30 Minutes, Medium
a.
Liabilities:
Income taxes payable 40,000$
60,000
b.
(1
(2
(3
As the accrued interest is payable within one month, it is a current liability.
(4
Current liabilities:
Accrued expenses and payroll taxes
PROBLEM 10.2A
DENVER CHOCOLATES
December 31, 2018
Partial Balance Sheet
DENVER CHOCOLATES
The pending lawsuit is a loss contingency. As no reasonable estimate can be made of the loss
Mortgage note payable-current portion ( $750,000 – $739,000) 11,000
Long-term liabilities:
25 Minutes, Medium
Aug 6 Cash 12,000
Sept 16 18,000
Notes Payable 18,000
Sept 20 12,000
180
Nov 1 Cash 250,000
Notes Payable 250,000
@ 15% per annum.
Paid note and interest to Maple Grove Bank
($12,000 x 12% x 45/360 = $180).
Obtained 90-day loan from Mike Swanson; interest
Dec 1 5,000
5,000
Dec 16 18,000
450
Notes Payable 18,000
Dec 31 6,428
6,428
Paid note and interest to Seawald Equipment
which matured today and issued a 30-day, 16%
Interest Expense
Interest Payable
To record interest accrued on notes payable:
Notes Payable
90-day, 14% note payable to Gathman Corporation.
Notes Payable
Interest Expense
To record purchase of merchandise and issue
Inventory
Notes Payable
Interest Expense
PROBLEM 10.3A
SWANSON CORPORATION
a.
General Journal
20xx
Issued 3-month, 10% note to Seawald Equipment
Office Equipment
as payment for office equipment.
Grove Bank. Issued a 45-day promissory note.
25 Minutes, Medium
PROBLEM 10.4A
SPEEDY LUBE
a.
Oct 1 Interest Expense 10,800
310
c.
4
3
2
Reduction in
Monthly Interest Unpaid Unpaid
Payment Expense Balance Balance
1,080,000$
Oct. 1 11,110$ 10,800$ 310$ 1,079,690
d.
Mortgage Note Payable
Amortization Table
1
Issue date
Payable in 360 Monthly Installments of $11,110)
(12%, 30-Year Mortgage Note Payable for $1,080,000;
The amount of the monthly payments exceeds the amount of the monthly interest expense.
At December 31, 2018, two amounts relating to this mortgage loan will appear as
current liabilities in the borrower’s balance sheet. First, as payments are due on the
Sept. 1, 2018
Period
Date
Interest
Payment
b.
General Journal
2018
To record monthly payment on mortgage.
Mortgage Note Payable
To record monthly mortgage payment.
15 Minutes, Easy
Aug 1 Cash 10,250,000
Bonds Payable 10,000,000
Bond Interest Payable 250,000
b.
Nov 1 250,000
250,000
Cash 500,000
c.
Dec 31 166,667
Bond Interest Payable 166,667
Bond Interest Expense
To accrue two months’ interest expense
($10,000,000 x 10% x 2/12 = $166, 667).
d.
May 1 166,667
333,333
Cash 500,000
Bond Interest Payable
To record semiannual bond interest payment
($10,000,000 x 10% x 4/12 = $333,333).
Bond Interest Expense
and interest expense for four months since Dec. 31
e.
a.
Issued $10,000,000 face value of 10%, 20-year
PROBLEM 10.5A
General Journal
2018
GREEN MOUNTAIN POWER COMPANY
Bond Interest Payable
$500,000).
The market rate of interest on the date of issuance was 10%. Because the bonds were
Bond Interest Expense
Paid semiannual interest ($10,000,000 x 10% x 1/2 =
2019
months ($10,000,000 x 10% x 3/12 = $250,000).
bonds at 100 plus accrued interest for three
35 Minutes, Strong
Dec 31 Bond Interest Expense 2,693,334
26,667
Bond Interest
2,666,667
Mar 1 2,666,667
1,346,667
13,334
Cash 4,000,000
(2)
Dec 31 2,653,334
13,333
Bond Interest
2,653,334$
Bond interest expense for four months
Accrual of interest on bonds for four months:
Contract interest ($80,000,000 x 10% x 4/12)
Mar 1 2,666,667
Cash 4,000,000
* Actual amount differs slightly due to rounding errors.
months, as computed in preceding entry).*
Semiannual bond interest payment and interest
Premium on Bonds Payable
expense for two months (1/2 of interest for four
1,326,667
2018
2019
Bond Interest Expense
interest expense for two months (1/2 of interest for
four months, as computed in preceding entry). *
Bond Interest Payable
Premium on Bonds Payable
Bonds issued at 101:
Bonds Interest Expense
To record semiannual bond interest payment and
Discount on Bonds Payable
(1)
Bonds issued at 98:
Bond Interest Expense
2019
2018
Discount on Bonds Payable
Bond Interest Payable
PROBLEM 10.6A
a.
General Journal
EVANSVILLE LUMBER COMPANY
To record accrual of bond interest expense for
Bond interest expense for four months
four months in 2018:
b.
Net bond liability at Dec. 31, 2019: Bonds Bonds
Issued Issued
at 98 at 101
*
Premium amortized at Dec. 31, 2019:
Amount amortized in 2019 ($1,600,000 ÷ 20 years) …………………………………..
Amount amortized in 2019 ($800,000 ÷ 20 years) ……………………………………
c.
PROBLEM 10.6A
EVANSVILLE LUMBER COMPANY (concluded)
The effective rate of interest would be higher under assumption 1. The less that investors
Discount amortized at Dec. 31, 2019:
* Less: Discount on bonds payable ($1,600,000-$106,667) (1,493,333)
Net bond liability at Dec. 31, 2019:
45 Minutes, Strong
a.
Liabilities: (in thousands)
Accounts payable 65,600$
11,347
Accrued interest payable 7,333
100,000$
250,000$
260 249,740
Deferred income taxes
Add: Premium on bonds payable
Capital lease obligation (less current portion)
11% Bonds payable, due June 1, 2028
c. (1) Computation of debt ratio:
Total liabilities (above) 1,088,620$
Total assets (given) 2,093,500$
Debt ratio ($1,088,620 ÷ $2,093,500) 52%
(2) Computation of interest coverage ratio:
Annual interest expense ($61,000 + $17,000) 78,000$
Part b appears on the following page.
6-3/4% Bonds payable, due February 1, 2019
8-1/2% Bonds payable, due June 1, 2019
Less: Discount on bonds payable
Current liabilities:
Accrued expenses payable (other than interest)
Long-term liabilities:
PROBLEM 10.7A
MURFREESBORO TELEPHONE CORPORATION
December 31, 2018
Partial Balance Sheet
CORPORATION (MTC)
MURFREESBORO TELEPHONE
b. (1)
(3)
(4)
(5)
(6)
d.
PROBLEM 10.7A
MURFREESBORO
TELEPHONE CORPORATION
(concluded)
In summary, the fact that MTC is a profitable telephone company with a reasonable debt
As the 6 3/4% bond issue is being refinanced on a long-term basis (that is, paid from the
The portion of the capital lease obligation that will be repaid within one year ($4,621) is
in the periods in which these costs are incurred.
The $18,000 portion of the unfunded liability for postretirement benefits that will be
Income taxes payable relate to the current year’s income tax return and, therefore, are
Based solely upon its debt ratio and interest coverage ratio, Murfreesboro Telephone
Corporation appears to be a good credit risk. One must consider, however, that MTC is a
(2)
The 8 1/2% bonds will be repaid from a bond sinking fund rather than from current
20 Minutes, Strong
a.
Liabilities:
Unearned revenues 300,000$
100,000
900,000$
Deferred income taxes**
Notes payable*
b.
●
●
●
The following items listed by the company have been excluded from current and long-term
liabilities for the reasons indicated:
Interest expense that will arise in the future from existing obligations is not yet a liability.
PROBLEM 10.8A
PETERSEN CORPORATION
Bonds payable
Current liabilities:
Income taxes payable
Long-term liabilities:
Notes payable (current portion) 12,000
25 Minutes, Easy
Current Long-Term Owners’
Transaction Revenue – Expenses = Net Income Assets = Liabilities + Liabilities + Equity
a. NE I D NE INE D
b. NE NE NE NE I D NE
c. NE I D D I NE D
SOLUTIONS TO PROBLEMS SET B
PROBLEM 10.1B
PHILMAR, INC.
Income Statement
Balance Sheet
30 Minutes, Medium
a.
Liabilities:
Income taxes payable 15,000$
26,000
b.
(1)
(2)
(3)
As the accrued interest is payable within one month, it is a current liability.
(4)
The pending lawsuit is a loss contingency. As no reasonable estimate can be made of
Comments on information in the numbered paragraphs:
The $17,000 principal amount of the mortgage note payable scheduled for
Current liabilities:
Accrued expenses and payroll taxes
PROBLEM 10.2B
GEORGIA PEACH
December 31, 2018
Partial Balance Sheet
GEORGIA PEACH
Mortgage note payable-current ( $750,000 – $ 733,000) 17,000
Long-term liabilities:
25 Minutes, Medium
Jul 1 Cash 20,000
Notes Payable 20,000
Dec 1 Cash 170,000
Notes Payable 170,000
Dec 1 10,000
10,000
Dec 16 30,000
Notes Payable 30,000
b.
Dec 31 958
which matured today and issued a 60-day, 12%
Interest Payable
To record interest accrued on notes payable:
Notes Payable
Interest Expense
Interest Expense
Paid note and interest to Moontime Equipment
c.
Inventory
Notes Payable
The Moontime Equipment note dated September 16 was due in full on December 16. The
PROBLEM 10.3B
SWANLEE CORPORATION
a.
General Journal
20xx
Bank. Issued a 90-day promissory note.
@ 5% per annum.
Borrowed $20,000 @ 12% per annum from Weston
To record purchase of merchandise and issue
90-day, 12% note payable to Listen Corporation.
Obtained 120-day loan from Jean Jones; interest
Sept 16 30,000
Notes Payable 30,000
Oct 1 20,000
Issued 3-month, 10% note to Moontime Equipment
as payment for office equipment.
Office Equipment
Notes Payable
Interest Expense
Paid note and interest to Weston Bank
($20,000 x 12% x 90/360 = $600).
25 Minutes, Medium
JENCO
a.
Nov 1 Interest Expense 1,000
1,633
c.
Reduction in
Monthly Interest Unpaid Unpaid
Payment Expense Balance Balance
100,000$
Nov. 1 2,633$ 1,000$ 1,633$ 98,367
Dec. 1 2,633 984 1,649 96,718
Jan. 1, 2019 2,633 967 1,666 95,052
Feb. 1 2,633 951 1,682 93,370
2
3
4
d.
The amount of the monthly payments exceeds the amount of the monthly interest
expense. Therefore, a portion of each payment reduces the unpaid balance of the loan.
At December 31, 2018, two amounts relating to this mortgage loan will appear as
1
Period
Date
Issue date
Oct. 1, 2018
(12%, 4-Year Mortgage Note Payable for $100,000;
Payable in 48 Monthly Installments of $2,633)
Interest
Payment
Amortization Table
PROBLEM 10.4B
b.
General Journal
2018
Note Payable
Note Payable
To record monthly payment on note payable to
Vicksburg State Bank.
To record monthly payment on note payable to