60
113) Halbur Company reported total assets of $150,000, current assets of $60,000, total
stockholders’ equity of $60,000, and noncurrent liabilities of $65,000.
(show computations):
1. Determine the current liabilities.
2. Compute working capital.
61
114) Moore Company has the following partial list of account balances at year-end December
31, 2019:
Accounts payable
$1,800
Accounts receivable
4,600
Cost of goods sold
15,000
Cash
23,000
Taxes payable
10,000
Land
25,000
Notes payable (due in 6 months)
1,000
Salaries payable
900
Inventory
4,300
Additional information: The accounts payable balance at the end of the prior year was $3,000.
(All answers are for December 31, 2019.)
A. Determine the following items:
1. Current assets
2. Current liabilities
3. Working capital
4. Accounts payable turnover ratio
5. Average age of accounts payable
B. Assume that cash is used at December 31, 2019, to pay the entire balance of accounts payable.
Determine the revised amounts from part (A) above for the following items:
1. Current assets
2. Current liabilities
3. Working capital
4. Accounts payable turnover ratio
5. Average age of accounts payable
C. Comment on the effect of paying accounts payable at year-end with regard to working capital
and accounts payable management.
62
115) Sharp Company borrowed $500,000 on a 6% one-year, interest-bearing note dated
November 1, 2019 with interest payable at maturity. The annual accounting period ends on
December 31. Assume that adjusting entries are only made at December 31, the company’s fiscal
year-end.
Prepare journal entries for each of the following dates:
A. November 1, 2019.
B. December 31, 2019.
C. October 31, 2020.
64
116) On April 1, 2019, Wolf Company borrowed $5,000 on an 8% note payable. The maturity
date of the note (and payment of all interest) is July 1, 2020. The accounting period ends
December 31. Assume no adjusting entries are made during the year.
Prepare the journal entry for each of the following dates:
A. April 1, 2019.
B. December 31, 2019.
C. July 1, 2020.
65
117) The following data were provided by the detailed payroll records of Mountain Corporation
for the last week of March 2019, which will not be paid until April 5, 2019:
Compensation (wages)
$36,000
Income taxes withheld
7,550
FICA taxes at a 7.65% rate (no employee had reached the maximum).
A. Prepare the March 31, 2019 journal entry to record the payroll and the related employee
deductions.
B. Prepare the March 31, 2019 journal entry to record the employer’s FICA payroll tax expense.
C. Calculate the total payroll-related liabilities at March 31, 2019 using the results of
requirements (A) and (B).
A. Journal entry to record payroll and employee deductions.
Compensation expense
liability)
B: Journal entry to record employer’s FICA payroll tax.
Compensation expense ($36,000 × 7.65%)
2019.
118) The following is a partial list of account balances for Coen, Inc. as of December 31, 2019
Accounts payable
$5,000
Accounts receivable
6,000
Bonds payable (all due in 10 years)
40,000
Note payable (10% of the note is due
within one year; balance due in 3 years)
10,000
Note payable (due in six months)
2,000
Salaries payable
800
Sales revenue
49,000
Income taxes payable
8,000
Deferred revenue
800
Prepare the liabilities section of Coen Inc.’s classified balance sheet for December 31, 2019.
LIABILITIES
Current Liabilities:
Total Current Liabilities
Long-term Liabilities:
Bonds payable
Note payable
Total Long-term Liabilities
67
119) The following data is available for Tommy’s Toys for the years 2017 through 2020:
2020
2019
2018
2017
Cost of goods sold
$7,506
$7,646
$7,799
$7,815
Accounts payable
$1,240
$1,022
$878
$896
A. Calculate the accounts payable turnover ratio for the following years:
1.
2020
2.
2019
3.
2018
B. Calculate the number of days it is taking Tommy’s Toys to pay its vendors (assume a 365-day
year):
1.
2020
2.
2019
3.
2018
C. Explain whether Tommy’s Toys is doing a better job over the years of paying its vendors in a
timely manner.
69
120) Answer the following four questions.
A. What is a contingent liability?
B. When must a contingent liability be recorded through a journal entry?
C. When should a contingent liability be disclosed in the footnotes to the financial statements?
D. When is disclosure of a contingent liability not required?
70
121) In a recent year, The Walt Disney Company reported the following increases and decreases
in current assets and current liabilities.
Identify whether each of these increases or decreases caused cash to increase or decrease. Enter
an “I” if the change in the account balance caused an increase in cash flow or enter a “D” if the
change in the account balance caused a decrease in cash flow.
Changes in current assets and liabilities
(in millions)
Account
Account Balance Change
Cash Effect (+/-)
Receivables–CA
Decrease $366
1.
Inventories–CA
Decrease $103
2.
Film and television
costs–CA
Decrease $848
3.
Current portion of
borrowings–CL
Increase $292
4.
Unearned royalties–
CL
Increase $69
5.
71
122) Border Company purchased a truck that cost $17,000. The company signed a $17,000 note
payable that specified four equal annual payments (at each year-end), each of which includes a
payment on the principal and interest on the unpaid balance at 10% per annum.
A. Calculate the amount of each equal payment (round your answer to the nearest whole dollar
amount).
B. Prepare the journal entry to record the purchase of the truck.
C. Prepare the journal entry to record the first annual payment on the note (assume no interest
has been accrued during the year).
D. Will the interest paid with the first annual payment be more than, or less than, the interest
paid with the second annual payment? Explain your answer.
72
123) On January 1, 2019, Fold and Hold Corporation entered into a capital lease for equipment,
which had a current cash equivalent cost of $38,971. Fold and Hold paid cash of $10,000 on the
date of entering into the lease, and promised to pay the balance in six equal annual installments
on each December 31 beginning with December 31, 2019. The lease contained a 10% interest
rate on the unpaid balance.
A. Prepare the journal entry to record the capital lease on January 1, 2019.
B. Prepare the entry to record the first installment payment on December 31, 2019 (round to the
nearest dollar). Assume that no adjusting entries have been made during the year.
73
124) On January 1, 2019, Information Company purchased an asset with a cash equivalent value
of $70,000. Arrangements were made with the supplier to pay $10,000 cash on January 1, 2019,
and the balance was to be paid over a three-year period, with equal annual payments of $24,553
to be made at the end of 2019, 2020, and 2021. Each payment will include principal plus interest
on the unpaid balance at 11% per year.
A. Complete the following table:
Date
Payment
Interest
Expense
Reduction in
Principal
Unpaid
Principal
01/01/19
12/31/19
12/31/20
12/31/21
Total
*
*Round to reduce principal to zero.
B. Prepare the journal entry for the payment on December 31, 2020.
C. Explain the change, over time, on the amount of interest and the balance of the debt principal.
Date
01/01/19
12/31/19
12/31/20
12/31/21
Total
*Rounded
Note payable
Interest expense
74
125) On January 1, 2019, Mission Company agreed to buy some equipment from Anna
Company. Mission Company signed a non-interest-bearing note, agreeing to pay Anna Company
the entire $500,000 for the equipment on December 31, 2021. The market rate of interest for this
note was 10%.
(Round all answers to whole dollar amounts.)
A. Prepare the journal entry Mission Company would record on January 1, 2019 related to this
purchase.
B. Prepare the December 31, 2019, adjusting entry to record interest expense related to the note
for the first year. Assume that no adjusting entries have been made during the year.
C. Prepare the December 31, 2020, adjusting entry to record interest expense related to the note
for the second year. Assume that no adjusting entries have been made during the year.
D. Prepare the entry Mission Company would record on December 31, 2021, the due date of the
note to record interest expense for the third year and payment of the note. Assume that no
adjusting entries have been made during the year. Round the interest expense to an amount that
will increase notes payable to the correct final payoff amount.
75
76
126) Why are present value concepts and applications so important when companies purchase
equipment financed by the seller?
77
127) Commander Appliance Store prepares annual financial statements. At December 31, 2019.
Commander needs to analyze the following items to determine the whether adjusting entries are
required for 2019.
1. Twenty-two employees worked during 2019 and each of them will take two weeks of vacation
in 2020. Twelve of these employees earn $500 per week and 10 employees earn $800 per week.
(If an adjusting entry is required, ignore payroll taxes on this item.)
2. Office rent for January, 2020 has not yet been paid.
3. Commander sold 3,000 coffee brewing machines for total sales of $150,000. Commander
expects that 30 machines will need warranty repairs in the next two years and estimates the cost
of repairs to be $2,400.
4. Commander has been sued by a customer and assesses the probability of losing the lawsuit to
be reasonably possible. The estimate of the contingency loss is $20,000.
For each item listed, determine whether there should be an accrual and adjusting entry at
December 31, 2019. If so, then prepare the adjusting entry. If not, state the reason for not
accruing a liability.
78
128) A company’s income statement reported net income of $80,000 during 2019. The income
tax return excluded a revenue item of $10,000 (reported on the income statement) because under
the tax laws the $10,000 would not be reported for tax purposes until 2020.
Prepare the journal entry to record the 2019 income tax expense assuming a 21% tax rate.
129) A company’s income statement reported income tax expense of $200,000 during 2019. The
deferred tax liability on the balance sheet increased $20,000 during 2019. How much was the
company’s tax liability during 2019?