Question 1

Grossman Products began operations in 2009. The following selected transactions occurred from September 2009 through March 2010. Grossman's fiscal year ends on December 31.
2009:
(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.
2010:
(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 2009 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2009, based on the data supplied.
3. Prepare the appropriate journal entries for the 2010 transactions.

Accepted Answer

The answer of Grossman Products began operations in 2009. The...

Question 2

During the year, L&M Leather Goods sold 1,000,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $4.00 cash rebate. L&M estimates that 70% of the coupons will be redeemed, even though only 500,000 coupons had been processed during the year. At December 31, L&M should report a liability for unredeemed coupons of:
A)$ 700,000
B)$ 800,000
C)$1,000,000
D)$2,800,000 $1,000,000 70% $4 = $2,800,000
$500,000 $4 = $2,000,000
$2,800,000 $2,000,000 = $800,000

Accepted Answer

L&M should report a liability for the estimated amount of unredeemed coupons, which is calculated as follows: 
1,000,000 coupons issued x 70% estimated redemption rate x $4 rebate per coupon = $2,800,000 total estimated rebate liability
However, since only 500,000 coupons have been redeemed so far, the actual liability should be reduced by the amount of rebates already paid out: 
$2,800,000 total estimated liability - $2,000,000 rebates already paid out = $800,000 estimated liability for unredeemed coupons. Therefore, the best choice is B ($800,000).

Question 3

A $90,000, 6-month, noninterest-bearing note is discounted at the bank 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 A $90,000, 6-month, noninterest-bearing note is discounted...

Question 4

Assume the same facts as in question 142. What is the frequent flyer program liability that ALA should report in its December 31, 2009 balance sheet?
A)$31 million
B)$40 million
C)$45 million
D)$49 million This is the beginning liability of $28 million minus awards redeemed of $19 million + new awards accrued of $40 million = $49 million.

Accepted Answer

This is the beginning liability of $28 million minus awards redeemed of $19 million + new awards accrued of $40 million = $49 million.

Question 5

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:
 $\begin{array}{ccc}&\text { Interest rate }&\text { Fiscal Year End }\
1 . & 8 \% & \text { January } 31 \
2 . & 10 \% & \text { October } 31 \
3 . & 9 \% & \text { June } 30 \
4 . & 13 \% & \text { December } 31
\end{array}$

Accepted Answer

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

Question 6

In the current year, Hanna Company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?
A)$190,000.
B)$170,000.
C)$210,000
D)$ 0.

Accepted Answer

Warranty expenditures during the year can be calculated by subtracting the increase in the warranty liability account from the reported warranty expense: 
Warranty Expenditures = Reported Warranty Expense - Increase in Warranty Liability Account 
Warranty Expenditures = $190,000 - $20,000 
Warranty Expenditures = $170,000

Question 7

Albertson Corporation began a special promotion in July 2009 in an attempt to increase sales. A coupon was placed in each box of product. Customers could send in 5 coupons for a free prize. Each prize cost Albertson Corporation $3.00. Albertson's management estimated that 80% of the coupons would be redeemed. For the six months ended December 31, 2009, the following information is available:
Required:
What is the estimated liability for the premium offer at December 31, 2009?
 $$\begin{array} { l l } 
\text { Products sold } & 2,000,000 \text { boxes } \
\text { Prizes purchased } & 240,000 \
\text { Coupons redeemed } & 560,000
\end{array}$$

Accepted Answer

The answer of Albertson Corporation began a special promotion in...

Question 8

On November 1, 2009, 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, 2009, to accrue interest expense on the note described in 3. for the 2009 financial statements.

Accepted Answer

The answer of On November 1, 2009, Ziegler Products issued...

Question 9

In 2009, Cap City Inc. introduced a new line of televisions that carry a two-year warranty against manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. Sales were $6,000,000 for the first year of the product's life and actual warranty expenditures were $29,000. Assume that all sales are on credit.
Required:
1. Prepare journal entries to summarize the sales and any aspects of the warranty for 2009.
2. What amount should Cap City report as a liability at December 31, 2009?

Accepted Answer

The answer of In 2009, Cap City Inc. introduced a...

Question 10

Carpenter Inc. had a balance of $80,000 in its warranty liability account as of December 31, 2008. In 2009, Carpenter's warranty expenditures were $445,000. Its warranty expense is calculated as 1% of sales. Sales in 2009 were $40 million. What was the balance in the warranty liability account as of December 31, 2009?
A)$ 35,000.
B)$425,000.
C)$125,000.
D)$480,000.

Accepted Answer

The answer of Carpenter Inc. had a balance of $80,000...

Question 11

Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1, 2009, to fund a geological survey. The loan was made by Quebec Banque under a short-term credit line. Ontario Resources issued a 9-month, 12% promissory note with interest payable at maturity. Ontario Resources' fiscal period is the calendar year.
Required:
1. Prepare the journal entry for the issuance of the note by Ontario Resources.
2. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2009. Show calculations.
3. Prepare the journal entry for the payment of the note at maturity. Show calculations.

Accepted Answer

The answer of Ontario Resources, a natural energy supplier, borrowed...

Question 12

Barbara Muller Services (BMS) pays its employees monthly. The payroll information listed below is for January, 2009, the first month of BMS's fiscal year. The journal entry to record payroll for the January 2009 pay period will include a debit to payroll tax expense of
A)$ 6,120
B)$ 4,960
C)$11,080
D)$57,880

Accepted Answer

The answer of Barbara Muller Services (BMS) pays its employees...

Question 13

Panther Co. had a warranty liability of $350,000 at the beginning of 2009, and $310,000 at end of 2009. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2009?
A)$0.
B)$1,960,000.
C)$2,000,000.
D)$2,040,000.$350,000 + $2,000,000 $310,000 = $2,040,000

Accepted Answer

To calculate the warranty expenditures for 2009, we need to use the warranty expense formula: Warranty expense = Sales x Warranty expense rate. 
Warranty expense = $50,000,000 x 4% = $2,000,000 
Then, to find the total warranty expenditures, we need to use the formula: 
Total warranty expenditures = Beginning warranty liability + Warranty expense - Ending warranty liability. 
Total warranty expenditures = $350,000 + $2,000,000 - $310,000 = $2,040,000. 
Therefore, the best answer is D, $2,040,000.

Question 14

On November 1, 2009, a $216,000, 9-month, noninterest-bearing note is discounted at the bank 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.
3. Prepare the appropriate journal entry on December 31, 2009, to record interest on the note for the 2009 financial statements.
4. Prepare the appropriate journal entry(s) on July 31, 2010, to record interest and the payment of the note.

Accepted Answer

The answer of On November 1, 2009, a $216,000, 9-month,...

Question 15

What was General's coupon promotion expense in 2009?
A)$30.0 million.
B)$21.0 million.
C)$13.5 million.
D)$7.5 million.100 million $.30 70% = $21 million

Accepted Answer

General's coupon promotion expense in 2009 was $21.0 million, as calculated by multiplying the total revenue of $100.0 million by the promotion expense rate of 0.30 (or 30%), as given in the question.

Question 16

What is the expense that ALA should report for its frequent flyer program in its 2009 income statement?
A)$40 million
B)$41 million
C)$50 million
D)$69 million This is 80% of the $50 million cost of free travel awards earned.

Accepted Answer

The answer of What is the expense that ALA should...

Question 17

What was General's coupon promotional expense in 2010?
A)Zero, since all the expense should be reflected in 2009.
B)$1.5 million.
C)$7.5 million.
D)$9.0 million.

Accepted Answer

The answer of What was General's coupon promotional expense in...

Question 18

What was General's coupon liability as of December 31, 2009?
A)$7.5 million.
B)$13.5 million.
C)$16.5 million.
D)$21.0 million.100 million $.30 70% = $21 million $21 million (45 million $.30) = $7.5 million

Accepted Answer

The calculation provided shows that the General's coupon liability was $7.5 million as of December 31, 2009.

Question 19

On October 1, 2009, Home Builders Company issued a $600,000, 8-month, noninterest-bearing note to the bank. Interest was discounted 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, 2009, to accrue interest expense on the note described in 3. for the 2009 financial statements.

Accepted Answer

The answer of On October 1, 2009, Home Builders Company...

Question 20

Assume the same facts as in question 142, except that $2 million in earned travel awards on ALA expired during 2009. What is the expense that ALA should report for its frequent flyer program in its 2009 income statement?
A)$38 million
B)$40 million
C)$42 million
D)None of these is correct.This is 80% of the $50 million cost of free travel awards earned.

Accepted Answer

The cost of free travel awards earned is still $50 million, but $2 million of it expired in 2009. Therefore, the expense that ALA should report for its frequent flyer program in its 2009 income statement is $40 million ($50 million - $2 million = $48 million, which is 80% of the total cost, so $48 million / 0.8 = $40 million).

Quiz 13: Current Liabilities and Contingencies

A $90,000, 6-month, noninterest-bearing note is discounted at the bank 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.

Assume the same facts as in question 142. What is the frequent flyer program liability that ALA should report in its December 31, 2009 balance sheet?

In the current year, Hanna Company reported warranty expense of $190,000 and the warranty liability account increased by $20,000. What were warranty expenditures during the year?

Barbara Muller Services (BMS) pays its employees monthly. The payroll information listed below is for January, 2009, the first month of BMS's fiscal year. The journal entry to record payroll for the January 2009 pay period will include a debit to payroll tax expense of

Panther Co. had a warranty liability of $350,000 at the beginning of 2009, and $310,000 at end of 2009. Warranty expense is based on 4% of sales, which were $50 million for the year. What were the warranty expenditures for 2009?

What was General's coupon promotion expense in 2009?

What is the expense that ALA should report for its frequent flyer program in its 2009 income statement?

What was General's coupon promotional expense in 2010?

What was General's coupon liability as of December 31, 2009?

Assume the same facts as in question 142, except that $2 million in earned travel awards on ALA expired during 2009. What is the expense that ALA should report for its frequent flyer program in its 2009 income statement?