Solution manual intermediate accounting 15th kiesoch13

E13-3B 10–12 minutesHERNANDEZ COMPANY Balance Sheet partial December 31, 2014 Current liabilities: Notes payable Note 1.... OR Current liabilities: Notes payable Note 1..... E13-4B 20–25

CHAPTER 13

SOLUTIONS TO B EXERCISES

E13-1B (10–15 minutes)

of note.

estimable).

E13-2B (15–20 minutes)

(a) Sept 1 Purchases 125,000

Accounts Payable 125,000

Oct 1 Accounts Payable 125,000

Notes Payable 125,000

Oct 1 Cash 125,000

Discount on Notes Payable 17,000

Notes Payable 142,000

(b) Dec 31 Interest Expense 3,750

Interest Payable ($125,000 X 12% X 3/12) 3,750

Dec 31 Interest Expense 4,250

Discount on Notes Payable ($17,000 X 3/12) 4,250

$128,750

$129,250

E13-3B (10–12 minutes)

HERNANDEZ COMPANY Balance Sheet (partial) December 31, 2014 Current liabilities:

Notes payable (Note 1) $ 500,000

Long-term debt:

Note 1.

Short-term debt refinanced As of December 31, 2014, the company had notes payable totaling $3,000,000 due on February 2, 2015 These notes were refinanced on their due date to the extent of $2,500,000 received from the issuance of common stock on January 21, 2015 The balance

of $500,000 was liquidated using current assets.

OR

Current liabilities:

Notes payable (Note 1) $ 500,000

Long-term debt:

(Same Note 1 as above.)

E13-4B (20–25 minutes)

GIBSON COMPANY Balance Sheet (partial) December 31, 2014 Current liabilities:

Long-term debt:

Notes payable expected to be refinanced in 2015

(Note 1) 9,360,000

Note 1.

Under a financing agreement with Blue Lagoon State Bank the Company may borrow up to 60% of the gross amount of its accounts receivable at

an interest cost of 1% above the prime rate The Company intends to issue notes maturing in 2019 to replace $9,360,000 of short-term, 15%, notes due in 2015 Because the amount that can be borrowed may range from $9,360,000 to $12,480,000, only $9,360,000 of the $18,200,000 of currently maturing debt has been reclassified as long-term debt.

E13-5B (25–30 minutes)

(a) To accrue the expense and liability To record payment for compensated

Year for compensated absences: time when used by employees:

2013 Wages Expense 17,280 Sick Pay Wages

Vacation Wages Payable 4,320(3)

Payable 10,800(1) Cash 4,320 Sick Pay Wages

Payable 6,480(2)

2014 Wages Expense 20,736 Wages Expense 2,376

Vacation Wages Vacation Wages

Payable 12,960(4) Payable 9,720(6)

Sick Pay Wages Sick Pay Wages

Payable 7,776(5) Payable 6,048(7)

Cash 18,144(8)

Note: Vacation days and sick days are paid at the employee’s current wage.

E13-5B (Continued)

Vacation Wages Payable

Sick Pay Wages Payable

Vacation Wages Payable

Sick Pay Wages Payable

$14,040

E13-6B (25–30 minutes)

To accrue the expense and liability for vacations

To record sick leave paid

To record vacation time paid

No entry, since no vacation days were used.

2015

To accrue the expense and liability for vacations

To record sick leave paid

To record vacation time paid

Vacation Wages Payable 10,368 (5)

E13-6B (Continued)

$14,472

E13-7B (5–7 minutes)

June 30 Revenue from Sales 35,556

Computation:

E13-8B (10–15 minutes)

Cash 702,200 *($960,000 – $220,000) X 7.65% = $56,610

$220,000 X 1.45% = $3,190; $56,610 + $3,190 = $59,800

E13-8B (Continued)

Payroll Tax Expense 63,000

(See previous computation)

($960,000 – $800,000) X 8%

$160,000 X (3.5% – 2.3%)

E13-9B (15–20 minutes)

Warehouse

Sales

*$154,000 X 7.65% = $11,781; $30,000 X 1.45% = $435;

$11,781 + $435 = $12,216

Administrative

*$26,000 X 7.65% = $1,989; $25,000 X 1.45% = $363;

$1,989 + $363 = $2,352

E13-9B (Continued)

Schedule

(b)

Warehouse Payroll:

Payroll Tax Expense 17,739

Sales Payroll:

Payroll Tax Expense 12,381

Administrative Payroll:

Payroll Tax Expense 2,352

E13-10B (10–15 minutes)

(a) Cash (400 X $3,000) 1,200,000

Sales 1,200,000

Warranty Expense 24,000

Cash 24,000

(b) Cash 1,200,000

Sales 1,200,000

Warranty Expense 24,000

Cash 24,000

E13-11B (15–20 minutes)

(a) Cash 2,400,000

Warranty Expense 30,000

Cash 30,000 Warranty Expense 120,000

Estimated Liability Under Warranties

(b) Cash 2,400,000

Sales 2,200,000

Warranty Expense 30,000

Cash 30,000 Unearned Warranty Revenue 40,000

Warranty Revenue

E13-12B (15–20 minutes)

Cash (55,000 X $3.75) 206,250

Premium Expense 2,800

Premium Expense 500*

*[(55,000 X 60%) – 28,000] ÷ 5 X $0.50 = $500

E13-13B (20–30 minutes)

range appears at the time to be a better estimate than any other amount within the range, that amount is accrued When no amount within the range is a better estimate than any other amount, the dollar amount at the low end of the range is accrued, and the dollar amount of the high end of the range is disclosed In this case, therefore, Santiago Inc would report a liability of $225,000 at December 31, 2014.

except for the $125,000 deductible, only the $125,000 should be accrued.

excess of the book value of the plant Gain contingencies are not recorded and are disclosed only when the probabilities are high that

a gain contingency will become reality.

E13-14B (25–30 minutes)

(a) Depot 2,400,000

Cash 2,400,000 Depot 167,516

(b) Depreciation Expense 240,000

Depreciation Expense 16,752

Interest Expense 10,051

*$167,516/10

**$167,516 X 06

(c) Asset Retirement Obligation 300,000

Loss on ARO Settlement 20,000

Cash 320,000 E13-15B (20–30 minutes)

3,000,000 Cost of redemptions to be redeemed in 2015

(9,800,000 X 60%)

Redemption rate X 30%

Total cost $165,000

Total cost $165,000

E13-15B (Continued)

3 Boxes 1,000,000 Redemption rate X 40% Total redeemable 400,000

Cost ($5.20 – $2.00) X $3.20

E13-16B (20–25 minutes)

E13-17B (15–20 minutes)

The current ratio measures the short-term ability of the company to meet its currently maturing obligations.

(b)

Acid-test ratio = Cash + Marketable securities + Receivables = $57,500 = 1.44

Current liabilities $40,000

The acid-test ratio also measures the short-term ability of the company to meet its current maturing obligations However, it eliminates assets that might be slow-moving, such as inventories and prepaid expenses.

This ratio provides the creditors with some idea of the company’s ability

to withstand losses without impairing the interest of creditors.

This ratio measures the return the company is earning on its average total assets and provides one indication related to the profitability of the company.

E13-18B (20–25 minutes)

$277,000

$277,000

every 18 days) 2

every 62 days) 2

2

$328,000 ÷ $2,608,000 = 12.58%

and prevailing business conditions Although industry and general business conditions are unknown in this case, the company appears to have a relatively strong current position The main concern from a short-term perspective is the apparently low inventory turnover The rate of return on assets and profit margin on sales are extremely good and indicate that the company is employing its assets advantageously.

E13-19B (15–25 minutes)

44 days).

2

doubtful accounts.

liabilities by a like amount.