Reference no: EM132359614
Question
1. Which of the following transactions would NOT be reported in the Liabilities section of the balance sheet?
Declaration of $50,000 of stock dividends due to shareholders
$3,300 of sales taxes due to the government.
Accrual of $1,500 of interest on a note payable.
Issuance of a $600,000, 8% bond that matures in five years.
All of these are liabilities.
2. Bellamy Company manufactures high-end bicycles. It was recently discovered that one batch of tires used to produce the bicycles were defective. As a result of the defects, three of Bellamy's customers suffered substantial injuries. The customers sued Bellamy for $1,200,000. Bellamy's counsel deemed that a loss was probable and the amount was a reasonable estimate of the loss.
Bellamy subsequently sued the manufacturer of the tires for $5,000,000, citing that the Bellamy name had been significantly tarnished as a result of the defective tires. Bellamy's counsel deemed that it was probable that Bellamy would win the lawsuit and the amount was a reasonable estimate of the settlement.
How would Bellamy record these transactions?
Bellamy would not report anything until both lawsuits are settled.
Bellamy would net the probable gain against the probable loss and would report a net gain of $3,800,000.
Bellamy would accrue a liability for the $1,200,000 loss and accrue a receivable for the $5,000,000 gain.
Bellamy would accrue a liability for the $1,200,000 loss, but would not accrue anything for the gain.
3. Which of the following statements is true?
When a bond's effective rate is higher than the yield, the bond will sell at a premium.
When a bond's yield is higher than its face rate, the bond will sell at a premium.
When a bond's face rate is higher than the yield, the bond will sell at a premium.
None of these answers are correct
When a bond's face rate is higher than its coupon rate, the bond will sell at a premium.
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