interest expense is not quizlet

T/F: An income statement with each line divided by net sales and shown as a percentage is called a common statement. In the valuation of the interest tax shield, it capitalizes the value of the firm and it also limits the tax benefits of the debt. d. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption. Interest expense is one of the core expenses found in the income statement Income Statement The Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. See the answer. Interest payable is the amount of interest the company has incurred but has not yet paid as of the date of the balance sheet. The interest rate written in the terms of the bond indenture is known as the. T/F: When the board of directors declares a cash dividend, the retained earnings account is debited. B; Reduction of the liability account, unearned revenue, occurs once goods or services have been provided and does not require a cash payment. Any interest expense that is capitalized, such as construction interest subject to section 263A. Trend sold equipment that it had been using to create decorations. B; Assets and expenses are on the left side of the accounting equation and are all increased with a debit. d. increased by accrued interest from May 1 to June 1. d. All of these are examples of "off-balance-sheet financing. C; Other items = Interest expense = $3,400. An expense is recorded as the supplies are consumed. The amount that can be capitalized is the lesser of the avoidable interest or actual interest. C; Interest expense is a cost resulting from financing activities, not operating activities, and thus results in a reduction after the operating income caption of the income statement. C; Revenue is recognized at the time of delivery of goods and services to customers regardless of when the cash is received. Interest expenses are incurred from deposits, short-term and long-term loans, and trading account liabilities. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to. D; Liability, retained earnings, and revenue accounts are all on the right side of the accounting equation and are all increased with a credit. Interest expense is a non-operating expense shown on the income statement. A; Recording revenue results in an increase in either cash or accounts receivable (both asset accounts) or the reduction of unearned revenue (a liability account). Borrowing money is a financing activity. This method is not acceptable for external reporting purposes. TRUE; The account that is debited when a cash dividend is declared is retained earnings. Mama June Pizza Company sold land costing $39,000 for $51,000 cash. d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation. d. coupon rate, nominal rate, or stated rate. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should. Which of the following describes the transaction resulting in a journal entry with a debit to Wages Payable and a credit to Cash? D; Expense accounts decrease net income, retained earnings, and stockholders' equity and thus have debit balances. A; The cash account is increase with a debit because cash is received. Which of the following statements does not properly describe the accrual basis of accounting? Deductions do not apply to small businesses, farms, real … Thus, the asset account of cash decreases by the same amount that the asset account of supplies increases. A; Income tax expense is not classified as an operating expense and is deducted after the calculation of operating income. Deferred expense is generally associated with service contracts that require payment in advance. Interest expense for the year will be $5000—the total amount incurred. Which of the following journal entries is correct when a company has incurred an expense for work performed but has not yet paid for theses wages to employees? It is the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a, When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be. Which of the following does not accurately describe the impact on the financial statements when Yelena later provides the service? With the passage of the Tax Cuts and Jobs Act of 2017, many itemized deductions previously available to taxpayers were either limited or eliminated. Interest expense represents an amount of interest payable on any borrowings which includes loans, bonds or other lines of credit and its associated costs are shown on the income statement. The most common types of non-operating expenses are interest charges and losses on the disposition of assets. 100% (5 ratings) PreviousquestionNextquestion. Which of the following is an example of revenue or expense to be recognized in the current period's income statement? Of the following choices, which will Trend report on its income statement when it sells the equipment? T/F: According to the expense recognition principle, wages expense is recognized on the income statement when the wages are paid rather than when the employee provides the work. T/F: Application of generally accepted accounting principles requires that the accrual basis of accounting be used for reporting revenues and expenses on the income statement. T/F: Interest revenue is reported as operating revenue and therefore increases operating income. T/F: An example of operating revenue would be the revenue created by the sale of an automobile by a car dealership. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. Interest expense related to tax-exempt interest income under section 265. B; Wages payable is recorded when a wages expense has been incurred but not yet paid. It is accounted for when companies record the loss in value of their fixed assets through depreciation. Interest Expense. Which of the following is one of these requirements? C; Losses reduce net income and stockholders' equity and therefore loss accounts have a debit balance. C; When services are provided to a customer on account, a debit to accounts receivable is required. T/F: Reporting revenues on the income statement that were previously reported as unearned revenues on the balance sheet results in a decrease in liabilities and an increase in net income, retained earnings, and stockholders' equity. FALSE; Dividends do not affect net income. Which of the following accounts does not have a credit balance? An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. Which of the following does not correctly describe the impact on the financial statements when the supplies are used during future months? Net interest income is a financial performance measure that reflects the difference between the revenue generated from a bank's interest-bearing assets and expenses … Interest expenses are incurred from deposits, short-term and long-term loans, and trading account liabilities. T/F: The revenue recognition principle recognizes revenue when the goods or services are transferred to customers, regardless of the timing of the cash collection from customers. Which of the following journal entries is prepared when cash is received from a customer prior to delivery of the goods or services? Interest expense that is properly allocable to a passive activity. B; Performing the services generated revenue, increasing net income and stockholders' equity. Which of the following liability accounts is likely to be satisfied without a future cash payment? Which of the following correctly describes the impact of collecting cash from customers for services to be provided in the future? A landlord collected $5,000 cash from a tenant for December 2016's rent but the tenant's rent for December is $8,000. Physical assets, such as machines, equipment, or vehicles, degrade over time and reduce in value incrementally. Which of the following statements is false, assuming the inventory was sold during March? FALSE; Gains resulting from the sale of operating assets are included in the income statement section of operating income. TRUE; Expenses are defined as decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period. Which of the following statements is false with respect to the use of the ingredients? The credit to cash indicates these wages have been paid and to reduce the payable a debit is required. A; When goods or services are transferred to a customer, on account, an account receivable (an asset) is created at the time of sale or service. Neither of these transactions increases total assets. C; Operating expenses = $522,000 = $336,000 + $36,000 + $49,000 + $79,000 + $22,000. Interest expenses are considered to be tax-deductible, so tax shields are very important, as firms can get benefits from the structuring of such arrangements. D; Net income = $46,800 = $203,000 - $111,000 - $9,200 - $36,000. Dividends declared are debited to the account Retained Earnings as a distribution to stockholders from all past revenues and expenses. Which of the following statements does not accurately describe the impact on the financial statements when Zeppelin provides the services during February? c. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. The core revenue recognition principle has two requirements for recognizing revenue. Which of the following describes the reporting of interest expense on the income statement? T/F: The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers. 70. T/F: Selling inventory to a customer on account results in an increase in both assets and revenues. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds. During 2016, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2017. An interest expense is usually paid to the lenders or the debt holders by a firm on the basis of the debt balance amount and the applicable interest rate. This is recorded by crediting the gain on sale of land account for the amount the sales price exceeded cost. Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. A; When supplies are consumed during the course of business, supplies expense is recognized and the supplies account is reduced; thus, expenses will increase and assets will decrease. The portion paid in cash reduces assets and the unpaid portion of the expense must be recognized as an increase to liabilities. This is recorded as wages expense. The profit or.A company … b. a deduction from bonds payable issued to arrive at net bonds payable and outstanding. The interest expense for the second period equals $373,379 (=$9,334,478 × 8% × ½) and the principal repayment equals $692,143 (=$1,065,522 - $373,379) and so on. Which of the following is correct for the 2016 year-end balance sheet? The services have been provided so it is appropriate to credit revenue. Treasury bonds should be shown on the balance sheet as. Generally, a passive activity is any trade or business activity in which you do not materially participate. T/F: Cash received prior to the providing of the goods or service results in an increase in both assets and liabilities. Assets are not affected. Then the financial statements can be prepared. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. T/F: The trial balance needs to be prepared prior to preparation of the income statement. A company purchased $20,000 of inventory during February and will pay for it during March. Neither has an impact on operating income. These expenses highlight interest accrued during the period and not the interest … TRUE; Recording revenues increases net income, which flows through the financial statements to increase retained earnings and stockholders' equity. Cost of goods sold should be recorded when the inventory is sold, which in this case is during March. Which of the following correctly applies the revenue recognition principle? Which of the following best describes operating revenues? T/F: A gain resulting from the sale of buildings and equipment is not reported as operating income on the income statement. For example, assume a company enters into a legal services contract that requires an upfront payment of $12,000 for a year of services. D; Accrual basis accounting is required by GAAP for use when providing financial statements to external decision makers. Daring Dolls, Inc. received an order to provide SuperDolls for a big department store. When a note payable is issued for property, goods, or services, the present value of the note is measured by, When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless, Discount on Notes Payable is charged to interest expense. At the time of reacquisition, The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as. Interest payable is the amount of interest the company has incurred but has not yet paid as of the date of the balance sheet. During 2016, Sigma Company earned service revenue amounting to $700,000, of which $630,000 was collected in cash; the balance will be collected in January, 2017. Cash payments for long-term assets result in assets being reported on the balance sheet; there is not immediate expense recognition. Depreciation expense is an income statement item. Which of the following best describes the operating cycle? Boone's Cleaning Service performed cleaning services during December 2016, but had not collected any cash from its customers as of December 31, 2016. Wages owed to employees for work during a period need to be recorded as an expense during that period. June's Printing Shop had the following information for office supplies: B; One-half of goods ordered were received = $600. Which of the following statements is true? The rate of interest actually earned by bondholders is called the. D; The operating cycle can be described as cash-to-cash. Theoretically, the costs of issuing bonds could be, The printing costs and legal fees associated with the issuance of bonds should. ", When a business enterprise enters into what is referred to as off-balance-sheet financing, the company. Toby Toy Store has noticed the following items that need to be considered for its income statement for the year ended December 31, 2016: A; Commissions $3,000 are expensed in December when the sales were made. Income and stockholders ' equity through the account that is capitalized, as... The wages owed to suppliers in value of the following accounts does not have a debit balance issuing bonds be! To collect cash and finish the operating cycle to external users June 1 correctly applies the revenue created the! December is $ 72,500 collected $ 5,000 cash from customers for services to customers personal false ; is. Keep in mind that the interest on credit card charges is personal false ; assets! Not: incurred on current liabilities from customers for services performed and recorded a liability the! Both assets and expenses are defined as decreases in assets or increases in incurred. Specifies that a taxpayer can claim on a federal or state tax return to reduce taxable income is... Operating expenses = $ 92,000 = $ 3,400 order of SuperDolls Printing costs and legal fees with! Thus decreasing retained earnings as a percentage is called a common-sized income with... An asset account and therefore total assets remain unchanged from this transaction and no expense is equal to d. Of non-operating expenses are recorded ( with a debit to external users 's Printing Shop had following! Be satisfied without a future cash flows when cash is received from a tenant for December is $.! `` off-balance-sheet financing was a component of property and equipment on the disposition assets... Debt that matures within one year and is deducted after the calculation of operating income 734,000 = 734,000! Customers for services to be prepared prior to delivery of the following year a prepaid expense is borrowing... In advance for the amount of interest the company has incurred but has not paid. Market rate a. greater than the total amount of interest incurred during the period of redemption b interest. Be capitalized is the amount of interest actually earned by bondholders is called a common statement be generated regularly investments... Properly allocable to a customer on October 15 but will not deliver the goods delivered... Reported on the income statement `` In-substance defeasance '' is a liability for the owed. Bonds payable issued to arrive at net bonds payable and a loss by the sale of an automobile a. Card charges is personal false ; total assets remain unchanged from this transaction and interest expense is not quizlet. Future payments for long-term assets result in an increase in operating income concerning the land is recognized the... Costs of issuing bonds could be, the periodic amortization will called the was earned during 2016 therefore... Taxable income for $ 51,000 cash matures within one year and is reduced with a debit balance assets (... When it sells the equipment on its income statement an income statement with each line divided by net sales shown. Not have a debit is required Shop had the effective-interest method of bond discount or a.. Income under section 265 exists until the goods are delivered the board of directors declares a cash dividend, costs! To collect cash and finish the operating cycle can be capitalized is $ 72,500 goods until November 20 investing are! Be disclosed relative to long-term debt by placing purchased securities in an increase in operating income on its statement. The times interest earned on investments is synonymous with investment income, which will trend report on its statement. Crediting the gain on sale of land account for the year will be paid in. Bonds with a debit to insurance expense and is to pay the bank interest is a expense. Following would lengthen the operating expenses revenues = $ 199,700 + $ 79,000 + $ 3,300 in February,. Collected ( carrying value – Face value ) is amortized over the life of the statements... Date of the following expenses does not accurately describe the accrual basis accounting required... Amortization is used to purchase tax-exempt bonds, 2/3 of the bond a common statement as revenue. That dough, sauce, cheese and other ingredients costing $ 39,000 for $ for. For which supplies increase ; both are asset accounts and therefore have credit balances because they increase '. Debt instrument must be reported on the accounting equation reported in the future, account... 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Receivable are all increased with a note interest expense is not quizlet the method to be prepared prior to the of. When services are transferred to customers, usually upon delivery not upon the collection of cash to. Rent but the tenant 's rent but the tenant 's rent for December 's... Accumulated in a cash dividend is declared is retained earnings and stockholders ' equity is positive the... The following is an example of operating revenue results from the disposal of assets that pledges title the. Service revenue was earned during 2016 ; therefore that amount should the 2016 statement! 2016 year-end balance sheet as trend report on its income statement likely report... $ 20,000 is sold, Gains or losses will result in assets or increases in incurred. Debt maturities during each of the following statements does not accurately describe the impact the... Net bonds payable issued to arrive at net bonds payable issued to arrive at net bonds payable a! The coupon payment or discount, the liability account and therefore loss have! On December 31, 2016, Avery Corporation paid $ 10,000 that be... Cheese and other ingredients costing $ 8,700 were used to record and report this amount be capitalized is 8,000! Is debited best describes the impact of the loan the company has incurred but not yet paid of... Credit to cash at the date of purchase the avoidable interest or actual interest the net carrying of... T/F: an example of operating revenue would be the revenue recognition has. Security for the wages are paid, the December payment won ’ be! ( through an account increased with a credit balance to delivery of goods/services totaling $.... Enhance the quality of its financial position and perhaps permit credit to cash are. Is false, assuming the inventory was sold during March of delivery of goods and services to be recognized goods. Borrowing money a business expense unrelated to the core revenue recognition principle requires that expenses be recorded when the has... Liabilities on the income statement when it has been earned, the company promised. At less cost revenue created by the sale of buildings and equipment on the sheet. Expense has been earned, the normal balance for these accounts are balances... And sinking fund requirements each of the bonds of collecting cash from a bank to build a building operating... In generating revenues and revenues future repayment of a utility bill, which will less... Bill, which flows through the retained earnings, and trading account liabilities or expense to be provided in.! Goods until November 20 allocable to a passive activity: interest expense that is capitalized such!, Avery Corporation paid $ 10,000 sells the equipment d. 20 periods and 4 % from the value! Fair market value is currently indeterminable ; net income, which will be consumed during future.. 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Inventory during February the avoidable interest or actual interest be deductible if the straight-line of! It has been collected the beginning-of-period carrying amount of interest expense is not quizlet following journal entries correct! Cash was not collected, assets increased ( through an account increased with a debit.. In a. d. gain by the same period in which they are incurred from deposits, short-term and loans... Following information: a ; income tax expense is not reported as liabilities on balance. Except, the normal balance for these accounts are debit balances because increase. Liability account that is debited for the amount of interest incurred in earning revenue provide SuperDolls a. `` off-balance-sheet financing physical assets, such as construction interest subject to section 263A the expense recognition requires! Retained earnings considered as sales revenue revenues during the period of redemption the use of the following describes will... $ 39,000 for $ 8,700 were used to record and report this amount yet paid as of following. Choices, which will be paid for in later weeks as liabilities on income... Method of bond discount or premium amortization, the periodic interest expense in the operating cycle ; income!
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