115 ch 10 by fanzhongqing

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									Ex. 10.2                            Income Statement                                          Balance Sheet
                Trans-                                Net                              Current       Long-Term        Owners’
                action   Revenue - Expenses         Income               Assets =      Liab. +     Liab.       +       Equity
                                   =
                  a.        NE                I       D                     NE            I        NE                   D
                  b.        NE                I       D                     D            D         NE                   D
                  c.        NE                I       D                     D             I        NE                   D
                  d.        NE               NE       NE                    NE            I        D                    NE
                  e.        NE               NE       NE                    D            D         NE                   NE
                  f.        NE               NE       NE                     I           NE         I                   NE
                  g.        NE                I       D                     D            NE        NE                   D
                  h.        NE                I       D                     NE            I         I                   D


Ex. 10.4   a.            Current liabilities:
                                    Unearned revenue …………………………………………………………..     ########
                                    Notes payable (current portion) ………………………………………..10,000
                                    Accrued bond interest payable ……………………………………………. 36,000
                         Total current liabilities ……………………………………………………….. ########

           b.            Long-term liabilities:
                                    Notes payable ($80,000 - $10,000) ………………………………………          $ 70,000
                                    Bonds payable ……………………………………………………………                       900,000
                                    Notes payable to be refinanced on a long-term basis ………….    75,000
                         Total long-term liabilities …………………………………………………..                    ########

                                       The interest expense that will arise from existing obligations is not yet a
                                        liability.
                                       The lawsuit pending against the company is a loss contingency. It should
                                        be disclosed, but no liability is recorded as no reasonable estimate can be
                                        made of the dollar amount.
                                       The 3-year salary commitment relates to future transactions and,
                                        therefore, is not yet a liability of the company.

Ex. 10.7   a.                                        Amortization Table
                                           (12% Note Payable for $150,000; Payable
                                              in Monthly Installments of $1,543)
                                                   (A)        (B)
                                    Monthly                Interest    Reduction in
                                                           Expense

                                    Interest        Monthly (1% of        Unpaid Balance         Unpaid
                                                           the Last
                                    Period         Payment Unpaid              (A) - (B)         Balance
                                                           Balance)

                          Original balance            —          —                —              $150,000
                                 1                  $1,543     $1,500            $43              149,957
                                 2                   1,543      1,500             43              149,914

           b.            Interest Expense ………………………………………………………………              1,500
                         Mortgage Payable …………………………………………………………….                 43
                                    Cash ………………………………………………………… 1,543
                         To record second monthly installment on mortgage payable.

           c.            Decrease. Interest expense is based on the unpaid principal balance at the
                         end of each month. As the unpaid principal balance decreases each
                         period, interest expense will decrease also.

Ex. 10.11 a.             2005

                         July                     1 Cash ……………………………………………………………   4,900,000
                                                    Discount on Bonds Payable ………………………………….
                                                                                     100,000
                                                              Bonds Payable ………………………………………..5,000,000
                                                    To record issuance of bonds at
           b.            2005
               Dec.               31 Bond Interest Expense ……………………………………….
                                                                     240,000
                                               Discount on Bonds Payable …………………………….
                                                                               2,500
                                               Cash ………………………………………………….     237,500
                                     To pay interest and amortize
                                     Semiannual interest
                                       $5,000,000 x 9 1/2% x 1/2 ……..
                                                           $237,500
                                     Add discount
                                       [$100,000  20 yrs.] x 1/2 ……
                                                               2,500
                                          Interest         $240,000

          c.   2025
               June        30         Bond Interest Expense ………………………………………….
                                                                       240,000
                                                Discount on Bonds Payable ……………………………
                                                                                 2,500
                                                Cash ………………………………………………………     237,500
                                      To make final interest payment and
                                      amortize bond discount (same calculation

               June        30         Bond Payable ………………………………………………..
                                                                   5,000,000
                                                 Cash …………………………………………………    5,000,000
                                      To retire bonds at maturity.

          d.         (1)   Amortization of bond discount increases annual interest
                           expense and, consequently, reduces annual net income.

                     (2)   Amortization of bond discount is a noncash component of
                           annual interest expense and has no effect upon annual net cash
                           flow from operating activities. (Receipt of cash upon issuance
                           of bonds and payment of cash to retire bonds at maturity are
                           both classif


Ex. 10.12 a.   (1)         Debt ratio:

                           Tyco:
                           $349,792       =     57%
                           $615,132


                           Hasbro:
                           ########       =     42%
                           ########


               (2)         Interest coverage ratio:
                           Tyco:
                            $13,028              0.46
                                          =      times
                            $28,026


                           Hasbro:
                           $304,672             8.11
                                          =     times
                            $37,588


*Ex.      a.   Pension Expense ………………………………………………………..
                                 2,500,000
10.14
                         Cash ……………………………………………………………………
                                     2,500,000
               To summarize
               payments to a fully

          b.   Nonpension Postretirement Benefits Expense ……………………….
                                      750,000
                          Cash ……………………………………………………………….
                                                  50,000
                          Unfunded Liability for Nonpension
                                                  ……………………………………………..
                          Postretirement Benefits700,000
               To summarize
               partial funding of
               nonpension
                         To summarize
                         partial funding of
                         nonpension

             c.          Because the pension plan is fully funded
                         each year, and because the plan is an
                         entity separate from Western Electric,
                         this plan should contain assets
                         approximately equal to the pension
                         benefits earned by employees in prior

                                SOLUTIONS TO PROBLEMS SET A
25                                            PROBLEM 10.1A
Minutes,
Easy
                                                                    COMPUTER


                      Income Statement                      Balance Sheet
                                                          Current Long-Term Owners'
                            Net
TransactionRevenue - Expenses = IncomeAssets            =           +
                                                        Liabilities Liabilities + Equity
    a.        NE        I        D       NE                   I         NE          D
    b.        NE       NE       NE       NE                   I           D        NE
    c.        NE        I        D       D                    I         NE          D
    d.         I       NE         I      NE                  D          NE          I
    e.        NE       NE       NE       NE                  D            I        NE
     f.       NE        I        D       D                   D          NE          D
    g.        NE        I        D       D                  NE            D         D
    h.        NE       NE       NE        I                 NE            I        NE
     i.       NE        I        D       D                  NE            I         D
     j.       NE        I        D       NE                   I           I         D
    k.        NE       NE       NE        I                 NE            I        NE
     l.       NE        I        D       NE                   I           D         D
    m.        NE        I        D       NE                   I         NE          D
    n.        NE       NE       NE       NE                 NE          NE         NE
    o.        NE       NE       NE       NE                 NE          NE         NE




25 Minutes, Medium                      PROBLEM 10.3A
                                 SWANSON CORPORATION
a.
                                General Journal

           20__
     Aug          6      Cash                              12,000
                                  Notes                               12,000
                                  Payable
                         Borrowed $12,000 @ 12% per
                         Grove Bank. Issued a 45-day

 Sept                 16 Office Equipment                  18,000
                                   Notes                              18,000
                                   Payable
                         Issued 3-month, 10% note to
                         as payment for office

 Sept                 20 Notes Payable                     12,000
                         Interest Expense                     180
                                    Cash                              12,180
                         Paid note and interest to
                         ($12,000 x 12% x 45/360 =

 Nov                   1 Cash                             250,000
                               Notes                               250,000
                               Payable
                     Obtained 90-day loan from
                     @ 15% per annum.

Dec                1 Inventory                            5,000
                               Notes Payable                         5,000
                     To record purchase of
                     90-day, 14% note payable to

Dec               16 Notes Payable                       18,000
                     Interest Expense                       450
                                Cash                                   450
                                Notes                               18,000
                                Payable
                     Paid note and interest to
                     which matured today and
                     renewal note. Interest:

b.                           Adjusting Entry
Dec               31 Interest Expense                     6,428
                                Interest Payable                     6,428
                     To record interest accrued on
                                 Mike Swanson
                                 Gathman Corp.
                                 Seawald Equipment

c.         The Seawald Equipment note dated September 16 was due in
           full on December 16. The higher rate of interest on the new
           note may be associated with the increased risk of collecting in




                                                   PROBLEM 10.4A
                                            QUICK LUBE (concluded)
b.
                                   General Journal

        2005
Oct                1 Interest Expense                               10,800
                     Mortgage Note Payable                             310
                                Cash                                         11,110
                     To record monthly payment on mortgage.

Nov                1 Interest Expense                               10,797
                     Mortgage Note Payable                             313
                                Cash                                         11,110
                     To record monthly mortgage payment.




c.
                                   Amortization Table
                 (12%, 30-Year Mortgage Note Payable for $1,080,000;
                    Payable in 360 Monthly Installments of $11,110)
                                                                Reduction in
        Interest            Payment          Monthly Interest     Unpaid     Unpaid
         Period                Date          Payment Expense Balance Balance
      Issue date         Sept. 1, 2005                                       #######
            1            Oct. 1              $ 11,110 $ 10,800 $      310 #######
            2            Nov. 1                11,110    10,797       313 #######
            3            Dec. 1                11,110    10,794       316 #######
            4            Jan. 1, 2006          11,110    10,791       319 #######

								
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