Brief Exercises

Identify whether obligations are current liabilities.

BE10.1 (LO 1), C Busch Company has these obligations at December 31: (a) a note payable for
$100,000 due in 2 years with an annual interest rate of 6%, (b) interest payable of $6,000 on a
long-term note payable due next year, and (c) accounts payable of $60,000. For each obligation,
indicate whether it should be classified as a current liability, long-term liability, or both.

Non current liablllity (since due date is more

a. note payable due in 2 years
than one year)

b.10-year mortgage of $20,000 to be paid this year is a current

$200,000 payable in 10 laibility , remaining amount is non current
payments of$20,000 liability.

Current liability as it is payable within a short

c.Interest payable $15,000
period of time.

Current liability, since accounts payable are

d.accounts payable of $60,000 due within a short period of time, not
extending beyond one year.

BE10.2 (LO 1), AP Hive Company borrows $90,000 on July 1 from the bank by signing a
$90,000, 7%, 1-year note payable. Interest will be repaid at maturity. Prepare the journal entries
to record (a) the proceeds of the note and (b) accrued interest at December 31, assuming
adjusting entries are made only at the end of the year.
BE10.3 (LO 1), AP Greenspan Supply does not segregate sales and sales taxes at the time of
sale. The register total for March 16 is $10,388. All sales are subject to a 6% sales tax. Compute
sales taxes payable and make the entry to record sales taxes payable and sales.

Account Titles and Explanation Debit Credit

cash account $10,388.00
to sales $9,800
to sales tax payable $588

BE10.4 (LO 1), AP Bramble University sells 3,500 season basketball tickets at $80 each for its
10-game home schedule. Give the entry to record (a) the sale of the season tickets and (b) the
revenue recognized after playing the first home game.

Account Titles and Explanation Debit Credit

cash account $280,000.00
unearned revenue $280,000

Unearned revenue (280000x1/10) $28,000

to sales revenue $28,000

BE10.5 (LO 1), AP Betsy Strand’s regular hourly wage rate is $16, and she receives an hourly
rate of $24 for work in excess of 40 hours. During a January pay period, Betsy works 47 hours.
Betsy’s federal income tax withholding is $95, and she has no voluntary deductions. Compute
Betsy Strand’s gross earnings and net pay for the pay period. Assume that the FICA tax rate is
7.65%.

Account Titles and Explanation Debit Credit

payroll tax exp. $61.81
[(40x16)+(7x24)x7.65%]
FICA taxes payable $62

BE10.8 (LO 3), AP Bridle Inc. issues $300,000, 10-year, 8% bonds at 98. Prepare the journal
entry to record the sale of these bonds on March 1, 2022.
BE10.9 (LO 3), AP Ravine Company issues $400,000, 20-year, 7% bonds at 101. Prepare the
journal entry to record the sale of these bonds on June 1, 2022.

10-9

Price Company

Journal

Date Account Debit Credit

 June 1, 2021 Cash 404,000

Bonds payable 400,000

Bond premium 4,000

10-10

Meera Corporation

Journal

Date Account Debit Credit

Jan. 1, 2021 Cash 4,000,000

Bonds payable 4,000,000

Dec. 31, 2021 Bond interest 320,000

Bond interest payable 320,000

Jan. 1, 2022 Bond interest payable 320,000

Cash 320,000

BE10.10 (LO 3), AP Clooney Corporation issued 3,000 7%, 5-year, $1,000 bonds dated
January 1, 2022, at face value. Interest is paid each January 1.

a. Prepare the journal entry to record the sale of these bonds on January 1, 2022.
b. Prepare the adjusting journal entry on December 31, 2022, to record interest expense.
c. Prepare the journal entry on January 1, 2023, to record interest paid.

a
 Date Account Title and Explanation Debit Credit

$
January 1, 2021 Cash 3,000,000

$
Bonds payable 3,000,000

(To record Issuance of bonds )

Date Account Title and Explanation Debit Credit

Dec 31, 2021 Bond interest expense $ 210,000

Interest payable $ 210,000

(Interest on bond recorded)

Date Account Title and Explanation Debit Credit

Jan 01 2022 Interest payable $ 210,000

Cash $ 210,000

(Interest on bond paid)

BE10.11 (LO 3), AP Nasreen Company issues $2 million, 10-year, 8% bonds at 97, with
interest payable each January 1.

a. Prepare the journal entry to record the sale of these bonds on January 1, 2022.
 b. Assuming instead that the above bonds sold for 104, prepare the journal entry to record
the sale of these bonds on January 1, 2022.

Number of bonds = 20000

Face value = $100

a) Issue price = $97

Total proceeds received = 20000*97 = $1940000

Discount on issue of bonds = $60000

So, journal entry will be

Cash $1940000

Discount on issue of bonds $60000

8% Bonds payable $2000000

b) Issue price = $104

Proceeds of issue = $104*20000 = $2080000

Journal entry will be

Cash $2080000

8% bonds payable $2000000

Premium on issue of bonds $80000

BE10.12 (LO 3), AP Frankum Company has issued three different bonds during 2022. Interest
is payable annually on each of these bonds.

1. On January 1, 2022, 1,000, 8%, 5-year, $1,000 bonds dated January 1, 2022, were issued
at face value.
2. On July 1, $900,000, 9%, 5-year bonds dated July 1, 2022, were issued at 102.
3. On September 1, $400,000, 7%, 5-year bonds dated September 1, 2022, were issued at
98.
Prepare the journal entry to record each bond transaction at the date of issuance.

Date Accounts title Debit Credit

01-Jan-20 Cash $1,000,000

Bonds Payable $1,000,000

01-Jul Cash [$900000 x 102/100] $918,000

Premium on Bonds Payable $18,000

Bonds Payable $900,000

01-Sep Cash [$400000 x 98/100] $392,000

Discount on Bonds Payable $8,000

Bonds Payable $400,000

BE10.14 (LO 4), AP Jenseng Inc. issues an $800,000, 10%, 10-year mortgage note on
December 31, 2022, to obtain financing for a new building. The terms provide for annual
installment payments of $130,196. Prepare the entry to record the mortgage loan on December
31, 2022, and the first installment payment on December 31, 2023.
BE10.16 (LO 5), AP Presented here are long-term liability items for Stevens Inc. at December
31, 2022. Prepare the long-term liabilities section of the balance sheet for Stevens Inc.

Bonds payable (due 2026) $700,000

Lease liability (due after 2023) 70,000

Notes payable (due 2024) 80,000

Discount on bonds payable 28,000

 Balance sheet

December 31, 2022

Long term liabilities:

Bonds payable $7,00,000

Less: Discount on bond payable $28,000 $6,72,000

Notes payable $80,000

Total Long term liabilities $7,52,000

BE10.18 (LO 5), AP Presented here are liability items for O’Brian Inc. at December 31, 2022.
Prepare the liabilities section of O’Brian’s balance sheet.

Accounts payable $157,000 FICA taxes payable $ 7,800

Notes payable (due May 1, 20,000 Interest payable 40,000

2023)

Bonds payable (due 2026) 900,000 Notes payable (due 80,000

2024)

Unearned rent revenue 240,000 Income taxes payable 3,500

 Discount on bonds payable 41,000 Sales taxes payable 1,700

Balance Sheet

December 31,2022

Accounts payable 157,000

Notes payable 20,000

Unearned rent revenue 240,000

income taxes payable 3,500

Sales taxes payable 1,700

interest payable 40,000

FICA taxes payable 7,800

total current liabilities 470,000

Long term liabilities

Bonds payable 900,000

less:Discount on bonds payable 41,000 859,000

Notes payable 80,000

 total long term liabilities 939,000

total liabilities 1,409,000

BE10.19 (LO 5), AN Suppose the 2022 adidas financial statements contain the following
selected data (in millions).

Current assets $4,485 Interest expense $169

Total assets 8,875 Income tax expense 113

Current liabilities 2,836 Net income 245

Total liabilities 5,099

Cash 775

Compute the following values and provide a brief interpretation of each.

a. Working capital.
b. Current ratio.
c. Debt to assets ratio.
d. Times interest earned.
 Working capital = Current assets - Current Liabilities

= 4,485 - 2,836

= 1,649 million

Current Ratio = Current assets/Current liabilities

= 4,485/2,836

= 1.58 :1

Debt to assets ratio = Total Liabilities/Total assets

= 5,099/8,875

= 57%

Times interest earned ratio = IBIT/Interest expense

= (245+169+113)/169

= 3.12 times

*BE10.21 (LO 6), AP Harvard Inc. issues $4 million, 5-year, 8% bonds at 102, with interest
payable each January 1. The straight-line method is used to amortize bond premium.

a. Prepare the journal entry to record the sale of these bonds on January 1, 2022.
b. Prepare the journal entry to record interest expense and bond premium amortization on
December 31, 2022, assuming no previous accrual of interest.
Date Account Titles and Explanation Debit Credit

Jan. 1 Cash $4,080,000

Bonds Payable $4,000,000

$80,000
Premium on Bonds Payable

Date Account Titles and Explanation Debit Credit

Dec. 31 $304,000
Interest expense

$16,000
Premium on bonds payable

$320,000
Interest payable
*BE10.22 (LO 7), AP The following is the partial bond discount amortization
schedule for Rohr Corp. Rohr uses the effective-interest method of amortization.

Interest Bond
Interes Interes
t t to Expense to Discount Unamortize Carryin
d g
Period Be Be Amortizatio
s Paid Recorded n Discount Value

Issue $38,609 $961,391

date

1 $45,00 $48,070 $3,070 35,539 964,461

0

2 45,000 48,223 3,223 32,316 967,684

a.

Accounts Titles and Explanation Debit Credit

Interest Expenses 48,070

Discount on Bonds payable 3,070

45,000
Cash
b.