Accounting worksheet

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Data

CURRENT AND LONG-TERM LIABILITIES
In 2013 Crosson, Inc. engaged in the following transactions related to liabilities:
1/2/13 Crosson, Inc. issued $ 2,100,000 , 5-year bonds that have a contract interest rate of 4% . The terms
of the bonds require Crosson, Inc. to make semi-annual interest payments which are due on June 30th
and December 31st of each year. The bonds sold at 101.75
1/3/13 Crosson, Inc. signed a long-term note and borrowed $ 1,500,000 from New Zealand Bank. The loan
loan has an annual interest rate of 2.5% . The terms of repayment require 6 annual payments of principal
and the appropriate interest on December 31st of each year as calculated in the schedule below:
For the Year N/P Balance Total Annual Interest Decrease N/P Balance
Ending: on Jan. 1 Payment Expense in N/P on Dec. 31
12/31/13 1,500,000 272,300 37,500 234,800 1,265,200
12/31/14 1,265,200 272,300 31,630 240,670 1,024,530
12/31/15 1,024,530 272,300 25,613 246,687 777,843
12/31/16 777,843 272,300 19,446 252,854 524,989
12/31/17 524,989 272,300 13,125 259,175 265,814
12/31/18 265,814 272,459 6,645 265,814 0
2/10/13 Crosson, Inc. paid cash to purchase new operating equipment with costing $ 3,000,000
6/30/13 Crosson, Inc. makes the semi-annual interest payment to its bondholders and records amortization.
12/16/13 Crosson, Inc. signed a promissory note to Brand Bank in exchange for a cash loan of $ 48,000
The loan is for 45 days, with an annual interest rate to be paid at 2% .
12/31/13 Crosson, Inc. makes the semi-annual interest payment to its bondholders and records amortization.
12/31/13 Crosson, Inc. makes the required annual payment on its note payable to New Zealand Bank.
12/31/13 Crosson, Inc. records the adjustment necessary to accrue interest on the loan from Brand Bank.
12/31/13 Crosson, Inc. records the adjustment necessary to accrue the income taxes payable for the year.
Instructions:
1. Using the general journal provided on the following page, prepare journal entries to record the above transactions
associated with liabilities, (be sure to include correct dates and explanations):
2. Using the t-accounts provided on the following page, post the journal entries prepared to the t-accounts and
update the balances in those t-accounts.
3. Using the updated t-account balances, complete the attached financial statements (note: income tax rate = 35%).
4. Answer a-j.

&"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7 &"Arial,Bold"Name __________________

Data (2)

CURRENT AND LONG-TERM LIABILITIES
4. Answer the following questions:
a. When the bond payable was issued on 1/1/2013, what was the selling price?
b. How much was the premium received by Crosson, Inc. from the sale of the bonds?
b. What is the dollar amount of interest that MUST be paid every six months on the
bonds?
c. What is the amount of the semiannual amortization of the premium on the bond?
d. Will the semi-annual amortization of the premium cause the amount of the interest
expense recorded, when the interest is paid, to be more or less than the
actual cash that is paid for the semi-annual interest on the bond?
e. Since the bonds sold at a premium on 1/1/2013, what do you know about the
market rate of interest on 1/1/2013?
f. What will the carrying value of the bonds be after 1 year (on 12/31/13)?
Bond face amount
Unamortized premium
Carrying value at 12/31/15
g. If Crosson, Inc. redeems the bonds early on 12/31/13(after paying the Dec. int.) @ 101.5 :
• Will there be a gain or loss on the redemption?
• How much of a gain or loss will there be?
h. On December 31, 2013, how much of the note payable still owed to New Zealand Bank
will be presented on the balance sheet as a current liability?
i. Calculate the following for Crosson, Inc. on December 31, 2013:
Working capital = current assets - current liabilities
= - =
Current ratio = current assets = =
current liabilities
Quick ratio = quick assets = =
current liabilities
Number of Times Interest Charges = Income Before Income Tax + Interest Expense
Are Earned Interest Expense
= + = =
j. What do the above ratios tell you about Crosson, Inc?

&"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7 &"Arial,Bold"Name __________________

Journal

1. RECORD JOURNAL ENTRIES
LONG-TERM LIABILITIES
CROSSON, INC.
General Journal
Date Description Post Ref Debit Credit

&"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7 &"Arial,Bold"Name __________________

Ledger

2. POST JOURNAL ENTRIES AND UPDATE ACCOUNT BALANCES
Crosson, Inc.
General Ledger
December 31, 2013 (excluding certain liabilities transactions)
Cash #100 Short-Term Note Pay. #200 Note Pay.-Long Term #220 Deprec. Exp-Store #601
Beg. Balance 30,100 Beg. Balance 0 Beg. Balance 0 Beg. Balance 0
Annual activity 175,000 5,000 Annual activity 0 Annual activity 0 Annual activity 116,000
subtotal 200,100 subtotal 0 subtotal 0 subtotal 116,000
Advertising Exp. #603
Beg. Balance 0
Accounts Payable #201 Annual activity 48,750
Beg. Balance 74,350 subtotal 48,750
Annual activity 1,955,500 1,900,000 Capital Stock #300
subtotal 18,850 Beg. Balance 600,000 Office Salaries Exp. #700
Annual activity 50,000 Beg. Balance 0
Interest Payable #202 subtotal 650,000 Annual activity 325,000
Accounts Receivable #105 Beg. Balance 0 subtotal 325,000
Beg. Balance 48,900 Annual activity 0 Retained Earnings #301
Annual activity 2,750,000 2,735,500 subtotal 0 Beg. Balance 186,000 Office Rent Exp. #702
subtotal 63,400 Annual activity 0 Beg. Balance 0
subtotal 186,000 Annual activity 240,000
subtotal 240,000
Merch. Inventory #106 Income Taxes Pay. #203
Beg. Balance 15,350 Beg. Balance 0 Dividends #302 Office Insurance Exp. #705
Annual activity 1,475,000 1,445,000 Annual activity 0 Beg. Balance 0 Beg. Balance 0
subtotal 45,350 subtotal 0 Annual activity 25,000 Annual activity 18,000
subtotal 25,000 subtotal 18,000
Prepaid Office Ins. #107 Interest Expense #800
Beg. Balance 36,000 Bonds Payable #210 Sales #400 Beg. Balance 0
Annual activity 18,000 Beg. Balance 0 Beg. Balance 0 Annual activity 0
subtotal 18,000 Annual activity 0 Annual activity 2,920,750 subtotal 0
subtotal 0 subtotal 2,920,750
Equipment #111
Beg. Balance 830,000 Cost of Merch. Sold #500
Annual activity 80,000 Beg. Balance 0
subtotal 910,000 Premium-Bonds Pay. #211 Annual activity 1,445,000
Beg. Balance 0 subtotal 1,445,000
Annual activity 0 Income Tax Exp. #810
subtotal 0 Beg. Balance 0
Accum. Deprec. #112 Sales Salaries Exp. #600 Annual activity 0
Beg. Balance 100,000 Beg. Balance 0 subtotal 0
Annual activity 116,000 Annual activity 537,000
subtotal 216,000 subtotal 537,000
Jan.1 Subtotal Updated
Debits = 960,350 Debits = 3,991,600 Debits = 2,881,500
Credits= 960,350 Credits= 3,991,600 Credits= 3,991,600

&"Arial,Bold"ACC 211 &"Arial,Bold"CHALLENGE #7 &"Arial,Bold"Name __________________

FS-DirectCF-MultiStepIS

3. COMPLETE FINANCIAL STATEMENTS, (Statement of Cash Flows is on separate page)
Crosson, Inc.
Income Statement
_______________________________________________
Revenue from sales: 2,920,750
Cost of merchandise sold 1,445,000
Gross profit $ 1,475,750
Operating expenses:
Selling expenses:
Sales salaries expense $ 537,000
Depreciation expense - store 116,000
Advertising expense 48,750
Total selling expenses $ 701,750
Administrative expenses:
Office salaries expense 325,000
Office rent expense 240,000
Office insurance expense 18,000
Total administrative epxenses 583,000
Total operating expenses 1,284,750
Income before other items $
Other income and expenses:
Interest expense
Income before income taxes
Income tax expense
Net income $
Crosson, Inc.
Retained Earnings Statement
_______________________________________________
_______________________, January 1, 2013 $
Net income $
Less dividends
Increase in retained earnings
Retained earnings,______________________ $
Crosson, Inc.
Balance Sheet
_______________________________________________
Assets Liabilities
Current assets: Current liabilities:
Cash $ Short term notes payable $
Current portion of LTD
Accounts receivable 63,400 Accounts payable 18,850
Merchandise inventory 45,350 Income taxes payable
Prepaid insurance 18,000 Interest payable
Total current assets $ Total current liabilities $
Long-term liabilities:
Notes payable
Bonds payable
Property, plant and equipment: Premium on bonds payable
Equipment 0 Total long-term liabilities
Less: accum.depr. 216,000 Total liabilities
Stockholders' Equity
Total property, plant & equipment Capital stock $ 650,000
Retained earnings
Total stockholders' equity
Total assets $ Total liabilities and stockholders' equity $
Crosson, Inc
Statement of Cash Flows
Cash flows from operating activities:
Cash received from customers $ 2,906,250
Deduct cash payments for:
Expenses $ (847,250)
Creditors (1,955,500)
Net cash flow __________ operating activities $
Cash flows used for investing activities:
Deduct cash payment for purchase of equipment $ (3,080,000)
Net cash flow ___________ investing activities
Cash flows from financing activities:
Cash received from:
Issue of bonds $ 2,136,750
Sale of stock 50,000
Notes payable 1,548,000
Deduct cash payments for:
Notes payable (234,800)
Dividends (25,000)
Net cash flow __________ financing activities
____________ in cash
Cash at the beginning of the year
Cash at the end of the year $

&"Arial,Bold"ACC 211 &"Arial,Bold"CHALLENGE #7 &"Arial,Bold"Name ____________________