HOMEWORK COLLECTION

DUE DATE: APRIL 23RD, 2010

 PROBLEM 1:
 PROBLEM 2
 P9-2A (collecting)

Professor Vedd
 Home work problem 1
Blake Company purchased a capital asset on January 1,
2000 for $57,000. An additional $3,000 was spent on
testing. The capital asset is estimated to have a residual
value of $5,000. It is estimated the capital asset will be
used for 20,000 hours before being sold. The capital
asset was used for 4,000 hours in 2000 and 4,800 hours
in 2001. In 2002, the capital asset is expected to be used
4,400 hours. The amortization expenses for 2000 and
2001 using three alternative amortization methods are:

Year Method A Method B Method C

2000 $11,000 $11,000 $12,000
2001 13,200 11,000 9,600

REQUIRED: SEE NEXT SLIDE..

 Homework problem 1 (required)

Required:
1.Identify the three amortization methods used.
2.Calculate the amortization expense for 2002 for each of
the three methods
3.Record the adjusting entries using Method B only.
4.Assume the machine was sold on December 31, 2002
for $23,000 cash after the adjusting entry (c) was
recorded using Method B, prepare the journal entry to
record the disposal of the capital asset. Show all
calculations.
 HOMEWORK
HOMEWORK PROBLEM
PROBLEM 22

Lenard Co. purchases a delivery truck at a cash price of

$22,000.
Related expenditures (paid cash) are:
sales taxes $1,320,
painting and lettering $500,
motor vehicle license $80, and
annual accident insurance policy $1,600.
Compute AND RECORD the cost of the delivery truck.
SOLUTION
SOLUTION HOMEWORK
HOMEWORK PROBLEM
PROBLEM 22

Truck
Cash price $22,000
Sales taxes 1,320
Painting and lettering 500

Cost of Delivery Truck $23,820

SOLUTION HOMEWORK PROBLEM
2

Dr. Truck $23,820

Dr. Licence fees expense 80
Dr. Prepaid Insurance 1,600
Cr. Cash 25,500

6
 Homework questions:
Due Date April 23rd

 P9-2A (collecting)
 SCHEDULE:
 APRIL 30TH : NO CLASSES (FURLOUGH DAY!)
 MAY 7TH : CHAPTER 11
 FINAL EXAM REVIEW
 FINAL EXAM: CHAPTER 9, 10 & 11

Professor Vedd
 Reporting and
Analyzing Liabilities

Professor Vedd
 OBJECTIVES
LIBILITIES
 Notes Payable
 1. recording the issue of notes payable
 2. calculating interest
 3. accruing interest at year end (if)
 4. presentation: partial statement
 5. payment of notes payable at due date.
 Bonds Payable
1. Recording
2. Calculating and recording interest
3. and Amortizing Bonds
4. Presentation: Partial statement
5. Payment of Bonds payable at due dates

Professor Vedd
 Current
Current Liabilities
Liabilities

Current liability is debt :

1. Company will pay the debt within one year

Current liabilities include notes payable, accounts payable,

unearned revenues, and accrued liabilities such as taxes,
salaries and wages, and interest payable.

Professor Vedd
 Current
Current Liabilities
Liabilities

Notes Payable
Written promissory note.
Require the borrower to pay interest.
Those due within one year of the balance sheet date are usually
classified as current liabilities.

Professor Vedd
 Current
Current Liabilities
Liabilities

Illustration:
First National Bank agrees to lend $100,000 on
September 1, 2010, Cole Williams Co. signs a $100,000,

12%, four-month note maturing on January 1.

Year end is December 31

Sept. 1
Cash 100,000
Notes payable
Professor Vedd
 Current
Current Liabilities
Liabilities

Illustration: If Cole Williams Co. prepares financial

statements annually, it makes an adjusting entry at
December 31 to recognize interest.

Dec. 31 Interest expense 4,000 *

Interest payable

4,000

* $100,000 x 12% x 4/12 = 4,000

Professor Vedd
 Current
Current Liabilities
Liabilities

Illustration: At maturity (January 1), Cole Williams Co.

must pay the face value of the note plus interest. It
records payment as follows.

Jan. 1 Notes payable 100,000

Interest payable 4,000
Cash

104,000

Professor Vedd
 Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities

Issuing Procedures
Bond certificate
 Issued to the investor.
 Provides information such as the
 name of the company issuing bonds,
Face value - principal due at the maturity.
Maturity date - date final payment is due.
Contractual interest rate – rate to determine cash
interest paid, generally semiannually.

Sold in small denominations (usually $1,000 or multiples of

$1,000).

Professor Vedd
Bond:
Bond: Long-Term
Long-Term Liabilities
Liabilities
Issuer
Issuer of
of
Bonds
Bonds
Illustration 10-3

Maturity
Maturity
Date
Date

Contractual
Contractual
Interest
Interest
Rate
Rate

Face
Face or
or
Par
Par Value
Value SO 4 Identify the types of bonds.
Professor Vedd
Professor
Vedd
BOND MARKET: FINANCIAL MARKET
 Corporate, Government & Agency,Municipal,
Mortgage etc.
 (NYSE) is the largest centralized bond market,
representing mostly corporate bonds.
 Also trading: between broker-dealers and large
institutions in a decentralized,
over-the-counter (OTC) market.

Professor Vedd
 Issuing
Issuing Bonds
Bonds at
at Face
Face Value
Value
Illustration:
Devor Corporation issues $100,000, five-year, 10%, bonds
dated January 1, 2010, at 100 (100% of face value).
The entry to record the sale is:

Jan. 1 Cash 100,000

Bonds payable 100,000

Prepare the entry Devor would make to accrue interest on

December 31.

Dec. 31 Bond interest expense 10,000

Bond interest payable 10,000

Professor Vedd
Issuing
Issuing Bonds
Bonds at
at Face
Face Value
Value

Prepare the entry Devor would make to pay the interest on

Jan. 1, 2011.

Jan. 1 Bond interest payable 10,000

Cash 10,000

Professor Vedd
 $100,000 9% , 5 years bonds
1. Record the entry: Issued on January 1, 2008 and issued at face value (Par Value)

(market price quoted as 100 (100%)

Dr. Cash 100,000
Bonds payable100,000
2. Record the entry at year end dec. 31
Dr. Bond Interest expense 9,000
Cr. Bonds interest payable 9,000
3. Jan 1’
Dr. bond interest payable 9,000
cr. Cash 9,000
4 Record the entry at Maturity date at the end of year 5
January 1 2013
Dr. bond interest payable 9,000
cash 9,000
Dr. Bonds payable 100,000
Cr. Cash 100,000
Professor Vedd
Interest Rates and Bond Prices

Professor Vedd
 Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount

Illustration: Assume that on January 1, 2010, Candlestick

Inc. sells $100,000, five-year, 10% bonds at 98 (98% of face
value) with interest payable on January 1. The entry to
record the issuance is:

Jan. 1 Cash 98,000

Discount on bonds payable 2,000
Bonds payable 100,000

Professor Vedd
Issuing
Issuing Bonds
Bonds at
at aa Discount
Discount

Statement Presentation

Professor Vedd
 Straight-Line
Straight-LineAmortization
Amortization

Amortizing Bond Discount and Premium

To follow the matching principle, companies allocate
bond discount and bond premium to expense in each
period in which the bonds are outstanding.

Professor Vedd
 Straight-Line
Straight-LineAmortization
Amortization
Amortizing Bond Discount
1. Interest is payable on January 1 of each year. 100,000
x 10%= 10,000

2. Discount on Bonds payable is Amortized

over the term of the bonds: Straight line Method
Candlestick Bonds are 5 years
Amortization: 2,000/5 = 400

Dec. 31 Bond interest expense 10,400

Discount on bonds payable
Bond interest payable
400
10,000
Professor Vedd
Straight-Line
Straight-LineAmortization
Amortization Appendix 10A

Amortizing Bond Discount

Illustration 10A-2

Professor Vedd
 Issuing
Issuing Bonds
Bonds at
at aa Premium
Premium

Illustration: Assume that the Candlestick Inc. bonds

previously described sell at 102 rather than at 98.
The entry to record the sale is:

Jan. 1 Cash 102,000

Bonds payable 100,000
Premium on bonds payable 2,000

Professor Vedd
Issuing
Issuing Bonds
Bonds at
at aa Premium
Premium

Statement Presentation

Professor Vedd
Straight-Line
Straight-LineAmortization
Amortization
Amortizing Bond Premium
Illustration: Candlestick, Inc., sold $100,000, five-
year, 10% bonds on January 1, 2010, for $102,000
(premium of $2,000).
Interest: 100,000 x 10% = 10,000
Amortization of Premium: 2,000/5 years = 400

Dec. 31 Bond interest expense 9,600

Premium on bonds payable 400
Bond interest payable

10,000
Professor Vedd
Straight-Line
Straight-LineAmortization
Amortization

Amortizing Bond Premium

Illustration 10A-2

Professor Vedd
 Accounting
Accounting for
for Bond
Bond Retirements
Retirements

Redeeming Bonds at Maturity

Candlestick records the redemption of its bonds at maturity
as follows:

Bonds payable 100,000

Cash 100,000

Professor Vedd
Financial
Financial Statement
StatementAnalysis
Analysis and
and Presentation
Presentation
Balance Sheet Presentation

Professor Vedd
 In class problem 1

 on January 1, 2010, ABC Inc. sells $500,000,

6-year, 10% bonds at 99 with interest
payable on January 1.
 The entry to record the issuance of bonds
 JAN 1
 DR. CASH 495,000
 DR. DISCOUNT ON BONDS PAYABLE 5000
 CR. BONDS PAYABLE 500,000
 The entry to record at Dec. 31, 2010
 500,000 X 10%= 50,000
 DISCOUNT 5000/6=833
 DR. BOND INT EXPENSE 50,833
 CR. DISCOUNT ON BONDS PAY 833
 CR. BONDS INTEREST PAYABLE 50,000
Professor Vedd
 HOMEWORK problem 1
 on January 1, 2010, ABC Inc. sells $500,000,
6-year, 10% bonds at 101 with interest
payable on January 1.
 The entry to record the issuance of bonds
 The entry to record at Dec. 31, 2010
 Prepare partial balance Sheet At Dec. 31,
2010
 The entry to record the payment of bonds
at maturity.

Professor Vedd
 Collecting: HOMEWORK
PROBLEM 10-8A (10 POINTS)
PROBLEM 10-2B (10 POINTS)
NO QUIZZES ANY MORE
EXTRA: HOMEWORK QUESTIONS
 PRACTICE: FOR FINAL EXAM
 BRIEF EXERCISE 10-6
 BRIEF EXERCISE 10-8
 *BRIEF EXERCISE 10-12
 *BRIEF EXERCISE 10-13
 EXERCISE 10-3
 EXERCISE 10-8

Professor Vedd