Final Financial Accounting Quiz

Final Financial accounting Quiz
1. Which of the following is not an estimated liability?

a. Income taxes paid
b. Allowance for bad debts
c. Product warranties
2. Crank the Volume grants a 120-day warranty on all stereos. Historically, approximately
1% of all units sold prove to be defective, requiring an average repair bill of $100. Sales
in March are $472,500 for 4,500 units. In March, $3,900 of defective units are returned
for replacement. What entry must Crank the Volume make at the end of March to record
the warranty expense?
a. Debit Warranty Expense and credit Provision for Warranty Repairs, $4,725.
b. Debit Warranty Expense and credit Provision for Warranty Repairs, $3,900.
c. Debit Warranty Expense and credit Cash, $4,725
3. The discount on a bond payable becomes
a. additional interest expense over the life of the bonds.
b. a liability in the year the bonds are sold.
c. a reduction in interest expense over the life of the bonds.
4. A corporation issues bonds that pay interest each May 1 and November 1. The
corporation’s December 31 adjusting entry may include a:
a. credit to Cash.
b. debit to Cash.
c. credit to Discount on Bonds Payable.
Use this information to answer questions 5–10.
McCabe Corporation issued $560,000 of 7% 10-year bonds. The bonds are dated and
sold on January 1, 20X1. Interest payment dates are January 1 and July 1. The bonds are
issued for $521,724 to yield the market interest rate of 8%. Use the effective-interest
method for questions 5–9.
5. What is the amount of interest expense that McCabe Corporation will record on July 1,
20X1, the first semi-annual interest payment date? (All amounts rounded to the nearest
dollar.)
a. $22,400 c. $19,600
b. $39,200 d. $20,869
6. What is the amount of discount amortization that McCabe Corporation will record on
July 1,
20X1, the first semi-annual interest payment date?
a. $0 c $2,240
b. $1,269 d. $2,538
7. What is the total cash payment for interest for each 12-month period? (All amounts
rounded to the nearest dollar.)
a. $22,400 c. $39,200
b. $41,789 d. $44,800
8. What is the total interest expense for the year ended December 31, 20X1?
a. $41,789 c. $39,200
b. $41,879 d. $19,600
9. What is the carrying amount of the bonds on the January 1, 20X2, Balance Sheet?
a. $524,313 c. $522,993
b. $521,724 d. $550,000
10. The purchase of treasury shares
a. has no effect on total assets, total liabilities, or total shareholders’ equity.
b. decreases total assets and decreases total shareholders’ equity.
c. increases one asset and decreases another asset.
d. decreases total assets and increases total shareholders’ equity.
Solve these problems
1. Derp Corp. issued 15-year bonds payable with a face amount of $70,000, when the
market interest rate was 6.5%. The bonds were issued at par. Assume that the
accounting year of Derp ends on December 31. Journalize the following transactions
for Derp. Include an explanation for each entry.
Requirements
a. Issuance of the bonds payable at par on July 1, 20X0.
b. Accrual of interest expense on December 31, 20X0 (rounded to the nearest dollar).
c. Payment of cash interest on January 1, 20X1.
d. Payment of the bonds payable at maturity.
2. On January 31, Driftwood Logistics, Inc., issued 10-year, 6% bonds payable with a
face value of $15,000,000. The bonds were issued when the market rate was 5% and
pay interest on January 31 and July 31. Drift wood Logistics, Inc., amortizes bonds
by the effective interest method.
Requirements
1. Record issuance of the bonds on January 31.
2. Record the semi-annual interest payment and amortization of bond discount on
July 31. 3. Record the interest accrual and discount amortization on December 31.
3. Army Navy Sporting Goods is authorized to issue 10,000 preference shares and
20,000 ordinary shares. During a two-month period, Army Navy completed these
share-issuance transactions:
Apr. 23 Issued 1,800 shares of $1.50 par ordinary share for cash of $16.50 per share.
May 2 Issued 800 shares of no-par preference share for $24,000 cash.
12 Received inventory valued at $20,000 and equipment with market
value of $40,000 for 3,200 shares of the $1.50 par ordinary share.
Requirements
1. Journalize these equity transactions
4. Cullen Canoes’ constitution authorizes the corporation to issue 10,000 no-par
preference shares and 80,000 shares of $8 par ordinary shares. In its first month,
Cullen Canoes completed the following transactions:
May 6 Issued 900 ordinary shares to the promoter for assistance with issuance
of the ordinary share. The promotional fee was $22,500. Debit Organization Expense.
9 Issued 10,000 ordinary shares to Ben Cullen and 12,000 shares to Bill Cohen in
return for cash equal to the share’s market
value of $25 per share. The Cullens were partners in Cullen Canoes Co.
10 Issued 800 shares of preference share to acquire a patent with a
market value of $20,000.
26 Issued 1,000 shares of ordinary share for $25 cash per share

Final Financial Accounting Quiz

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Final Financial accounting Quiz

1. Which of the following is not an estimated liability?

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