Professional Documents
Culture Documents
Liabilities
Short Exercises
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Sept. 30 Inventory…………………………………….. 4,000
Note Payable, Short-Term…………….. 4,000
Purchased inventory by issuing a note
payable
20X1
June 30 Interest Expense ($4,000 × .08 × 9/12)…. 240
Interest Payable………………………… 240
Accrued interest expense.
Balance Sheet
June 30, 20X1
ASSETS LIABILITIES
Current liabilities:
Note payable, short-term… $4,000
Interest payable
($4,000 × .08 × 9/12)….. 240
Income Statement
Year Ended June 30, 20X1
Revenues:
Expenses:
Interest expense ($4,000 × .08 × 9/12)…………….. $ 240
Req. 2
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req. 2
The warranty expense for the year does not necessarily equal
the year’s cash payments for warranties. Cash payments for
warranties do not determine the amount of warranty expense
for that year. Instead, the warranty expense is estimated and
matched against revenue during the period of the sale,
regardless of when the company pays for warranty claims.
(5 min.) S 9-7
a. Discount
c. Discount
d. Premium
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. July 1 Cash…………………………………………… 70,000
Bond Payable…………………………….. 70,000
To issue bond payable at par.
20X1
c. Jan. 1 Interest Payable…………………………….. 2,275
Cash……………………………………….. 2,275
To pay semiannual interest on bond
payable.
20Z5
d. July 1 Bond Payable………………………………... 70,000
Interest Expense…………………………….. 2,275
Cash………………………………………... 72,275
To pay final interest payment and to
redeem bond at maturity.
1. Amortization table
A B C D E
Perio
Interest Interest Discount Discount Bond
d
Payment Expense Amortization Account Carrying
Balance Amount
(c% x
(i% x E) (B - A) (D-C) (Maturity - D)
Maturity)
0 0 13,730 46,271
1 1,500 1,851 351 13,379 46,621
2 1,500 1,865 365 13,014 46,986
3 1,500 1,879 379 12,634 47,366
2.
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Mar. 31 Cash …………… 46,271
Discount on Bonds Payable…… 13,730
Bonds Payable………………… 60,000
3. Interest expense:
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. July 1 Cash ($520,000 × 0.377 + 0.04 x 520,000 455,250
x 12.462)………………………
Discount on Bonds Payable……………... 64,750
Bonds Payable…………………………... 520,000
To issue bonds at a discount.
20X1
c. Jan. 1 Interest Payable…………………………….. 20,800
Cash……………………………………….. 20,800
To pay semiannual interest.
LIABILITIES
Current:
Accounts payable……………………….. $ 35,000
Current portion of bonds payable……. 50,000
Interest payable………………………….. 2,000
Total current liabilities………………. $ 87,000
Non-current:
Notes payable, long-term………………. 320,000
Bonds payable…………………………… $402,000
Less: Discount on bonds payable……. (11,000 391,000
Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req. 2
INCOME STATEMENT
Warranty Expense……………………………… 10,000
BALANCE SHEET
Current liabilities
Provision for Warranty Repairs $12,000
Req. 3
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Oct. 1 Cash…………………………………………. 1,620
Unearned Subscription Revenue……. 1,500
Sales Tax Payable ($1,500 × .08)…….. 120
BALANCE SHEET
Current liabilities:
Unearned subscription revenue ($1,500 − $375). $1,125
BALANCE SHEET
Current liabilities:
Salary payable……………………………………… $ 8,200
Payroll tax payable…………………………………... 700
Interest to
accrue at = $85,000 × .06 × 8/12 = $3,400
Dec. 31,
20X0
Req. 2
Final payment
= $85,000 + ($85,000 × .06) = $90,100
on May 1, 20X1
Req. 3
_____
* Beginning income tax payable………………… $190,000
+ Income tax expense (and payable) for the year
($1,300,000 × .36)……………………………… 468,000
− Income tax payments during the year………… (360,000)
= Ending income tax payable……………………… $298,000
Accrued expenses are expenses that the company has incurred but
not paid. They are liabilities for expenses such as interest and
income taxes.
The other liabilities are a catch-all group of liabilities that do not fit
one of the more specific categories and are not significant enough
to have a category of their own. The other liabilities are long-term,
as shown by the fact that they are not listed among the current
liabilities.
Req. 2
INCOME STATEMENT
Estimated loss (or expense)……………… $1,800,000
BALANCE SHEET
Estimated liability…………………………… $1,800,000
Note 14 -
Same as above.
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Estimated Loss (or Expense)…... 1,800,000
Estimated Liability……………. 1,800,000
A B C D E
Perio
Interest Interest Premium Premium Bond
d
Payment Expense Amortization Account Carrying
Balance Amount
(c% x
(i% x E) (A - B) (D-C) (Maturity + D)
Maturity)
0 0 1,165,050 16,165,050
1 450,000 404,126 45,874 1,119,176 16,119,176
2 450,000 402,979 47,021 1,072,155 16,072,155
3 450,000 401,804 48,196 1,023,959 16,023,959
4 450,000 400,599 49,401 974,558 15,974,558
Req 1, 2, and 3
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Jan. 31 Cash …………… 16,165,050
Premium on Bonds Payable 1,165,050
Bonds Payable…………… 15,000,000
2. Principal……………………………………………………… $600,000
Interest ($600,000 × .07 × 20)…………………….............. 840,000
Total cash paid……………………………………………… $1,440,000
A B C D E
INTEREST
EXPENSE
INTEREST (6% OF DISCOUNT
PAYMENT PRECEDING ACCOUNT BOND
SEMIANNUAL (5% OF BOND DISCOUNT BALANCE CARRYING
INTEREST MATURITY CARRYING AMORTIZATION (PRECEDING AMOUNT
DATE VALUE) AMOUNT) (B – A) D – C) ($2,500,000 – D)
Dec. 31, 20X0 $286,250 $2,213,750
June 30, 20X1 $125,000 $132,825 $ 7,825 278,425 2,221,575
Dec. 31, 20X1 125,000 133,295 8,295 270,130 2,229,870
June 30, 20X2 125,000 133,792 8,792 261,338 2,238,662
Dec. 31, 20X2 125,000 134,320 9,320 252,018 2,247,982
Journal
DATE ACCOUNT TITLES AND DEBIT CREDIT
EXPLANATION
20X0
Dec. 31 Cash……………………………….. 2,213,750
Discount on Bonds Payable…… 286,250
Bonds Payable……………….. 2,500,000
To issue bonds at a discount.
20X1
June 30 Interest Expense....................................... 132,825
Cash...................................................... 125,000
Discount on Bonds Payable............... 7,825
To pay semiannual interest and
amortize discount on bond payable.
20X1
Dec. 31 Interest Expense....................................... 133,295
Cash...................................................... 125,000
Discount on Bonds Payable............... 8,295
To pay semiannual interest and
amortize bonds.
A B C D E
Period Interest Interest Premium Premium Bond
Amortizatio
Payment Expense Account Carrying
n
Balance Amount
(c% x
(i% x E) (A - B) (D-C) (Maturity + D)
Maturity)
0 0 147,921 997,921
1 21,250 19,958 1,292 146,629 996,629
2 21,250 19,933 1,317 145,312 995,312
3 21,250 19,906 1,344 143,968 993,968
4 21,250 19,879 1,371 142,597 992,597
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Jun. 30 Cash …………… 997,921
Premium on Bonds Payable 147,921
Bonds Payable…………… 850,000
A B C D E F
Bond
Interest Interest Discount Discount Carrying
Date Payment Expense Amortization Balance Amount
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req. 2
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req 3
An Operating Lease is treated like rental agreements between the
lessor and lesse, while a Capital Lease is treated like a sale.
Therefore, the treatment for both types of leases is different.
A N S
A N S
Times-
interest- Operating income $291 ¥222 €5,581
= = $42 ¥31 €671
earned Interest expense
ratio
= 6.92 times = 7.16 times = 8.32 times
*N has the best current ratio and middle of the range debt and times
interest earned ratios; whereas both A and S have at least one ratio
where they are the worst of the pack.
PLAN B
PLAN A ISSUE
BORROW $900,000
$900,000 OF COMMON
AT 10% SHARES
Net income before expansion…………………….. $600,000 $600,000
Project income before interest and income tax.. $800,000 $800,000
Less interest expense ($900,000 × .10)…………. 90,000 -0-
Project income before income tax………………. 710,000 800,000
Less income tax expense (25%)…………………. 177,500 200,000
Project net income………………………………….. 532,500 600,000
Total company net income……………………. $1,132,500 $1,200,000
Earnings per share including new project:
Plan A ($1,132,500 / 200,000 shares)………. $5.66
Plan B ($1,200,000 / 425,000 shares)………… $2.82
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req. 2
INCOME STATEMENT
Warranty expense………………………………… 13,000
BALANCE SHEET
Current liabilities
Provision for Warranty Repairs………….… 12,000
Req. 3
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Oct. 1 Cash…………………………………………. 1,526
Unearned Subscription Revenue……. 1,400
Sales Tax Payable (1,400 × .09)…….. 126
BALANCE SHEET
Current liabilities:
Unearned subscription revenue (1,400 − 350)…… 1,050
BALANCE SHEET
Current liabilities:
Salary 7,800
payable…………………………………………
Payroll tax payable…………………………………... 750
Interest to
accrue at = 80,000 × .05 × 10/12 = 3,333
Dec. 31, 20X0
Req. 2
Final payment
= 80,000 + (80,000 × .05) = 84,000
on March 1, 20X1
Req. 3
_____
* Beginning income tax payable………………… 160,000
+ Income tax expense (and payable) for the year
(1,600,000 × .25)……………………………… 400,000
− Income tax payments during the year………… (310,000)
= Ending income tax payable……………………… €250,000
Accrued expenses are expenses that the company has incurred but
not paid. They are liabilities for expenses such as interest and
income taxes.
The other liabilities are a catch-all group of liabilities that do not fit
one of the more specific categories and are not significant enough
to have a category of their own. The other liabilities are long-term,
as shown by the fact that they are not listed among the current
liabilities.
Req. 2
INCOME STATEMENT
Estimated loss (or expense)……………… €2,300,000
BALANCE SHEET
Estimated liability…………………………… €2,300,000
Note 14 -
Same as above.
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Estimated Loss (or Expense)…... 2,300,000
Estimated Liability……………. 2,300,000
A B C D E
Perio
Interest Interest Discount Discount Bond
d
Payment Expense Amortization Account Carrying
Balance Amount
(c% x
(i% x E) (B - A) (D-C) (Maturity - D)
Maturity)
0 0 513,000 11,487,000
1 300,000 344,610 44,610 468,390 11,531,610
2 300,000 345,948 45,948 422,442 11,577,558
3 300,000 347,327 47,327 375,115 11,624,885
4 300,000 348,747 48,747 326,368 11,673,632
Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2. Principal……………………………………………………… 400,000
Interest (400,000 × .09 × 20)…………………….............. 720,000
Total cash paid……………………………………………… €1,120,000
A B C D E
Period Interest Interest Discount Discount Bond
Payment Expense Amortization Account Carrying
Balance Amount
(c% x
(i% x E) (B - A) (D-C) (Maturity - D)
Maturity)
0 0 52,256 787,744
1 37,800 39,387 1,587 50,669 789,331
2 37,800 39,467 1,667 49,002 790,998
3 37,800 39,550 1,750 47,252 792,748
4 37,800 39,637 1,837 45,415 794,585
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Dec. 31 Cash........................................................... 787,744
Discount on Bonds Payable.................... 52,256
Bonds Payable..................................... 840,000
To issue bonds at a discount.
20X1
June 30 Interest Expense....................................... 39,387
Cash...................................................... 37,800
Discount on Bonds Payable............... 1,587
To pay semiannual interest and
amortize discount on bond payable.
20X1
Dec. 31 Interest Expense....................................... 39,467
Cash...................................................... 37,800
Discount on Bonds Payable............... 1,667
To pay semiannual interest and
amortize bonds.
A B C D E
Period Interest Interest Premium Discount Bond
Payment Expense Amortization Account Carrying
Balance Amount
(c% x (i% x E) (A - B) (D-C) (Maturity +
Maturity) D)
0 0 222,360 3,622,360
1 170,000 163,006 6,994 215,366 3,615,366
2 170,000 162,691 7,309 208,057 3,608,057
3 170,000 162,363 7,637 200,420 3,600,420
4 170,000 162,019 7,981 192,439 3,592,439
Journal
DATE ACCOUNT TITLES AND DEBIT CREDIT
EXPLANATION
20X0
June 30 Cash ……….. 3,622,360
Bonds Payable………………… 3,400,000
Premium on Bonds Payable… 222,360
To issue bonds at a premium.
20X1
June 30 Interest Expense……………………. 162,691
Premium on Bonds Payable.……... 7,309
Cash……………………………….. 170,000
To pay semiannual interest and amortize bonds.
A B C D E F
Bond
Interest Interest Discount Discount Carrying
Date Payment Expense Amortization Balance Amount
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req. 2
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Req 3
An Operating Lease is treated like rental agreements between the
lessor and lesse, while a Capital Lease is treated like a sale.
Therefore, the treatment for both types of leases is different.
F L V
F L V
Times-
interest- Operating income $294 ¥229 €5,627
= = $43 ¥29 €687
earned Interest expense
ratio
= 6.84 times = 7.90 times = 8.19 times
*L has the best current ratio and middle of the range debt and times
interest earned ratios; whereas both F and V have at least one ratio
where they are the worst of the three.
PLAN B
PLAN A ISSUE
BORROW €650,000
€650,000 OF COMMON
AT 5% SHARES
Net income before expansion…………………….. €400,000 €400,000
Project income before interest and income tax.. 550,000 550,000
Less interest expense (650,000 × .05)…………. 32,500 -0-
Project income before income tax………………. 517,500 550,000
Less income tax expense (40%)…………………. 207,000 220,000
Project net income………………………………….. 310,500 330,000
Total company net income……………………. 710,500 730,000
Earnings per share including new project:
Plan A (710,500 / 100,000 shares)…………... 7.11
Plan B (730,000 / 200,000 shares)…………... 3.65
$324,700 − X
= 2.5
$193,400 − X
−X = $483,500 − 2.5X −
$324,700
1.5X = $158,800
X = $105,867
Millions
Bonds Payable, 5 3/4%…………………………… 150
Bonds Payable, 11%……………………….. 85
Cash…………………………………………... 10
Gain on Retirement of Bonds Payable….. 55
Req. 3
20X0
Mar. 15 Cash ($800,000 × .945)……………… 756,000
Discount on Bonds Payable……….. 44,000
Bonds Payable……………………. 800,000
Holiday Corporation issued the bonds payable to bondholders
in order to borrow $756,000 ($800,000 × 0.945) from the
bondholders. Holiday Corporation received the cash that the
bondholders paid.
Req. 2
Req. 4
A B C D E
BOND
CARRYING
INTEREST INTEREST DISCOUNT
AMOUNT
PAYMENT EXPENSE BALANCE
DISCOUNT ($700,000
SEMIANNUAL (0.06 × (0.065 ×
AMORTIZATION − D)
INTEREST $700,000) E)
D − C)
DATE
Mar. 15, 20X0 $44,000 $756,000
Sept. 15 $48,000 $49,140 $1,140 42,860 757,140
Mar. 15, 20X1 48,000 49,214 1,214 41,646 758,354
Sept. 15 48,000 49,293 1,293 40,353 759,647
Mar. 15, 20X2 48,000 49,377 1,377 38,976 761,024
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Mar. 3 Inventory.................................................... 72,000
Note Payable, Short-term.................... 72,000
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. May 31 Cash ($8,000,000 × 1/2)…………... 4,000,000
Bonds Payable…………………. 4,000,000
To issue bonds at par.
20X1
d. May 31 Interest Payable…………………… 33,333
Interest Expense
($4,000,000 × .10 × 5/12)………….. 166,667*
Cash ($4,000,000 × .10 × 6/12). 200,000
To pay interest on bonds.
Current liabilities:
Interest payable...................................... $ 33,333
Non-current liabilities:
Bonds payable....................................... $4,000,000
Req. 2
Req. 3
A B C D E
Period Interest Interest Premium Premium Bond
Amortizatio
Payment Expense Account Carrying
n
Balance Amount
(c% x
(i% x E) (A - B) (D-C) (Maturity + D)
Maturity)
0 0 57,184 857,184
1 32,000 30,001 1,999 55,185 855,185
2 32,000 29,931 2,069 53,116 853,116
3 32,000 29,859 2,141 50,975 850,975
4 32,000 29,784 2,216 48,759 848,759
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. Feb. 28 Cash.......................................................857,184
Premium on Bonds Payable 57,184
Bonds Payable................................. 800,000
To issue bonds at a premium.
Current liabilities:
Interest payable………………………… $ 21,333
Non-current liabilities:
Bonds payable…………………………. $800,000
Add: Premium on bonds payable….. 53,806*
853,806
A B C D E
Period Interest Interest Premium Premium Bond
Amortizatio
Payment Expense Account Carrying
n
Balance Amount
(c% x
(i% x E) (A - B) (D-C) (Maturity + D)
Maturity)
0 0 405,300 6,405,300
1 270,000 256,212 13,788 391,512 6,391,512
2 270,000 255,660 14,340 377,172 6,377,172
3 270,000 255,087 14,913 362,259 6,362,259
4 270,000 254,490 15,510 346,749 6,346,749
Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Jan. 1 Cash......................................................6,405,300
Premium on Bond Payable............ 405,300
Bonds Payable……………………. 6,000,000
To issue bonds at a premium.
Req. 3
A B C D E
INTEREST
EXPENSE
INTEREST (8% OF DISCOUNT
PAYMENT PRECEDING ACCOUNT BOND
ANNUAL (7% OF BOND DISCOUNT BALANCE CARRYING
INTEREST MATURITY CARRYING AMORTIZATION (PRECEDING AMOUNT
DATE VALUE) AMOUNT) (B – A) D – C) ($3,500,000–D)
Dec. 31, Yr. 1 $162,365 $3,337,635
Dec. 31, Yr. 2 $245,000 $267,011 $22,011 140,354 3,359,646
Dec. 31, Yr. 3 $245,000 268,772 23,772 116,582 2,283,418
Dec. 31, Yr. 4 $245,000 270,673 25,673 90,909 3,409,091
Dec. 31, Yr. 5 $245,000 272,727 27,727 63,182 3,436,818
Current liabilities:
Current installment of notes payable…….. $ 55,000
Non-current liabilities:
Bonds payable………………………………... $3,500,000
Less: Discount on bonds payable………. ( 90,909) 3,409,091
Notes payable………………………………… 275,000
IAS 17 states that if the terms of the lease meet any of the following
conditions, it will be recognized as a capital lease*:
Based on the lease terms, fair value for the lease is 55,000 x 3.170
= 174,350. Since this is very close to the fair market value of the
asset at $180,000, this will be classified as a finance lease.
*Note that the U.S. GAAP recognizes a different set of criteria from
IAS 17 when it comes to classifying the lease. For instance, under
the U.S. GAAP, if the term of the lease exceeds 75% of the asset’s
useful life, and the present value of the lease payments exceeds
90% of the asset’s fair value, it will be classified as a capital lease.
Req 2
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Non-current liabilities:
Mortgage note payable
Long-term… $ 319,000
Bonds payable. $1,200,000
Discount on bonds
payable……. (27,000)* 1,173,000
Net Pension liability....... 60,000**
Total non-current liabilities $1,552,000
Notes:
* The order of listing current liabilities and non-current liabilities is optional.
However, Discount on Bonds Payable should come immediately after Bonds
Payable. Also, it is customary to report Interest Payable after the related
liability accounts, Mortgage Note Payable and Bonds Payable, Current
Portion.
Req. 3
= 1.80 times
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Mar. 3 Inventory…………………………………… 35,000
Note Payable, Short-term……………. 35,000
20X1
May 31 Note Payable, Short-term……………….. 15,000
Interest Payable…………………………… 3,500
Interest Expense (75,000 × 0.08 × 5/12).. 2,500
Cash [15,000 + (75,000 × .08)]..…... 21,000
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. May 31 Cash..............................................2,000,000
Bonds Payable........................ 2,000,000
To issue bonds at par.
20X1
d. May 31 Interest Payable........................... 13,333
Interest Expense
(2,000,000 × .08 × 5/12)................ 66,667
Cash ………………………….. 80,000
To pay interest on bonds.
Current liabilities:
Interest payable……………………………. € 13,333
Non-current liabilities:
Bonds payable……………………………... €2,000,000
Req. 2
Req. 3
A B C D E
Period Interest Interest Premium Premium Bond
Payment Expense Amortization Account Carrying
Balance Amount
(c% x
(i% x E) (A - B) (D-C) (Maturity + D)
Maturity)
0 0 187,635 1,687,635
1 45,000 42,191 2,809 184,826 1,684,826
2 45,000 42,121 2,879 181,947 1,681,947
3 45,000 42,049 2,951 178,996 1,678,996
4 45,000 41,975 3,025 175,971 1,675,971
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
a. Feb. 28 Cash………………………… 1,687,635
Preimum on Bonds Payable…………… 187,635
Bonds Payable……………………………….. 1,500,000
To issue bonds payable at a premium.
Current liabilities:
Interest payable................................ € 30,000
Non-current liabilities:
Notes payable................................... €1,500,000
Add: Premium on notes payable 182,907*
1,682,907
Req. 1
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
20X0
Jan. 1 Cash........................................................
2,149,390
Premium on Bonds Payable............ 149,390
Bonds Payable.................................. 2,000,000
To issue bonds at a premium.
Req. 3
Current liabilities:
Current portion of notes payable............ € 60,000
Non-current liabilities:
Bonds payable.......................................... €6,000,000
Less: Discount on bonds payable € (178,539) €6,321,461
Notes payable
(360,000 − 60,000).................................. €300,000
IAS 17 states that if the terms of the lease meet any of the following
conditions, it will be recognized as a capital lease:
Based on the lease terms, fair value for the lease is €34,000 x 4.623
= €157,182. Since this is very close to the fair market value of the
asset at €160,000, this will be classified as a finance lease.
*Note that the U.S. GAAP recognizes a different set of criteria from
IAS 17 when it comes to classifying the lease. For instance, under
the U.S. GAAP, if the term of the lease exceeds 75% of the asset’s
useful life, and the present value of the lease payments exceeds
90% of the asset’s fair value, it will be classified as a capital lease.
Req 2
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Non-current liabilities:
Mortgage note payable… 313,000
Bonds payable. 200,000
Discount on bonds
payable……. 23,000* 177,000
Net Pension liability…… 50,000**
Total non-current liabilities 540,000
_____
Notes:
* The order of listing non-current liabilities is optional. However, Discount on
Bonds Payable should come immediately after Bonds Payable. Also, it is
customary to report Interest Payable after the related liability accounts.
Req. 3
= 1.6 times
= 0.82 = 0.94
Operating
Times-interest- Income $1,953 $1,953
= =
earned ratio Interest $ 838 $838 + ($7,300 × .10)
expense
Req. 2
Plan B
($4,475,000 / 1,100,000 shares) $ 4.07
Plan C
($4,100,000 / 1,000,000 shares) $ 4.10
Req. 2 (Recommendation)
Req. 2 and 3
(30-40 min.)
1. Trade payables for Nestlé increased in 2016, to CHF 18,629
million from CHF 17,038 million the year before. This
represented an increase of 9.34%. From note 12, it is clear that
the largest contributor to this increase was Nestlé’s taking up
off more commercial paper.
Group Projects
Student responses will vary.