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