Solutions Ch 14 - SOLUTIONS TO EXERCISES EXERCISE 14-1...

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Unformatted text preview: SOLUTIONS TO EXERCISES EXERCISE 14-1 (15-20 minutes) (a)Valuation account relating to the long-term liability, bonds payable (sometimes referred to as an adjunct account). The $3,000 would continue to be reported as long-term. (b)Current liability if current assets are used to satisfy the debt. (c)Current liability, $200,000; long-term liability, $800,000. (d)Current liability. (e)Probably noncurrent, although if operating cycle is greater than one year and current assets are used, this item would be classified as current. (f) Current liability. (g)Current liability unless (a) a fund for liquidation has been accumulated which is not classified as a current asset or (b) arrangements have been made for refinancing. (h)Current liability. (i) Current liability. EXERCISE 14-2 (15-20 minutes) (a) Discount on Bonds PayableContra account to bonds payable on balance sheet. (b) Interest expense (credit balance)Reclassify to interest payable on balance sheet. (c) Unamortized Bond Issue CostsClassified as Other Assets on balance sheet. (d) Gain on repurchase of debtClassify as part of other gains and losses on the income statement. (e) Mortgage payableClassify one-third as current liability and the remainder as long-term liability on balance sheet. (f) Debenture bondsClassify as long-term liability on balance sheet. (g) Notes payableClassify as long-term liability on balance sheet. (h) Premium on bonds payableClassify as adjunct account to Bonds Payable on balance sheet. (i) Treasury bondsClassify as contra account to bonds payable on balance sheet. (j) Income bonds payableClassify as long-term liability on balance sheet. EXERCISE 14-3 (15-20 minutes) 1. Paul Simon Company: (a) 1/1/04 Cash................................................... 200,000 Bonds Payable............................. 200,000 (b) 7/1/04 Bond Interest Expense..................... 4,500 ($200,000 X 9% X 3/12) Cash.............................................. 4,500 (c) 12/31/04 Bond Interest Expense..................... 4,500 Interest Payable........................... 4,500 2. Graceland Company: (a) 6/1/04 Cash................................................... 105,000 Bonds Payable............................. 100,000 Bond Interest Expense............... 5,000 ($100,000 X 12% X 5/12) (b) 7/1/04 Bond Interest Expense..................... 6,000 Cash.............................................. 6,000 ($100,000 X 12% X 6/12) (c) 12/31/04 Bond Interest Expense.................. 6,000 Interest Payable....................... 6,000 Note to instructor: Some students may credit Interest Payable on 6/1/04. If they do so, the entry on 7/1/04 will have a debit to Interest Payable for $5,000 and a debit to Bond Interest Expense for $1,000. EXERCISE 14-4 (15-20 minutes) (a) 1/1/05 Cash ($600,000 X 102%)........................... 612,000 Bonds Payable.................................... 600,000 Premium on Bonds Payable............................................. 12,000...
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Solutions Ch 14 - SOLUTIONS TO EXERCISES EXERCISE 14-1...

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