E7.24.
(continued)
Transaction/ Current Noncurrent Current Noncurrent Stockholders’ Net
Adjustment Assets Assets Liabilities Liabilities Equity Income
f. Estimated Estimated Retiree
Journal entries:
a.
b.
Dr. Truck ……………………………………………………………………………… 130,000
Cr. Capital Lease Liability ……………………………………………….. 130,000
Dr. Wages Expense ……………………………………………………………….. 14,400
Cr. Wages Payable ………………………………………………..……… 10,200
Cr. Withholding Liabilities (various descriptions) …….……… 4,200
P7.25.
a.
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
November 1, 2016:
Cash Unearned
+75,600 Rent Revenue
+75,600
b.
$50,400 ($12,600 * 4 months) of the unearned amount is a noncurrent liability.
At December 31, 2016, two months of rent has been earned, and four months remains to
be earned. So 4/6 of the original receipt of $75,600, or $50,400 is unearned rent and will
P7.26.
a.
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
1. To record the cash collection of subscription fees received in advance:
Cash Unearned
2. To record subscription revenue earned from delivering magazines:
–1,800
1. Dr. Cash ($90 * 400 subscriptions) ……………………..………………… 36,000
2. Dr. Unearned Subscription Revenue …………………………………… 1,800
Cr. Subscription Revenue ($90 * 240 subscribers * 1/12)… ……. 1,800
To record subscription revenue earned from delivering magazines.
b.
Revenue earned during August ($90 * 240 subscribers * 1/12) ………………………. $ 1,800
Revenue earned from September-December ($90 * 400 subscribers * 4/12) …….. 12,000
Total subscription revenue earned during 2017 ……………………………………… $13,800
c.
Solution approach: Assuming that the “profile” of lifetime subscribers for Evans Ltd.
will be similar to that of current subscribers, an average lifetime membership will last for
P7.26.
(continued)
d.
Points for discussion: Other factors to consider include the following:
Would the lifetime subscription offer attract younger customers, such that the
average age of a life-time subscriber would become less than the current average
age of 38? Yes, but even under the assumption that the average age drops to 28,
the present value of the additional 10 years of annual subscription fees would be
Is the use of the company’s average interest rate for long-term debt the
appropriate rate to use in the present value analysis? Yes, because the money
made available from the receipt of lifetime subscription fees can be used for
investment in inventories, plant and equipment, etc., and will be “repaid” on a
What would be the impact, in present value terms, of changes in the interest rate
assumption? Even if 10% represents an appropriate measure of the firm’s current
interest cost on long-term debt, is it reflective of the firm’s long-term interest cost?
P7.26.
(continued)
d.
What impact would the lifetime offer have on current subscribers? Several
P7.27.
a.
Gross Pay – Total Deductions = Net Pay
Gross Pay = (Net Pay + Total Deductions)
b.
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
Wages Payable Wages
+29,180 Expense
P7.28.
a.
FICA Tax Withholdings (employee’s portion) = Gross Pay * 7.65%
= $172,000 * 7.65% = $13,158
Employee Contributions to Pension Plans = (Total Deductions – all other deductions)
= $41,650 – $13,158 – $20,640 – $2,540
P7.28.
(continued)
b.
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
Payroll Taxes Payroll Tax
Payable (or other descriptions) Expense
+14,238 -14,238
P7.29.
a.
Management of Hayden Co. would be interested in calling the bonds if interest rates
dropped enough so that the cost of a new borrowing to pay off the old bonds at a 3% call
premium would be less than the cost of continuing to pay the 7% stated interest rate on
the old bonds.
Chapter 7 Accounting for and Presentation of Liabilities
P7.29.
b.
(continued)
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
Cash Bonds Loss on
–40,000,000 Retirement
-420,000
Dr. Bonds Payable ………………………………………….……….. 40,000,000
P7.30.
a.
Management of Hurley Co. would be interested in calling the bonds if interest rates
dropped enough so that the cost of a new borrowing to pay off the old bonds at a 2% call
premium would be less than the cost of continuing to pay the 9% stated interest rate on the
P7-30.
(continued)
Balance Sheet Income Statement .
Assets = Liabilities + Stockholders’ Equity Net income = Revenues – Expenses
Cash Bonds Loss on
-61,200,000 Payable Early
–60,000,000 Retirement
Discount on of Bonds
Bonds Payable -1,725,000
P7.31.
a.
The semiannual interest payments on the bonds =
14% stated rate * $5,000,000 face amount * 6/12 = $350,000
The term of the bonds is 10 years, or 20 semiannual periods.
–350,000 Bonds Payable Expense
+9,000 -359,000
P7.31.
(continued)
c.
Discount on bonds payable is amortized with a credit, and thus increases interest expense.
Under the straight-line basis, the amount of discount amortization is the same each
period. Under the compound (or effective) interest method, the amount of discount
P7.32.
a.
The semiannual interest payments on the bonds =
14% stated rate * $70,000,000 face amount * 6/12 = $4,900,000