Buad 121 Ch. 13 Practice Questions Solution Exercise 13-9 (20 minutes) a. Mar. 10 Machinery... 60,000 Cash... 60,000 Purchased machinery for cash. b. Mar. 10 Machinery... Accounts Payable... 60,000 60,000 Purchased machinery on credit; terms 1/30, n60. Apr. 9 Accounts Payable... 60,000 Cash... 59,400 Machinery... 600 Paid the account within the discount period; $60,000 1% = $600. c. Mar. 10 Machinery... 60,000 Notes Payable... 60,000 Purchased machinery with a note. 2012 Mar. 10 Notes Payable... 60,000 Interest Expense... Cash... 6,000 66,000 Paid the note; $60,000 10% = $6,000. Exercise 13-10 (15 minutes) 1. Days in September... 30 Minus date of note... 15 Days remaining in September... Days to equal 90 days or Maturity Date, October 30... 15 30 Period of the note in days... 45 2. $100,000 8% 45/365 = $986.30
3. Sept. 1 Cash... 100,000.00 Notes Payable... 100,000.00 To record note payable. Nov. 30 Notes Payable... 100,000.00 Interest Expense... 986.30 Cash... 100,986.30 To record payment of note. Exercise 13-14 (30 minutes) Part A 1. Jan. 31 Income Tax Expense... Income Tax Payable... 8,600 8,600 To accrue estimated income tax for January calculated as $103,200/12 = $8,600. Feb. 1 Income Tax Payable... Cash... 8,600 8,600 To record payment of instalment accrued on January 31. 2. Dec. 31 Income Tax Expense... 5,000 Income Tax Payable... 5,000 To adjust income taxes expense to actual; $99,600 ($8,600 x 11 = $94,600) = $5,000. 2012 Jan. 1 Income Tax Payable... 5,000 Cash... 5,000 To record final payment accrued on December 31. Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 2 Fundamental Accounting Principles, Twelfth Canadian Edition
Part B (independent of Part A) 3. Jan. Mar. Apr. June July Sept. Oct. Dec. Income before tax... $114,000 $68,000 $121,000 $164,500 Estimated income tax expense* 24,900 24,900 24,900 24,900 Net income... $ 89,100 $43,100 $ 96,100 $139,600 *$99,600/12 = $8,300/month x 3 months = $24,900/quarter 4. Dec. 31 Income Tax Expense... 46,800 Income Taxes Payable... 46,800 To adjust income tax expense to actual; $121,500 ($24,900 x 3 = $74,700) = $46,800. 5. $89,100 + $43,100 + $96,100 + ($164,500 $46,800 = $117,700) = $346,000 Exercise 13-15 (15 minutes) All entries dated December 31,. a. Warranty Expense. Estimated Warranty Liability... 10,240 10,240 To record warranty expense [(4,000 units 8% $32)]. b. No adjusting entry can be made since the loss cannot be reasonably estimated. The notes to the financial statements must mention the suit as a contingent liability. c. Cash... 4,600,000 Sales... 4,000,000 PST payable... 320,000 GST Payable... 280,000 To record sales plus sales taxes; PST: $4,000,000 8% = $320,000; GST: $4,000,000 7% = $280,000. Cost of Goods Sold... 2,600,000 Merchandise Inventory... 2,600,000 To record cost of sales; $4,000,000 65%.
d Unearned Product Revenue... 80,000 Earned Product Revenue... 80,000 To record earned portion of unearned revenue. *Exercise 13-17 (20 minutes) 1. Days in July... 31 Minus date of note... Days remaining in July... 15 16 Add days in August... 31 Add days in September... 30 77 Days to equal 90 days or Maturity Date, October 13... 13 Period of the note in days... 90 2. $66,442 $65,000 = $1,442 3. July 15 Cash... 65,000 Discount on Notes Payable... 1,442 Notes Payable... 66,442 To record discounted note payable. Oct. 13 Interest Expense... 1,442 Notes Payable... 66,442 Cash... Discount on Notes Payable... 66,442 1,442 To record payment of discounted note. NOTE: The implied interest rate on the note is about 9% calculated as $1,442/$65,000 x 365/90. Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 4 Fundamental Accounting Principles, Twelfth Canadian Edition
PROBLEMS Problem 13-1A (15 minutes) December 31, 2012 2013 2014 Current liabilities: Current portion of long-term debt... $47,935 $51,770 $55,911-0- Interest payable... -0- -0- -0- -0- Long-term liabilities: Long-term debt... 107,681 55,911-0- -0- Problem 13-2A (45 minutes) Ferris, Scotia National Inc. Bank Bank 1. Maturity dates: Date of the note... Apr. 14 May 21 Dec. 15 Term of the note... 60 90 120 Maturity date... Jun. 13 Aug. 19 Apr. 14 2. Mar. 14 Merchandise Inventory... 25,000.00 Accounts Payable Ferris... Purchased merchandise on credit. 25,000.00 Apr. 14 Accounts Payable Ferris... 25,000.00 Cash... 7,000.00 Notes Payable Ferris... 18,000.00 Paid $7,000 cash and gave a 60-day, 10% note to extend due date on account. May 21 Cash... 40,000.00 Notes Payable Scotia Bank... 40,000.00 Borrowed cash with a 90-day, 12% note. June 13 Interest Expense... 295.89 Notes Payable Ferris... 18,000.00 Cash... 18,295.89 Paid note with interest; 18,000 x 10% x 60/365 = 295.89.
Problem 13-2A (concluded) Aug. 19 Interest Expense... 1,183.56 Notes Payable Scotia Bank... 40,000.00 Cash... 41,183.56 Paid note with interest; 40,000 x 12% x 90/365 = 1,183.56. Dec. 15 Cash... 70,000.00 Notes Payable National Bank... 70,000.00 Borrowed cash with a 120-day note. Dec. 31 Interest Expense... 276.16 Interest Payable... 276.16 Accrued interest on note payable; 70,000 x 9% x 16/365 = 276.16. 2012 Apr. 14 Interest Expense... 1,795.07 Interest Payable... 276.16 Notes Payable National Bank... 70,000.00 Cash... 72,071.23 Paid note with interest; 70,000 x 9% x 104/365 = 1,795.07. Problem 13-3A (40 minutes) 1. Warranty expense for November and December : Expense November (18% 200 = 36 $14)... $ 504 December (18% 550 = 99 $14)... Total... 1,386 $ 1,890 2. Warranty expense for January 2012: Sales in January... 275 units Warranty percentage... 18% Warranty expense... = 49.5 or 50 units 14 $700 Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 6 Fundamental Accounting Principles, Twelfth Canadian Edition
Problem 13-3A (continued) 3. Balance of the estimated liability as of December 31, : Warranty expense for November... Warranty expense for December... Cost of replacing items in December (55 $14)... Liability balance... $ 504 credit 1,386 credit (770) debit $ 1,120 credit 4. Balance of the estimated liability as of January 31, 2012: Beginning balance... Warranty expense for January... Cost of replacing items in January (63 $14)... Liability balance... $1,120 credit 700 credit (882) debit $938 credit 5. Nov. 15 Cash... 16,000.00 Sales (200 x $80)... 16,000.00 Sold flashlights to customers. 15 Cost of Goods Sold (200 $14)... 2,800.00 Merchandise Inventory... 2,800.00 To record the cost of the November 15 sale. 30 Warranty Expense... 504.00 Estimated Warranty Liability... 504.00 To record flashlight warranty expense and liability at 18% of the units sold (18% 200 = 36 $14). Dec. 8 Estimated Warranty Liability... Merchandise Inventory... 210.00 210.00 To record the cost of flashlight warranty replacements (15 $14). 15 Cash... 44,000.00 Sales (550 x $80)... 44,000.00 Sold flashlights to customers. 15 Cost of Goods Sold (550 $14)... 7,700.00 Merchandise Inventory... 7,700.00 To record the cost of the December 15 sale.
Problem 13-3A (concluded) Dec. 29 Estimated Warranty Liability... 560.00 Merchandise Inventory... 560.00 To record the cost of flashlights warranty replacements (40 $14). Dec. 31 Warranty Expense... 1,386.00 Estimated Warranty Liability... 1,386.00 To record flashlight warranty expense and liability at 18% of the units sold (18% 550 = 99 $14) 2012 Jan. 14 Cash... 22,000.00 Sales (275 x $80)... 22,000.00 Sold flashlights to customers. 14 Cost of Goods Sold (275 $14)... 3,850.00 Merchandise Inventory... 3,850.00 To record the cost of the January 5 sale. 20 Estimated Warranty Liability... 882.00 Merchandise Inventory... 882.00 To record the cost of flashlights warranty replacements (63 $14). 31 Warranty Expense... 700.00 Estimated Warranty Liability... 700.00 To record flashlight warranty expense and liability at 18% of the units sold (18% 275 = 49.5 or 50 units $14). Copyright 2007 by McGraw-Hill Ryerson Limited. All rights reserved. 8 Fundamental Accounting Principles, Twelfth Canadian Edition