Chapter 9: Q1DQ (page 428)
What is the difference between a current and a long-term liability?
Current liabilities are those liabilities that are payable within the accounting period whereas long-term liabilities are those which are payable after one accounting period.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Bug-Off Exterminators provides pest control services and sells extermination products manufactured by other companies. The following six-column table contains the company’s unadjusted trial balance as of December 31, 2017.
BUG-OFF EXTERMINATORS December 31, 2017 | ||||||
| Particulars | Unadjusted trial balance | Adjustments | Adjusted trial balance | |||
| Debit \( | Credit \) | Debit \( | Credit \) | Debit \( | Credit \) | |
| Cash | \(17,000 | |||||
| Accounts receivables | 4,000 | |||||
| Allowance for doubtful accounts | \)828 | |||||
| Merchandise inventory | 11,700 | |||||
| Trucks | 32,000 | |||||
| Accumulated depreciation – trucks | 0 | |||||
| Equipment | 45,000 | |||||
| Accumulated depreciation – equipment | 12,200 | |||||
| Account payable | 5,000 | |||||
| Estimated warranty liability | 1,400 | |||||
| Unearned service revenue | 0 | |||||
| Interest payable | 0 | |||||
| Long-term note payable | 15,000 | |||||
| Common stock | 10,000 | |||||
| Retained earnings | 49,700 | |||||
| Dividend | 10,000 | |||||
| Extermination service revenue | 60,000 | |||||
| Interest revenue | 872 | |||||
| Sales | 71,026 | |||||
| Cost of goods sold | 46,300 | |||||
| Depreciation expenses – truck | 0 | |||||
| Depreciation expenses – equipment | 0 | |||||
| Wages expenses | 35,000 | |||||
| Interest expenses | 0 | |||||
| Rent expenses | 9,000 | |||||
| Bad debt expenses | 0 | |||||
| Miscellaneous expenses | 1,226 | |||||
| Repair expenses | 8,000 | |||||
| Utility expenses | 6,800 | |||||
| Warranty expenses | 0 | |||||
| Total | \(226,026 | \)226,026 | ||||
The following information in a through h applies to the company at the end of the current year.
a. The bank reconciliation as of December 31, 2017, includes the following facts.
Cash balance per bank | \(15,100 |
Cash balance per book | 17,000 |
Outstanding checks | 1,800 |
Deposit in transit | 2,450 |
Interest earned (on bank account) | 52 |
Bank service charges (miscellaneous expenses) | 15 |
Reported on the bank statement is a canceled check that the company failed to record. (Information from the bank reconciliation allows you to determine the amount of this check, which is a payment on an account payable.)
b. An examination of customers’ accounts shows that accounts totaling \)679 should be written off as uncollectible. Using an aging of receivables, the company determines that the ending balance of the Allowance for Doubtful Accounts should be \(700.
c. A truck is purchased and placed in service on January 1, 2017. Its cost is being depreciated with the straight-line method using the following facts and estimates.
Original cost | \)32,000 |
Expected salvage value | 8,000 |
Useful life (years) | 4 |
d. Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2015. They are being depreciated with the straight-line method using these facts and estimates.
Sprayer | Injector | |
Original cost | \(27,000 | \)18,000 |
Expected salvage value | 3,000 | 2,500 |
Useful life (years) | 8 | 5 |
e. On August 1, 2017, the company is paid \(3,840 cash in advance to provide monthly service for an apartment complex for one year. The company began providing the services in August. When the cash was received, the full amount was credited to the Extermination Services Revenue account.
f. The company offers a warranty for the services it sells. The expected cost of providing warranty service is 2.5% of the extermination services revenue of \)57,760 for 2017. No warranty expense has been recorded for 2017. All costs of servicing warranties in 2017 were properly debited to the Estimated Warranty Liability account.
g. The \(15,000 long-term note is an 8%, five-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2017.
h. The ending inventory of merchandise is counted and determined to have a cost of \)11,700. Bug-Off uses a perpetual inventory system.
Required
1. Use the preceding information to determine amounts for the following items.
a. Correct (reconciled) ending balance of Cash, and the amount of the omitted check.
b. Adjustment needed to obtain the correct ending balance of the Allowance for Doubtful Accounts.
c. Depreciation expense for the truck used during year 2017.
d. Depreciation expense for the two items of equipment used during year 2017.
e. The adjusted 2017 ending balances of the Extermination Services Revenue and Unearned Services Revenue accounts.
f. The adjusted 2017 ending balances of the Warranty Expense and the Estimated Warranty Liability accounts.
g. The adjusted 2017 ending balances of the Interest Expense and the Interest Payable accounts. (Round amounts to nearest whole dollar.)
2. Use the results of part 1 to complete the six-column table by first entering the appropriate adjustments for items a through g and then completing the Adjusted Trial Balance columns. (Hint: Item b requires two adjustments.)
3. Prepare journal entries to record the adjustments entered on the six-column table. Assume Bug-Off’s adjusted balance for Merchandise Inventory matches the year-end physical count.
4. Prepare a single-step income statement, a statement of retained earnings (cash dividends during 2017 were $10,000), and a classified balance sheet.
Question: Warner Co. entered into the following transactions involving short-term liabilities in 2016 and 2017.
2016
Apr. 22 Purchased \(5,000 of merchandise on credit from Fox-Pro, terms n∕30. Warner uses the perpetual inventory system.
May 23 Replaced the April 22 account payable to Fox-Pro with a 60-day, \)4,600 note bearing 15% annual interest along with paying \(400 in cash.
July 15 Borrowed \)12,000 cash from Spring Bank by signing a 120-day, 10% interest-bearing note with a face value of \(12,000.
___?___ Paid the amount due on the note to Fox-Pro at maturity.
___?___ Paid the amount due on the note to Spring Bank at maturity.
Dec. 6 Borrowed \)8,000 cash from City Bank by signing a 45-day, 9% interest-bearing note with a face value of $8,000.
31 Recorded an adjusting entry for accrued interest on the note to City Bank.
2017
___?___ Paid the amount due on the note to City Bank at maturity.
Required
1. Determine the maturity date for each of the three notes described.
2. Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.)
3. Determine the interest expense to be recorded in the adjusting entry at the end of 2016.
4. Determine the interest expense to be recorded in 2017.
5. Prepare journal entries for all the preceding transactions and events for years 2016 and 2017.
Refer to Samsung’s balance sheet in Appendix A. List Samsung’s current liabilities as of December 31, 2015.
Question: Shown here are condensed income statements for two different companies (both are organized as LLCs and pay no income taxes).
Miller Company
Sales \(1,000,000
Variable expenses (80%) 800,000
Income before interest 200,000
Interest expense (fixed) 60,000
Net income \) 140,000
Weaver Company
Sales \(1,000,000
Variable expenses (60%) 600,000
Interest expense (fixed) 260,000
Net income \) 140,000
Required
1. Compute times interest earned for Miller Company.
2. Compute times interest earned for Weaver Company.
3. What happens to each company’s net income if sales increase by 30%?
4. What happens to each company’s net income if sales increase by 50%?
5. What happens to each company’s net income if sales increase by 80%?
6. What happens to each company’s net income if sales decrease by 10%?
7. What happens to each company’s net income if sales decrease by 20%?
8. What happens to each company’s net income if sales decrease by 40%?
Analysis Component
9. Comment on the results from parts 3 through 8 in relation to the fixed-cost strategies of the two companies and the ratio values you computed in parts 1 and 2.
Which payroll taxes are the employee’s responsibility and which are the employer’s responsibility?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
