Liabilities and Equity Exercises I

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Larry M Walther; Christopher J Skousen

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Larry M Walther & Christopher J Skousen

Liabilities and Equity Exercises I

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Liabilities and Equity Exercises I

1st edition

All material in this publication is copyrighted, and the exclusive property of

ISBN 978-87-7681-774-9

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Contents

Contents

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Problem 1

Problem 1

Best Electronics operates a retail electronics company Examine the following items and prepare the current liability section of the company’s December 31, 20X8, balance sheet

he beginning of year accounts payable was $150,000 Purchases on trade accounts during the year were $975,000, and payments on account were $915,000

he company incurs substantial costs for electricity to run its stores and air conditioning systems As of December 31, 20X8, it is estimated that $82,500 of electricity has been used, although the monthly billing for December has not yet been received

Best Electronics sells service plans for as low as $25 per month However, it requires its customers

to prepay in 6-month increments As of the end of the year, $562,500 had been collected for 20X9 web hosting plans

Best Electronic’s service plans are subject to sales taxes, and Best collected $97,500 during the year All of these amounts have been remitted to taxing authorities, with the exception of

$7,500 that is due to be paid in January, 20X9

he company has total bank loans of $2,250,000 his debt bears interest at 6%, payable monthly

As of December 31, 20X8, all interest had been paid, with the exception of accrued interest for the last half of December

he company’s bank loans ($2,250,000) are all due on June 30, 20X9 However, Best Electronics has a irm lending agreement with the bank to renew and extend $1,500,000 of this amount on

a 5-year basis he company intends to exercise this renewal option, but is not yet sure about the inal disposition of the remainder

Worksheet 1

Liabilities

Current liabilities

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Problem 1

Supporting calculations:

Solution 1

Liabilities

Current liabilities

Supporting calculations:

Accounts payable ($150,000 + $975,000 – $915,000 = $210,000)

Interest payable ($2,250,000 × 6% × 15/360 = $5,625)

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Problem 2

Problem 2

On April 1, 20X1, Geo Farming Services purchased a new GPS surveying instrument Farmer paid $2,500 down and executed the following promissory note:

FOR VALUE RECEIVED, the undersigned promises to pay to the order of GPS Surveying Company the sum of:

*******FIFTEEN-THOUSAND AND NO/100 Dollars******* ($15,000)

with annual interest of 8% on any unpaid balance This note shall mature and be payable, along with accrued

interest, on March 31, 20X2.

April 1, 20X1

Issue Date

T.W Farmer Geo Farming Services

Signature

a) Prepare the appropriate journal entry to record the purchase on April 1, 20X1

b) Prepare the appropriate journal entry to record the year-end interest accrual on

December 31, 20X1

c) Prepare the appropriate journal entry to record the payment of the note and accrued interest

on March 31, 20X2

Worksheet 2

a), b), c)

GENERAL JOURNAL

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