FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-21A
(5-15 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Warranty Expense ($106,000 × .09) 9,540
Req. 2
INCOME STATEMENT
BALANCE SHEET
Current liabilities
Estimated warranty payable
Req. 3
1. Journalize Jim’s warranty expense for the period and the company’s cash payments
to satisfy warranty claims. Explanations are not required.
2. Show what Jim’s will report on its income statement and balance sheet for this
situation at the end of the period.
3. Which data item from requirement 2 will affect the current ratio? Will Jim’s current
ratio increase or decrease as a result of this item?
Journal
Chapter 9: Liabilities Page 21 of 115
Estimated Warranty Payable 9,540
Estimated Warranty Payable 9,000
Cash 9,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-22A
(10-15 min.)
Requirement
Solution:
Req.1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
Oct. 1 Cash 2,160
BALANCE SHEET:
Current liabilities:
1. Journalize these transactions (explanations not required). Then report any
liability on the company’s balance sheet at December 31, 2016.
Journal
Chapter 9: Liabilities Page 22 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-23A
(10 min.)
Solution:
INCOME STATEMENT
Expenses:
BALANCE SHEET
Current liabilities:
Show what Perrault will report for the foregoing on its income statement for the
year and on its year-end balance sheet.
Chapter 9: Liabilities Page 23 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-24A
(5-10 min.)
Requirements
Solution:
Req. 1
Accrued interest,
1. How much interest expense must be accrued at December 31, 2016? (Round your
answer to the nearest whole dollar.)
2. Determine the amount of Cart Sales’ final payment on July 1, 2017.
3. How much interest expense will Cart Sales report for 2016 and for 2017?
Chapter 9: Liabilities Page 24 of 115
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-25A
(10-15 min.)
Solution:
Hawley’s balance sheet at Dec. 31, 2017, reported:
How much income tax payable did Hawley Real Estate report on its balance sheet
at
December 31, 2017? How much income tax expense did Hawley report on its 2017
Chapter 9: Liabilities Page 25 of 115
Hawley’s 2017 income statement reported:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-26A
(10-20 min.)
Requirements
Solution:
Req. 1
1. Describe each of Earth Friendly Structures, Inc.’s, liabilities and state how the liability
arose.
2. What were the company’s total assets at December 31, 2016? Evaluate the
company’s
leverage and debt ratios at the end of 2015 and 2016. Use year-end figures in place of
averages where needed for the purpose of calculating ratios in this exercise. Did the
company improve, deteriorate, or remain about the same over the year?
3. Assume that beginning and ending inventories for both periods did not differ by a
material amount. Accounts payable at the end of 2014 was $176 million. Calculate
accounts payable turnover as a ratio and days’ payable outstanding (DPO) for 2015 and
2016. Calculate current ratios for 2015 and 2016 as well. Evaluate whether the company
improved or deteriorated from the standpoint of ability to cover accounts payable and
current liabilities over the year.
Accounts payable are amounts owed to suppliers for products or services that have been
purchased on account.
Chapter 9: Liabilities Page 26 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Total assets =
Req. 3
2016 2015
$ 1,580 = 10.0 $ 1,218 = 7.0
$158* $174**
Accounts payable
turnover
Average Accounts
Cost of goods sold
$4,671 million, the sum of total liabilities and stockholders’ equity.
Chapter 9: Liabilities Page 27 of 115
ratio
*Or, $305 + $1,842 + $77 + $29 = $2,253
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-27A
(5-10 min.)
Requirements
Solution:
Req. 1
Req. 2
Strong would report:
INCOME STATEMENT
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
Journal
1. Suppose Barclay’s lawyers believe that a significant legal judgment against the
company is reasonably possible. How should Barclay report this situation in its
financial statements?
2. Suppose Barclay’s lawyers believe it is probable that a $2.0 million judgment will
be rendered against the company. Report this situation in Barclay’s financial
statements. Journalize any entry requirements by GAAP. Explanations are not
required
Barclay Security Systems should report this situation in a note to the financial
statements. It is the company’s policy to disclose legal situations where it is
Chapter 9: Liabilities Page 28 of 115
BALANCE SHEET
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-28A
(15-20 min.)
Requirement
Solution:
Current liabilities:
a. Estimated warranty payable
[$35,000 + ($2,100,000 × .02) − $58,000] 19,000$
Baniff Electronics
Balance Sheet (partial)
March 31, 2016
1. Report these items on Banff Electronics’ balance sheet at March 31, 2016.
Chapter 9: Liabilities Page 29 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-29A
(10-15 min.)
Solution:
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
a. Jan. 31 Cash ($10,000,000 × 0.96) 9,600,000
Discount on Bonds Payable 400,000
Journal
Record (a) issuance of the bonds on January 31, 2016, (b) the semiannual interest
payment and amortization of bond discount on July 31, 2016, and (c) the interest accrual
and discount amortization on December 31, 2016.
Chapter 9: Liabilities Page 30 of 115
To issue bonds at a discount.
b. July 31 Interest Expense 390,000
To pay interest and amortize bond discount.
To accrue interest and amortize bond discount.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-30A
(10-15 min.)
Requirements
Solution:
1 Cash received = $300,000 × 1.03 = 309,000$
1. How much cash did County Bank receive when it issued these bonds?
2. How much cash in total will County Bank pay the bondholders through the maturity
date
of the bonds?
3. Calculate the difference between your answers to requirements 1 and 2. This
difference
represents County Bank’s total interest expense over the life of the bonds.
4. Compute County Bank’s annual interest expense by the straight-line amortization
Chapter 9: Liabilities Page 31 of 115
2 Principal 300,000$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-31A
(15-20 min.)
Requirements
Solution:
Req. 1
Using the PV function in EXCEL, the issue price of the bonds is $1,145,203.
Req. 2 (amortization table)
A B C D E
Dec. 31, 2016 454,797 1,145,203
June 30, 2017 24,000 40,082 16,082 438,715 1,161,285
Dec. 31, 2017 24,000 40,645 16,645 422,070 1,177,930
1. Use the PV function in Excel to calculate the issue price of the bonds.
2. Using Exhibit 9-4 as a model, prepare a bond amortization table for the term of the
bonds.
3. Record issuance of the bonds payable on December 31, 2016; the first semiannual
interest payment on June 30, 2017; and the second payment on December 31, 2017.
Semiannual
Interest Date
Interest
Payment
(1.5% of
Maturity
Value)
Interest
Expense (3.5%
of Preceding
Bond Carrying
Amount)
Discount
Amortization
(B – A)
Discount
Account
Balance
(Preceding D
– C)
Bond
Carrying
Amount
($4,000,000 –
D)
Chapter 9: Liabilities Page 32 of 115
June 30, 2018 24,000 41,228 17,228 404,842 1,195,158
Dec. 31, 2018 24,000 41,831 17,831 387,012 1,212,988
Dec. 31, 2019 24,000 43,100 19,100 349,457 1,250,543
June 30, 2020 24,000 43,769 19,769 329,688 1,270,312
Dec. 31, 2020 24,000 44,461 20,461 309,227 1,290,773
June 30, 2021 24,000 45,177 21,177 288,050 1,311,950
Dec. 31, 2021 24,000 45,918 21,918 266,131 1,333,869
June 30, 2022 24,000 46,685 22,685 243,446 1,356,554
Dec. 31, 2022 24,000 47,479 23,479 219,967 1,380,033
June 30, 2023 24,000 48,301 24,301 195,665 1,404,335
Dec. 31, 2023 24,000 49,152 25,152 170,514 1,429,486
June 30, 2024 24,000 50,032 26,032 144,482 1,455,518
Dec. 31, 2024 24,000 50,943 26,943 117,539 1,482,461
June 30, 2025 24,000 51,886 27,886 89,652 1,510,348
Dec. 31, 2025 24,000 52,862 28,862 60,790 1,539,210
June 30, 2026 24,000 53,872 29,872 30,918 1,569,082
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
Dec. 31 Cash 1,145,203
Discount on Bonds Payable 454,797
Bonds Payable 1,600,000
Journal
Chapter 9: Liabilities Page 33 of 115
To issue bonds at a discount.
2017
Cash 24,000
Discount on Bonds Payable 16,082
To pay semiannual interest and amortize
bond discount.
2017
Dec. 31 Interest Expense 40,645
Cash 24,000
Discount on Bonds Payable 16,645
To pay semiannual interest and amortize
bond discount.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-32A
(15-20 min.)
Requirements
Solution:
Req. 1
Req. 2 (amortization table on next page)
Req. 3 (journal entries)
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
June 30 Cash 908,723
Bonds Payable 800,000
Premium on Bonds Payable 108,723
Premium on Bonds Payable 3,651
Cash 40,000
To pay semiannual interest and amortize bond
2017
June 30 Interest Expense 36,203
Premium on Bonds Payable 3,797
Cash 40,000
To pay semiannual interest and amortize bond
1. Use the PV function in Excel to calculate the issue price of the bonds.
2. Using Exhibit 9-7 as a model, prepare a bond amortization table for the term of the
bonds.
3. Record the issuance of bonds payable on June 30, 2016; the payment of interest on
December 31, 2016; and the payment of interest on June 30, 2017.
Journal
Chapter 9: Liabilities Page 34 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
A B C D E
108,723 908,723
Dec. 31, 2016 40,000 36,349 3,651 105,072 905,072
June 30, 2017 40,000 36,203 3,797 101,275 901,275
June 30, 2016
Bond
Carrying
Amount
($4,000,000
+ D)
Semiannual
Interest Date
Interest
Payment
(5% of
Maturity
Value)
Interest
Expense
(4% of
Preceding
Bond
Carrying
Amount)
Premium
Amortization (A –
B)
Premium
Account
Balance
(Preceding
D – C)
Chapter 9: Liabilities Page 35 of 115
Dec. 31, 2017 40,000 36,051 3,949 97,326 897,326
June 30, 2018 40,000 35,893 4,107 93,219 893,219
Dec. 31, 2018 40,000 35,729 4,271 88,948 888,948
June 30, 2019 40,000 35,558 4,442 84,505 884,505
Dec. 31, 2019 40,000 35,380 4,620 79,886 879,886
June 30, 2020 40,000 35,195 4,805 75,081 875,081
Dec. 31, 2020 40,000 35,003 4,997 70,084 870,084
June 30, 2021 40,000 34,803 5,197 64,888 864,888
Dec. 31, 2021 40,000 34,596 5,404 59,483 859,483
June 30, 2022 40,000 34,379 5,621 53,863 853,863
Dec. 31, 2022 40,000 34,155 5,845 48,017 848,017
June 30, 2023 40,000 33,921 6,079 41,938 841,938
Dec. 31, 2023 40,000 33,678 6,322 35,615 835,615
June 30, 2024 40,000 33,425 6,575 29,040 829,040
Dec. 31, 2024 40,000 33,162 6,838 22,201 822,201
June 30, 2025 40,000 32,888 7,112 15,090 815,090
Dec. 31, 2025 40,000 32,604 7,396 7,693 807,693
June 30, 2026 40,000 32,308 7,693 -0- 800,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-33A
(15-20 min.)
Requirements
Solution:
Req. 1
1. Interpret the information in the footnote. Assume that the leases relate to the stores
operated by the company. What rights does the company have? What obligations?
2. Are the rights and obligations discussed in requirement 1 reported in the liability
section of the balance sheet? Why or why not? How does this impact the company’s
debt and leverage ratios?
3. How is this type of reporting likely to change in the future?
The company has the right to occupy space and operate out of leased stores for several
Chapter 9: Liabilities Page 36 of 115
Req. 2
Req. 3
The rights and obligations discussed in Req. 1 are classified as operating leases and are
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-34A
(20-25 min.)
Solution:
Company Company Company
F K R
Current
Total current assets
$ 434 ¥5,383 € 148,526
F K R
Debt Total liabilities $207 + $116 ¥2,197 + ¥2,318 €72,600 + €110,107
F K R
F K R
Amounts in millions or billions
Compare three leading companies (Company F, Company K, and Company R) by calculating
the following ratios: current ratio, debt ratio, leverage ratio, and times-interest-earned ratio. Use
year-end figures in place of averages where needed for the purpose of calculating ratios in this
exercise. Based on your computed ratio values, which company looks the least risky?
Ratio
Chapter 9: Liabilities Page 37 of 115
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-35A
(15-20 min.)
Requirements
Solution:
Req. 1
Net income before expansion
Req. 2
TO: Board of Directors, Green Nation Financial Services
FROM: Student Name
SUBJECT: Financing plan to expand operations
1. Analyze Green Nation Financial Services’ situation to determine which plan will result
in
higher earnings per share.
2. Which plan allows you to retain control of the company? Which plan creates more
financial risk for the company? Which plan do you prefer? Why? Present your conclusion
STOCK
MEMORANDUM
PLAN A
BORROW
$ 600,000
AT 5%
PLAN B
ISSUE
$ 600,000
OF COMMON
400,000$
400,000$
Chapter 9: Liabilities Page 38 of 115
Total company net income
Earnings per share including new project:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E9-36B
(10-15 min.)
Requirement
Solution:
Req.1
ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
July 31 Inventory 22,500
Note Payable, Short-Term 22,500
Journalize the company’s (a) purchase of inventory; (b) accrual of interest expense
on April 30, 2017, which is the year-end; and (c) payment of the note plus interest on
July 31, 2017. (Round your answers to the nearest whole number.) (d) Show what the
company would report for liabilities on its balance sheet at April 30, 2017, and on its
income statement for the year ended on that date.
Journal
DATE
Chapter 9: Liabilities Page 39 of 115
2017
Interest Payable 1,013
July 31 Note Payable, Short-Term 22,500
Cash 23,850
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Balance Sheet on April 30, 2017:
Current liabilities:
Chapter 9: Liabilities Page 40 of 115
Note payable, short-term $22,500
Interest payable 1,013
Interest expense 1,013$