Question 1

MullerB Company's employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment terminates. During 2013, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2013, but not including vacations related to 2013 that will be taken in 2014. All vacations earned before 2013 were taken before January 1, 2013. No accrual entries have been made for the vacations.
Required:
Prepare the appropriate adjusting entry for vacations earned but not taken in 2013.

Accepted Answer

The answer of MullerB Company's employees earn vacation time at...

Question 2

Bencorp issues a $90,000, 6-month, noninterest-bearing note that the bank discounted at a 10% discount rate.
Required:
1. Prepare the appropriate journal entry to record the issuance of the note.
2. Determine the effective interest rate.

Accepted Answer

The answer of Bencorp issues a $90,000, 6-month, noninterest-bearing note...

Question 3

What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.

Accepted Answer

The answer of What is the point of the last...

Question 4

Diversified Industries sells perishable electronic products. Some must be shipped in reusable containers. Customers pay a deposit for each container. The deposit is equal to the container's cost. Customers receive a refund when the container is returned. During 2013, deposits collected on containers shipped were $700,000. Deposits are forfeited if containers are not returned in 18 months. Containers held by customers on January 1, 2013, were $330,000. During 2013, $410,000 was refunded and deposits of $25,000 were forfeited.
Required:
1. Prepare the appropriate journal entries for the deposits received and returned during 2013.
2. Determine the liability for refundable deposits to be reported in the December 31, 2013, balance sheet.

Accepted Answer

The answer of Diversified Industries sells perishable electronic products. Some...

Question 5

On November 1, 2013, a $216,000, 9-month, noninterest-bearing note is issued at a 10% discount rate.
Required:
Prepare the appropriate journal entry to record the issuance of the note.
1. Determine the effective interest rate.
2. Prepare the appropriate journal entry on December 31, 2013, to record interest on the note for the 2013 financial statements.
3. Prepare the appropriate journal entry(s) on July 31, 2014, to record interest and the payment of the note.

Accepted Answer

The answer of On November 1, 2013, a $216,000, 9-month,...

Question 6

On June 30, 2013, Chu Industries issued 9-month notes in the amount of $700,000. Assume that interest is payable at maturity in the following three independent cases:  Required:
Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption:

Accepted Answer

The answer of On June 30, 2013, Chu Industries issued...

Question 7

Stern Corporation borrowed $10 million cash on September 1, 2013, to provide additional working capital for the year's production. Stern issued a 6-month, 10% promissory note to Second State Bank. Interest on the note is payable at maturity. Each firm uses the calendar year as the fiscal year.
Required:
1. Prepare all journal entries from issuance to maturity for Stern Corporation.
2. Prepare all journal entries from issuance to maturity for Second State Bank.

Accepted Answer

The answer of Stern Corporation borrowed $10 million cash on...

Question 8

Briefly explain the GAAP requirement from which the costs/obligations for environmental cleanup and product liability/tort claim matters were accrued in the financial statements.

Accepted Answer

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Question 9

Hot Springs Marine borrowed $20 million cash on December 1, 2013, to provide working capital for year-end inventory. Hot Springs Marine issued a 4-month, 9% promissory note to Third Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year.
Required:
1. Prepare the journal entries to record (a) the issuance of the note by Hot Springs Marine and (b) Third Bank's receivable on December 1, 2013.
2. Prepare the journal entries by both firms to record all subsequent events related to the note through March 31, 2014.
3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 9% is the bank's stated "discount rate." Prepare the journal entries to record the issuance of the noninterest-bearing note by Hot Springs Marine on December 1, 2013. What would be the effective interest rate?

Accepted Answer

The answer of Hot Springs Marine borrowed $20 million cash...

Question 10

In its 2013 annual report to shareholders, Border Airlines Inc. presented the following balance sheet information about its liabilities:  In addition, Border presented the following among its note disclosures:
Maturities of long-term debt (including sinking fund requirements) for the next five years are: 2014 - $421 million; 2015 - $212 million; 2016 - $273 million; 2017 - $1.0 billion; 2018 - $777 million.
Required:
Consider the appropriate classification of these long-term debt obligations. Assuming no more long-term debt will be issued, what are the implications of the information above for Border's liquidity and solvency risk in 2013 and the following years?

Accepted Answer

The answer of In its 2013 annual report to shareholders,...

Question 11

Show the summary journal entry that Goodday recorded for the environmental cleanup and product liability/tort claim matters, described in the footnote disclosure.

Accepted Answer

The answer of Show the summary journal entry that Goodday...

Question 12

On May 1, Lectric Industries issued 9-month notes in the amount of $60 million. Interest is payable at maturity.
Required:
Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions:

Accepted Answer

The answer of On May 1, Lectric Industries issued 9-month...

Question 13

The following selected transactions relate to liabilities of Chicago Glass Corporation for 2013. Chicago's fiscal year ends on December 31.
1. On January 15, Chicago received $7,000 from Henry Construction toward the purchase of $66,000 of plate glass to be delivered on February 6.
2. On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components.
3. On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price.
4. First quarter credit sales totaled $700,000. The state sales tax rate is 4% and the local sales tax rate is 2%.
Required:
Prepare journal entries for the above transactions.

Accepted Answer

The answer of The following selected transactions relate to liabilities...

Question 14

On October 1, 2013, Home Builders Company issued to Carlton Bank a $600,000, 8-month, noninterest-bearing note. Interest was discounted by the bank at a 12% discount rate.
Required:
1. Prepare the appropriate journal entry by Home Builders to record the issuance of the note.
2. Determine the effective interest rate.
3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Home Builders.
4. Prepare the appropriate journal entry on December 31, 2013, to accrue interest expense on the note described in number 3 for the 2013 financial statements.

Accepted Answer

The answer of On October 1, 2013, Home Builders Company...

Question 15

Mozart Music Co. began operations in December of 2013. The company sold gift certificates during December in various amounts totaling $1,600. The gift certificates are redeemable for merchandise within three years of the purchase date. However, experience within the industry predicts that 90% of gift certificates will be redeemed within one year. Certificates totaling $500 were presented for redemption during 2013 as part of merchandise purchases having a total retail price of $750.
Required:
1. Determine the liability for gift certificates to be reported in the December 31, 2013, balance sheet.
2. What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2013? Show calculations.

Accepted Answer

The answer of Mozart Music Co. began operations in December...

Question 16

The following facts relate to gift cards sold by Sunbru Coffee Company during 2013. Sunbru's fiscal year ends on December 31.
(a.) In October 2013, sold $3,000 of gift cards, and redeemed $500 of those gift cards.
(b.) In November 2013, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards.
(c.) In December 2013, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards.
(d.) Sunbru views a gift card to be "broken" (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30.
Required:
1. Prepare all journal entries appropriate to be recorded only during the month of December 2013 relevant to gift card sales, gift card redemptions, and gift card breakage.
2. Determine the balance of the unearned revenue liability to be reported in the December 31, 2013, balance sheet. Show the relevant T-account information to support your answer.

Accepted Answer

The answer of The following facts relate to gift cards...

Question 17

On November 1, 2013, Ziegler Products issued a $200,000, 9-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate.
Required:
1. Prepare the appropriate journal entry by Ziegler to record the issuance of the note.
2. Determine the effective interest rate.
3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Ziegler.
4. Prepare the appropriate journal entry on December 31, 2013, to accrue interest expense on the note described in number 3 for the 2013 financial statements.

Accepted Answer

The answer of On November 1, 2013, Ziegler Products issued...

Question 18

Grossman Products began operations in 2013. The following selected transactions occurred from September 2013 through March 2014. Grossman's fiscal year ends on December 31.
2013:
(a.) On September 5, Grossman opened a checking account and negotiated a short-term line of credit of up to $10,000,000 at 10% interest. The company is not required to pay any commitment fees.
(b.) On October 1, Grossman borrowed $8,000,000 cash and issued a 5-month promissory note with 10% interest payable at maturity.
(c.) Grossman received $3,000 of refundable deposits in December for reusable containers.
(d.) For the September through December period, sales totaled $5,000,000. The state sales tax rate is 4% and 75% of sales are subject to sales tax.
(e.) Grossman recorded accrued interest.
2014:
(f.) Grossman paid the promissory note on the March 1 due date.
(g.) Half of the storage containers are returned in March, with the other half expected to be returned over the next 6 months.
Required:
1. Prepare the appropriate journal entries for the 2013 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2013, based on the data supplied.
3. Prepare the appropriate journal entries for the 2014 transactions.

Accepted Answer

The answer of Grossman Products began operations in 2013. The...

Question 19

The following selected transactions relate to liabilities of Rose Dish Corporation. Rose's fiscal year ends on December 31.
Required:
Prepare the appropriate journal entries through the maturity of each liability.

Accepted Answer

The answer of The following selected transactions relate to liabilities...

Question 20

In its 2013 annual report to shareholders, Ank-Morpork Times Inc. included the following disclosure:
Revenue Recognition
• Advertising revenue is recognized when advertisements are published, are broadcast, or when placed on the Company's websites, net of provisions for estimated rebates, credit and rate adjustments and discounts.
• Circulation revenue includes single copy and home-delivery subscription revenue. Single copy revenue is recognized based on date of publication, net of provisions for related returns. Proceeds from home-delivery subscriptions and related costs, principally agency commissions, are deferred at the time of sale and are recognized in earnings on a pro rata basis over the terms of the subscriptions.
• Other revenue is recognized when the related service or product has been delivered.
Also, the following information on its current liabilities was included in its comparative balance sheets:  Required:
Assuming that Ank-Morpork Times Inc. collected $440,000,000 in cash for home-delivery subscriptions during fiscal year 2013, what amount of revenue did it recognize during 2013 from this source? Show the relevant T-account information to support your answer.

Accepted Answer

The answer of In its 2013 annual report to shareholders,...

Quiz 13: Current Liabilities and Contingencies

Bencorp issues a $90,000, 6-month, noninterest-bearing note that the bank discounted at a 10% discount rate. Required: 1. Prepare the appropriate journal entry to record the issuance of the note. 2. Determine the effective interest rate.

What is the point of the last paragraph of the Goodday disclosure? Explain in terms of authoritative GAAP.

On June 30, 2013, Chu Industries issued 9-month notes in the amount of $700,000. Assume that interest is payable at maturity in the following three independent cases: Required: Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption:

Briefly explain the GAAP requirement from which the costs/obligations for environmental cleanup and product liability/tort claim matters were accrued in the financial statements.

Show the summary journal entry that Goodday recorded for the environmental cleanup and product liability/tort claim matters, described in the footnote disclosure.

On May 1, Lectric Industries issued 9-month notes in the amount of $60 million. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions:

The following selected transactions relate to liabilities of Rose Dish Corporation. Rose's fiscal year ends on December 31. Required: Prepare the appropriate journal entries through the maturity of each liability.