BUSA 101 – Mr. Farina

Pre-quiz #5 – Chapters 10 and 13


Name

1

INSTRUCTIONS: Complete the items below.

FILL-IN-THE-BLANK—PRINCIPLESANDTERMINOLOGY—Chapter 10

INSTRUCTIONS: Complete each of the following statements by writing the appropriate words or amounts in the Answers column.

For
Answers / Scoring
0. The total earnings of an employee for a payroll period, before deductions, is referred to as /
gross pay /
0. ____
1-3. The three common payroll taxes levied against employers are:
1. / 1. ____
2. / 2. ____
3. / 3. ____
4. Of the two payroll taxes—federal income tax and federal unemployment compensation tax—the one not subject to a ceiling on the earnings subject to the tax is /
4. ____
5-7. A 180-day, 15% note for $175,000 dated March 10, payable to Third Bank & Trust, is signed by Arthur Co.
5. The maturity date of the note is / 5. ____
6. The interest payable at the maturity date is / $ / 6. ____
7. The maturity value of the note is / $ / 7. ____
8-9. Assume that the note referred to in Question 5-7 was not interest-bearing but was discounted at Third Bank & Trust at a rate of 12%.
8. The amount of the discount is / $ / 8. ____
9. The amount of the proceeds is / $ / 9. ____
10. The detailed payroll record maintained for each employee is called the / 10. ____
11. A pension plan in which the employer makes contributions but the employee bears the investment risk is called a /
11. ____
12. Vacation pay expense should be recorded (when paid, when earned by the employee) /
/
12. ____


FILL-IN-THE-BLANK—PRINCIPLESANDTERMINOLOGY—Chapter 13

For
Answers / Scoring
0. A bond that gives a bondholder a claim on particular assets in the event that the issuing corporation fails to meet its obligations on the bonds is called a /
secured bond /
0. ____
1. When the contract rate of interest on bonds is higher than the market rate
of interest, the bonds sell at a /
1. ____
2-3. A firm redeemed bonds at 103. The bonds have a face value of $700,000, and unamortized discount of $13,000.
2. Will the firm record a gain or loss on redemption? / 2. ____
3. What is the amount of the gain or loss? / $ / 3. ____
4. Bonds with a face value of $200,000 were purchased through a broker at
97 plus accrued interest of $2,000 and brokerage commissions of $450. The amount to be debited to the investment account is /
$ /
4. ____
5-7. Under which caption (current assets, current liabilities, investments,
long-term liabilities, property, plant, and equipment, stockholders’ equity) would each of the following appear on the balance sheet?
5. Investment in XYZ Co. Bonds (management intends to hold to maturity
in 5 years) /
5. ____
6. Premium on Bonds Payable / 6. ____
7. Bonds Payable, due 2015 / 7. ____
8. Bonds that may be exchanged for other securities are called / 8. ____
9. Bonds that may be redeemed early, at the option of the bond issuer, are
called /
9. ____
10-12. On April 1, ABC Company issued $6,000,000, 5-year, 12% bonds for $6,094,035. If the bonds pay interest semiannually and if the effective rate of interest is 11%, determine the following:
10. The interest paid on September 30 / 10. ____
11. The amount of premium amortized on September 30, using the straight-
line method (round to the nearest $1) /
11. ____
12. The accrued interest payable on December 31 / 12. ____
13. In Question 11, does the total amount of annual interest expense paid
increase, decrease, or remain the same over the life of the bonds as
the premium on bonds payable is amortized? /
13. ____
14. If Bonds Payable has a balance of $4,000,000 and Discount on Bonds Payable has a balance of $55,000, what is the carrying amount of the bonds? /
15. ____
15. Number of times interest charges earned is important to / 16. ____

PROBLEM1—ANALYSISOFTRANSACTIONS—Chapter 10

INSTRUCTIONS: Indicate the titles of the general ledger accounts to be debited and credited in recording the transactions below by inserting in the appropriate column the letters of the account titles listed.

ACCOUNTS

A. Accounts Payable F. Social Security Tax Payable K. Medicare Tax Payable

B. Accounts Receivable G. Interest Expense L. Notes Payable

C. Cash H. Interest Revenue M. Notes Receivable

D. Employees Income Tax Payable I. Interest Payable N. Payroll Tax Expense

E. Federal Unemployment Tax Payable J. Interest Receivable O. State Unemployment Tax Payable

For / For
TRANSACTIONS / Debit / Scoring / Credit / Scoring
0. Issued an interest-bearing note to a creditor on account / A / 0. ____ / L / 0. ____
1-2. Paid the note issued in Question 0 / 1. ____ / 2. ____
3-4. Discounted our note payable at the bank / 3. ____ / 4. ____
5-6. Paid the note issued in Question 3-4 / 5. ____ / 6. ____
7-8. Prepared journal entry to record the employer’s payroll taxes (FICA, federal unemployment, and state unemployment) /
7. ____ /
8. ____

PROBLEM2—ANALYSISOFBONDTRANSACTIONS—Chapter 13

INSTRUCTIONS: Selected transactions of a corporation are listed below. For each transaction, indicate the account(s) to be debited and the account(s) to be credited by inserting in the appropriate columns the letters that correspond to the accounts listed. (Do not record amounts.)

ACCOUNTS

A. Bonds Payable F. Gain on Redemption of Bonds K. Loss on Sale of Investments

B. Cash G. Interest Expense L. Premium on Bonds Payable

C. Common Stock H. Interest Revenue M. Premium on Common Stock

D. Discount on Bonds Payable I. Investment in Way Co. Bonds

E. Dividend Revenue J. Loss on Redemption of Bonds

For / For
TRANSACTIONS / Debit / Scoring / Credit / Scoring
0. Recorded receipt of interest on bond investment / B / 0. ____ / H / 0. ____
1-2. Issued $3,000,000 of 10% bonds at an effective rate of 11% / 1. ____ / 2. ____
3-4. Paid semiannual interest on bonds issued in Question 1-2 / 3. ____ / 4. ____
5-6. Amortized premium or discount on bonds issued in Question 1-2 / 5. ____ / 6. ____
7-8. Purchased for cash as an investment $100,000 of Way Co. bonds at 99
plus accrued interest of $600 and commissions of $250 /
7. ____ /
8. ____
9-10. Amortized premium or discount on investment in bonds acquired in Question 7-8 /
9. ____ /
10. ____
11-12. Sold bonds in Question 7-8 for an amount less than their carrying value / 11. ____ / 12. ____
13-14. Issued $2,000,000 of 13% bonds, at an effective rate of 10% / 13. ____ / 14. ____
15-16. Paid semi-annual interest on bonds issued in Question 13-14 / 15. ____ / 16. ____
17-18. Amortized premium or discount on bonds issued in Question 13-14 /
17. ____ /
18. ____
18-19. Redeemed bonds payable issued in Question 13-14 for an amount less than their carrying value /
18. ____ /
19. ____

PROBLEM 4—JOURNAL ENTRIES—Chapter 13

Prepare journal entries for the following transactions:

2007:

March 1 Issued a 10-year, $1,000,000 bond with a coupon interest rate of 8% at 99.4. Interest is payable semi-annually on September 1 and March 1.

September 1 Made first semi-annual interest payment

December 31 Accrued interest owed on the bond. Round to the nearest dollar.

December 31 Amortized discount, using the straight-line method

2008:

March 1 Made second semi-annual interest payment

March 1 Redeemed the bond at 99. At this time, the balance in the discount on bonds payable account was $5,400

(Assume the amortization of bond discount has already been recorded for 2008.)

Date Description Dr. Cr.

3