b To record estimated liability Entry Period 1 Period 2 a

B to record estimated liability entry period 1 period

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——————————————————————————————————————————— (b) To record estimated liability ——————————————————————————————————————————— Solution 13-151 Entry Period 1 Period 2 (a) Premium Liability 4,200 Premium Expense [(420,000 ÷ 100) × ($8.00 – $5)] 12,600 18,300 Cash (420,000 ÷ 100) × $5 21,000 37,500 Inventory of Premiums 33,600 60,000 ——————————————————————————————————————————— (b) Premium Expense 4,200* 1,860 Premium Liability 4,200 1,860 *[(700,000 × .80) – 420,000] ÷ 100 × $3.00 Ex. 13-152—Premiums. Edwards Co. includes one coupon in each bag of dog food it sells. In return for 4 coupons, customers receive a dog toy that the company purchases for $1.50 each. Edwards's experience indicates that 60 percent of the coupons will be redeemed. During 2012, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2013, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed. Instructions Determine the premium expense to be reported in the income statement and the premium liability on the balance sheet for 2012 and 2013. Solution 13-152 2012 2013 Premium expense $22,500 (1) $27,000 (3) Premium liability 7,500 (2) 12,000 (4) (1) 100,000 × .6 = 60,000; 60,000 ÷ 4 = 15,000; 15,000 × $1.50 = $22,500. (2) 40,000 ÷ 4 = 10,000; 15,000 – 10,000 = 5,000; 5,000 × $1.50 = $7,500. (3) 120,000 × .6 = 72,000; 72,000 ÷ 4 = 18,000; 18,000 × $1.50 = $27,000. (4) 60,000 ÷ 4 = 15,000; 5,000 + 18,000 – 15,000 = 8,000; 8,000 × $1.50 = $12,000.
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Current Liabilities and Contingencies 13 - 41PROBLEMS Pr. 13-153—Accounts and Notes Payable. Described below are certain transactions of Larson Company for 2012: 1. On May 10, the company purchased goods from Fry Company for $75,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on May 18. 2. On June 1, the company purchased equipment for $90,000 from Raney Company, paying $30,000 in cash and giving a one-year, 9% note for the balance. 3. On September 30, the company discounted at 10% its $200,000, one-year zero-interest-bearing note at First State Bank. Instructions (a) Prepare the journal entries necessary to record the transactions above using appropriate dates. (b) Prepare the adjusting entries necessary at December 31, 2012 in order to properly report interest expense related to the above transactions. Assume straight-line amortization of discounts. (c) Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Larson Company's December 31, 2012 balance sheet. Solution 13-153 (a) May 10, 2012Purchases/Inventory..................................................................73,500 Accounts Payable...........................................................73,500 May 18, 2012Accounts Payable......................................................................73,500 Cash...............................................................................73,500 June 1, 2012Equipment..................................................................................90,000 Cash...............................................................................30,000 Notes Payable................................................................60,000 September 30, 2012Cash...........................................................................................180,000 Discount on Notes Payable........................................................20,000 Notes Payable................................................................200,000 (b) Interest Expense........................................................................3,150 Interest Payable ($60,000 × .09 × 7/12).........................3,150 Interest Expense........................................................................5,000 Discount on Notes Payable ($20,000 × 3/12)................5,000
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Test Bank for Intermediate Accounting, Fourteenth Edition 13 - 42 (c) Current LiabilitiesInterest payable $ 3,150 Note payable—Raney Company 60,000 Note payable—First State Bank $200,000 Less: Discount on note 15,000185,000$248,150Pr. 13-154—Refinancing of short-term debt.
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