Brief Exercise 13-2
Larkspur Company borrowed $27,600 on November 1, 2017, by signing a
$27,600, 9%, 3-month note. Prepare Larkspur’s November 1, 2017, entry;
the December 31, 2017, annual adjusting entry; and the February 1, 2018,
entry. (If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
Date
11/1/17
Account Titles and Explanation
Cash
Debit
27,600
Notes Payable
12/31/17
Interest Expen
27,600
414
Interest Payab
2/1/18
414
Notes Payable
27,600
Interest Payab
414
Interest Expen
207
Cash
28,221
12/31/17 Interest Payable ($27,600 × 9% × 2/12)
2/1/18
Credit
= $414
Cash [($27,600 × 9% × 3/12) + $27,600] = $28,221
Brief Exercise 13-3
Pharoah Corporation borrowed $56,600 on November 1, 2017, by signing a
$57,830, 3-month, zero-interest-bearing note. Prepare Pharoah’s November
1, 2017, entry; the December 31, 2017, annual adjusting entry; and the
February 1, 2018, entry. (If no entry is required, select "No Entry" for
the account titles and enter 0 for the amounts. Credit account titles
are automatically indented when amount is entered. Do not indent
manually.)
Date
11/1/17
Account Titles and Explanation
Cash
Debit
56,600
Credit
Discount on N
1,230
Notes Payable
12/31/17
Interest Expen
57,830
820
Discount on N
2/1/18
Interest Expen
820
410
Discount on N
410
(To record interest)
Notes Payable
57,830
Cash
57,830
(To pay note)
12/31/17 Discount on Notes Payable ($1,230 × 2/3) = $820
Brief Exercise 13-4
Grouper Magazine sold 15,480 annual subscriptions on August 1, 2017, for
$17 each. Prepare Grouper’s August 1, 2017, journal entry and the
December 31, 2017, annual adjusting entry, assuming the magazines are
published and delivered monthly. (If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Date
8/1/17
Account Titles and Explanation
Cash
Debit
263,160
Unearned Sub
12/31/17
Unearned Sub
Subscriptions
8/1/17
Credit
263,160
109,650
109,650
Unearned Sales Revenue (15,480 × $17) = $263,160
12/31/17 Sales Revenue $263,160 × 5/12
= $109,650
Brief Exercise 13-9
At December 31, 2017, Coronado Corporation owes $521,000 on a note
payable due February 15, 2018.
If Coronado refinances the obligation by issuing a long-term note on
February 14 and using the proceeds to pay off the note due February 15,
how much of the $521,000 should be reported as a current liability at
December 31, 2017? (Do not leave any answer field blank. Enter 0 for
amounts.)
The amount to be reported as a current liability at December 31,
2017
$
0
Since both criteria are met (intent and ability), none of the $521,000 would
be reported as a current liability. The entire amount would be reported as a
long-term liability.
If Coronado pays off the note on February 15, 2018, and then borrows
$1,042,000 on a long-term basis on March 1, how much of the
$521,000 should be reported as a current liability at December 31, 2017,
the end of the fiscal year? (Do not leave any answer field blank. Enter 0
for amounts.)
The amount to be reported as a current liability at December 31,
2017
$
521,000
Because repayment of the note payable required the use of existing
12/31/17 current assets, the entire $521,000 liability must be reported as
current. (This assumes Burr had not entered into a long-term agreement
prior to issuance.)
Brief Exercise 13-10
Marigold Inc. is involved in a lawsuit at December 31, 2017.
Prepare the December 31 entry assuming it is probable that Marigold will be
liable for $870,600 as a result of this suit. (If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Date
December 31, 2017
Account Titles and Explanation
Law suit Loss
Debit
Credit
870,600
Law suit Liabili
870,600
Prepare the December 31 entry, if any, assuming it is not probable that
Marigold will be liable for any payment as a result of this suit. (If no entry
is required, select "No Entry" for the account titles and enter 0 for
the amounts. Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Date
December 31, 2017
Account Titles and Explanation
No Entry
Debit
Credit
0
No Entry
0
No entry is necessary. The loss is not accrued because it is not probable
that a liability has been incurred at 12/31/17.
Brief Exercise 13-11
Carla Company recently was sued by a competitor for patent infringement.
Attorneys have determined that it is probable that Carla will lose the case
and that a reasonable estimate of damages to be paid by Carla is $273,000.
In light of this case, Carla is considering establishing a $90,800 selfinsurance allowance.
What entry, if any, should Carla record to recognize this loss
contingency? (If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Litigation Expe
Debit
273,000
Credit
Litigation Liabi
273,000
Carla should record a litigation accrual on the patent case, since the amount
is both estimable and probable. This entry will reduce income
by $273,000 and Carla will report a litigation liability of $273,000. The
$90,800 self-insurance allowance has no impact on income or liabilities.
Brief Exercise 13-12
Blossom’s Drillers erects and places into service an off-shore oil platform on
January 1, 2018, at a cost of $10,753,000. Blossom is legally required to
dismantle and remove the platform at the end of its useful life in 10 years.
Blossom estimates it will cost $1,075,300 to dismantle and remove the
platform at the end of its useful life in 10 years. (The fair value at January 1,
2018, of the dismantle and removal costs is $483,885.) Prepare the entry to
record the asset retirement obligation. (If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Account Titles and Explanation
Oil Platform
Debit
Credit
483,885
Asset Retirem
483,885
Brief Exercise 13-13
Buffalo Factory provides a 2-year warranty with one of its products which
was first sold in 2017. Buffalo sold $940,900 of products subject to the
warranty. Buffalo expects $122,010 of warranty costs over the next 2 years.
In that year, Buffalo spent $74,460 servicing warranty claims. Prepare
Buffalo’s journal entry to record the sales (ignore cost of goods sold) and the
December 31 adjusting entry, assuming the expenditures are inventory
costs. (If no entry is required, select "No Entry" for the account titles
and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
2017
Cash
940,900
Sales Revenu
940,900
(To record sales)
During 2017
Warranty Expe
74,460
Inventory
74,460
(To record warranty claims)
12/31/17
Warranty Expe
47,550
Warranty Liab
47,550
Brief Exercise 13-14
Flint Corporation sells DVD players. The corporation also offers its customers
a 4-year warranty contract. During 2017, Flint sold 20,000 warranty
contracts at $114 each. The corporation spent $188,000 servicing warranties
during 2017, and it estimates that an additional $940,000 will be spent in
the future to service the warranties.
Prepare Flint’s journal entry for the sale of contracts. Assume the service
costs are inventory costs. (If no entry is required, select "No Entry" for
the account titles and enter 0 for the amounts. Credit account titles
are automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Cash
Debit
Credit
2,280,000
Unearned War
2,280,000
Unearned Warranty Revenue (20,000 × $114) = $2,280,000
Prepare Flint’s journal entry for the cost of servicing the warranties. Assume
the service costs are inventory costs. (If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Account Titles and Explanation
Warranty Expe
Debit
188,000
Credit
Inventory
188,000
Prepare Flint’s journal entry for the recognition of warranty revenue. Assume
the service costs are inventory costs. (Round intermediate calculations
to 5 decimal places, e.g. 1.55467 and final answers to 0 decimal
places, e.g. 5,125. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent
manually.)
Account Titles and Explanation
Unearned War
Debit
Credit
570,000
Warranty Rev
570,000
Warranty Revenue = ($2,280,000 ÷ 4) = $570,000
Brief Exercise 13-15
Flounder Company offers a set of building blocks to customers who send in 3
UPC codes from Flounder cereal, along with 50¢. The block sets cost
Flounder $1.30 each to purchase and 70¢ each to mail to customers. During
2017, Flounder sold 876,000 boxes of cereal. The company expects 30% of
the UPC codes to be sent in. During 2017, 87,600 UPC codes were
redeemed. Prepare Flounder’s December 31, 2017, adjusting entry. (If no
entry is required, select "No Entry" for the account titles and enter 0
for the amounts. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
Account Titles and Explanation
Premium Expe
Premium Liabil
Debit
Credit
87,600
87,600
UPC codes expected to be sent in (30% × 876,000)
262,800
UPC codes already redeemed
87,600
Estimated future redemptions
175,200
Cost of estimated claims outstanding (175,200 ÷ 3) × ($1.30 +
$0.70 – $0.50)
$87,600
Exercise 13-1
How would each of the following items be reported on the balance sheet?
Item
(a)
Accrued vacation pay.
(b) Estimated taxes payable.
(c)
Service warranties on appliance
sales.
(d) Bank overdraft.
(e)
Employee payroll deductions
unremitted.
(f)
Unpaid bonus to officers.
Deposit received from customer to
(g) guarantee performance of a
contract.
(h) Sales taxes payable.
Reported on
Current Liability
Current Liability
Current Liability or Long-term Liability
Current Liability
Current Liability
Current Liability
Current Liability or Long-term Liability
Current Liability
(i)
Gift certificates sold to customers
but not yet redeemed.
Current Liability
(j)
Premium offers outstanding.
Current Liability
(k)
Discount on notes payable.
(l)
Personal injury claim pending
(assume not probable and/or not
reasonably estimable).
Current maturities of long-term
(m) debts to be paid from current
assets.
(n)
Cash dividends declared but
unpaid.
Current Liability or Long-term Liability
Footnote Disclosure
Current Liability
Current Liability
(o)
Dividends in arrears on preferred
stock.
(p) Loans from officers.
Footnote Disclosure
Current Liability or Long-term Liability
Exercise 13-2
The following are selected 2017 transactions of Skysong Corporation.
Sept. Purchased inventory from Encino Company on account for $46,800.
1 Skysong records purchases gross and uses a periodic inventory
system.
Oct. Issued a $46,800, 12-month, 8% note to Encino in payment of
1 account.
Oct. Borrowed $46,800 from the Shore Bank by signing a 12-month,
1 zero-interest-bearing $49,920 note.
Prepare journal entries for the selected transactions above. (If no entry is
required, select "No Entry" for the account titles and enter 0 for the
amounts. Credit account titles are automatically indented when
amount is entered. Do not indent manually. Record entries in the
order displayed in the problem statement.)
Date
September 1
Account Titles and Explanation
Purchases
Debit
46,800
Accounts Pay
October 1
Accounts Pay
46,800
46,800
Notes Payable
October 1
46,800
Cash
46,800
Discount on N
3,120
Notes Payable
Credit
49,920
Prepare adjusting entries at December 31. (If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. Credit account titles are automatically indented
when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g.
5,125.)
Date
December 31
Account Titles and Explanation
Debit
Interest Expen
Credit
936
Interest Payab
936
(To record interest on the note)
December 31
Interest Expen
780
Discount on N
780
(To record discount on the note)
Interest Payable ($46,800× 8% × 3/12)
= $936
Discount on Notes Payable ($3,120× 3/12) = $780
Compute the total net liability to be reported on the December 31 balance
sheet for:
(1) The interest-bearing note
(2) The zero-interest-bearing note
(1) Notes payable
Interest payable
$
47,736
$
47,580
$46,800
936
$47,736
(2) Notes payable
Less discount ($3,120 – $780)
$49,920
2,340
$47,580
Exercise 13-5
During the month of June, Cheyenne Boutique had cash sales of
$334,960 and credit sales of $110,452, both of which include the 6% sales
tax that must be remitted to the state by July 15.
Prepare the adjusting entry that should be recorded to fairly present the
June 30 financial statements. (If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Credit account
titles are automatically indented when amount is entered. Do not
indent manually.)
Date
Account Titles and Explanation
June 30
Sales Revenu
Debit
Credit
25,212
Sales Tax Pay
25,212
Sales plus sales tax ($334,960 + $110,452) $445,412
Sales exclusive of tax ($445,412 ÷ 1.06)
Sales tax
(420,200)
$ 25,212
Exercise 13-8
On December 31, 2017, Headland Company had $1,216,000 of short-term
debt in the form of notes payable due February 2, 2018. On January 21,
2018, the company issued 25,500 shares of its common stock for $42 per
share, receiving $1,071,000 proceeds after brokerage fees and other costs
of issuance. On February 2, 2018, the proceeds from the stock sale,
supplemented by an additional $145,000 cash, are used to liquidate the
$1,216,000 debt. The December 31, 2017, balance sheet is issued on
February 23, 2018.
Show how the $1,216,000 of short-term debt should be presented on the
December 31, 2017, balance sheet. (Enter account name only and do
not provide descriptive information.)
Headland Company
Partial Balance Sheet
December 31, 2017
Current Liabilities
:
Notes Payable
$
145,000
Long-term Debt
:
Notes Payable
1,071,000
Note: Short-term debt refinanced. As of December 31, 2017, the company
had notes payable totaling $1,216,000 due on February 2, 2018. These
notes were refinanced on their due date to the extent of $1,071,000
received from the issuance of common stock on January 21, 2018. The
balance of $145,000 was liquidated using current assets.
Exercise 13-12
Nash Company includes 1 coupon in each box of soap powder that it packs,
and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017,
Nash Company purchased 9,400 premiums at 75 cents each and
sold 113,000 boxes of soap powder at $3.40 per box; 47,600 coupons were
presented for redemption in 2017. It is estimated that 60% of the coupons
will eventually be presented for redemption.
Prepare all the entries that would be made relative to sales of soap powder
and to the premium plan in 2017. (If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Account Titles and Explanation
Inventory of P
Debit
Credit
7,050
Cash
7,050
(To record the premium inventory)
Cash
384,200
Sales Revenu
384,200
(To record the sales)
Premium Expe
Inventory of P
3,570
3,570
(To record the expense associated with the sale)
Premium Expe
1,515
Premium Liabil
1,515
(To record the premium liability)
Inventory of
Premiums
= (9,400 × $0.75)
= $7,050
Cash
= (113,000 × $3.40)
= $384,200
Inventory of
Premiums
= [(47,600 ÷ 10) × $0.75]
= $3,570
Premium Expense
=
[(113,000 × 60%) – 47,600] ÷ 10 ×
$0.75
= $1,515
Exercise 13-14
Larkspur Company purchases an oil tanker depot on January 1, 2017, at a
cost of $652,100. Larkspur expects to operate the depot for 10 years, at
which time it is legally required to dismantle the depot and remove the
underground storage tanks. It is estimated that it will cost $72,300 to
dismantle the depot and remove the tanks at the end of the depot’s useful
life.
Prepare the journal entries to record the depot (considered a plant asset)
and the asset retirement obligation for the depot on January 1, 2017. Based
on an effective-interest rate of 6%, the present value of the asset retirement
obligation on January 1, 2017, is $40,372. (If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts. Credit
account titles are automatically indented when amount is entered.
Do not indent manually.)
Date
January 1, 2017
Account Titles and Explanation
Plant Assets
Debit
652,100
Cash
652,100
(To record the depot)
January 1, 2017
Plant Assets
Credit
40,372
Asset Retirem
40,372
(To record the asset retirement obligation)
Prepare any journal entries required for the depot and the asset retirement
obligation at December 31, 2017. Larkspur uses straight-line depreciation;
the estimated salvage value for the depot is zero. (Round answers to 0
decimal places, e.g. 5,275. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Credit account
titles are automatically indented when amount is entered. Do not
indent manually.)
Date
December 31,
2017
Account Titles and Explanation
Depreciation E
Debit
Credit
65,210
Accumulated D
65,210
(To record depreciation for the depot)
December 31,
2017
Depreciation E
4,037
Accumulated D
4,037
(To record depreciation on asset
retirement obligation)
December 31,
2017
Interest Expen
2,422
Asset Retirem
2,422
(To record interest on asset retirement
obligation)
Accumulated Depreciation-Plant Assets = $40,372/10
Asset Retirement Obligation
= $4,037
= $40,372 × 6% = $2,422
On December 31, 2026, Larkspur pays a demolition firm to dismantle the
depot and remove the tanks at a price of $80,920. Prepare the journal entry
for the settlement of the asset retirement obligation. (Round answers to 0
decimal places, e.g. 5,275. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Credit account
titles are automatically indented when amount is entered. Do not
indent manually.)
Date
December 31, 2026
Account Titles and Explanation
Debit
Asset Retirem
72,300
Loss on ARO
8,620
Cash
Credit
80,920