CHAPTER 10
SOLUTIONS TO EXERCISES—SET B
EXERCISE 10-1B
(a) June 1 Cash ………………………………………………….. 20,000
Notes Payable …………………………….. 20,000
(b) June 30 Interest Expense
EXERCISE 10-2B
(a) Principal X .04 X 3/12 = $900
Principal = $900 ÷ (.04 X 3/12)
Principal = $90,000
EXERCISE 10-2B (Continued)
Repayment:
EXERCISE 10-3B
(a) June 1 Cash ………………………………………………. 80,000
Notes Payable …………………………. 80,000
(b) June 30 Interest Expense
EXERCISE 10-4B
MAG’S COMPANY
Apr. 10 Cash ………………………………………………………. 21,100
EXERCISE 10-5B
(a) Dec. 31 Salaries and Wages Expense …………… 70,000
FICA Taxes Payable …………………. 5,355
EXERCISE 10-6B
(a) $96,000,000 ÷ $1,920 = 50,000 season tickets sold.
(b) $96,000,000 ÷ 16 home games = $6,000,000 revenue recognized per
EXERCISE 10-7B
(a) Nov. Cash (2,800 X $30) ………………………… 84,000
EXERCISE 10-7B (Continued)
EXERCISE 10-8B
2017
(a) Aug. 1 Cash ……………………………………………….. 800,000
EXERCISE 10-9B
(a) Jan. 1 Cash ……………………………………………….. 600,000
EXERCISE 10-10B
(a) Jan. 1 Cash ($800,000 1.03) ………………………. 824,000
Bonds Payable …………………………... 800,000
EXERCISE 10–11B
(a) Jan. 1 Cash ($700,000 .96) ……………………… 672,000
Discount on Bonds Payable) ……………. 28,000
EXERCISE 10-12B
(a) The General Electric bonds were issued at a premium and the Boeing
bonds were issued at a discount.
(b) The prices of the two bonds differed because bond price is based on the
EXERCISE 10-13B
2017
(a) Jan. 1 Cash ……………………………………………….. 500,000
Bonds Payable …………………………. 500,000
EXERCISE 10-14B
(a) April 30 Bonds Payable ……………………………….. 200,000
Loss on Bond Redemption ……………… 15,500*
Cash ($200,000 X 101%) …………… 202,000
EXERCISE 10-15B
(a)
Account
Classification
Reason
Accounts payable
Current liability
Due within one year
Accrued pension liability
Long-term liability
Likely relates to pensions. Not
due within one year
Unearned rent revenue
Current liability
Due within one year
Bonds payable
Long-term liability
Not due within one year
mortgage payable
Income taxes payable
Current liability
Due within one year
Mortgage payable
Long-term liability
Not due within one year
Operating leases
N/A
Not a balance sheet item—may
be disclosed in notes
Notes payable
(due in 2020)
Long-term liability
Not due within one year
Salaries and wages payable
Current liability
Due within one year
Notes payable (due in 2018)
Current liability
Due within one year
credit
unused—may be disclosed
in notes
warranty. This is current
EXERCISE 10-15B (Continued)
(b) MELVIN INC.
(Partial Balance Sheet)
January 31, 2017
(in thousands)
Current liabilities
Notes payable (due in 2018) …………………..
$2,563.6
Accounts payable …………………………………
5,263.9
Mortgage payable …………………………………
992.2
Warranty liability …………………………………..
1,417.3
EXERCISE 10-16B
(a) (1) Working capital = $3,581.9 – $4,498.5 = ($916.6)
(3) Debt to assets ratio = $14,111.9 ÷ $29,391.7 = 48%
(4) Times interest earned = ($2,395.1 + $410.1 + $1,237.1) ÷
than 1.00 result from the fact that McDonald’s current assets are less
than its current liabilities. Such findings indicate lower liquidity. The
Unearned rent revenue ………………………….
1,058.1
Salaries and wages payable ………………….
858.1
Income taxes payable …………………………...
Total current liabilities ………………………
Long-term liabilities
Mortgage payable …………………………………
$4,746.7
Bonds payable ……………………………………..
1,961.2
Accrued pension liability ………………………
1,115.2
Notes payable (due in 2020) …………………..
Total long-term liabilities ………………….
Total liabilities …………………………………………….
EXERCISE 10-16B (Continued)
(b) Debt to assets ratio, adjusted for off-balance-sheet lease obligations.
EXERCISE 10-17B
(a) Current ratio
EXERCISE 10-18B
(a) Current ratio
2017 $6,444 ÷ $5,103 = 1.26:1
2016 $3,798 ÷ $3,608 = 1.05:1
EXERCISE 10-19B
(a) The company does not have to record these contingent liabilities
because they have determined that they are not likely to occur and the
impact would be immaterial in any event.
*EXERCISE 10-20B
2017
(a) Jan. 1 Cash ($700,000 X 103%) ………………….. 721,000
Bonds Payable ………………………… 700,000
Premium on Bonds Payable ……… 21,000
*EXERCISE 10-21B
2017
(a) Dec. 31 Cash ……………………………………………… 388,000
Discount on Bonds Payable ……………. 12,000
Bonds Payable ………………………… 400,000
2018
(b) Dec. 31 Interest Expense …………………………….. 24,800
Cash ($400,000 X 6%) ………………. 24,000
*EXERCISE 10-22B
2017
(a) Jan. 1 Cash …………………………..…………………… 450,909
Discount on Bonds Payable …………….. 49,091
Bonds Payable …………………………. 500,000
EXERCISE 10-22B (Continued)
(E)
Bond
Carrying Value
[$500,000 – (D)]
(D)
Unamortize
d Discount
(D) – (C)
(C)
Discount
Amortization
(B) – (A)
(B)
Interest Expense
to Be Recorded
(6% X Preceding Bond
Carrying Value)
[(E) X.08]
(A)
Interest to
Be Paid
(7% X $500,000)
(b), (c)
I Interest
Periods
*EXERCISE 10-23B
2017
(a) Jan. 1 Cash ……………………………………………….. 407,968
Bonds Payable …………………………. 380,000
Premium on Bonds Payable ……… 27,968
EXERCISE 10-23B (Continued)
(E)
Bond
Carrying Value
[$380,000 – (D)]
(D)
Unamortized
Premium
(D) – (C)
(C)
Premium
Amortization
(B) – (A)
(B)
Interest Expense
to Be Recorded
(8% X Preceding Bond
Carrying Value)
[(E) X.06]
(A)
Interest to
Be Paid
(7% X $380,000)
(b), (c)
I Interest
Periods
*EXERCISE 10-24B
Issuance of Note
2017 Dec. 31 Cash …………………………………………. 350,000
Mortgage Payable ………………. 350,000
First Installment Payment
2018 June 30 Interest Expense
($350,000 X 6% X 6/12) ……………. 10,500
(A) (B) (C) (D)
Semiannual Interest Reduction Principal
Interest Cash Expense of Principal Balance
Period Payment (D X 3%) (A) – (B) (D) – (C)
Issue date $350,000
*EXERCISE 10-25B
Annual
Interest
Period
(A)
Cash
Payment
(B)
Interest
Expense
(D) X 10%
(C)
Reduction
of Principal
(A) – (B)
(D)
Principal
Balance
(D) – (C)
1/1/2017
$500,000
1/1/2018
$81,370
VARIAN CORPORATION
Balance Sheet (Partial)
December 31, 2017
Current liabilities
Notes payable …………………………………………………………………….. $31,370
Interest payable ………………………………………………………………….. 50,000