Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 10 Liabilities 483

2. Record the entries for the foregoing transactions.


3. Indicate the amount of the interest expense in (a) 2006 and (b) 2007.


4. Determine the carrying amount of the bonds as of December 31, 2007.

The following items were selected from among the transactions completed by Davidson Co. dur-

ing the current year:

Feb. 15 Purchased merchandise on account from Ranier Co., $36,000, terms n/30.

Mar. 17 Issued a 30-day, 8% note for $36,000 to Ranier Co., on account.

Apr. 16 Paid Ranier Co. the amount owed on the note of March 17.

July 15 Borrowed $40,000 from Black Mountain Bank, issuing a 90-day, 8% note.

25 Purchased tools by issuing an $80,000, 120-day note to Sun Supply Co., which discounted

the note at the rate of 7%.

Oct. 13 Paid Black Mountain Bank the interest due on the note of July 15 and renewed the loan

by issuing a new 30-day, 9% note for $40,000. (Record both the debit and credit to the

notes payable account.)

Nov. 12 Paid Black Mountain Bank the amount due on the note of October 13.

22 Paid Sun Supply Co. the amount due on the note of July 25.

Dec. 1 Purchased office equipment from Valley Equipment Co. for $125,000, paying $25,000 and

issuing a series of ten 12% notes for $10,000 each, coming due at 30-day intervals.

17 Settled a product liability lawsuit with a customer for $52,000, payable in January.

Renaissance accrued the loss in a litigation claims payable account.

31 Paid the amount due Valley Equipment Co. on the first note in the series issued on

December 1.

Instructions

1. Record the transactions.


2. Record the adjusting entry for each of the following accrued expenses at the end of the cur-
   rent year: (a) product warranty cost, $22,500; (b) interest on the nine remaining notes owed
   to Valley Equipment Co.

The following accounts, with the balances indicated, appear in the ledger of South Mountain

CableView Co. on December 1 of the current year:

Salaries Payable —

FICA Tax Payable $ 9,657

Employees Federal Income Tax Payable 12,321

Employees State Income Tax Payable 11,988

State Unemployment Tax Payable 1,180

Federal Unemployment Tax Payable 310

Bond Deductions Payable 1,200

Medical Insurance Payable 6,000

Operations Salaries Expense 847,000

Officers Salaries Expense 376,200

Office Salaries Expense 242,000

Payroll Taxes Expense 113,689

The following transactions relating to payroll, payroll deductions, and payroll taxes oc-

curred during December:

Dec. 2 Issued Check No. 728 for $1,200 to Cullowee National Bank to purchase U.S. savings

bonds for employees.

3 Issued Check No. 729 to Cullowee National Bank for $21,978, in payment of $9,657 of

FICA tax and $12,321 of employees’ federal income tax due.

Alternate Problem
10-1B

Liability transactions

Goal 1

GENERAL LEDGER

Alternate Problem
10-2B

Payroll accounts and year-end
entries

Goal 1

GENERAL LEDGER

ALTERNATE ACCOUNTING APPLICATION PROBLEMS