Borrowed
$66,000,000
$84,000,000
1
Cash
66,000,000
$
9 month
9 month
Notes payable
8%
15%
2
Interest expense
$1,320,000
Interest payable
$84,000,000
66,000,000
$
$84,000,000
$3,150,000
1,320,000
$
$3,150,000
Received
$42,000
$31,200
12/12/24
Cash
Cash sale
$420,000
$312,000
Deferred revenue
1/16/2025
Deferred revenue
Cash
Sales revenue
42,000
$
$31,200
42,000
$
$31,200
42,000
$
$31,200
378,000
$
$280,800
420,000
$
$312,000
credit sale
798,000
$
796,000
$
Accounts receivable
857,850
$
state sales tax
6%
6%
Sales revenue
local sales tax
1.50%
1.50%
Sales tax payable
855,700
$
798,000
$
796,000
$
59,850
$
59,700
$
5 year warranty
warranty cost expected
1%
1%
Debit
Sales
$19,000,000
$28,000,000
Beginning
-
$
Actual warranty expenditures
$39,750
$20,500
Actual expenditures
39,750
$
Ending
Warranty Liability
Credit
Debit
Credit
Beginning
-
$
190,000
$
Warranty expense
280,000
$
Warranty expense
Actual expenditures
20,500
$
150,250
$
Ending
259,500
$
Warranty Liability
Warranty Liability
~
yr
reer
Estimated cost of recall
2,400,000.00
$
$3,100,000
Income Statement
decrease net income
2,400,000.00
$
Balance sheet
increase liabilities
2,400,000.00
$
2024
1/13/2024
1/13
line of credit
$30,500,000
$30,000,000
2/1
3 month bank loan
$7,800,000
$6,500,000
2/1/2024
interest rate
12%
11%
5/1
paid 12%(11%) note at maturity
12/1
commercial paper on 9 month note
$18,000,000
$18,600,000
5/1/2024
discount rate
11%
10%
12/31
adjusting entry
2025
12/1/2024
9/1
paid commercial paper at maturity
12/31/2024
9/1/2025
No journal entry
Cash
7,800,000
$
$6,500,000
Notes payable
7,800,000
$
Interest expense
234,000
$
178,750
$
Notes payable
7,800,000
$
$6,500,000
Cash
$8,034,000
Cash
16,515,000
$
17,205,000
$
Discount on notes payable
1,485,000
$
1,395,000
$
Notes payable
18,000,000
$
Interest expense
165,000
$
155,000
$
Discount on notes payable
165,000
$
Interest expense
1,320,000
$
1,240,000
$
Discount on notes payable
1,320,000
$
Notes payable
18,000,000
$
$18,600,000
Cash
18,000,000
$
$6,500,000
6,678,750
$
$18,600,000
155,000
$
1,240,000
$
$18,600,000
Gift card program in Jan 2024
1
Cash
sold
$12,250
in Jan
$13,150
in Jan
$16,900
in Feb
$16,000
in Feb
$18,600
in Mar
$17,400
in Mar
2
Deferred gift card revenue
Gift card redemptions
$7,900
in Jan
$7,800
in Jan
$6,500
in Feb
$6,300
in Feb
$5,450
in Mar
$4,800
in Mar
3
Deferred gift card revenue
broken 10 months after sale
12,250
$
13,150
$
1
Deferred gift card revenue
12,250
$
13,150
$
3
4
7,900
$
7,800
$
Revenue-gift cards
7,900
$
7,800
$
4,350
$
5,350
$
Revenue-gift cards
4,350
$
5,350
$
i
uv
Revenue recognized from January gift card
12,250
$
$13,150
Revenue recognized from March gift card
5,450
$
$4,800
Year-end deferred revenue liability
13,150
$
12,600
$
Allowance account
79,100
$
$92,400
1
Loss contingency
Credit sales
2,450,000
$
1%
uncollectible
$3,190,000
3%
2
Bad debt expense
Accounts receivable
652,500
$
$507,500
4
Net AR
Uncollectible AR
77,500
$
$88,500
AR
Less: Allowance
Net AR
Yes
Yes
3
Bad debt expense
24,500
$
24,500
$
95,700
$
Allowance for uncollectible accounts
626,400
$
$407,900
652,500
$
$507,500
26,100
$
99,600
$
626,400
$
407,900
$
95,700
$
24,500
$
95,700
$
“sro
—,;-——
Loss-litigation
1,116,000
$
1,239,000
$
1
Liability-litigation
1,116,000
$
1,239,000
$
Settlement
694,000
$
$752,000
2
Liability-litigation
422,000
$
487,000
$
Gain-litigation
422,000
$
487,000
$
Disclosure note
Yes
Yes
Accounts receivable
114,250
$
Account payable
53,600
$
12%(10%) notes, payable to bank
670,000
$
Mortgage note payable
1,270,000
$
Bank note, Aug 1, 2024
due July 31, 2025
Mortgage note due March 1, 2025
Interest 11%
intended to refinance at Dec 31, 2024 w/ new 10 year mortgage note
on March 1, 2025 paid
$263,000 on principle
AR overpaid
$19,650 credit balance
November 1, 2024 rented portion of factory at $32,400/yr
Payment for 12 months ended October 31,2025 was received as required
a bank note, issued 8-1-24, due 7-31-25, pay 12% interest
b mortgage note due 3-1-25, interest 11% paid up 12-31-24
$94,000
a
Interest expense
$39,000
$690,000
$1,320,000
b
No journal entry
12% interest
10%
c
Accounts receivable
paid to 12/31
9%
refinanced $1,007,000
$361,000
$959,000
d
Deferred revenue
$19,800
$23,400
33,500
$
28,750
$
Balance Sheet
Interest payable
33,500
$
28,750
$
Current Liabilities
Accounts payble
Current portion of LT debt
Accrued interest payable
19,650
$
19,800
$
Deferred revenue
Deferred revenue
19,650
$
19,800
$
Deferred rent revenue
12% notes payable
5,400
$
3,900
$
Revenue
5,400
$
3,900
$
Total current liabilities
Long-term liabilities
Mortgage NP
Total long-term liabilities
total liabilities
53,600
$
39,000
$
263,000
$
$361,000
33,500
$
28,750
$
19,650
$
19,800
$
27,000
$
19,500
$
670,000
$
690,000
$
1,066,750
$
1,158,050
$
1,007,000
$
$959,000
1,007,000
$
959,000
$
2,073,750
$
2,117,050
$
approximate $55,000,000
$47,000,000
loss amount
probability
$45,000,000
20%
$9,000,000
$37,000,000
20%
$7,400,000
$35,000,000
50%
$17,500,000
$27,000,000
50%
$13,500,000
$25,000,000
30%
$7,500,000
$17,000,000
30%
$5,100,000
$34,000,000
$26,000,000
risk-free rate 8%
8%
$31,481,481.48
5%
$24,761,904.76
PV (r=0.08,n=1)
$31,481,620
PV (r=0.05,n=1)
$24,761,880
Req 1&2
3
Traditional
SFAC number 7
Traditional
SFAC number 7
liability
$35,000,000
$31,481,620
$27,000,000
$24,761,880
4
5
27,500,000.00
$
Loss-product recall
$31,481,620
$24,761,880
Liability-product recall
$31,481,620
$24,761,880
Interest expense
$2,518,380
$1,238,120
Liability-product recall
$2,518,380
$1,238,120
Liability-product recall
$34,000,000
$26,000,000
Loss-product recall
2,200,000
$
$2,500,000
Cash
$36,200,000
$28,500,000
Notes payable
$12,700,000
due on Feb 8, 2025
$11,000,000
sold
2,500,000
shares at $0.25 par, common stock on 2-3-25 for $8,500,000
2,000,000
$4,200,000
maturation of some 3-month CD
$2,600,000
contingency
$1,000,000
Jan 5, 2025 worker intent to sue
$1,000,000
$83,000
Feb 23, 2025 settle for medical bills
$81,000
due on Feb 8, 2025
1
current liability
shares at $0.25 par, common stock on 2-3-25 for $8,400,000
2
Long-term liability
maturation of some 3-month CD
3
current liability
Long-term liability
Jan 5, 2025 worker intent to sue
4
current liability
Feb 23, 2025 settle for medical bills
Long-term liability
$4,283,000
$2,681,000
$8,500,000
$8,400,000
$4,200,000
$2,600,000
$8,500,000
$8,400,000
$4,200,000
$2,600,000
$8,500,000
$8,400,000
