227
CHAPTER 8
LIABILITIES AND STOCKHOLDERS’ EQUITY
CLASS DISCUSSION QUESTIONS
the liability to cover product warranties
$2,400,000.
16. The company may not have had enough
228
EXERCISES
E8–1
BSF Co.
a. Earnings before bond interest and income tax ……….. $ 1,000,000
b. Earnings before bond interest and income tax ……….. $ 3,000,000
c. Earnings before bond interest and income tax ……….. $ 4,500,000
E8–2
Factors other than earnings per share that should be considered in evaluating
financing plans include the following: bonds represent a fixed annual interest
229
E8–3
Current liabilities:
Accounts payable …………………………………………. $ 21,500
E8–4
a.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Accounts
Notes
Statement
+
b.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Retained
Statement
Cash
=
Notes Payable
+
Earnings
230
E8–5
a. Regular pay (40 hrs. × $28) …………………………………. $1,120.00
E8–6
231
E8–7
a. FICA tax (7.5% × $180,000) ……………………………………………… $ 13,500
b.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
FICA
SUTA
FUTA
Retained
Statement
Tax Pay.
+
Pay.
+
Pay.
+
Earnings
Payroll tax exp.
E8–8
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Vacation Pay
Retained
Statement
Earnings
(36,000)*
232
E8–9
The bonds sold at a premium. This is indicated by the selling price of 113.04,
E8–10
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Statement
Cash
=
Bonds Payable
Mar. 1.
Mar. 1.
Financing
50,000,000
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Retained
Statement
Cash
=
Earnings
Sept.1.
Operating
(1,500,000)
Sept. 1.
Interest exp.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Retained
Statement
Interest Payable
+
Earnings
233
E8–11
E8–12
a.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Product Warranty
Retained
Statement
Payable
+
Earnings
234
E8–13
a.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
EPA Fines
Litigation
Retained
Statement
Payable
+
Claims Pay.
+
Earnings
b. The company experienced a hazardous materials spill at one of its plants
235
E8–14
a. The adjustment to accrue litigation contingency:
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Contingent Product
Retained
Statement
& Tort Claims Pay.
+
Earnings
b. A liability must be recognized if the contingency is estimable and probable.
236
E8–15
a.
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Paid-In Capital in
Statement
Cash
=
Common
Stock
+
Excess of Par—
Common Stock
Jan. 29.
Financing
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Paid-In Capital in
Statement
Cash
=
Preferred
Stock
+
Excess of Par—
Preferred Stock
May 31.
Financing