Week 4 Assignments : NEEL this is for you if you are available

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---_ .._-----------------------------_. Survey of Accounting. Third Edition

Exercise 1-23 Effecti~ interest amortization of Q bond discount On January 1,2012, Sea V_ Condo Association issued bonds with 8: face value of S2OO,OOO,a stated rate of interest of 8 percent, and a l()..year tetm to maturity. Interest is payable in cash on December 3J of _ch year. The effective rate of interest was 10 percent at the time the bonds ~'CI'C issued. The bonds sold for SI75,442_ Sea VIeW used the effective interest rate method to amortize bond discount.

Requirad

a. Determine the amount of the discount on the da,y of Issue, b. Determine the amount or intW:st expense ~ed on December 31. 20 12. Co Determine the carrying value of the bond liability on December 31 201.2.

Exercise '·24 Effective interest amortization of a bond dUCOIUft On JanuatY J. 2012,. Woodland Enterprises issued bonds with a face value of 550,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 3J of each year, The effective rate of interest was 10 percent at the time the bonds were issued. The bonds sold. for S46,209. Woodland used the effective interest rate method to amortize bond discount.

Required a. Prepare an amortization tableas shown below:

.~~ "..- 'Cash Interest Discount cB.nyi1lll·

fa,~ ExJll!ose AmartlzatlOll Value January 1,2012 46.209 December 31.2012 4.000 4,621 621 46,830 Oecember31, 2013 ? ? ., 1 December31,2014 ? 1 ? 1 December 31,2015 ? 1 ? 1 December 31. 2016 ---1 _1 -.1 ? Totals ~ 23,791 3)91

b. What item(s) in the tablcM)uld appear on the 201.3 balance sheet'? Co What item(s).in the table would appear on the 2013 income statement? d. whiltitem(s) in the table would appear on the 201l statement of cash flaws?

Exercise 1~~ Effir:tiveinterest ~,sram'aight.;line amoftizatfon

On January 1. 20U. Smith and Associates issued bonds with aface value of S1,OOO,OOO,astatcd rate of interest of 9 percent, and a ~year term to maturity. Interest ispa)'liblein cash on December 31 of each year. The etfectM rate of interest was 11 ~t at the time the bonds were issued,

Required Write a l1iiefmemoexpJaining whether the etfectiveintcrest rate method or-the straight-line method willprodnce the highest amount of interest expense recognized on the 2012 income statement,

PROBLEMS

All applicable ProbJemsare available with McGraw·Hilrs COnnectAccounfin~ . Pt'Oblem 7-2& Accoulfting/Or sltort-tenn debt and sales tax-t#YJ Qcc.ountMgcycks ThefoUowingtransactions lWP!y to Artesia Co. for 2012, its first year of operations.

1. Received $4(),000 cash from the issue of a short-term note with a 5 percent interest rate and a one-year maturity. The Dote was issued on April I; 2012.

ACCO<lnt1ngfor liabilitieS 277

LO'I1

L011

t.O 11

LO'I~2. 3. 4

CHECK RGlJRf Ne Income 2012: $46,500

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ACC201

LO 1. 2, 4

CHfCKAGURE TOIaI Current liabilities!S44.1l5D

Z. Received $120,000 cash plus applicable sales tax from performing- services The services are subject to a sales tax rate of 6 percent.

3. Paid S72,000 cash for other operating expenses during the year. 4. Paid the sales tax due on SI00,OOOof the service. revenue for the year. Sales tax on the

balance of the revenue is not due nntil2013. ~. Recognized the accrued interest at December 3t. 20.12.

The following transactions apply to Artesia Co. for Z013.

I.Paid the balance of the sales tax duefor201Z. 2. 1tecci~'ed S145,000 cash plus applicable sales tax from performing Services. The- services are

. subject to a sales tax rate of 6 percent. 3; .Repaid the principal of the note and applicable interest on Aprll 1. 2013_ 4. Paid -s85,000 of other operating expenses during the year. S. Paid tlle sales tax due on 5120,000 of theservicereveaue, The sales tax on the balance of the

revenue is not due until 2014. -

Requited a. Organize the transaction data in accounts under an accounting equation. b. Prepare an Income statement, a statement of changes in stockholders' equity, a balance

sheet, and a statement of cash flow for2Q12 and 20 13.

Problem 7-TI Effect of accrUl!d interest 011jinancitiJ stfl1l!DU!nU Toonan Co. borrowed 515,000 from theJocaI bank on Aprll J, 2012, when the company ~1IS

started. The note had an 8 percent annual interest rate and a one-year term to maturity. Norman eo. recognized S42,000 of revenue on account in 2012 and S56,OOOof revenue on account in 2013. Cash collections from accounts receivable were $38,000 in 2012 and S58,OOOin 2013. '= Co. paid $26,000 of salaries expense in 2012 and S32,000 of salaries expense in Z013.

Norman Co. paid the loan and interest at the maturity date.

Required

a. Organize the information in accounts under an accounting equation. b. What amount of net cash flow from operating activities would be reponed on the 2012 cash

flow statement? Co What amount of interest expense wolil.d be reported on the 2012 income statement? d. "'bat amount of total liabilities would be reported on the December 31. 2()1~balancesheet? e. -What amount of retained earnings would be reponed on the December 31, 201i.~lallce

sheet? .t What amount of. cash flow from ~g ~ctivities would be reported on the ip12 state-

ment of cash fiows? . . g. WhaI amount of interest expense would be reported on the 2013 income statement? h. What amount of cash flows frolll operating- activities would be reported on the 20tl cash

flow statement? lWbatamount of assets would be reported on the December 31,2013, balance sheefI-

Problem 7·28 CrD'fent li4bilities The folJowfug selected transactions were taken from the boon of Caledonia Company for 2012.

1. On Maroh 1,2012, borrowed S50,OOOcash from thelocal bank. The note had a 6 percent interest rate and was due on September 1.2012.

2. cash sales for the year amounted (05125,000 plus sales tax at the rate of 1 percent. 3. Caledonia provides a 9O-day warranty on the merchandise sold. The warranty expense ~

estimated to be 2 percent of sales. 4. Paid the sales tax to the state sales tax agency on SI90,OOOof the sales. 5. Paid the note due on September 1 and 'the related interest.

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Survey of Accounting. ThIrd Edition----------------------------------------------------------------------------------

ACcountingforUabiitles 279

6_ On October 1, 2012, borrowed S40,OOOcash from the local bank, The note had a 7 percent interest Fate and a one-year term to matUrity.

7. Paid 83.600 in warran ty repairs. 8. A CUStomer has filed a lawsuit against. Caledonia for 5100,000 for breach of contract, The

company artorney docs not beiieve the suit has merit.

Require4 a. Anm-e.r the following questions:

(1) Wfuu amount of cash did Caledonia pay for interest during the year'? (1) What. amount of Imeeesteapease is reported: on Caledonia 5 income.statementfor the yeai1 (3) What is the amount of warranty expeesefor tbe year?

b. Prepare the current liabilities section of'the balance sheet at December 3J, 2012. Co Show the effect of these transactions on the financial statements using a horizontal. stare-

meats model like the one.shown here Use a + to indicate increase, a - for decrease, afut NA for not affected. In the Cash Flow colamn, indicate whether the Item is an operating activity (OA), .investing activity (fA), or financing activit}' (FA). The fusttransaction is recorded as an example,

Uallilities + Equity Exp. Net IJIC. CasflRaw

NA +FA

Problem 7-29 Contingent liIlbiJiJies Required

a. Give an example of a contingent liability that is probable and reasonably estimable. How would this type of liability be Shown in the accounting records?

.b. Give an example of a contingent liability that is reasonably possible or probable but not reasonably estimable. How \J,'OUld this type of liability be shown in the accounting, records?

e, Give an example of a contingent liability that is remote. How is this type of liability shown in the accouating records?

Prob~m7.30 Multistep ilfcome statement-and cl4ssified balance sheet Require~ Use the fqllowing information to prepare a multistep income statement and a claBsif«:d balance s~tfor Douglas Company for-2012. (Him: Some of th.eitems willlU}lap~ on either statement, and ending retained earnings must be calculated.) c

Other olleratill\l expenses land Accumulated-ilepreciation Accounts payable Unearned revenue Warran1ies payable (slum term1 Equip!llerJt . Notes jlayable !long terml Salva!18valueaf equipment Dividends 'c c. wiirraittyexpense _ c ~ginning retained earnings· InterestreveJJue Gain on sale of equipment t nvelltllry Notes re1:eivable {shan terml

S 9O.oDOCasfl 50.000 1nterest receivable (short te-rrill 38.000 Cash ftowfrom investinjl activities 60.000 Allowance for doubtful accounts 58,oiJo Jr.terestpayable (short1erm) toOO . Sales revenue

77,000- UncoUectible accounts expense 129,000 Interest exjlense

7,000 Acllounts receivable' 12.000. salaries payable 5.000 c Supplies

28,800 Prepard rent 6.000 Common stock

10.000 Cost of goods sold 154,000 salaries expense

17.000

S 23,000 800

102.000 7.000 3,000

5OO,1m 14,Im 32.000

c 113,000 12;Ooil 3,000

14.000 5UXXl

119,lJOO l~c

i.03

CHECKAGUReS Total Cunent Assets: $317,800 Total Current Ualll1i1ies: $135,000