Intermediate Accounting II, ACCT-2164

Chapter 13 Practice Problem Solutions

Brief Exercise 13–1

Cash ................................................................ 60,000,000
Notes payable.............................................. 60,000,000
Interest expense ($60,000,000 x 12% x 3/12)........ 1,800,000
Interest payable........................................... 1,800,000

Brief Exercise 13–4

Cash (difference)........................................................... 11,190,000
Discount on notes payable ($12,000,000 x 9% x 9/12)..... 810,000
Notes payable (face amount)..................................... 12,000,000

Interest expense ......................................................... 810,000

Discount on notes payable............................................ 810,000

Notes payable (face amount)......................................... 12,000,000

Cash....................................................................... 12,000,000
Exercise 13–8

Requirement 1
Cash....................................................................... 7,500
Liability—customer advance ............................. 7,500

Requirement 2
Cash....................................................................... 25,500
Liability—refundable deposits .......................... 25,500

Requirement 3
Accounts receivable............................................... 856,000
Sales revenue ..................................................... 800,000
Sales taxes payable ([5% + 2%] x $800,000).......... 56,000

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Solutions Manual, Vol.2, Chapter 13 13–1
Exercise 13–13
1. Current liability: $10 million
The requirement to classify currently maturing debt as a current liability includes
debt that is callable by the creditor in the upcoming year—even if the debt is not
expected to be called.
2. Noncurrent liability: $14 million
The current liability classification includes (a) situations in which the creditor
has the right to demand payment because an existing violation of a provision of
the debt agreement makes it callable and (b) situations in which debt is not yet
callable, but will be callable within the year if an existing violation is not
corrected within a specified grace period—unless it's probable the violation will
be corrected within the grace period. In this case, the existing violation is
expected to be corrected within six months.
3. Current liability: $7 million
The debt should be reported as a current liability because it is payable in the
upcoming year, will not be refinanced with long-term obligations, and will not
be paid with a bond sinking fund.

Exercise 13–18

Requirement 1
This is a loss contingency. Some loss contingencies don’t involve liabilities at all.
Some contingencies when resolved cause a noncash asset to be impaired, so accruing it
means reducing the related asset rather than recording a liability. The most common
loss contingency of this type is an uncollectible receivable, as described in this
situation.
Requirement 2
Bad debt expense: 3% x $2,400,000 = $72,000

Requirement 3
Bad debt expense (3% x $2,400,000)................................. 72,000
Allowance for uncollectible accounts .................... 72,000

Requirement 4
Allowance for uncollectible accounts:

© The McGraw­Hill Companies, Inc., 2013
13–2 Intermediate Accounting, 7e
 Beginning of 2013 $75,000
Write off of bad debts* 73,000
Credit balance before accrual 2,000
Year-end accrual (Req. 3) 72,000
End of 2013 $74,000

* Allowance for uncollectible accounts.......................... 73,000

Accounts receivable .......................................... 73,000

Net realizable value:

Accounts receivable $490,000
Less: Allowance for uncollectible accounts (74,000)
Net realizable value $416,000

© The McGraw­Hill Companies, Inc., 2013
Solutions Manual, Vol.2, Chapter 13 13–3