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Chapter 07 - Accounting for and Presentation of Liabilities
CHAPTER Accounting for and Presentation

of Liabilities
7
CHAPTER OUTLINE:
I. Current Liabilities
A. Short-term debt
1. Used to finance working capital needs
2. Interest calculation methods (Business in Practice)
3. Interest accrual
B. Current maturities of long-term debt
C. Accounts payable
D. Unearned revenue or deferred credits
E. Payroll tax and other withholdings
F. Other accrued liabilities
II. Noncurrent Liabilities
A. Long-term debt
1. Financial leverage illustrated
2. Accounting for bonds payable
a. Original issuance
b. Recognition of interest expense
c. Retirements and conversions
3. Bond discount or premium
4. Bond characteristics, classifications and terminology
a. By how interest is paid
b. By security
c. By how principal is paid
B. Deferred tax liabilities
1. An application of the accrual and matching concepts
C. Other noncurrent liabilities
1. Pension plan obligations
2. Post-retirement benefits other than pensions
3. Estimated liabilities for lawsuits, warranties, etc.
7-1
TEACHING/LEARNING OBJECTIVES:
Principal:
1. To have the student understand that a principal concern about the liability section of the
balance sheet is that liabilities are not understated, because if liabilities are too low, then
expenses will probably be too low also, and net income will be overstated.
2. To have the student understand the nature of a bond payable, and to learn why the market
value of a bond moves inversely with changes in interest rates.
3. To have the student understand the concept of financial leverage.
Supporting:
4. To have the student understand different interest calculation methods.
5. To reinforce the student's understanding of the accrual and matching concepts.
6. To review cash discount terms and have the student understand the internal control benefits
of recording purchases using the net method.
7. To have the student understand the characteristics of a bond.
8. To have the student understand bond premium and discount.
9. To have the student understand the nature of the liability for deferred income taxes, and to be
able to relate it to the difference between book and tax depreciation.
TEACHING OBSERVATIONS/ASSIGNMENT SUGGESTIONS:
1. A review of the accrual and matching concepts in the context of liabilities and expenses should
help students understand the first principal objective of accounting for liabilities. Exercises 7-3
through 7-6 (and Case 7-29) focus on the issue of accruing expenses so that liabilities are not
understated and net income is not overstated. Exercises 7-7 and 7-8, and Problems 7-23 and
7-24, are concerned with the opposite issue--reducing “unearned revenue” liabilities for the
revenue that has been earned.
7-2
TEACHING OBSERVATIONS/ASSIGNMENT SUGGESTIONS: (continued)
2. The discussion of interest calculation methods is an opportunity to apply the present value
concept introduced in the Chapter 6 Appendix. See Exercises 7-1 and 7-2.
3. The discussion of the net and gross methods of recording purchases is an opportunity to
review transaction analysis, and to integrate that process with the system of internal control,
introduced in Chapter 5.
4. Financial leverage should be put into a context that the student understands. For example,
students may invest the student loan proceeds not immediately needed for tuition into a savings
account. The discussion should reinforce their understanding of both ROI and ROE.
5. The coverage of bonds can be related both to students' future investment opportunities, and to
current market interest rates and bond price reactions. Reference to the bond listing in The Wall
Street Journal is appropriate and helpful.
6. In our opinion, present value tables should be used to explain bond premium and discount.
Students are frequently confused about whether to use the stated rate or the market interest rate
to calculate cash flows and present value--the distinction between these two rates must be
emphasized. Exercises 7-9 through 7-14 and Problems 7-25 through 7-28 cover a variety of
issues related to bonds.
7. Have students review the liability section of the balance sheet of the annual report that they
obtained or were provided, and determine the significance of deferred taxes. A real world
example may help them to better understand this item.
8. Cases 7-29 and 7-30 can be used to help students develop an ability to read and understand
financial statement data; they also reinforce a lot of terminology introduced in this chapter.
9. Problem 7-24 (optional continuation) provides an opportunity to illustrate the use of present
value analysis in a management decision-making context.
7-3
ASSIGNMENT OVERVIEW:
LEARNING DIFFICULTY & OTHER
NO. OBJECTIVES TIME ESTIMATE COMMENTS
E7.1. 2 Easy, 5-8 min. Straight-forward.
E7.2. 2 Med., 7-10 min. Students sometimes have difficulty with the math. Stress that the
$8,000 discount represents only 5/12 of the year—not the amount
that would be charged for a full year.
E7.3. 4 Easy, 5-8 min. Emphasize the matching concept.
E7.4. 5 Easy, 5-8 min. Alternative to E7.3.
E7.5. 5 Easy, 3-5 min. Straight-forward.
E7.6. 5 Med., 5-8 min. Good in-class demonstration exercise. Emphasize the financial
statement effects of the accrual and payment entries.
E7.7. 3 Med., 7-10 min. Emphasize the liability-revenue relationship rather than the
specific account titles.
E7.8. 3 Easy, 3-5 min. Good in-class demonstration exercise.
E7.9. 8 Med., 7-10 min. Easy way to introduce bonds.
E7.10. 8 Med., 7-10 min. See E7.9. Good homework assignment.
E7.11. 8 Med., 10-12 min. Explain that you still have to “price” the bond with present
value analysis; however, the remaining bond term is less.
E7.12. 8 Med., 10-12 min. See E7.11. Good in-class demonstration or homework exercise.
E7.13. 8 Easy, 3-5 min. Straight-forward conceptual bonds problem.
E7.14. 8 Easy, 3-5 min. See E7.13.
E7.15. 9 Med, 5-8 min. Good theory question.
E7.16. 6 Med., 5-8 min. Review Exhibit 7-2.
E7.17. 4,5,8 Easy-Med., 5-8 min Excellent exercise for self-study / review.
E7.18. 4,5,8 Easy-Med., 5-8 min See E7.17.
E7.19. 1,2,5,8,9 Easy-Med., 5-8 min. See E7.17.
E7.20. 5,8 Easy-Med., 5-8 min. See E7.17.
P7.21. 3 Med., 5-8 min. Straight-forward.
P7.22. 3 Med.-Hard, Group learning problem. Generates class discussion, and
12-15 min. provides an opportunity to reinforce present value concepts.
P7.23. 4 Easy, 5-8 min. Straight-forward.
P7.24. 4 Med., 10-15 min. Distinguish clearly between the entries for:
1) accrued payroll (i.e., gross pay to employees), versus
2) accrued payroll taxes (i.e., employer taxes).
P7.25. 7 Hard, 12-15 min. Group learning problem. Provided for instructors wishing to
delve into bond details. Needs instructor support/clarification.
P7.26. 7 Hard, 12-15 min. Group learning problem. See P7.25.
P7.27. 8 Med., 10-15 min. Have students review Exhibit 7-3 before attempting this problem.
P7.28. 8 Med., 10-15 min. Good homework assignment.
C7.29. 1,5,7,8 Med., 10-12 min. Group learning problem. Good homework assignment.
C7.30. 5,7,8 Hard, 12-15. Group learning problem. Real world financial reporting!
7-4
SOLUTIONS:
Matching I Matching II
1. q 6. k 1. i 6. m
2. c 7. i 2. b 7. e
3. a 8. p 3. h 8. n
4. g 9. n 4. o 9. j
5. b 10. m 5. k 10. c
Multiple Choice
1. a 6. e
2. e 7. b
3. e 8. c
4. e 9. d
5. c 10. e
Multiple Choice Annotations:
1. Interest owed on short-term notes would be an example of an accrued liability, but the
Notes Payable itself is recorded when money is borrowed. All of the other answers
are examples of amounts that are accrued.
6. Mere negotiations are not enough to justify the recording of a liability because an
exchange transaction has not yet taken place. Liabilities are the result of “past
transactions or events.”
8. If the market interest rate rises after the bonds are authorized but before they are
issued, investors will not be willing to pay the full face amount for the bonds—because
they could earn a higher interest rate by investing in the bonds of another similar company.
Thus, the bonds will sell at a discount.
9. Property Taxes Payable would also increase (credit).
7-5
E7.1.
a. Discount basis means interest is paid in advance.
Proceeds = Face amount of note - Interest

= $300,000 - ($300,000 * 9% * 6/12)
= $300,000 - $13,500 = $286,500
Balance Sheet Income Statement .

Assets = Liabilities + Owners’ Equity  Net income = Revenues - Expenses
Cash Notes Payable (Note: The discount account is a contra liability,
+ 286,500 + 300,000 so the initial carrying value of the note is equal
Discount on to the cash proceeds received--which is the
Notes Payable approach taken when interest is calculated
- 13,500 on a straight basis.)
April 15, 2010

Dr. Cash ........................................................................................... 286,500
Dr. Discount on Notes Payable ........................................................ 13,500
Cr. Notes Payable...................................................................... 300,000
To record the proceeds of a short-term note payable (discount basis).
b. The note was dated April 15, 2010, so 2.5 months have passed from the time the note
was signed until the June 30, 2010 fiscal year-end. Interest = $300,000 * 9% * 2.5/12 =
$5,625
c. Current liability = Face amount less discount balance.

= $300,000 - ($13,500 - $5,625)
= $300,000 - $7,875 = $292,125
E7.2.
a. Discount = Principal (Maturity value) – Proceeds
= $240,000 - $232,000 = $8,000
Discount rate = Discount / (Principal * Time)
= $8,000 / ($240,000 * 5/12) = 8%
b. Effective rate = Discount / (Proceeds * Time)

= $8,000 / ($232,000 * 5/12) = 8.3%
7-6
E7.2. (continued)
c.
1. On August 1, 2010 to record loan proceeds:
Cash Notes Payable

+ 232,000 + 240,000 (Note: The discount account is a contra liability,
Discount on so the initial carrying value of the note is equal
Notes Payable to the cash proceeds received.)
- 8,000
2. On September 30, 2010 (and each month-end) to record interest expense:

Discount Interest
Note Payable (Note: A reduction of the discount Expense
+ 1,600 increases the carrying value.) - 1,600
3. On December 31, 2010 to record principal repayment:

Cash Notes Payable
- 240,000 - 240,000
Journal entries:
1. August 1, 2010
Dr. Cash ........................................................................................... 232,000
Dr. Discount on Notes Payable ........................................................ 8,000
Cr. Notes Payable...................................................................... 240,000
To record the proceeds of a short-term note payable (discount basis).
2. September 30, 2010

Dr. Interest Expense ($240,000 * 8% * 1/12) .................................. 1,600
Cr. Discount on Notes Payable .....................................……… 1,600
To record interest expense and discount amortization for one month.
3. December 31, 2010

Dr. Notes Payable ................................................................……… 240,000
Cr. Cash.........................................................................……… 240,000
To record the repayment of a short-term note. The discount is amortized
for $1,600 each month, and would be fully amortized at the maturity date.
7-7
E7.3.
a. Balance Sheet Income Statement .
Payroll Taxes Payroll Tax
Payable Expense
+ 4,800 - 4,800
3/31/10
Dr. Payroll Tax Expense .................................................................. 4,800
Cr. Payroll Taxes Payable ......................................................... 4,800
To accrue payroll taxes for the year.
b. Failure to make the accrual resulted in an understatement of expense and an

overstatement of net income. On the 3/31/10 balance sheet, current liabilities are
understated and the retained earnings account is overstated.
c. 3/31/10 3/31/11
X X
Paid taxes of prior year in Should have recognized
April; debited expense for $5,000 expense this year.
$4,800 this year.
Effect on net income for year ended 3/31/11:
Expense is too high by amount applicable to prior year: $4,800
Expense is too low by accrual not made this year: $5,000
Net effect is that expense this year is $200 too low, and profits this year are $200 too high.
Effect on the 3/31/11 balance sheet:
Current liabilities are $5,000 understated and the retained earnings account is $5,000
overstated.
E7.4.
a. The amount is estimated based on prior year taxes, or based on the known assessed
valuation and expected tax rate.
b. Balance Sheet Income Statement .
Real Estate Real Estate
Taxes Payable Tax Expense
+ 7,200 - 7,200
Dr. Real Estate Tax Expense ...........................................................……… 7,200

Cr. Real Estate Taxes Payable .............................................................. 7,200
To accrue real estate taxes for the year.
7-8
E7.4. (continued)
c. Balance Sheet Income Statement .
Real Estate Real Estate
Taxes Payable Tax Expense
+ 300 - 300
Dr. Real Estate Tax Expense ...........................................................……… 300

Cr. Real Estate Taxes Payable .............................................................. 300
To adjust the real estate taxes accrual.
d. Current liabilities at 12/31/10 and expenses for 2010 would both be understated by
$7,200, or by $7,920 ($7,200 * 1.10) if it is assumed that $7,200 is the amount of prior
year taxes.
E7.5.
a. Warranty Expense = ($7,200,000 sales * 0.4% estimated warranty expense) = $28,800
b. Estimated Warranty Liability, 1/1/10 balance ...................................……... $70,400
Less: Actual warranty costs during 2010 ....................................................... (31,200)
Add: Warranty Expense accrued during 2010 ...................................……... 28,800
Estimated Warranty Liability, 12/31/10 balance ........................................... $68,000
E7.6.
a. 2010 estimated warranty expense = $4,600,000 * 0.2% = $9,200
To accrue estimated warranty expense:
Estimated Warranty Warranty
Liability Expense
+ 9,200 - 9,200
To record the actual costs of servicing products under warranty.

Cash Estimated Warranty
and/or Liability
Inventory - 12,700
- 12,700
7-9
E7.6. (continued)
a. Dr. Warranty Expense ...................................................................... 9,200
Cr. Estimated Warranty Liability .............................................. 9,200
To accrue estimated warranty expense for the year.
Dr. Estimated Warranty Liability .................................................... 12,700

Cr. Cash or Inventory ................................................................ 12,700
To record the actual costs of servicing products under warranty .
b. At the end of 2010 an adjustment should be made to increase the warranty expense already
recognized to the amount of cost incurred, and to accrue additional estimated warranty
expense related to other items sold in 2010 that are still under warranty.
c. The amount of this adjustment could be determined by an analysis of the experience of

2010 and an analysis of the reasons for the larger than expected warranty claims.
E7.7.
a. Keg deposits are a current liability on the balance sheet because they are amounts that are
likely to be paid within a year.

Cash Keg Deposits
- 50 - 50
Dr. Keg Deposits .............................................................................. 50

Cr. Cash.........................................................................……… 50
To record the refund of keg deposits.
c.
The Keg Deposits liability for the 200 kegs (200 * $50 = $10,000) should be eliminated
with a debit; an income statement account (such as Keg Deposits Revenue) should be
credited.
To eliminate the liability for unreturned kegs:
Keg Deposits Keg Deposits
- 10,000 Revenue
+10,000
Dr. Keg Deposits .............................................................................. 10,000

Cr. Keg Deposits Revenue ........................................................ 10,000
To eliminate the liability for unreturned kegs.
7-10
E7.7. (continued)
d. The cost of kegs purchased would be capitalized in a noncurrent asset account, and then be
depreciated over the kegs' estimated useful life. The net book value of kegs removed from
service or lost (as in part c) would be removed from the asset and recorded as an expense
(or a loss).

To record a loss for the net book value of unreturned kegs:
- Kegs - Keg Expense
+ Accumulated (or Unreturned
Depreciation Kegs Loss)
Dr. Keg Expense (or Loss on Unreturned Kegs) ............................ xxx

Dr. Accumulated Depreciation ........................................................ xxx
Cr. Kegs (or other appropriate asset account) ........................... xxx
To record a loss for the net book value of unreturned kegs.
E7.8.
Cash Unearned Ticket
+ 302,400 Revenue
+ 302,400
Dr. Cash (1,200 tickets @ $ 252)...................................................... 302,400

Cr. Unearned Ticket Revenue .................................................... 302,400
To record the cash collection for season ticket sales made in advance.

Unearned Ticket Ticket
Revenue Revenue
- 50,400 + 50,400
Dr. Unearned Ticket Revenue (200 tickets @ $252) ....................... 50,400

Cr. Ticket Revenue .................................................................... 50,400
To record revenues earned for presenting an event.
c. The unearned revenues are a current liability.
7-11
E7.9.
a. The market interest rate is lower than the stated interest rate, so the bonds will sell for
more than their face amount. The lower the discount rate (i.e., market interest rate), the
higher the present value of cash flows associated with the bond (for interest payments and
principal) becomes. Buyers are willing to pay a premium for the right to receive more
interest than they could get in the marketplace for a bond of similar risk and maturity.

Cash Bonds Payable
+1,080,000 +1,000,000
Premium on
Bonds Payable
+80,000
Dr. Cash ........................................................................................... 1,080,000

Cr. Bonds Payable ...................................................................... 1,000,000
Cr. Premium on Bonds Payable .....................................……… 80,000
To record the issuance of bonds payable at a premium.
c. | | |
4/1/10 6 months 9/30/10
Bonds issued. End of fiscal year.
Accrued interest payable ($1,000,000 * 11% * 6/12) .................................... $55,000

Premium amortization ($80,000 / 20 years * 6/12) ...............………............ (2,000)
Interest expense for 6 months ................................................………............ $53,000

Interest Payable Interest
+55,000 Expense
Premium on -53,000
Bonds Payable
-2,000
Dr. Interest Expense ........................................................................ 53,000

Dr. Premium on Bonds Payable ...............................………............ 2,000
Cr. Interest Payable ............................................………............ 55,000
To record the accrual of interest and premium amortization for 6 months.
7-12
E7.10.
a. The market interest rate is higher than the stated interest rate, so the bonds will sell for
less than their face amount. The higher the discount rate (i.e., market interest rate), the
lower the present value of cash flows associated with the bond (for interest payments and
principal) becomes.

Cash Bonds Payable
+29,640,000 +30,000,000
Discount on
Bonds Payable
-360,000
Dr. Cash ............................................................................... 29,640,000

Dr. Discount on Bonds Payable ............................................ 360,000
Cr. Bonds Payable .......................................................... 30,000,000
To record the issuance of bonds payable at a discount.
c. Accrued interest payable ($30,000,000 * 9% * 4/12) .................................... $900,000

Discount amortization ($360,000 / 10 years * 4/12)..............………............ 12,000
Interest expense for 4 months ........................……….................................... $912,000
Effect of interest accrual on financial statements:
Discount on Interest
Bonds Payable Expense
+12,000 -912,000
Interest Payable
+900,000
Dr. Interest Expense ........................................................................ 912,000

Cr. Interest Payable ...........................................………............ 900,000
Cr. Discount on Bonds Payable ........................………............ 12,000
To record the accrual of interest and discount amortization for 4 months.
7-13
E7.11.
The semiannual interest on the bonds = 10% stated rate * $15,000 face amount
* 6/12 = $750
The remaining term of the bonds is 12 years, or 24 semiannual periods.
The semiannual market interest rate is = 8% * 6/12 = 4%
The present value of an interest annuity of $750 for 24 periods at 4% =
$750 * 15.2470 = $11,435.25
The present value of the maturity value of $15,000 in 24 periods at 4% =
$15,000 * 0.3901 = $5,851.50
The market value of the bonds = PV of interest + PV of maturity value =
$11,435.25 + $5,851.50 = $17,286.75
E7.12.
The annual interest on the bonds = 8% stated rate * $63,000 face amount = $5,040
The remaining term of the bonds is 15 years.
The present value of an interest annuity of $5,040 for 15 years at 12% =
$5,040 * 6.8109 = $34,326.93
The present value of the maturity value of $63,000 in 15 years at 12% =
$63,000 * 0.1827 = $11,510.10
The market value of the bonds = PV of interest + PV of maturity value =
$34,326.93 + $11,510.10 = $45,837.03
E7.13.
a. Annual interest payment = $40 million * 11% = $4,400,000
b. The bonds were issued at a discount because market interest rates were more than the
stated rate when the bonds were issued. The higher the discount rate (i.e., the market
interest rate), the lower the present value of cash flows for interest payments and principal
(i.e., the lower the bond’s selling price).
c. Interest expense will be more than the interest paid because the amortization of bond
discount will increase interest expense.
7-14
E7.14.
a. Annual interest payment = $250 million * 9% = $22,500,000
b. The bonds were issued at a premium because market interest rates were less than the
stated rate when the bonds were issued. The lower the discount rate (i.e., the market
interest rate), the higher the present value of cash flows for interest payments and
principal (i.e., the higher the bond’s selling price).
c. Interest expense will be less than the interest paid because the amortization of bond
premium will decrease interest expense.
E7.15.
The amount of deferred income taxes has risen steadily because the excess of accelerated
tax depreciation over straight-line book depreciation on recent asset additions exceeds the
excess of book depreciation over tax depreciation for older assets. This occurs because as
the company grows over time, asset additions increase and over time the cost of
replacement assets rises due to inflation.
E7.16.
ROE will be higher using debt. The difference between the cost of debt of 10% and ROI of
12% results in increased return to the owners without additional owners' investment.
E7.17.
Transaction/ Current Current Long-Term Net
Adjustment Assets Liabilities Debt Income
a. +867 -867
b. +170 -170
c. +1,700 -1,700
d. +50 -50
e. -1,240 -1,240
f. +1,500 -1,500
7-15
E7.17. (continued)
Journal entries:
a. Dr. Wages Expense .............................................................. 867
Cr. Wages Payable ....................................................... 867
b. Dr. Interest Expense .............................................................. 170

Cr. Interest Payable ...................................................... 170
c. Dr. Interest Expense ($240,000 * 8.5% * 1/12) ................... 1,700

Cr. Interest Payable ..................................................... 1,700
d. Dr. Interest Expense ............................................................ 50

Cr. Discount on Bonds Payable ................................... 50
e. Dr. Estimated Warranty Liability ........................................ 1,240

Cr. Cash........................................................................ 410
Cr. Parts Inventory ....................................................... 830
f. Dr. Sales .............................................................................. 1,500

Cr. Unearned Revenues .......................………............ 1,500
E7.18.
Transaction/ Current Current Long-Term Net
Adjustment Assets Liabilities Debt Income
a. -768 -768
b. +2,400 -2,400
c. +2,250 -2,250
d. -70 +70
e. +1,836 -1,836
f. +76,000 +21,000 -97,000
7-16
E7.18. (continued)
Journal entries:
a. Dr. Wages Payable ...............................................................……… 768
Cr. Cash.........................................................................……… 768
b. Dr. Real Estate Tax Expense ...................................………............ 2,400

Cr. Real Estate Taxes Payable ......................................……… 2,400
c. Dr. Interest Expense ($360,000 * 7.5% * 1/12) ............................... 2,250

Cr. Interest Payable .................................................................. 2,250
d. Dr. Premium on Bonds Payable ....................................................... 70

Cr. Interest Expense .................................................................. 70
e. Dr. Estimated Warranty Expense ($918,000 * 0.2%) ...................... 1,836

Cr. Estimated Warranty Liability .............................................. 1,836
f. Dr. Income Tax Expense.................................................................. 97,000

Cr. Income Taxes Payable ........................................................ 76,000
Cr. Deferred Income Taxes ....................................................... 21,000
7-17
E7.19.
Transaction/ Current Noncurrent Current Noncurrent Owners' Net
Adjustment Assets Assets Liabilities Liabilities Equity Income
a. Income Taxes Deferred Income Tax
Payable Income Taxes Expense
+500 +200 -700
b. Cash Bonds Payable

+4,950 +5,000
Discount on
Bonds Payable
-50
c. Cash Land
-3,000 +3,000
d. Inventory Estimated Warranty

-64 Liability
-64
e. Cash Notes Payable

+19,400 +20,000
Discount on
Notes Payable
-600
f. Current Serial Bonds

Maturities Payable
of Long-term -35,000
Debt
+ 35,000
Journal entries:
a. Dr. Income Tax Expense.................................................................. 700
Cr. Income Taxes Payable ........................................................ 500
Cr. Deferred Income Taxes ....................................................... 200
b. Dr. Cash ........................................................................................... 4,950

Dr. Discount on Bonds Payable ....................................................... 50
Cr. Bonds Payable .................................................................... 5,000
7-18
E7.19. (continued)
c. Dr. Land ........................................................................................... 3,000

Cr. Cash.................................................................................... 3,000
d. Dr. Estimated Warranty Liability ........................................……… 64

Cr. Inventory ............................................................................ 64
e. Dr. Cash ($20,000 - ($20,000 * 12% * 3/12)) ............................... 19,400

Dr. Discount on Notes Payable ($20,000 * 12% * 3/12) ................. 600
Cr. Notes Payable..................................................................... 20,000
f. Dr. Serial Bonds Payable ................................................................. 35,000

Cr. Current Maturities of Long-Term Debt .............................. 35,000
E7.20.
a. Truck Capital Lease
+32,000 Liability
+32,000
b. Cash Accounts Purchases

-1,485 Payable Discounts
-1,500 +15
c. Cash Bonds Payable

+7,140 +7,000
Premium on
Bonds Payable
+140
d. Estimated Warranty
Warranty Expense
Liability +2,500
-2,500
e. Cash Bonds Payable Loss on

-3,030 -3,000 Retirement
of Bonds
-30
7-19
E7.20. (continued)

f. Estimated Estimated Retiree
Liability for Liability for Health
Retiree Retiree Care
Health Care Health Care Expense
+24,000 +310,000 -334,000
Journal entries:
a. Dr. Truck .......................................................................................... 32,000
Cr. Capital Lease Liability ........................................................ 32,000
b. Dr. Accounts Payable....................................................................... 1,500

Cr. Cash.........................................................................……… 1,485
Cr. Purchase Discounts .................................................……… 15
c. Dr. Cash ........................................................................................... 7,140

Cr. Bonds Payable .................................................................... 7,000
Cr. Premium on Bonds Payable ............................................... 140
d. Dr. Estimated Warranty Liability .................................................... 2,500

Cr. Warranty Expense ..................................................……… 2,500
e. Dr. Bonds Payable ...............................................................……… 3,000

Dr. Loss on Retirement of Bonds ........................................……… 30
Cr. Cash.........................................................................……… 3,030
f. Dr. Estimated Health Care Expense.....................................……… 334,000

Cr. Estimated Liability for Retiree Health Care--Current ...... 24,000
Cr. Estimated Liability for Retiree Health Care--Noncurrent 310,000
7-20
P7.21.
November 1, 2010:
Cash Unearned
+25,200 Rent Revenue
+25,200
Each month-end:
Unearned Rent
Rent Revenue Revenue
-4,200 +4,200
November 1, 2010
1. Dr. Cash ..........................................................................……… 25,200
Cr. Unearned Rent Revenue ....................................……… 25,200
To record the receipt a six-month advance rent payment.
Each month-end:
2. Dr. Unearned Rent Revenue ...........................................……... 4,200
Cr. Rent Revenue ................................................................. 4,200
To record a reduction in the liability account for rent earned each month.
b. At December 31, 2010, two months of rent has been earned, and four months remains to
be earned. So 4/6 of the original receipt of $25,200, or $16,800 is unearned rent and will
be shown on the December 31 balance sheet as a current liability.
c. At a rate of $4,200 per month, the receipt of an 18-month rent prepayment would have
been for $75,600. The unearned amount at December 31, 2010, is $67,200 ($4,200 per
month for the next 16 months). Only $50,400 ($4,200 * 12 months) of this amount is a
current liability, because of the one-year time frame for current liabilities. Thus, $16,800
($4,200 * 4 months) of the unearned amount is a noncurrent liability.
7-21
P7.22.
1. To record the cash collection of subscription fees received in advance:
Cash Unearned
+10,000 Subscription
Revenue
+10,000
2. To record subscription revenue earned from delivering magazines:

Unearned Subscription
Subscription Revenue
Revenue +500
-500
1. Dr. Cash ($50 * 200 subscriptions) ..........................………............ 10,000

Cr. Unearned Subscription Revenue ............………............ 10,000
To record the cash collection of subscription fees received in advance.
2. Dr. Unearned Subscription Revenue .......................................... 500

Cr. Subscription Revenue ($50 * 120 subscribers * 1/12)… ....... 500
To record subscription revenue earned from delivering magazines.
b. Revenue earned during September ($50 * 120 subscribers * 1/12) ........... $ 500
Revenue earned from October-December ($50 * 200 subscribers * 3/12) 2,500
Total subscription revenue earned during 2011 ................................. $3,000
c. Solution approach: Assuming that the “profile” of lifetime subscribers for Evans Ltd.
will be similar to that of current subscribers, an average lifetime membership will last for
40 years. The present value of a lifetime subscription, discounted at 12% for 40 years =
($50 per year revenues foregone * 8.2438) = $412.19
Analysis of results: Based on calculation above, it would be profitable for Evans Ltd. to
sell lifetime subscriptions for $600 because the fee received would be $187.81 greater
than the present value of an average lifetime membership achieved otherwise.
Note to instructor: These results would obviously be interest rate sensitive. If the 12%
average interest rate seems high, it may be appropriate for the accountants at Evans Ltd.
to test some other interest rates such as 10% and 8%. At 10%, the present value of the
lifetime subscription would be $488.96 ($50 * 9.7791); at 8% the present value would be
$596.23 ($50 * 11.9246). Thus, if long-term interest rates were expected to be less than
8%, the price of the lifetime subscription would need to be increased accordingly.
7-22
P7.22. (continued)
d. Points for discussion: Other factors to consider include the following:

• ... Would the lifetime subscription offer attract younger customers, such that the
average age of a life-time subscriber would become less than the current average
age of 38? Yes, but even under the assumption that the average age drops to 28,
the present value of the additional 10 years of annual subscription fees would be
minimal. PV for 50 years, discounted at 12% = $50 * 8.3045 = $415.23, so the PV
of the additional 10 years of revenues foregone would be $3.04 (less than the cost
of breakfast)! This provides an excellent opportunity to have the students look
again at the present value factors in Tables 6-4 and 6-5 for far-distant cash flows.
• Is the use of the company’s average interest rate for long-term debt the
appropriate rate to use in the present value analysis? Yes, because the money
made available from the receipt of lifetime subscription fees can be used for
investment in inventories, plant and equipment, etc., and will be “repaid” on a
long-term basis as newsletters are delivered. The company would otherwise have
to borrow funds to finance its long-term asset growth objectives, and since the
present value of the subscription “repayments” is less than the $600 fee, the ROI
earned on the “borrowed” funds exceeds the “interest” cost being paid on the
“loan” from subscribers.
• What would be the impact, in present value terms, of changes in the interest rate
assumption? Even if 12% represents an appropriate measure of the firm’s current
interest cost on long-term debt, is it reflective of the firm’s long-term interest cost?
Actually, the answer shouldn’t matter--in terms of the firm’s payment obligation--
because the lifetime subscription offer is essentially the same transaction as a bond
issuance. That is, the firm can lock into a fixed “interest” rate that is substantially
lower than 12% (see above discussion). However, if interest rates were to fall
substantially, say to 6% (and were expected to stay that low), then it would no
longer be profitable to offer a lifetime option for $600.00. PV at 6% for 40 years =
$50 * 15.0463 = $752.32. In these circumstances, Evans, Ltd. should either
increase the cost of a lifetime membership (to say, $800 since it’s nice round
number) or choose not to offer a lifetime membership.
7-23
P7.22. (continued)
d. • What impact would the lifetime offer have on current subscribers? Several
management issues would need to be addressed, including the possibility of
offering a “grandfather” clause to present subscribers such that a portion of their
past subscription fees could be counted toward the $600 fee. (This is another
present value problem.)
P7.23.
a. Gross Pay - Total Deductions = Net Pay
Gross Pay = (Net Pay + Total Deductions)
= ($58,360 + $21,640) = $80,000
FICA Tax Withholdings = (Total Deductions - all other deductions)
= ($21,640 - $13,760 - $1,120 - $640) = $6,120
FICA Tax Withholdings / Gross Pay = withholding percentage

$6,120 / $80,000 = 7.65%

Wages Payable Wages
+58,360 Expense
Withholding Liabilities (accounts as shown in the entry) -80,000
+6,120 +13,760 +1,120 +640
Dr. Wages Expense .................................................………............ 80,000

Cr. Wages Payable (or Accrued Payroll) .................................. 58,360
Cr. FICA Taxes Withheld ......................................................... 6,120
Cr. Income Taxes Withheld ...................................................... 13,760
Cr. Medical Insurance Contributions ........................................ 1,120
Cr. Union Dues ....................................………........................ 640
To record accrued payroll.
7-24
P7.24.
a. FICA Tax Withholdings (employees portion) = Gross Pay * 7.65%
= $53,000 * 7.65% = $4,054.50
Employee Contributions to Pension Plans = (Total Deductions - all other deductions)
= $14,088 - $4.054.50 - $7,680 - $960
= $1,393.50
Net Pay = Gross Pay - Total Deductions
= $53,000 - $14,088 = $38,912

Wages Payable Wages
+38,912 Expense
Withholding Liabilities (accounts as described below) -53,000
+4,054.50 +7,680 +960 +1,393.50
Dr. Wages Expense .....................................………........................ 53,000.00

Cr. Wages Payable (or Accrued Payroll) ................................. 38,912.00
Cr. FICA Taxes Withheld (employees’ share) ………............ 4,054.50
Cr. Income Taxes Withheld ..................................................... 7,680.00
Cr. Group Hospitalization Insurance ....................................... 960.00
Cr. Employee Contributions to Pension Plan .......................... 1,393.50
To record accrued payroll.
b. The employer’s payroll taxes consist of the following:
FICA tax withholdings ($53,000 * 7.65%) ........................................ $4,054.50

Federal unemployment compensation taxes ($7,500 * 0.8%) ........... 60.00
State unemployment compensation taxes ($7,500 * 5.4%) ............... 405.00
Total employer payroll taxes ............................................................. $4,519.50
7-25
P7.24. (continued)

Payroll Taxes Payroll Tax
Payable (or other descriptions) Expense
+4,519.50 -4,519.50
Dr. Payroll Tax Expense ................................................................. 4,519.50

Cr. Payroll Taxes Payable (or Accrued Payroll Taxes)………. 4,519.50
To record accrued payroll taxes.
Alternative entry: The credits in the above entry are often broken down in the chart of
accounts based on the nature of the employer’s payroll tax obligations, such as:
Dr. Payroll Tax Expense ................................................................. 4,519.50

Cr. FICA Taxes Withheld (employer’s share) ..………............ 4,054.50
Cr. Federal Unemployment Taxes Withheld ............................ 60.00
Cr. State Unemployment Taxes Withheld ................................ 405.00
To record accrued payroll taxes.
P7.25.
a. Because the exchange ratio is five shares of common stock to one bond, bondholders
would be interested in converting the bonds to common stock if the market price per
share of common stock was at least 20% (or more) of the market price per bond. For
example, when the bonds were issued on January 1, 2002 at their $1,000 face amount, the
market rate of interest and the stated rate were both 12%, and the market price per bond
was $1,000. At that time, bondholders would not have been willing to convert their
bonds unless the common stock was trading at price of $200 per share or more.
b. Solution approach: Upon exercise of the conversion feature, the bonds have been retired
and thus the Bonds Payable account must be reduced by the carrying value of $1,000 per
bond retired (there was no discount or premium). Common stock has been issued for
$215 per share and should be recorded in the usual way. The difference is a loss on the
early retirement of bonds of $75 per bond retired (or $15 per share of common stock
issued) because the company gave more in exchange for the bonds ($215 per share * 5
shares equals $1,075) than the carrying value of the bonds ($1,000 per bond).
7-26
P7.25. (continued)

Bonds Common Stock Loss on
Payable +20,000 Early
-400,000 Additional Paid-In Retirement
Capital of Bonds
+410,000 -30,000
Dr. Bonds Payable (400 bonds * $1,000 per bond) ...................... 400,000
Dr. Loss on Early Retirement of Bonds ................................ 30,000
Cr. Common Stock (400 bonds * 5 shares * $10 par) .……… 20,000
Cr. Additional Paid-In Capital (400 * 5 * $205 per share) .... 410,000
To record the conversion of bonds to common stock at a loss.
P7.26.
a. Management of Riley Co. would be interested in calling the bonds if interest rates dropped
enough so that the cost of a new borrowing to pay off the old bonds at a 2% call premium
would be less than the cost of continuing to pay the 15% stated interest rate on the old
bonds.
b. Solution approach: The amount paid to bondholders = ($40,000,000 face amount *

102%) = $40,800,000. The bond discount was $1,000,000 ($40,000,000 face amount-
$39,000,000 proceeds), and the bonds have been outstanding for 13 years, so $650,000
(13/20 * $1,000,000) of the discount would have been amortized by December 31, 2010.
Thus, the unamortized bond discount = $350,000. The loss on retirement of bonds
=($40,800,000 amount paid - $39,650,000 carrying value of bonds) = $1,150,000.

Cash Bonds Loss on
-40,800,000 Payable Early
-40,000,000 Retirement
Discount on of Bonds
Bonds Payable -1,150,000
+350,000
Dr. Bonds Payable .......................................………............ 40,000,000

Dr. Loss on Early Retirement of Bonds .............................. 1,150,000
Cr. Cash.............................................................……… 40,800,000
Cr. Discount on Bonds Payable (unamortized balance) 350,000
To record the early retirement of bonds by exercise of the call feature.
7-27
P7.27.
a. The semiannual interest payments on the bonds =
14% stated rate * $3,000,000 face amount * 6/12 = $210,000
The term of the bonds is 10 years, or 20 semiannual periods.
The present value of an annuity of $210,000 for 20 periods at 6% =
$210,000 * 11.4699 = $2,408,679
The present value of the maturity value of $3,000,000 in 20 periods at 6% =
$3,000,000 * 0.3118 = $935,400
The proceeds (issue price) of the bonds = PV of interest + PV of maturity value =
$2,408,679 + $935,400 = $3,344,079
b. The semiannual discount amortization, straight-line basis = $50,000 / 20 periods = $2,500

Cash Discount on Interest
-210,000 Bonds Payable Expense
+2,500 -212,500
Dr. Interest Expense ............................................................. 212,500

Cr. Cash......................................................................... 210,000
Cr. Discount on Bonds Payable ................................... 2,500
To record the semiannual cash payment and amortization of discount.
7-28
P7.27. (continued)
c. Discount on bonds payable is amortized with a credit, and thus increases interest expense.
Under the straight-line basis, the amount of discount amortization is the same each
period. Under the compound (or effective) interest method, the amount of discount
amortization increases each period. Thus, interest expense under the compound method
will be lower in the early years of the bond’s life and higher in the later years, as
compared to interest expense under the straight-line method of amortization.
Rationale of compound interest method: Interest expense under the compound interest
method is calculated by multiplying the carrying value of the bond (face amount minus
the unamortized discount) by the market rate of interest. This amount is then compared
to the cash payment required (the face amount multiplied by the stated rate). Any
difference between interest expense and the required cash payment represents the
amortization of discount for the period. Because the carrying value of the bond increases
over the life of the bond as discount is amortized, the amount of discount amortization
also increases each period, causing interest expense to be higher each period. Thus, as
compared to the straight-line basis, interest expense under the compound method will be
lower in the first year.
P7.28.
a. The semiannual interest payments on the bonds =
14% stated rate * $60,000,000 face amount * 6/12 = $4,200,000
The term of the bonds is 20 years, or 40 semiannual periods.
The present value of an annuity of $4,200,000 for 40 periods at 8% =
$4,200,000 * 11.9246 = $50,083,320
The present value of the maturity value of $60,000,000 in 40 periods at 8% =
$60,000,000 * 0.0460 = $2,760,000
The proceeds (issue price) of the bonds = PV of interest + PV of maturity value =
$50,083,320 + $2,760,000 = $52,843,320
7-29
P7.28. (continued)
b. The semiannual premium amortization, straight-line basis = $2,000,000 / 40 periods =

$50,000
Cash Premium on Interest
-4,200,000 Bonds Payable Expense
-50,000 -4,150,000
Dr. Interest Expense ............................................................. 4,150,000

Dr. Premium on Bonds Payable ........................................... 50,000
Cr. Cash......................................................................... 4,200,000
To record the semiannual cash payment and amortization of premium.
c. Premium on bonds payable is amortized with a debit, and thus decreases interest expense.
Under the straight-line basis, the amount of premium amortization is the same each
period. Under the compound (or effective) interest method, the amount of premium
amortization increases each period. Thus, interest expense under the compound method
will be higher in the early years of the bond’s life and lower in the later years, as
compared to interest expense under the straight-line method of amortization.
Rationale of compound interest method: Interest expense under the compound interest
method is calculated by multiplying the carrying value of the bond (face amount plus the
unamortized premium) by the market rate of interest. This amount is then compared to
the cash payment required (the face amount multiplied by the stated rate). Any difference
between interest expense and the required cash payment represents the amortization of
premium for the period. Because the carrying value of the bond decreases over the life of
the bond as premium is amortized, the amount of premium amortization increases each
period, causing interest expense to be lower each period. Compared to the straight-line
basis, interest expense under the compound method will be higher in the first year.
d. There is usually a time lag of several weeks from the point that the stated rate of interest
has been established (as part of the bond indenture) and the date that the bonds are sold
(issuance date). However, because this time lag tends to be relatively short, the market
interest rate usually does not change significantly before the bonds are issued.
7-30
C7.29.
a. The average-for-the-year interest rate = (7% + 8%) / 2 = 7.5%
The average liability balance = ($190,000 + $250,000) / 2 = $220,000
Interest Interes t
Payable Expense
+16,500 -16,500
Dr. Interest Expense ($220,000 * 7.5%) ......………........................ 16,500

Cr. Interest Payable ...........................................………............ 16,500
To accrue interest on working capital loans for the year.
b. No. The “current maturities of long-term debt” is related to the “serial bonds due in equal
annual installments.” The current maturities owed at the end of 2010 would have been
paid at some point during 2011 (at the date specified in the serial bond indenture). At the
end of 2011, an entry would have been made to reclassify the 2012 installment of the
long-term serial bond as a current liability. Thus, the “current maturities” account would
have decreased and then increased by equal amounts during the year.
c. Solution approach: What happens to the market value of the firm’s bonds outstanding
when there is a decline in interest rates for bonds of similar risk? The bonds pay a higher
than market-rate of interest, so their price will increase. That is, investors are willing to
pay more for bonds offering a higher than market interest rate because such an investment
will increase their ROI. Since the bonds are a liability to Corless Co. (the issuer), it is
likely that the call feature will be exercised so that bonds with a lower interest rate can be
issued in the near future. It would not be to the bondholders’ advantage to exercise the
conversion feature at this point.
Points for discussion: What other factors should Corless Co. consider before deciding
to call the bonds? 1) cost of the call premium, and 2) cost of registration and issuance of
a new bond issue; both factors should be considered relative to the remaining term of the
outstanding bonds. Note that interest rate expectations are not terribly relevant because
the new bond issue will have a fixed interest rate (at or near 7%), and if interest rates
continue to drop, the call feature can be exercised on the new bonds as well.
7-31
C7.29. (continued)
d. The market value would be more than the book value of $400,000 because the price of
the bonds would increase, as described in item c. This is bad news to Corless Co.
because it is paying a higher than market interest rate.
Points for discussion: Why doesn’t the firm adjust the book value of its liability for the
change in market value caused by interest rate movements? That is, why not record the
unrealized gain or loss each year as a year-end adjusting entry so that the Bonds Payable
account will be marked to market? 1) This would violate the historical cost principle--
bonds are initially recorded at their market value at the time of issuance, and the initial
amount of discount or premium is amortized over the life of the bond issue (much like the
depreciation of the historical cost of long-term assets). Accounting for liabilities should
be consistent with the accounting for long-term assets. 2) The going concern concept
suggests that, in the end, the bonds will be appropriately valued--the book value will
be equal to the face amount at the maturity date, and this is the amount of cash the issuer
must ultimately pay to satisfy its obligation. So why keep adjusting the “value” of the
Bonds Payable liability up and down if the market adjustments are not going to be
realized by the firm. This provides a good opportunity to discuss/reinforce alternative
valuation approaches for liabilities (and assets) with emphasis on the historical
cost/market value debate.
e. The following adjusting entry was made at year-end to reclassify the 2012 installment of
the serial bond as a current liability:

Serial Bonds Payable
-80,000
Current Maturities
of Long-Term Debt
+80,000
Dr. Serial Bonds Payable .................……….................................... 80,000

Cr. Current Maturities of Long-Term Debt .............................. 80,000
To reclassify the 2012 installment of the serial bond as a current liability.
7-32
C7.30.
Note to Instructors: This case was originally based on the 1999 annual report of Home
Depot, Inc. The long-term debt note disclosures in more recent years have become less
interesting from an accounting perspective (i.e., Home Depot no longer reports
commercial paper, installment notes, or an unsecured bank loan, for instance. Thus, to
preserve the case, we changed the name to a fictional company).
a. The notes were converted into shares at a price of $15.3611, which means that
approximately 71.80 million shares would have been issued in exchange for the notes
($1,103,000,000 / $15.3611). Note: Home and Office City’s footnote disclosures indicate
that 72 million shares were actually issued—perhaps shares were also given in lieu of
some accrued interest.
b. 1. Below face: No, this is not possible.

2. Above face: Yes, this is possible.
3. Equal to face: Yes, this is possible.
Discussion: The bonds are redeemable at “a redemption price… equal to the greater of
(1) 100% of the principal amount of the Senior Notes to be redeemed, or (2)…” This
statement indicates that the minimum amount to be paid by Home and Office City is equal
to the principal amount of the notes (i.e., face value). Thus, the notes cannot be redeemed
at a discount—no matter what the “present value” of the remaining principal and interest
payments is.
If, however, the market value of the notes is greater than their principal (i.e., face) value,
then Home and Office City (at its option) may redeem the notes at a premium. The
language quoted in point (2) describes the market value of the notes as the “sum of the
present values of the remaining scheduled payments of principal and interest to maturity.”
If the market value is equal to the face value, then the notes may be redeemed at face
value.
Home and Office City would most likely be prompted to redeem the notes if interest rates
were expected to fall significantly below 6.5% such that the company would be able to
reissue debt at a fixed interest rate of less than 6.5%.
7-33
C7.30. (continued)
c. This statement means that Home and Office City has arranged to have “ready access” to
$800 million of additional borrowings. As of December 31, 2011, no commercial paper
debt was outstanding, which means that the company has not drawn down on this line of
credit. Should the company need to do so, the terms and conditions of the debt (i.e.,
restrictive covenants) are unlikely to make a significant difference in terms of the
company’s ability to pay its other debts (i.e., liquidity). Likewise, borrowing on this line
of credit is unlikely to have a significant impact on the company’s ability to access funds
through other financing sources (i.e., capital resources)—which means that borrowing on
the line of credit is not likely to influence the company’s creditworthiness (i.e., debt
ratings).
d. You might want to know, for instance:

1. What amounts are scheduled to mature in which years;
2. What the implicit interest rate (or a range of implicit interest rates) is on the capital
lease obligations; and
3. What underlying assets these borrowings relate to.
e. Most installment notes are non-interest bearing on their face. Yet, if you were to add up
the total of the amounts to be repaid in future years, this undiscounted sum would greatly
exceed the amount initially borrowed. Thus, the interest rate charged on the loan is
implicit (rather than explicit, as when it’s stated in the lending documents). The implicit
interest rate must be that rate which makes the loan proceeds at the time of borrowing
equal to the sum of the discounted values of all future loan repayments. As you can
imagine, computers help!
f. Any of a number of explanations are possible, including:

1. Lenders are inclined to require security interests.
2. Unsecured loans are more expensive to borrowers (in the form of higher interest rates).
3. Most of Home and Office City’s long-term borrowing needs relate to the construction
of new stores, which provides a ready-made form of security interest.
4. Unsecured loans tend to be of relatively short duration (usually 2-4 years), which may
not coincide with the borrower’s cash needs.
7-34
C7.30. (continued)
g. Most of Home and Office City’s long-term debt has near-term maturities. The $500
million of 6.5% senior notes are due on September 15, 2015; the $15 million of unsecured
bank loans are due in August 2013; the capital lease obligations and installment notes fall
due over longer periods (through 2038 and 2029, respectively), but perhaps some of these
amounts will mature in the next five years as well.
7-35
TAKE-HOME QUIZ--CHAPTER 7 Name __ _________________
1. This question relates to the following presentation in the balance sheets of Asriel, Inc. at
December 31, 2011 and 2010:
Current liabilities: 12/31/11 12/31/10
Accounts payable .......................................................................... $ 18,400 $ 16,750
Accrued wages payable................................................................. 3,800 4,430
Accrued property taxes payable .................................................... 2,200 2,000
Accrued interest payable ............................................................... 1,800 0
a. If wages expense during 2011 totaled $137,600, how much cash was paid for wages?
b. If property taxes paid during 2010 totaled $27,350, how much property tax expense was
accrued during 2011?
c. If the interest payable at 12/31/11 had not been accrued at that date, by how much and in what
direction (too high or too low) would net income for 2011 have been misstated?
d. Why are expenses accrued?
7-36
TAKE-HOME QUIZ--CHAPTER 7 (continued)
2. On January 1, 2011, Simon, Inc. issued $500,000 of 9%, 10-year bonds at 101. Interest is
payable every June 30 and December 31. Premium is amortized on a straight-line basis.
a. Was the market interest rate on January 1, 2011 equal to, more than, or less than the stated
interest rate of the bonds? Explain your answer.
b. How much interest will be paid on these bonds during 2011?
c. How much interest expense will Simon, Inc. report in its 2011 income statement with respect
to these bonds?
3. a. The deferred income tax liability arises because book income is greater than taxable income.
What is the principal item that causes book and taxable income to be different for most
companies?
b. What concept is being applied when income taxes that won't be payable for several years are
recognized in the current period's financial statements?
7-37
TAKE-HOME QUIZ KEY—CHAPTER 7
1. a. Analyze the wages payable account:

Beginning balance of wages payable ................................................................ $ 4,430
Add: Accrual of wages expense for period ........................................................ 137,600
Total credits to wages payable account ............................................................. $142,030
Less: Ending balance of wages payable account ...................................……… (3,800)
Debit to wages payable for wages paid during year .......................................... $138,230
b. Analyze the property taxes payable account:

Beginning balance of property taxes payable .................................................... $ 2,000
Less: Property taxes paid during period............................................................. (27,350)
Net debit to property taxes payable account ...................................................... $ 25,350
Add: Ending balance of property tax payable account ...................................... 2,200
Credit to property tax payable for tax expense accrued during the year ........... $ 27,550
c. Net income would have been $1,800 too high.
d. To match revenues and expenses, thus making the financial statements more accurate.
2. a. Less than, because the bonds were issued at a premium.
b. $500,000 * 9% = $45,000
c. Interest paid ....................................................................................................... $45,000

Less premium amortization ($5,000 / 10 years) .............................................. (500)
Interest expense for year ................................................................................... $44,500
3. a. Depreciation expense. Accelerated depreciation is claimed for income tax purposes
and straight-line depreciation is used for book purposes.
b. Matching of revenues and expenses.
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women; and I was glad in my heart, when, taking ten sheep and a fat
bullock, we left these poor creatures to their fate, as, had more
Arabs arrived, they would most certainly have stripped them of every
thing. We halted, after dark, at a place called Mull.
Feb. 2.—Our road, as yesterday, was an extensive valley,
bounded to the right and left by low hills; about noon we descended
slightly, and found ourselves in a productive plain of great extent,
thickly planted with trees and underwood, not unlike a preserve in
England. About an hour before sun-set, we came to what had the
appearance of the bed of a lake, and here was the wished-for well of
water. The horses had not drank since noon on the 31st, and
although ready to drop on the road from faintness, were, on reaching
the well, quite unmanageable. The name of the well was Kofei.
On the 31st, Boo-Khaloom had thought it right to send on a
Tibboo with the news of our approach to the sheikh El-Kanemy, who,
we understood, resided at Kouka, and one was despatched with a
camel and a man of Mina Tahr: the Gundowy accompanied him on
the arrival at Kofei of the Arabs, who preceded us for the purpose of
clearing the well. The Tibboo who had been despatched was found
alone and naked; some Tibboo Arabs, of a tribe called Wandela, had
met them near the well on the preceding evening and robbing him
even to his cap, and taking from him the letters, saying, they cared
not for the sheikh or Boo-Khaloom, tied him to a tree, and then left
him. In this state was he found by our people; and Mr. Clapperton
coming up soon after, gave him, from his biscuit-bag, wherewithal to
break his fast, after being twenty-four hours without eating. Eighteen
men had stripped him, he said, and taken off the camel and Mina
Tahr’s man, who, they also said, should be ransomed, or have his
throat cut. Mina Tahr represented these people as the worst on the
road in every sense of the word: “They have no flocks,” said he, “and
have not more than three hundred camels, although their numbers
are one thousand or more; they live by plunder, and have no
connexion with any other people. No considerable body of men can
follow them; their tents are in the heart of the desert, and there are
no wells for four days in the line of their retreat. Giddy-ben-Agah is
their chief, and I alone would give fifty camels for his head: these are
the people who often attack and murder travellers, and small kafilas,
and the Gundowy, who respect strangers, have the credit of it.”
The men of Traita, with their chief, Eskou-ben-Coglu, came in the
evening to welcome us: the well Kofei belongs to them; and greatly
enraged they appeared to be at the conduct of the Wandelas. This
chief returned to Boo-Khaloom his letters, which, he said, “the chief
of the Wandelas had sent him that morning, begging that he would
meet the kafila at the well, and deliver them to Boo-Khaloom: had he
known then what had taken place, the slave,” he said, “should have
been stabbed at his father’s grave before he would have delivered
them.” Boo-Khaloom was greatly enraged; and I was almost
apprehensive that he would have revenged himself on the Traita
chiefs. However, the Tibboo courier was again clothed and mounted,
and once more started for Bornou. The Traita Tibboos are more
important-looking fellows than the Gunda, but they want their
quickness and activity: they are said not to be more than eight
hundred strong in males.
Feb. 3.—Our course, during the early part of the day, was due
south, and through a country more thickly planted by the all-tasteful
hand of bounteous Nature. We disturbed a flock of what we at first
thought were deer, but they were only a large species of antelope;
they are of a deeper fawn colour, and have black and white stripes
under the belly. The Guinea fowl were in great numbers, but
extremely shy. The whole day our route lay through most pleasing
forest scenery. It was near sunset when we arrived at Mittimee,
which, in the Bornou language, means warm, tepid: the wells exceed
fifty in number, and lie in a woody hollow, where there are clumps of
the tulloh and other species of the mimosa tribe, encircled by
kossom and various parasitical and twining shrubs, which,
embracing their stems, wind to the extremities of their branches, and
climb to the very tops, when, falling over, they form weeping bowers
of a most beautiful kind: it was indeed a lovely and a fair retreat.
Boo-Khaloom, myself, and about six Arabs, had ridden on in front:
it was said we had lost the track, and should miss the well: the day
had been oppressively hot, my companions were sick and fatigued,
and we dreaded the want of water. A fine dust, arising from a light
clayey and sandy soil, had also increased our sufferings: the
exclamations of the Arab who first discovered the wells were indeed
music to our ears; and after satisfying my own thirst, with that of my
weary animals, I laid me down by one of the distant wells, far from
my companions; and these moments of tranquillity, the freshness of
the air, with the melody of the hundred songsters that were perched
amongst the creeping plants, whose flowers threw an aromatic odour
all around, were a relief scarcely to be described. Ere long, however,
the noisy kafila, and the clouds of dust which accompanied it,
disturbed me from the delightful reverie into which I had fallen.
Feb. 4.—Previously to arriving at Lari, we came upon two
encampments of the Traita Tibboos, calling themselves the sheikh’s
people: their huts were not numerous, but very regularly built in a
square, with a space left in the north and south faces of the
quadrangle, for the use of the cattle. The huts were entirely of mats,
which, excluding the sun, yet admitted both the light and the air:
these habitations, for fine weather, are preferable to the bete shars,
or tents, of the Arabs of the north. The interior was singularly neat:
clean wooden bowls, with each a cover of basket-work, for holding
their milk, were hung against the wall. In the centre of the inclosure
were about one hundred and fifty head of cattle feeding from cradles:
these were chiefly milch cows, with calves and sheep. The Tibboos
received us kindly at first, but presumed rather too much on sheikh
Kanemy’s protection, which they claim or throw off, it is said, as it
suits their purpose. The modest request of a man, with two hundred
armed Arabs, for a little milk, was refused; and ready as the Arabs
are to throw down the gauntlet, a slight expression of displeasure
from their leader was followed by such a rapid attack on the Tibboos,
that before I could mount, half the stock was driven off, and the
sheikh well bastinadoed. Boo-Khaloom was, however, too kind to
injure them; and after driving their cattle for about a mile, he allowed
them to return, with a caution to be more accommodating for the
future. Accustomed as these people are to plunder one another, they
expect no better usage from any one who visits them, provided they
are strong enough, and vice versa; they are perfect Spartans in the
art of thieving, both male and female.
An old woman, who was sitting at the door of one of the huts, sent
a very pretty girl to me, as I was standing by my horse, whose massy
amber necklace, greased head, and coral nose studs and ear-rings,
announced a person of no common order, to see what she could
pick up; and after gaining possession of my handkerchief and some
needles, while I turned my head, in an instant thrust her hand into
the pocket of my saddle-cloth, as she said, “to find some beads, for
she knew I had plenty.”
Another and much larger nest of the Traitas lay to the east of our
route, a little further on, with numerous flocks and herds. About two
in the afternoon we arrived at Lari, ten miles distant from Mittimee.
On ascending the rising ground on which the town stands, the
distressing sight presented itself of all the female, and most of the
male inhabitants, with their families, flying across the plain in all
directions, alarmed at the strength of our kafila. Beyond, however,
was an object full of interest to us, and the sight of which conveyed
to my mind a sensation so gratifying and inspiring, that it would be
difficult in language to convey an idea of its force or pleasure. The
great lake Tchad, glowing with the golden rays of the sun in its
strength, appeared to be within a mile of the spot on which we stood.
My heart bounded within me at this prospect, for I believed this lake
to be the key to the great object of our search, and I could not refrain
from silently imploring Heaven’s continued protection, which had
enabled us to proceed so far in health and strength, even to the
accomplishment of our task.
It was long before Boo-Khaloom’s best endeavours could restore
confidence: the inhabitants had been plundered by the Tuaricks only
the year before, and four hundred of their people butchered; and but
a few days before, a party of the same nation had again pillaged
them, though partially. When, at length, these people were satisfied
that no harm was intended them, the women came in numbers with
baskets of gussub, gafooly, fowls, and honey, which were purchased
by small pieces of coral and amber of the coarsest kind, and
coloured beads. One merchant bought a fine lamb for two bits of
amber, worth, I should think, about twopence each in Europe; two
needles purchased a fowl; and a handful of salt four or five good
sized fish from the lake.
Lari is inhabited by the people of Kanem, who are known by the
name of Kanemboo: the women are good-looking, laughing
negresses, and all but naked; but this we were now used to, and it
excited no emotions of surprise. Most of them had a square or
triangular piece of silver or tin hanging at the back of the head,
suspended from the hair, which was brought down, in narrow plaits,
quite round the neck.
Feb. 5.—By sun-rise I was on the borders of the lake, armed for
the destruction of the multitude of birds, who, all unconscious of my
purpose, seemed as it were to welcome our arrival. Flocks of geese
and wild ducks, of a most beautiful plumage, were quietly feeding at
within half pistol shot of where I stood; and not being a very keen or
inhuman sportsman, for the terms appear to me to be synonymous,
my purpose of deadly warfare was almost shaken. As I moved
towards them they only changed their places a little to the right or
left, and appeared to have no idea of the hostility of my intentions. All
this was really so new, that I hesitated to abuse the confidence with
which they regarded me, and very quietly sat down to contemplate
the scene before me. Pelicans, cranes, four and five feet in height,
grey, variegated, and white, were scarcely so many yards from my
side, and a bird, between a snipe and a woodcock, resembling both,
and larger than either; immense spoonbills of a snowy whiteness,
widgeon, teal, yellow-legged plover, and a hundred species of (to me
at least) unknown water fowl, were sporting before me; and it was
long before I could disturb the tranquillity of the dwellers on these
waters by firing a gun.
From a Sketch by Major
Engraved by E. Finden.
Denham’s.
KANEMBOO MARKET UNMARRIED WOMAN
WOMAN. OF SOUDAN.
Published Feb. 1826, by John Murray, London.
The soil near the edges of the lake was a firm dark mud; and, in
proof of the great overflowings and recedings of the waters, even in
this advanced dry season, the stalks of the gussub, of the preceding
year, were standing in the lake, more than forty yards from the shore.
The water is sweet and pleasant, and abounds with fish; which the
natives have a curious way of catching. Some thirty or forty women
go into the lake, with their wrappers brought up between their legs,
and tied round their middles, as I should say, by single files, and
forming a line at some distance in the water, fronting the land, for it is
very shallow near the edges, and absolutely charge the fish before
them so close, that they are caught by the hand, or leap upon the
shore. We purchased some, and the best flavoured was a sort of
bream.
A circumstance happened whilst I was on the margin of the lake,
which was a further proof that the little kindnesses I had shown the
Arabs were not lost upon them; and which supported my favourite
position, that no people on earth are so savage, but that gentle kind
treatment, with a frank and liberal manner, will gain their confidence
and regard. A lamb, the most harmless thing that breathes, alarms a
child who for the first time sees such an animal. I had suffered my
horse to go loose, in order to approach close to the flights of birds
around me, and he probably thinking the tents might afford him
better fare than where I left him, first rubbed off his bridle, and then
quietly returned to the encampment. About the same time one of the
freed women found my bornouse, which had fallen from the saddle,
and brought it to Boo Khaloom. All this created an alarm, and it was
then found out, that two boats or canoes had been seen coming from
the south-east, in which direction are islands inhabited by the
Biddoomah, a people who live by plundering on the main land, and
carry off any thing they can pick up. This was quite enough to make
Boo Khaloom think I was already gone, or in great danger; and not
only several Arab chiefs armed themselves, and mounted, to seek
me, but some of the merchants also. They found me, after a long
search, on the lake among the gussub stalks, loaded with more birds
than I could carry, and would scarcely believe that I had seen neither
enemies nor boats. The dread which the natives appear to have of
these koorie, or islanders, is almost equal to their fear of the
Tuaricks; but the former are less rapacious and bloody in their visits.
Their habitations are three or four days distant to the southward of
east, towards the centre of the lake.
In the evening I visited the town of Lari: it stands on an eminence,
and may probably contain two thousand inhabitants. The huts are
built of the rush which grows by the sides of the lake, have conical
tops, and look very like well thatched stacks of corn in England. They
have neat inclosures round them, made with fences of the same
reed, and passages leading to them like labyrinths. In the inclosure
is a goat or two, poultry, and sometimes a cow. The women were
almost all spinning cotton, which grows well, though not abundantly,
near the town and lake. The interior of the huts is neat: they are
completely circular, with no admission for air or light, except at the
door, which has a mat, by way of safeguard. I entered one of the
best appearance, although the owner gave me no smiles of
encouragement, and followed close at my heels, with his spear and
dagger in his hand. In one corner stood the bed, a sofa of rushes
lashed together, and supported by six poles, fixed strongly in the
ground. This was covered by the skins of the tiger-cat and wild bull;
round the sides were hung the wooden bowls, used for water and
milk: his tall shield rested against the wall. The hut had a division of
mat-work, one half being allotted to the female part of the family. My
host, however, continued to look at me with so much suspicion, and
seemed so little pleased with my visit, notwithstanding all my
endeavours to assure him I was a friend, that I hurried from the
inhospitable door, and resumed my walk through the town.
Feb. 6.—A gratifying scene took place this morning, in the
departure of nearly thirty freed slaves, natives of Kanem, who here
left us for their homes, three days’ journey to the eastward. I had
been applied to, the night before, to intercede with Boo Khaloom for
this indulgence; for as he had heard that the sheikh was at war with
some of the chiefs of Kanem, he had determined on first taking them
to Bornou, for fear of their being plundered on the road of the little
they had saved in slavery. These poor creatures had, however,
found one or two of their countrymen at the market of Lari, who
assured them of their safety on the road between that place and their
homes. The good man complied with evident reluctance on their own
account, and they took leave, kissing his hand, with tears and
blessings. They had most of them been in the service of the bashaw,
some for a term of years, and were returning to die at home at last.
One poor deaf and dumb woman, whom the rapacity of Mukni, the
former sultan of Fezzan, who spared neither age, sex, nor infirmity,
had induced him to march to Tripoli, had shed torrents of tears ever
since she had been made acquainted, by signs, that she was to go
to Bornou. She had left two children behind her; and the third, which
was in her arms when she was taken by the Arabs, had been torn
from her breast after the first ten days of her journey across the
desert, in order that she might keep up with the camels. Her
expressive motions in describing the manner in which the child was
forced from her, and thrown on the sand, where it was left to perish,
while whips were applied to her, lame and worn out as she was, to
quicken her tottering steps, were highly eloquent and interesting.
They had all been my friends for more than five months, and to some
I had rendered little services by carrying their bag of zumeeta, or
salt. They were not ungrateful, and our parting had something in it
affecting, which, considering negroes in the degraded light they do,
seemed greatly to astonish the Arabs.
On quitting Lari, we immediately plunged into a thickly-planted
forest of acacias, with high underwood; and at the distance of only a
few hundred yards from the town, we came upon large heaps of the
elephants’ dung, forming hillocks three and four feet in height, and
marks of their footsteps: the tracks of these animals increased as we
proceeded. Part of the day our road lay along the banks of the
Tchad, and the elephants’ footmarks, of an immense size, and only a
few hours old, were in abundance. Whole trees were broken down,
where they had fed: and where they had reposed their ponderous
bodies, young trees, shrubs, and underwood, had been crushed
beneath their weight. We also killed this day an enormous snake, a
species of coluber; it was a most disgusting, horrible animal, but not
however venomous. It measured eighteen feet from the mouth to the
tail; it was shot by five balls, and was still moving off, when two
Arabs, with each a sword, nearly severed the head from the body.
On opening the belly, several pounds of fat were found, and carefully
taken off by the two native guides who accompanied us. This they
pronounced a sovereign remedy for sick and diseased cattle, and
much prized amongst them. Scarcely a mile further, a drove of wild
red cattle, which I at first took for deer, were seen bounding to the
west. I had no gun, but got extremely close to them, and found they
were what the Arabs call “bugra-hammar-wahash” (red cow wild).
They appeared to partake of the bullock and buffalo, with a tuft or
lump on the shoulder.
We bivouacked near a small parcel of huts, called Nyagami, in a
beautiful spot, so thick of wood, that we could scarcely find a clear
place for our encampment. While the tents were fixing, an alarm was
given of wild boars: one of our party followed the scent, and, on his
return, said he had seen a lion, and near him seven gazelles. I could
not, however, find from the natives, that lions were ever seen here:
numerous other animals appeared to abound, and that confirmed the
opinion.
Feb. 7.—We moved for Woodie about eight, accompanied by two
Arabs of Boo-Saif. I left the kafila, and proceeded a little to the
westward, making a parallel movement with the camels. Birds of the
most beautiful plumage were perched on every tree. Guinea fowls
were in flocks of eighty or one hundred; and several monkeys
chattered at us so impudently, that, separating one from the rest, we
chased him for nearly half an hour: he did not run very fast, or
straight forward, but was constantly doubling and turning, with his
head over his shoulder, to see who was close to him. He was a
handsome fellow, of a light brown colour, and black about the
muzzle. About noon we came on a village of huts, called Barrah; and
although only three in number, the natives flew in all directions. On
our approaching the town, we beckoned to them, and got off our
horses, for the purpose of giving them confidence, and sat down
under the shade of a large tamarind tree. An old negro, who spoke a
little Arabic, was the first who ventured to approach: seeing that he
was not ill-treated, the others soon followed his example. I begged a
little leban (sour milk), a most refreshing beverage after a hot ride,
but none was to be found, until they were assured that I should pay
for it; and at the sight of the dollar they all jumped and skipped like
so many monkeys. Some biscuit, which I carried in my saddle-cloth
pocket, and now began to eat, created much astonishment, and the
first to whom I gave some, refused to eat it. One, rather bolder than
the rest, put a small piece into his mouth, and pronounced it good,
with such extravagant gestures, that my visitors all became so
clamorous, that my stock was speedily demolished. I refused for a
long time the man who had been suspicious at first, to the great
amusement of the rest, who seemed to like the joke amazingly.
I had promised the Arabs to share with them a sheep, provided
they did not help themselves, and now made signs of my wish to
purchase one. Two men went off to bring, as they said, a fat one.
After a short time had elapsed, during which they had been delighted
with the opening and shutting of my pocket-knife, a very miserable
sheep was brought to me, which they seriously endeavoured to
make me understand was a very fine one. The Arabs declared it to
be good for nothing; and, therefore, though unwilling to be
displeased, I quickly returned my dollar to my pocket, and made a
motion towards my horse. The whole tribe, to my great
astonishment, shouted out, and began to push about the vender of
the sheep, and dance round me. Another very fine fat sheep was
now brought forward from behind the crowd: offering the other first
seemed a trick, in order to try whether I should find out the lean from
the fat one; and although much sagacity was not required for this, it
appeared to have raised me very much in their estimation.
The little nest of thatched huts in which they lived was most
beautifully situated on a rising spot, in the midst of a rich and
luxuriant, though not thick forest, about three miles to the north-east
of Woodie; and the wells, which stand in a dell, thickly planted with
palms (the first we had seen on this side of the desert), had troughs
for more than a hundred and fifty cattle to drink at. One of the old
men accompanied us, while his son carried the carcass of the sheep
to Woodie, for which service he was rewarded by two coral beads,
and a little snuff.
Close to the town we found the tents. Our party had made about
fourteen miles, without leaving the banks of the lake at any great
distance. Two elephants were seen swimming in the lake this day;
and one, belonging to a drove at a distance, absolutely remained just
before the kafila. Hillman had gone on in front on his mule, suffering
sadly from weakness and fatigue, and had laid himself down in what
appeared a delightful shade, to await the arrival of the camels, not
expecting to see an elephant. He was absolutely reposing within a
dozen yards of a very large one, without being aware of it; and on an
Arab’s striking the animal with a spear, he roared out and moved off.
Poor Hillman’s alarm was extreme.
Feb. 8.—On walking to the shores of the lake this morning, soon
after sunrise, I was surprised to see how the water had encroached
since the day before. More than two miles of the wood was entirely
overflowed—the cotton plantations were covered with water. Were
the lands cleared of wood, which would not be a laborious task, as
the trees are mostly tulloh, and not large, almost any thing might be
produced.
Feb. 9.—The courier had been sent off a second time, after being
re-clothed and re-mounted, to receive the sheikh’s orders, and we
were not to proceed beyond Woodie until his pleasure was known.
So jealous and so suspicious are these negro princes of the
encroachment of the Arabs, that divers were the speculations as to
whether the sheikh would, or would not, allow them to proceed with
us nearer his capital.
A weekly fsug, or market, was held about a mile from the town;
and the women flocking from the neighbouring negro villages,
mounted on bullocks, who have a thong of hide passed through the
cartilage of the nose when young, and are managed with great ease,
had a curious appearance: a skin is spread on the animal’s back,
upon which, after hanging the different articles they take for sale,
they mount themselves; milk, sour and sweet, a little honey, fowls,
gussub, gafooly, are amongst their wares, fat and meloheea (ochra),
a green herb, which, with bazeen, all negroes eat voraciously, and
indeed Christians too, as I afterwards found out. The men brought
oxen, sheep, goats, and slaves: the latter were few in number, and in
miserable condition.
Woodie is a capital, or as they say, Blad Kebir, and is governed by
a sheikh, who is a eunuch, and a man of considerable importance:
they appear to have all the necessaries of life in abundance, and are
the most indolent people I ever met with. The women spin a little
cotton, and weave it into a coarse cloth of about six inches’ width;
the men either lie idling in their huts all day, or in the shade of a
building, formed by four supporters and a thatched roof, which
stands in an open space amongst the huts: this is also the court of
justice and place of prayers. The men are considerably above the
common stature, and of an athletic make; but have an expression of
features particularly dull and heavy. The town stands about one mile
west of the Tchad, four short days’ march from Bornou. Game of all
descriptions comes to within a stone’s-throw of their doors, and the
lake abounds with fish and water-fowl; yet have they so little
exertion, that a few fish was almost the only produce of their labour
which was offered for sale.
The women, like the Tibboo, have a square piece of blue or white
cloth, tied over one shoulder, which forms their whole covering: their
hair is however curiously and laboriously trained, and I observed that
no one of tender years had any thing like a perfect head of hair.
From childhood the head is shaved, leaving only the top covered; the
hair from hence falls down quite round from the forehead to the pole
of the neck, and is then formed into one solid plait, which in front
lying quite flat just over the eyes, and behind being turned up with a
little curl, has just the appearance of an old-fashioned coachman’s
wig in England: some of them are, however, very pretty.
Feb. 10.—I this morning went to the eastward, in order to see the
extent of the forest, and also, if possible, to get a sight of the herd, of
upwards of one hundred and fifty elephants, which some of the
Arabs had seen the day before while their camels were feeding. I
was not disappointed. I found them about six miles from the town, in
the grounds annually overflowed by the waters of the lake, where the
coarse grass is twice the height of a man: they seemed to cover the
face of the country, and, I should think, exceeded the number I had
expected to see. When the waters flow over these their pasturages,
they are forced by hunger to approach the towns, and spread
devastation throughout their march; whole plantations, the hopes of
the inhabitants for the next year, are sometimes destroyed in a single
night. Nothing, however, more ferocious than large antelopes, with a
fox and wild hog or two, was to be seen, besides elephants, although
I beat every thicket. We had followed about half a dozen of these
antelopes for more than three hours, who merely changed their
place without ever getting out of sight, but never allowed us to get
near enough to hazard a shot. When quite fatigued, I determined on
making for some distant huts, and begging a little milk, sweet or
sour. No knowing landlady of a country inn ever scanned the
character of her customer more than did this untaught, though
cunning negro, whom we found there. He first denied that he had
any, notwithstanding the bowls were full scarcely ten paces behind
him; and then asked, what I had got to pay for it? I had really
nothing; and after offering my pocket-handkerchief, which was
returned to me as not worth any thing, I was about to depart, though
ten long miles from the tents, thirsty as I was, when the Arab pointed
to a needle, which was sticking in my jacket: for this and a white
bead which the Arab produced, we had a bowl of fine milk and a
basket of nuts, which refreshed us much; and we returned home by
the lake, where I shot two birds—one a very fine crane, and the
other of the woodpecker species, and saw a flock of at least five
hundred pelicans, but could not get near enough to fire at them.
The whole surface of the country for the last eighteen days had
been covered with a grass which produced a calyx so full of prickles
as to annoy us almost to misery: these prickles were of the finest
and most penetrating sharpness that can be imagined; they attached
to every part of our dress; and so small were the points, that it was
impossible to extract them without their breaking and leaving a part
behind: if we walked, at every step we were obliged to clear them
from our feet—mats, blankets, trowsers, were filled with these
irritating annoyances, so that there was no getting rid of them, by
day or night; in short, no part of the body was free from them. The
seed from this grass is called kashcia, and is eaten[21].
Feb. 11.—Two of the sheikh’s officers arrived last night, with
letters, and a present of goroo nuts of Soudan: they have a pleasant
bitter taste, and are much esteemed by all the Tripoli people. After
eating these nuts, water has a grateful flavour, be it ever so bad: the
Arabs call them the coffee of the black country. These letters
pressed Boo Khaloom to continue his march towards Kouka, with all
his people—a very great proof of his confidence in the peaceable
disposition of our chief. The men were clothed with a bornouse each,
a turban, and a red cap; and after giving us fifteen bullocks, six
sheep, and seventeen kail of gussub, returned home, promising that
fresh supplies should be prepared for his people at Yeou, two days’
march nearer Bornou. It was nearly dark when we reached a town
called Burwha. We had travelled at a considerable distance from the
lake after the first four miles of our journey, which here sweeps off
greatly to the east.
Burwha is a walled town, and the first negro one we had seen: it
may be called in this country a place of some strength; in proof of
which the inhabitants have always defied the Tuarick marauders,
who never entered the town: the walls may be about thirteen or
fourteen feet high, and have a dry ditch, which runs quite round
them. The town probably covers an extent equal to three square
miles, and contains five or six thousand inhabitants. There is a
covered-way, from which the defenders lance their spears at the
besiegers, and instantly conceal themselves: there are but two
gates, which are nearly east and west; and these being the most
vulnerable parts for an enemy to attack, are defended by mounds of
earth thrown up on each side, and carried out at least twenty yards
in front of the gate, and have nearly perpendicular faces. These
advanced posts are always thickly manned, and they conceive them
to be a great defence to their walls: they cannot, however, calculate
upon their being abandoned, as an enemy once in possession of
them would so completely command the town, that from thence
every part of it may be seen. Nevertheless, Burwha is a strong place,
considering the means of attack which the Arabs have; and we were
much struck with its appearance.
Feb. 12.—I rode through the town early this morning, previous to
our move. All the principal huts had their little inclosure, with a cow
or two, some goats and fowls; and I saw a very fine fish, apparently
roasted, or broiled, carried into one of them, on which I could have
breakfasted with great pleasure. Gussub, in large baskets, and in the
straw, was every where to be seen, and the women were spinning at
the doors of most of the huts.
I rode nearly the whole of this day with Min Ali Tahar, the
Gundowy Tibboo sheikh, who was accompanying us to Bornou: he
had some little difference with the sheikh, of whom he was perfectly
independent, and Boo Khaloom, ever politic, undertook to make up
the misunderstanding; thereby not only showing his influence, but
securing, in a manner, the future friendship of Tahar, whose district
was always considered as the most dangerous part of the Tibboo
country on the road to Mourzuk. Tahar was a sharp, intelligent fellow,
spoke a little Arabic, and had often asked me many questions about
my country, and my sultan; but to-day he was more inquisitive than
usual.—“Rais Khaleel,” said he, “what would your sultan do to Min
Ali, if he was to go to England? Would he kill me, or keep me there a
prisoner? I should like to be there for about a month.” I answered,
“Certainly neither one nor the other: he would be much more inclined
to make you a handsome present, and send you back again.” Min
Ali. “Oh! I should take him something; but what could I give him?
nothing but the skins of a dozen ostriches, some elephants’ teeth,
and a lion’s skin.” Ans. “The value of the present could be of no
importance to my sultan; he would look at the intention: befriend his
people—remember the Inglezi that you have seen; and should any
more ever find their way to your tents, give them milk and sheep,
and put them in the road they are going: promise me to do this, and I
can almost promise you, that my sultan shall send you a sword, such
a one as Hateeta had on my return, without your going to England,
or giving him any thing.” Min Ali. “Is he such a man? Barak Allah!
What’s his name?” “George.” “George! Health to George; much of it!
Salam Ali: George Yassur. Tell him, Min Ali Tahar wishes him all
health and happiness; that he is a Tibboo who can command a
thousand spears, and fears no man. Is he liberal? Is his heart large?
Gulba Kebir. Does he give presents to his people?” “Very much so,
indeed; some of his people think him too generous.” Min Ali. “By the
head of my father! Raas el Booe! they are wrong; the sultan of a
great people should have a large heart, or he is unworthy of them.
Who will succeed him when he dies?” “His brother.” “What is his
name?” “Frederick.” “Barak Allah! I hope he will be like George,
matlook, liberal. Salem Ali! Frederick. Health to Frederick! How many
wives have they?” “No Englishman has more than one,” said I. “A
gieb! a gieb! Wonderful! wonderful! why they should have a
hundred.” “No! no! we think that a sin,” replied I. “Wallah! really
(literally, by G—!) why I have four now; and I have had more than
sixty. Her I like best, however, always says, one would be more
lawful: she may be right. You say she is. You are a great people. I
see you are a great people, and know every thing. I, a Tibboo, am
little better than a gazelle.”
The road to-day was thickly scattered with trees—saw flocks of
red cattle, and killed a wild hog. The hyænas came so close to the
tents last night, that a camel, which lay about a hundred yards from
the enclosure, was found nearly half-eaten. A lion first made a meal
on the poor animal; when the hyænas came down upon what he had
left. We had fires the whole night; and notwithstanding the continued
howlings which these animals kept up until daylight, our rest was but
little disturbed.—Halted near a water, called Chugelarem. We had
now about eleven miles to make, previous to arriving at Yeou.
13th.—Chugelarem, though said to be a branch of the Tchad, was
merely a still water, increased considerably by the overflowings of
that lake in the wet season: the bottom was muddy, and nowhere
deeper than two feet. The camels, horses, and followers of the kafila,
waded through it without being much above their knees: it takes a
zigzag direction, going first to the east, then to the north, and then to
the east again.
We proceeded south, passing several very neat negro villages;
and after about eleven miles, came to a very considerable stream,
called the Yeou, in some parts more than fifty yards wide, with a fine
hard sandy bottom, and banks nearly perpendicular, and with a
strong current running three miles and a half in an hour to the
eastward. As I expected, every one of the Arabs said this was the
Nile, and that it ran into the great water the Tchad. A town of the
same name stands on the south side of the river, which the
inhabitants were unanimous in saying came from Soudan. It is at
times double the width, and considerably deeper, and two canoes
now lay upon the sand, in which the goods and passengers of kafilas
passing in the wet season are conveyed across. The camels and
horses swim with their heads made fast to the canoes. These
canoes were of the rudest manufacture, and were formed of planks,
rudely shaped by a small hatchet, and strongly fastened together by
cords passed through holes bored in them, and a wisp of straw
between, which they say effectually keeps out the water: they have
high poops like the Grecian boats, and would hold twenty or thirty
persons. The air from a running stream of clear water, and the
freshness it imparted to all around, was such a relief after a march
through sandy deserts, that both man and beast were in a manner
renovated by its effects. The men, and even the women, bathed and
washed, and the negroes swam all the horses. We here received ten
bullocks by the sheikh’s order, to make up the fifteen which he had
directed to be given to Boo Khaloom, and the remainder of the
seventeen kail (loads) of gussub which was to accompany them.
Feb. 14.—Visited Yeou, which is a neat town of huts, walled, but
not above half the size of Burwha, and proceeded fourteen miles,
when we came to a well. Here we should have remained with our
tired camels and horses; but the numerous negro parties, with from
two to twelve laden oxen, all said another well was grieb (near). Boo
Khaloom, therefore, determined on proceeding to the next maten, or
halting-place: some of the group were picturesque in the extreme;
the women all laden with some purchase at the market, and the
naked black children mounted on the tops of the loaded bullocks;
and after twelve additional miles, an hour and a half after sunset, we
came to a halt, but without arriving at the well. The branches of the
trees hung so much over the road, and impeded the movements of
the camels so greatly, that it was past ten o’clock at night before
some of them came up.
Feb. 15.—We found the well, kalielwa, just off the road, nearly
four miles nearer Bornou, and we were to push the camels on as far
as possible, in order that the day after we might enter Kouka, the
residence of the sheikh, in Arab form, and at an early hour. The road
branched off in two directions: the one to the west led towards
Kouka. Soon after this we came to a well and small town, and after
sunset another; near the latter of which a Fezzaneer in the service of
the sheikh met us, with a request that we would pitch our tents near
a dead water called Dowergoo, a few miles further on, and remain
the next day, as the huts that had been preparing were not ready.
About eight we came to this piece of still water, abounding with wild
fowl, having a village near it, called Gurdawa.
Feb. 16.—Halted. Our visitors here were not very numerous,
although we were not above one hour’s journey from the sheikh’s
residence, Kouka. Various were the reports as to the opinion the
sheikh formed of the force which accompanied Boo-Khaloom: all
agreed, however, that we were to be received at some distance from
the town, by a considerable body of troops; both as a compliment to
the bashaw, and to show his representative how well prepared he
was against any attempt of those who chose to be his enemies.
One of the Arabs brought to me this day a Balearic crane; it
measured thirteen feet from wing to wing.
Feb. 17.—This was to us a momentous day, and it seemed to be
equally so to our conductors. Notwithstanding all the difficulties that
had presented themselves at the various stages of our journey, we
were at last within a few short miles of our destination; were about to
become acquainted with a people who had never seen, or scarcely
heard of, a European; and to tread on ground, the knowledge and
true situation of which had hitherto been wholly unknown. These
ideas of course excited no common sensations; and could scarcely
be unaccompanied by strong hopes of our labours being beneficial
to the race amongst whom we were shortly to mix; of our laying the
first stone of a work which might lead to their civilization, if not their
emancipation from all their prejudices and ignorance, and probably,
at the same time, open a field of commerce to our own country,
which might increase its wealth and prosperity. Our accounts had
been so contradictory of the state of this country, that no opinion
could be formed as to the real condition or the numbers of its
inhabitants. We had been told that the sheikh’s soldiers were a few
ragged negroes armed with spears, who lived upon the plunder of
the Black Kaffir countries, by which he was surrounded, and which
he was enabled to subdue by the assistance of a few Arabs who
were in his service; and, again, we had been assured that his forces
were not only numerous, but to a certain degree well trained. The
degree of credit which might be attached to these reports was nearly
balanced in the scales of probability; and we advanced towards the
town of Kouka in a most interesting state of uncertainty, whether we
should find its chief at the head of thousands, or be received by him
under a tree, surrounded by a few naked slaves.
These doubts, however, were quickly removed. I had ridden on a
short distance in front of Boo-Khaloom, with his train of Arabs, all
mounted, and dressed out in their best apparel; and, from the
thickness of the trees, soon lost sight of them, fancying that the road
could not be mistaken. I rode still onwards, and on approaching a
spot less thickly planted, was not a little surprised to see in front of
me a body of several thousand cavalry drawn up in line, and
extending right and left quite as far as I could see; and, checking my
horse, I awaited the arrival of my party, under the shade of a wide-
spreading acacia. The Bornou troops remained quite steady, without
noise or confusion; and a few horsemen, who were moving about in
front giving directions, were the only persons out of the ranks. On the
Arabs appearing in sight, a shout, or yell, was given by the sheikh’s
people, which rent the air: a blast was blown from their rude
instruments of music equally loud, and they moved on to meet Boo-
Khaloom and his Arabs. There was an appearance of tact and
management in their movements which astonished me: three
separate small bodies, from the centre and each flank, kept charging
rapidly towards us, to within a few feet of our horses’ heads, without
checking the speed of their own until the moment of their halt, while
the whole body moved onwards. These parties were mounted on
small but very perfect horses, who stopped, and wheeled from their
utmost speed with great precision and expertness, shaking their
spears over their heads, exclaiming, “Barca! barca! Alla hiakkum
cha, alla cheraga!—Blessing! blessing! Sons of your country! Sons
of your country!” and returning quickly to the front of the body, in
order to repeat the charge. While all this was going on, they closed
in their right and left flanks, and surrounded the little body of Arab
warriors so completely, as to give the compliment of welcoming them
very much the appearance of a declaration of their contempt for their
weakness. I am quite sure this was premeditated; we were all so
closely pressed as to be nearly smothered, and in some danger from
the crowding of the horses and clashing of the spears. Moving on
was impossible; and we therefore came to a full stop: our chief was
much enraged, but it was all to no purpose, he was only answered

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Accounting What the Numbers Mean

9th Edition Marshall Solutions Manual

Accounting What the Numbers Mean 10th Edition Marshall

Accounting What the Numbers Mean 11th Edition Marshall

Accounting What the Numbers Mean 10th Edition Marshall

Accounting What the Numbers Mean 11th Edition Marshall

Financial Accounting The Impact on Decision Makers 9th

Business Statistics Communicating with Numbers 2nd

Business Statistics Communicating with Numbers 3rd

Business Statistics Communicating with Numbers 1st

CHAPTER Accounting for and Presentation

3. To have the student understand the concept of financial leverage.

4. To have the student understand different interest calculation methods.

5. To reinforce the student's understanding of the accrual and matching concepts.

7. To have the student understand the characteristics of a bond.

8. To have the student understand bond premium and discount.

TEACHING OBSERVATIONS/ASSIGNMENT SUGGESTIONS:

Multiple Choice Annotations:

9. Property Taxes Payable would also increase (credit).

Proceeds = Face amount of note - Interest

Balance Sheet Income Statement .

April 15, 2010

c. Current liability = Face amount less discount balance.

b. Effective rate = Discount / (Proceeds * Time)

Cash Notes Payable

2. On September 30, 2010 (and each month-end) to record interest expense:

3. On December 31, 2010 to record principal repayment:

2. September 30, 2010

3. December 31, 2010

b. Failure to make the accrual resulted in an understatement of expense and an

Dr. Real Estate Tax Expense ...........................................................……… 7,200

Dr. Real Estate Tax Expense ...........................................................……… 300

To record the actual costs of servicing products under warranty.

Dr. Estimated Warranty Liability .................................................... 12,700

c. The amount of this adjustment could be determined by an analysis of the experience of

b. Balance Sheet Income Statement .

Dr. Keg Deposits .............................................................................. 50

Dr. Keg Deposits .............................................................................. 10,000

Balance Sheet Income Statement .

Dr. Keg Expense (or Loss on Unreturned Kegs) ............................ xxx

Dr. Cash (1,200 tickets @ $ 252)...................................................... 302,400

b. Balance Sheet Income Statement .

Dr. Unearned Ticket Revenue (200 tickets @ $252) ....................... 50,400

c. The unearned revenues are a current liability.

b. Balance Sheet Income Statement .

Dr. Cash ........................................................................................... 1,080,000

Accrued interest payable ($1,000,000 * 11% * 6/12) .................................... $55,000

Balance Sheet Income Statement .

Dr. Interest Expense ........................................................................ 53,000

b. Balance Sheet Income Statement .

Dr. Cash ............................................................................... 29,640,000

c. Accrued interest payable ($30,000,000 * 9% * 4/12) .................................... $900,000

Dr. Interest Expense ........................................................................ 912,000

b. Dr. Interest Expense .............................................................. 170

c. Dr. Interest Expense ($240,000 * 8.5% * 1/12) ................... 1,700

d. Dr. Interest Expense ............................................................ 50

e. Dr. Estimated Warranty Liability ........................................ 1,240

f. Dr. Sales .............................................................................. 1,500

b. Dr. Real Estate Tax Expense ...................................………............ 2,400

c. Dr. Interest Expense ($360,000 * 7.5% * 1/12) ............................... 2,250

d. Dr. Premium on Bonds Payable ....................................................... 70

e. Dr. Estimated Warranty Expense ($918,000 * 0.2%) ...................... 1,836

f. Dr. Income Tax Expense.................................................................. 97,000

TAKE-HOME QUIZ--CHAPTER 7 Name _______________