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Chapter 13: Question 6Q (page 691)
How is present value related to the concept of a liability?
Interest included in payables and receivables, makes us consider future value at their current value. The present value of liability shows the debt, excluding the interest factor.
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(Refinancing of Short-Term Debt) On December 31, 2017, Hattie McDaniel Company had \(1,200,000 of short-term debt in the form of notes payable due February 2, 2018. On January 21, 2018, the company issued 25,000 shares of its common stock for \)38 per share, receiving \(950,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2018, the proceeds from the stock sale, supplemented by an additional \)250,000 cash, are used to liquidate the \(1,200,000 debt. The December 31, 2017, balance sheet is issued on February 23, 2018.
Instructions
Show how the \)1,200,000 of short-term debt should be presented on the December 31, 2017, balance sheet, including note disclosure
Journal Entries for Fair Value and Equity Methods) The following are two independent situations.
Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of \(13 per
share on March 18, 2017. On June 30, Martinez declared and paid \)75,000 cash dividends to all stockholders. On December 31,
Martinez reported net income of \(122,000 for the year. At December 31, the market price of Martinez Fashion was \)15 per share.
Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles鈥檚 30,000 outstanding shares
of common stock at a total cost of \(9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of \)36,000
to all stockholders. On December 31, Seles reported a net income of $85,000 for the year.
Instructions
Prepare all necessary journal entries in 2017 for both situations.
(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out
40% of net income in dividends each year.
Instructions
Use the information in the following T-account for the investment in Sub to answer the following questions.
Investment in Sub Co.
1,000,000
110,000
44,000
(a) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 net income for the year?
(b) What was Sub Co.鈥檚 total net income for the year?
(c) What were Sub Co.鈥檚 total dividends for the year?
(d) How much was Parent Co.鈥檚 share of Sub Co.鈥檚 dividends for the year?
Explain the accounting for an assurance-type warranty.
The payroll of Yellowcard Company for September 2016 is as follows. Total payroll was \(480,000, of which \)110,000 is exempt from Social Security tax because it represented amounts paid in excess of \(118,500 to certain employees. The amount paid to employees in excess of \)7,000 was \(400,000. Income taxes in the amount of \)80,000 were withheld, as was \(9,000 in union dues. The state unemployment tax is 3.5%, but Yellowcard Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee鈥檚 wages to \)118,500 and 1.45% in excess of \(118,500. No employee for Yellowcard makes more than \)125,000. The federal unemployment tax rate is 0.8% after state credit.
Instructions
Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.
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