CHAPTER 1 : CURRENT LIABILITIES

PROBLEM 4: FOR CLASSROOM DISCUSSION

ANSWERS:
1
Accounts payable 15,000
Preference shares issued with mandatory redemption 100,000
Utilities payable 16,000
Rent payable 9,000
Total financial liabilities 140,000

2
Accounts payable 500,000
Held for trading financial liabilities 1,000,000
Current portion of Note payable 1,000,000
Current portion of Note payable 300,000
Dividends payable 800,000
Current liabilities 3,600,000

3
Currently maturing long-term debt (A) 10,000,000
5-year loan payable on demand (B) 6,000,000
Loan with breach of provision (B) 14,000,000
Total current liabilities 30,000,000

4
Unadjusted accounts payable 1,200,000
Goods in transit shipped FOB shipping point 70,000
Goods in transit shipped FOB destination -80,000
Adjusted accounts payable 1,190,000

5
Ø  Subscriptions revenue in 20x2: (160,000 + 2,690,000) = 2,850,000
Ø  Unearned subscriptions as of 12/31/x2 = 110,000
6
Date Cash
Gift card liability
to record the sale of gift certificates
Date Gift card liability
Revenue
to record the redemption of gift certificates
Date Gift card liability
Revenue (400k x 10% x 60%*)
to record the revenue from expected breakage
*216,000 / (400,000 x 90%) = 60%

7
Unadjusted balance 5,480,000
Unpaid utilities 50,000
Understatement in withholding taxes 20,000
Adjusted total current liabilities 5,550,000
400,000
400,000

216,000
216,000

24,000
24,000
CHAPTER 2 : NOTES PAYABLE

PROBLEM 5 : CLASSROOM ACTIVITY

ANSWER:

AUTO LOAN AMORTIZATION TABLE

0.0100716 JOURNAL ENTRY
Month Payments Interest Amortization Present Value Transportation equip
3,580,000 Discount on note pa
1 318,000 0 318,000 3,262,000
1 72,703 32853.3978345 39,850 3,222,150
2 72,703 32452.0505527 40,251 3,181,899
3 72,703 32046.6610814 40,656 3,141,243
4 72,703 31637.1887095 41,066 3,100,177
5 72,703 31223.592316 41,479 3,058,698
6 72,703 30805.8303654 41,897 3,016,801
7 72,703 30383.8609043 42,319 2,974,482
8 72,703 29957.6415565 42,745 2,931,736
9 72,703 29527.1295189 43,176 2,888,560
10 72,703 29092.2815576 43,611 2,844,950
11 72,703 28653.0540031 44,050 2,800,900
12 72,703 28209.4027461 44,494 2,756,406
13 72,703 27761.283233 44,942 2,711,464
14 72,703 27308.6504616 45,394 2,666,070
15 72,703 26851.4589763 45,852 2,620,218
16 72,703 26389.662864 46,313 2,573,905
17 72,703 25923.2157487 46,780 2,527,125
18 72,703 25452.0707878 47,251 2,479,874
19 72,703 24976.1806665 47,727 2,432,148
20 72,703 24495.4975939 48,208 2,383,940
21 72,703 24009.9732974 48,693 2,335,247
22 72,703 23519.5590184 49,183 2,286,064
23 72,703 23024.2055072 49,679 2,236,385
24 72,703 22523.8630182 50,179 2,186,206
25 72,703 22018.4813044 50,685 2,135,521
26 72,703 21508.0096132 51,195 2,084,326
27 72,703 20992.3966805 51,711 2,032,616
28 72,703 20471.5907262 52,231 1,980,384
29 72,703 19945.5394483 52,757 1,927,627
30 72,703 19414.1900185 53,289 1,874,338
31 72,703 18877.489076 53,826 1,820,512
32 72,703 18335.3827228 54,368 1,766,145
33 72,703 17787.8165181 54,915 1,711,230
34 72,703 17234.7354727 55,468 1,655,761
35 72,703 16676.0840436 56,027 1,599,734
36 72,703 16111.8061284 56,591 1,543,143
37 72,703 15541.8450597 57,161 1,485,982
38 72,703 14966.1435992 57,737 1,428,245
39 72,703 14384.6439325 58,318 1,369,927
40 72,703 13797.2876624 58,906 1,311,021
41 72,703 13204.015804 59,499 1,251,522
42 72,703 12604.7687781 60,098 1,191,424
43 72,703 11999.4864054 60,704 1,130,720
44 72,703 11388.1079008 61,315 1,069,406
45 72,703 10770.5718667 61,932 1,007,473
46 72,703 10146.8162872 62,556 944,917
47 72,703 9516.77852185 63,186 881,731
48 72,703 8880.39529932 63,823 817,908
49 72,703 8237.60271101 64,465 753,443
50 72,703 7588.33620467 65,115 688,328
51 72,703 6932.5305779 65,770 622,558
52 72,703 6270.11997162 66,433 556,125
53 72,703 5601.03786344 67,102 489,023
54 72,703 4925.217061 67,778 421,245
55 72,703 4242.5896952 68,460 352,785
56 72,703 3553.08721339 69,150 283,635
57 72,703 2856.6403725 69,846 213,788
58 72,703 2153.17923205 70,550 143,238
59 72,703 1442.63314718 71,260 71,978
60 72,703 724.930761514 71,978 0
4,680,180 1100180
JOURNAL ENTRY:
Transportation equipment 3,580,000
Discount on note payable 1,100,180
Note payable 4,362,180
Cash 318,000
CHAPTER 2 : NOTES PAYABLE

PROBLEM 6 : FOR CLASSROOM DISCUSSION

ANSWER:
1
Cash flows 1,600,000
PV of 1 @17%, n=3 0.62437
Present value - 1/1/x1 998,992

Date Interest expense Discount on N/P Present value

1/1/x1 601,008 998,992
12/31/x1 169,829 431,179 1,168,821
12/31/x2 198,700 232,479 1,367,521
12/31/x3 232,479 0 1,600,000

2
Requirment (A):
Cash flows 400,000
PV ord. annuity @17%, n=3 2.209585
Present value - 1/1/x1 883,834

Date Payments Interest expense Amortization

1/1/x1
12/31/x1 400,000 150,000 249,748
12/31/x2 400,000 107,795 292,205
12/31/x3 400,000 58,119 341,881
 Requirment (B):
Current portion:
Notes payable (400,000 due in 20x2)
Discount on notes payable (400K – 292,205 current portion)
Notes payable, net (presented in current liabilities)
Noncurrent portion:
Notes payable (400,000 due in 20x3)
Discount on notes payable (400K – 341,881 noncurrent portion)
Notes payable - net (presented in noncurrent liabilities)
Total notes payable, net - Dec. 31, 20x1

3
Initial measurement:
(1.2M ÷ 3) = 400,000;
400,000 x PV of an annuity due of ₱1 @10%, n=3 = 1,094,215

Requirment (A):
Date Payments Interest expense
1/1/x1
1/1/x1 400,000 -
1/1/x2 400,000 69,422
1/1/x3 400,000 36,363

Requirment (B):
69,422

Requirment (C):
Carrying amt. on 1/1/x2
Add back: Payment on 1/1/x2
Carrying amt. on 12/31/x1

4
Requirment (A):
Loan payable
Transaction costs (3M x 4.8037%)
Carrying amount - 1/1/x1

Requirment (B):
Formula: (Principal: 3,000,000 x PV of 1 @ x%, n=3) + (Interest: 300,000 x PV
@12% (Principal: 3,000,000 x PV of 1 @ 12%, n=3) + (Interest: 300,000 x PV
(3,000,000 x 0.711780) + (300,000 x 2.401831) = 2,855,889
(2,135,340 + 720,549) = 2,855,889
2,855,889 = 2,855,889
Requirment (C):
Date Payments Interest expense
1/1/x1
12/31/x1 300,000 342,707
12/31/x2 300,000 347,832
12/31/x3 300,000 353,572
 1/1/x1 Land 998,992
Discount on notes payable 601,008
Notes payable 1,600,000

12/31/x1 Interest expense 169,829

Discount on notes payable 169,829

12/31/x2 Interest expense 198,700

Discount on notes payable 198,700

12/31/x3 Interest expense 232,479

Discount on notes payable 232,479
Notes payable 1,600,000
Notes payable 1,600,000

1/1/x1 Land 883,834

Discount on notes payable 316,166
Notes payable

12/31/x1 Notes payable 400,000

Interest expense 150,252
Discount on notes payable
Present Value Cash
883,834
634,086 12/31/x2 Notes payable 400,000
341,881 Interest expense 107,795
0 Discount on notes payable
Cash

12/31/x3 Notes payable 400,000

Interest expense 58,119
Discount on notes payable
Notes payable
 400,000
-107,795
292,205

400,000
-58,119
341,881
634,086

Amortization Present Value

1,094,215
400,000 694,215
330,578 363,637
363,637 0

363,637
400,000
763,637

3,000,000
-144,111
2,855,889

1 @ x%, n=3) + (Interest: 300,000 x PV ordinary annuity @12%, n=3) = 2,855,889

1 @ 12%, n=3) + (Interest: 300,000 x PV ordinary annuity @12%, n=3) = 2,855,889
,000 x 2.401831) = 2,855,889
Amortization Present Value
2,855,889
42,707 2,898,596
47,832 2,946,428
53,572 3,000,000
1,200,000

150,252
400,000

107,795
400,000

58,119
400,000