121.
In a recent year, The Walt Disney Company reported the following increases and decreases in
current assets and current liabilities.
Required:
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.
9-95
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.
Required:
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.
123.
Fold and Hold Corporation entered into a capital lease for equipment, which had a current
cash equivalent cost of $38,971 on January 1, 2016. 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, 2016. The lease contained a
10% interest rate on the unpaid balance.
Required:
A. Prepare the journal entry to record the capital lease on January 1, 2016.
B. Prepare the entry to record the first installment payment on December 31, 2016 (round to
the nearest dollar). Assume that no adjusting entries have been made during the year.
9-98
124.
Information Company purchased an asset with a cash equivalent value of $70,000 on January
1, 2016. Arrangements were made with the supplier to pay $10,000 cash on January 1, 2016,
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 2016, 2017, and 2018. Each payment will include principal
plus interest on the unpaid balance at 11% per year.
Required:
A. Complete the following table:
Date
Payment
Interest
Expense
Reduction
in
Principal
Unpaid
Principal
01/01/16
12/31/16
12/31/17
12/31/18
Total
*
*Round to reduce principal to zero.
B. Prepare the journal entry for the payment on December 31, 2017.
C. Explain the change, over time, on the amount of interest and the balance of the debt
principal.
01/01/16
12/31/16
12/31/17
12/31/18
Total
*Rounded
9-100
125.
On January 1, 2016, 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, 2018. The market rate of interest for this
note was 10%.
Required:
(Round all answers to whole dollar amounts.)
A. Prepare the journal entry Mission Company would record on January 1, 2016 related to this
purchase.
B. Prepare the December 31, 2016, 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, 2017, 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, 2018, 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.
126.
Why are present value concepts and applications so important when companies purchase
equipment financed by the seller?
127.
Commander Appliance Store prepares annual financial statements and at December 31, 2016.
Commander needs to analyze the following items to determine the whether adjusting entries
are required for 2016.
1. Twenty-two employees worked during 2016 and each of them will take two weeks of
vacation in 2017. 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, 2017 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.
Required:
For each item listed, determine whether there should be an accrual and adjusting entry at
December 31, 2016. If so, then prepare the adjusting entry. If not, state the reason for not
accruing a liability.
1.
128.
A company’s income statement reported net income of $80,000 during 2016. 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 2017.
Required:
Prepare the journal entry to record the 2016 income tax expense assuming a 40% tax rate.
129.
A company’s income statement reported income tax expense of $200,000 during 2016. The
deferred tax liability on the balance sheet increased $20,000 during 2016. How much was the
company’s tax liability during 2016?