Chapter 3, Problem 3.6BE

You have been asked to review the December 31, 2024, balance sheet for Champion Cleaning. After completing your review, you list the following three items for discussion with your superior: An investment of $30,000 is included in current assets. Management has indicated it has no intention of liquidating the investment in 2025. A $100,000 note payable is listed as a long-term liability, but you have determined that the note is due in 10 equal annual installments with the first installment due on March 31, 2025. Deferred revenue of $60,000 is included as a current liability even though only two-thirds will be recognized as revenue in 2025, and the other one-third in 2026.

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently.1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?2. Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31, 2026. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2021.3. On January 1, 2021, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $120,000 beginning on…

At the end of 2022, the following information is available for Great Adventures.   Additional interest for five months needs to be accrued on the $32,200, 6% loan obtained on August 1, 2021. Recall that annual interest is paid each July 31. Assume that $12,200 of the $32,200 loan discussed above is due next year. By the end of the year, $20,000 in gift cards have been redeemed. The company had sold gift cards of $27,200 during the year and recorded those as Deferred Revenue. Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The company believes the likelihood of payment occurring is probable, and the estimated amount to be paid is $14,200. For sales of MU watches, Great Adventures offers a warranty against defect for one year. At the end of the year, the company estimates future warranty costs to be $6,200.   No Date General Journal Debit Credit 1 Dec 31 Interest Expense 805       Interest Payable   805…