Professional Documents
Culture Documents
3/1/01
Cash ...............................................................
236,045
13,955
Bonds Payable.....................................
250,000
$250,000
$166,265
69,780
(236,045)
$ 13,955
9/1/01
Interest Expense........................................
14,163
1,663
Cash...................................................
12,500
12/31/01
Interest Expense........................................
9,508
1,175
($1,762 X 4/6)
Interest Payable ($12,500 X 4/6)......
3/1/02
8,333
Interest Expense........................................
4,754
Interest Payable.........................................
8,333
587
($1,762 X 2/6)
Cash...................................................
9/1/02
12/31/02
Interest Expense........................................
12,500
14,368
1,868
Cash...................................................
12,500
Interest Expense........................................
9,653
1,320
($1,980 X 4/6)
Interest Payable................................
8,333
Debit
Interest
Credit
Bond
Carrying
Value of
Date
3/1/01
Cash
Expense
Discount
Bonds
$236,045
9/1/01
$12,500
$14,163
$1,663
237,708
3/1/02
12,500
14,262
1,762
239,470
9/1/02
12,500
14,368
1,868
241,338
3/1/03
12,500
14,480
1,980
243,318
9/1/03
12,500
14,599
2,099
245,417
3/1/04
12,500
14,725
2,225
247,642
9/1/04
12,500
14,858
2,358
250,000
2. Dougherty Co.
6/1/01
Cash ...............................................................
638,780
38,780
Bonds Payable.....................................
600,000
$600,000
$406,104
232,676
638,780
$ 38,780
12/1/01
Interest Expense........................................
31,939
4,061
12/31/01
36,000
5,289
711
($4,264 X 1/6)
Interest Payable ($36,000 X 1/6)......
6/1/02
6,000
26,447
Interest Payable.........................................
6,000
3,553
($4,264 X 5/6)
Cash...................................................
10/1/02
Interest Expense........................................
36,000
4,203
597
($4,477 X .2 X 4/6)
Cash...................................................
4,800
*$120,000 $600,000 = .2
10/1/02
Bonds Payable...........................................
120,000
5,494
4,294
Cash...................................................
121,200
Reacquisition price
($126,000 $120,000 X 12% X 4/12)
$121,200
$120,000
Unamortized premium
[.2 X ($38,780 $4,061 $4,264) $597]
5,494
Gain on redemption
12/1/02
(125,494)
$
25,218
3,582
(4,294)
($4,477 X .8)
Cash ($36,000 X .8)...........................
28,800
12/31/02
Interest Expense........................................
4,173
($31,299 X .8 X 1/6)
Premium on Bonds Payable.....................
627
($4,701 X .8 X 1/6)
Interest Payable................................
4,800
($36,000 X .8 X 1/6)
6/1/03
20,866
Interest Payable.........................................
4,800
3,134
($4,701 X .8 X 5/6)
Cash ($36,000 X .8)...........................
12/1/03
28,800
24,851
3,949
($4,936 X .8)
Cash ($36,000 X .8)...........................
Date
6/1/01
12/1/01
6/1/02
12/1/02
6/1/03
12/1/03
6/1/04
12/1/04
6/1/05
Cash
Credit
Debit
Interest
Expense
Debit
Bond
Premium
$36,000
36,000
36,000
36,000
36,000
36,000
36,000
36,000
$31,939
31,736
31,523
31,299
31,064
30,817
30,558
30,284*
$4,061
4,264
4,477
4,701
4,936
5,183
5,442
5,716
28,800
Carrying
Value of
Bonds
$638,780
634,719
630,455
625,978
621,277
616,341
611,158
605,716
600,000
Date
of Hire
October
Year to
Date
November
Earnings
Federal
Income
Tax
State
Income
Tax
Earnings
Z. Allen
G. Burns
C. Gunn
B. Stark
K. Veil
1/6/2002
9/1/2009
5/1/2001
11/1/2001
3/1/2003
$104,000
6,000
100,000
0
110,000
Withheld
$10,600
3,000
10,000
3,500
11,000
$3,200
600
3,000
700
3,500
Withheld
$250
45
225
55
265
The O.A.S.D.I. Tax for each person would be based on when the earnings reach $106,800.
Z. Allen - Earnings already $104,000 and so only balance $2,800 would be subject to tax =
2,800 X 6.2 % = 173.6
G. Burns = 3,000 X 6.2% = 186
C. Gunn - Earnings already $100,000 and tax would be on remaining 6,800 = 6,800 X 6.2%
= 421.60
B. Stark = 3,500 X 6.2% = 217
K. Veil - earnings already over 106,800 and so no tax
Total O.A.S.D.I tax is $998.20
Total Federal income tax withheld is $11,000
Total state income tax withheld is $840
Total earnings for November are $38,100
Hospital tax is 38,100 X 1.45% = $552.45
Total deductions are 998.20 + 11,000+840 + 552.45 = 13,390.65
Gross Pay is 38,100
38,100
998.20
11,000
840
552.45
24,709.35
1,942.15
998.20
552.45
279
112.50
I5-2:
The Hill Valley Company had the following gross sales on Tuesday March 3 rd:
Credit Sales: $45,950.67
Cash Sales: $23,575.45
The sales include the states 5.5% sales tax.
Instructions:
1. Prepare the journal entry to properly record the days sales.
We first calculate the tax amount on each sale. The tax rate is 5.5%. The sales with sales
tax are
Credit sales = 45,950.67/1.055 = 43,555.14
Tax amount is 45,950.67 43,555.14 = 2,395.53
Cash sales = 23,575.45/1.055 = 22,346.40
Tax amount = 23,575.45 22,346.40 = 1,229.05
The entry to record the sales is
March 3
Cash
23,575.45
Accounts Receivable
45,950.67
Sales
65,901.54
3,624.58
I5-3:
Consider the following independent situations of the Back Fire Corporation (BFC):
1. A BFC deliver truck was involved in an accident with a private automobile. BFC
carries an insurance deductible of $25,000 per accident. That is, BFC must pay the
first $25,000 of any costs as a result of a traffic accident. The driver of the
automobile was slightly injured and the damage to the automobile was
approximately $8,000. The insurance adjustor estimated that the total cost to repair
the automobile and for the drivers injuries will be about $10,000. The accident was
a result of the automobile running a stop sign and the adjustor advises that it is
unlikely that BFC will be required to pay for the automobile repairs or the drivers
injury.
2. BFC sued the ABC Company for a patent infringement issue. BFC lawyers indicate
that they are 100% sure that BFC will win the suit and collect $200,000 from ABC.
3. A retaining wall at one of BFCs factories failed and caused a mud slide that
damaged the building next door belonging to the XYZ Company. BFC has admitted
responsibility and has received bids from three contractors to repair the damage.
The estimated were $103,000; $77,500; and $154,000.
4. A leak at an underground storage tank contaminated the adjacent property
belonging to the PDQ Company. The approximate costs to repair the damage is
$45,000 and BFCs insurance should reimbursement BFC for the costs except for
the deductible of $5,000.
Instructions:
1. For each of the above situations determine the amount that should be recorded as a
contingent liability, if any.
I5-4:
The XYZ Company entered into the following leasing arrangements, as the
lessee, during the current year:
A. XYZ leased a copy machine for 3 years. The fair market value of the
machine at the inception of the lease was $17,500 and XYZ agreed to
pay a quarterly lease payment of $1,475. At the end of the lease the
remaining life is estimated to be 2 years and XYZ has the option to
purchase the copy machine for its then estimated fair market value of
$5,000.
B. XYZ leased a mid-range computer for 4 years. The fair market value
of the computer at the inception of the lease was $139,000 and XYZ
agreed to pay a quarterly lease payment of $9,000. At the end of the
lease the remaining life is estimated to be 2 years. XYZ has no option
to purchase the computer at any time during the lease term.
C. XYZ leased a new car for 2 years for its presidents use. The fair
market value of the car at the inception of the lease was $65,000 and
XYZ agreed to pay a quarterly lease payment of $5,750. At the end of
the lease the remaining life is estimated to be 4 years. XYZ has no
option to purchase the car at any time during the lease term.
D. XYZ leased a delivery truck for 5 years. The fair market value of the
truck at the inception of the lease was $84,000 and XYZ agreed to pay
a quarterly lease payment of $4,500. At the end of the lease the fair
market value of the truck is estimated to be $24,000 and the trucks
remaining economic life is estimated to be 2 years. XYZ has the
option to purchase the truck at the end of the lease for $10,000.
E. XYZ leased a collation machine for 6 years. The fair market value of
the machine at the inception of the lease was $142,000 and XYZ
agreed to pay a quarterly lease payment of $6,750. At the end of the
lease, the ownership of the machine transfers to XYZ.
F. XYZ leased a widget production machine for 7 years. The fair market
value of the machine at the inception of the lease was $246,000 and
XYZ agreed to pay a quarterly lease payment of $11,000. XYZ has no
option to purchase the machine at any time during the lease term.
XYZ current borrowing rate is 10%.
All lease payments are made in advance at the beginning of each quarter.
Instructions:
1) Determine if each lease is an operating or a capital lease.
2) For each capital lease, identify the factor or factors that qualify the lease
as a capital lease. Include the appropriate calculations to support your
conclusions.
A lease is a capital lease if it meets any one of the following four criteria
a. There is a bargain purchase option at the end of the lease
b. The lease transfers ownership at the end of the lease
c. The lease term is greater or equal to 75% of the economic life of the asset
d. The present value of lease payments is greater or equal to 90% of fair value of the asset.
Applying these criteria to see if the lease is a capital lease or an operating lease.
A. XYZ leased a copy machine for 3 years. The fair market value of the machine at the
inception of the lease was $17,500 and XYZ agreed to pay a quarterly lease payment of $1,475.
At the end of the lease the remaining life is estimated to be 2 years and XYZ has the option to
purchase the copy machine for its then estimated fair market value of $5,000.
B. XYZ leased a mid-range computer for 4 years. The fair market value of the computer at the
inception of the lease was $139,000 and XYZ agreed to pay a quarterly lease payment of
$9,000. At the end of the lease the remaining life is estimated to be 2 years. XYZ has no option
to purchase the computer at any time during the lease term.
C. XYZ leased a new car for 2 years for its presidents use. The fair market value of the car at
the inception of the lease was $65,000 and XYZ agreed to pay a quarterly lease payment of
$5,750. At the end of the lease the remaining life is estimated to be 4 years. XYZ has no option
to purchase the car at any time during the lease term.
D. XYZ leased a delivery truck for 5 years. The fair market value of the truck at the inception of
the lease was $84,000 and XYZ agreed to pay a quarterly lease payment of $4,500. At the end
of the lease the fair market value of the truck is estimated to be $24,000 and the trucks
remaining economic life is estimated to be 2 years. XYZ has the option to purchase the truck at
the end of the lease for $10,000.
There is a bargain purchase option since the truck can be purchased for $10,000 against
the fair market value of $24,000 and so this is a capital lease
E. XYZ leased a collation machine for 6 years. The fair market value of the machine at the
inception of the lease was $142,000 and XYZ agreed to pay a quarterly lease payment of
$6,750. At the end of the lease, the ownership of the machine transfers to XYZ.
The lease transfer the ownership at the end of the lease and so it is a capital lease
F. XYZ leased a widget production machine for 7 years. The fair market value of the machine at
the inception of the lease was $246,000 and XYZ agreed to pay a quarterly lease payment of
$11,000. XYZ has no option to purchase the machine at any time during the lease term.
All lease payments are made in advance at the beginning of each quarter.
Instructions:
A lease will be a capital lease if it meets any one of the following four criteria
a. There is a bargain purchase option at the end of the lease
b. The lease transfers ownership at the end of the lease
c. The lease term is greater or equal to 75% of the economic life of the asset
d. The present value of lease payments is greater or equal to 90% of fair value of the asset.
We apply these criteria to see if the lease is a capital lease or an operating lease.
2) For each capital lease, identify the factor or factors that qualify the lease as a capital lease.
Include the appropriate calculations to support your conclusions.