CHAPTER 13
SOLUTIONS TO B EXERCISES
E13-1B (10–15 minutes)
(a) Current liability.
(b) Current liabilities or long-term liabilities as a deduction from face value
of note.
(h) Current liability.
(i) Current liability.
(j) Current liability or long-term liability depending on term of warranty.
(k) Current liability.
E13-2B (15–20 minutes)
(a)
Sept. 1
Purchases ………………………………………………………………
125,000
Accounts Payable …………………………………………..
125,000
Oct. 1
Accounts Payable …………………………………………………..
125,000
Notes Payable …………………………………………………
125,000
Oct. 1
Cash ………………………………………………………………………
125,000
Discount on Notes Payable ……………………………………..
Notes Payable …………………………………………………
142,000
(b)
Dec. 31
Interest Expense ……………………………………………………..
3,750
Interest Payable
($125,000 X 12% X 3/12) ………………………………..
3,750
Dec. 31
Interest Expense ……………………………………………………..
4,250
Discount on Notes Payable
($17,000 X 3/12)…………………………………………….
4,250
(c)
1.
Note payable
Interest payable
2.
Note payable
Less: Discount ($17,000 – $4,250)
E13-3B (10–12 minutes)
HERNANDEZ COMPANY
Balance Sheet (partial)
December 31, 2014
Current liabilities:
Notes payable (Note 1) ………………………………………………..
$ 500,000
Long-term debt:
Notes payable refinanced in February 2015 (Note 1) ……..
Note 1.
Short-term debt refinanced. As of December 31, 2014, the company had
notes payable totaling $3,000,000 due on February 2, 2015. These notes
OR
Current liabilities:
Notes payable (Note 1) ………………………………………………..
$ 500,000
Long-term debt:
Short-term debt expected to be refinanced (Note 1) ………
(Same Note 1 as above.)
E13-4B (20–25 minutes)
GIBSON COMPANY
Balance Sheet (partial)
December 31, 2014
Current liabilities:
Notes payable (Note 1) ……………………………………………
Long-term debt:
(Note 1) ……………………………………………………………….
Note 1.
Under a financing agreement with Blue Lagoon State Bank the Company
may borrow up to 60% of the gross amount of its accounts receivable at
E13-5B (25–30 minutes)
(a)
To accrue the expense and liability
To record payment for compensated
Year
for compensated absences:
time when used by employees:
2013
Wages Expense
17,280
Sick Pay Wages
(3)
Payable
(1)
Cash
Payable
(2)
Wages Expense
Wages Expense
Vacation Wages
Payable
(4)
(6)
Payable
(5)
(7)
Cash
(8)
(1)
9 employees X $15/hr. X 8 hrs./day X 10 days =
$10,800
(2)
9 employees X $15/hr. X 8 hrs./day X 6 days =
$6,480
(3)
9 employees X $15/hr. X 8 hrs./day X 4 days =
$4,320
(4)
9 employees X $18/hr. X 8 hrs./day X 10 days =
$12,960
(5)
9 employees X $18/hr. X 8 hrs./day X 6 days =
$7,776
(6)
9 employees X $15/hr. X 8 hrs./day X 9 days =
$9,720
(7)
9 employees X $15/hr. X 8 hrs./day X (6 – 4) days =
$2,160
9 employees X $18/hr. X 8 hrs./day X (5 – 2) days =
+ 3,888
(8)
9 employees X $18/hr. X 8 hrs./day X 9 days =
$11,664
Note: Vacation days and sick days are paid at the employee’s current wage.
E13-5B (Continued)
(b) Accrued liability at year-end:
2013
2014
Vacation
Wages
Payable
Sick Pay
Wages
Payable
Vacation
Wages
Payable
Sick Pay
Wages
Payable
Jan. 1 balance
$ 0
$ 0
$10,800
$2,160
Dec. 31 balance
(1)
(2)
(3)
(4)
(1)
9 employees X $15/hr. X 8 hrs./day X 10 days =
$10,800
(2)
9 employees X $15/hr. X 8 hrs./day X (6 – 4) days =
(3)
9 employees X $15/hr. X 8 hrs./day X (10 – 9) days =
9 employees X $18/hr. X 8 hrs./day X 10 days =
(4)
9 employees X $18/hr. X 8 hrs./day X (6 + 6 – 4 – 5) days
E13-6B (25–30 minutes)
(a)
2014
To accrue the expense and liability for vacations
Wages Expense ………………………………..
11,520
(1)
Vacation Wages Payable ……………
11,520
To record sick leave paid
Wages Expense ………………………………..
4,320
(2)
Cash …………………………………………
To record vacation time paid
No entry, since no vacation days were used.
2015
To accrue the expense and liability for vacations
Wages Expense ………………………………..
13,320
(3)
Vacation Wages Payable ……………
13,320
To record sick leave paid
Wages Expense ………………………………..
(4)
Cash …………………………………………
6,480
To record vacation time paid
Wages Expense ………………………………..
1,296
Vacation Wages Payable ……………………
10,368
(5)
Cash …………………………………………
11,664
(6)
(1) 9 employees X $16.00/hr. X 8 hrs./day X 10 days = $11,520
(2) 9 employees X $15.00/hr. X 8 hrs./day X 4 days = $4,320
E13-6B (Continued)
(b)
Accrued liability at year-end:
2014
2015
Jan. 1 balance
$ 0
$ 11,520
Dec. 31 balance
(1)
(2)
(1)
9 employees X $16.00/hr. X 8 hrs./day X 10 days =
$11,520
9 employees X $16.00/hr. X 8 hrs./day X 1 day =
9 employees X $18.50/hr. X 8 hrs./day X 10 days =
E13-7B (5–7 minutes)
June 30
Revenue from Sales …………………………………………………..
35,556
Sales Tax Payable ……………………………………………..
Computation:
Sales plus sales tax ($300,000 + $180,000)
Sales exclusive of tax ($480,000 ÷ 1.08)
Sales tax
E13-8B (10–15 minutes)
Wages and Salaries Expense ……………………………………..
960,000
Withholding Taxes Payable ………………………………..
180,000
FICA Taxes Payable* ………………………………………….
Union Dues Payable …………………………………………..
Cash …………………………………………………………………
702,200
*($960,000 – $220,000) X 7.65% = $56,610
$220,000 X 1.45% = $3,190; $56,610 + $3,190 = $59,800
E13-8B (Continued)
Payroll Tax Expense …………………………..……………………..
63,000
FICA Taxes Payable …………………………………………..
59,800
(See previous computation)
Federal Unemployment Tax Payable …………………..
($960,000 – $800,000) X .8%
State Unemployment Tax Payable ………………………
$160,000 X (3.5% – 2.3%)
E13-9B (15–20 minutes)
(a)
Computation of taxes
Warehouse
Wages
$206,000
Social security taxes (FICA)
15,759
(7.65% X $206,000)
Federal unemployment taxes
(0.8% X $60,000)
State unemployment taxes
(2.5% X $60,000)
Wages
$184,000
Social security taxes (FICA)
Federal unemployment taxes
(0.8% X $5,000)
State unemployment taxes
(2.5% X $5,000)
Administrative
Wages
$51,000
Social security taxes (FICA)
2,352*
Federal unemployment taxes
State unemployment taxes
E13-9B (Continued)
Schedule
Total
Warehouse
Sales
Administrative
Wages
$441,000
$206,000
$184,000
$51,000
FICA
Federal U.C.
520
480
–0–
State U.C.
Total Cost
$473,472
$223,739
(b)
Warehouse Payroll:
Wages and Salaries Expense …………………………..
206,000
Withholding Taxes Payable ……………………..
FICA Taxes Payable ………………………………..
Cash ………………………………………………………
Payroll Tax Expense ……………………………………….
FICA Taxes Payable ………………………………..
Federal Unemployment Tax Payable ………..
State Unemployment Tax Payable ……………
Sales Payroll:
Wages and Salaries Expense …………………………..
184,000
Withholding Taxes Payable ……………………..
31,000
FICA Taxes Payable ………………………………..
Cash ………………………………………………………
Payroll Tax Expense ……………………………………….
12,381
FICA Taxes Payable ………………………………..
Federal Unemployment Tax Payable ………..
State Unemployment Tax Payable ……………
Administrative Payroll:
Wages and Salaries Expense …………………………..
51,000
Withholding Taxes Payable ……………………..
9,000
FICA Taxes Payable ………………………………..
Cash ………………………………………………………
39,648
Payroll Tax Expense ……………………………………….
E13-10B (10–15 minutes)
(a)
Cash (400 X $3,000) …………………………………………………
1,200,000
Sales …………………………..………………………………….
1,200,000
Warranty Expense …………………………………………………..
Estimated Liability Under Warranties ……………….
(b)
Cash……………………………………………………………………….
1,200,000
Sales …………………………..………………………………….
1,200,000
Warranty Expense …………………………………………………..
E13-11B (15–20 minutes)
(a)
Cash……………………………………………………………………….
2,400,000
Sales (600 X $4,000) ………………………………………..
2,400,000
Warranty Expense …………………………………………………..
Cash ………………………………………………………………
Warranty Expense …………………………………………………..
Estimated Liability Under Warranties
($150,000 – $30,000) ……………………………………..
120,000
(b)
Cash……………………………………………………………………….
2,400,000
Sales …………………………..………………………………….
2,200,000
Unearned Warranty Revenue …………………………...
200,000
Cash ………………………………………………………………
Unearned Warranty Revenue ……………………………………
Warranty Revenue
[$200,000 X ($30,000/$150,000)] ……………………..
E13-12B (15–20 minutes)
Inventory of Premiums (10,000 X $0.50) ……………………
5,000
Cash ………………………………………………………………
5,000
Cash (55,000 X $3.75) ………………………………………………
Sales …………………………..………………………………….
Premium Expense …………………………………………………..
2,800
Inventory of Premiums [(28,000 ÷ 5) X $0.50] …….
2,800
Premium Expense …………………………………………………..
Estimated Liability for Premiums ……………………..
*[(55,000 X 60%) – 28,000] ÷ 5 X $0.50 = $500
E13-13B (20–30 minutes)
1. The FASB pronouncements require that, when some amount within the
range appears at the time to be a better estimate than any other amount
2. The loss should be accrued. Given that the loss is covered by insurance,
except for the $125,000 deductible, only the $125,000 should be accrued.
3. This is a gain contingency because the amount to be received will be in
E13-14B (25–30 minutes)
(a)
Depot ……………………………………………………………………..
2,400,000
Cash ………………………………………………………………
2,400,000
Depot ……………………………………………………………………..
167,516
Asset Retirement Obligation…………………………….
167,516
(b)
Depreciation Expense ……………………………………………..
240,000
Accumulated Depreciation ………………………………
240,000
Depreciation Expense ……………………………………………..
Accumulated Depreciation ………………………………
Interest Expense ……………………………………………………..
(c)
Asset Retirement Obligation …………………………………….
300,000
Loss on ARO Settlement ………………………………………….
Cash ………………………………………………………………
320,000
E13-15B (20–30 minutes)
1.
Liability for stamp redemptions, 12/31/13 ……………………
$6,000,000
Cost of redemptions redeemed in 2014 ………………………
(3,000,000)
2.
Total coupons issued ………………………………………………..
$500,000
Redemption rate………………………………………………………..
X 30%
To be redeemed ………………………………………………………..
150,000
Handling charges ($150,000 X 10%) …………………………...
15,000
Total cost ………………………………………………………………….
$165,000
Total payments to retailers ………………………………………..
E13-15B (Continued)
3.
Boxes ………………………………………………………………………
1,000,000
Redemption rate ……………………………………………………….
X 40%
Cost ($5.20 – $2.00) …………………………………………………..
E13-16B (20–25 minutes)
#
Assets
Liabilities
Owners’ Equity
Net Income
1.
NE
I
D
D
2.
I
I
I
I
3.
NE
I
D
D
6.
NE
I
D
D
7.
NE
NE
NE
NE
8.
NE
I
D
D
9.
D
D
NE
NE
10.
NE
I
D
D
11.
NE
D
I
I
12.
I
I
NE
NE
13.
D
NE
D
D
14.
NE
I
D
D
15.
I
I
NE
NE
17.
NE
I
D
D
18.
I
I
I
I
E13-17B (15–20 minutes)
(a)
Current ratio =
Current assets
=
$105,000
= 2.63
Current liabilities
$40,000
(b)
Acid-test ratio =
Cash + Marketable securities + Receivables
=
$57,500
= 1.44
Current liabilities
$40,000
(c)
Debt to total assets =
Total liabilities
=
$110,000
= 51.16%
Total assets
$215,000
This ratio provides the creditors with some idea of the company’s ability
to withstand losses without impairing the interest of creditors.
E13-18B (20–25 minutes)
(a)
1.
Current ratio =
$521,000
= 1.88
$277,000
Acid-test ratio =
= 0.75
3. Accounts receivable turnover =
$2,608,000 ÷
$112,000 + $151,000
= 19.8 times (or approximately
every 18 days)
2
6. Profit margin on sales =
$328,000 ÷ $2,608,000 = 12.58%
(b) Financial ratios should be evaluated in terms of industry peculiarities
and prevailing business conditions. Although industry and general
E13-19B (15–25 minutes)
(a)
1.
$440,000 ÷ $273,000 = 1.61 times
3.
$2,800,000 ÷ $155,000 = 18.06 times (or approximately 20 days).
6. $334,000 ÷ $643,000 = 51.9%
(b) 1. No effect on current ratio, if already included in the allowance for
doubtful accounts.
2. Weaken current ratio by reducing current assets.