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work_at_home_soultions_ch7[1]

work_at_home_soultions_ch7[1] - EXERCISE71 a...

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SOLUTIONS TO EXERCISES - CHAPTER 7 EXERCISE 7-1 a.  $-0-.  Interest will be paid at maturity of the note, April 30, 2011. b. $1,600 ($120,000 x 8% = $9,600; $9,600 x 2/12= $1,600) c.  $121,600 ($120,000 Notes Payable +$1,600 Interest Payable) d. $124,800 [$120,000 principal + $4,800 interest ($120,000 x 8% x 6/12)] e.  $3,200 ($120,000 x 8% = $9,600; $9,600 x 4/12) 7-1
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EXERCISE 7-2 a. $3,000 x 6% = $180; $180 x 5/12 = $75 b. $-0-, no interest was paid in 2012; interest will be paid in 2013. c. Hughes Company Statements Model for 2012 Balance Sheet Income Statement Statement  of Cash Flows Event Asset s = Liabilities + Stockholders’  Equity Rev. - Exp. = Net Inc.  No. Cash = Notes Payabl e + Int. Payabl e + Commo n Stock + Ret.  Earn. 1. I NA NA NA I I NA I I OA 2. I I NA NA NA NA NA NA I FA 3. NA NA I NA D NA I D NA 7-2
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EXERCISE 7-3 a. Book Sales $315,000 Miscellaneous Items Sales 175,000 Total Sales 490,000 x Sales Tax Rate             7     %     Sales Tax Collected $34,300 b. Total Sales: Event 1. $315,000 Event 2 175,000 Total $490,000 Total Sales $490,000 Less: Cost of Goods Sold  (255,000     )   Gross Margin  235,000 Less: Operating Expenses  (145,000     )   Net Income $  90,000 7-3
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EXERCISE 7-4  a. Assets = Liabilitie s + Stockholder’s Equity Income Statement Statement  of Event Cash = Sales  Tax Pay. + Com. Stock + Ret.  Earn. Rev. - Exp. = Net Inc. Cash  Flow 1. Nov. 77,760 5,760 NA 72,000 72,000 NA 72,000 77,760 OA 2. Dec. (5,760) (5,760) NA NA NA NA NA (5,760) OA 3. Dec. 103,680 7,680 NA 96,000 96,000 NA 96,000 103,680 OA b. Total sales tax paid in 2010: $5,760 c. Total sales tax collected in 2010: $5,760 + $7,680 = $13,440 d. Sales tax liability at December 31, 2010 is $7,680. e. The liability is shown on the balance sheet. 7-4
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EXERCISE 7-5 a. There are three categories of contingent liabilities: 1. Probable and can be reasonably estimated.  This category of  contingent liabilities is recognized in the financial statements.   2. Possible but cannot be reasonably estimated.  This category of  contingent liabilities is disclosed in the footnotes to the  financial statements. 3. Remote.  This category of contingent liabilities is not  recognized in the financial statements or disclosed in the  footnotes. b. 1. This is a contingent liability that can be reasonably estimated.  It  must be recognized in the financial statements. 2. This is a contingent liability which is possible but cannot be  reasonably estimated.  GAAP requires that it be disclosed in the  footnotes to the financial statements. 3. This is not a contingent liability since the likelihood of damage is not  certain.  It is not recorded on the books or mentioned in the financial  statements.
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