Financial Accounting and Bond Valuation Practice

Equity Method Investment Accounting

Speers Corporation owns 30% of Queens Company, which Speers originally purchased at the beginning of the year for $500,000. Queens earned $40,000 income for the year and distributed dividends of $8,000. If this investment is accounted for by means of the equity method, it should be reported on a year-end balance sheet at: $509,600.

Speers Corporation owns 30% of Queens Company, which Speers originally purchased at the beginning of the year for $500,000. Queens earned $40,000 income during the year and distributed cash dividends of $8,000. Determine the amount of investment income reported by Speers for the year: $12,000.

Current Liabilities and Sales Tax Entries

Current liabilities are expected to be settled within: 1 year.

S&C Roofing billed a customer a total of $30,200 for a sales transaction which already included state sales tax of 7%. The entry to record the sales would be to: debit Accounts Receivable, $30,200; credit Sales revenue, $28,224; credit Sales tax payable, $1,976.

Contingent Liabilities and Notes Payable

The disclosure of a contingent liability only in the footnotes designates that the possibility of an actual obligation occurring is: possible.

A company signs a note payable for $8,500 at 8% for 60 days. How much interest (to the nearest cent) will the company owe using a 360-day year? $113.33.

Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2015, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2015. What amount of warranty liability should be reported at December 31, 2015? $3,375.

Bond Issuance and Valuation Principles

If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at: a discount.

The journal entry to record $100,000 of bonds that were issued at 98 would be to: debit Cash, $98,000; debit Discount on bonds payable, $2,000; credit Bonds payable, $100,000.

A $300,000 issue of bonds that sold for $275,000 matures on June 25, 2020. The journal entry to record the payment of the bond on the maturity date is to: debit Bonds payable, $300,000; credit Cash, $300,000.

Bonds payable minus the Discount on bonds payable yields the: carrying amount.

Stock Issuance and Classification

The maximum number of stock a firm can issue is authorized stock.

• Authorized: Maximum number that can be issued
• Issued: Number issued to stockholders in the past
• Outstanding: Number currently in the hands of stockholders