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(TCO D) Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be (Points: 5) accrued. disclosed but not accrued. neither accrued nor disclosed. classified as an appropriation of retained earnings. 9. (TCO D) On December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on February 14, 2011. On January 10, 2011, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 2, 2011, Irey borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2010 balance sheet which is issued on March 5, 2011 is (Points: 5) $0. $300,000. $500,000. $800,000. 10. (TCO D) CalCount pays a weekly payroll of $85,000 that includes federal taxes withheld of $12,700, FICA taxes withheld of $7,890, and 401(k) withholdings of $9,000. What is the effect of assets and liabilities from this transaction? (Points: 5) Assets decrease $85,000 and liabilities do not change. Assets decrease $64,410 and liabilities increase $20,590. Assets decrease $64,410 and liabilities decrease $20,590. Assets decrease $55,410 and liabilities increase $29,590. 11. (TCO D) Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten 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. 12. (TCO D) Theoretically, the costs of issuing bonds could be (Points: 5) expensed when incurred. reported as a reduction of the bond liability. debited to a deferred charge account and amortized over the life of the bonds. any of these. 13. (TCO D) Downing Company issues $5,000,000, 6%, five-year bonds dated January 1, 2010 on January 1, 2010. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods ..88385 .86261 .78353 .74726 Present value of a single sum for 10 periods ..78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 (Points: 5) $5,000,000 $5,216,494 $5,218,809 $5,217,308 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 15. (TCO D) On January 1, Martinez Inc. issued $3,000,000, 11% bonds for $3,195,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of: (Points: 5) $185,130 $184,500 $173,550 $165,000 (TCO D) Tangy Candy Company offers a coffee mug as a premium for every ten 50-cent candy bar wrappers presented by customers together with $1.00. The purchase price of each mug to the company is 90 cents; in addition it costs 60 cents to mail each mug. The results of the premium plan for the years 2006 and 2007 are as follows (assume all purchases and sales are for cash): 2006 2007 Coffee mugs purchased 720,000 800,000 Candy bars sold 5,600,000 6,750,000 Wrappers redeemed 2,800,000 4,200,000 2006 wrappers expected to be redeemed in 2007 2,000,000 2007 wrappers expected to be redeemed in 2008 2,700,000 Instructions Prepare the general journal entries that should be made in 2006 and 2007 related to the above plan by Tangy Candy. (Points: 30) 4. (TCO D) Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. (a) On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019. (b) On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization. (Points: 30) 5. (TCO D) Mann, Inc., which owes Doran Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty. To settle the debt, Doran agrees to accept from Mann equipment with a fair value of $570,000, an original cost of $840,000, and accumulated depreciation of $195,000. Instructions: (a) Compute the gain or loss to Mann on the settlement of the debt. (b) Compute the gain or loss to Mann on the transfer of the equipment. (Points: 20)

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