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Chapter 9 Multiple Choice (Circle the best response)22 points 1. Sisters Inc. issued a 120-day note for $180,000 on November 1, 2016 with an annual rate of 6%. What amount of interest has accrued as of December 31, 2016? A) $3,000 B) $2,250 C) $1,800 D) Zero. The interest is accrued at the end of the 120-day period. 2. Which of the following does not represent a current liability? A) Accrual of taxes payable B) Short-term loan C) Advance payments received from customers D) Bond issue 3. How many payment periods are in an 8-year, 8% bond with an effective interest rate of 6%, and paid semiannually? A) 3 B) 12 C) 48 D) 16 4. What effects would the accrual of $160 of interest on a note payable have on financial statements? I.Balance sheet: Liabilities are decreased by $160 II.Income statement:Expenses are increased by $160 III.Balance sheet: Retained earnings are decreased by $160 IV.Balance sheet: Cash assets are decreased by $160 V.Balance sheet: Liabilities are increased by $160 A) I, II, and III B) II, III, and V C) II, IV, and V D) II, III, and IV 5. On April 30, 2016, one year before maturity, Purple Pears, Inc. retired $600,000 of 8% bonds payable at 103. The book value of the bonds on April 30 was $578,400. Bond interest was last paid on April 30, 2016. What is the gain or loss on the retirement of the bonds? A) $39,600 loss B) $21,600 gain C) $61,200 gain D) $48,000 loss 6. If bonds are issued at 103, this means that: A) A $1,000 bond sold for $103. B) The bonds sold at a discount. C) A $2,000 bond sold for $2,060. D) The bond rate of interest is 10.3% of the market rate of interest. 7. Jane Cooper Industries plans to issue 8-year, 8%, $200,000 bonds paying interest on an annual basis, at a $4,000 premium. Which one of the following statements is true? A) The cash paid to bondholders will be $4,000 each interest period. B) Jane Cooper will receive $196,000 as the issue price. C) Jane Cooper’s annual interest expense on the bonds will be less than the amount of interest payments to bondholders each year. D) Jane Cooper’s annual interest expense on the bonds will be greater than the amount of interest payments to bondholders each year. 8. Current liabilities are all obligations that require, within the coming year or current operating cycle, whichever is longer: A) The payment of cash B) The use of existing current assets C) The creation of other current liabilities D) Either the use of existing current assets or the creation of other current liabilities 9. Working capital is defined as: A) Assets – liabilities B) Current assets C) Current assets – Current liabilities D) Market value – Book value 10. The December 31, 2016, balance sheet of Melvin Company includes the following information: Inventory$500,000 Prepaid Expenses40,000 Total Current Assets1,200,000 Total Current Liabilities500,000 Accounts Payable360,000 What is Melvin’s quick ratio at December 31, 2016? A) 0.93 B) 3.00 C) 2.16 D) 1.32 11. Findlay Associates has outstanding Bonds Payable, with a par value of $80,000, and carrying value of $77,800. If Findlay purchases the bonds in the open market at a price of 97.0 and retires them, which of the following is true? A) Findlay will recognize a loss of $2,200. B) Findlay will recognize a gain of $2,200. C) Findlay will recognize a gain of $200. D) Findlay will recognize a loss of $200. Problems58 points 1. On June 30, 2021, Chu Industries issued 9-month, 9 %, notes for $700,000. Assume that the year-end is December 31 Required: Prepare journal entries for Chu Industries for each event and the year-end adjusting entry. Calculate the interest expense for 2021. 2. Hot Springs Marine borrowed $20 million cash on December 1, 2021, to provide working capital for year-end inventory. Hot Springs Marine issued a 4-month, 9% promissory note to Third Bank under a prearranged short-term financing arrangement. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year. Required: Prepare journal entries for Hot Springs marine for each event and the year-end adjusting entry. 3. Grinnell Company issued $700,000 of 7%, 20-year bonds at 104 on January 1, 2010. Interest is payable semi-annually on June 30 and December 31. On January 1, 2021, Grinnell retires the bond at 101 (after making the interest payment on that date). Required: Prepare journal entries for Grinnell Company for 2010 and 2021. Calculate eth balance in the premium account on December 31, 2020. 4. Crailsheim, Inc. has $1,400 working capital and $3,300 of current assets. What is the firm’s current liabilities? 5. Use the selected balance sheet and income statement information below for Moonbeam, Inc. to compute the times-interest-earned ratio. Explain what information this ratio provides. Current assets Current liabilities Pretax income Interest expense $24,300,450 $17,004,800 $3,500,300 $1,137,500 6. Use the selected balance sheet and income statement information below for Anka Inc. to compute the current ratio. Explain what information this ratio provides. Current assets Current liabilities Pretax income Interest expense $26,300,450 $14,879,200 $4,300,600 $1,300,000 7. Selected balance sheet and income statement information for a jewelry company for 2014 through 2016 follows: ($millions) 2016 2015 2014 Net sales $ 5,420 $5,698 $ 5,856 Interest expense 138 73 60 Pretax income 780 732 1,158 Net income 530 440 646 Current assets 4,892 4,098 3,844 Total assets 6,976 6,204 6,002 Current liabilities 1,400 1,404 1,374 a.Compute the current ratio for each year and discuss any trends. b.Compute times interest earned for each year and discuss any trends. Review Problems20 points Prepare a classified Balance Sheet EMBG Corporation Adjusted Trial Balance For Year Ending December 31, 2020 Debit Credit Cash $ 44,000 Accounts receivable 28,000 Inventory 20,000 Prepaid Expenses 5,000 Supplies 1,000 Equipment 376,000 Accumulated depreciation 72,000 Property 150,000 Plant under construction 400,000 Accounts Payable 60,000 Salaries Payable 4,000 Unearned Sales Revenue 8,000 Notes Payable due 2030 500,000 Common stock 300,000 Retained earnings 62,000 Dividends 10,000 Service fees earned 400,000 Cost of Goods Sold 200,000 Salaries expense 50,000 Depreciation expense 42,000 Rent expense 44,000 Interest Expense 30,000 Income Tax Expenses 6,000 Total $ 1,406,000 $ 1,406,000