Chapter 13 Group Work Solutions
1.
Purchases, Purchase Returns, Payments
a)
May 5, 2014 Purchases
Accounts Payable
Freight In
Cash
b)
86,000
86,000
3,000
3,000
May 11, 2014
Accounts Payable
8,000
Purchase Returns & Allowances
c)
May 18, 2014
Accounts Payable
78,000
Purchase Discounts
Cash
(86,000 – 8,000) * .02 = 1,560
2.
Interest Bearing Note Payable
a)
August 1, 2014
Cash
Note Payable
b)
c)
8,000
1,560
76,440
155,000
December 31, 2014
Interest Expense
3,875
Interest Payable
$155,000 * 6% * 5/12 = 3,875
155,000
3,875
April 1, 2015
Interest Expense
2,325
Interest Payable
3,875
Note Payable
155,000
Cash
$155,000 * 6% * 3/12 = 2,325
161,200
3.
Zero-Interest Bearing [Non-Interest Bearing] Note Payable
a)
b)
c)
November 1, 2014
Cash
Discount on Notes Payable
Notes Payable
$57,000
$3,000
$60,000
December 31, 2014
Interest Expense
$1,000
Discount on Notes Payable
($3,000/6) * 2 = $1,000
$1,000
May 1, 2015
Interest Expense
$2,000
Discount on Notes Payable
($3,000/6) * 4 = $2,000
Notes Payable
Cash
$2,000
$60,000
$60,000
4. In Accounting for Contingencies, a Loss contingency should be accrued on a
company’s records only if it is probable and can be reasonably estimated.
5. Gaurantee Warranties with Sales
Cash Basis
a) 2013
Cash
1,920,000
Sales Revenue
$2,400 * 800 = $1,920,000
b) 2014
Accrual Basis
a) 2013
Warranty Expense
Inventory Parts
Wages Payable
Cash
1,920,000
83,600
45,600
38,000
1,920,000
Sales Revenue
1,920,000
Warranty Expense
260,000
Estimated Warranty Liability
($200 * 800) + ($125 * 800) = $260,000
b) 2014
Estimated Warranty Liability
Inventory Parts
Wages Payable
260,000
83,600
45,600
38,000
c) 260,000 – 83,600 = 176,400 Balance of Estimated Warranty Liability
6.
Warranties Sold Separate
a) 2013
Cash
3,607,500
Sales Revenue
Unearned Warranty Revenue
3,420,000
187,500
$2,850 * 1,200 = 3,420,000
$250 * 750 = $187,500
d) At December 31, 2013
Current Liabilities:
Unearned Warranty Revenue 62,500
Non-Current Liabilities:
Unearned Warranty Revenue 125,000
e) 2014
7.
Warranty Expense
Inventory Parts
Wages Payable
26,300
Unearned Warranty Revenue
Warranty Revenue
$187,500/3 = $62,500
62,500
15,500
10,800
62,500
Payroll Tax
a)
Wages Expense
285,000
Federal Income Tax Withheld
Union Dues Payable
FICA Payable
Cash
56,000
6,000
12,813
210,187
($285,000 - $145,000) * 7.65% = $10,710
$145,000 * 1.45% = $2,103
$10,710 + $2,103 = $12,813
b)
Payroll Tax Expense
FICA Payable
FUTA Payable
SUTA Payable
14,073
FICA – See calculations in (a)
FUTA – ($285,000 - $215,000) * .8% = $560
SUTA – ($285,000 - $215,000) * 1% = $700
12,813
560
700
Debit
8.
a)
January 1, 2013
Oil Rig
2,000,000
Cash
Oil Rig
2,000,000
154,220
Asset Retirement Obligation
b)
Interest Expense
Asset Retirement Obligation
(154,220 * .10 = $15,422)
215,422
215,422
15,422
15,422
December 31, 2014
Depreciation Expense
Accumulated Depreciation
(2,154,220 / 10 = $215,422)
Interest Expense
Asset Retirement Obligation
(154,220 + 15,422) * .10 = $16,964
d)
154,220
December 31, 2013
Depreciation Expense
Accumulated Depreciation
(2,154,220 / 10 = $215,422)
c)
Credit
215,422
215,422
16,964
16,964
December 31, 2022
Asset Retirement Obligation
Loss on Settlement of ARO
Cash
400,000
186,000
586,000
*At the end of the rig’s useful life (10 years), the carrying value of
the ARO will be $400,000.