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Chapter 13: 4ISTQ (page 658)
Select the investment accounting approach with the correct valuation approach: Not Held-for-Collection Held-for-Collection (a) Amortized cost Amortized cost (b) Fair value Fair value (c) Fair value Amortized cost (d) Amortized cost Fair value
Correct option is Option (c).
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(Compensated Absences)
Matt Broderick Company began operations on January 2, 2016. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.
| Actual hourly wage rate | Vacation days used by each employee | Sick days used by each employee | ||||
2016 | 2017 | 2016 | 2017 | 2016 | 2017 | |
\(10 | \)11 | 0 | 9 | 4 | 5 | |
Matt Broderick Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Instructions
(a) Prepare journal entries to record transactions related to compensated absences during 2016 and 2017.
(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017.
E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.
Instructions
Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.
(Impairment of Debt Securities) Hagar Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds have a par value of \(800,000, an amortized cost of \)800,000, and a fair value of \(720,000. The
The company believes that impairment accounting is now appropriate for these bonds.
Instructions
(a) Prepare the journal entry to recognize the impairment.
(b) What is the new cost basis of the municipal bonds? Given that the maturity value of the bonds is \)800,000, should Hagar
Do corporations amortize the difference between the carrying amount and the maturity value over the life of the bonds?
(c) On December 31, 2018, the fair value of the municipal bonds is $760,000. Prepare the entry (if any) to record this information
(Financial Statement Impact of Liability Transactions) Presented below is a list of possible transactions.
1. Purchased inventory for \(80,000 on account (assume perpetual system is used).
2. Issued an \)80,000 note payable in payment on account (see item 1 above).
3. Recorded accrued interest on the note from item 2 above.
4. Borrowed \(100,000 from the bank by signing a 6-month, \)112,000, zero-interest-bearing note.
5. Recognized 4 months鈥� interest expense on the note from item 4 above.
6. Recorded cash sales of \(75,260, which includes 6% sales tax.
7. Recorded wage expense of \)35,000. The cash paid was $25,000; the difference was due to various amounts withheld.
8. Recorded employer鈥檚 payroll taxes.
9. Accrued accumulated vacation pay.
10. Recorded an asset retirement obligation.
11. Recorded bonuses due to employees.
12. Recorded a contingent loss on a lawsuit that the company will probably lose.
13. Accrued warranty expense.
14. Paid warranty costs that were accrued in item 13 above.
15. Recorded sales of product and related service-type warranties.
16. Paid warranty costs under contracts from item 15 above.
17. Recognized warranty revenue (see item 15 above).
18. Recorded estimated liability for premium claims outstanding. InstructionsSet up a table using the format shown below and analyze the effect of the 18 transactions on the financial statement categories indicated.
| # | Assets | Liabilities | Owners鈥� Equity | Net income |
| 1 |
Use the following code:I: Increase D: Decrease NE: No net effect
Alvarado Company sells a machine for \(7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the total warranty cost is \)390 per machine (\(170 parts and \)220 labor).
Instructions
Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?
(a) Sale of machinery and warranty expense incurred in 2017.
(b) Warranty accrual on December 31, 2017.
(c) Warranty costs incurred in 2018.
(d) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2017?
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