Accounting Chapter 10 Homework Plant And Equipment Equipment Accumulated Depreciation

*PROBLEM 10-10B

2014

(a) Jan. 1 Cash ………………………………………….. 2,154,434

(b) IMELDA CORPORATION

Bond Premium Amortization

Effective-Interest Method—Annual Interest Payments

6% Bonds Issued at 5%

Annual

Interest

Periods

(A)

Interest

to Be

Paid

(B)

Interest

Expense

(C)

Premium

Amor-

tization

(A) – (B)

(D)

Unamor-

tized

Premium

(D) – (C)

(E)

Bond

Carrying

Value

($2,000,000 + D)

Issue date

1

$120,000

$107,722

$12,278

$154,434

$142,156

$2,154,434

$2,142,156

(c) Dec. 31 Interest Expense

($2,154,434 X 5%) …………………………… 107,722

(d) 2015

Jan. 1 Interest Payable …………………………………. 120,000

(e) Dec. 31 Interest Expense

[($2,154,434 – $12,278) X 5%] ………….. 107,108

*PROBLEM 10-11B

2014

(a) (1) Jan. 1 Cash …………………………………… 1,717,761

Bonds Payable …………….. 1,600,000

(2) Dec. 31 Interest Expense

($1,717,761 X 6%) …………….. 103,066

2015

(3) Jan. 1 Interest Payable ………………….. 112,000

(b) Bonds payable …………………………………………… 1,600,000

(c) (1) Total bond interest expense—2015, $102,530.

(2) The effective-interest method will result in more interest expense

*PROBLEM 10-12B

(a)

Quarterly

Interest Period

(A)

Cash

Payment

(B)

Interest

Expense

(D) X 2%

(C)

Reduction

of Principal

(A) – (B)

(D)

Principal

Balance

(D) – (C)

Issue Date

1

$20,792

$6,800

$13,992

$340,000

326,008

(b) Dec. 31 Interest Expense …………………………….. 6,800

(c) Current liabilities

Long-term liabilities

Mortgage payable …………………………………………… 267,186**

*PROBLEM 10-13B

(a)

Period

Cash

Payment

(A)

Interest

Expense

(B) = (D) X 8%

Principal

Reduction

(C) = (A) – (B)

Balance

(D) = (D) – (C)

July 1, 2013 $140,000

June 30, 2014 $35,064 $11,200 $ 23,864 116,136

June 30, 2015 35,064 9,291 25,773 90,363

(b) July 1/13 Cash …………………………………………… 140,000

Notes Payable ………………………… 140,000

Current liabilities

COMPREHENSIVE PROBLEM SOLUTION

(a) 1. Interest Payable ……………………………………….

Cash …………………………………………………

2,500

2. Inventory …………………………………………………

Accounts Payable ……………………………..

241,100

7. Prepaid Insurance ……………………………………

Cash …………………………………………………

10,200

8. Sales Taxes Payable ………………………………..

Cash …………………………………………………

17,000

COMPREHENSIVE PROBLEM SOLUTION (Continued)

11. Cash (90,000 X 103%) ……………………………….

Bonds Payable …………………………………..

Premium on Bonds Payable ……………….

92,700

90,000

2,700

(b) TREVOR CORPORATION

Trial Balance

12/31/2014

Account Debit Credit

Cash ……………………………………………………. $227,800

Inventory …………………………………………….. 6,850

Prepaid Insurance ……………………………….. 5,950

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(a) and (b) Optional T accounts

Cash

Bal. 30,000

508,800

2,500

230,000

Inventory

Bal. 30,750

241,100

265,000

Equipment

Bal. 38,000

Accumulated

Interest Payable

2,500 Bal. 2,500

Bal. 0

Bonds Payable

50,000 Bal. 50,000

Common Stock

Bal. 25,000

Retained Earnings

COMPREHENSIVE PROBLEM SOLUTION (Continued)

(a) and (b) (Continued)

Cost of Goods Sold

265,000

Depreciation Expense

Other Operating Expenses

91,000

Interest Expense

2,500

Bal. 5,000

(c) TREVOR CORPORATION

Income Statement

For the Year Ending 12/31/14

Sales revenue ……………………………………… $480,000

Cost of goods sold ………………………………. 265,000

Gross profit …………………………………………. 215,000

Operating expenses

Insurance expense ……………………….. $9,850

COMPREHENSIVE PROBLEM SOLUTION (Continued)

TREVOR CORPORATION

Retained Earnings Statement

For the Year Ending 12/31/14

Retained earnings, 1/1/14……………………………………………………. $13,100

TREVOR CORPORATION

Balance Sheet

12/31/2014

Current Assets

Cash ……………………………………………… $227,800

Inventor

y

………………………………………. 6,850

Prepaid insurance …………………………. 5,950

Total current assets………………….. $240,600

Propert

y

, Plant, and Equipment

Equipment …………………………………….. 38,000

Accumulated depreciation

—

equipment ………………………………….. 7,000

Total plant assets …………………….. 31,000

Total assets $271,600

BYP 10-1 FINANCIAL REPORTING PROBLEM

(a) Total current liabilities at December 31, 2011, $58,355,000. Tootsie

Roll’s total current liabilities decreased by $150,000 ($58,505,000 –

$58,355,000) relative to the prior year.

BYP 10-2 COMPARATIVE ANALYSIS PROBLEM

(a) Hershey Tootsie Roll

(1) Current ratio $2,046,558

$1,173,775 = 1.74:1 $212,201

$58,355 = 3.64:1

(b) Hershey Tootsie Roll

(1) Debt to assets $3,539,551

** = 22.4%

The higher the percentage of debt to assets, the greater the risk that a

company may be unable to meet its maturing obligations. Tootsie Roll’s

BYP 10-3 RESEARCH CASE

(a) If a company can determine a reasonable estimate of the expected loss

and if it is probable it will lose the suit, then the company should

accrue for the loss. It should debit a loss account and credit a liability

(b) The article suggests that many of these companies are paying out

amounts each year, but that their liability account remains roughly the

(c) The articles suggests that if a company cannot come up with a reason-

able estimate of costs, but instead can only estimate a range of possible

costs, then financial reporting rules say that they should accrue for the

(d) International accounting rules differ from U.S. rules with regard to

BYP 10-4 INTERPRETING FINANCIAL STATEMENTS

(

a

)

Hechin

g

er Home Depot

Working capital $1,153 – $938 = $215 $4,933 – $2,857 = $2,076

(b) Debt to assets

ratio

$1,339

$1,577 = 85% $4,716

$13, 465 = 35%

(c) Return on

assets

–

$93

($1,577 + $1,668) ÷2 = –5.7% $1,614

($13, 465 + $11, 229) ÷2 = 13.1%

BYP 10-4 (Continued)

(d) Original Restated

Debt to assets $4,716

BYP 10-5 INTERPRETING FINANCIAL STATEMENTS

Borders Barnes and Noble

(a) Current ratio $978.7 ÷ $918.1= 1.07 : 1 $1, 719.5 ÷ $1, 724.4 = 1.00 : 1