Compute the total net liability

Reference no: EM131381710

Question 1 -

The following are selected 2017 transactions of Pronghorn Corporation.

Sept. 1 Purchased inventory from Encino Company on account for $40,200. Pronghorn records purchases gross and uses a periodic inventory system.

Oct. 1 Issued a $40,200, 12-month, 8% note to Encino in payment of account.

Oct. 1 Borrowed $40,200 from the Shore Bank by signing a 12-month, zero-interest-bearing $44,240 note.

(a) Prepare journal entries for the selected transactions above.

(b) Prepare adjusting entries at December 31.

(1) The interest-bearing note

(2) The zero-interest-bearing note

Question 2 -

Metlock Hardware Company's payroll for November 2017 is summarized below.

Amount Subject to Payroll Taxes
Payroll	Wages Due	FICA	Unemployment Tax
Payroll	Wages Due	FICA	Federal	State
Factory	$124,400	$124,400	$36,900	$36,900
Sales	31,100	31,100	3,900	3,900
Administrative	37,200	37,200
Total	$192,700	$192,700	$40,800	$40,800

At this point in the year, some employees have already received wages In excess of those to which payroll taxes apply. Assume that the state unemployment tax is 2.5%. The FICA rate is 7.65% on an employee's wages to $118,500 and 1.45% in excess of $118,500. Of the $192,700 wages subject to FICA tax, $20,200 of the sales wages is in excess of $118,500. Federal unemployment tax rate is 0.8% after credits. Income tax withheld amounts to $16,300 for factory, $6,900 for sales, and $5,800 for administrative.

(a) Prepare a schedule showing the employer's total cost of wages for November by function.

(b) Prepare the journal entries to record the factory, sales, and administrative payrolls including the employer's payroll taxes.

Question 3 -

Presented below is a list of possible transactions.

Analyze the effect of the 18 transactions on the financial statement categories indicated.

Transactions:

1. Purchased inventory for $80,000 on account (assume perpetual system is used.)

2. Issued an $80,000 note payable in payment on account (see item 1 above).

3. Recorded accrued interest on the note from Item 2 above.

4. Borrowed $100,000 from the bank by signing a 6-month, $112,000, zero-interest-bearing note.

5. Recognized 4 months' interest expense on the note from item 4 above.

6. Recorded cash sales of $75,260, which includes 6% sales tax.

7. Recorded wage expense of $35,000. The cash paid was $25,000; the difference was due to various amounts withheld.

8. Recorded employer's payroll taxes.

9. Accrued accumulated vacation pay.

10. Recorded an asset retirement obligation.

11. Recorded bonuses due to employees.

12. Recorded a contingent loss on a lawsuit that the company will probably lose.

13. Accrued warranty expense (assume expense warranty approach).

14. Paid warranty costs that were accrued in item 13 above.

15. Recorded sales of product and related service-type warranties.

16. Paid warranty costs under contracts from item 15 above.

17. Recognized warranty revenue (see item 15 above).

18. Recorded estimated liability for premium claims outstanding.

Question 4 -

Oriole Company issued $624,000 of 10%, 20-year bonds on January 1, 2017, at 102. Interest is payable semiannually on July 1 and January 1. Oriole Company uses the straight-line method of amortization for bond premium or discount.

Prepare the journal entries to record the following.

(a) The issuance of the bonds.

(b) The payment of interest and the related amortization on July 1, 2017.

Question 5 -

Skysong Company sells 8% bonds having a maturity value of $2,300,000 for $1,968,369. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1.

Set up a schedule of interest expense and discount amortization under the straight-line method.

Question 6 -

On June 30, 2017, Bridgeport Company issued $5,100,000 face value of 13%, 20-year bonds at $5,483,670, a yield of 12%. Bridgeport uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Prepare the journal entries to record the following transactions.

(1) The issuance of the bonds on June 30, 2017.

(2) The payment of interest and the amortization of the premium on December 31, 2017.

(3) The payment of interest and the amortization of the premium on June 30, 2018.

(4) The payment of interest and the amortization of the premium on December 31, 2018.

Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2018, balance sheet.

Provide the answers to the following questions.

(1) What amount of interest expense is reported for 2018?

(2) Will the bond interest expense reported in 2018 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?

(3) Determine the total cost of borrowing over the life of the bond.

(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense. If the straight-line method of amortization were used?

Question 7 -

Flint Co. is building a new hockey arena at a cost of $2,620,000. It received a down payment of $450,000 from local businesses to support the project, and now needs to borrow $2,170,000 to complete the project. It therefore decides to issue $2,170,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 9%.

Prepare the journal entry to record the issuance of the bonds on January 1, 2016.

Prepare a bond amortization schedule up to and Including January 1, 2020, using the effective interest method.

Assume that on July 1, 2019, Flint Co. redeems half of the bonds at a cost of $1,146,600 plus accrued interest. Prepare the journal entry to record this redemption.

Reference no: EM131381710

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