Make your own free website on Tripod.com

EXERCISE 13-1

(a)                Current liability.

(b)                Current liability.

(c)                Current liability or long-term liability depending on term of warranty.

(d)                Current liability.

(e)                Current liability.

(f)                 Current liability.

(g)                Current or noncurrent liability depending upon the time involved.

(h)                Current liability.

(i)                  Current liability.

(j)                  Current liability.

(k)                Current liabilities or long-term liabilities as a deduction from face value of note.

(l)                  Footnote disclosure (assume not probable and/or not reasonably estimable).

(m)              Current liability.

(n)                Current liability.

(o)                Footnote disclosure.

(p)                Separate presentation in either current or long-term liability section.

EXERCISE 13-4

Chris Atkins Company

Partial Balance Sheet

December 31, 2004

Current liabilities:

 

 

            Notes payable (Note 1)

 

$3,400,000

 

 

 

Long-term debt:

 

 

            Notes payable expected to be refinanced in 2005
               (Note 1)

 


3,600,000

Note 1.

 

 

Under a financing agreement with Blue Lagoon State Bank the Company may borrow up to 60% of the gross amount of its accounts receivable at an interest cost of 1% above the prime rate. The Company intends to issue notes maturing in 2009 to replace $3,600,000 of short-term, 15%, notes due periodically in 2005. Because the amount that can be borrowed may range from $3,600,000 to $4,800,000, only $3,600,000 of the $7,000,000 of currently maturing debt has been reclassified as long-term debt.

 

EXERCISE 13-5

 

(a)

 

To accrue the expense and liability

 

To record payment for compensated

 

Year

 

for compensated absences:

 

time when used by employees:

 

2003

 

Wages Expense

11,520

 

 

Sick Pay Wages

 

 

 

 

 

 

  Vacation Wages

 

 

 

  Payable

2,880

(3)

 

 

 

 

    Payable

 

7,200

(1)

     Cash

 

 

2,880

 

 

 

  Sick Pay Wages

 

 

 

 

 

 

 

 

 

 

    Payable

 

4,320

(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2004

 

Wages Expense

12,672

 

 

Wages Expense

792

 

 

 

 

 

  Vacation Wages

 

 

 

Vacation Wages

 

 

 

 

 

 

    Payable

 

7,920

(4)

  Payable

6,480

(6)

 

 

 

 

  Sick Pay Wages

 

 

 

Sick Pay Wages

 

 

 

 

 

 

    Payable

 

4,752

(5)

  Payable

3,816

(7)

 

 

 

 

 

 

 

 

    Cash

 

 

11,088

(8)

 

(1)

9 employees X $10.00/hr. X 8 hrs./day X 10 days =

$7,200

 

(2)

9 employees X $10.00/hr. X 8 hrs./day X 6 days =

$4,320

 

(3)

9 employees X $10.00/hr. X 8 hrs./day X 4 days =

$2,880

 

(4)

9 employees X $11.00/hr. X 8 hrs./day X 10 days =

$7,920

 

(5)

9 employees X $11.00/hr. X 8 hrs./day X 6 days =

$4,752

 

(6)

9 employees X $10.00/hr. X 8 hrs./day X 9 days =

$6,480

 

(7)

9 employees X $10.00/hr. X 8 hrs./day X (6–4) days =

$1,440

 

 

9 employees X $11.00/hr. X 8 hrs./day X (5–2) days =

+2,376

= $3,816

(8)

9 employees X $11.00/hr. X 8 hrs./day X 9 days =

$7,128

 

 

9 employees X $11.00/hr. X 8 hrs./day X 5 days =

+3,960

= $11,088

NOTE: Vacation days and sick days are paid at the employee’s current wage.

(b)            Accrued liability at year-end:

 

 

2003

 

2004

 

 

Vacation Wages Payable

 

Sick Pay Wages Payable

 

Vacation Wages Payable

 

Sick Pay Wages Payable

 

 

Jan. 1 balance

$      0

 

$       0

 

$7,200

 

$1,440

 

 

+ accrued

7,200

 

4,320

 

7,920

 

4,752

 

 

– paid

     (   0)

 

(2,880)

 

(6,480)

 

(3,816)

 

Dec. 31 balance

$7,200

(1)

$1,440

(2)

$8,640

(3)

$2,376

(4)

 

 

(1)

9 employees X $10.00/hr. X 8 hrs./day X 10 days =

$7,200

 

 

 

(2)

9 employees X $10.00/hr. X 8 hrs./day X (6–4) days =

$1,440

 

 

 

(3)

9 employees X $10.00/hr. X 8 hrs./day X (10–9) days =

$   720

 

9 employees X $11.00/hr. X 8 hrs./day X 10 days =

+7,920

 

 

$8,640

 

 

 

(4)

9 employees X $11.00/hr. X 8 hrs./day X (6 + 6 – 4 – 5) days


$2,376

 

 (1)

9 employees X $10.75/hr. X 8 hrs./day X 10 days =

$7,740

 

 

 

(2)

9 employees X $10.75/hr. X 8 hrs./day X 1 day =

$   774

 

9 employees X $11.60/hr. X 8 hrs./day X 10 days =

  8,352

 

 

$9,126

EXERCISE 13-10

(a)

Cash (200 X $4,000)........................................................................            

800,000

 

 

            Sales................................................................................

 

800,000

 

 

 

 

 

Warranty Expense.........................................................................

17,000

 

 

            Cash.................................................................................

 

17,000

 

 

 

 

 

Warranty Expense ($66,000 – $17,000)...........................................

49,000

 

 

            Estimated Liability Under Warranties..................................

 

49,000

 

 

 

 

(b)

Cash                                                                                              ........................................................................................

800,000

 

 

            Sales................................................................................

 

800,000

 

 

 

 

 

Warranty Expense.........................................................................

17,000

 

 

            Cash

 

17,000

 

 EXERCISE 13-16

 

#

Assets

Liabilities

Owners’ Equity

Net Income

1

I

I

NE

NE

2

NE

NE

NE

NE

3

NE

I

D

D

4

I

I

NE

NE

5

NE

I

D

D

6

I

I

I

I

7

D

I

D

D

8

NE

I

D

D

9

NE

I

D

D

10

I

I

NE

NE

11

NE

I

D

D

12

NE

I

D

D

13

NE

I

D

D

14

D

D

NE

NE

15

I

I

I

I

16

D

NE

D

D

17

NE

D

I

I

18

NE

I

D

D

 

 

PROBLEM 13-1

 

 

(a)                                                 February 2

Purchases

49,000

 

            Accounts Payable

 

49,000

 

 

 

February 26

Accounts Payable

49,000

 

Purchase Discounts Lost

1,000

 

            Cash

 

50,000

April 1

Trucks

40,000

 

            Cash

 

4,000

            Notes Payable

 

36,000

May 1

Cash

80,000

 

Discount on Notes Payable

12,000

 

            Notes Payable

 

92,000

 

August 1

Retained Earnings (Dividends Declared)

300,000

 

            Dividends Payable

 

300,000

 

 

 

September 10

Dividends Payable

300,000

 

            Cash

 

300,000

 

 

 

(b)                                                December 31

            1. No adjustment necessary

 

 

 

 

 

            2. Interest Expense ($36,000 X 12% X 9/12)

3,240

 

                      Interest Payable

 

3,240

 

 

 

            3. Interest Expense ($12,000 X 8/12)

8,000

 

                      Discount on Notes Payable

 

8,000

 

 

 

            4. No adjustment necessary

 

 

 

 

 

PROBLEM 13-6

 

(a)

Cash

245,250

 

 

            Sales

 

225,000

 

            Unearned Warranty Revenue (270 X $75)

 

20,250

 

 

 

 

(b)

Current Liabilities:

 

 

 

            Unearned Warranty Revenue

 

$  6,750

 

            (Note: Warranty costs assumed to be incurred

 

 

 

                        equally over the three-year period)

 

 

 

Long-term Liabilities:

 

 

 

            Unearned Warranty Revenue

 

$13,500

 

 

 

 

(c)

Unearned Warranty Revenue

6,750

 

 

            Warranty Revenue

 

6,750

 

 

 

 

 

Warranty Expense

5,000

 

 

            Parts Inventory

 

2,000

 

            Accrued Payroll

 

3,000

 

 

 

 

(d)

Current Liabilities:

 

 

 

            Unearned Warranty Revenue

 

$  6,750

 

 

 

 

 

Long-term Liabilities:

 

 

 

            Unearned Warranty Revenue

 

$  6,750

 

 

 

PROBLEM 13-12

 

 

(1)

Sales of musical instruments and sound equipment

$5,400,000

 

Estimated warranty cost

             .02

 

            Warranty expense for 2004

$   108,000

 

 

 

(2)

Estimated liability for warranties—1/1/04

$   136,000

 

2004 warranty expense (Requirement 1)

     108,000

 

            Subtotal

244,000

 

Actual warranty costs during 2004

     164,000

 

Estimated liability from warranties—12/31/04

$     80,000

 

(3)

Coupons issued (1 coupon/$1 sale)

1,800,000

 

Estimated redemption rate

             .60

 

Estimated number of coupons to be redeemed

1,080,000

 

Exchange rate (200 coupons for a cassette player)

¸          200

 

Estimated number of premium cassette players

 

 

   to be issued

5,400

 

Net cost of cassette players ($34 – $20)

              14

 

            Premium expense for 2004

$     75,600

 

 

 

(4)

Inventory of premium cassette players—1/1/04

$     39,950

 

Premium cassette players purchased during 2004

 

 

   (6,500 X $34)

     221,000

 

Premium cassette players available

260,950

 

Premium cassette players exchanged for coupons

 

 

   during 2004 (1,200,000/200 X $34)

$   204,000

 

Inventory of premium cassette players—12/31/04

$     56,950

 

 

 

(5)

Estimated liability for premiums—1/1/04

$     44,800

 

2004 premium expense (Requirement 3)

$     75,600

 

            Subtotal

$   120,400

 

Actual redemptions during 2004

 

 

   [1,200,000/200 X ($34 – $20)]

$     84,000

 

Estimated liability for premiums—12/31/04

$     36,400