Chapter 09 – Reporting and Interpreting Liabilities
P9–2. (continued)
Req. 2
December 31:
Interest expense (+E, -SE). ……………………………………..
2,100
Interest payable (+L) ……………………………………………
2,100
($35,000 x 8% x 9/12 = $2,100).
Current Liabilities
Note payable, short term ……………………………………..
$35,000
Deposit on trailer ………………………………………………..
100
Wages payable …………………………………………………..
9,500
Interest payable ………………………………………………….
2,100
Deferred rent revenue ………………………………………..
1,000
Total ………………………………………………………………
$47,700
Req. 4
Effect
No effect
Decrease
Financing activity (no effect
on operating activities)
No effect
Decrease
Increase
Increase
No effects for either entry
Chapter 09 – Reporting and Interpreting Liabilities
P9–4.
Req. 1
(a) December 31
Wage expense (+E, -SE) ………………………………………..
4,000
Wages payable (+L) ……………………………………………
4,000
(b) January 6
Wages payable (-L) ………………………………………………..
4,000
Cash (-A) …………………………..………………………………
4,000
Cash (+A) ……………………………………………………………..
2,400
Rent revenue (+R, +SE) ………………………………………
2,400
Collection of rent revenue for one month.
(b) December 31
Rent revenue (-R, –SE) …………………………………………..
800
Rent revenue collected in advance (or Deferred rent
revenue) (+L) ………………………………………………….
800
Unearned rent (10/30 x $2,400 = $800).
Cash (+A) ……………………………………………………………..
2,400
Rent revenue (+R, +SE) ………………………………………
1,600
Rent revenue collected in advance(+L) ………………….
800
Req. 3
Balance sheet at December 31
Current Liabilities:
Wages payable …………………………………………………..
4,000
Rent revenue collected in advance ……………………….
800
Req. 4
Accrual-based accounting is more beneficial to financial analysts because it
Chapter 09 – Reporting and Interpreting Liabilities
P9–6.
1. December 31
Warranty expense (+E, –SE) ……………………………………
500,000,000
Warranty payable (+L) …………………………………………
500,000,000
Warranty payable (-L) …………………………………………….
500,000,000
Cash (-A) …………………………..………………………………
500,000,000
2. Total effect of various transactions during 2014:
Cash (+A) ……………………………………………………………..
90,000,000
Unearned revenue (+L) ……………………………………….
90,000,000
Unearned revenue (-L) ……………………………………………
54,000,000
Revenue (+R, +SE) …………………………………………….
54,000,000
4. As an oil and gas company, Halliburton can be expected to have some adverse
impact on our environment. In many cases, federal law requires these companies
to rectify these negative effects. Halliburton records the cost of future
Chapter 09 – Reporting and Interpreting Liabilities
P9–9. (continued)
unlikely management made the reclassification simply to increase its working capital.
Instead the company was probably trying to get a better balance between short-term
P9–10.
Req. 1
GAAP Depreciation: $1,000,000 ÷ 20 years = $50,000
Tax Depreciation: $1,000 000 × 10% = $100,000
Book Value:
2014 2015
9-28 Solutions Manual
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P9–10. (continued)
Req. 2: Income tax expense 2014:
Taxes payable $400,000
P9–11.
Req. 1
Present value of debt:
$115,000 x 0.6227 = $71,611
$6,000 x 5.3893 = 32,336
$103,947
Req. 2
Chapter 09 – Reporting and Interpreting Liabilities
P9–11. (continued)
Req. 4
Equal annual payments on note payable:
P9–12.
Option 1:
$1,250,000 6.1446
=
$7,680,750
P9–13.
Req. 1
$120,000 4.4399 = $27,028 (annual deposits)
Req. 2
$120,000 – ($27,028 x 4) = $11,888 (time value of money or interest)
Req. 3
1st year: None because the first deposit was at the end of the year.
2nd year: $27,028 x 7% ………………………………………………………………
$ 1,892
3rd year: ($27,028 + $1,892 + $27,028) x 7% ………………………………..
3,916
4th year: ($27,028 + $1,892 + $27,028 + $3,916 + $27,028) x 7% ……
6,082
Total interest revenue (differs from above because of rounding) ……
$11,890
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P9–14.
Req. 1
Future Value of Deposit:
$50,000 1.2653 = $63,265
Interest Earned:
Chapter 09 – Reporting and Interpreting Liabilities
ALTERNATE PROBLEMS
AP9–1.
Req. 1
January 15
Tax expense (+E, –SE) ……………………………………………
125,000
Taxes payable (+L) ……………………………………………..
93,000
Deferred tax liability (+L) ………………………………………
32,000
Interest payable (-L) ……………………………………………….
52,000
Cash (-A) …………………………………………………………..
52,000
Cash (+A) …………………………..…………………………………
550,000
Note payable (+L) ……………………………………………….
550,000
Inventory (+A) ……………………………………………………….
75,820
Accounts payable (+L) …………………………………………
75,820
Accounts payable (-L) …………………………………………….
75,820
Cash (-A) …………………………………………………………..
75,820
Cash (+A) …………………………..…………………………………
12,000
Revenue (+R, +SE) …………………………………………….
8,000
Deferred revenue (+L) …………………………………………
4,000
Req. 2
December 31
Interest expense (+E, –SE) ………………………………………
44,000
Interest payable (+L) ……………………………………………
44,000
Long-term liability (-L) …………………………………………….
100,000
Current liability (+L) …………………………………………….
100,000
Wage expense (+E, -SE) ………………………………………..
85,000
Wages payable (+L) ……………………………………………
85,000
Chapter 09 – Reporting and Interpreting Liabilities
AP9–2.
Req. 1
Date
Assets
Liabilities
Stockholders’
Equity
January 15
No effect
Deferred Tax Liability +
Taxes Payable +
Expense –
January 31
Cash –
Interest Payable –
No effect
April 30
Cash +
Note Payable +
No effect
June 3
Inventory +
Accounts Payable +
No effect
July 5
Cash –
Accounts Payable –
No effect
August 31
Cash +
Deferred Revenue +
Revenue +
December 31
No effect
Interest Payable +
Interest
Expense –
December 31
No effect
Long-term Liability –
Current Liability +
No effect
December 31
No effect
Wages Payable +
Wage
Expense –
January 15
No effect
January 31
Decreased
April 30
No effect
June 3
No effect
July 5
Decreased
August 31
Increased
All December 31 transactions
No effect
Chapter 09 – Reporting and Interpreting Liabilities
AP9–4.
a. Decrease
b. Decrease
c. Decrease
AP9–5.
The contractual agreement that General Mills entered into allows them to reclassify the
AP9–6.
Req. 1
$2,000,000 X 0.6806
=
$1,361,200
$150,000 X 3.9927
=
598,905
$1,960,105
Req. 2
$1,000,000 .4632
=
$463,200
The total amount of interest earned = $536,800
Req. 3
$350,000 3.3121
=
$105,673
$422,692 – $350,000
=
$72,692 The total amount of interest
Financial Accounting, 8/e 9-37
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CP9–1.
Req. 1 Accrued compensation and payroll taxes are $42,625,000.
CP9–2.
Req. 1 The amount of accrued compensation is $15,630,000.
Chapter 09 – Reporting and Interpreting Liabilities
CRITICAL THINKING CASES
CP9–5.
The jackpot does not have a present value of $3 million. The payments include
CP9–6.
The response to this case will depend on the companies selected by the students.
CONTINUING CASE
CC9–1.
Req. 1
September 15:
Purchases (+A) ……………………………………………………..
125,000
Cash (-A) …………………………………………………………..
125,000
October 1:
Cash (+A) …………………………..…………………………………
900,000
Note payable, short term (+L) ……………………………….
900,000
Cash (+A) …………………………..…………………………………
40,000
Unearned revenue (+L) ……………………………………….
40,000
Unearned revenue (-L) ……………………………………………
18,000
Service revenue (+R, +SE) …………………………………..
18,000