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On December 31, 2014, Hattie McDaniel Company had $1,200,000 of short-term debt in the form of notes payable due February 2, 2015. On January 21, 2015, the company issued 25,000 shares of its common stock for $38 per share, receiving $950,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2015, the proceeds from the stock sale, supplemented by an additional $250,000 cash, are used to liquidate the $1,200,000 debt. The December 31, 2014, balance sheet is issued on February 23, 2015.
\r\nInstructions
\r\nShow how the $1,200,000 of short-term debt should be presented on the December 31, 2014, balance sheet, including note disclosure.
The following are selected 2014 transactions of Sean Astin Corporation.
\r\nSept. 1 Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory system.
\r\nOct. 1 Issued a $50,000, 12-month, 8% note to Encino in payment of account.
\r\nOct. 1 Borrowed $50,000 from the Shore Bank by signing a 12-month, zero-interest-bearing $54,000 note.
\r\nInstructions
\r\n(a) Prepare journal entries for the selected transactions above.
\r\n(b) Prepare adjusting entries at December 31.
\r\n(c) Compute the total net liability to be reported on the December 31 balance sheet for:
\r\n(1) The interest-bearing note.
\r\n(2) The zero-interest-bearing note.
How would each of the following items be reported on the balance sheet?
\r\n(a) Accrued vacation pay. (j) Premium offers outstanding.
\r\n(b) Estimated taxes payable. (k) Discount on notes payable.
\r\n(c) Service warranties on appliance sales. (l) Personal injury claim pending.
\r\n(d) Bank overdraft. (m) Current maturities of long-term
\r\n(e) Employee payroll deductions unremitted. debts to be paid from current assets.
\r\n(f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid.
\r\n(g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred performance of a contract. stock.
\r\n(h) Sales taxes payable. (p) Loans from officers.
\r\n(i) Gift certificates sold to customers but not yet redeemed.
Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50¢. The block sets cost Wynn $1.10 each to purchase and 60¢ each to mail to customers.
\r\nDuring 2014, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2014, 120,000 UPC codes were redeemed. Prepare Wynn’s December 31, 2014, adjusting entry.
Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2014, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent $180,000 servicing warranties during 2014, and it estimates that an additional $900,000 will be spent in the future to service the warranties. Prepare Leppard’s journal entries for (a) the sale of contracts, (b) the cost of servicing the warranties, and (c) the recognition of warranty revenue. Assume the service costs are inventory costs.
Streep Factory provides a 2-year warranty with one of its products which was first sold in 2014. In that year, Streep spent $70,000 servicing warranty claims. At year-end, Streep estimates that an additional $400,000 will be spent in the future to service warranty claims related to 2014 sales. Prepare Streep’s journal entry to record the $70,000 expenditure and the December 31 adjusting entry, assuming the expenditures are inventory costs.
Calaf’s Drillers erects and places into service an off-shore oil platform on January 1, 2015, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of its useful life in
\r\n10 years. Calaf estimates it will cost $1,000,000 to dismantle and remove the platform at the end of its useful life in 10 years. (The fair value at January 1, 2015, of the dismantle and removal costs is $450,000.) Prepare the entry to record the asset retirement obligation.
Buchanan Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Buchanan will lose the case and that a reasonable estimate of damages to be paid by Buchanan is $300,000. In light of this case, Buchanan is considering establishing a $100,000 selfinsurance allowance. What entry(ies), if any, should Buchanan record to recognize this loss contingency?
Scorcese Inc. is involved in a lawsuit at December 31, 2014. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.
Mayaguez Corporation provides its officers with bonuses based on net income. For 2014, the bonuses total $350,000 and are paid on February 15, 2015. Prepare Mayaguez’s December 31, 2014, adjusting entry and the February 15, 2015, entry.
\r\n
Kasten Inc. provides paid vacations to its employees. At December 31, 2014, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare Kasten’s December 31, 2014, adjusting entry.
Lexington Corporation’s weekly payroll of $24,000 included FICA taxes withheld of $1,836, federal taxes withheld of $2,990, state taxes withheld of $920, and insurance premiums withheld of $250. Prepare the journal entry to record Lexington’s payroll.
Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled $20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.
Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2014, for $18 each. Prepare
\r\nSport Pro’s August 1, 2014, journal entry and the December 31, 2014, annual adjusting entry, assuming the magazines are published and delivered monthly.
At December 31, 2014, Burr Corporation owes $500,000 on a note payable due February 15, 2015.
\r\n(a) If Burr refinances the obligation by issuing a long-term note on February 14 and using the proceeds to pay off the note due February 15, how much of the $500,000 should be reported as a current liability at
\r\nDecember 31, 2014? (b) If Burr pays off the note on February 15, 2015, and then borrows $1,000,000 on a long-term basis on March 1, how much of the $500,000 should be reported as a current liability at December 31, 2014, the end of the fiscal year?
Takemoto Corporation borrowed $60,000 on November 1, 2014, by signing a $61,350, 3-month, zero-interest-bearing note. Prepare Takemoto’s November 1, 2014, entry; the December 31, 2014, annual adjusting entry; and the February 1, 2015, entry.
Upland Company borrowed $40,000 on November 1, 2014, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2014, entry; the December 31, 2014, annual adjusting entry; and the February 1, 2015, entry
Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased $60,000 of inventory, terms 2/10, n/30, FOB shipping point.
\r\nRoley paid freight costs of $1,200. On July 3, Roley returned damaged goods and received credit of $6,000. On July 10, Roley paid for the goods. Prepare all necessary journal entries for Roley.
When should liabilities for each of the following items be recorded on the books of an ordinary business corporation?
\r\n(a) Acquisition of goods by purchase on credit.
\r\n(b) Officers’ salaries.
\r\n(c) Special bonus to employees.
\r\n(d) Dividends.
\r\n(e) Purchase commitments.
How does the acid-test ratio differ from the current ratio? How are they similar?
Within the current liabilities section, how do you believe the accounts should be listed? Defend your position.
What factors must be considered in determining whether or not to record a liability for pending litigation?For threatened litigation?
Should a liability be recorded for risk of loss due to lack of insurance coverage? Discuss.
When must a company recognize an asset retirement obligation?
Pacific Airlines Co. awards members of its Frequent Fliers Club one free round-trip ticket, anywhere on its flight system, for every 50,000 miles flown on its planes. How would you account for the free ticket award?
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