Professional Documents
Culture Documents
payable for $100,000 due in 2 years, (b) a 10-year mortgage payable of $300,000 payable
in ten $30,000 annual payments, (c) interest payable of $15,000 on the mortgage, and (d)
accounts payable of $60,000. For each obligation, indicate whether it should be classified
as a current liability.(Assume an operating cycle of less than one year.)
(a)
A note payable due in two years is a long-term liability, not a current
liability.
(b)
$30,000 of the mortgage payable is a current maturity of long-term debt.
This amount should be reported as a current liability.
(c)
Interest payable is a current liability because it will be paid out of current
assets in the near future.
(d)
Accounts payable is a current liability because it will be paid out of current
assets in the near future.
E11-1 On June 1, Padillio Company borrows $70,000 from First Bank on a 6-month,
$70,000, 12% note.
Instructions
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have
been made through November 30.
(d) What was the total financing cost (interest expense)?
Instructions
Prepare the entry to record the sales transactions and related taxes for each client.
(a) June 1
Cash..................................................................70,000
Notes Payable.......................................................
70,000
(b) June 30
Interest Expense............................................................
Interest Payable...................................................
700
700
[($70,000 X 12%) X 1/12]
(c)
Dec. 1
Notes Payable................................................................
Interest Payable............................................................
($70,000 X 12% X 6/12)
70,000
4,200
Cash......................................................................
74,200
(d)
$4,200
(a) Prepare the entry in November for the receipt of the subscriptions.
(b) Prepare the adjusting entry at December 31, 2006, to record
subscription revenue earned in December 2006.
(c) Prepare the adjusting entry at March 31, 2007, to record
subscription revenue earned in the first quarter of 2007.
(a)
Nov.
30
Cash ...................................................................180,000
Unearned Subscriptions......................................
180,000
(9,000 X $20)
(b)
Dec.
31
Unearned Subscriptions................................................
Subscription Revenue..........................................
15,000
15,000
($180,000 X 1/12)
(c)
Mar. 31
Unearned Subscriptions.................................................
Subscription Revenue...........................................
45,000
45,000
($180,000 X 3/12)
P11-1A On January 1, 2006, the ledger of Shumway Software Company contains the
following liability accounts.
Accounts Payable $42,500
Sales Taxes Payable 5,800
Unearned Service Revenue 15,000
During January the following selected transactions occurred.
Jan. 1 Borrowed $15,000 in cash from Amsterdam Bank on a 4-month, 8%, $15,000 note.
5 Sold merchandise for cash totaling $10,400, which includes 4% sales taxes.
12 Provided services for customers who had made advance payments of $9,000. (Credit
Service Revenue.)
14 Paid state treasurer's department for sales taxes collected in December 2005, $5,800.
20 Sold 700 units of a new product on credit at $52 per unit, plus 4% sales tax.
25 Sold merchandise for cash totaling $12,480, which includes 4% sales taxes.
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entry at January 31 for the outstanding notes payable.
(c) Prepare the current liabilities section of the balance sheet at January 31, 2006. Assume
no change in accounts payable.
Please see the attached excel sheet
*P11-6A On July 1, 2006, Kingston Satellites issued $3,600,000 face value, 9%, 10-year
bonds at $3,375,680. This price resulted in an effective-interest rate of 10% on the bonds.
Kingston uses the effective-interest method to amortize bond premium or discount. The
bonds pay semiannual interest July 1 and January 1.
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entry to record the issuance of the bonds on July 1, 2006.
(b) Prepare the journal entry to record the accrual of interest and the amortization of the
discount on December 31, 2006.
(c) Prepare the journal entry to record the payment of interest and the amortization of the
discount on July 1, 2007, assuming that interest was not accrued on June 30.
(d) Prepare the journal entry to record the accrual of interest and the amortization of the
discount on December 31, 2007.
(e) Prepare an amortization table through December 31, 2007 (3 interest periods) for this
bond issue.
(a)
July
2006
Cash ...................................................3,375,680
Discount on Bonds Payable..............................
Bonds Payable..........................................
224,320
3,600,000
(b)
Dec.
31
6,784
Bond Interest Payable.............................
162,000
168,784
($3,600,000 X 9% X 1/2)
(c)
July
2007
Bond Interest Expense......................................
[($3,375,680 + $6,784) X 5%]
Discount on Bonds Payable....................
169,123
7,123
Cash..........................................................
162,000
(d)
Dec.
31
169,479
7,479
Bond Interest Payable.............................
162,000
(e)
KINGSTON SATELLITES
Bond Discount Amortization
Effective-Interest MethodSemiannual Interest Payments
9% Bonds Issued at 10%
(A)
Semiannual
Interest
Periods
Issue date
1
2
3
Interest
to Be
Paid
$162,000
162,000
162,000
(B)
Interest
Expense
to Be
Recorded
$168,784
169,123
169,479
(C)
Discount
Amortization
(B) (A)
(D)
Unamortized
Discount
(D) (C)
(E)
Bond
Carrying
Value
($3,600,000 D)
$6,784
7,123
7,479
$224,320
217,536
210,413
202,934
$3,375,680
3,382,464
3,389,587
3,397,066
*P11-7A On July 1, 2006, S. Strigel Chemical Company issued $5,000,000 face value,
10%, 10-year bonds at $5,679,533. This price resulted in an 8% effective-interest rate on
the bonds.
Strigel uses the effective-interest method to amortize bond premium or discount. The
bonds pay semiannual interest on each July 1 and January 1.
Instructions
(Round all computations to the nearest dollar.)
(a) Prepare the journal entries to record the following transactions.
(1) The issuance of the bonds on July 1, 2006.
(2) The accrual of interest and the amortization of the premium on December 31, 2006.
(3) The payment of interest and the amortization of the premium on July 1, 2007,
assuming no accrual of interest on June 30.
(4) The accrual of interest and the amortization of the premium on December 31, 2007.
(b) Show the proper balance sheet presentation for the liability for bonds payable on the
December 31, 2007, balance sheet.
(c) Provide the answers to the following questions in letter form.
(1) What amount of interest expense is reported for 2007?
(2) Would the bond interest expense reported in 2007 be the same as, greater than, or less
than the amount that would be reported if the straight-line method of amortization were
used?
(3) Determine the total cost of borrowing over the life of the bond.
(4) Would the total bond interest expense be greater than, the same as, or less than the
total interest expense if the straight-line method of amortization were used?
P11-7A)
(a)
(1)
July
2006
Cash .........................................5,679,533
Bonds Payable................................
5,000,000
Premium on Bonds
Payable.......................................
679,533
(2)
Dec.
31
227,181
22,819
250,000
($5,000,000 X 5%)
(3)
July
2007
Bond Interest Expense............................
[($5,679,533 $22,819) X 4%]
Premium on Bonds
226,269
Payable...................................................
Cash................................................
23,731
225,319
250,000
(4)
Dec.
31
24,681
250,000
(b)
Bonds payable..................................................................
Add: Premium on bonds payable..................................
5,608,302
*($679,533 $22,819 $23,731 $24,681)
5,000,000*
608,302*
(c)
Dear
Thank you for asking me to clarify some points about the bonds issued by
Strigel Chemical Company.
(1)
(2)
(3)
The total bond interest expense over the life of the bonds is the same
under either method of amortization.