*PROBLEM 10-7A
2017
(a) Jan. 1 Interest Payable …………………………... 96,000
Cash …………………………………….. 96,000
(b) Dec. 31 Interest Expense ………………………….. 98,400
2018
(c) Jan. 1 Bonds Payable …………………………….. 400,000
Loss on Bond Redemption …………… 11,600
Cash ($400,000 X 102%) ………… 408,000**
(d) Dec. 31 Interest Expense ………………………….. 82,000
Interest Payable ……………………. 80,000**
Discount on Bonds Payable ….. 2,000**
(Amortization of discount = Remaining discount balance ÷ Remaining
*PROBLEM 10-8A
(a) Jan. 1 Cash ($2,000,000 X 102%) …………… 2,040,000
Bonds Payable ……………………. 2,000,000
Premium on Bonds Payable …. 40,000
(b) Jan. 1 Cash ($2,000,000 X 97%) …………….. 1,940,000
Discount on Bonds Payable ……….. 60,000
Bonds Payable ……………………. 2,000,000
(c) Premium
Current Liabilities
Interest payable …………………………………. $ 140,000
*PROBLEM 10-9A
(a) 1. 1/1/17 Cash ($3,000,000 X 103%) ……. 3,090,000
2. 1/1/17 Cash ($3,000,000 X 98%) ……… 2,940,000
Discount on Bonds
(b) See amortization tables on following page.
(c) 1. 12/31/17 Interest Expense …………………. 231,000
Premium on Bonds
2. 12/31/17 Interest Expense …………………. 246,000
Interest Payable ……………. 240,000
Discount on Bonds
(d) 1. Long-term Liabilities:
Bonds Payable ………………………………. $3,000,000
Plus: Unamortized Bond
(b), (1)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(8% X $3,000,000)
(B)
Interest Expense
to Be Recorded
(A) – (C)
(C)
Premium
Amortization
($90,000 ÷ 10)
(D)
Unamortized
Premium
(D) – (C)
(E)
Bond
Carrying Value
[$3,000,000 + (D)]
Issue date
1
$240,000
$231,000
$9,000
$90,000
81,000
$3,090,000
3,081,000
(2)
Annual
Interest
Periods
(A)
Interest to
Be Paid
(8% X $3,000,000)
(B)
Interest Expense
to Be Recorded
(A) + (C)
(C)
Discount
Amortization
($60,000 ÷ 10)
(D)
Unamortized
Discount
(D) – (C)
(E)
Bond
Carrying Value
[$3,000,000 – (D)]
$2,940,000
*PROBLEM 10-10A
2017
(a) Jan. 1 Cash ………………………………………….. 1,667,518
(b) LACHTE CORP.
Bond Discount Amortization
Effective-Interest Method—Annual Interest Payments
5% Bonds Issued at 6%
Annual
Interest
Periods
(A)
Interest
to Be
Paid
(B)
Interest
Expense
to Be
Recorded
(C)
Discount
Amor–
tization
(B) – (A)
(D)
Unamor-
tized
Discount
(D) – (C)
(E)
Bond
Carrying
Value
($1,800,000 – D)
Issue date
1
$90,000
$100,051
$10,051
$132,482
122,431
$1,667,518
1,677,569
(c) Dec. 31 Interest Expense
($1,667,518 X 6%) …………………………... 100,051
2018
(d) Jan. 1 Interest Payable …………………………………. 90,000
Cash …………………………………………… 90,000
(e) Dec. 31 Interest Expense
*PROBLEM 10-11A
2017
(a) 1. Jan. 1 Cash …………………………………….. 2,147,202
Bonds Payable ………………. 2,000,000
2. Dec. 31 Interest Expense
($2,147,202 X 6%) ………………. 128,832
2018
3. Jan. 1 Interest Payable ……………………. 140,000
4. Dec. 31 Interest Expense …………………… 128,162
[($2,147,202 – $11,168) X 6%]
(b) Bonds payable …………………………………………….. 2,000,000
(c) 1. Total bond interest expense—2018, $128,162.
2. The effective-interest method will result in more interest expense
reported than the straight-line method in 2018 when the bonds are
*PROBLEM 10-12A
(a)
Annual
Interest Period
(A)
Cash
Payment
(B)
Interest
Expense
(D) X 8%
(C)
Reduction
of Principal
(A) – (B)
(D)
Principal
Balance
(D) – (C)
Issue Date
1
$80,146
$25,600
$54,546
$320,000
265,454
(b) Dec. 31 Mortgage Payable …………………………... 54,546
Interest Expense …………………………….. 25,600
Cash ……………………………………….. 80,146
*PROBLEM 10-13A
(a)
Period
Cash
Payment
(A)
Interest
Expense
(B) = (D) X 7%
Principal
Reduction
(C) = (A) – (B)
Balance
(D) = (D) – (C)
July 1, 2016
$150,000
June 30, 2017
$ 36,584
$10,500
$ 26,084
123,916
June 30, 2018
36,584
8,674
27,910
96,006
June 30, 2019
36,584
6,720
29,864
66,142
June 30, 2020
36,584
4,630
31,954
34,188
June 30, 2021
36,584
34,188
Total
$182,920
$32,920
$150,000
*Rounded to make principal element equal to balance.
(See Illustration 10C-1)
(b) July 2016 Cash …………………………………………… 150,000
Notes Payable ………………………… 150,000
(c) 2018
Current liabilities
Notes payable ……………………………………………… $29,864
ACR 10 ACCOUNTING CYCLE REVIEW
(a)
1.
Interest Payable ……………………………………….
Cash …………………………………………………
2,500
2,500
2.
Inventory …………………………………………………
3.
Cost of Goods Sold ………………………………….
Inventory …………………………………………..
Cash ………………………………………………………..
Sales Revenue …………………………………..
508,800
480,000
4.
Account Payable ………………………………………
Cash …………………………………………………
5.
Interest Expense ………………………………………
Cash …………………………………………………
2,500
2,500
Prepaid Insurance …………………………..…
5,600
7.
Prepaid Insurance ……………………………………
Cash …………………………………………………
10,200
10,200
8.
Sales Taxes Payable ………………………………..
Cash …………………………………………………
17,000
17,000
9.
Other Operating Expenses ……………………….
Cash …………………………………………………
91,000
91,000
10.
Interest Expense ………………………………………
Cash …………………………………………………
2,500
2,500
Gain on Bond Redemption …………………
2,000
ACR 10 (Continued)
11.
Cash (90,000 X 103%) …………………………..…..
92,700
Adjusting Entries
1.
Insurance Expense ($10,200 X 5/12) …………..
2.
Depreciation Expense ($38,000 – $3,000) ÷ 5 ….
7,000
3.
Income Tax Expense ………………………………..
31,245
(b) AIMES CORPORATION
Trial Balance
12/31/2017
Account
Debit
Credit
Cash …………………………………………………….
$227,800
Inventory ……………………………………………..
6,850
Prepaid Insurance ………………………………..
5,950
Equipment ……………………………………………
Accumulated Depreciation—Equipment ..
Accounts Payable ………………………………..
Sales Taxes Payable …………………………….
11,800
Income Taxes Payable ………………………….
31,245
Bonds Payable ……………………………………..
Premium on Bonds Payable ………………….
Common Stock …………………………………….
25,000
Retained Earnings ………………………………..
Sales Revenue ……………………………………..
Cost of Goods Sold ………………………………
265,000
Depreciation Expense …………………………..
7,000
Insurance Expense ……………………………….
9,850
Other Operating Expenses ……………………
Interest Expense …………………………………..
5,000
Gain on Bond Redemption ……………………
ACR 10 (Continued)
(a) and (b) Optional T accounts
Cash
Bal. 227,800
17,000
28,800
Bal. 11,800
31,245
Bal. 30,000
508,800
92,700
2,500
230,000
2,500
Inventory
241,100
Bal. 6,850
Bal. 90,000
2,700
Bal. 30,750
265,000
Bal. 5,950
Equipment
Bal. 38,000
7,000
Bal. 13,100
480,000
Bal. 24,850
Interest Payable
2,500
Bal. 2,500
Bal. 0
Common Stock
Bal. 25,000
ACR 10 (Continued)
(a) and (b) (Continued)
Cost of Goods Sold
265,000
7,000
Bal. 5,000
31,245
4,250
Bal. 9,850
Other Operating Expenses
91,000
Interest Expense
Gain on Bond Redemption
2,000
(c) AIMES CORPORATION
Income Statement
For the Year Ending 12/31/17
Sales revenue ………………………………………
$480,000
Cost of goods sold ……………………………….
265,000
Gross profit ………………………………………….
215,000
Operating expenses
Insurance expense ………………………..
Depreciation expense …………………….
Other operating expenses ……………..
Total operating expenses ……………………..
107,850
Income from operations………………………..
107,150
Other revenues and expenses
Gain on bond redemption ………………
2,000
Interest expense …………………………...
5,000
104,150
Income tax expense ……………………….
31,245
Net income …………………………………………..
ACR 10 (Continued)
AIMES CORPORATION
Retained Earnings Statement
For the Year Ending 12/31/17
Retained earnings, 1/1/17 …………………………………………………….
$13,100
Add: Net income …………………………………………………………………
Retained earnings, 12/31/17 …………………………………………………
$86,005
AIMES CORPORATION
Balance Sheet
12/31/2017
Current Assets
Cash ………………………………………………
$227,800
Inventory ……………………………………….
Prepaid insurance ………………………….
Total current assets …………………..
$240,600
Property, Plant, and Equipment
Equipment ……………………………………..
38,000
Total plant assets ……………………..
Total assets
Current Liabilities
Accounts payable …………………………..
$24,850
Income taxes payable …………………….
31,245
Sales taxes payable ……………………….
Total current liabilities ………………
$ 67,895
Long-term liabilities
Bonds payable ……………………………….
90,000
Premium on bonds payable …………….
2,700
Total long-term liabilities …………..
Total liabilities …………………………..
Stockholders’ Equity
Common stock ………………………………
25,000
Retained earnings ………………………….
86,005
Total stockholders’ equity …………
111,005
CT 10-1 FINANCIAL REPORTING PROBLEM
(a) Total current liabilities at September 27, 2014, $63,448 millions. Apple‘s
total current liabilities increased by $19,790 millions ($63,448 – $43,658)
relative to the prior year.
CT 10-2 COMPARATIVE ANALYSIS PROBLEM
(a)
Columbia Sportswear
VF Corporation
(b)
Columbia Sportswear
VF Corporation
(1)
Debt to assets
$436,975
$1,792,209
= 24.4%
$4,349,258
$9,980,190
* = 43.6%
The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. Columbia
CT 10-3 COMPARATIVE ANALYSIS PROBLEM
(a)
Amazon .com
Wal-Mart
(1)
Current ratio
$31,327
$28,089
= 1.12:1
$63,278
$65,272
= 0.97:1
(b)
Amazon .com
Wal-Mart
(1)
Debt to assets
$43,764 *
$203,706 $85,937
–
*$28,089 + $8,265 + $7,410
The higher the percentage of debt to assets, the greater the risk that a
company may be unable to meet its maturing obligations. Wal-Mart’s