Question 8. 8. (TCO D) Which of the following is not acceptable treatment for th

Question

Question 8. 8. (TCO D) Which of the following is not acceptable treatment for the presentation of current liabilities? (Points : 5)

Listing current liabilities in order of maturity

Listing current liabilities according to amount

Offsetting current liabilities against assets that are to be applied to their liquidation

Showing current liabilities immediately below current assets to obtain a presentation of working capital

Question 9. 9. (TCO D) Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 75,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? (Points : 5) $1,500,000.    $2,500,000.     $1,000,000.      $0

Question 10. 10. (TCO D) Tender Foot, Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that it may lose the case. The attorneys estimated that there is a 40% chance of losing. Tender Foot’s attorney estimated that if it loses, then the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation? (Points : 5)

Debit Litigation Expense for $500,000 and credit Litigation Liability for $500,000.

No journal entry is required.

Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.

Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000

Question 11. 11. (TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity 10 years from date of issue. If the bonds were issued at a premium, this indicates that (Points : 5)

the effective yield or market rate of interest exceeded the stated (nominal) rate.

the nominal rate of interest exceeded the market rate.

the market and nominal rates coincided.

no necessary relationship exists between the two rates.

Question 12. 12. (TCO D) The printing costs and legal fees associated with the issuance of bonds should (Points : 5)

be expensed when incurred.

be reported as a deduction from the face amount of bonds payable.

be accumulated in a deferred charge account and amortized over the life of the bonds.

not be reported as an expense until the period the bonds mature or are retired.

Question 13. 13. (TCO D) Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date? (Points : 5)    $19,400,000 $20,450,000     $19,700,000   $19,100,000

Question 14. 14. (TCO D) A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036. Using effective-interest amortization, how much interest expense will be recognized in 2010? (Points : 5)    $195,000 $390,000    $392,124    $392,083

Question 15. 15. (TCO D) Clothes Horse Corp. ("CHC") issued $500,000 bonds due in 10 years on January 1, Year 1 at a premium for $567,105. Bond issue costs of $25,000 are being amortized over the 10 year life of the bonds under U.S. GAAP. On January 1, Year 6, when the carrying value of the bond was $539,940, CHC redeemed the bonds at 102. What amount of gain should CHC record related to the redemption? (Points : 5) $10,000    $17,440    $39,940    $52,440

Explanation / Answer

Question 8:

Offsetting current liabilities against assets that are to be applied to their liquidation

This is the correct option because it is not allowed to offset current liabilities against assets that are to be applied to their liquidation.

Question 9:

$1,500,000.    

Total amount of sale proceeds of stock (75,000 x 20 = 1,500,000) can be excluded from current liabilities.

Question 10:

Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.

Total expected litigation expenses multiplied by the probability of occurance will be recorded as expenses. (500,000 x 40% = 200,000)

Question 11:

the nominal rate of interest exceeded the market rate.

If the bonds are issued at premium then it means the market rate of interest is lower than the nominal rate of interest.

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