Ex. 10.1
Annual Unpaid
Payment Balance
SOLUTIONS TO EXERCISES
Reduction
in Unpaid
Balance
You would need to save $7,760, as shown in the following loan amortization table:
Interest
Period
Date of Graduation
Interest
Annual
Expense @ 8%
Education.
Ex. 10.4 a.
$ 7,200,000
580,000
250,000
…
Total payroll related costs:
Wages and salaries expense …………………………
Payroll taxes …………………………………………
…
Workers’ compensation premiums ………………
…
(A) (B)
Interest Expense
Ex. 10.6 a. Amortization Table
(12% Note Payable for $150,000; Payable
in Monthly Installments of $1,543)
Reduction in
Monthly
Education.
Ex. 10.8 a. Apr. 30 50,375
Bonds Payable ……………………………
50,000
Bond Interest Payable ……………………
375
b. Sept. 30 375
Cash ………………………………………………
Issued $50,000 face value of 9%, 30-year bonds
at 100 plus accrued interest for one month.
Bond Interest Payable …………………………
…
Ex. 10.9 a. 2015
Apr. 1 8,160,000
160,000
8,000,000
b. 2015
Sept. 30 316,000
4,000
To record issuance of bonds at 102.
Cash ………………………………………………
Premium on Bonds Payable ……………
…
Bond Payable ……………………………
…
Bond Interest Expense …………………………
…
Premium on Bonds Payable ……………………
…
Education.
…
…
Ex. 10.10 a. 2015
July 1 4,900,000
100,000
5,000,000
b. 2015
Dec. 31 240,000
Bond Interest Expense …………………………
…
To record issuance of bonds at 98.
Cash ……………………………………………
…
Discount on Bonds Payable ……………………
…
Bonds Payable …………………………
…
…
Ex. 10.11 a. (1)
Total liabilities =$349,792 =57%
Total assets $615,132
Operating income = $304,672 =7.70 times
b.
$39,588
Note to instructor: The information in this exercise was adapted from the historical financial records of two public
companies. For the year in question, Toyco’s interest expense actually resulted in the company reporting a net loss for
the period.
Debt ratio:
Pemco:
Interest expense
Long-term creditors probably would regard Pemco as the safer investment.
Pemco has a smaller percentage of its assets financed by creditors’ capital, and
thereby provides its creditors with a bigger “buffer” of equity capital. Also,
Pemco earns almost 8 times the amount of its interest expense, whereas Toyco
earns only 46 cents for every dollar of interest expense it incurs. Thus, interest
payments pose a relatively great burden on Toyco.
Interest expense
Toyco:
$28,026
Education.
Ex. 10.12 a. 2,500
Cash …………………………………………………
…
2,500
b. 76,021
d.
Ex. 10.13 a. 2,300,000
Cash …………………………………………………
…
2,300,000
d.
To summarize payments to a fully funded pension plan.
Eastern Electric does not have an ethical (or legal) responsibility to fund its
nonpension postretirement benefits as they accrue. It does, however, have an
ethical responsibility to provide to employees all of the benefits they have earned
during their working careers.
entity separate from Eastern Electric, this plan should contain assets
approximately equal to the pension benefits earned by employees in prior years.
Thus, even if Eastern Electric becomes insolvent, the plan will continue to invest
these assets and should be able to pay these earned
benefits in future years.
Rent Expense ………………………………………………
Leased Equipment ………………………………………
…
Pension Expense …………………………………………
…
To record monthly rental expense on equipment under an operating lease
agreement.
If the lease is unquestionably a capital lease, it would be unacceptable, unethical
and possibly illegal for a publicly owned company to account for it as an
operating lease. Such presentation would understate the company’s total
liabilities.
Education.
…
Ex. 10.14
Deferred taxes are the income taxes that will become due in future years upon
earnings that already have been reported in a company’s income statement.
Deferred taxes arise because of timing differences between the recognition of
certain revenue and expenses in income tax returns and in
financial statements.
$1,290,000 ($960,000 already paid, plus $330,000 currently payable)
Current liabilities:
25 Minutes, Easy
Current Long-Term Owners’
Transaction Revenue – Expenses = Net Income Assets = Liabilities + Liabilities + Equity
a. NE I D NE I NE D
b. NE NE NE NE I D NE
c. NE I D D I NE D
d. I NE I NE D NE I
e. NE NE NE NE D I NE
f. NE I D D D NE D
m. NE I D NE I NE D
n. NE NE NE NE NE NE NE
o. NE NE NE NE NE NE NE
SOLUTIONS TO PROBLEMS SET
A
PROBLEM 10.1
A
TECHNOLOGY SPECIALISTS, INC.
Income Statement Balance Sheet
30 Minutes, Medium
a.
Liabilities:
Income taxes payable 40,000$
60,000
Mortgage note payable-current portion ( $750,000 – $739,000) 11,000
Accrued interest on mortgage note payabl
e
5,000
Trade accounts payable 250,000
Unearned revenu
e
1
5,
000
Total current liabilities
381
,
000
$
1
1
$
Current liabilities:
Accrued expenses and payroll taxe
s
PROBLEM 10.2
A
DENVER CHOCOLATES
December 31, 2015
Partial Balance Shee
t
DENVER CHOCOLATES
000