Chapter 13: Question 3Q (page 691)
Why is the liabilities section of the balance sheet of primary significance to bankers?
The liabilities section of the balance sheet is of great importance as it helps in understanding the organization’s liquidity.
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On December 21, 2017, Zurich Company provided you with the following information regarding its trading investments.
December 31, 2017
Investments (Trading) Cost Fair Value Unrealized Gain (Loss)
Stargate Corp. shares \(20,000 \)19,000 \((1,000)
Carolina Co. shares 10,000 9,000 1000
Vectorman Co. shares 20,000 20,600 600
Total of portfolio \)50,000 \(48,600 \)(1,400)
Previous fair value adjustment balance-0-
Fair value adjustment-Cr. \((1,400)
During 2018, Carolina Co. shares were sold for \)9,500. The fair value of the shares on December 31, 2018, was Stargate Corp.
shares-\(19,300: Vectorman Co. shares-\)20,500
Instructions
(a) Prepare the adjusting journal entry needed on December 31, 2017.
(b) Prepare the journal entry to record the sale of the Carolina Co. shares during 2018.
(c) Prepare the adjusting journal entry needed on December 31, 2018.
Under what conditions is an employer required to accrue a lability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?
Komissarov Company has a debt investments in the bonds issued by Keune Inc. The bonds were purchased at par
for \(400,000 and, at the end of 2017, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is classified as held-for-collection. Keune is facing a tough economical environment and informs all of its investors that it will be unable to make all payments according to the contractul terms. The controller of Komissarov has prepared the following revised expected cash flow forecast for this bond investment.
December 31, Expected cash flows
2018 \)35,000
2019 35,000
2020 385,000
Total cash flows $455,000
Instructions
(a) Determine the impairement loss for Komissarov at December31, 2017.
(b) Prepare the entry to record the impairement loss for Komissarov at Decembber 31, 2017.
(c) On January 15, 2018, Keune receives a major capiatl infusion from a private equity investor. It informs Komissarov that the bonds now will be paid according to the contractual terms. Briefly describe how the Komissarov would account for the bond investment in light of this new information.
Question: (Lessee-Lessor Entries, Operating Lease) Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of \(33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of \)240,000, and a cost to Cleveland of \(240,000. The estimated fair value of the crane is expected to be \)45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo’s incremental borrowing rate is 10%, and Cleveland’s implicit interest rate of 9% is known to Abriendo.
Instructions
Question: E13-1 (L01) (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term debts to be paid (e) Employee payroll deductions unremitted. from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred stock. performance of a contract. (p) Loans from officers. (h) Sales taxes payable. (i) Gift certificates sold to customers but not yet redeemed.
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