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Solutions to Current Liabilities Practice Problems

Solutions to Current Liabilities Practice Problems -...

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Solutions to Current Liabilities & Contingencies EXERCISE 13-2 (15–20 minutes) (a) Sept. 1 Purchases .............................................. 50,000 Accounts Payable ......................... 50,000 Oct. 1 Accounts Payable .................................. 50,000 Notes Payable ............................... 50,000 Oct. 1 Cash ........................................................ 75,000 Discount on Notes Payable ................... 6,000 Notes Payable ............................... 81,000 (b) Dec. 31 Interest Expense .................................... 1,000 Interest Payable ($50,000 X 8% X 3/12) ................ 1,000 Dec. 31 Interest Expense .................................... 1,500 Discount on Notes Payable ($6,000 X 3/12) ............................ 1,500 (c) 1. Note payable ................................. $50,000 Interest payable ............................ 1,000 $51,000 2. Note payable ................................. $81,000 Less discount ($6,000 – $1,500)... 4,500 $76,500
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EXERCISE 13-4 (20–25 minutes) SANTANA COMPANY Partial Balance Sheet December 31, 2010 Current liabilities: Notes payable (Note 1) .................................................... $4,000,000* Long-term debt: Notes payable expected to be refinanced in 2011 (Note 1) .......................................................................... 3,000,000 Note 1. Under a financing agreement with Golden State Bank the Company may borrow up to 60% of the gross amount of its accounts receivable at an interest cost of 1% above the prime rate. The Company intends to issue notes maturing in 2015 to replace $3,000,000 of short-term, 15%, notes due periodically in 2011. Because the amount that can be borrowed may range from $3,000,000 to $4,800,000, only $3,000,000 of the $7,000,000 of currently maturing debt has been reclassified as long-term debt. *[$7,000,000 – ($5,000,000 X 60%)]
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EXERCISE 13-10 (10–15 minutes) (a) Cash (150 X $4,000) ................................................ 600,000 Sales ............................................................... 600,000 Warranty Expense .................................................. 17,000 Cash, Inventory, Accrued Payroll ................. 17,000 Warranty Expense ($45,000* – $17,000) ................ 28,000 Liability Under Warranties ............................ 28,000 *(150 X $300) (b) Cash ......................................................................... 600,000 Sales ............................................................... 600,000 Warranty Expense .................................................. 17,000 Cash, Inventory, Accrued Payroll ................. 17,000 EXERCISE 13-12 (15–20 minutes) Inventory of Premiums (8,800 X $.90) .......................... 7,920 Cash ...................................................................... 7,920 Cash (120,000 X $3.30) ................................................. 396,000 Sales ..................................................................... 396,000 Premium Expense ......................................................... 3,960 Inventory of Premiums [(44,000 ÷ 10) X $.90] .... 3,960 Premium Expense ......................................................... 2,520* Liability for Premiums ......................................... 2,520 *[(120,000 X 60%) – 44,000] ÷ 10 X $.90 = 2,520
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EXERCISE 13-14 (25–30 minutes) (a) Depot ..................................................................... 600,000
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