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    pandabear88's Avatar
    pandabear88 Posts: 1, Reputation: 1
    New Member

    Nov 5, 2007, 06:39 PM
    Accounting Concepts
    Hi again,

    I was wondering if anyone might know how to check my answers to these questions on accounting... thanks!

    1. The current portion of long-term debt should
    a. not be separated from the long-term portion of debt.

    b. be paid immediately.

    c. be reclassified as a current liability.

    >>>>>d. be classified as a long-term liability.

    2. Failure to record a liability will probably

    a. result in understated total assets.

    >>>>>b. have no effect on net income.

    c. result in overstated total liabilities and owner's equity.

    d. result in an overstated net income.

    3. Spencer Corporation borrowed $300,000 from National Bank on May 31, 2006. The three-year, 7% note required annual payments of $114,315 beginning May 31, 2007.
    Reference: Ref 10-14

    The total amount of interest to be paid over the life of the loan is

    a. $63,000.

    b. $83,801.

    c. $42,945.

    >>>>>d. $21,000.

    5. If bonds have been issued at a discount, then over the life of the bonds the

    a. interest expense will increase, if the discount is being amortized on a straight-line basis.

    b. unamortized discount will increase.

    c. carrying value of the bonds will increase.

    >>>>>d. carrying value of the bonds will decrease.
    lest1696's Avatar
    lest1696 Posts: 2, Reputation: 1
    New Member

    Nov 6, 2007, 01:02 AM
    As for your first question, the answer is letter C. The current portion of the long term debt should be reclassified as a current liability. The reason for this is to present your balance sheet accounts and arrange them in their order of liquidity. Current Liabilities are those obligations which are expected to be settled in the normal course of the enterprise's operating cycle or due to be settled within one year from the balance sheet date.

    For your second question, the answer is letter D. Failure to record a liability will result to an overstatement of income this is because an understatement of expense will likewise occur such in the case of accruals.

    For your third question, the answer is letter C. The interest of the loan amounts to P42,945. Since it requires an annual payment of P114,315 for the next three years, the difference between P 342,945 (114,315 x 3) and the loan amount of P300,000 is the implied interest that accrued over the three year period of the loan.

    For your last question, the answer is D. When bonds are issued at a discount, it is in effect a loss for the issuing company. However, the bond discount is not recognized as outright loss but instead amortized over the period of the bonds. The account Discount on Bonds Payable is used to recognize the bond discount, which is an adjunct account of Bonds Payable. Over the period of the bonds, this account is equitably reduced by the amount of discount already amortized thereby increasing the carrying value of the bonds.

    Glad to be of help!

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