audit staff, and the Board of Directors of the company is even aware of the second system.
Required:
Is it ethical for a company to have a secret system like the one described? Explain.

Accepted Answer

The answer of Wishbone Company maintains two separate accounts payable...

Question 8

Whitmore Corporation Issues a £1,800,000, 10%, 10-year mortgage on December 31, 2014. The terms call for semi-annual installment payments of £144,435.The entry to record the first installment payment will include
A) a debit to Interest Payment of £144,435.
B) a debit to Mortgage Notes Payable of £54,435.
C) a debit to Interest Expense of £180,000.
D) a credit to cash of £144,435.

Accepted Answer

The first installment payment includes both interest and principal repayment. The interest for the first period is £90,000 (10% annual rate on £1,800,000, divided by 2 for semi-annual), so the principal repayment is £54,435 (£144,435 total payment - £90,000 interest).

Question 9

Selected data from 2014 financial statements of Xi Corporation include the following (amount in millions): Current assets ¥ 759
$$\begin{array} { l r } 
\text { Current assets } & ¥ 759 \
\text { Total assets } & 1,200 \
\text { Current liabilities } & 400 \
\text { Total liabilities } & 750 \
\text { Cash } & 80 \
\text { Interest expense } & 50 \
\text { income taxes } & 100 \
\text { Net income } & 160
\end{array}$$
The debt to assets ratio is
A) 62.5%.
B) 52.7%.
C) 1.60%.
D) 6.2 times.

Accepted Answer

Debt to assets ratio = Total liabilities / Total assets = 750 / 1,200 = 0.625 = 62.5%

Question 10

Match between columns
                        Premises: A legal document that sets forth the terms of a bond issue.
The time that the final payment on a bond is due from the bond issuer.
A measure of a company's short-term liquidity.
Bonds subject to retirement at a stated dollar amount prior to maturity.
A measure of a company's solvency.
The rate investors demand for loaning funds to a corporation.
Bonds that mature in installments.
Produces a periodic interest expense that is the same amount each interest period.
Occurs when the contractual rate of interest is less than the market rate of interest.
Unsecured bonds issued against the general credit of the borrower.

Accepted Answer

The Answer of Market interest rate and Bond indenture and is...

Quiz 10: Reporting and Analyzing Liabilities

On January 1, 2014, Michelin Company, a calendar-year company, is issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2014, is

The adjusted trial balance for Beneteau Corporation at the end of the 2014 included the following accounts: The total non-current liabilities reported on the statement of financial position at December 31, 2014 are

Wittebury Corporation retires its £3,000,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $3,112,350. The entry to record the redemption will include

Finney Company borrowed €1,600,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of €416,698 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?

Whitmore Corporation Issues a £1,800,000, 10%, 10-year mortgage on December 31, 2014. The terms call for semi-annual installment payments of £144,435.The entry to record the first installment payment will include

Match the items below by entering the appropriate code letter in the space provided.