P11-4B Egan Electronics issues an $500,000, 8%, 10-year mortgage note on December 31,

Price: $2.50


Egan Electronics issues an $500,000, 8%, 10-year mortgage note on December 31,
2008, to help finance a plant expansion program. The terms provide for semiannual installment
payments, not including real estate taxes and insurance, of $36,791. Payments are due June 30 and
December 31.

Instructions
(a) Prepare an installment payments schedule for the first 2 years.
(b) Prepare the entries for (1) the mortgage loan and (2) the first two installment payments.
(c) Show how the total mortgage liability should be reported on the balance sheet at December
31, 2009.

P11-4A Kusmaul Electric sold $500,000, 10%, 10-year bonds on January 1, 2008. The bonds

Price: $2.50


Kusmaul Electric sold $500,000, 10%, 10-year bonds on January 1, 2008. The bonds
were dated January 1 and paid interest on January 1 and July 1.The bonds were sold at 104.

Instructions
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2008.
(b) At December 31, 2008, the balance in the Premium on Bonds Payable account is $18,000.
Show the balance sheet presentation of accrued interest and the bond liability at December
31, 2008.
(c) On January 1, 2010, when the carrying value of the bonds was $516,000, the company redeemed
the bonds at 105. Record the redemption of the bonds assuming that interest for the
period has already been paid.

P11-3B Merendo Co. sold $600,000, 9%, 10-year bonds on January 1, 2008. The bonds were

Price: $3.99  
 

P11-3B Merendo Co. sold $600,000, 9%, 10-year bonds on January 1, 2008. The bonds were

dated January 1, and interest is paid on January 1 and July 1.The bonds were sold at 105.

Instructions

(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2008.

(b) At December 31, 2008, the balance in the Premium on Bonds Payable account is $27,000.

Show the balance sheet presentation of accrued interest and the bond liability at December

31, 2008

(c) On January 1, 2010, when the carrying value of the bonds was $624,000, the company redeemed

the bonds at 105. Record the redemption of the bonds assuming that interest for the

period has already been paid.

P11-3A On May 1, 2008, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The

Price: $2.50


On May 1, 2008, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The
bonds were dated May 1, 2008, and pay interest semiannually on May 1 and November 1.
Financial statements are prepared annually on December 31.

Instructions
(a) Prepare the journal entry to record the issuance of the bonds.
(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2008.
(c) Show the balance sheet presentation on December 31, 2008.
(d) Prepare the journal entry to record payment of interest on May 1, 2009, assuming no accrual
of interest from January 1, 2009, to May 1, 2009.
(e) Prepare the journal entry to record payment of interest on November 1, 2009.
(f) Assume that on November 1, 2009, Newby calls the bonds at 102. Record the redemption of
the bonds.

P11-2B On June 1, 2008, Logsdon Corp. issued $1,500,000, 8%, 5-year bonds at face value.The

Price: $3.99

P11-2B On June 1, 2008, Logsdon Corp. issued $1,500,000, 8%, 5-year bonds at face value.The

bonds were dated June 1, 2008, and pay interest semiannually on June 1 and December 1.

Financial statements are prepared annually on December 31.

Instructions

(a) Prepare the journal entry to record the issuance of the bonds.

(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2008.

(c) Show the balance sheet presentation on December 31, 2008.

(d) Prepare the journal entry to record payment of interest on June 1, 2009, assuming no accrual

of interest from January 1, 2009, to June 1, 2009.

(e) Prepare the journal entry to record payment of interest on December 1, 2009.

(f) Assume that on December 1, 2009, Logsdon calls the bonds at 102. Record the redemption

of the bonds.

P11-2A The following are selected transactions of Winsky Company.Winsky prepares financial

Price: $3.99
 

P11-2A The following are selected transactions of Winsky Company.Winsky prepares financial

statements quarterly.

Jan. 2 Purchased merchandise on account from Yokum Company, $30,000, terms 2/10, n/30.

Feb. 1 Issued a 9%, 2-month, $30,000 note to Yokum in payment of account.

Mar. 31 Accrued interest for 2 months on Yokum note.

Apr. 1 Paid face value and interest on Yokum note.

July 1 Purchased equipment from Korsak Equipment paying $11,000 in cash and signing a

10%, 3-month, $40,000 note.

Sept. 30 Accrued interest for 3 months on Korsak note.

Oct. 1 Paid face value and interest on Korsak note.

Dec. 1 Borrowed $15,000 from the Otago Bank by issuing a 3-month, 8% interest-bearing

note with a face value of $15,000.

Dec. 31 Recognized interest expense for 1 month on Otago Bank note.

Instructions

(a) Prepare journal entries for the above transactions and events.

(b) Post to the accounts Notes Payable, Interest Payable, and Interest Expense.

(c) Show the balance sheet presentation of notes and interest payable at December 31.

(d) What is total interest expense for the year?

P11-1B On January 1, 2008, the ledger of Payless Software Company contains the following liability

Price: $3.99

P11-1B On January 1, 2008, the ledger of Payless Software Company contains the following liability

accounts.

Accounts Payable                       $42,500

Sales Taxes Payable                   5,800

Unearned Service Revenue        15,000

During January the following selected transactions occurred.

Jan. 1 Borrowed $30,000 in cash from Amsterdam Bank on a 4-month, 8%, $30,000 note.

5 Sold merchandise for cash totaling $10,400, which includes 4% sales taxes.

12 Provided services for customers who had made advance payments of $9,000. (Credit Service Revenue.)

14 Paid state treasurer’s department for sales taxes collected in December 2007, $5,800.

20 Sold 900 units of a new product on credit at $52 per unit, plus 4% sales tax.

25 Sold merchandise for cash totaling $18,720, which includes 4% sales taxes.

Instructions

(a) Journalize the January transactions.

(b) Journalize the adjusting entries at January 31 for the outstanding notes payable.

(c) Prepare the current liabilities section of the balance sheet at January 31, 2008. Assume no

change in accounts payable.

P11-1A On January 1, 2008, the ledger of Mane Company contains the following liability

Price: $2.50


On January 1, 2008, the ledger of Mane Company contains the following liability
accounts.

Accounts payable			52,000
Sales taxes payable			7,000
Unearned service revenue			16,000

During January the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $22,680, which includes 8% sales taxes.
12 Provided services for customers who had made advance payments of $10,000. (Credit
Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2007 ($7,700).
20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $18,000 from UCLA Bank on a 3-month, 8%, $18,000 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.

Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint: Use
one-third of a month for the UCLA Bank note.)
(c) Prepare the current liabilities section of the balance sheet at January 31, 2008. Assume no
change in accounts payable

*E11-21 Joseph Company issued $800,000, 11%, 10-year bonds on December 31, 2007, for

Price: $1.99


Joseph Company issued $800,000, 11%, 10-year bonds on December 31, 2007, for
$730,000. Interest is payable semiannually on June 30 and December 31. Joseph Company uses
the straight-line method to amortize bond premium or discount.

Instructions
Prepare the journal entries to record the following.
(a) The issuance of the bonds.
(b) The payment of interest and the discount amortization on June 30, 2008.
(c) The payment of interest and the discount amortization on December 31, 2008.
(d) The redemption of the bonds at maturity, assuming interest for the last interest period has
been paid and recorded.

*E11-20 Patino Company issued $400,000, 9%, 20-year bonds on January 1, 2008, at 103.

Price: $2.99

*E11-20 Patino Company issued $400,000, 9%, 20-year bonds on January 1, 2008, at 103.

Interest is payable semiannually on July 1 and January 1. Patino uses straight-line amortization

for bond premium or discount.

Instructions

Prepare the journal entries to record the following.

(a) The issuance of the bonds.

(b) The payment of interest and the premium amortization on July 1, 2008, assuming that interest

was not accrued on June 30.

(c) The accrual of interest and the premium amortization on December 31, 2008.

(d) The redemption of the bonds at maturity, assuming interest for the last interest period has

been paid and recorded.

*E11-19 Siburo Company issued $300,000, 11%, 10-year bonds on January 1, 2008, for $318,694.

Price: $2.99

*E11-19 Siburo Company issued $300,000, 11%, 10-year bonds on January 1, 2008, for $318,694.

This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually

on July 1 and January 1. Siburo uses the effective-interest method to amortize bond premium

or discount.

Instructions

Prepare the journal entries to record the following. (Round to the nearest dollar).

(a) The issuance of the bonds.

(b) The payment of interest and the premium amortization on July 1, 2008, assuming that interest

was not accrued on June 30.

(c) The accrual of interest and the premium amortization on December 31, 2008.

Hrabik Corporation 600000

Price: $1.99


Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2008, for
$562,613.This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable
semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize
bond premium or discount.

Instructions
Prepare the journal entries to record the following. (Round to the nearest dollar.)
(a) The issuance of the bonds.
(b) The payment of interest and the discount amortization on July 1, 2008, assuming that interest
was not accrued on June 30.
(c) The accrual of interest and the discount amortization on December 31, 2008.

*E11-17 Banzai Corporation is issuing $200,000 of 8%, 5-year bonds when potential bond

Price: $1.99


Banzai Corporation is issuing $200,000 of 8%, 5-year bonds when potential bond investors want a return of 10%. Interest is payable semiannually.

Instructions
Compute the market price (present value) of the bonds.

E11-16 The adjusted trial balance for Gilligan Corporation at the end of the current year contained

Price: $1.99

The adjusted trial balance for Gilligan Corporation at the end of the current year contained

the following accounts.

Interest Payable	$9,000
Lease Liability	89,500
Bonds Payable, due 2013	180,000
Premium on Bonds Payable	32,000

Instructions

Prepare the long-term liabilities section of the balance sheet.

Leoni Co 240000

Price: $1.99


Leoni Co. receives $240,000 when it issues a $240,000, 10%, mortgage note payable to
finance the construction of a building at December 31, 2011. The terms provide for semiannual
installment payments of $20,000 on June 30 and December 31.

Instructions
Prepare the journal entries to record the mortgage loan and the first two installment payments

E11-14 Presented below and on the next page are three independent situations.

Price: $1.99


Presented below and on the next page are three independent situations.

1. Sigel Corporation retired $130,000 face value, 12% bonds on June 30, 2008, at 102.The carrying
value of the bonds at the redemption date was $117,500.The bonds pay semiannual interest,
and the interest payment due on June 30, 2008, has been made and recorded.

2. Diaz Inc. retired $150,000 face value, 12.5% bonds on June 30, 2008, at 98.The carrying value
of the bonds at the redemption date was $151,000.The bonds pay semiannual interest, and the
interest payment due on June 30, 2008, has been made and recorded

3. Haas Company has $80,000, 8%, 12-year convertible bonds outstanding. These bonds were
sold at face value and pay semiannual interest on June 30 and December 31 of each year.The
bonds are convertible into 30 shares of Haas $5 par value common stock for each $1,000
worth of bonds. On December 31, 2008, after the bond interest has been paid, $20,000 face
value bonds were converted. The market value of Haas common stock was $44 per share on
December 31, 2008.

Instructions
For each independent situation above, prepare the appropriate journal entry for the redemption
or conversion of the bonds.

E11-13 The following section is taken from Budke Corp.’s balance sheet at December 31, 2007.

Price: $1.99

The following section is taken from Budke Corp.’s balance sheet at December 31, 2007.

Current liabilities
Bond interest payable $ 72,000
Long-term liabilities
Bonds payable, 9%, due January 1, 2012 1,600,000

Interest is payable semiannually on January 1 and July 1.The bonds are callable on any interest date.

Instructions
(a) Journalize the payment of the bond interest on January 1, 2008.
(b) Assume that on January 1, 2008, after paying interest, Budke calls bonds having a face value of $600,000.The call price is 104. Record the redemption of the bonds.
(c) Prepare the entry to record the payment of interest on July 1, 2008, assuming no previous accrual of interest on the remaining bonds.

E11-12 Deng Company issued $500,000 of 5-year, 8% bonds at 97 on January 1, 2008. The

Price: $1.99


Deng Company issued $500,000 of 5-year, 8% bonds at 97 on January 1, 2008. The
bonds pay interest twice a year.

Instructions
(a) (1) Prepare the journal entry to record the issuance of the bonds.
(2) Compute the total cost of borrowing for these bonds.
(b) Repeat the requirements from part (a), assuming the bonds were issued at 105.

Flory Company 300000

Price: $1.99


On January 1, Flory Company issued $300,000, 8%, 5-year bonds at face value.
Interest is payable semiannually on July 1 and January 1.

Instructions
Prepare journal entries to record the following events.
(a) The issuance of the bonds.
(b) The payment of interest on July 1, assuming no previous accrual of interest.
(c) The accrual of interest on December 31.

E11-10 On January 1, Neuer Company issued $500,000, 10%, 10-year bonds at par. Interest is

Price: $1.99


On January 1, Neuer Company issued $500,000, 10%, 10-year bonds at par. Interest is
payable semiannually on July 1 and January 1.

Instructions
Present journal entries to record the following.
(a) The issuance of the bonds.
(b) The payment of interest on July 1, assuming that interest was not accrued on June 30.
(c) The accrual of interest on December 31.

E11-9 Northeast Airlines is considering two alternatives for the financing of a purchase of a

Price: $2.99

E11-9 Northeast Airlines is considering two alternatives for the financing of a purchase of a

fleet of airplanes.These two alternatives are:

1. Issue 60,000 shares of common stock at $45 per share. (Cash dividends have not been paid nor

is the payment of any contemplated).

2. Issue 10%, 10-year bonds at par for $2,700,000.

It is estimated that the company will earn $800,000 before interest and taxes as a result of this

purchase.The company has an estimated tax rate of 30% and has 90,000 shares of common stock

outstanding prior to the new financing.

Instructions

Determine the effect on net income and earnings per share for these two methods of financing.

E11-8 Jim Thome has prepared the following list of statements about bonds.

Price: $1.99

Jim Thome has prepared the following list of statements about bonds.

1. Bonds are a form of interest-bearing notes payable.
2. When seeking long-term financing, an advantage of issuing bonds over issuing common
stock is that stockholder control is not affected.
3. When seeking long-term financing, an advantage of issuing common stock over issuing
bonds is that tax savings result.
4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds.
5. Secured bonds are also known as debenture bonds.
6. Bonds that mature in installments are called term bonds.
7. A conversion feature may be added to bonds to make them more attractive to bond buyers.
8. The rate used to determine the amount of cash interest the borrower pays is called the stated
rate.
9. Bond prices are usually quoted as a percentage of the face value of the bond.
10. The present value of a bond is the value at which it should sell in the marketplace.

Instructions
Identify each statement above as true or false. If false, indicate how to correct the statement.

E11-7 The following financial data were reported by 3M Company for 2005 and 2006 (dollars

Price: $1.99


The following financial data were reported by 3M Company for 2005 and 2006 (dollars
in millions).

3M Company
Balance Sheet (partial)
	2006	2005
Current assets
Cash and cash equivalents	1,918	1,072
Accounts receivable, net	3,769	2,838
Inventories	2,601	2,162
Other current assets	658	1,043
Total current assets	8,946	7,115
Current liabilities	7,323	5,238

Instructions
(a) Calculate the current ratio and working capital for 3M for 2005 and 2006.
(b) Suppose at the end of 2006, 3M management used $300 million cash to pay off $300 million
of accounts payable. How would the current ratio and working capital have changed?

E11-6 According to the accountant of Ulner Inc., its payroll taxes for the week were as follows:

Price: $1.99


According to the accountant of Ulner Inc., its payroll taxes for the week were as follows:
$198.40 for FICA taxes, $19.84 for federal unemployment taxes, and $133.92 for state
unemployment taxes.

Instruction
Journalize the entry to record the accrual of the payroll taxes

Don Walls 1780

Price: $1.99


Don Walls’s gross earnings for the week were $1,780, his federal income tax withholding
was $301.63, and his FICA total was $135.73.

Instructions
(a) What was Walls’s net pay for the week?
(b) Journalize the entry for the recording of his pay in the general journal. (Note: Use Salaries
Payable; not Cash.)
(c) Record the issuing of the check for Walls’s pay in the general journal.

E11-4 Guyer Company publishes a monthly sports magazine, Fishing Preview. Subscriptions

Price: $1.99


Guyer Company publishes a monthly sports magazine, Fishing Preview. Subscriptions
to the magazine cost $20 per year. During November 2008, Guyer sells 12,000 subscriptions beginning with the December issue. Guyer prepares financial statements quarterly and recognizes subscription revenue earned at the end of the quarter.The company uses the accounts Unearned
Subscriptions and Subscription Revenue.

Instructions
(a) Prepare the entry in November for the receipt of the subscriptions.
(b) Prepare the adjusting entry at December 31, 2008, to record subscription revenue earned in
December 2008.
(c) Prepare the adjusting entry at March 31, 2009, to record subscription revenue earned in the
first quarter of 2009.

E11-3 In providing accounting services to small businesses, you encounter the following situations

Price: $1.99

In providing accounting services to small businesses, you encounter the following situations
pertaining to cash sales.
1. Warkentinne Company rings up sales and sales taxes separately on its cash register.On
April 10, the register totals are sales $30,000 and sales taxes $1,500.
2. Rivera Company does not segregate sales and sales taxes. Its register total for April 15 is
$23,540, which includes a 7% sales tax.

Instructions
Prepare the entry to record the sales transactions and related taxes for each client.

E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month,

Price: $2.99

E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month,

$90,000, 12% note.

Instructions

(a) Prepare the entry on June 1.

(b) Prepare the adjusting entry on June 30.

(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been

made through November 30.

(d) What was the total financing cost (interest expense)?

E11-1 Rob Judson Company had the following transactions involving notes payable.

Price: $1.99


Rob Judson Company had the following transactions involving notes payable.
July 1, 2008 Borrows $50,000 from Third National Bank by signing a 9-month, 12% note.
Nov. 1, 2008 Borrows $60,000 from DeKalb State Bank by signing a 3-month, 10% note.
Dec. 31, 2008 Prepares adjusting entries.
Feb. 1, 2009 Pays principal and interest to DeKalb State Bank.
Apr. 1, 2009 Pays principal and interest to Third National Bank.

Instructions
Prepare journal entries for each of the transactions shown above.

*BE11-17 Coates Inc. issues $3 million, 5-year, 10% bonds at 102, with interest payable on July 1

Price: $1.99

*BE11-17 Coates Inc. issues $3 million, 5-year, 10% bonds at 102, with interest payable on July 1

and January 1.The straight-line method is used to amortize bond premium.

(a) Prepare the journal entry to record the sale of these bonds on January 1, 2008.

(b) Prepare the journal entry to record interest expense and bond premium amortization on

July 1, 2008, assuming no previous accrual of interest.

*BE11-16 Deane Company issues $5 million, 10-year, 9% bonds at 96, with interest payable on

Price: $1.99

*BE11-16 Deane Company issues $5 million, 10-year, 9% bonds at 96, with interest payable on

July 1 and January 1.The straight-line method is used to amortize bond discount.

(a) Prepare the journal entry to record the sale of these bonds on January 1, 2008.

(b) Prepare the journal entry to record interest expense and bond discount amortization on July

1, 2008, assuming no previous accrual of interest

BE11-13 Presented below are long-term liability items for Molini Company at December 31,

Price: $1.99

BE11-13 Presented below are long-term liability items for Molini Company at December 31,

2008. Prepare the long-term liabilities section of the balance sheet for Molini Company.

Bonds payable, due 2010 $500,000

Lease liability 70,000

Notes payable, due 2013 80,000

Discount on bonds payable 45,000

BE11-10 Halloway Company has issued three different bonds during 2008. Interest is payable

Price: $1.99

BE11-10 Halloway Company has issued three different bonds during 2008. Interest is payable

semiannually on each of these bonds.

1. On January 1, 2008, 1,000, 8%, 5-year, $1,000 bonds dated January 1, 2008, were issued at face

value.

2. On July 1, $800,000, 9%, 5-year bonds dated July 1, 2008, were issued at 102.

3. On September 1, $200,000, 7%, 5-year bonds dated September 1, 2008, were issued at 98.

Prepare the journal entry to record each bond transaction at the date of issuance.

BE11-9 Ratzlaff Company issues $2 million, 10-year, 8% bonds at 97, with interest payable on

Price: $1.99

BE11-9 Ratzlaff Company issues $2 million, 10-year, 8% bonds at 97, with interest payable on

July 1 and January 1.

(a) Prepare the journal entry to record the sale of these bonds on January 1, 2008.

(b) Assuming instead that the above bonds sold for 104, prepare the journal entry to record the

sale of these bonds on January 1, 2008.

BE11-8 Pruitt Corporation issued 3,000, 8%, 5-year, $1,000 bonds dated January 1, 2008, at 100.

Price: $1.99

BE11-8 Pruitt Corporation issued 3,000, 8%, 5-year, $1,000 bonds dated January 1, 2008, at 100.

(a) Prepare the journal entry to record the sale of these bonds on January 1, 2008.

(b) Prepare the journal entry to record the first interest payment on July 1, 2008 (interest

payable semiannually), assuming no previous accrual of interest.

(c) Prepare the adjusting journal entry on December 31, 2008, to record interest expense.

BE11-7 Mareska Inc. is considering two alternatives to finance its construction of a new $2 million plant.

Price: $1.99

BE11-7 Mareska Inc. is considering two alternatives to finance its construction of a new $2 million plant.

(a) Issuance of 200,000 shares of common stock at the market price of $10 per share.

(b) Issuance of $2 million, 8% bonds at par

Complete the following table, and indicate which alternative is preferable.

Issue Stock Issue Bond

Income before interest and taxes $700,000 $700,000

Interest expense from bonds

Income before income taxes $ $

Income tax expense (30%)

Net income $ $

Outstanding shares 500,000

Earnings per share

BE11-6 Data for Cindy Neuer are presented in BE11-5.

Price: $1.99

BE11-6 Data for Cindy Neuer are presented in BE11-5. 

Prepare the journal entries to record

(a) Cindy’s pay for the period and 

(b) the payment of Cindy’s wages. Use January 15 for the end of the pay period and the payment date.

BE11-5 Cindy Neuer’s regular hourly wage rate is $16, and she receives an hourly rate of $24

Price: $1.99

BE11-5 Cindy Neuer’s regular hourly wage rate is $16, and she receives an hourly rate of $24

for work in excess of 40 hours. 

During a January pay period, Cindy works 47 hours. Cindy’s federal income tax withholding is $95, and she has no voluntary deductions. 

Compute Cindy Neuer’s gross earnings and net pay for the pay period. Assume that the FICA tax rate is 8%.

BE11-4 Emporia State University sells 4,000 season basketball tickets at $180 each for its

Price: $1.99

BE11-4 Emporia State University sells 4,000 season basketball tickets at $180 each for its

12-game home schedule. Give the entry to record 

(a) the sale of the season tickets and 

(b) the revenue earned by playing the first home game

BE11-3 Leister Auto Supply does not segregate sales and sales taxes at the time of sale. The

Price: $1.99

BE11-3 Leister Auto Supply does not segregate sales and sales taxes at the time of sale. The

register total for March 16 is $15,540. All sales are subject to a 5% sales tax. 

Compute sales taxes payable, and make the entry to record sales taxes payable and sales.

BE11-2 Hanna Company borrows $80,000 on July 1 from the bank by signing a $80,000, 10%,

Price: $1.99

BE11-2 Hanna Company borrows $80,000 on July 1 from the bank by signing a $80,000, 10%,

one-year note payable.

(a) Prepare the journal entry to record the proceeds of the note.

(b) Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries

are made only at the end of the year.

BE11-1 Buffaloe Company has the following obligations at December 31:

Price: $1.99

BE11-1 Buffaloe Company has the following obligations at December 31: 

(a) a note payable for $100,000 due in 2 years, 

(b) a 10-year mortgage payable of $300,000 payable in ten $30,000 annual payments, 

(c) interest payable of $15,000 on the mortgage, and 

(d) accounts payable of $60,000. 

For each obligation, indicate whether it should be classified as a current liability.

(Assume an operating cycle of less than one year.)

P10-9B Gavin Corporation and Keady Corporation, two corporations of roughly the same

Price: $3.99

P10-9B Gavin Corporation and Keady Corporation, two corporations of roughly the same

size, are both involved in the manufacture of canoes and sea kayaks. Each company depreciates

its plant assets using the straight-line approach. An investigation of their financial statements reveals

the following information.

Gavin Corp. Keady Corp.

Net income $ 400,000 $ 420,000

Sales 1,300,000 1,140,000

Average total assets 2,000,000 1,500,000

Average plant assets 1,500,000 800,000

Instructions

(a) For each company, calculate the asset turnover ratio.

(b) Based on your calculations in part (a), comment on the relative effectiveness of

the two companies in using their assets to generate sales and produce net income.

P10-9A Lebo Company and Ritter Corporation, two corporations of roughly the same size,

Price: $3.99

P10-9A Lebo Company and Ritter Corporation, two corporations of roughly the same size,

are both involved in the manufacture of in-line skates. Each company depreciates its plant assets

using the straight-line approach. An investigation of their financial statements reveals the following

information.

Lebo Co. Ritter Corp.

Net income $ 800,000 $1,000,000

Sales 1,200,000 1,080,000

Average total assets 2,500,000 2,000,000

Average plant assets 1,800,000 1,000,000

Instructions

(a) For each company, calculate the asset turnover ratio.

(b) Based on your calculations in part (a), comment on the relative effectiveness of

the two companies in using their assets to generate sales and produce net income.

P10-8B Due to rapid turnover in the accounting department, a number of transactions involving

Price: $3.99

P10-8B Due to rapid turnover in the accounting department, a number of transactions involving

intangible assets were improperly recorded by Duby Company in 2008.

1. Duby developed a new manufacturing process, incurring research and development costs of

$95,000.The company also purchased a patent for $40,000. In early January, Duby capitalized

$135,000 as the cost of the patents. Patent amortization expense of $6,750 was recorded based

on a 20-year useful life.

2. On July 1, 2008, Duby purchased a small company and as a result acquired goodwill of

$80,000. Duby recorded a half-year’s amortization in 2008, based on a 50-year life ($800 amortization).

The goodwill has an indefinite life.

Instructions

Prepare all journal entries necessary to correct any errors made during 2008. Assume the books

have not yet been closed for 2008.

P10-8A Due to rapid turnover in the accounting department, a number of transactions involving

Price: $3.99

P10-8A Due to rapid turnover in the accounting department, a number of transactions involving

intangible assets were improperly recorded by Thorne Company in 2008.

1. Thorne developed a new manufacturing process, incurring research and development costs

of $136,000. The company also purchased a patent for $60,000. In early January, Thorne 

capitalized $196,000 as the cost of the patents. Patent amortization expense of $9,800 was

recorded based on a 20-year useful life.

2. On July 1, 2008, Thorne purchased a small company and as a result acquired goodwill of

$92,000. Thorne recorded a half-year’s amortization in 2008, based on a 50-year life ($920

amortization).The goodwill has an indefinite life.

Instructions

Prepare all journal entries necessary to correct any errors made during 2008. Assume the books

have not yet been closed for 2008.

P10-7B The intangible assets section of Justen Company at December 31, 2008, is presented

Price: $2.50


The intangible assets section of Time Company at December 31, 2011, is presented below.

Patent ($100,000 cost less $10,000 amortization)	90000
Copyright ($60,000 cost less $24,000 amortization)	36000
Total	126,000

The patent was acquired in January 2011 and has a useful life of 10 years.The copyright was acquired
in January 2008 and also has a useful life of 10 years.The following cash transactions may
have affected intangible assets during 2012.
Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by
another company.
Jan.–June Developed a new product, incurring $230,000 in research and development costs.A
patent was granted for the product on July 1. Its useful life is equal to its legal life.
Sept. 1 Paid $125,000 to an Xgames star to appear in commercials advertising the
company’s products.The commercials will air in September and October.
Oct. 1 Acquired a copyright for $200,000.The copyright has a useful life of 50 years.

Instructions
(a) Prepare journal entries to record the transactions above.
(b) Prepare journal entries to record the 2012 amortization expense for intangible assets.
(c) Prepare the intangible assets section of the balance sheet at December 31, 2012.

P4-33B The trial balance of Road Runner Internet at July 31, 2012, follows:

Price: $3.99

P4-33B Completing the accounting cycle [120-150 min]

The trial balance of Road Runner Internet at July 31, 2012, follows:

ROAD RUNNER INTERNET
Trial Balance
31-Jul-12
Account			Debit	Credit
Cash			4200
Accounts receivable			14600
Prepaid rent			2000
Supplies			1600
Equipment			30900
Accumulated depreciation				3,900
Accounts payable				6,700
Salary payable
Unearned service revenue				5,400
Runner, capital				25,800
Runner, drawing			3200
Service revenue				17,700
Salary expense			3000
Rent expense
Depreciation expense
Supplies expense
Total			59500	59500

Adjusting data at July 31, 2012:

a. Unearned service revenue still unearned, $1,200.

b. Prepaid rent still in force at July 31, $1,900.

c. Supplies used during the month, $800.

d. Depreciation for the month, $300.

e. Accrued salary expense at July 31, $500.

Requirements

1. Journalize adjusting journal entries.

2. Enter the trial balance on a worksheet and complete the worksheet for Road

Runner Internet.

3. Prepare the income statement, statement of owner’s equity, and classified balance

sheet in report form.

4. Using the worksheet data that you prepared, journalize the closing entries and

post the adjusting and closing entries to T-accounts. Use dates and show the ending

balance of each account.

5. Prepare a post-closing trial balance.

6. Calculate the current and debt ratios for the company.

P4-29A Selected accounts of Blume Irrigation System at December 31, 2012, follow:

Price: $3.99

P4-29A Preparing a classified balance sheet in report form, and using the

current and debt ratios to evaluate a company [30-40 min]

Selected accounts of Blume Irrigation System at December 31, 2012, follow:

Insurance expense	$900		Accounts payable	$24,700
Note payable, long-term	2,800		Accounts receivable	43,100
Other assets	2,200		Accumulated depreciation—building	24,000
Building	55,800		Blume, capital, December 31, 2011	52,000
Prepaid insurance	4,000		Accumulated depreciation—equipment	7,900
Salary expense	16,300		Cash	11,000
Salary payable	3,900		Interest payable	400
Service revenue	74,800		Blume, drawing	2,000
Supplies	3,300		Equipment	23,000
Unearned service revenue	1,600		Depreciation expense	30,500

Requirements

1. Prepare the company’s classified balance sheet in report form at December 31, 2012.

2. Compute the company’s current ratio and debt ratio at December 31, 2012. At

December 31, 2011, the current ratio was 1.81 and the debt ratio was 0.34.

Did the company’s ability to pay debts improve or deteriorate, or did it remain

the same during 2012?

E4-20 Gunther recorded the following transactions and year-end adjustments during 2012:

Price: $2.99

E4-20 Identifying and journalizing closing entries [15 min]

Gunther recorded the following transactions and year-end adjustments during 2012:

Journal Entry				Debit	Credit
Prepaid rent				8000
Cash					8000
Prepaid the annual rent.
Accounts and Explanations
Rent expense				5100
Prepaid rent					5100
Adjustment to record rent expense for the year.
Cash				4200
Unearned service revenue					4200
Collected cash in advance of service revenue to be earned.
Unearned service revenue				4700
Service revenue					4700
Adjustment to record revenue earned.

Requirements

1. Assuming that there were no other service revenue and rent expense transactions

during 2012, journalize Gunther’s closing entries at the end of 2012.

2. Open T-accounts for Service revenue and Rent expense. Post the closing entries

to these accounts. What are their balances after closing?