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Chapter 13: Q1E (page 693)

Question: E13-1 (L01) (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term debts to be paid (e) Employee payroll deductions unremitted. from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred stock. performance of a contract. (p) Loans from officers. (h) Sales taxes payable. (i) Gift certificates sold to customers but not yet redeemed.

Short Answer

Expert verified

Answer:

Classification of the itmes are shown in the step 1 to step 16. The liabilities are settled by transferring the economic benefits such as money, goods, and services. Examples of liabilities are bank debt and mortgage debt.

Step by step solution

01

(a) Accrued vacation pay – Current liability

Current liability 鈥� The accrued vacation pay is recorded in the balance sheet as a current liability.

02

(b) Estimated taxes payable – Current liability

Current liability 鈥� The estimated taxes payable is recorded in the balance sheet as a current liability.

03

(c) Service warranties on appliance sales – Current liability or long-term liability based on the term of the warranty  

Current liability or long-term liability 鈥� The service warranties on appliance sales is recorded in the balance sheet as a current liability or long-term liability based on the term of the warranty.

04

(d) Bank overdraft– Current liability

Current liability 鈥� The bank overdraft is recorded in the balance sheet as a current liability.

05

(e) Employee payroll deductions unremitted – Current liability

Current liability 鈥� The Employee payroll deductions unremitted are recorded in the balance sheet as a current liability.

06

(f) Unpaid bonus to officers – Current liability

Current liability 鈥� The Unpaid bonus to officers is recorded in the balance sheet as a current liability.

07

(g) Deposit received from customers to guarantee the performance of a contract – Current liability or long-term liability based on the time involved

Current liability or long-term liability 鈥� The Deposit received from customers to guarantee the performance of a contract is recorded in the balance sheet as a current liability

08

(h) sales tax payable – Current liability

Current liability 鈥� The sales tax payable is recorded in the balance sheet as a current liability.

09

(i) Gift certificates sold to customers but not yet redeemed – Current liability

Current liability 鈥� The Gift certificates sold to customers but not yet redeemed is recorded in the balance sheet as a current liability

10

(j) Premium offers outstanding – Current liability

Current liability 鈥� The premium offers outstanding are recorded in the balance sheet as a current liability.

11

(k) Discount on notes payable – Current liability

Current liability 鈥� The discount on notes payable is recorded in the balance sheet as a current liability.

12

(l)  Personal injury claim pending – Footnote disclosure

Footnote disclosure 鈥� The personal injury claim pending is recorded in the balance sheet as a footnote disclosure

13

(m) Current maturities of long-term debts to be paid from current assets  – Current liability

Current liability 鈥� The Current maturities of long-term debts to be paid from current assets is recorded in the balance sheet as a current liability.

14

(n) Cash dividends declared but unpaid – Current liability

Current liability 鈥� The cash dividends declared but unpaid is recorded in the balance sheet as a current liability

15

(o) Dividends in arrears on preferred stock – Footnote disclosure

Footnote disclosure 鈥� The dividends in arrears on preferred stock is recorded in the balance sheet as a footnote disclosure.

16

(p)  Loans from officers – Current liability or long-term liability based on the tenure or maturity

Current liability or long-term liability 鈥� The loans from officers is recorded in the balance sheet as a current liability.

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Most popular questions from this chapter

P17-2 (L01) (Available-for-Sale Debt Securities) On January 1, 2017, Novotna Company purchased \(400,000, 8% bonds of

Aguirre Co. for \)369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and

January 1. The bonds mature on January 1, 2022. Novotna Company uses the effective-interest method to amortize discount

or premiums. On January 1, 2019, Novotna Company sold the bonds for \(370,726 after receiving interest to meet its liquidity

needs.

Instructions

(a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available for-

sale.

(b) Prepare the amortization schedule for the bonds.

(c) Prepare the journal entries to record the semiannual interest on July 1, 2017, and December 31, 2017.

(d) If the fair value of Aguirre bonds is \)372,726 on December 31, 2018, prepare the necessary adjusting entry. (Assume the

On December 31, 2017, the fair value adjustment balance was a debit of $3,375.)

(e) Prepare the journal entry to record the sale of the bonds on January 1, 2019.

BE13-7 (L01) Kasten Inc. provides paid vacations to its employees. At December 31, 2017, 30 employees have each earned 2 weeks of vacation time. The employees鈥� average salary is $500 per week. Prepare Kasten鈥檚 December 31, 2017, adjusting entry.

Instar Company has several investments in the securities of other companies. The following information regarding these investmentsis available at December 31, 2017.

1. Instar holds bonds issued by Dorsel Corp. The bonds have an amortized cost of \(320,000 and their fair value at December31, 2017, is \)400,000. Instar intends to hold the bonds until they mature on December 31, 2025.

2. Instar has invested idle cash in the equity securities of several publicly traded companies. Instar intends to sell these securitiesduring the first quarter of 2018, when it will need the cash to acquire seasonal inventory. These equity securities havea cost basis of \(800,000 and a fair value of \)920,000 at December 31, 2017.

3. Instar has a significant ownership stake in one of the companies that supplies Instar with various components Instar usesin its products. Instar owns 6% of the common stock of the supplier, does not have any representation on the supplier鈥檚board of directors, does not exchange any personnel with the supplier, and does not consult with the supplier on any of

the supplier鈥檚 operating, financial, or strategic decisions. The cost basis of the investment in the supplier is \(1,200,000 andthe fair value of the investment at December 31, 2017, is \)1,550,000. Instar does not intend to sell the investment in theforeseeable future. The supplier reported net income of \(80,000 for 2017 and paid no dividends.

4. Instar owns some common stock of Forter Corp. The cost basis of the investment in Forter is \)200,000 and the fair value atDecember 31, 2017, is \(50,000. Instar believes the decline in the value of its investment in Forter is permanent and thereforeimpaired, but Instar does not intend to sell its investment in Forter in the foreseeable future.

5. Instar purchased 25% of the stock of Slobbaer Co. for \)900,000. Instar has significant influence over the operating activitiesof Slobbaer Co. During 2017, Slobbaer Co. reported net income of \(300,000 and paid a dividend of \)100,000.

Accounting

(a) Determine how each of the investments described above should be classified and accounted far.

(b) Prepare any December 31, 2017, journal entries needed for Instar relating to Instar鈥檚 various investments in other companies.

Assume 2017 is Instar鈥檚 first year of operations.

Analysis

What is the effect on Instar鈥檚 2017 net income (as reported on Instar鈥檚 income statement) of Instar鈥檚 investments in other companies?

Presented below are two different situations related to Mckee Corporation鈥檚 debt obligation. Mckee鈥檚 next financial reporting date is December 31, 2017. The financial statements are authorized for issuance on March 1, 2018.

  1. Mckee has a long-term obligation of \(400,000, which is maturing over 4 years in the amount of \)100,000 per year. The obligation is dated November 1, 2017, and the first maturity date is November 1, 2018.
  2. Mckee has a short-term obligation due February 15, 2018. Its lender agrees to extend the credit to the maturity date of this loan to February 15, 2018. The agreement for extension is signed on January 15, 2018.

Instructions

Indicate how each of these debt obligations is reported on McKee鈥檚 statement of financial position on December 31, 2017.


Question: 13-17 (L04) (Ratio Computations and Discussion) Sprague Company has been operating for several years, and on December 31, 2017, presented the following balance sheet.

SPRAGUE COMPANY
BALANCE SHEET
DECEMBER 31, 2017

Cash

\(40,000

Accounts payable

\)80,0000

Receivables

\(75,0000

Mortgage payable

\)140,000

Inventory

\(95,000

Common stock (\)1 par)

\(150,000

Plant assets (net)

\)220,000

Retained earnings

\(60,000

\)430,000

\(430,000

The net income for 2017 was \)25,000. Assume that total assets are the same in 2016 and 2017.

Instructions

Compute each of the following ratios. For each of the four, indicate how it is computed and its significance as a tool in the analysis of the financial soundness of the company.

(a) Current ratio. (C) Debt to assets ratio.

(b) Acid-test ratio. (d) Return on assets.
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