Financial Accounting Principles

Assessment 4: Accounting for Liabilities and Equity Worksheet

Use this worksheet to complete the following three exercises for Assessment 4. Refer to the instructions in the course for submitting your assessment.

Exercise 4-1

During 2011 and 2012, Data Resources, Inc. engaged in financial transactions that involved short-term liabilities.

1. Using the financial transactioninformation provided below, determine the following. Record your responses on page 2.
   1. All three note maturity dates.
   2. The interest due on all three notes on the dates they mature, assuming a 360-day year.
   3. The interest expense for the 2011 year-end adjusting entry.
   4. For distinguished performance, determine the interest expense for 2012.

Note:   The company uses a perpetual inventory system.

2011

Mar 19		Purchased $41,250 worth of merchandise from Chipcom, on credit. Terms: 1/10, n/30.
April 29		Replaced the Mar 19 account payable to Chipcom with a 120-day, $35,000 note at 7% annual interest, plus a cash payment of $6,250.
Jun 16		Borrowed $55,000 cash from Sunnyvale Bank. Signed a 90-day, 8% interest-bearing note, with a $55,000 face value.
?		Paid Chipcom the amount due on the note on the date of maturity.
?		Paid Sunnyvale Bank the amount due on the note on the date of maturity.
Oct 30		Borrowed $18,000 cash from UCB Bank. Signed a 90-day, 7% interest-bearing note, with a $18,000 face value.
Dec 31		Recorded an accrued interest adjustment on the UCB Bank note.

2012

?

Paid UCB Bank the amount due on the note on the date of maturity.

Chipcom

Sunnyvale Bank

UCB

[Record your answers to item 1 here.]

2. Prepare journal entries for all 2011 and 2012 events and transactions for Data Resources, Inc.

Exercise 4-2

On January 1, 2012, Fromer issued $3,000,000 of 12-year, 7 percent bonds. Interest is paid semi-annually on June 30 and December 31. The issue price was $2,592,000.

1. Prepare the January 1, 2012, journal entry that records the bond issue.

 

2. Compute the following for each semi-annual period:
   1. Cash payment.
   2. Straight-line discount amortization.
   3. Interest expense.

 

3. Determine the total interest expense recognized over the life of the bonds.

 

4. Prepare the first two years of an amortization table (use the straight-line method).

Semiannual Period-End

Unamortized Discount

Carrying Value

[Create your amortization table here.]

5. For distinguished performance, prepare journal entries for the first two interest payments.

 

Exercise 4-3

Stockholders’ equity in TransWorld Inc. on December 31, 2010, is shown below:

Common stock: 60,000 authorized shares, par value of $15, 25,000 shares issued and outstanding…………………………	$375,000
Paid-in capital in excess of par value, common stock……………………….	90,000
Retained earnings……………………………………………………………………	430,000
Total equity……………………………………………………………………………	895,000

Stockholder equity accounts were affected by the following transactions in 2011:

Jan 1	TransWorld purchased 2,000 treasury shares at $24/share.
Jan 7	Declared a $3/share dividend, payable on Feb 15 to the Feb 28 stockholders of record.
Feb 15	Paid the dividend (Jan 7 declaration).
May 7	Sold 800 of treasury shares for cash at $27/share.
Aug 15	Sold 1200 of treasury shares for cash at $21/share.
Sep 20	Declared a $3/share dividend, payable on Oct 15 to the Sep 30 stockholders of record.
Oct 15	Paid the dividend (Sep 20 declaration).
Dec 31	Closed the credit balance of $188,000 (from net income) in the Retained Earnings Income Summary account.

1. Use the information provided to prepare the following:
   1. Journal entries for the 2011 transactions.

 

1. December 31, 2011, retained earningsstatement.

TRANSWORLD INC Statement of Retained Earnings For Year Ended December 31, 2011

[Create your retained earningsstatement here.]

1. For distinguished performance, prepare the investors’ equity section of TransWorld’s December 31, 2011, balance sheet.

TRANSWORLD INC Stockholders’ Equity Section of the Balance Sheet December 31, 2011

[Create your balance sheet here.]