Chapter 09 – Reporting and Interpreting Liabilities
E9–22.
$25,000 x 5.0330 = $125,825 (purchase price)
E9–23.
Req. 1
$6,000 x 2.5937 = $15,562
E9–24.
Req. 1
$58,800 x 1.3605 = $79,997
Req. 2
Savings account (+A) ……………………………………………..
58,800
Cash (-A) …………………………………………………………..
58,800
Savings account (+A) ………………………..
Interest revenue (+R, +SE) ……………..
Computations:
2011: $58,800 x 8% = $4,704.
Chapter 09 – Reporting and Interpreting Liabilities
9-22
E9–25.
Req. 1
December 31
Savings account (+A) ……………………………………………..
2,000
Cash (-A) …………………………………………………………..
2,000
Req. 2
Req. 5
December 31
2012
2013
Savings account (+A) ………………………..
2,180
2,376
Cash (-A) ……………………………………..
2,000
2,000
Interest revenue (+R, +SE) …………….
180
376
E9–26.
Req. 1 $3,500 x 4.3746 = $15,311 (balance in the fund)
Chapter 09 – Reporting and Interpreting Liabilities
9-23
PROBLEMS
P9–1.
Req. 1
January 15:
Purchases (+A) ……………………………………………………..
14,200
Cash (-A) …………………………………………………………..
14,200
July 15:
Unearned revenue (-L) ……………………………………………
3,750
Service revenue (+R, +SE) …………………………………..
3,750
Electric expense (+E, –SE) ………………………………………
27,860
Electric payable (+L) ……………………………………………
Wage expense (+E, -SE). ……………………………………….
15,000
Wages payable (+L) ……………………………………………
15,000
Cash (+A) …………………………..…………………………………
Note payable, short term (+L) ……………………………….
Cash (+A) …………………………..…………………………………
15,000
Unearned revenue (+L) ……………………………………….
15,000
Chapter 09 – Reporting and Interpreting Liabilities
9-24
Req. 2
December 31:
P9–2.
Req. 1
January 8:
Purchases (+A) ……………………………………………………..
14,860
Accounts payable (+L) …………………………………………
14,860
January 17:
Accounts payable (-L) …………………………………………….
14,860
Cash (-A) …………………………………………………………..
14,860
Cash (+A) …………………………..…………………………………
35,000
Note payable, short term (+L) ……………………………….
35,000
Purchases (+A) ……………………………………………………..
17,420
Accounts payable (+L) …………………………………………
17,420
Interest expense (+E, -SE). ……………………………………..
42,000
Interest payable (+L) ……………………………………………
42,000
($700,000 x 8% x 9/12 = $42,000).
Chapter 09 – Reporting and Interpreting Liabilities
9-25
July 5:
Accounts payable (-L) …………………………………………….
17,420
Cash (-A) …………………………………………………………..
17,420
December 31:
Wage expense (+E, -SE). ……………………………………….
9,500
Wages payable (+L) ……………………………………………
9,500
Cash (+A) …………………………..…………………………………
6,000
Rent revenue ($6,000 x 5/6) (+R, +SE) ………………….
Cash (+A) …………………………..…………………………………
Liability-deposit on trailer (+L) ………………………………
Chapter 09 – Reporting and Interpreting Liabilities
P9–2. (continued)
Req. 2
December 31:
Interest expense (+E, -SE). ……………………………………..
3,150
Interest payable (+L) ……………………………………………
3,150
($35,000 x 12% x 9/12 = $3,150).
Req. 3
Balance Sheet, December 31
Current Liabilities
Note payable, short term ……………………………………..
$35,000
Deposit on trailer …………………………..……………………
Wages payable …………………………………………………..
Interest payable ………………………………………………….
Req. 4
Transaction
Effect
January 8
No effect
January 17
Decrease
on operating activities)
No effect
Decrease
Increase
December 20
Increase
Chapter 09 – Reporting and Interpreting Liabilities
9-27
P9–3.
Req. 1
Date
Assets
Liabilities
Stockholders’ Equity
January 8
Purchases +
Accounts Payable +
No effect
January 17
Cash –
Accounts Payable –
No effect
April 1
Cash +
Note Payable +
No effect
June 3
Purchases +
Accounts Payable +
No effect
July 5
Cash –
Accounts Payable –
No effect
December 20
Cash +
Deposit +
No effect
December 31
No effect
Wages Payable +
Wage Expense –
December 31
No effect
Interest Payable +
Interest Expense –
Chapter 09 – Reporting and Interpreting Liabilities
9-28
Req. 2
Transaction
Effect
January 8
No effect
January 17
Decrease
on operating activities)
No effect
Decrease
Increase
Increase
Chapter 09 – Reporting and Interpreting Liabilities
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P9–4.
Req. 1
(a) December 31
Wage expense (+E, -SE) ………………………………………..
4,000
Wages payable (+L) ……………………………………………
4,000
Req. 2
(a) December 10
Cash (+A) ……………………………………………………………..
2,400
Rent revenue (+R, +SE) ………………………………………
2,400
Collection of rent revenue for one month.
Rent revenue (-R, –SE) …………………………………………..
revenue) (+L) ………………………………………………….
Unearned rent (10/30 x $2,400 = $800).
Cash (+A) ……………………………………………………………..
2,400
Rent revenue (+R, +SE) ………………………………………
1,600
Rent revenue collected in advance(+L) ………………….
800
Req. 3
Balance sheet at December 31
Current Liabilities:
Wages payable …………………………………………………..
4,000
Rent revenue collected in advance ……………………….
800
Wages payable (-L) ………………………………………………..
4,000
Cash (-A) …………………………………………………………..
4,000
Chapter 09 – Reporting and Interpreting Liabilities
Req. 4
Accrual-based accounting is more beneficial to financial analysts because it
P9–5.
Req. 1
Date
Assets
Liabilities
Stockholders’
Equity
(a) December 31
No impact
Wages Payable +
Wages Expense –
(b) January 6
Cash –
Wages Payable –
No impact
(c) December 10
Cash +
No impact
Rent Revenue +
(d) December 31
No impact
Deferred Rent +
Rent Revenue –
Req. 2
Accrual-based accounting is more beneficial to financial analysts because it
records revenues when they are earned and expenses when they are incurred,
Chapter 09 – Reporting and Interpreting Liabilities
P9–6.
1. December 31
Warranty expense (+E, –SE) ……………………………………
500,000,000
Warranty payable (+L) …………………………………………
500,000,000
Warranty payable (-L) …………………………………………….
500,000,000
Cash (-A) …………………………………………………………..
500,000,000
2. Total effect of various transactions during 2011:
Cash (+A) ……………………………………………………………..
90,000,000
Unearned revenue (+L) ……………………………………….
90,000,000
Unearned revenue (-L) ……………………………………………
54,000,000
Revenue (+R, +SE) …………………………………………….
54,000,000
3. The company should report litigation expense and the related liability after the jury
4. The quick ratio for Disney is 0.35. To properly interpret the ratio, analysts would
look at much more information. For example, Disney was able to generate over $6
5. As an oil and gas company, Halliburton can be expected to have some adverse
impact on our environment. In many cases, federal law requires these companies
to rectify these negative effects. Halliburton records the cost of future
Chapter 09 – Reporting and Interpreting Liabilities
9-32
P9–7.
Req. 1 Not reported—Amount not subject to estimate
Req. 2 Not reported—No reason to believe that loss is probable
P9–8.
a. Remain the same
b. Decrease
c. Remain the same
Chapter 09 – Reporting and Interpreting Liabilities
9-33
P9–9.
The current liability classification is based on the expectation that the company will pay
the liabilities during the subsequent year. Analysts are interested in this classification
because it provides important information to use when predicting future cash flows. If
P9–9. (continued)
management made the reclassification simply to increase its quick ratio. Instead the
company was probably trying to get a better balance between short-term and long-term
P9–10.
Req. 1
GAAP Depreciation: $1,000,000 ÷ 20 years = $50,000
Book Value:
2011 2012
GAAP Tax GAAP Tax
Chapter 09 – Reporting and Interpreting Liabilities
Deferred tax liability 2011:
($950,000 – $900,000) × 34% = $17,000
P9–10. (continued)
Req. 2: Income tax expense 2011:
Taxes payable $400,000
Deferred taxes 17,000
Chapter 09 – Reporting and Interpreting Liabilities
9-35
P9–11.
Req. 1
Present value of debt:
$115,000 x 0.6227 = $71,611
Req. 2
Single sum to deposit:
Req. 3
Present value of payments:
$75,000 x 0.9346 = $70,095
P9–11. (continued)
Req. 4
Chapter 09 – Reporting and Interpreting Liabilities
P9–12.
Option 1:
$1,250,000 6.1446
=
$7,680,750
Option 2:
$10,000,000
=
$10,000,000
options are discounted.
P9–13.
Req. 1
$120,000 4.4399 = $27,028 (annual deposits)
Req. 2
$120,000 – ($27,028 x 4) = $11,888 (time value of money or interest)