EXERCISE 10-10
(a) Jan. 1 Cash ($600,000 1.03) ………………………. 618,000
(b) Long-term Liabilities
Bonds Payable, due 2027 ………………………… $600,000
EXERCISE 10–11
(a) Jan. 1 Cash ($500,000 .96) ……………………… 480,000
Discount on Bonds Payable …………….. 20,000
Bonds Payable …………………………. 500,000
EXERCISE 10-12
(a) The General Electric bonds were issued at a premium and the Boeing
bonds were issued at a discount.
EXERCISE 10-12 (Continued)
(b) The prices of the two bonds differed because bond price is based on the
market rate of interest not the stated rate of interest. Market interest
EXERCISE 10-13
2017
(a) Jan. 1 Cash ……………………………………………….. 350,000
Bonds Payable …………………………. 350,000
EXERCISE 10-14
(a) April 30 Bonds Payable ……………………………….. 140,000
Loss on Bond Redemption ……………… 14,900*
EXERCISE 10-14 (Continued)
(b) June 30 Bonds Payable ……………………………….. 170,000
Premium on Bonds Payable ……………. 14,000
EXERCISE 10-15
(a)
Account
Classification
Reason
Accounts payable
Current liability
Due within one year
Accrued pension liability
Long-term liability
Relates to pensions. Not due
within one year
Unearned rent revenue
Current liability
Due within one year
Bonds payable
Not due within one year
Income taxes payable
Current liability
Due within one year
Mortgage payable
Not due within one year
Operating leases
N/A
Not a balance sheet item—may
Notes payable
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
EXERCISE 10-15 (Continued)
(b) SANCHEZ INC.
Balance Sheet (Partial)
December 31, 2017
(in thousands)
Current liabilities
Notes payable ……………………………………….
$2,563.6
Accounts payable …………………………………
4,263.9
Current portion of mortgage payable …….
1,992.2
Warranty liability …………………………………..
1,417.3
Unearned rent revenue ………………………….
1,058.1
Salaries and wages payable ………………….
Income taxes payable …………………………..
Total current liabilities ………………………
Long-term liabilities
Mortgage payable …………………………………
$6,746.7
Bonds payable ……………………………………..
1,961.2
Accrued pension liability ………………………
1,115.2
Notes payable ……………………………………….
Total long-term liabilities ………………….
Total liabilities …………………………………………….
EXERCISE 10-16
(a) 1. Working capital = $3,416.3 – $2,988.7 = $427.6
2. Current ratio = $3,416.3 ÷ $2,988.7 = 1.14:1
$473.2 = 14.71 times
(Times interest earned = (Net income + Interest expense + Income taxes) ÷
EXERCISE 10-16 (Continued)
(b) Debt to assets ratio, adjusted for off–balance–sheet lease obligations.
$16,191.0 + $8,800
= 64%
$30,224.9 + $8,800
EXERCISE 10-17
(a) Current ratio
EXERCISE 10-18
(a) Current ratio
2017 $6,244 ÷ $4,503 = 1.39:1
EXERCISE 10-19
(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.
(b) For financial statement users it is important to understand the possible
implications that the contingent liabilities could have on the financial
*EXERCISE 10-20
2017
(a) Jan. 1 Cash ($500,000 X 103%) ………………….. 515,000
Bonds Payable ………………………… 500,000
(b) Dec. 31 Interest Expense …………………………….. 29,500
Premium on Bonds Payable
($15,000 X 1/30) ……………………………. 500
*EXERCISE 10-21
2016
(a) Dec. 31 Cash ……………………………………………… 288,000
Discount on Bonds Payable ……………. 12,000
Bonds Payable ………………………… 300,000
LO 3, 5 BT: AP Difficulty: Medium TOT: 8 min. AACSB: Analytic AICPA FC: Reporting
*EXERCISE 10-22
2017
(a) Jan. 1 Cash ……………………………………………….. 360,727
Discount on Bonds Payable …………….. 39,273
(A)
Interest to
(B)
Interest Expense
to Be Recorded
(8% X Preceding
(C)
Discount
(D)
Unamortized
(E)
Bond
*EXERCISE 10-23
2017
(a) Jan. 1 Cash ……………………………………………….. 407,968
(b) Dec. 31 Interest Expense ($407,968 X 6%) …….. 24,478
Premium on Bonds Payable …………….. 2,122
2018
(c) Jan. 1 Interest Payable ………………………………. 26,600
Interest
Periods
Interest to
Be Paid
(7% X $380,000)
Interest Expense
to Be Recorded
(6% X Preceding
Bond Carrying Value)
[(E) X .06]
Premium
Amortization
(A) – (B)
Unamortized
Premium
(D) – (C)
Bond
Carrying Value
[$380,000 + (D)]
*EXERCISE 10-24
Issuance of Note
2017 Dec. 31 Cash …………………………………………. 300,000
First Installment Payment
Second Installment Payment
2019 Dec. 31 Interest Expense
[($300,000 – $20,000) X 10%] …… 28,000
(A) (B) (C) (D)
Annual Interest Reduction Principal
Interest Cash Expense of Principal Balance
Period Payment (D X 10%) (A) – (B) (D) – (C)
Issue date $300,000
12/31/18 $50,000 $30,000 $20,000 280,000
*EXERCISE 10-25
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
$50,000
1/1/2018
WAITE CORPORATION
Balance Sheet (Partial)
December 31, 2017
Current liabilities
Notes payable …………………………………………………………………….. $3,137
SOLUTIONS TO PROBLEMS
PROBLEM 10-1A
(a) Jan. 1 Cash ………………………………………………….. 18,000
Notes Payable …………………………….. 18,000
5 Cash ………………………………………………….. 6,254
Sales Revenue ($6,254 ÷ 1.06) ……… 5,900
Sales Taxes Payable
($6,254 – $5,900) ………………………. 354
(b) Jan. 31 Interest Expense ………………………………… 75
Interest Payable
($18,000 X 5% X 1/12) ……………….. 75
PROBLEM 10-1A (Continued)
(c) Current liabilities
Notes payable ……………………………………………………….. $ 18,000*
Accounts payable ………………………………………………….. 42,500*
PROBLEM 10-2A
(a) Sept. 1 Inventory ……………………………………………. 12,000
Notes Payable ……………………………… 12,000
30 Interest Expense
($12,000 X .06 X 1/12) ………………………. 60
Interest Payable …………………………... 60
Dec. 1 Notes Payable ……………………………………. 12,000
Interest Payable …………………………………. 180
Cash ……………………………………………. 12,180
(b)
Notes Payable
12/1 12,000
9/1 12,000
10/1 16,500
Interest Payable
12/1 180
9/30 60
10/31 170
PROBLEM 10-2A (Continued)
Interest Expense
9/30 60
10/31 170
PROBLEM 10-3A
(a) Jan. 1 Interest Payable …………………………... 40,000
Cash …………………………………….. 40,000**
PROBLEM 10-4A
2016
(a) Oct. 1 Cash …………………………………………… 700,000
Bonds Payable …………………….. 700,000
(b) Dec. 31 Interest Expense …………………………. 8,750
2017
(d) Oct. 1 Interest Expense
($700,000 X 5% X 9/12) ……………… 26,250
PROBLEM 10-5A
2017
(a) Jan. 1 Cash ($6,000,000 X 98%) ……………. 5,880,000
Discount on Bonds Payable ………. 120,000
(b) Long-term Liabilities
Bonds Payable, due 2032 …………………… $6,000,000
2019
(c) Jan. 1 Bonds Payable ………………………….. 6,000,000
Loss on Bond Redemption
($6,120,000 – $5,896,000) ……….. 224,000
PROBLEM 10-6A
(a)
2017
2016
1. Current ratio
= 1.03:1
= .92:1
2. Free cash flow
($2,457)
$1,500
3. Debt to assets ratio
$9,355 ÷ $14,308
= 65%
$9,831 ÷ $16,772
= 59%
4. Times interest
(b) The company’s position as measured through all ratios except the
(c) Southwest’s use of operating leases (vs. capital leases) would reduce its
solvency. If the leases were capital rather than operating, the balance sheet