Intermediate Accounting II (ACCT 342/542)
Winter, 2014
Exam 1 Solutions
The class performed unacceptably. It is the worst performance on an Intermediate Accounting 2 exam
that I’ve seen in 34 years of teaching this course. And this is comparing a traditional 3 hours per week
course to the La Sierra 4 hours per week course.
Given that most of the students are not reading either the textbook or the professor notes, I guess it’s not
surprising.
Intermediate Accounting II (ACCT 342/542)
Winter, 2014
Exam 1 Solutions
Question 1 Payroll accounting.
Employee
Maribel
Mehak
Employee
Maribel
Mehak
Salary YTD
August. 31
Gross
Salary
September
Federal
withholding
September
State
withholding
September
6,000
103,000
4,000
10,000
650
1,325
118
374
Salary YTD
September 30
Gross
Salary
October
Federal
withholding
October
State
withholding
October
10,000
113,000
4,000
10,000
650
1,325
118
374
Required:
What journal entry should Rosio accrue for employer wages expense for the month of September?
What journal entry should Rosio accrue for employer payroll tax expense for the month of September?
What journal entry should Rosio accrue for employer payroll tax expense for the month of October?
Sep 30
Aug 31
Sep 30
Wages expense
Federal income tax payable
State income tax payable
Social security payable
Medicare payable
Healthcare payable
Wages payable
14,000
Payroll tax expense
Social security payable
Medicare payable
SUT payable
FUT payable
1,559
Payroll tax expense
Social security payable
Medicare payable
SUT payable
FUT payable
939
1,975
492
868
203
140
10,322
given
given
.062*(4,000+10,000)
.0145*(4,000+10,000)
868
203
480
8
.062*(4,000+10,000)
.0145*(4,000+10,000)
.12*(4,000+0)
.008*(1,000+0)
496
203
240
0
.062*(4,000+4,000)
.0145*(4,000+10,000)
.12*(2,000+0)
.008*(0+0)
Question 2 Current liabilities
How much subscription revenue should appear on the 2013 income statement?
beg SCIA + new subscriptions added to SCIA – subscriptions delivered (revenue) = end SCIA
80,000 + 760,000 – revenue = 76,000
80,000 + 760,000 – 76,000 = revenue
revenue = 764,000
How much current liability related to the magazines should appear on the 2013 balance sheet?
current liability = 40,000
How much in long term liability related to the magazines should appear on the 2013 balance sheet?
long term liability = 46,000
Question 3 Warranties
Year
2013
2014
2015
Sales
$832,670
0
0
Actual
Warranty expenditures
$37,100
$38,300
$10,000
Required: Journal entries in 2013 and 2014 and 2015 to account for credit sales, warranty expense, and
warranty repairs. Assume that Sherani accrues for warranty expense in the year of sale.
2013 journal entries
Accounts receivable/cash
Sales revenue
Warranty expense
Est. Liability for warranty repair
Est. liability for warranty repair
Cash/AP
832,670
832,670
83,267
83,267
37,100
37,100
2014 journal entries
Est. liability for warranty repair
Cash/AP
38,300
38,300
2015 journal entries
Est. liability for warranty repair
Cash/AP
Warranty expense
Est. liability for warranty repair
10,000
10,000
2,133
2,133
Question 4 Computing loan amounts.
(1)
The amount of an quarterly installment payment for a $41,000 loan taken out on January 30,
2014 that is to be repaid at three month intervals over 4 years, starting on April 30, 2014. The
implicit interest rate for the loan is 6.4%.
PV
FV
N
I
pmt
type
(2)
The interest rate for a loan of $16,500 borrowed on January 30, 2014, when the repayment
schedule calls for $3,800 annual installment payments for 6 years. The first repayment is due on
January 30, 2015
PV
FV
N
I
pmt
type
(3)
–41,000
0
16 = 4 * 4
1.6 = 6.5 / 4
? = 2,925
end
–16,500
0
6
? = 10.1033%
3,800
end
The amount of cash interest paid in 2015 for a 5% interest bearing loan of $52,600 taken out by
the borrower on January 30, 2014. The loan has a maturity date of March 25, 2020. Interest is
payable every January 30, starting in 2015.
2,630 = .05*52,600
(4)
The amount of cash interest paid in 2014 for a 5% interest bearing loan of $52,600 taken out by
the borrower on January 30, 2014. The loan has a maturity date of March 25, 2020. Interest is
payable every January 30, starting in 2015.
0
Question 5
(1)
Prepare the a loan amortization table in good form.
Loan
Rate
Years
Type
Payment
Date
01/01/14
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
(2)
38,600
0.05
5
end
8,916
Cash
Interest
8,916
8,916
8,916
8,916
8,915
1,930
1,581
1,214
829
425
6,986
7,335
7,702
8,087
8,490
Balance
38,600
31,614
24,279
16,577
8,490
0
Complete the following schedule for the amounts to appear in the financial statements for the 2015
(year 2) and 2016 (year 3) fiscal years. Xin has a fiscal year that starts on January 1 and ends on
December 31.
Total
Liability
Current
Liability
2014
31,613
8,491
23,122
2015
24,279
8,491
2016
16,577
2017
2018
(3)
Amort
Long-term Operating
Liability
Income
Non-op
Income
Operating
Activities
Investing
Activities
Financing
Activities
0
–1,930
–1,930
0
+38,300–6,986
15,788
0
–1,581
–1,581
0
–7,335
8,491
8.096
0
–1,214
–1,214
0
–7,702
8,490
8,490
0
0
–829
–829
0
–8,087
0
0
0
0
–425
–425
0
–8,490
Prepare journal entries for 2014 (year 1) and 2015 (year 2).
1/1/2014
Cash
Note payable
12/31/2014 Interest expense
Note payable
Cash
12/31/2015 Interest expense
Note payable
Cash
38,300
38,300
1,930
6,986
8,916
1,581
7,335
8,916
(4)
Now assume that Xin took out the loan on September 1, 2014, with all future payments due on
September 1 of the future years, starting September 1, 2015. Prepare journal entries for 2014, 2015
and 2016.
9/1/2014
Cash
Note payable
12/31/2014 Interest expense
Note payable
9/1/2015
Interest expense
Note payable
Cash
12/31/2015 Interest expense
Note payable
9/1/2016
Interest expense
Note payable
Cash
12/31/2016 Interest expense
Note payable
38,300
38,300
643
643
1,287
7,629
8,916
527
527
1,054
7,862
8,916
405
405
Question 6 Interest bearing loan. Olaitan Company is borrowing $47,500 from a bank on January 1,
2014. The bank is charging 6% interest for five years. Interest only is to be paid annually,
starting on December 31, 2014, with all the principal to be paid on December 31, 2018 (Round all
amounts to the nearest dollar.
(1) Prepare an amortization table in good form to account for this loan. Round all amounts to
dollars.
Loan
Rate
Years
Type
Payment
Date
01/01/14
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
(2)
47,500
0.06
5
end
2,850
Cash
2,850
2,850
2,850
2,850
2,850
Interest
Amort
2,850
2,850
2,850
2,850
2,850
0
0
0
0
0
Balance
47,500
47,500
47,500
47,500
47,500
47,500
Complete the following schedule for the amounts to appear in the financial statements for all years
from 2014 through 2018. Olaitan has a fiscal year that starts on January 1 and ends on December
31.
Total
Liability
Current
Liability
Long-term Operating
Liability
Income
Non-op
Income
Operating
Activities
Investing
Activities
Financing
Activities
2014
47,500
2,689
44,811
0
–2,850
–2,850
0
+47,500
2015
47,500
2,689
44,811
0
–2,850
–2,850
0
0
2016
47,500
2,689
44,811
0
–2,850
–2,850
0
0
2017
47,500
47,500
0
0
–2,850
–2,850
0
0
2018
47,500
0
0
0
–2,850
–2,850
0
–47,500
Question 7 Non-interest bearing loan. The Jazmyn Company takes out a $60,000 (maturity value)
loan from a bank on January 1, 2014. A rate of 7% is implicit in this loan. No interest or principal
payments are to be paid annually. Maturity value is due five years hence on December 31, 2018.
Round all amounts to the nearest dollar.
(1)
(2)
Compute the loan proceeds (net amount borrowed) on January 1, 2014.
Prepare an amortization table in good form to account for this loan. Round all amounts to
dollars.
Loan
Maturity
Rate
Years
Type
Payment
Date
01/01/14
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
(3)
42,779
60,000
0.07
5
end
0
Cash
Interest
0
0
0
0
0
2,995
3,204
3,428
3,668
3,926
Amort
(2,995)
(3,204)
(3,428)
(3,668)
(3,926)
Balance
42,779
45,774
48,978
52,406
56,074
60,000
Complete the following schedule for the amounts to appear in the financial statements for the first
three years of the loan (from 2014 through 2016). Jazmyn has a fiscal year that starts on January 1
and ends on December 31.
Total
Liability
Current
Liability
Long-term Operating
Liability
Income
Non-op
Income
Operating
Activities
Investing
Activities
Financing
Activities
2014
45,774
0
45,774
0
–2,995
0
0
+42,779
2015
48,978
0
45,978
0
–3,204
0
0
0
2016
52,406
0
52,406
0
–3,428
0
0
0
2017
56,074
56,074
0
0
–3,668
0
0
0
2018
0
0
0
0
–3,926
0
0
–60,000