Reference no: EM132574802

Question 1. Lotta Sound grants a 90-day warranty on all stereos. Historically, approximately 2.5% of all sales prove to be defective. Sales in June are $200,000. In July, $2,900 of defective units are returned for replacement. What entry must Lotta Sound make at the end of June to record the warranty expense?

a. Debit Warranty Expense, and credit Estimated Warranty Payable, $2,900.

b. Debit Warranty Expense, and credit Cash, $4,865.

c. Debit Warranty Expense, and credit Estimated Warranty Payable, $5,000.

d. No entry is needed at June 30.

Question 2. Outback Camera Co. was organized to sell a single product that carries a 60-day warranty against defects. Engineering estimates indicate that 5% of the units sold will prove defective and require an average repair cost of $40 per unit. During Outback's first month of operations, total sales were 400 units; by the end of the month, six defective units had been repaired. The liability for product warranties at month-end should be which of the following? the answer is 800

a. $270

b. $530

c. $560

d. $810

e. None of these

Question 3. Dart Corporation's leverage ratio increased from 2.5 in 2013 to 3.0 in 2014. Without looking at the financial statements, which statement best describes what may have occurred?

a. The company incurred new debt financing in 2014, making it more profitable.

b. The company incurred new equity financing in 2014, making it less profitable.

c. The company incurred new debt financing in 2014, but it may or may not have been more profitable.

d. The company incurred new equity financing in 2014, but it may or may not have been more profitable.

Question 4. An unsecured bond is a

a. registered bond.

b. mortgage bond.

c. term bond.

d. serial bond.

e. debenture bond.

Question 5. The Discount on Bonds Payable account

a. is a contra account to Bonds Payable.

b. is a miscellaneous revenue account.

c. is an expense account.

d. is expensed at the bond's maturity.

e. has a normal credit balance.

Question 6. The discount on a bond payable becomes

a. additional interest expense the year the bonds are sold.

b. additional interest expense over the life of the bonds.

c. a reduction in interest expense the year the bonds mature.

d. a reduction in interest expense over the life of the bonds.

e. a liability in the year the bonds are sold.

Question 7. A bond that matures in instalments is called a

a. secured bond.

b. zero coupon.

c. serial bond.

d. term bond.

e. callable bond.

Question 8. The carrying value of Bonds Payable equals

a. Bonds Payable - Premium on Bonds Payable.

b. Bonds Payable - Discount on Bonds Payable.

c. Bonds Payable + Discount on Bonds Payable.

d. Bonds Payable + Accrued Interest.

Question 9. A corporation issues bonds that pay interest each March 1 and September 1. The corporation's December 31 adjusting entry may include a

a. debit to Cash.

b. credit to Cash.

c. credit to Interest Expense.

d. debit to Interest Payable.

e. credit to Discount on Bonds Payable.