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ACCT 2062 Homework #2
ACCT 2062 Homework #2
ACCT 2062 Homework #2
(a)
(b)
e
(Classification of Liabilities) Presented below are various
lng Inc.
Un<lmortized premium on bonds payable, of which $3,000 will be amortized during the next year.
Bank loans payable of a winery, due March 10, 2011. (The product requires aging for 5 years before
sale.)
(c)
Serial bonds payable, $1,000,000, of which $200,000 arc due each July 31.
(d)
(e)
(f)
Credit balances in customers' accounts arising from returns and allowances after collection in full
of account.
(g)
(h)
Overdraft of $1,000 in a bank account. (No other balances are carried at this bank.)
(i)
Instructions
[ndicate whether each of the items above should be classified on December 31, 2008, as a current liabil
ity, a long-term liability, or under some other classification. Consid er each one independently from all
olhcrs; that is, do not assume that all of them relate to one particular business. If the classification of some
of the items is doubtful, explain why in each case.
E14-1
(a)
(b)
e
(Classification of Liabilities) Presented below are various
lng Inc.
Un<lmortized premium on bonds payable, of which $3,000 will be amortized during the next year.
Bank loans payable of a winery, due March 10, 2011. (The product requires aging for 5 years before
sale.)
(c)
Serial bonds payable, $1,000,000, of which $200,000 arc due each July 31.
(d)
(e)
(f)
Credit balances in customers' accounts arising from returns and allowances after collection in full
of account.
(g)
(h)
Overdraft of $1,000 in a bank account. (No other balances are carried at this bank.)
(i)
Instructions
[ndicate whether each of the items above should be classified on December 31, 2008, as a current liabil
ity, a long-term liability, or under some other classification. Consid er each one independently from all
olhcrs; that is, do not assume that all of them relate to one particular business. If the classification of some
of the items is doubtful, explain why in each case.
E14-3
1.
On January 1, 2007, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable
2.
On June 1, 2007, Garfunkel Company issued $100,000 of 12%, 10-ycar bonds dated January 1 at
is
Instructions
For each of these two independent situations, prepare journal entries to record the following.
20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion
Company uses the straight-line method of amortization for bond premium or discount.
Instructions
Prlparc the journal entries to record the following.
(a)
(b)
(c)
The accrual of interest and the related amortization on D<.-ccmbcr 31, 2008.
(b)
6,000
E14-1
(a)
(b)
e
(Classification of Liabilities) Presented below are various
lng Inc.
Un<lmortized premium on bonds payable, of which $3,000 will be amortized during the next year.
Bank loans payable of a winery, due March 10, 2011. (The product requires aging for 5 years before
sale.)
(c)
Serial bonds payable, $1,000,000, of which $200,000 arc due each July 31.
(d)
(e)
(f)
Credit balances in customers' accounts arising from returns and allowances after collection in full
of account.
(g)
(h)
Overdraft of $1,000 in a bank account. (No other balances are carried at this bank.)
(i)
Instructions
[ndicate whether each of the items above should be classified on December 31, 2008, as a current liabil
ity, a long-term liability, or under some other classification. Consid er each one independently from all
olhcrs; that is, do not assume that all of them relate to one particular business. If the classification of some
of the items is doubtful, explain why in each case.
E14-3
1.
On January 1, 2007, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable
2.
On June 1, 2007, Garfunkel Company issued $100,000 of 12%, 10-ycar bonds dated January 1 at
is
Instructions
For each of these two independent situations, prepare journal entries to record the following.
20-year bonds on January 1, 2008, at 102. Interest is payable semiannually on July 1 and January 1. Dion
Company uses the straight-line method of amortization for bond premium or discount.
Instructions
Prlparc the journal entries to record the following.
(a)
(b)
(c)
The accrual of interest and the related amortization on D<.-ccmbcr 31, 2008.
(b) 7/1/08
30,000
30,000
E14-5
uses
as
in E144,
Instructions
Prepare 1he journal entries to record the followi ng. (Round to the nea rest dollar.)
(a)
(b)
(c)
E14-6
The accniaJ of interest and the related amortization on December 31, 2008.
(Amortization Schedules-Straight-line)
maturity v<1luc of $2,000,000 for $1,855,816. The bonds are dated January 1, 2007, and matu re January 1,
Instructions
Set up
E14 -7
schedule of interest expense and discount amortization under the stra ight-line method.
(Amortization Sc hedu le
Instructions
Set up a schedule of interest expense and discount amortization under the effective interest method. (Hi11t:
The effective interest rate must be computed.)
E14-10 (Entr ies for Bond Transactions) On January 1, 2007, Aumont Company sold 12% bonds hav
ing a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The
bonds are dated January 1, 2007, and mature Januilfy 1, 2012, with interest payable December 31 of each
year. Aumont Company allocates intere s t and unamortized discount or premium on the effective i n teres t
basis.
Instructions
(a) Prepare the journal entry at the date of the bond issuance.
(b) Prepare a schedule of interest expense and bond amortization for ?007-2009.
(cl
(d)
Prepare the journal entry to record the interest payment and the amortization for 2007.
Prepare the journal entry to record the interest payment and the amortization for 2009.
600,000
12,000
30,000
30,000
$612,000
(102)
$611,898
E14-5
uses
as
in E144,
Instructions
Prepare 1he journal entries to record the followi ng. (Round to the nea rest dollar.)
(a)
(b)
(c)
E14-6
The accniaJ of interest and the related amortization on December 31, 2008.
(Amortization Schedules-Straight-line)
maturity v<1luc of $2,000,000 for $1,855,816. The bonds are dated January 1, 2007, and matu re January 1,
Instructions
Set up
E14 -7
schedule of interest expense and discount amortization under the stra ight-line method.
(Amortization Sc hedu le
Instructions
Set up a schedule of interest expense and discount amortization under the effective interest method. (Hi11t:
The effective interest rate must be computed.)
E14-10 (Entr ies for Bond Transactions) On January 1, 2007, Aumont Company sold 12% bonds hav
ing a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The
bonds are dated January 1, 2007, and mature Januilfy 1, 2012, with interest payable December 31 of each
year. Aumont Company allocates intere s t and unamortized discount or premium on the effective i n teres t
basis.
Instructions
(a) Prepare the journal entry at the date of the bond issuance.
(b) Prepare a schedule of interest expense and bond amortization for ?007-2009.
(cl
(d)
Prepare the journal entry to record the interest payment and the amortization for 2007.
Prepare the journal entry to record the interest payment and the amortization for 2009.
Cash
Paid
(2)
$200,000
200,000
200,000
200,000
200,000
Interest
Expense
(3)
$222,697.92*
225,421.67
228,472.27
231,888.94
235,703.20**
Discount
Amortized
(4)
$22,697.92
25,421.67
28,472.27
31,888.94
35,703.20
Carrying
Amount of
Bonds
$1,855,816.00
1,878,513.92
1,903,935.59
1,932,407.86
1,964,296.80
2,000,000.00
E14-5
uses
as
in E144,
Instructions
Prepare 1he journal entries to record the followi ng. (Round to the nea rest dollar.)
(a)
(b)
(c)
E14-6
The accniaJ of interest and the related amortization on December 31, 2008.
(Amortization Schedules-Straight-line)
maturity v<1luc of $2,000,000 for $1,855,816. The bonds are dated January 1, 2007, and matu re January 1,
Instructions
Set up
E14 -7
schedule of interest expense and discount amortization under the stra ight-line method.
(Amortization Sc hedu le
Instructions
Set up a schedule of interest expense and discount amortization under the effective interest method. (Hi11t:
The effective interest rate must be computed.)
E14-10 (Entr ies for Bond Transactions) On January 1, 2007, Aumont Company sold 12% bonds hav
ing a maturity value of $500,000 for $537,907.37, which provides the bondholders with a 10% yield. The
bonds are dated January 1, 2007, and mature Januilfy 1, 2012, with interest payable December 31 of each
year. Aumont Company allocates intere s t and unamortized discount or premium on the effective i n teres t
basis.
Instructions
(a) Prepare the journal entry at the date of the bond issuance.
(b) Prepare a schedule of interest expense and bond amortization for ?007-2009.
(cl
(d)
Prepare the journal entry to record the interest payment and the amortization for 2007.
Prepare the journal entry to record the interest payment and the amortization for 2009.
January 1, 2007
Cash ...................................................................... 537,907.37
Premium on Bonds Payable ..............
Bonds Payable .......................................
(b)
Date
Cash
Paid
1/1/07
12/31/07
12/31/08
12/31/09
(c)
(d)
37,907.37
500,000.00
$60,000.00
60,000.00
60,000.00
Interest
Expense
Premium
Amortized
$53,790.74
53,169.81
52,486.79
$6,209.26
6,830.19
7,513.21
Carrying
Amount of
Bonds
$537,907.37
531,698.11
524,867.92
517,354.71
60,000.00
60,000.00
issued $1,500,000 of 10% bonds at 97 due December 31, 2011. L egal and other costs of $24,000 were in
curred in connection with the issue. Interest on the bonds is payable annually each December 31. The
$24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of
the bonds. The discount o n the bonds is also being amortized on n strnight line basis over the 10 yenrs.
-
materially
The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2007, Banno called
$900,000 face amow1t of the bonds and retired them.
Instructions
Jgnoring income taxes, compute the amount of loss, if any, to be rccogniled by Banno as a result of re tiring
the $900,000 of bonds in 2007 and prepare the journal entry to record the retire ment
(AICPA adapted)
E14-13
11 'Yo bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,000,000 of
1()%, 15-yeRr bonds (interest payable July 1 and January 1) at 98. A port ion of the proceeds was used to
call th e l'I % b onds a t 102 on August I. Unamortized bond discount and issue cost applica bl e to the 11 %
bonds were $120,000 and $30,000, respectively.
Instructions
Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.
El4-19
$2,000,000 note
ond is a $6,000,000 bond issue which matures September 30, 2010. The third is a Sl 7,500,000 sinking fund
debenture with annual sinking fund payments of
$3,500,000
Instructions
Prepare the note disclosure required by FASB Statement No. 47, "Disclosure of Long-term Obligations,"
for the long-term debt at December 31, 2006.
$909,000
879,300
Loss on redemption
$ 29,700
Calculation of unamortized discount
Original amount of discount:
$900,000 X 3% = $27,000
$27,000/10 = $2,700 amortization per year
Amount of discount unamortized:
$2,700 X 5 = $13,500
Calculation of unamortized issue costs
Original amount of costs:
$24,000 X $900,000/$1,500,000 = $14,400
$14,400/10 = $1,440 amortization per year
Amount of costs unamortized:
$1,440 X 5 = $7,200
January 2, 2007
Bonds Payable ................................................................ 900,000
Loss on Redemption of Bonds .................................
29,700
Unamortized Bond Issue Costs ......................
7,200
Discount on Bonds Payable ...........................
13,500
Cash .........................................................................
909,000
issued $1,500,000 of 10% bonds at 97 due December 31, 2011. L egal and other costs of $24,000 were in
curred in connection with the issue. Interest on the bonds is payable annually each December 31. The
$24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of
the bonds. The discount o n the bonds is also being amortized on n strnight line basis over the 10 yenrs.
-
materially
The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2007, Banno called
$900,000 face amow1t of the bonds and retired them.
Instructions
Jgnoring income taxes, compute the amount of loss, if any, to be rccogniled by Banno as a result of re tiring
the $900,000 of bonds in 2007 and prepare the journal entry to record the retire ment
(AICPA adapted)
E14-13
11 'Yo bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,000,000 of
1()%, 15-yeRr bonds (interest payable July 1 and January 1) at 98. A port ion of the proceeds was used to
call th e l'I % b onds a t 102 on August I. Unamortized bond discount and issue cost applica bl e to the 11 %
bonds were $120,000 and $30,000, respectively.
Instructions
Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.
El4-19
$2,000,000 note
ond is a $6,000,000 bond issue which matures September 30, 2010. The third is a Sl 7,500,000 sinking fund
debenture with annual sinking fund payments of
$3,500,000
Instructions
Prepare the note disclosure required by FASB Statement No. 47, "Disclosure of Long-term Obligations,"
for the long-term debt at December 31, 2006.
8,820,000
180,000
6,000,000
270,000
9,000,000
6,120,000
120,000
30,000
issued $1,500,000 of 10% bonds at 97 due December 31, 2011. L egal and other costs of $24,000 were in
curred in connection with the issue. Interest on the bonds is payable annually each December 31. The
$24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of
the bonds. The discount o n the bonds is also being amortized on n strnight line basis over the 10 yenrs.
-
materially
The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2007, Banno called
$900,000 face amow1t of the bonds and retired them.
Instructions
Jgnoring income taxes, compute the amount of loss, if any, to be rccogniled by Banno as a result of re tiring
the $900,000 of bonds in 2007 and prepare the journal entry to record the retire ment
(AICPA adapted)
E14-13
11 'Yo bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,000,000 of
1()%, 15-yeRr bonds (interest payable July 1 and January 1) at 98. A port ion of the proceeds was used to
call th e l'I % b onds a t 102 on August I. Unamortized bond discount and issue cost applica bl e to the 11 %
bonds were $120,000 and $30,000, respectively.
Instructions
Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.
El4-19
$2,000,000 note
ond is a $6,000,000 bond issue which matures September 30, 2010. The third is a Sl 7,500,000 sinking fund
debenture with annual sinking fund payments of
$3,500,000
Instructions
Prepare the note disclosure required by FASB Statement No. 47, "Disclosure of Long-term Obligations,"
for the long-term debt at December 31, 2006.
E14-16
Purchases land having a fair market value of $200,000 by issuing a 5-year, zero-interest-bearin g
promissory note i n the face amount of $337,012.
2.
Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000
(interest payable annually).
The company has to pay 11 % interest for funds from its bank.
Instructions
(a)
Record the two journal entries that should be recorded by Ellen Greene Company for the two
purchases on January 1, 2008.
(b)
Record the interest at the end of the first year on both notes using the effective interest method.
E14-17
(a)
(Imputation o f Interest)
On January 1, 2008, Robin Wright Inc. purchased land that had an assessed value of $350,000 at
the time of purchase. A $550,000, zero-interest-bearing note due January 1, 2011, was given in
exchange. There was no established exchange price for the land, nor a ready market value for the
note. TI1e interest rate charged on a note of this type is 12%. Determine at what amount the land
should be recorded at January 1, 2008, and the interest expense to be reported in 2008 related to
this transaction.
(b)
On January 1, 2008, Sally Field Furniture Co. borrowed $5,000,000 (face value) from Gary Sinise
Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was
zero-interest-bearing , Sally Field Furniture agreed to sell furniture to this customer at lower than
market price. A JO% rate of interest
is
entry to record this transaction and determine the amount of interest expense to report for 2008.
337,012.00
185,674.30
64,325.70*
250,000.00
$250,000.00
(185,674.30)
$ 64,325.70
22,000.00
5,424.17
15,000.00
E14-16
Purchases land having a fair market value of $200,000 by issuing a 5-year, zero-interest-bearin g
promissory note i n the face amount of $337,012.
2.
Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000
(interest payable annually).
The company has to pay 11 % interest for funds from its bank.
Instructions
(a)
Record the two journal entries that should be recorded by Ellen Greene Company for the two
purchases on January 1, 2008.
(b)
Record the interest at the end of the first year on both notes using the effective interest method.
E14-17
(a)
(Imputation o f Interest)
On January 1, 2008, Robin Wright Inc. purchased land that had an assessed value of $350,000 at
the time of purchase. A $550,000, zero-interest-bearing note due January 1, 2011, was given in
exchange. There was no established exchange price for the land, nor a ready market value for the
note. TI1e interest rate charged on a note of this type is 12%. Determine at what amount the land
should be recorded at January 1, 2008, and the interest expense to be reported in 2008 related to
this transaction.
(b)
On January 1, 2008, Sally Field Furniture Co. borrowed $5,000,000 (face value) from Gary Sinise
Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was
zero-interest-bearing , Sally Field Furniture agreed to sell furniture to this customer at lower than
market price. A JO% rate of interest
is
entry to record this transaction and determine the amount of interest expense to report for 2008.
January 1, 2008
Cash ........................................................................
Discount on Notes Payable .............................
Notes Payable ...........................................
Unearned Revenue ..................................
$3,415,050**
X
.10
$ 341,505
$550,000
X .71178
$391,479
$391,479
X
.12
$ 46,977
5,000,000
1,584,950
5,000,000
1,584,950*