Chapter 11: Q6RQ (page 603)
Coltrane Company has a \(5,000 note payable that is paid in \)1,000 installments over five years. How would the portion that must be paid within the next year be reported on the balance sheet?
The current portion of notes payable would be shown under the current liability in the balance sheet.
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Hugh Stanley manages a Dairy House drive-in. His straight-time pay is \(12 per hour, with time-and-a-half for hours in excess of 40 per week. Stanley’s payroll deductions include withheld income tax of 20%, FICA tax, and a weekly deduction of \)5 for a charitable contribution to United Way. Stanley worked 58 hours during the week.
Requirements
Freeman Motors, a motorcycle manufacturer, had the following contingencies.
a. Freeman estimates that it is reasonably possible but not likely that it will lose a current lawsuit. Freeman’s attorneys estimate the potential loss will be \(4,500,000.
b. Freeman received notice that it was being sued. Freeman considers this lawsuit to be frivolous.
c. Freeman is currently the defendant in a lawsuit. Freeman believes it is likely that it will lose the lawsuit and estimates the damages to be paid will be \)75,000.
Determine the appropriate accounting treatment for each of the situations Freeman is facing.
The income statement for California Communications follows. Assume California Communications signed a 3-month, 9%, \(3,000 note on June 1, 2018, and that this was the only note payable for the company.
California Communications | ||
Income Statement | ||
Year Ended July 31, 2018 | ||
Net Sales Revenue | \) 21,800 | |
Cost of Goods Sold | 14,000 | |
Gross Profit | 7,800 | |
Operating Expenses: | ||
Selling Expenses | \( 720 | |
Administrative Expenses | 1,650 | |
Total Operating Expenses | 2,370 | |
Operating Income | 5,430 | |
Other Income and (Expenses): | ||
Interest Expense | ? | |
Total Other Income and (Expenses) | ? | |
Net Income before Income Tax Expense | ? | |
Income Tax Expense | 1,080 | |
Net Income | \) ? |
Requirements
1. Fill in the missing information for California’s year ended July 31, 2018, income statement. Round to the nearest dollar.
2. Compute the times-interest-earned ratio for the company. Round to two decimals.
Theodore Simpson works for Blair Company all year and earns a monthly salary of \(4,000. There is no overtime pay.
Based on Theodore’s W-4, Blair withholds income taxes at 15% of his gross pay. As of July 31, Theodore had \)28,000 ofcumulative earnings.
Journalize the accrual of salary expense for Blair Company related to the employment of Theodore Simpson for the month ofAugust.
The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:
2017
Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.
29 Recorded the week’s sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.
Feb. 5 Sent the last week’s sales tax to the state.
Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.
Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.
Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.
31 Accrued interest on all outstanding notes payable.
2018
Feb. 28 Paid the six-month 10% note, plus interest, at maturity.
Journalize the transactions in Plymouth’s general journal. Explanations are not required.
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