I. Write "T" if the statement is True and write "F" if otherwise1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense beingrecognized.2. Magazine subscriptions and airline ticket sales both result in unearned revenues.3. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on along-term basis.4. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.5. A company must accrue a liability for sick pay that accumulates but does not vest.6. Companies report the amount of social security taxes withheld from employees as well as the companies'matching portion as current liabilities until they are remitted.7. Accumulated rights exist when an employer has an obligation to make payment to an employee even afterterminating his employment.8. Companies should recognize the expense and related liability for compensated absences in the year earnedby employees.9. Companies should accrue an estimated loss from a loss contingency if information available prior to theissuance of financial statements indicates that it is probable that a liability has been incurred.10. The cause for litigation must have occurred on or before the date of the financial statements to report a liabilityin the financial statements.11. The interest rate written in the terms of the bond indenture is called the effective yield or market rate.12. Amortization of a premium increases bond interest expense, while amortization of a discount decreases bondinterest expense.13. A bond may only be issued on an interest payment date.14. The cash paid for interest will always be greater than interest expense when using effective-interestamortization for a bond.15. If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.16. The implicit interest rate is the rate that equates the cash received with the amounts received in the future.17. If a company plans to refinance long-term debt or retire it from a bond retirement fund, it should report thedebt as current.18. The times interest earned ratio is computed by dividing income before interest expense by interest expense.19. The basic accounting issue for a lessee is the revenue recognition during the lease term.20. Economic life estimates, residual values, and bargain price options are features of lease agreements that canbe manipulated to support the lease being classified as an operating lease.

A company may choose between debt and equity in order to arrange the required funds. The decision…

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Accounting

est-bearing note paya bscriptions and airline

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Activities Required In Completing A Quality Audit

Section: Chapter Questions

Problem 65RSCQ

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2.Which of the following statements is valid? a. Net accounts receivable is not affected by a recovery of an account previously written off. b. A three year, non-interest bearing promissory note is initially recorded in the accounts at its face value. c. When individual customers' accounts have credit balances of material amounts, these amounts must be deducted from the debit balance in other customers' accounts in the statement of financial position. d. When the rate stated on a note is greater than the prevailing market rate of interest for similar obligations, the present value of the note at initial recognition is greater than its face value.
Statement 1: If at the end of the reporting period, the discount period is not yet lapsed and the accounts are still unpaid, the company must recognize a purchase discount under the gross method.Statement 2: Non-trade payables are classified either as current or non-current liabilities base on their expected timing of settlement as the end of the reporting period.Statement 3: When discount on notes payable account is amortized, it decreases the carrying value of the liability. a.Two of the statements are false. b.One of the statements is false. c.All of the statements are true. d. None of the statements is true.
Majestic company has a credit balance of the allowance for doubtful account that exceeds the amount of a bad debt being written off, the journal entry to record the write off results in: a. A reduction in current liabilities b. No effect on the bad debts expenses of the current period O C. An increase in current assets d. An increase in the expenses of the current period
If the company failed to recognize the discount on non-interest-bearing notes receivable (unearned interest income credit), meaning the note was recorded at face, how would it affect the financial statements? a. the income statement won't be erroneous while the balance will be overstated b. at the end of the year of issuance, the income statement will be understated while the balance sheet will be overstated c. the income statement will be understated while the balance sheet will not be erroneous d. the statement of changes in equity will not affected by this error
True or false ______Magazine subscriptions and airline ticket sales both result in unearned revenues. ______Discount on Notes Payable is a contra account to Notes Payable on the balance sheet. ______ All long-term debt maturing within the next year must be classified as a current liability on the balance sheet. ______A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.
If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?a. It violates the matching principle. b. It will record bad debts only when an account is determined to be uncollectible. c. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts. d. It will report accounts receivable in the balance sheet at their net realizable value.
True or False with explanation The formula for simple interest is: Interest = Principle x Days outstanding x Time Financial liabilities deliver cash. A current liability is one that is due to be settled within 12 months after the reporting period. Interest on a $10,000, 4% note that is outstanding for 3 months would be $100. A warranty obligation is a type of non-financial liability. With the revenue approach to warranties, unearned revenue is used. A company that uses the expense approach to warranties should never make an accrual of estimated warranty work. When a short-term note is repaid, a debit includes Notes Payable. A liability is considered to be an asset.
If a company faded to recognize the discount on non-interest-bearing notes receivable (unearned interest income credit). meaning the nite was recorded at face how would it affect the financial statements? A. the statement of changes in equity will not affect by this error? b. at the end of the year of issuance, the statement will be understand while the balance sheet will be overstated c. the income statement won't be enormous while the balance will be overstated d. the income statement will be understated while the balance sheet will not be enoneous.
1. When coupons are issued to customers which can be used as payment for their purchases in retail outlets, unredeemed coupons at the end of the accounting period is: A. recorded as additional revenue. B. is recorded as liabilities. C. recorded as liabilities at expected percentage of redemption. D. ignored 2. Statement I. Mandatory deductions for SSS, Philhealth, and PAGIBIG are normally accrued at period-end because the remittance of payments is normally done on the following period.Statement II. Withholding tax for compensation cannot be accrued at month-end because the payroll is already disbursed to the employees even if the remittance to BIR will just be made on the following month. A. Both statements are true. B. Both statements are false. C. Statement I is true; Statement II is false. D. Statement I is false; Statement II is true. 48. Entities may require deposits and advances from customers for the following reasons/purposes EXCEPT: A. For…
Which of the following is not a characteristic of a short-term note payable? A. Payment is due in less than a year. B. It bears interest. C. It can result from an accounts payable conversion. D. It is reported on the balance sheet under noncurrent liabilities.
A company is in its first year of operations and has never written off any accounts receivable as uncollectible. When the allowance method of recognizing bad debt expense is used, the entry to recognize that expense: a. increases net income b. decreases current assets c. has no effect on current assets d. has no effect on net income
Bad Debt Expense When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result, a company must recognize bad debt expense. The two methods of recognizing bad debt expense are the (1) direct write-off method and (2) allowance method. Required: 1. Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense. 2. Explain the reasons why one of these methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles.