Chapter 09 – Reporting and Interpreting Liabilities
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P9–14.
Req. 1
Future Value of Deposit:
$50,000 1.2653 = $63,265
Interest Earned:
$953,667 – $780,000 = $173,667
Req. 3
Chapter 09 – Reporting and Interpreting Liabilities
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ALTERNATE PROBLEMS
AP9–1.
Req. 1
January 15
Tax expense (+E, –SE) ……………………………………………
125,000
Taxes payable (+L) ……………………………………………..
93,000
Deferred tax liability (+L) ………………………………………
32,000
June 3
Inventory (+A) ……………………………………………………….
75,820
Accounts payable (+L) …………………………………………
75,820
Cash (-A) …………………………………………………………..
75,820
Cash (+A) …………………………..…………………………………
12,000
Revenue (+R, +SE) …………………………………………….
Deferred revenue (+L) …………………………………………
Interest payable (-L) ……………………………………………….
52,000
Cash (-A) …………………………………………………………..
52,000
Cash (+A) …………………………..…………………………………
550,000
Note payable (+L) ……………………………………………….
550,000
Chapter 09 – Reporting and Interpreting Liabilities
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Req. 2
December 31
Interest expense (+E, –SE) ………………………………………
44,000
Interest payable (+L) ……………………………………………
44,000
AP9–1. (continued)
Req. 3
Balance Sheet:
CURRENT LIABILITIES
Wages Payable
$85,000
Taxes Payable
Deferred Tax Liability
Interest Payable
Deferred Revenue
Note Payable
550,000
Current Portion of Long-
term Debt
100,000
TOTAL CURRENT
LIABILITIES
$908,000
Long-term liability (-L) …………………………………………….
Current liability (+L) …………………………………………….
Wage expense (+E, -SE) ………………………………………..
85,000
Wages payable (+L) ……………………………………………
85,000
Chapter 09 – Reporting and Interpreting Liabilities
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Req. 4
Cash from Operating Activities:
January 15
No effect
January 31
Decreased
April 30
No effect
June 3
No effect
July 5
Decreased
August 31
Increased
All December 31 transactions
No effect
Chapter 09 – Reporting and Interpreting Liabilities
AP9–2.
Req. 1
Date
Assets
Liabilities
Stockholders’
Equity
January 15
No effect
Deferred Tax Liability +
Taxes Payable +
Expense –
January 31
Cash –
Interest Payable –
No effect
April 30
Cash +
Note Payable +
No effect
June 3
Inventory +
Accounts Payable +
No effect
July 5
Cash –
Accounts Payable –
No effect
August 31
Cash +
Deferred Revenue +
Revenue +
December 31
No effect
Interest Payable +
Interest
Expense –
Current Liability +
December 31
No effect
Wages Payable +
Wage
Expense –
Req. 2
Cash from Operating Activities:
January 15
No effect
January 31
Decreased
April 30
No effect
June 3
No effect
July 5
Decreased
August 31
Increased
All December 31 transactions
No effect
Chapter 09 – Reporting and Interpreting Liabilities
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AP9–3.
Req.1
Warranty Expense +$3.9 billion
Warranty Liability +($3.9 billion –$4 billion)
Cash – $4 billion
Req. 2
In year 2011, no revenue has been earned. The liability is $23 million.
Req. 3
While the trend for the quick ratio is downward, it is doubtful that
ExxonMobil is experiencing financial difficulty. The company has a
reputation for aggressive cash management. It would be useful to study
the Statement of Cash Flows to determine if ExxonMobil is generating
significant cash resources from operating activities.
Req. 4
Chapter 09 – Reporting and Interpreting Liabilities
AP9–4.
a. Decrease
b. Decrease
AP9–5.
The contractual agreement that General Mills entered into allows them to reclassify the
Chapter 09 – Reporting and Interpreting Liabilities
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AP9–6.
Req. 1
$2,000,000 X 0.6806
=
$1,361,200
$150,000 X 3.9927
=
598,905
$1,960,105
AP9–7.
Option 1:
$750,000
=
$750,000
Option 2:
Option 3:
Total
=
$696,795
$422,692 – $350,000
$72,692 The total amount of interest
Chapter 09 – Reporting and Interpreting Liabilities
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AP9–8.
Req. 1
$320,000 x 3.2781 = $1,048,992
Req. 2
Fund Accumulation Schedule
Cash
Payment
Interest Revenue
(prior balance x 9%)
Fund
Fund
Balance
Chapter 09 – Reporting and Interpreting Liabilities
CASES AND PROJECTS
FINANCIAL REPORTING AND ANALYSIS CASES
CP9–1.
Req. 1 Accrued compensation and payroll taxes are $29,417,000.
Req. 2 Accounts payable decreased by $5,860,000. This change decreased
CP9–2.
Req. 1 The amount of accrued compensation is $11,975,000.
Chapter 09 – Reporting and Interpreting Liabilities
CP9–3.
Req. 1
Urban Outfitters
American Eagle
Quick
Quick
Assets
$402,373
$525,324
Req. 2
Industry
Average
Urban Outfitters
American Eagle
Quick Ratio =
1.4
2.9
1.3
The quick ratio for American Eagle is near the industry average but the one for Urban
Req. 3
Urban Outfitters
American Eagle
Accounts
Payable
Turnover
Cost of
Goods Sold
$1,121,140
$1,814,765
Chapter 09 – Reporting and Interpreting Liabilities
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CP9–3. (continued)
Req. 4
Industry
Average
Urban Outfitters
American Eagle
Payable Turnover =
6.4
16.4
11.7
Both companies’ payable turnover ratios are above the industry average. Based on the
payable turnover ratio, both of these companies are doing better than the average
company in their industry at paying trade creditors.
CP9–4.
Req. 1
In business transactions, it usually is unreasonable to assume that one party will
Chapter 09 – Reporting and Interpreting Liabilities
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CRITICAL THINKING CASES
CP9–5.
Quick Ratio Working Capital Liquidity
a. Decrease No Change Short-term
improvement
Chapter 09 – Reporting and Interpreting Liabilities
CP9–6.
While the question focuses on ethics, we believe that students should analyze the
proposed strategy. Refusing to accept merchandise would result in a higher quick
ratio. By not purchasing inventory, management avoids increasing liabilities without
Chapter 09 – Reporting and Interpreting Liabilities
CP9–7.
The jackpot does not have a present value of $3 million. The payments include
interest earned by the state while it makes payments over the 20-year period.
FINANCIAL REPORTING AND ANALYSIS PROJECT
CP9–8.
The response to this case will depend on the companies selected by the students.