1. Chicago Company sold merchandise to a customer for $2,400 cash in a state with a 6% sales tax rate. The total amount of cash collected from the customer was
o $2,544.
o $2,400.
o $2,256.
o $2,568.
2. Sandusky Company borrowed $12,000 from the Lakeside Bank by issuing a 10% three-year installment note. Sandusky agreed to repay the principal and interest by making annual payments in the amount of $4,825.38. Based on this information, the amount of the interest expense associated with the second payment would be: (round your answer to the nearest dollar)
o $1,608.
o $536.
o $1,200.
o $837.
3. On January 1, 2014, the Minton Company borrowed $175,000 cash from the Hometown Bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, 2014. The annual payment on the loan was $40,900.
The amount of principal repayment included in the December 31, 2014 payment is:
o $14,000.
o $37,628.
o $26,900.
o $40,900.
4. Upton Company obtained an $190,000 line of credit from the Key State Bank on January 1, 2014. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of 2014 are shown in the following table. Assume that Upton borrows or repays on the first day of each month. Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses.
|
Amount
Borrowed
or (Repaid)
|
Prime Rate
|
|
January 1
|
$47,500
|
4.0%
|
|
February 1
|
(11,875)
|
4.5%
|
|
March 1
|
47,500
|
5.0%
|
The amount of interest expense recognized in March, rounded to the nearest dollar, would be:
o $346.
o $317.
o $485.
o $396.
5. Ferguson Company obtained a $95,000 line of credit from the Metropolitan Bank on January 1, 2014. The company agreed to accept a variable interest rate that was set at 2% above the bank's prime lending rate. The bank's prime rate of interest and the amounts borrowed or repaid during the first three months of 2014 are shown in the following table. Assume that Ferguson borrows or repays on the first day of each month. Borrowing is shown as a positive amount and repayments are shown as negative amounts indicated by parentheses.
|
Date
|
Amount
Borrowed
or (Repaid)
|
Prime Rate of Interest
|
|
January 1
|
$26,000
|
4.0%
|
|
February 1
|
(8,000)
|
4.5%
|
|
March 1
|
26,000
|
5.0%
|
The amount of interest expense recognized in March, rounded to the nearest dollar, would be
o $165.
o $257.
o $147.
o $183.
6. Everest Company issued bonds with a $190,000 face value on January 1, 2014. The bonds were issued at face value and carried 5-year term to maturity. They had a 6% stated rate of interest that was payable in cash on January 1 of each year beginning January 1, 2015. Based on this information alone, the amount of total liabilities appearing on the December 31, 2014 balance sheet would be:
o $190,000.
o $201,400.
o $11,400.
o $188,860.
7. Pella Company issued bonds with a face value of $5,000,000 on January 1, 2014. The bonds were issued at face value and carried a 4-year term to maturity. Interest at 8% was payable in cash on December 31 of each year. Based on this information alone, the amount of interest expense shown on the 2014 income statement and the cash flow from operating activities shown on the 2014 statement of cash flows would be:
|
Interest Expense
|
Cash Outflow
|
|
A)
|
|
zero
|
|
zero
|
|
B)
|
|
zero
|
$
|
400,000
|
|
C)
|
$
|
400,000
|
|
zero
|
|
D)
|
$
|
400,000
|
$
|
400,000
|
o Choice A
o Choice B
o Choice C
o Choice D
8. On January 1, 2014, Luna Company issued bonds with a face value of $400,000 at 96. The bonds will mature in 5 years. Interest at 8% was payable in cash on December 31 of each year. The discount will be amortized using the straight line method. Based on this information, the amount of interest expense shown on the 2014 income statement and the cash flow from operating activities shown on the 2014 statement of cash flows would be:
|
Interest Expense
|
Cash Outflow
|
|
A)
|
$
|
30,720
|
$
|
32,000
|
|
B)
|
$
|
32,000
|
$
|
32,000
|
|
C)
|
$
|
35,200
|
$
|
32,000
|
|
D)
|
$
|
35,200
|
$
|
35,200
|
o Choice A
o Choice B
o Choice D
o Choice C
9. On January 1, 2014, Sol Company issued bonds with a face value of $300,000 at 110. The bonds will mature in 5 years. Interest at 8% was payable in cash on December 31 of each year. The premium will be amortized using the straight line method. Based on this information, the amount of interest expense shown on the 2014 income statement and the cash flow from operating activities shown on the 2014 statement of cash flows would be:
|
Interest Expense
|
Cash Outflow
|
|
A)
|
$
|
30,000
|
$
|
24,000
|
|
B)
|
$
|
18,000
|
$
|
24,000
|
|
C)
|
$
|
26,400
|
$
|
24,000
|
|
D)
|
$
|
24,000
|
$
|
24,000
|
o Choice B
o Choice C
o Choice A
o Choice D
10. Juneau Company issued 5-year $260,000 face value bonds at 95 on January 1, 2014. The stated interest rate on these bonds is 9%. If the effective interest rate is 10.00%, interest expense in 2014 is equal to
o $23,400.
o $24,700.
o $26,000.
o $22,230.
11. Juneau Company issued 5-year $310,000 face value bonds at 90 on January 1, 2014. The stated interest rate on these bonds is 9%. If the effective interest rate is 10.30%, interest expense and the discount amortization in 2014 are
o $28,737 interest expense; $837 discount amortization.
o $27,900 interest expense; $31,930 discount amortization.
o $27,900 interest expense; $837 discount amortization.
o $28,737 interest expense; $31,930 discount amortization.