EXERCISE 9-8A

A
Event Assets = Liab. + Equity Rev.  Exp. = Net Inc. Cash
Flow

1. +50,000 = NA + +50,000 NA NA NA FA
2. +380,000 = +380,000 + NA NA NA NA NA
3a. +550,800 = +40800 + NA +510,000 NA NA OA
3b. -330,000 = NA NA NA +330,000 NA NA
4. NA +10,200 NA NA +10,200 NA NA
5. -32000 = -32,000 NA NA NA NA OA
6. +50,000 = +50,000 NA NA NA NA FA
7. -6,200 = -6200 NA NA NA NA OA
8. -78000 NA NA NA +78000 NA OA
9. -250,000 = -250,000 NA NA NA NA OA
10. NA +667 NA NA +667 NA NA

b.
Ozark Sales
General Journal for 2016

Event Account Title Debit Credit

1. Cash 50,000
Common Stock 50,000
2. Merchandise Inventory 380,000
Accounts Payable 380,000
3a. Cash 550,800
Sales Revenue 510,000
Sales Tax Payable 40,800
3b. Cost of Goods Sold 330,000
Merchandise Inventory 330,000
4. Warranty Expense 10,200
Warranties Payable 10,200
5. Sales Tax Payable 32,000
Cash 32,000
6. Cash 50,000
Notes Payable 50,000
 7. Warranty Payable 6,200
Cash 6,200
8. Operating Expense 78,000
Cash 78,000
9. Accounts Payable 250,000
Cash 250,000
10. Interest Expense1 (50,000*4%*4/12) 667
Interest Payable 667

Ozark Sales
T-Accounts for 2016
Assets = Liabilities + Stockholder’s Equity

Cash Accounts Payable Common Stock

1. 50,000 5. 32,000 9. 250,000 2. 380,000 1. 50,000
3a. 550,800 7. 6,200 Bal. 130,000 Bal. 50,000
6. 50,000 8. 78,000
9. 250,000 Sales Tax Payable Sales Revenue
Bal. 284,600 5. 32,000 3a. 40,800 3a. 510,000
Bal. 8,800 Bal. 510,000
Merchandise Inventory
2. 380,000 3b. 330,000 Warranties Payable Cost of Goods Sold
Bal. 50,000 7. 6,200 4. 10,200 3b. 330,000
Bal. 4,000 Bal. 330,000

Interest Payable Operating Expenses

10. 667 8. 78,000
Bal. 667 Bal. 78,000

Notes Payable Warranty Expense

6. 50,000 4. 10,200
Bal. 50,000 Bal. 10,200

Interest Expense
10. 667
Bal. 667
C.
Ozark Sales
Income Statement
For the Year Ended December 31, 2016

Sales Revenue 510,000

Cost of Goods Sold 330,000
Gross Margin 180,000
Expenses
Operating Expenses $78,000
Warranty Expense 10,200
Total Operating Expenses 88,200
Operating Income 91,800
Interest Expense 667
Net Income 91,133

Ozark Sales
Balance Sheet
As of December 31, 2016
Assets
Cash 284,600
Merchandise Inventory 50,000
Total Assets 334,600

Liabilities
Accounts Payable 130,000
Sales Tax Payable 8,800
Warranties Payable 4,000
Interest Payable 667
Notes Payable 50,000
Total Liabilities 193467
Stockholders’ Equity
Common Stock 50,000
Retained Earnings 91,133
Total Stockholders’ Equity 141,133
 Total Liabilities and Stockholders’ Equity $334,600

Ozark Sales
Statement of Cash Flows
For the Year Ended December 31, 2016

Cash Flows From Operating Activities:

Inflow from Customers 510,000
Inflow from Sales Tax 40,800
Outflow to Purchase Inventory 250,000
Outflow for Expenses1(78,000+6,200) 84,200
Outflow for Sales Tax 32,000
Net Cash Flow from Operating Activities 184,600
Cash Flows From Investing Activities -0-
Cash Flows From Financing Activities:
Inflow from Stock Issue 50,000
Inflow from Loan 50,000
Net Cash Flow from Financing Activities 100,000
Net Change in Cash 284,600
Plus: Beginning Cash Balance
Ending Cash Balance

D.
Current Liabilities:
Accounts Payable $ 130,000
Sales Tax Payable 8,800
Warranty Payable 4,000
Interest Payable 667
Notes Payable 50,000
Total Current Liabilities $ 193,467
EXERCISE 9-10A
a. Calculate the net pay for both Clay and Philip for March.
Clay - March
Gross Earnings 3,600
Deductions:
Federal Income Tax ($3,600 x15 %) 540
FICA Tax - SS ($3,600 x 6%%) 216
FICA Tax - Medicare ($3,600 x 1.5%) 54
Total Deductions 810
Net Pay 2,790

Philip – March
Gross Earnings 10,800
Deductions:
Federal Income Tax($x 20%) 2,160
FICA Tax - SS ($10,800x 6%) 648
FICA Tax - Medicare ($10,800 x1.5 %) 162
Total Deductions 2,970
Net Pay 7,830

b. Calculate the net pay for both Clay and Philip for December.
Clay - December
Gross Earnings 3,600
Deductions:
Federal Income Tax 540
FICA Tax - SS 216
FICA Tax - Medicare 54
Total Deductions 810
Net Pay 2,790

Philip – December
Gross Earnings 10,800
Deductions:
Federal Income Tax 2,160
FICA Tax - Medicare 162
 Total Deductions 2,322
Net Pay 8,478

c. Is the net pay the same in March and December for both parties? Why
or why not?

For Clay wages are same for March and December but for Philip due to no
deduction of FICA Tax – SS as it is up to 110,000 , wages has increased.

d. What amounts will Old Town report on the 2016 W-2s for each
employee?
Amount appearing on W-2 for 2016
Clay
Box 1 Wages, tips, and other compensation 43,200
Box 2 Federal income tax withheld 6,480
Box 3 Social Security wages
Box 4 Social Security tax withheld 2,592
Box 5 Medicare wages and tips
Box 6 Medicare tax withheld 648

Amount appearing on W-2 for 2017

Philip
Box 1 Wages, tips, and other compensation 129,600
Box 2 Federal income tax withheld 25,920
Box 3 Social Security wages
Box 4 Social Security tax withheld 6,600
Box 5 Medicare wages and tips
Box 6 Medicare tax withheld 1,944

EXERCISE 10-4A

a. Using a financial statements model like the one shown here, record the
appropriate amounts for the following two events:
(1) January 1, 2016, issue of the note payable.
(2) December 31, 2016, payment on the note payable.
 Effect of Transactions on Financial Statements

Balance Sheet Income Statement Statement of

No. Assets = Liab. + S. Equity Rev.  Exp. = Net Inc. Cash Flow
1. +200,000 = +200,000 + 0 0 0 0 FA
2. -27114 = -15174 + 0 0 +12000 -12000 OA

b. If the company earned $62,000 cash revenue and paid $45,000

(1) Net income for 2016

Revenue 62,000
Expenses
Operating Expenses 45,000
Interest Expense 12,000 57,000
Total Expenses
Net Income $ 5,000

(2) Cash flow from operating activities for 2016.

Cash Flows From Operating Activities:

Inflow from Customers 62,000
Outflow for Expenses 57,000
Net Cash Flow from Operating Activities 5,000

(3) Cash flow from financing activities for 2016.

Cash Flows From Financing Activities:

Inflow from Issue of Note 200,000
Outflow to Repay Note 15,174
Net Cash Flow from Financing Activities 184,826

c. What is the amount of interest expense on this loan for 2019?

$9,102
 EXERCISE 10-5A

Provide all journal entries pertaining to Singer’s line of credit for the first
three months of 2016.

Amount Borrowed Balance End Interest Interest

Month (Repaid) of Month Rate Expense
January 80,000 80,000 .06/12 400
February 60,000 140,000 .065/12 758
March (20,000) 120,000 .06/12 600

Date Account Titles Debit Credit

2016
Jan. 1 Cash 80,000
Line of Credit Payable 80,000
Jan. 31 Interest Expense 400
Cash 400
Feb. 1 Cash 60,000
Line of Credit Payable 60,000
Feb. 28 Interest Expense 758
Cash 758
March 1 Line of Credit Payable 20,000
Cash 20,000
March 31 Interest Expense 600
Cash 600
EXERCISE 10-6A

a. Prepare the journal entries for these events, and post them to T- accounts for
2016 and 2017.
Doyle Company
General Journal

Date Account Titles Debit Credit

2016
Jan. 1 Cash 500,000
Bonds Payable 500,000
Jan. 1 Land 500,000
Cash 500,000
Dec. 31 Cash 125,000
Lease Revenue 125,000
Dec. 31 Interest Expense ($500,000 x 7%) 35,000
Cash 35,000
Dec. 31 Lease Revenue 125,000
Interest Expense 35,000
Retained Earnings 90,000
2017
Dec. 31 Cash 125,000
Lease Revenue 125,000
Dec. 31 Interest Expense 35,000
Cash 35,000
Dec. 31 Lease Revenue 125,000
Interest Expense 35,000
Retained Earnings 90,000

Doyle Company

Assets = Liabilities + Stockholders’ Equity

Cash Bonds Payable Retained Earnings
2016 2016 2016
1/1 500,000 1/1 500,000 1/1 500,000 12/31 90,000
12/31 125,000 12/31 35,000 Bal. 500,000 Bal. 90,000
Bal. 90,000 2017
2017 12/31 90,00
12/31 125,000 12/31 35,000 Bal. 180,000
Bal. 180,000
Lease Revenue
2016
Land 12/31 125,000 12/31 125,000

2016 Bal. -0-

1/1 500,000 2017
Bal. 500,000 12/31 125,000 12/31 125,000
Bal. -0-

Interest Expense
2016
12/31 35,000 12/31 35,000
Bal. -0-
2017
12/31 35,000 12/31 35,000
Bal. -0-
b. Prepare the income statement, balance sheet, and statement of
cash flows for 2016 and 2017.

Doyle Company
Financial Statements 2016 2017
Income Statements for the Year Ended Decebmer 31
Lease Revenue 125,000 125,000
Interest Expense 35,000 35,000
Net Income $ 90,000 $ 90,000
Balance Sheets as of December 31
Assets
Cash 90,000 180,000
Land 500,000 500,000
Total Assets 590,000 590,000
Liabilities
Bonds Payable 500,000 500,000
Stockholders’ Equity
Common Stock 0 0
Retained Earnings 90,000 180,000
Total Stockholders’ Equity
Total Liab. and Stockholders’ Equity $590,000 $680,000
Statements of Cash Flows for the Year Ended December 31
Cash Flows From Operating Activities:
Receipts from Revenue 125,000 125,000
Paid for Interest 35,000 35,000
Net Cash Flow from Operating Act. 90,000 90,000
Cash Flows From Investing Activities:
Paid to PurchaseLand -500,000 0
Cash Flows From Financing Activities:
Proceeds from Bond Issue 500,000 0
Net Change in Cash 90,000 90,000
Plus: Beginning Cash Balance 0 90,000
 Ending Cash Balance 90,000 180,000

EXERCISE 10-7A
Prepare all the general journal entries related to those bonds for 2016
and 2017.

Bell Corp.
General Journal

Date Account Titles Debit Credit

2016
Jan.1 Cash 180,000
Bonds Payable 180,000
Dec. 31 Interest Expense*(180,000*6%) 10,800
Cash 10,800
2017
Dec. 31 Interest Expense 10,800
Cash 10,800
EXERCISE 10-8A

Prepare the journal entries to record the bond issue on January 1,

2016 and the bond redemption on December 31, 2020. Entries for
accrual and payment on interest are not required.
Nivan Co.

Date Account Titles Debit Credit

2016
Jan. 1 Cash 500,000
Bonds Payable 500,000
2020
Dec. 31 Loss on Bond Redemption 15,000
Bonds Payable 500,000
Cash 515,000

EXERCISE 10-19A

a. Determine the amount of the discount on the day of issue.

Face Value − Bond Price = Discount
300,000 - 278,932 = 21,068

b. Determine the amount of interest expense recognized on December

31, 2016.
Carrying Value x Effective Rate = Interest Expense
278,932 x 7% = 19,525
c. Determine the carrying value of the bond liability on December
31, 2016.
Face Value x Stated Rate = Cash Payment
300,000 x 6% = 18,000
Interest Expense − Cash Payment = Amortization
19,525 - 18,000 = 1,525
Beginning Discount − Amortization = Ending Discount
21,068 - 1,525 = 19,543

Bond Carrying Value as of December 31, 2016

Bond Payable (Face Value) 300,000
Discount on Bonds Payable 19,543
Carrying Value 280,057

d. Provide the general journal entry necessary to record the

December 31, 2016, interest expense.
Account Titles Debit Credit
Interest Expense 19,525
Bond Discount 1,525
Cash 18,000
EXERCISE 10-20A

a. Prepare an amortization table

Cash Interest Discount Carrying
Date Payment Expense Amortization Value
January 1, 2016 76,888
December 31, 2016 6,400 6,920 520 77,408
December 31, 2017 6,400 6,967 567 77,975
December 31, 2018 6,400 7,018 618 78,593
December 31, 2019 6,400 7,073 673 79,266
December 31, 2020 6,400 7,134 734 80,000
Totals 32,000 35,112 3,112

b. What item(s) in the table would appear on the 2019 balance sheet?
Bond liability $80,000
Less: Bond discount 734
Carrying value $79,266

c. What item(s) in the table would appear on the 2019 income

statement? $7,073

d. What item(s) in the table would appear on the 2019 statement of

cash flows? $6,400
EXERCISE 10-25A
a. Help CSC’s management by completing the following chart
Current Total Current Total
Situation Assets Assets Liabilities Liabilities
Currently 150,000 500,000 100,000 350,000
Using bonds 230,000 580,000 100,000 430,000
Using stock 230,000 580,000 100,000 350,000
If Bonds If Stock
Currently Are Issued Is Issued
Current ratio 1.5 2.3 2.3
Debt to assets ratio 0.7 0.74 0.6

(1)
(2)
(3)
(4)
(5)

b. Assume that after the funds are invested, EBIT amounts to $60,000.
Also assume the company pays $6,000in dividends or $6,000 in
interest depending on which source of financing is used. Based on a
40 percent tax rate, determine the amount of the increase in retained
earnings that would result under each financing option.

Bonds Stock
EBIT 60,000 60,000
Interest expense 6,000 0
Pretax earnings 54,000 60,000
Tax expense (40%) (21,600) (24,000)
Net earnings 32,400 36,000
Dividends 0 6,000
Additional retained earnings $ 32,400 $30,000