### 137 assume that the federal government implements a 10 payroll tax upon employers to 4298566

137. Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone&#39;s total annual payroll-related expenses to:
A. Decrease by \$15,000.
B. Increase by \$15,000.
C. Decrease by \$32,500.
D. No change, because payroll taxes are withheld from employees&#39; pay.

On December 1, Year 1, Bradley Corporation incurs a 15-year \$200,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of \$2,400, which include interest computed at the rate of 12% per year. The first monthly payment is made on December 31, Year 1.

138. Compute the total amount to be paid by Bradley over the 15-year life of the mortgage.
A. \$200,000.
B. \$562,000.
C. \$432,000.
D. \$474,000.

139. How much of the first payment made on December 31, Year 1, represents interest expense?
A. \$2,400.
B. \$400.
C. \$2,304.
D. \$2,000.

140. The total liability related to this mortgage reported in Bradley&#39;s balance sheet at December 31, Year 1, is:
A. \$432,100.
B. \$199,600.
C. \$194,923.
D. \$200,000.

141. Over the 15-year life of the mortgage, the total amount Bradley will pay for interest charges is:
A. \$232,000.
B. \$360,000.
C. \$200,000.
D. \$432,060.

142. The portion of the second monthly payment made on January 31, Year 2, which represents repayment of principle is:
A. \$400.
B. \$404.
C. \$2,400.
D. \$1,996.

143. On October 1, 2011, Master&#39;s Co. borrows \$500,000 from its bank for five years at an annual interest rate of 10%. According to the terms of the loan, the principal amount will not be due for five years. Interest is to be paid monthly on the first day of each month, beginning November 1, 2011. With respect to this borrowing, Master&#39;s December 31, 2011, balance sheet included only a long-term note payable of \$500,000. As a result:
A. The December 31, 2011, financial statements are accurate.
B. Liabilities are understated by \$12,500 accrued interest payable.
C. Liabilities are understated by \$4,167 accrued interest payable.
D. Liabilities are understated by the amount of interest for the five-year term of the note that has not yet been paid.

144. At the end of 2010 it is discovered that the accountant for Gower Company failed to record \$60,000 of interest payable which had accrued since the last interest payment date. The current ratio, quick ratio, and debt ratio, as well as the financial statements, had already been computed using the erroneous data. Correction of the accounting records will have which of the following effects?
A. Net income as formerly computed will not be affected by the correction of the error.
B. The interest coverage ratio as formerly computed will not change as a result of the correction.
C. The debt ratio as formerly computed will decrease as a result of the correction.
D. The quick ratio as formerly computed will decrease as a result of the correction.

On April 1, year 1, Cricket Corporation issues \$60 million of 12%, 10-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.

145. The amount of cash paid to bondholders for interest during Year 1, is:
A. \$6,600,000.
B. \$5,400,000.
C. \$3,600,000.
D. \$1,800,000.

146. Interest expense on this bond issue reported in Cricket&#39;s Year 1, income statement is:
A. \$2,400,000.
B. \$4,800,000.
C. \$5,400,000.
D. \$7,200,000.