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155) Note due June 9, 2019.
156) Accounts payable.
157) Long-term bonds that will be callable by the creditor in the upcoming year unless an
existing violation is not corrected (there is a reasonable possibility the violation will be corrected
within the grace period).
158) Long-term bonds callable by the creditor in the upcoming year that are not expected to be
called.
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159) Estimated cost of quality-assurance warranty.
160) Interest accrued on note, Dec. 31, 2018.
161) Short-term bank loan to be paid with proceeds of sale of common stock.
162) A material gain contingent on a future event that appears extremely likely to occur in three
months.
163) Unasserted assessment of penalty that probably will be asserted, in which case there would
probably be a loss in six months.
164) Unasserted assessment of penalty with a reasonable possibility of being asserted, in which
case there would probably be a loss in 13 months.
165) A determinable loss from a past event that is contingent on a future event that appears
extremely likely to occur in three months.
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166) Ontario Resources, a natural energy supplier, borrowed $80 million cash on November 1,
2018, to fund a geological survey. The loan was made by Quebec Banque under a short-term
financing arrangement. 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,
2018. Show calculations.
3. Prepare the journal entry for the payment of the note at maturity. Show calculations.
167) On September 1, 2018, Triton Entertainment borrowed $24 million cash to fund a new Fun
Park. The loan was made by Nevada Bank under a noncommitted short-term financing
arrangement. Triton issued a 9-month, 12% promissory note. Interest was payable at maturity.
Triton’s fiscal period is the calendar year.
Required:
1. Prepare the journal entry for the issuance of the note by Triton.
2. Prepare the appropriate adjusting entry for the note by Triton on December 31, 2018.
3. Prepare the journal entry for the payment of the note at maturity.
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168) 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:
Interest rate Fiscal Year-End
1. 8% January 31
2. 10% October 31
3. 9% June 30
4. 13% December 31
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169) Grossman Products began operations in 2018. The following selected transactions occurred
from September 2018 through March 2019. Grossman’s fiscal year ends on December 31.
2018:
(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.
2019:
(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 2018 transactions.
2. Prepare the liability section of the balance sheet at December 31, 2018, based on the data
supplied.
3. Prepare the appropriate journal entries for the 2019 transactions.
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Answer:
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170) 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.
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171) On November 1, 2018, a $216,000, 9-month, noninterest-bearing note is issued 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, 2018, to record interest on the note for
the 2018 financial statements.
4. Prepare the appropriate journal entry(s) on July 31, 2019, to record interest and the payment
of the note.
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172) On November 1, 2018, 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, 2018, to accrue interest expense on
the note described requirement 3, for the 2018 financial statements.
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173) On October 1, 2018, 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, 2018, to accrue interest expense on
the note described in requirement 3, for the 2018 financial statements.
Answer:
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174) 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.
2018
Feb. 3 Negotiated a revolving credit agreement with Second Bank, which can be renewed
annually upon bank approval. The amount available under the line of credit is $30,000,000 at the
bank’s prime rate.
April 1 Arranged a 3-month bank loan of $12 million with Second Bank under the line of
credit agreement. Interest at the prime rate of 8% was payable at maturity.
July 1 Paid the 8% loan at maturity.
Nov. 1 Supported by the credit agreement, issued $20 million of commercial paper on a 9-
month note. Interest was discounted at issuance at a 6% discount rate.
Dec. 31 Recorded any necessary adjusting entry(s).
2019
Aug. 1 Paid the commercial paper at maturity.
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175) Stern Corporation borrowed $10 million cash on September 1, 2018, 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.
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176) Hot Springs Marine borrowed $20 million cash on December 1, 2018, 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 financing arrangement. 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, 2018.
2. Prepare the journal entries by both firms to record all subsequent events related to the note
through March 31, 2019.
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, 2018. What
would be the effective interest rate?
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177) On June 30, 2018, 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:
Interest rate
Fiscal Year-End
1.
9%
December 31
2.
6%
August 31
3.
12%
October 31
Required:
Determine the amount of interest expense that should be accrued in a year-end adjusting entry
under each assumption:
1.
Interest rate
Fiscal Year-End
9%
December 31
2.
Interest rate
Fiscal Year-End
6%
August 31
3.
Interest rate
Fiscal Year-End
12%
October 31
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178) The following selected transactions relate to liabilities of Chicago Glass Corporation for
2018. 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.