determine proper amounts in account balances question 1 indicate whether each of the 3268035

Determine proper amounts in account balances

Question 1). Indicate whether each of the items below should be classified on December 31, 2013, as a current liability, a long term liability, or under some other classification. Consider each one independently from all others; that is, do not assume that all of them relate to one particular business. If the classification of some of the items is doubtful, explain why in each case. Classification of Liabilities – Presented below are various account balances.
a) Bank loans payable of a winery, due March 10, 2016. (The product requires aging for 5 years before sale).
b) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.
c) Serial bonds payable, $1,000,000, of which $250,000 are due each July 31.
d) Amounts withheld from employees’ wages for income taxes.
e) Notes payable due January 15, 2015.
f) Credit balances in customers’ accounts arising from returns and allowances after collection in full of account.
g) Bonds payable of $2,000,000 maturing June 30, 2014.
h) Overdraft of $1,000 in a bank account. (No other balances are carried at this bank).
i) Deposits made by customers who have ordered goods.
Question 2). Determine Proper Amounts in Account Balances – Presented below are three independent situations.
a) Chinook Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $15,000; (2) legal fees, $49,000, and (3) commissions paid to underwriter, $60,000. What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet?

b) McEntire Co. sold $2,500,000 of 10%, 10-year bonds at 104 on January 1, 2012. The bonds were dated January 1, 2012 and pay interest on July 1 and January 1. If McEntire uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2012, and December 31, 2012.

c) Cheriel Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2012, for $562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Cheriel uses the effective interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2012

Question 3). Entries and Questions for Bond Transactions – On June 30, 2012, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30, and December 31.
a) Prepare the journal entries to record the following transactions:
1) The issuance of the bonds on June 30, 2012.
2) The payment of interest and the amortization of the premium on December 31, 2012.
3) The payment of interest and the amortization of the premium on June 30, 2013.
4) The payment of interest and the amortization of the premium on December 31, 2013.

b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2013, balance sheet.

c) Provide the answers to the following questions.
1) What amount of interest expense is reported for 2013?
2) Will the bond interest expense reported in 2013 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 4). Entries for Zero-Interest Bearing Notes – On January 1, 2013, McLean Company makes the two following acquisitions.

a) Purchases land having a fair market value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $505,518.
b) Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $400,000 (interest payable annually).

The company has to pay 11% interest for funds from its bank.

Determine proper amounts in account balances
Accounting Basics


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