Posted: April 15th, 2016
1). Indicate whether each of the items below should be classified on December 31, 2013, as a current liability, a long term liability, or under some other classification. Consider each one independently from all others; that is, do not assume that all of them relate to one particular business. If the classification of some of the items is doubtful, explain why in each case. Classification of Liabilities – Presented below are various account balances.
a) Bank loans payable of a winery, due March 10, 2016. (The product requires aging for 5 years before sale).
b) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.
c) Serial bonds payable, $1,000,000, of which $250,000 are due each July 31.
d) Amounts withheld from employees’ wages for income taxes.
e) Notes payable due January 15, 2015.
f) Credit balances in customers’ accounts arising from returns and allowances after collection in full of account.
g) Bonds payable of $2,000,000 maturing June 30, 2014.
h) Overdraft of $1,000 in a bank account. (No other balances are carried at this bank).
i) Deposits made by customers who have ordered goods.
2). Determine Proper Amounts in Account Balances – Presented below are three independent situations.
a) Chinook Corporation incurred the following costs in connection with the issuance of bonds: (1) printing and engraving costs, $15,000; (2) legal fees, $49,000, and (3) commissions paid to underwriter, $60,000. What amount should be reported as Unamortized Bond Issue Costs, and where should this amount be reported on the balance sheet?
b) McEntire Co. sold $2,500,000 of 10%, 10-year bonds at 104 on January 1, 2012. The bonds were dated January 1, 2012 and pay interest on July 1 and January 1. If McEntire uses the straight-line method to amortize bond premium or discount, determine the amount of interest expense to be reported on July 1, 2012, and December 31, 2012.
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