ACTG 316 Quiz 1 Review & Solutions
WELL DEFINED (LATEST UPDATE)
GRADED A+!!
1. In the past, Frying Nemo Corporation raised $50 million by issuing
bonds that would mature (need to be repaid) in 25 years. Those same
bonds are due to mature on January 15, 2024. However, Frying Nemo
plans to refinance those bonds by issuing more 25-year bonds (i.e.,
Frying Nemo is going to issue new bonds to repay the old bonds).
Frying Nemo has the ability to refinance the bonds and in fact does
refinance the bonds on December 7, 2023. According to U.S. GAAP,
how should Frying Nemo classify the bonds on its balance sheet as of
December 31, 2023?
a. Current asset
b. Noncurrent asset
c. Current liability
d. Long-term debt
e. Stockholders' equity ANSWER d. Long-term debt
2. Life has been good to you, so you walk into a car dealership and pay
$2 million cash for a Bugatti Veyron (it's a car). Bugatti says it doesn't
have the car in stock but will deliver it to you in six months. Record the
journal entry that Bugatti would need to record when you pay the cash.
ANSWER Cash $2,000,000
Unearned Revenue $2,000,000
, 3. Tequila Mockingbird pays its employees on Fridays. This year the
company's fiscal year ends on a Tuesday, so the employees have done
some work for which they have not yet been paid at the fiscal year-end
(the employees are owed salaries of $40,000). Record the journal entry
that Tequila Mockingbird would need to make at the fiscal year-end to
account for this. ANSWER Salaries Expense $40,000
Salaries Payable $40,000
4. Record the journal entry that Walgreens would make to record the
sale of the gift card ($5) to you (assume you pay cash for the gift card).
ANSWER Cash $5
Unearned Revenue $5
5. Record the journal entry Walgreens would need to record when your
significant other uses the gift card to purchase candy ($3). ANSWER
Unearned Revenue $3
Sales Revenue $3
Cost of Goods Sold $1
Inventory $1
6. At some point, Walgreens will determine that the unused gift card
balance of $2 will never be used and recognize revenue. What is this
called? In other words, when companies recognize revenue from
unredeemed gift cards this is called ____________. ANSWER breakage
WELL DEFINED (LATEST UPDATE)
GRADED A+!!
1. In the past, Frying Nemo Corporation raised $50 million by issuing
bonds that would mature (need to be repaid) in 25 years. Those same
bonds are due to mature on January 15, 2024. However, Frying Nemo
plans to refinance those bonds by issuing more 25-year bonds (i.e.,
Frying Nemo is going to issue new bonds to repay the old bonds).
Frying Nemo has the ability to refinance the bonds and in fact does
refinance the bonds on December 7, 2023. According to U.S. GAAP,
how should Frying Nemo classify the bonds on its balance sheet as of
December 31, 2023?
a. Current asset
b. Noncurrent asset
c. Current liability
d. Long-term debt
e. Stockholders' equity ANSWER d. Long-term debt
2. Life has been good to you, so you walk into a car dealership and pay
$2 million cash for a Bugatti Veyron (it's a car). Bugatti says it doesn't
have the car in stock but will deliver it to you in six months. Record the
journal entry that Bugatti would need to record when you pay the cash.
ANSWER Cash $2,000,000
Unearned Revenue $2,000,000
, 3. Tequila Mockingbird pays its employees on Fridays. This year the
company's fiscal year ends on a Tuesday, so the employees have done
some work for which they have not yet been paid at the fiscal year-end
(the employees are owed salaries of $40,000). Record the journal entry
that Tequila Mockingbird would need to make at the fiscal year-end to
account for this. ANSWER Salaries Expense $40,000
Salaries Payable $40,000
4. Record the journal entry that Walgreens would make to record the
sale of the gift card ($5) to you (assume you pay cash for the gift card).
ANSWER Cash $5
Unearned Revenue $5
5. Record the journal entry Walgreens would need to record when your
significant other uses the gift card to purchase candy ($3). ANSWER
Unearned Revenue $3
Sales Revenue $3
Cost of Goods Sold $1
Inventory $1
6. At some point, Walgreens will determine that the unused gift card
balance of $2 will never be used and recognize revenue. What is this
called? In other words, when companies recognize revenue from
unredeemed gift cards this is called ____________. ANSWER breakage
