SOLUTIONS TO PROBLEMS
P13-1
1. 2010
Dec. 24 Equipment: Computer
[($60,000 – ($60,000 x 0.02)] 58,800
2011
Jan. 2 Accounts Payable: Computers
International 58,800
Cash 58,800
2. BYRD COMPANY
Partial Balance Sheet
December 31, 2010
Current Liabilities
P13-1 (continued)
P13-2
1. a. Cash received
(1) Interest-bearing: $60,000
2. Interest-bearing Noninterest-bearing
2010
Nov.
1
Cash
60,000
52,800
P13-3
2010
Nov. 1 Accounts Payable 15,000
2011
Mar. 1 Notes Payable (Johnson) 15,000
P13-4
1. 2010
Mar. 31 Salaries and Wages Expense:
Compensated Absences 9,000
Liability for Employee
P13-4 (continued)
2. REXALLO COMPANY
Partial Balance Sheet
March 31, 2010
Current Liabilities
P13-5
1. Cash ($1,665,400 x 1.05) 1,748,670
Sales 1,665,400
2. MAULDIN COMPANY
Partial Balance Sheet
December 31, 2010
P13-6
1. F.I.C.A. Wages Unemployment Tax Wages
Johnson
Long
$ 27,000
18,000
$ 7,000
7,000
13-25
P13-6 (continued)
1. (continued)
State unemployment tax
2. Salaries and Wages Expense 224,000
Employees’ Income Taxes Withholding Payable 44,800*
F.I.C.A. Taxes Payable 17,520
P13-7
Bonus = 0.10 ($5,000,000 – B – T)
Taxes = 0.30 ($5,000,000 – B)
P13-7 (continued)
3. 2010
Dec. 31 Salaries Expense (Officer’s Bonus) 327,102.80
4. NATIONAL MOTORS
Partial Balance Sheet
December 31, 2010
P13-8
1. July 1, 2010 lien date
Oct. 30, 2010
Property Tax Expense* 1,317.22
Nov. 30, 2010 payment of property taxes
13-27
P13-8 (continued)
1. (continued)
Eight monthly entries: Nov. 30, 2010 through June 30, 2011*
2. ROSEN CORPORATION
Partial Balance Sheet
December 31, 2010
P13-9
1. 2010
Cash (or Accounts Receivable) 500,000
Sales 500,000
2011
2012
Cash (or Accounts Receivable) 700,000
Sales 700,000
P13-9 (continued)
1. (continued)
2. Estimated liabilities under warranties at December 31, 2012: $136,700
Estimated Liabilities Under Warranty
P13-10
Cash (or Accounts Receivable) 7,944,000
P13-11
1. October
Cash or Accounts Receivable (21,000 x $2.80) 58,800
Sales 58,800
P13-11 (continued)
1. (continued)
November
Cash or Accounts Receivable (24,000 x $2.80) 67,200
Sales 67,200
Sales 67,200
Premium Expense 3,360
Income Summary 63,840
December
Cash or Accounts Receivable (33,000 x $2.80) 92,400
Sales 92,400
13-30
P13-11 (continued)
2. YUMMY CEREAL COMPANY
Partial Balance Sheets
At the End of
October November December
P13-12
1. (1) This loss contingency is accrued at the end of 2010 because (a) it is an existing
condition, (b) a loss is probable, and (c) the loss can be reasonably estimated. The
loss is accrued at the most likely amount ($80,000) within the range of amounts as
follows:
(2) This loss contingency is accrued at the end of 2010 because (a) it is an existing
condition, (b) a loss is probable, and (c) the loss can be reasonably estimated. The
loss is accrued at the estimated cost of repairs ($200,000) as follows:
(3) This loss contingency is accrued at the end of 2010 because (a) it is an existing
condition, (b) a loss is probable, and (c) the loss can be reasonably estimated. The
13-31
P13-12 (continued)
(4) Because of conservatism, this gain contingency is not accrued but is disclosed in the
notes to the financial statements.
2. With regard to the potential skateboard litigation, the loss related to the estimated
repairs of $200,000 is recorded similar to U.S. GAAP:
Estimated Expense From Recall Repairs 200,000
Estimated Liability for Recall Repairs 200,000
In addition, IFRS require that a provision (or contingency) be accrued when the outcome
P13-13 (AICPA adapted solution)
1. Note to Instructor: This problem includes a potential appropriation of retained earnings
(1) 2010
Dec. 31 Magazine Subscriptions Collected
13-32
P13-13 (continued)
1. (1) (continued)
aLiability account:
(2) No journal entry should be made to accrue for an expense, because the absence of
insurance coverage does not mean that an asset has been impaired or a liability has
(3) Estimated Loss From Pending Lawsuit 100,000
(4) No journal entry should be made for this loss contingency, because it is not probable
2. With regard to the breach-of-contract litigation, if an unfavorable outcome is probable
and there exists a range of estimates with no amount in the range more likely than any
other amount in the range, IFRS require that the mid-point of the range be used to
measure the liability. Therefore, the journal entry to record the accrual of the provision
P13-14
1. The $3,000,000 commercial paper liquidated prior to the refinancing will be classified as
2. The remaining $4,000,000 will be classified as long-term debt, since Palmer issued the
P13-15
ATWOOD TABLE COMPANY
Partial Balance Sheet
December 31, 2010
Current Liabilities
Notes payable (expected to be refinanced in 2011) $6,000,000
P13-16
1. 2010
Jan. 1 Machinery 72,597.90*
Discount on Notes Payable 7,402.10
P13-16 (continued)
1. (continued)
Jun. 30 Interest Expense (see schedule) 2,220.07
Notes Payable 20,000.00
Cash 20,000.00
Schedule of Interest Expense
and Obligation Reduction
Date
Payment
4% Interest Expense
Reduction of
Obligation
Net
Obligation
2010
Jan. 1
$72,597.90
2. NORTHERN MANUFACTURING COMPANY
Partial Balance Sheet
June 30, 2010
P13-17
2010