Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 10, Problem 1PA
Determining Financial Effects of Transactions Affecting Current Liabilities with Evaluation of Effects on the Debt-to-Assets Ratio
Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.
| Apr. 30 | Received $600,000 from Commerce Bank after signing a 12-month, 6 percent, promissory note. |
| June 6 | Purchased merchandise on account at a cost of $75,000. (Assume a perpetual inventory system.) |
| July 15 | Paid for the June 6 purchase. |
| Aug. 31 | Signed a contract to provide security service to a small apartment complex starting in September, and collected six months’ fees in advance, amounting to $24,000. |
| Dec. 31 | Determined salary and wages of $40,000 were earned but not yet paid as of December 31 (ignore payroll taxes). |
| Dec. 31 | Adjusted the accounts at year-end, relating to interest. |
| Dec. 31 | Adjusted the accounts at year-end, relating to security service. |
Required:
- 1. For each listed transaction and related
adjusting entry , indicate the accounts, amounts, and effects (+ for increase, − for decrease, and NE for no effect) on theaccounting equation , using the following format:
- 2. For each item, state whether the debt-to-assets ratio is increased or decreased or there is no change. (Assume Jack Hammer’s debt-to-assets ratio is less than 1.0.)
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Vigeland Company completed the following transactions during Year 1. Vigeland’s fiscal year ends on December 31.
January 15
Purchased and paid for merchandise. The invoice amount was $15,200; assume a perpetual inventory system.
April 1
Borrowed $774,000 from Summit Bank for general use; signed a 10-month, 9% annual interest-bearing note for the money.
June 14
Received a $24,000 customer deposit for services to be performed in the future.
July 15
Performed $3,450 of the services paid for on June 14.
December 12
Received electric bill for $26,160. Vigeland plans to pay the bill in early January.
December 31
Determined wages of $15,000 were earned but not yet paid on December 31 (disregard payroll taxes).
Required:
Prepare journal entries for each of these transactions.
Prepare the adjusting entries required on December 31.
Roger Company completed the following transactions during Year 1. Roger’s fiscal year ends on December 31.
Jan.
8
Purchased merchandise for resale on account. The invoice amount was $14,780; assume a perpetual inventory system.
17
Paid January 8 invoice.
Apr.
1
Borrowed $54,000 from National Bank for general use; signed a 12-month, 10% annual interest-bearing note for the money.
June
3
Purchased merchandise for resale on account. The invoice amount was $17,420.
July
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Paid June 3 invoice.
Aug.
1
Rented office space in one of Roger’s buildings to another company and collected six months’ rent in advance amounting to $6,000.
Dec.
20
Received a $180 deposit from a customer as a guarantee to return a trailer borrowed for 30 days.
31
Determined wages of $9,200 were earned but not yet paid on December 31 (disregard payroll taxes).
Show how all of the liabilities arising from these transactions are reported on the balance sheet at December 31.…
Preparing Entries and Interest Schedule for Long-Term Note Receivable; Effective Interest Method
On January 1 of Year 1, Stealth Company sold a machine (classified as inventory) that had a list price of $21,600. The customer paid $3,600 cash and signed a three-year, $18,000 note that specified a stated rate of 3%. Annual interest on the full amount of the principal is payable each
December 31. The principal is payable on December 31, three years later. The market rate for a note of this risk is 10%.
Required
a. Compute the present value of this note.
b. Prepare an effective interest schedule for this note.
c. Prepare entries required by Stealth for this note on January 1 of Year 1, and December 31 of Year 1, Year 2, and Year 3.
• Note: Round answers to the nearest whole dollar.
a. Present value of note: $ 25,301
b.
Date
Jan. 1. Year 1
Dec. 31, Year 1 $
Dec. 31, Year 2
Dec. 31, Year 3
Total
S
Cash
(Stated
Interest)
0x S
0x
05
x
Interest
Revenue
(Market
Interest)
Discount on
N.R.…
Chapter 10 Solutions
Fundamentals Of Financial Accounting
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