Question 1

Sielert Corporation borrowed $900,000 from National Bank on May 31, 2013. The three-year, 7% note required annual payments of $342,945 beginning May 31, 2014. Interest expense for the year ended December 31, 2013 was

Accepted Answer

Interest expense for the year ended December 31, 2013 is calculated as follows:Interest expense = Principal x Interest rate x TimeInterest expense = $900,000 x 7% x 7/12Interest expense = $36,750

Question 2

On April 1, Holton Company borrows $100,000 from West Bank by signing a 6-month, 6%, interest-bearing note.
Instructions
Prepare the necessary entries below associated with the note payable on the books of Holton Company.
(a) Prepare the entry on April 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.

Accepted Answer

The answer of On April 1, Holton Company borrows $100,000...

Question 3

On January 1, 2014, Hannigan Company issued bonds with a face value of $600,000. The bonds carry a stated interest of 7% payable each January 1.
a. Prepare the journal entry for the issuance assuming the bonds are issued at 97.
b. Prepare the journal entry for the issuance assuming the bonds are issued at 102.

Accepted Answer

The answer of On January 1, 2014, Hannigan Company issued...

Question 4

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the amount of expense Wolford must recognize on its 2014 income statement?

Accepted Answer

The correct answer is B: $79,284.The amount of expense Wolford must recognize on its 2014 income statement is the interest expense for the year, which is calculated as the principal amount multiplied by the annual interest rate. In this case, the principal amount is $1,000,000 and the annual interest rate is 9.5%, so the interest expense for the year is $1,000,000 x 9.5% = $95,000. However, since the note requires annual payments of $260,436, which includes both interest and principal, the amount of interest expense that Wolford must recognize on its 2014 income statement is actually $260,436 - $20,716 = $79,284.

Question 5

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is

Accepted Answer

The answer of Fornelli Corporation borrowed $480,000 from Central Bank...

Question 6

Peterson Company billed its customers a total of $840,000 for the month of November. The total includes a 5% state sales tax.
Instructions
(a) Determine the proper amount of revenue to report for the month.
(b) Prepare the general journal entry to record the revenue and related liabilities for the month.

Accepted Answer

The answer of Peterson Company billed its customers a total...

Question 7

The board of directors of Lauber Corporation are considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 200,000 shares of $5 par value common stock that is selling for $25 per share on the open market. Lauber Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $500,000 if the new factory equipment is purchased.
Instructions
Prepare a schedule that shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

Accepted Answer

The answer of The board of directors of Lauber Corporation...

Question 8

Thayer Company purchased a building on January 2 by signing a long-term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Accepted Answer

The interest expense for the first month is calculated as $2,520,000 * (10% / 12) = $21,000. The entry will include a debit to Interest Expense for this amount.

Question 9

Collins Company borrowed $750,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $195,327 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?

Accepted Answer

The correct answer is B. The balance in the notes payable account at December 31, 2014 is $490,059. This is because the company has made two annual payments of $195,327, which reduces the principal balance by $390,654. The remaining balance of $490,059 is the amount that is still owed on the note.

Question 10

On January 1, 2014, Hauke Corporation issued $900,000, 6%, 10-year bonds at face value. Interest is payable annually on January 1. Hauke Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2014.

Accepted Answer

The answer of On January 1, 2014, Hauke Corporation issued...

Question 11

Thayer Company purchased a building on January 2 by signing a long-term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10 percent. The amount owed on the mortgage after the first payment will be

Accepted Answer

The answer of Thayer Company purchased a building on January...

Question 12

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. Interest expense for the year ended December 31, 2013 was

Accepted Answer

Interest expense for the year ended December 31, 2013 is calculated as follows:Interest expense = Principal x Interest rate x TimeInterest expense = $480,000 x 7% x 7/12Interest expense = $19,600

Question 13

Mantle Publications publishes a golf magazine for women. The magazine sells for $4.00 a copy on the newsstand. Yearly subscriptions to the magazine cost $36 per year (12 issues). During December 2013, Expert Publications sells 4,000 copies of the golf magazine at newsstands and receives payment for 6,000 subscriptions for 2014. Financial statements are prepared monthly.
Instructions
(a) Prepare the December 2013 journal entries to record the newsstand sales and subscriptions received.
(b) Prepare the necessary adjusting entry on January 31, 2014. The January 2014 issue has been mailed to subscribers.

Accepted Answer

The answer of Mantle Publications publishes a golf magazine for...

Question 14

Steiner Sales Company has the following selected accounts after posting adjusting entries:
$$\begin{array} { l r } 
\text { Accounts Payable } & \$ 65,000 \
\text { Notes Payable, 3-month } & 50,000 \
\text { Accumulated Depreciation-Equipment } & 14,000 \
\text { Notes Payable, 5-year, 6\% } & 80,000 \
\text { Payroll Tax Expense } & 4,000 \
\text { Interest Payable } & 3,000 \
\text { Mortgage Payable } & 120,000 \
\text { Sales Taxes Payable } & 38,000
\end{array}$$

Instructions
Prepare the current liability section of Steiner Sales Company's balance sheet, assuming $15,000 of the mortgage is payable next year.

Accepted Answer

The answer of Steiner Sales Company has the following selected...

Question 15

Manuel Company had cash sales of $86,800 (including taxes) for the month of June. Sales are subject to 8.5% sales tax. Prepare the entry to record the sale.

Accepted Answer

The answer of Manuel Company had cash sales of $86,800...

Question 16

Brewer Company has the following selected accounts after posting adjusting entries:
$\begin{array}{lr}
\text { Accounts Payable } & \$ 55,000 \
\text { Notes Payable, 3-month } & 90,000 \
\text { Accumulated Depreciation-Equipment } & 14,000 \
\text { Notes Payable, 5-year, 8\% } & 75,000 \
\text { Payroll Taxes Expense } & 6,000 \
\text { Interest Payable } & 5,000 \
\text { Mortgage Payable } & 180,000 \
\text { Sales Taxes Payable } & 23,000
\end{array}$
 
Instructions
(a) Prepare the current liability section of Brewer Company's balance sheet, assuming $12,000 of the mortgage is payable next year.
(b) Comment on Brewer's liquidity, assuming total current assets are $450,000.

Accepted Answer

The answer of Brewer Company has the following selected accounts...

Question 17

Sielert Corporation borrowed $900,000 from National Bank on May 31, 2013. The three-year, 7% note required annual payments of $342,945 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is

Accepted Answer

The answer of Sielert Corporation borrowed $900,000 from National Bank...

Question 18

Collins Company borrowed $750,000 from BankTwo on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $195,327 and carried an annual interest rate of 9.5%. What is the amount of expense Collins must recognize on its 2014 income statement?

Accepted Answer

The answer of Collins Company borrowed $750,000 from BankTwo on...

Question 19

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2014?

Accepted Answer

The balance in the notes payable account at December 31, 2014 is $653,412. This is because the company has made two annual payments of $260,436, which reduces the principal balance by $520,872 ($260,436 x 2). The remaining principal balance is $479,128 ($1,000,000 - $520,872). The interest expense for the year 2014 is $45,757 ($479,128 x 9.5%). The total balance in the notes payable account at December 31, 2014 is $653,412 ($479,128 + $45,757).

Question 20

On March 1, Cooper Company borrows $80,000 from New National Bank by signing a 6-month, 6%, interest-bearing note.
Instructions
Prepare the necessary entries below associated with the note payable on the books of Cooper Company.
(a) Prepare the entry on March 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.
(c) Prepare the entry to record payment of the note at maturity.

Accepted Answer

The answer of On March 1, Cooper Company borrows $80,000...

Quiz 10: Reporting and Analyzing Liabilities