Bonita Company owes $167,000 plus $14,900 of accrued interest to Windsor State Bank. The debt is a 10-year, 10% note. During2020, Bonita's business deteriorated due to a faltering regional economy. On December 31, 2020, Windsor State Bank agrees toaccept an old machine and cancel the entire debt. The machine has a cost of $322,000, accumulated depreciation of $177,100, and afair value of $149,000.(a)Prepare journal entries for Bonita Company and Windsor State Bank to record this debt settlement. (If no entry is required,select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indentedwhen amount is entered. Do not indent manually.)DateDecember31, 2020Account Titles and ExplanationBonita Company (Debtor):Notes PayableInterest PayableDebit167,00014,900Credit

Journal Entry is the primary step in recording the transactions in the books of accounts.The…

Answered: Bonita Company owes $167,000 plus…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On January 1, 2022, Lorry Manufacturing Company purchased equipment from Wales Inc. There was no established market price for the equipment which has an 8 year life and no salvage value. Lorry gave Wales a P105,000 zero-interest-bearing note payable in 3 equal annual installments of P35,000, with the first payment due December 31, 2022. The prevailing rate of interest for a note of this type is 8%. The present value of the note at 8% was P90,199. Assuming that Lorry uses the straight-line method of depreciation, what amounts will be reported in the company’s 2022 income statement for depreciation expense of the equipment? P8,750 P11,275 P13,125 P30,066
Holly Springs, Incorporated contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2024. Holly Springs paid for the lathe by issuing a $330,000 note due in three years. Interest, specified at 2%, was payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions for which 6% was a reasonable rate of interest. Holly Springs uses the effective interest method of amortization. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry on January 1, 2024, for Holly Springs' purchase of the lathe. 2. Prepare an amortization schedule for the three-year term of the note. 3. Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity. Complete this question by…
Sandhill Corp. sells idle machinery to Hollis Company on July 1, 2020, for $33,000. Sandhill agrees to repurchase this equipment from Hollis on June 30, 2021, for a price of $34,320 (an imputed interest rate of 4%). Date Account Particulars Debit ($) Credit ($) July 1,2020 Cash 33,000 Liability to Hollis Company (To record repurchase obligation) 33,000 Dec 31,2020 Interest Expense (33,000*4%*6/12) 660 Liability to Hollis Company (To record interest expense) 660
On January 1, 2023, ABC Company sold a office equipment with a cost of P5,400,000 and accumulated depreciation of P2,980,000. In consideration for the sale, ABC Company received cash of P220,000 and a noninterest-bearing note receivable of P3,500,000 due on December 31, 2026. The prevailing rate of interest for this type of note is 12%. On January 1, 2023, ABC Company sold an old machinery with a cost of P3,000,000 and accumulated depreciation of P2,000,000. In consideration for the sale, ABC Company received cash of P250,000 and a noninterest-bearing note receivable of P1,850,000 due in 5 equal annual installments starting December 31, 2023. The prevailing rate of interest of this type of note is 10%. 1. The total gain or loss on sale of office equipment and old machinery is A. Nil B. 600,000 C. 652,591 D. 676,904 2. The interest income to be recognized in 2023 is A. Nil B. 266,918 C. 407,177 D. 605,000 3. The carrying amount of the note as of December 31, 2023 is A. 3,256,904 B.…
On January 2, 2022, BRACE company purchased a new machine on a deferred payment basis. A down payment of P 100,000 was made and a non interest bearing note was issued for 4 monthly instalments of P 250,000 each. The cash equivalent price of the machine was P 950,000. The entity incurred and paid installation costs amounting to P 30,000. Prepare the journal entry on January 2, 2022:
The government lent $200,000 to Sweet Industries, who signed a 5-year, zero-interest note dated January 1, 2021 to help finance the construction of a building. The market rate of interest is 4% and the effective interest method of amortization is used. The loan will be forgiven if Sweet provides employment for a specified number of individuals for a specified period of time. If these conditions are not met, the amount is due to the government in full in five years. Sweet believes it will be able to meet the conditions.
On January 1, 2020 Machu, Inc. acquired mining rights near Cordillera for P20,000,000 for 10 years, there was no cash payment, instead Mach issued a 2-year non-interest bearing note. Since the Company's inception in 1956, the Company continued to restore the lands affected by its mining activities. Management Expects restoration costs to be P2,000,000. Discount rates for similar instruments are as follows: 8% for 2 years and 12% for 10 years. On December 21, 2020, Machu was being sued by one of another corporation over a patent infringement. The Company's legal counsel finds it probable that Machu will be liable for P2,000,000 damages. Machu has a P5,000,000 comprehensive insurance which covers these type of situations. The insurance has a P300,000 deductible clause How much is the total provisions taken to the statement of comprehensive income as of December 31, 2020 (round off your answers to the nearest whole number)?
On January 1, 2023, Hornets Company sold land that originally cost P400,000 to the Egi Company. As payment, Egi gave Hornets a P600,000 note. The note bears an interest rate of 8% and is to be repaid in three annual installments of P200,000 plus interest on the outstanding balance. The first payment is due on December 31, 2023. The market price of the land is not reliably determinable. The prevailing interest rate for notes of this type is 8%. Question:30. Assume the same facts given in the problem, but change the prevailing interest rate for notes of this type to 12% (instead of 8%). At how much should the note be recorded on January 1, 2023? A. P600,000B. P560,138C. P480,360D. P427,080
Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2019. In payment for the machine Wilkins issued a threeyear installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 10%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2021. The error had caused Wilkins to understate interest expense by $45,000 in 2019 and $40,000 in 2020.Required:1. Determine which accounts are incorrect as a result of these errors at January 1, 2021, before any adjustments.Explain your answer. (Ignore income taxes.)2. Prepare a journal entry to correct the error.3. What other step(s) would be taken in connection with the error?
lota Corporation has suffered losses for several years, and its debts total $495,000; lota's assets are valued at only $410,000. lota's creditors agree to reduce lota's debts by one-half in order to permit the corporation to continue to operate. lota's NOL carryover is $165,000. Requirements a. What impact does the reduction in debt have on lota's NOL? b. Is lota required to report any income? Requirement a. What impact does the reduction in debt have on lota's NOL? The total debt reduction is The debt reduction due to insolvency is The NOL carryover The NOL carryover after the debt reduction will be Requirement b. Is lota required to report any income? Old will report income of This is because
On April 1, 2024, Macomb Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Macomb's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Macomb agrees to lend $470,000 to its supplier using a 12-month, 11% note. Required: Record the following transactions for Macomb Corporation: 1. The loan of $470,000 and acceptance of the note receivable on April 1, 2024. 2. The adjusting entry for accrued interest on December 31, 2024. 3. Cash collection of the note and interest on April 1, 2025.
Holly Springs, Incorporated contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2024. Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest, specified at 2%, was payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions for which 6% was a reasonable rate of interest. Holly Springs uses the effective interest method of amortization. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required:1.Prepare the journal entry on January 1, 2024, for Holly Springs’ purchase of the lathe. 2.Prepare an amortization schedule for the three-year term of the note. 3.Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity.

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