30. The amortization of bond discount:
31. Southern Company’s accountant failed to accrue as of 12/31/13 some employee fringe
benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of
this omission is to:
32. Southern Company’s accountant failed to accrue as of 12/31/13 some employee fringe
benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of
this omission is to:
33. The largest item of the Deferred Tax Liability for most companies is caused by:
34. The noncurrent Deferred Tax Liability account arises because:
35. Many airlines have frequent flyer programs that permit travelers to accumulate credits
that can be applied to the cost of tickets for future flights. Most airlines recognize the cost of
their frequent flyer programs when the credits are used to purchase tickets. This practice, which
seems to ignore the matching concept, results in:
36. The liability for product warranty claims is an example of a liability that:
37. The noncurrent liability, Noncontrolling Interest, arises if:
38. In consolidated financial statements:
39. On March 15, 2014, Birkshire Energy obtained a nine-month working capital loan from the
First National Bank of Oglesby. The face amount of the note signed by the treasurer was
$300,000. The interest rate charged by the bank was 10 percent. The bank made the loan on a
discount basis. (Round your final answers to the nearest dollar).
(a.) Calculate the loan proceeds made available to Birkshire.
(b.) Calculate the amount of interest expense related to this loan during the six months ended
June 30, 2014.
(c.) What is the amount of the current liability related to this loan to be shown in the June 30,
2014, balance sheet?
40. On September 30, 2014, David’s Co.’s treasurer signed a note promising to pay $520,000
on December 31, 2014. Proceeds of the note were $501,800.
(a.) Calculate the discount rate used by the lender.
(b.) Calculate the effective interest rate on the loan.
(c.) Write the journal entry to show the effect of recording interest expense for the month of
October.
41. Claudette, Inc., provides warranties for many of its products. The January 1, 2014,
balance of the Estimated Warranty Liability account was $38,500. Based on an analysis of
warranty claims during the past several years, this year’s warranty provision was estimated to be
0.8 percent of sales. During 2014, the actual costs of servicing products under warranty were
$51,000, and sales were $5,300,000.
(a.) What amount of Warranty Expense will appear on the income statement for 2014?
(b.) What amount will be reported in the Estimated Warranty Liability account on the December
31, 2014, balance sheet?
42. Assume that Wallywill, Inc. offered its customers, which are primarily retail stores who
sell its products, an advertising allowance equal to 8% of the amount of purchases from Wallywill
during December, if the retail store would spend the money for advertising in January. Wallywill
Inc.’s sales in December totaled $5,000,000, and it was expected that 70% of those sales were
made to retailers who would take advantage of the advertising allowance offer. Write the journal
entry or use the horizontal model to show the effect of the accrual that should be made as of
December 31 with respect to the advertising allowance offer.
43. The Defiance College sells season tickets for four home football games at a price of $30.
For the 2014 season, 5,000 season tickets were sold.
(a.) Write the journal entry or use the horizontal model to show the effect of the sale of the
season tickets.
(b.) Write the journal entry or use the horizontal model to show the effect of hosting a home
football game.
(c.) Where on the balance sheet would the account balance representing funds Received for
games not yet played be classified? Assume that The Defiance College follows the same
accounting and financial reporting procedures that are used in business.
44. At December 31, 2013, the end of the first year of operations at Xavion Inc., the firm’s
accountant neglected to accrue payroll taxes of $27,700 that were applicable to payrolls for the
year then ended.
(a.) Write the journal entry or use the horizontal model to show the effect of the accrual that
should have been made as of December 31, 2013.
(b.) Determine the income statement and balance sheet effects of not accruing 2013 payroll
taxes at December 31, 2013 (assuming that the payroll taxes were not accrued, as originally
stated).
(c.) Assume that when the payroll taxes were paid in January 2014, the payroll tax expense
account was charged. Assume that at December 31, 2014, the accountant again neglected to
accrue the payroll tax liability, which was $20,400 at that date. Determine the income statement
and balance sheet effects of not accruing 2014 payroll taxes at December 31, 2014.
45. Ariel, Inc., issued $30 million face amount of 9% bonds when market interest rates were
9.30% for bonds of similar risk and other characteristics.
(a.) How much interest will be paid annually on these bonds?
(b.) Will the bonds be issued at a premium or discount? Explain your answer.
(c.) Will the annual interest expense on these bonds be more than, equal to, or less than, the
amount of interest paid each year? Explain your answer.
46. On April 15, 2014, Melissa purchased $30,000 of Verbecke Co.’s 12%, 20-year bonds at
face amount. Verbecke Co. has paid interest due on the bonds regularly. On April 15, 2018,
market interest rates had risen to 14% and Melissa is considering selling the bonds. Using the
present value tables in Chapter 6 of the textbook, calculate the market value of Melissa’s bonds
on April 15, 2018.
47. Ariana Co. issued $2,000,000 face amount of 15%, 20-year bonds on April 1, 2014. The
bonds pay interest on a semi-annual basis on June 30 and December 31 each year.
(a.) Assume that market interest rates were slightly lower than 15% when the bonds were sold.
Would the proceeds from the bond issue have been more than, less than, or equal to the face
amount?
(b.) Independent of part (a), assume that the proceeds were $1,980,000. Write the journal entry
or use the horizontal model to show the effects of issuing the bonds.
(c.) Assume that the bonds were issued for $1,980,000 as in part (b). Calculate the interest
expense that Ariana Co. will show with respect to these bonds in its income statement for the
year ended December 31, 2014, assuming that the discount of $20,000 is amortized on a straight–
line basis.