Exercise 8-10
Requirement 1
Cash
10,000,000
Deferred Revenue
Requirement 2
Deferred Revenue
Requirement 3
The ending balance in Deferred Revenue is $2,000,000.
8,000,000
10,000,000
Exercise 8-11
Requirement 1
Requirement 2
Requirement 3
Exercise 8-12
Requirement 1
The contingent liability is probable and reasonably estimable, so it must be recorded
as follows:
Requirement 2
Pacific Cruise Lines should record a loss and a liability for the minimum amount ($4
Requirement 3
If the likelihood of loss is reasonably possible rather than probable, we record no entry
Requirement 4
Exercise 8-13
Requirement 1
Yes, it’s probable that costs for warranties will be incurred and based on previous
Requirement 2
Warranty Expense ($800,000 x 4%) 32,000
Requirement 3
Warranty Liability 22,000
Requirement 4
Warranty Liability
Payment 22,000
32,000 Expense
10,000 Balance
Exercise 8-14
Requirement 1
Yes, a contingent liability is an existing, uncertain situation that might result in a loss.
Requirement 2
Exercise 8-15
Requirement 1
Current Assets
÷
Current Liabilities
=
Current Ratio
=
0.31
÷
Current Liabilities
=
Acid-Test Ratio
=
0.23
Requirement 2
Queen’s Line has a lower current ratio and a lower acid-test ratio than either United
Chapter 9
Long-Term Liabilities
EXERCISES
Exercise 9-1
Requirement 1
Issue Bonds
Issue Stock
Operating income
$12,000,000
$12,000,000
Interest expense (bonds only)
Income before tax
Income tax expense (35%)
Net income
# of shares
Earnings per share (Net income / # of shares)
Requirement 2
Exercise 9-2
January 1, 2018
Cash
50,000
Notes Payable
50,000
(Issuance of a note payable)
January 31, 2018
Interest Expense ($50,000 x 7% x 1/12)
291.67
698.39
990.06
287.59
702.47
Exercise 9-3 (LO 9-6)
Requirement 1
Assets
=
Liabilities
+
Stockholders’
Equity
$50 million
$20 million
?
Stockholders’ equity must be $30 million ($50 million – $20 million).
Requirement 2
Total
Liabilities
÷
Stockholders’
Equity
=
Debt to Equity Ratio
Exercise 9-4
Terms
__b___ 1. Term bond.
__f___ 2. Serial bond.
__d___ 4. Bond issue costs.
__e___ 5. Callable bond.
__h___ 6. Convertible bond.
__c___ 7. Secured bond.
Definitions
a. Money set aside to pay debts as they come due.
b. Matures on a single date.
Exercise 9-5
Requirement 1
Premium. The issue price is $86,235,6645
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$80,000,000
2. Interest payment
3. Market interest rate
4. Periods to maturity
Calculator Output
PV
Requirement 2
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$80,000,000
2. Interest payment
3. Market interest rate
4. Periods to maturity
Calculator Output
PV
Chapter 07 – Long-Term Assets
Requirement 3
Discount. The issue price is $74,315,039
Calculator Input
Bond
Characteristics
Key
Amount
Calculator Output
Exercise 9-6
Requirement 1
Premium. The issue price is $55,338,768
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$50,000,000
2. Interest payment
3. Market interest rate
4. Periods to maturity
Calculator Output
PV
Requirement 2
Calculator Input
Bond
Characteristics
Key
Amount
1. Face amount
FV
$50,000,000
2. Interest payment
3. Market interest rate
4. Periods to maturity
Calculator Output
PV
Chapter 07 – Long-Term Assets
Requirement 3
Discount. The issue price is $45,399,604
Calculator Input
Bond
Characteristics
Key
Amount
4.5%
Calculator Output
Exercise 9-7
January 1, 2018
Cash
500,000
June 30, 2018
Interest Expense
17,500
December 31, 2018
Interest Expense
17,500
Exercise 9-8
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate
(3) – (2)
Prior Carrying
Value + (4)
1/ 1 /18
$ 466,024
6/30/18
12/31/18
Requirement 2
January 1, 2018
Cash
466,024
Bonds Payable
466,024
(To record the bond issue)
June 30, 2018
Interest Expense
(First semi-annual interest payment)
December 31, 2018
Interest Expense
18,687
(Second semi-annual interest payment)
Exercise 9-9
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate
(2) – (3)
Prior Carrying
Value – (4)
1/ 1 /18
$ 537,194
6/30/18
12/31/18
Requirement 2
January 1, 2018
Cash
537,194
June 30, 2018
Interest Expense
16,116
17,500
December 31, 2018
Interest Expense
16,074
17,500
Exercise 9-10
January 1, 2018
Cash
200,000
Bonds Payable
200,000
(To record the bond issue)
June 30, 2018
Interest Expense
7,000
(First semi-annual interest payment)
December 31, 2018
Interest Expense
7,000
(Second semi-annual interest payment)
Exercise 9-11
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate
(3) – (2)
Prior Carrying
Value + (4)
475
Requirement 2
January 1, 2018
Cash
186410
June 30, 2018
Interest Expense
7,456
December 31, 2018
Exercise 9-12
Requirement 1
(1)
Date
(2)
Cash
Paid
(3)
Interest
Expense
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
x Stated Rate
Carrying Value
x Market Rate
(2) – (3)
Prior Carrying
Value – (4)
570
Requirement 2
January 1, 2018
Cash
214,877
June 30, 2018
Interest Expense
6,446
December 31, 2018
Interest Expense
6,430
Exercise 9-13
January 1, 2018
Cash
200,000
Bonds Payable
200,000
December 31, 2018
Interest Expense
December 31, 2019
Interest Expense