INTERMEDIATE ACCOUNTING 2 VALIX (Solution Manual)

INTERMEDIATE ACCOUNTING 2 Problem 1-1 Accounts Payable including deposits and advance Notes Payable (1,500,000 – 500,000) Credit balance in customer’s accounts Serial bonds payable semiannual 500,000 Accrued interest on bonds payable Unearned rent income TOTAL CURRENT LIABILITIES

1,250,000 1,000,000 200,000 1,000,000 150,000 100,000 3,700,000

Problem 1-2 Notes Payable Accounts Payable-Trade Bank overdraft Dividends Payable Withholding Tax Payable Income Tax Payable Estimated Warranty Liability Estimated damages payable breach of contract Accrued Liabilities Estimated Premium Liability TOTAL CURRENT LIABILITIES

5,500,000 4,000,000 300,000 1,000,000 100,000 800,000 600,000 700,000 900,000 200,000 14,100,000

Problem 1-3 Income taxes withheld from employees Cash overdraft Accounts Receivable with credit balance Estimated expenses of warranties Estimated damages Accounts Payable Accrued interest (5,000,000 x 12% x 3/12) TOTAL CURRENT LIABILITIES

900,000 1,300,000 750,000 500,000 1,500,000 3,000,000 150,000 8,100,000

Problem 1-4 Accounts Payable Accrued Liabilities Note Payable – due March 31, 2021 Note Payable – due May 1, 2021 TOTAL CURRENT LIABILITIES TOTAL NONCURRENT LIABILITIES

600,000 50,000 1,000,000 800,000 2,450,000 2,000,000

Problem 1-5 CURRENT LIABILITIES: Note Payable – 9% - 3,000,000 (noncancelable) Note Payable – 8% - 6,000,000 (requirement is to reclassify even if it is not expected to be called) Note Payable – 11% - 5,000,000 (refinancing happens after the reporting period) NONCURRENT LIABILITIES Note Payable – 10% - 4,000,000 (corrected within the grace period) Problem 1-6 CURRENT LIABILITIES: Accounts Payable Note Payable – bank Accrued Expenses

7,000,000 12,000,000 4,000,000

NONCURRENT LIABILITIES Mortgage Payable Note Payable – due in 2022 TOTAL LIABILITIES

4,000,000 3,000,000

23,000,000

7,000,000 30,000,000

Financial statement disclosures: The note payable is paid from the proceeds of the issuance of share capital of 4,000,000 on January 31, 2021 and the availment of a financing agreement on February 15, 2021 with a financially capable commercial bank on April 1, 2021 in the amount of 3,000,000. Nevertheless, the note payable should continue to be classified as current. Problem 1-7 Accounts Payable Notes Payable – bank Interest Payable Mortgage Note Payable – 10% Bonds Payable TOTAL CURRENT LIABILITIE

S

6,500,000 3,000,000 150,000 2,000,000 4,000,000 15,650,000

Problem 1-8 Accounts Payable Accrued Expenses Credit balances of customers’ accounts Estimated expenses CURRENT LIABILITIES (A)

4,100,000 1,500,000 500,000 600,000 6,700,000

Problem 1-9 Accounts Payable

1,900,000

Dividends Payable Income Tax Payable Note Payable, due January 31, 2021 CURRENT LIABILITIES (C)

500,000 900,000 600,000 3,900,000

Problem 1-10 14% note, due 2021 8% note payable maturing December 31, 2021 (1,100,000 / 11) CURRENT LIABILITIES (D)

30,000 100,000 130,000

Problem 1-11 Current Liabilities (B)

5,000,000

Problem 1-12 Accounts Payable Debentures Payable CURRENT LIABILITIES (C)

1,000,000 500,000 1,500,000

Problem 1-13 Current Liabilities (A)

(due to be settled in one year regardless of issuance of bonds)

Problem 1-14 Note Payable Value of the collateral x 80% CURRENT LIABILITIES (C)

2,000,000 1,200,000 800,000

Problem 1-15 Accounts Payable 750,000 Short-term borrowings 400,000 Mortgage Payable – current 100,000 Bank Loan Payable 1,000,000 CURRENT LIABILITIES (B) 2,250,000 Problem 1-16 Unearned Revenue, beg Gift certificates sold Gift certificates redeemed Gift certificates unredeemed Unearned Revenue, end (C)

650,000 2,250,000 (1,950,000) (100,000) 850,000

Problem 1-17 Unearned Revenue, beg 2020 sales

750,000 2,500,000

750,000

2020 redemptions of prior 2020 redemptions of current Unearned Revenue, end (A)

(250,000) (1,750,000) 1,250,000

Problem 1-18 1,000 contracts x 600 = 600,000 600,000 x 40% = 240,000 x ½ (evenly) = 120,000 (1. A) Sold 600,000 Contracts earned 2020(120,000) Deferred Service Revenue 480,000 (2. B) 600,000 x 60% = 360,000 x ½ (evenly) = 180,000 180,000 + 120,000 = 300,000 (3. C) Remaining one half of the second year: 600,000 x 60% = 360,000 x ½ (evenly) = 180,000 (4. C) Problem 1-19 500,000 x 40% x ½ = 100,000 (1. A) 500,000 – 100,000 = 400,000 (2. B) 500,000 x 40% x ½ 500,000 x 60% x ½ 600,000 x 40% x ½ Contract Revenue for 2021 (3. C)

100,000 150,000 120,000 370,000

Total contracts sold 1,100,000 Contract revenue for 2020 (100,000) Contract revenue for 2021 (370,000) Unearned revenue, 12/31/2020 (4. D)630,000 Problem 1-20 Monthly subscriptions(7,200,000 / 12) 600,000 October to December (600,000 x 3) 1,800,000 It will be served in the next publication for 2021. (A) Problem 1-21 1,700,000 – 1,500,000 = 200,000 2,100,000 + 200,000 = 2,300,000 (B)

Problem 1-22 125,000 + 200,000 + 140,000 = 465,000 (C) 155,000 + 130,000 = 285,000 (C)

Problem 1-23 Containers held by customers Containers returned Balance, expired 2018

75,000 (45,000) 30,000

Containers deposit beg Containers delivered in 2020 Total Containers returned in 2020 Containers expired Customer deposits, December 31, 2020 (C)

290,000 390,000 680,000 (313,000) (30,000) 337,000

Problem 1-24 Customer advances, beg Advances received with orders Advances applied to orders shipped Advances applicable to orders cancelled Advances, year-end (C)

1,150,000 1,840,000 (1,640,000) (500,000) 880,000

Problem 1-25 Escrow liability, January 1 Escrow payments received Interest on escrow funds Real estate taxes paid Service fee (50,000 x 10%) Escrow liability, December 31

700,000 1,580,000 50,000 (1,720,000) (5,000) (C) 605,000

Problem 1-26 Escrow account, beg 300,000 Escrow deposit (250,000 x 9) 2,250,000 Payment for real estate (2,100,000) Escrow liability, September 30, 2020 (B) 450,000 Problem 1-27 1. 5,250,000 x 5% = 262,500

2. B = 5% (5,250,000 – B) B = 262,500 - .5B B + .5B = 262,500 1.05B = 262,500 B = 262,500 / 1.05 B = 250,000

3. B = 5% (5,250,000 – B – T) T = 30% (5,250,000 – B) B = 5% (5,250,000 – B – 30% (5,250,000 – B) B = 5% (5,250,000 – B – 1,575,000 + .30B) B = 262,500 - .05B – 78,750 + .015B B + .05B - .015B = 262,500 – 78,750 1.035B = 183,750 B = 183,750 / 1.035 B = 177,536 4. B = 5% (5,250,000 – T) T = 30% (5,250,000 – B) B = 5% (5,250,000 – 30% (5,250,000 – B) B = 5% (5,250,000 – 1,575,000 + .30B) B = 262,500 – 78,750 + .015B) B - .015B = 183,750 B = 183,750 / .985 B = 186,548 Problem 1-28 B = 10% (1,650,000 – B) B = 165,000 - .10B B + .10B = 165,000 B = 165,000 / 1.10B B = 150,000 (B) Problem 1-29 Bonus = 280,000 Income after bonus and tax = 280,000 / 10% 2,800,000 Income before tax = 2,800,000 / 70% 4,000,000 Income before bonus and tax (4,000,000 + 280,000) 4,280,000 (A) Problem 1-30 B = 25% (600,000 – B) B = 150,000 - .25B

B + .25B = 150,000 B = 150,000 / 1.25 B = 120,000 (A) Problem 1-31 B = 10% (2,200,000 – B) B = 220,000 - .10B B + .10B = 220,000 B = 220,000 / 1.10 B = 200,000 (B) Problem 1-32 1. D 2. B 3. B 4. C 5. D 6. B 7. A 8. C 9. D 10. C Problem 1-33 1. A 2. C 3. A 4. C 5. D Problem 1-34 1. C 2. D 3. A 4. B 5. B Problem 1-35 1. A 2. C 3. A 4. D 5. A

Problem 1-36 1. B 2. B 3. C 4. B 5. D 6. B 7. B 8. A 9. D 10. C Problem 2-1 2020 

Cash



Premium Cash

390,000



Cash (5,000 x 10) Premium Expense (5,000 x 40) Premiums (5,000 x 50)

50,000 200,000



Premium Expense (5,000 x 20) Cash

100,000



Premium Expense (2,000 x 60) 120,000 Estimated Premium Liability

Sales

3,600,000

3,600,000 390,000

250,000 100,000 120,000

2021 

Estimated Premium Liability Premium Expense Reversing entry.

120,000



Cash

4,200,000



Premiums Cash

580,000



Cash (9,000 x 10)

90,000

Sales

120,000

4,200,000 580,000

Premium Expense (9,000 x 40) Premiums (9,000 x 50)

360,000



Premium Expense (9,000 x 20) Cash

180,000



Premium Expense (3,000 x 60) 180,000 Estimated Premium Liability

450,000 180,000 180,000

Problem 2-2 2020 

Cash



Premiums Cash

175,000



Cash (1,000 x 20) Premium Expense (1,000 x 80) Premiums (1,000 x 100)

20,000 80,000

Sales

2,500,000

2,500,000 175,000

100,000



Premium Expense (1,000 x 5)5,000 Cash

5,000



Premium Expense (600 x 85) 51,000 Estimated Premium Liability

51,000

2021 

Estimated Premium Liability Premium Expense Reversing entry.

51,000



Cash

3,125,000



Premiums Cash

Sales

200,000

51,000

3,125,000 200,000



Cash (1,800 x 20) Premium Expense (1,800 x 80) Premiums (1,800 x 100)

36,000 144,000



Premium Expense (1,800 x 5) Cash

9,000



Premium Expense (800 x 85) 68,000 Estimated Premium Liability

180,000 9,000 68,000

Current Assets 2020: Premiums (175,000 – 100,000) 2021: Premiums (200,000 – 180,000) + 75,000

75,000

Current Liabilities 2020: Estimated Premium Liability 2021: Estimated Premium Liability Distribution Cost 2020: Premium Expense (80,000 + 51,000 + 5,000) 2021: Premium Expense (144,000 + 68,000 + 9,000 – 51,000)

51,000 68,000 136,000 170,000

Problem 2-3 

Cash (400,000 x 9) Sales

3,600,000



Premiums Cash

900,000



Cash (8,000 x 5) Premium Expense (8,000 x 85) Premiums (8,000 x 90)

40,000 680,000

3,600,000 900,000

720,000



Premium Expense (2,000 x 85) 170,000 Estimated Premium Liability 170,000 (400,000 x 25% = 100,000 / 10 caps = 10,000 – 8,000 = 2,000)



Premium Expense Cash (30 x 5,000)

150,000

150,000

Problem 2-4 

Rebate Expense Estimated Rebate Liability (20,00 x 80% x 50)

800,000



Estimated Rebate Liability

500,000

95,000

800,000

Cash

500,000

Problem 2-5 Product sales Points Total

7,000,000 1,000,000 8,000,000

2020 

Cash

7,000,000 Sales (7,000,000 / 8,000,000 x 7,000,000) 6,125,000 Unearned Revenue (1,000,000 / 8,000,000 x 7,000,000) 875,000



Unearned revenue – points Sales

328,125 328,125

(15,000 / 40,000 x 875,000)

2021 Points redeemed in 2020 Points redeemed in 2021 Total

15,000 7,950 22,950

50,000 x 85% = 42,500 Cumulative revenue (22,950 / 42,500 x 875,000) Revenue recognized in 2020 Revenue recognized in 2021 

Unearned Revenue – points Sales

472,500 (328,125) 144,375 144,375

144,375

2022 Points redeemed in 2020 Points redeemed in 2021 Points redeemed in 2022 Total

15,000 7,950 2,550 25,500

50,000 x 85% = 42,500 Cumulative revenue (25,500 / 42,500 x 875,000) Revenue recognized in 2021 Revenue recognized in 202 2 

Unearned Revenue – points

525,000 (472,500) 52,500

52,500

Sales

52,500

2023 Points redeemed in 2020 Points redeemed in 2021 Points redeemed in 2022 Points redeemed in 2023 Total

15,000 7,950 2,550 15,000 40,500

50,000 x 90% = 45,000 Cumulative revenue (40,500 / 45,000 x 875,000) Revenue recognized in 2022 Revenue recognized in 2023

787,500 (525,000) 262,500

Cumulative revenue (45,000 / 45,000 x 875,000) Revenue recognized in 2022 Revenue recognized in 2023

875,000 (525,000) 350,000



Unearned Revenue – points Sales

350,000

350,000

Problem 2-6 Premium Expense (160,000 x 60% = 96,000 x 20 / 5 coupons) 384,000 (B) Estimated Liability (96,000 – 40,000 = 56,000 x 20 / 5 coupons) 224,000 (B) Problem 2-7 Premium Expense (500,000 x 80% = 400,000 x (55 – 40 = 15)) 6,000,000 (A) Estimated Liability (400,000 – 300,000 = 100,000 x 15) 1,500,000 (B) Problem 2-8 Estimated Liability (100,000 x 60% = 60,000 – 40,000 = 20,000 x 750 / 10 box tops) 1,500,000 (B) Problem 2-9 Expected to be redeemed (45 + 5) Total liability for coupons Payment to retailers Liability for coupons on 12/31/2020

12,000 x 50 600,000 (250,000) 350,000 (A)

Problem 2-10 Premium Expense (600,000 x 70% = 420,000 x 110%) 462,000 (C)

Estimated Liability (462,000 – 220,000) 242,000 (C) Problem 2-11 Estimated Liability (110,000 x 60% = 66,000 / 5 coupons x (80 – 50 = 30) 396,000 (B) Problem 2-12 Premium Expense (2,000,000 x 60% = 1,200,000 x 110%) Payment to retailers Liability for unredeemed coupons

1,320,000 (405,000) 915,000 (B)

Problem 2-13 Premium Expense (675,000 x 60% = 405,000 / 3 x 15) Estimated Liability (405,000 – 330,000 = 75,000 / 3 x 15)

2,025,000 (A) 375,000 (B)

Problem 2-14 Estimated Liability (100,000 x 50% = 50,000 – 40,000 = 10,000 / 2 x 150)

750,000 (C)

Problem 2-15 2020 Premium Expense (2,000,000 x 30% = 600,000 / 10 x 45) 2,700,000 (D) 2020 Premium Liability (600,000 – 400,000 = 200,000 / 10 x 45) 900,000 (D) 2021 Premium Expense (2,500,000 x 30% = 750,000 / 10 x 45) 3,375,000 (C) 2021 Premium Expense (750,000 – 700,000 = 50,000 / 10 x 45) + 900,000 1,125,000 (C) Problem 2-16 Number of premiums distributed 2020 Number of premiums to be distributed 2020 Total premiums

5,000

2020 Premium Expense (25,000 x 40)

20,000 25,000

1,000,000 (A)

Premium Liability 12/31/2020 (5,000 x 40) 200,000 (B) Number of premiums distributed 2021 Number of premiums to be distributed 2021 Total Premiums arising from 2020 Premiums applicable in 2021

3,000

2021 Premium Expense (48,000 x 40)

50,000 53,000 (5,000) 48,000

1,920,000 (D)

Premium Liability 12/31/2021 (3,000 x 40) 120,000 (C) Problem 2-17 Estimated Rebate Liability (80,000 x 70% = 56,000 – 35,000 = 21,000 x 50 = 1,050,000 (B) Problem 2-18 Rebate Expense (10,000 x 20 = 200,000 x 85% = 170,000 (C) Problem 2-19 Product sales Transaction price allocated to the price 60,000 x 20 Total

6,800,000 1,200,000 8,000,000

Allocated to the points (1,200,000 / 8,000,000 x 6,800,000) 1,020,000 (C) Revenue to be recognized in 2020 (28,800 / 60,000 x 1,020,000) Points redeemed in 2020 Points redeemed in 2021 Total

28,800 9,000 37,800

489,600 (B)

Cumulative revenue on 12/31/2020 (37,800 / 54,000 x 1,020,000) 714,000 Revenue recognized in 2020 (489,600) Revenue to be recognized in 2021 224,400 (A) Problem 2-20 Product sales Transaction price allocated to the price 60,000 x 20 Total

8,000,000 2,000,000 10,000,000

Allocated to the product sales (8,000,000 / 10,000,000 x 8,000,000) Allocated to the points (2,000,000 / 10,000,000 x 8,000,000)

6,400,000 1,600,000

Revenue from points for 2020 (30,000 / 80,000 x 1,600,000)

600,000 (C)

Points redeemed in 2020 Points redeemed in 2021 Total

30,000 15,000 45,000

Cumulative revenue on 12/31/2020 (45,000 / 90,000 x 1,600,000) 800,000 Revenue recognized in 2020 (600,000) Revenue to be recognized in 2021 200,000 (B) Problem 2-21 1. A 2. D 3. A 4. D 5. D

Problem 3-1 Requirement 1 – Expense as incurred approach 2020 



2021 



Cash

4,500,000

Sales (300 x 15,000) Record the sales.

Warranty Expense Cash Actual cost.

40,000

Cash

7,500,000

Sales (500 x 15,000) Record the sales.

Warranty Expense Cash Actual cost.

150,000

4,500,000

40,000

7,500,000

150,000

Requirement 2 – Accrual approach 2020 

Cash

Sales (300 x 15,000) Record the sales.



Warranty Expense Estimated Warranty Liability (300 x 60% = 180 x 800)



Estimated Warranty Liability Warranty Expense

2021 



Cash

4,500,000

Sales (500 x 15,000) Record the sales.

Warranty Expense Estimated Warranty Liability

4,500,000

144,000 144,000 40,000

40,000

7,500,000

7,500,000

240,000 240,000

(500 x 60% = 300 x 800) 

Estimated Warranty Liability Warranty Expense

150,000

150,000

Requirement 3 – Estimated Warranty Liability (144,000 + 240,000 = 384,000) – (40,000 + 150,000 = 190,000) = 194,000 Requirement 4 – Sales are made evenly Related to 2020 sales 2020 First contract year of 1/1/2020 sales (150 x 20% x 800) First contract year of 7/1/2020 sales (150 x 20% x 800 x 6/12)

24,000 12,000

2021 First contract year of 7/1/2020 sales (150 x 20% x 800 x 6/12) Second contract year of 1/1/2020 sales (150 x 40% x 800) Second contract year of 1/1/2020 sales (150 x 40% x 800 x 6/12)

12,000 48,000 24,000

2022 Second contract year of 1/1/2020 sales (150 x 40% x 800 x 6/12) TOTAL WARRANTY EXPENSE FOR 2020

24,000

Related to 2021 sales 2021 First contract year of 1/1/2021 sales (250 x 20% x 800) First contract year of 7/1/2021 sales (250 x 20% x 800 x 6/12)

40,000 20,000

2022 First contract year of 7/1/2021 sales (250 x 20% x 800 x 6/12) Second contract year of 1/1/2021 sales (250 x 40% x 800) Second contract year of 1/1/2021 sales (250 x 40% x 800 x 6/12)

20,000 80,000 40,000

2023 Second contract year of 1/1/2021 sales (250 x 40% x 800 x 6/12) TOTAL WARRANTY EXPENSE FOR 2021

40,000

Requirement 5 2020 sales still under warranty after December 31, 2021

24,000

2021 sales still under warranty after December 31, 2021 First contract year of 7/1/2021 sales 20,000 Second contract of 1/1/2021 sales 80,000 Second contract of 7/1/2021 sales (40,000 + 40,000)80,000

144,000

240,000

Estimated Warranty Liability – 12/31/2021 Estimated Warranty Liability per book Increase in warranty liability 

Warranty Expense Estimated Warranty Liability

204,000 (194,000) 10,000 10,000 10,000

Problem 3-2 Requirement 1 – Expense as incurred approach 2020 



2021 



Cash

Sales

5,000,000 Record the sales.

Warranty Expense Cash Actual cost.

200,000

Cash

9,000,000

Sales

Record the sales.

Warranty Expense Cash Actual cost.

560,000

5,000,000

200,000

9,000,000

560,000

Requirement 2 – Accrual approach 2020 

Cash

Sales

5,000,000 Record the sales.



Warranty Expense Estimated Warranty Liability (5,000,000 x 14%)



Estimated Warranty Liability Warranty Expense

2021 

Cash

5,000,000

700,000 700,000 200,000

9,000,000

200,000

Sales

9,000,000

Record the sales.



Warranty Expense Estimated Warranty Liability (9,000,000 x 14%)



Estimated Warranty Liability Warranty Expense

1,260,000 1,260,000 560,000

560,000

Requirement 3 – Estimated Warranty Liability (700,000 + 1,260,000 = 1,960,000) – (200,000 + 560,000 = 760,000) = 1,200,000 Requirement 4 – Sales are made evenly Related to 2020 sales 2020 First contract year of 1/1/2020 sales (2,500,000 x 4%) First contract year of 7/1/2020 sales (2,500,000 x 4% x 6/12)

100,000 50,000

2021 First contract year of 7/1/2020 sales (2,500,000 x 4% x 6/12) Second contract year of 1/1/2020 sales (2,500,000 x 10%) Second contract year of 1/1/2020 sales (2,500,000 x 10% x 6/12)

50,000 250,000 125,000

2022 Second contract year of 1/1/2020 sales (2,500,000 x 10% x 6/12) TOTAL WARRANTY EXPENSE FOR 2020

125,000 700,000

Related to 2021 sales 2021 First contract year of 1/1/2021 sales (4,500,000 x 4%) First contract year of 7/1/2021 sales (4,500,000 x 4% x 6/12)

180,000 90,000

2022 First contract year of 7/1/2021 sales (4,500,000 x 4% x 6/12) Second contract year of 1/1/2021 sales (4,500,000 x 10%) Second contract year of 1/1/2021 sales (4,500,000 x 10% x 6/12)

90,000 450,000 225,000

2023 Second contract year of 1/1/2021 sales (4,500,000 x 10% x 6/12) TOTAL WARRANTY EXPENSE FOR 2021

225,000 1,260,000

Requirement 5 2020 sales still under warranty after December 31, 2021

125,000

2021 sales still under warranty after December 31, 2021 First contract year of 7/1/2021 sales 90,000 Second contract of 1/1/2021 sales 450,000 Second contract of 7/1/2021 sales (225,000 + 225,000) 450,000 Estimated Warranty Liability – 12/31/2021 1,115,000 Estimated Warranty Liability per book (1,200,000) Decrease in warranty liability (85,000) 

Estimated Warranty Liability Warranty Expense

85,000

85,000

Problem 3-3 2020 

Cash

Sales

5,000,000 Record the sales.



Warranty Expense Estimated Warranty Liability (5,000,000 x 12%)



Estimated Warranty Liability Warranty Expense

2021 

Cash

Sales

600,000 600,000 100,000

100,000

7,000,000 Record the sales.



Warranty Expense Estimated Warranty Liability (7,000,000 x 12%)



Estimated Warranty Liability Warranty Expense

5,000,000

7,000,000

840,000 840,000 250,000

250,000

Requirement 2 (600,000 + 840,000 = 1,440,000) – (100,000 + 250,000 = 350,000) = 1,090,000 Related to 2020 sales 2020 First contract year of 1/1/2020 sales (2,500,000 x 3%) First contract year of 7/1/2020 sales (2,500,000 x 3% x 6/12)

75,000 37,500

2021 First contract year of 7/1/2020 sales (2,500,000 x 3% x 6/12) Second contract year of 1/1/2020 sales (2,500,000 x 9%) Second contract year of 1/1/2020 sales (2,500,000 x 9% x 6/12)

37,500 225,000 112,500

2022 Second contract year of 1/1/2020 sales (2,500,000 x 9% x 6/12) TOTAL WARRANTY EXPENSE FOR 2020

112,500 600,000

Related to 2021 sales 2021 First contract year of 1/1/2021 sales (3,500,000 x 3%) First contract year of 7/1/2021 sales (3,500,000 x 3% x 6/12)

105,000 52,500

2022 First contract year of 7/1/2021 sales (3,500,000 x 3% x 6/12) Second contract year of 1/1/2021 sales (3,500,000 x 9%) Second contract year of 1/1/2021 sales (3,500,000 x 9% x 6/12)

52,500 315,000 157,500

2023 Second contract year of 1/1/2021 sales (3,500,000 x 9% x 6/12) TOTAL WARRANTY EXPENSE FOR 2021

157,500 840,000

Requirement 3 2020 sales still under warranty after December 31, 2021

112,500

2021 sales still under warranty after December 31, 2021 First contract year of 7/1/2021 sales 52,500 Second contract of 1/1/2021 sales 315,000 Second contract of 7/1/2021 sales (157,500 + 157,500) 315,000 Estimated Warranty Liability – 12/31/2021 795,000 Estimated Warranty Liability per book (1,090,000) Decrease in warranty liability (295,000) 

Warranty Expense Estimated Warranty Liability

295,000 295,000

Problem 3-4 Requirement 1 2019  Cash

9,000,000

Sales (1,000 x 9,000)  2020 

9,000,000

Warranty Expense Estimated Warranty Liability (1,000 x 450)

450,000

Cash

8,325,000

Sales (900 x 9,250)



Warranty Expense Estimated Warranty Liability (900 x 450)

405,000



Estimated Warranty Liability Cash

180,000

Estimated Warranty Liability Cash (280,000 + 190,000)

470,000

450,000

8,325,000 405,000 180,000

2021 

470,000

Requirement 2 Warranty Expense related to 2019 sales 2020 First contract year of 12/31/2019 sales (1,000 x 450 x 40%)

180,000

2021 Second contract year of 12/31/19 sales (1,000 x 450 x 60%) TOTAL WARRANTY EXPENSE FOR 2019

270,000 450,000

Warranty Expense related to 2020 sales 2021 First contract year of 12/31/2020 sales (900 x 450 x 40%)

162,000

2022 Second contract year of 12/31/20 sales (900 x 450 x 60%) TOTAL WARRANTY EXPENSE FOR 2019

243,000 405,000

Requirement 3 Second contract year of 12/31/2021 sales Estimated warranty liability per book (450,000 + 405,000 – 180,000 – 470,000) Increase in warranty liability

243,000 (205,000) 38,000



Warranty Expense Estimated Warranty Liability

38,000 38,000

Problem 3-5 Requirement 1 Jan Feb Mar Apr May Jun

4,200,000 4,700,000 3,900,000 3,250,000 2,400,000 1,900,000

7% 7% 7% 7% 10% 10%

294,000 329,000 273,000 227,500 240,000 190,000

10% 20% 30% 50% 70% 100%

Sales

Jan

Feb

Mar

Apr

May

Jun

Total Returns

Jan Feb Mar Apr May Jun

-

30% -

20% 30% -

20% 20% 30% -

10% 20% 20% 30% -

10% 10% 20% 20% 30% -

90% 80% 70% 50% 30% -

Requirement 2 Manufacturing cost Freight Total Salvage Value Net loss on component returned

70% 5% 75% (10%) 65%

Required estimated warranty liability (648,850 x 65%) Estimated Warranty Liability Increase in warranty liability

421,753 (120,400) 301,353

Requirement 3 

Warranty Expense Estimated Warranty Liability

Problem 3-6 Unit sold:

301,353 301,353

29,400 65,800 81,900 113,750 168,000 190,000 648,850

October November December Total

32,000 28,000 40,000 100,000

100,000 x 2%

2,000

Failures: October (160+320+160) November (80+280) December Expected failures

640 360 180

Estimated cost 

(1,180) 820 x 150 123,000

Warranty Expense 123,000 Estimated Warranty Liability 123,000

Problem 3-7 Requirement 1 

Cash

2,943,000



Unearned Warranty Revenue 81,000 Warranty Revenue (243,000 / 3)



Warranty Expense Inventory Cash

Sales (300 sets x 9,000) Unearned Warranty Revenue

2,700,000 243,000 81,000

60,000

20,000 60,000

Requirement 2 Current Liabilities: Unearned Warranty Revenue

81,000

Noncurrent Liabilities:  Unearned Warranty Revenue

81,000

Problem 3-8 Warranty Expense, current year Warranty Liability, increased Warranty expenditures (B)

1,900,000 (200,000) 1,700,000

Problem 3-9 Warranty Expense: 50,000,000 x 4% = 2,000,000 2,000,000 + 40,000 = 2,040,000 (A) Problem 3-10 40,000,000 x 6% = 2,400,000 2,500,000 – 2,400,000 = 100,000 800,000 – 100,000 = 700,000 (C) Problem 3-11 Warranty Expense (2,400 washing machine x 300) Warranty Liability (720,000 – 170,000)

720,000 (D) 550,000 (A)

Problem 3-12 Warranty Expense (4,000,000 x 2%) Warranty Liability (60,000 – 50,000 = 10,000 + 80,000)

80,000 (C) 90,000 (D)

Problem 3-13 Warranty Expense (30,000 x 80) 2,400,000 (A) Estimated Warranty Liability (2,400,000 – 700,000) 1,700,000 (C) Problem 3-14 Net sales (540,000 + 100,000 = 640,000 / 8%)

8,000,000 (A)

Problem 3-15 Warranty Expense (5,000,000 x 7%) 350,000 (A) Warranty Liability (350,000 – 100,000) 250,000 (B) Warranty Expense (7,000,000 x 7%) 490,000 (C) Warranty Liability (350,000 + 490,000) – 400,000 440,000 (B) Problem 3-16 1. D 2. C 3. D 4. C 5. A

Problem 4-1 First lawsuit: Recognition of loss and accrue a liability of P1,000,000 (probable and measurable Second lawsuit: Recognition and accrue a liability of P4,000,000 (midpoint range) Third lawsuit: Recognition of loss and accrue a liability of P2,000,000 (time value of money and midpoint) Fourth lawsuit: Possible only, so disclosure would be appropriate Problem 4-2 

Loss from litigation Litigation Liability

4,500,000 4,500,000



No entry. Disclosure only.



No entry. Disclosure only.



No entry. The environmental violation is an unasserted assessment.

Problem 4-3  

Only disclosure would be appropriate. Retained Earnings 200,000 Estimated Liability for Income Tax 200,000 (400,000 x 50%)



Accounts Receivable Loss on guarantee Note Payable – bank

120,000 80,000 200,000

Problem 4-4 

Loss on lawsuit 800,000 Estimated Liability for Income Tax 800,000 (1,600,000 x 50%)



Environmental Cost 1,500,000 Estimated Liability for Income Tax 1,500,000



No provision.



Contamination clean-up cost 500,000 Estimated Liability for Income Tax 500,000



Loss on lawsuit 300,000 Estimated Liability for Income Tax 300,000

Problem 4-5 Recognition of the provision of 5,000,000 because the claim is probable. No provision or disclosure of 2,000,000 will be recognized. Contingent asset of 4,500,000 (5,000,000 x 90%) because it is virtually certain of collection. Problem 4-6 Unpaid entitlement of retrenched 200 employees Retrenchment package of one executive Unpaid salary of the executive (50,000 x 60%) TOTAL PROVISION FOR RESTRUCTURING 

1,500,000 200,000 30,000 1,730,000

Restructuring costs Estimated Liability for Restructuring Costs

1,730,000 1,730,000

Problem 4-7 Lease termination policy Cost of hiring outplacement firm Employee termination cost TOTAL RESTRUCTURING PROVISION

4,000,000 6,000,000 30,000,000 40,000,000

Problem 4-8 

Doubtful Accounts Expense Allowance for Doubtful Accounts (30,000,000 x 3%)

900,000 900,000



Warranty Expense Estimated Warranty Liability (30,000,000 x 2% - 350,000)

250,000 250,000



Loss from a product recall Estimated Liability – product recall

1,500,000 1,500,000



Loss from litigation Litigation Liability

4,200,000 4,200,000



No entry. The lawsuit against customer is a gain contingency. Contingent gain is not accrued even if the gain is probable and reasonably estimate. Gain will be recognized when realized. Disclosure only.

Problem 4-9    

Disclosure only would be appropriate. Disclosure only would be appropriate. Litigation Loss Litigation Liability Disclosure only would be appropriate.

2,000,000 2,000,000

Problem 4-10 Requirement 1 2020  Jan 1 Oil tanker depot Cash Decommissioning Liability (1,500,000 x .62)

6,930,000 6,000,000 930,000



Dec 31 Depreciation Expense 1,386,000 Accumulated Depreciation 1,386,000 (6,930,000 / 5 years)



Dec 31 Interest Expense Decommissioning Liability (930,000 x 10%)

Requirement 2 2024  Dec 31 Accumulated Depreciation

93,000

93,000

6,930,000

Oil tanker depot 

Dec 31 Decommissioning Liability Loss on settlement of DL Cash

6,930,000 1,500,000 200,000 1,700,000

Problem 4-11 Requirement 1 2020  Jan 1 Mining Site Cash Decommissioning Liability (2,000,000 x .4632) 

Dec 31 Interest Expense Decommissioning Liability (926,400 x 8%)

8,926,400 8,000,000 926,400 74,112

74,112

Requirement 2 2024 

Dec 31 Decommissioning Liability Cash Gain on settlement of DL

2,000,000 1,800,000 200,000

Problem 4-12 Requirement 1 2020  Jan 1 Gas Detoxification Facility Cash Decommissioning Liability (1,500,000 x .56)

9,840,000 9,000,000 840,000



Dec 31 Depreciation Expense 984,000 Accumulated Depreciation 984,000 (9,840,000 / 10 years)



Dec 31 Interest Expense Decommissioning Liability (840,000 x 6%)

Requirement 2

50,400

50,400

2022 

Dec 31 Gas Detoxification Facility Decommissioning Liability (200,000 x .63)

126,000 126,000



Dec 31 Depreciation Expense 999,750 Accumulated Depreciation 999,750 (984,000 + (126,000 / 8))



Dec 31 Interest Expense Decommissioning Liability Original Liability Interest Expense for 2020 (6% x 840,000) CA 12/31/2020 Interest for 2021 (6% x 890,400) CA, 12/31/2021

64,189

64,189 840,000 50,400 890,400 53,424 943,824

Interest for 2022 (6% x 943,824) 56,629 Additional Liability – Interest (126,000 x 6%) 7,560 Total interest for 2022 64,189 Requirement 3 

Dec 31 Accumulated Depreciation Gas Detoxification Facility (9,840,000 + 126,000)

9,966,000 9,966,000



Dec 31 Decommissioning Liability Loss on Settlement of DL Cash

1,700,000 300,000 2,000,000

Problem 4-13 Normal defect (500 x 25% = 125 x 10,000) Significant defect (500 x 15% = 75 x 30,000) Expected Value of warranty provision

1,250,000 2,250,000 3,500,000 (A)

Problem 4-14 Major defect (5,000,000 x 3%) Minor defect (3,000,000 x 5%) Warranty Provision

150,000 150,000 300,000 (C)

Problem 4-15 Weighted probabilities: 20% x 200,000 x 70%

28,000

80% x 100,000 x 70% Weighted cash flows Multiply (100% + 7%) Adjusted cash flows Multiply by PV Present value of cash flows

56,000 84,000

1.07 89,880 (D) .95 85,386 (D)

Problem 4-16 Weighted probabilities: 60% x 2,000,000 x 80% 40% x 1,000,000 x 80% Weighted cash flows Multiply (1,280,000 x 8%) Adjusted cash flows Multiply by PV Present value of cash flows

960,000 320,000 1,280,000 102,400 1,382,400 (A) .89 1,230,336 (C)

Problem 4-17 Cost of minor repair Cost of major repair Total

100,000 400,000 500,000 1.06 530,000

Expenditure in 2020 (530,000 x 50%) 265,000 Expenditure in 2021 (530,000 – 265,000 = 265,000 x .94) 249,100 Warranty expense 514,100 (C) Warranty Liability, December 31, 2020

249,100 (B)

Problem 4-18 Provision accrued on December 31, 2020 3,500,000 (C) The decision made by the Supreme Court was before the issuance. It should be equal to the amount of 3,500,000 decided. The date of issuance = date when the board of directors approved the financial statements. Problem 4-19 There’s a provision because it is both measurable and probable. The best estimate is 350,000 (D), the midpoint of the range. Problem 4-20

The loss is probable and reasonably estimated. (500,000 – 250,000 = 250,000 (A)) Problem 4-21 Accrued Liability is 500,000 (C). Problem 4-22 Accrued Liability is 500,000 (D) Problem 4-23 Estimate of liability Deductible clause Insurance claim – Reimbursement asset

3,500,000 (A) (500,000) (C) 3,000,000

Problem 4-24 Loss contingency of 3,600,000 and disclosure of 2,400,000 (1,200,000 + 3,600,000) (B) Problem 4-25 Accrued Liability of 500,000 and a disclosure of 100,000 (600,000 – 500,000) (B) Problem 4-26 Pretax gain = 1,500,000 (already settled while the remainder of 3,000,000 will be only disclosed) (A) Problem 4-27 Disclosed only (D) Problem 4-28 Disclosed only (D) Problem 4-29 The case is unresolved on December 31, 2020 so the contingent asset is disclosed only. The amount 1,500,000 will be disclosed. If the case is settled before the issuance, the actual award will be 1,000,000. (D) Problem 4-30 Entry on December 31, 2019 

Loss on lawsuit Estimated Liability for Lawsuit

400,000 400,000

Entry on December 31, 2020 

Estimated Liability for Lawsuit Cash Copyright Gain on settlement

Problem 4-31 1. B 2. D 3. D 4. C 5. A 6. A 7. C 8. A 9. C 10. C Problem 4-32 1. D 2. D 3. C 4. C 5. D

Problem 4-33 1. B 2. D 3. C 4. D 5. B 6. D 7. B

400,000 250,000 60,000 90,000 ©

8. A 9. A 10. A

Problem 5-1 Memorandum Approach 2020 

April 1 Cash

7,420,000

Bonds Payable Premium on Bonds Payable Sale of bonds.

7,000,000 420,000



Oct 1 Interest Expense Cash (7,000,000 x 12% x ½)

420,000



Dec 31 Interest Expense Accrued Interest Payable (7,000,000 x 12% x 3/12)

210,000



Dec 31 Premium on Bonds Payable Interest Expense (420,000 / 10years x 9/12)

31,500



Jan 1 Accrued Interest Payable Interest Expense Reversing entry.

210,000



April 1 Interest Expense Cash (7,000,000 x 12% x ½)

420,000



Oct 1 Interest Expense Cash (7,000,000 x 12% x ½)

420,000



Dec 31 Interest Expense Accrued Interest Payable (7,000,000 x 12% x 3/12)

210,000



Dec 31 Premium on Bonds Payable Interest Expense (420,000 / 10 years)

42,000

420,000

210,000

31,500

2021

Requirement 2 Noncurrent Liabilities: Bonds Payable

7,000,000

210,000

420,000

420,000

210,000

42,000

Premium on Bonds Payable CA, 12/31/2021

346,000 7,346,000

Problem 5-2 2020 

Jan 1 Unissued Bonds Payable 8,000,000 Authorized Bond Payable 8,000,000 Authorization of bonds (JE Approach)



Jan 1 Cash Discount on Bonds Payable Unissued Bonds Payable Sale of bonds.

4,750,000 250,000 5,000,000



Jun 30 Interest Expense Cash (5,000,000 x 15% x 6/12)

300,000 300,000



Dec 31 Interest Expense Discount on Bonds Payable (250,000 / 10)

25,000



Dec 31 Interest Expense Cash (5,000,000 x 15% x 6/12)

300,000 300,000



Jun 30 Interest Expense Cash (5,000,000 x 15% x 6/12)

300,000 300,000



Sep 1 Cash

2,100,000 2,000,000 60,000 40,000



Dec 31 Interest Expense Cash (7,000,000 x 12% x 6/12)

420,000 420,000



Dec 31 Interest Expense Discount on Bonds Payable (250,000 / 10)

25,000

25,000

2021

Unissued Bonds Payable Premium on Bonds Payable Interest Expense (2,000,000 x 12% x 2/12)

25,000



Dec 31 Premium on Bonds Payable 2,400 Interest Expense 2,400 (10 x 12 = 120 – 20 = 100 months) (60,000 / 100 months = 600 x 4 = 2,400)

Requirement 2 Noncurrent Liabilities Authorized Bonds Payable Unissued Bonds Payable Issued Bonds Payable Premium on Bonds Payable Total Discount on Bonds Payable CA

8,000,000 1,000,000 7,000,000 57,600 7,057,600 (200,000) 6,857,600

Problem 5-3 Requirement 1 2020  April 1 Cash Discount on Bonds Payable Bond Issue Cost Bonds Payable (5,000,000 x .98)

4,850,000 100,000 50,000 5,000,000



Oct 1 Interest Expense Cash (5,000,000 x 12% x 6/12)

300,000 300,000



Dec 31 Interest Expense 22,500 Discount on Bonds Payable (100,000 / 5 x 9/12) 15,000 Bond Issue Cost (50,000 / 5 x 9/12) 7,500



Dec 31 Interest Expense Accrued Interest Payable (5,000,000 x 12% x 3/12)

150,000 150,000



Jan 1 Accrued Interest Payable Interest Expense

150,000 150,000



April 1 Interest Expense Cash

300,000 300,000



July 1 Interest Expense

15,000

2021

Discount on Bonds Payable (100,000 / 5 x 6/12) Bond Issue Cost (50,000 / 5 x 6/12) 

10,000 5,000

July 1 Bonds Payable 2,000,000 Interest Expense (2,000,000 x 12% x 3/12) 60,000 Loss on Early Retirement 25,000 Cash 2,040,000 Discount on Bonds Payable 30,000 Bond Issue Cost 15,000 Retirement Price (2,000,000 x .99) Add: Accrued Interest (2,000,000 x 12% x 3/12) Total Payment

1,980,000 60,000 2,040,000

Bonds Payable retired Less: Discount (75,000 x 2/5) Less: Bond Issue Cost (37,500 x 2/5) CA Less: Retirement Price Loss

2,000,000 (30,000) (15,000) 1,955,000 1,980,000 25,000



Oct 1 Interest Expense Cash (3,000,000 x 12% x 6/12)

180,000 180,000



Dec 31 Interest Expense Accrued Interest Payable (3,000,000 x 12% x 3/12)

90,000



Dec 31 Interest Expense 9,000 Discount on Bonds Payable (20,000 x 3/5 x 6/12) 6,000 Bond Issue Cost (10,000 x 3/5 x 6/12) 3,000

90,000

Requirement 2 Noncurrent Liabilities: Bonds Payable Discount on Bonds Payable Bond Issue Cost CA

3,000,000 (39,000) (19,500) 2,941,500

Problem 5-4 Requirement 1 2020 

Jan 1 Cash

Bonds Payable

4,200,000 4,000,000

Premium on Bonds Payable Dec 31 Interest Expense Cash (4,000,000 x 12%)

200,000 480,000 480,000



Dec 31 Premium on Bonds Payable Interest Expense (200,000 / 5)

40,000



Dec 31 Bonds Payable Premium on Bonds Payable (160,000 x ¼) Cash Gain on early retirement of bonds



FA of bonds payable retired Premium on Bonds Payable CA Retirement Price (1,000,000 x .95) Gain

1,000,000 40,000

40,000

950,000 90,000

1,000,000 40,000 1,040,000 950,000 90,000

2021 

Dec 31 Interest Expense Cash (3,000,000 x 12%)

360,000 360,000



Dec 31 Premium on Bonds Payable Interest Expense (40,000 x ¾)

30,000

Requirement 2 Noncurrent Liabilities: Bonds Payable Premium on Bonds Payable CA

3,000,000 90,000 3,090,000

Problem 5-5 Requirement 1 Bonds issued Bonds retired Bonds Payable, 12/31/2020

6,000,000 (3,000,000) 3,000,000

Discount on Bonds Payable 300,000 Amortization (300,000 / 10 x 7) (210,000) Balance, 01/01/2020 90,000 Discount applicable to bonds retired (90,000 x 3/6) (45,000)

30,000

Adjusted Amortization for 2020 (45,000 / 3) Discount on Bonds Payable, 12/31/2020 Requirement 2

45,000 (15,000) 30,000

Interest Expense (3,000,000 x 12%) Interest Amortization Interest Expense, 12/31/2020

360,000 15,000 375,000

Requirement 3 

Retained Earnings Discount on Bonds Payable



Bonds Payable 300,000 Discount on Bonds Payable Gain on early retirement of bonds Bonds Payable retired Discount CA Retirement Price Gain

210,000 210,000 45,000 255,000

3,000,000 (45,000) 2,955,000 2,700,000 255,000



Interest Expense Discount on Bonds Payable Amortization for 2020.

15,000



Interest Expense Accrued Interest Payable (3,000,000 x 12% x ½)

180,000 180,000

15,000

Problem 5-6 

Cash Discount Bonds Payable – new



Bonds Payable Premium on Bonds Payable Accrued Interest Payable Loss on early retirement of bonds Cash Bonds Payable, old Premium on Bonds Payable CA Retirement Price (3,000,000 x 102)

3,900,000 100,000 4,000,000 3,000,000 50,000 180,000 10,000 3,240,000 3,000,000 50,000 3,050,00 3,060,000

Loss on early retirement

10,000

Problem 5-7 Requirement 1 - Amortization Table Year

Bond Outstanding 8,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 2,000,000 40,000,000

2021 2022 2023 2024 2025 2026 2027

Fraction

Discount Amortization 64,000 64,000 56,000 48,000 40,000 32,000 16,000 320,000

8/40 8/40 7/40 6/40 5/40 4/40 2/40

Requirement 2 2020 

2021 



2022 

Dec 31 Cash Discount on Bonds Payable Bonds Payable

7,680,000 320,000 8,000,000

Dec 31 Interest Expense Cash (8,000,000 x 12%)

960,000 960,000

Dec 31 Interest Expense 64,000 Discount on Bonds Payable 64,000 (320,000 / 5) Dec 31 Interest Expense Cash (8,000,000 x 12%)

960,000 960,000



Dec 31 Interest Expense 64,000 Discount on Bonds Payable 64,000



Dec 31 Bonds Payable Cash

2023

1,000,000

1,000,000

Interest Paid 960,000 960,000 840,000 720,000 600,000 480,000 240,000 4,800,000

Interest Expense 1,024,000 1,024,000 896,000 768,000 640,000 512,000 256,000 5,120,000



Dec 31 Interest Expense Cash (7,000,000 x 12%)

840,000 840,000



Dec 31 Interest Expense 56,000 Discount on Bonds Payable 56,000



Dec 31 Bonds Payable Cash

1,000,000

1,000,000

Problem 5-8 Year 2021 2022 2023 2024 2025 2026 2027

2020 

2021 

Bond Outstanding 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 28,000,000

Dec 31 Cash

Fraction

Premium Amortization 105,000 90,000 75,000 60,000 45,000 30,000 15,000 420,000

7/28 6/28 5/28 4/28 3/28 2/28 1/28

7,420,000 Bonds Payable 7,000,000 Discount on Bonds Payable 420,000

Dec 31 Interest Expense Cash (7,000,000 x 12%)

840,000 840,000



Dec 31 Premium on Bonds Payable Interest Expense

105,000 105,000



Dec 31 Bonds Payable Cash

2022 



1,000,000

1,000,000

Dec 31 Interest Expense Cash (6,000,000 x 12%)

720,000 720,000

Dec 31 Premium on Bonds Payable Interest Expense

90,000

90,000

Interest Paid 840,000 720,000 600,000 480,000 360,000 240,000 120,000 3,360,000

Interest Expense 735,000 630,000 525,000 420,000 315,000 210,000 105,000 2,940,000



Dec 31 Bonds Payable Cash

1,000,000



Dec 31 Bonds Payable 1,000,000 Premium on Bonds Payable 30,000 Loss on early retirement 20,000 Cash 1,050,000

1,000,000

(420,000 / 28,000,000 = .015 per year) 1,000,000 x .015 x 2 = 30,000 Problem 5-9 3,500,000 + 3,000,000 = 6,500,000 (D) (term bonds have single maturity) Problem 5-10 2,000,000 + 2,750,000 = 4,750,000 (A) 2,750,000 + 1,250,000 = 4,000,000 (A) Problem 5-11 5,000,000 x 110 Accrued interest (5,000,000 x 12% x 3/12) Total cash Bond issue cost Net cash received

5,500,000 150,000 5,650,000 (200,000) 5,450,000 (A)

Problem 5-12

4,000,000 x 99 Accrued interest (4,000,000 x 8% x 3/12) Total cash Bond issue cost Net cash received

3,960,000 80,000 4,040,000 (140,000) 3,900,000 (C)

Problem 5-13 5,000,000 x 104 Bond issue cost CA

5,200,000 (125,000) 5,075,000 (B)

Problem 5-14 Promotion cost Printing and engraving Legal fees Fees paid to accountants Commissions

200,000 150,000 800,000 100,000 900,000

Bond Issue Cost

2,150,000 (B)

Problem 5-15 Cash received Premium (5,000,000 x 6% x 4/12) Issue Price FA

5,150,000 (100,000) 5,050,000 5,000,000 50,000 (B)

Premium on BP

Problem 5-16 Nominal rate / Stated rate is used in determining the accrued interest payable 4,000,000 x 8% x 3/12 = 80,000 (B) Problem 5-17 3,000,000 x 12% x 3/12 = 90,000 (D) Problem 5-18 Bonds Payable 5,000,000 Unamortized Premium 30,000 Total 5,030,000 Unamortized Discount (50,000) Total 4,980,000 Retirement Price 4,900,000 Gain on retirement of bonds 80,000 (B) Problem 5-19 Bonds Payable Unamortized Discount Carrying Amount

8,000,000 (430,000) 7,570,000

CA (7,570,000 x 4/8) Retirement Price Loss on extinguishment

3,785,000 4,100,000 315,000 (D)

Problem 5-20 1. 4,000,000 x 6% = 240,000 (A) 2. December 31 (4,000,000 x 95) January 1 Loss in change in fair value

3,800,000 3,677,600 122,400 (D)

3. CA of bonds payable

3,800,000 (B)



Jan 1 Cash

3,677,600 3,677,600



Dec 31 Interest Expense Cash

240,000 240,000



Dec 31 Loss from change in FV Bonds Payable

122,400 122,400

Bonds Payable

Problem 5-21 1. 5,000,000 x 12% = 600,000 (A) 2. December 31 January 1 Gain in change in fair value

5,125,000 5,385,000 260,000 (A)

3. CA of December 31, 2020

5,125,000 (B)



Jan 1 Cash

5,385,000 5,385,000



Jun 30 Interest Expense Cash

300,000 300,000



Dec 31 Interest Expense Cash

300,000 300,000



Dec 31 Bonds Payable 260,000 Gain from change in FV

Bonds Payable

Problem 5-22 1. 8,000,000 x 10%

800,000 (A)

2. Jan 1 (8,000,000 x .95) Dec 31 (8,000,000 X 105) Total Bonds Issue Cost Total loss recognized in P or L

7,600,000 8,400,000 800,000 150,000 650,000 (B)

260,000

3. CA of December 31, 2020

8,400,000 (B)



Jan 1 Cash

7,600,000 7,600,000



Jan 1 Transaction Cost Cash

150,000 150,000



Dec 31 Interest Expense Cash

800,000 800,000



Dec 31 Loss on credit risk Loss from change in FV Bonds Payable

150,000 650,000 800,000

Bonds Payable

Problem 5-23 1. CA, January 1, 2020 2. 1,000,000 X 12%

1,077,200 (B) 120,000 (A)

3. December 31 January 1 Gain in change in fair value 4. CA, December 31, 2020

1,064,600 1,077,200 12,600 (C) 1,064,600 (A)



Jan 1 Cash



July 1 Interest Expense Cash

60,000



Dec 31 Interest Expense Cash

60,000



Dec 31 Bonds Payable 12,600 Gain from change in FV

Problem 5-24 1. B 2. A 3. A 4. A 5. A 6. D

Bonds Payable

1,077,200 1,077,200 60,000 60,000 12,600

7. B 8. C 9. B 10. A Problem 5-25 1. A 2. C 3. A 4. D 5. A 6. A 7. D 8. A 9. D 10. C Problem 6-1 Requirement 1 

Jan 1 Cash

6,737,000 6,000,000 737,000



Dec 31 Interest Expense Cash (6,000,000 x 12%)

720,000 720,000



Dec 31 Premium on Bonds Payable Interest Expense

46,300

Bonds Payable Premium on Bonds Payable

Interest Paid 12% Interest Expense 10% Premium Amortization

720,000 (673,700) 46,300

Requirement 2 Noncurrent Liabilities: Bonds Payable Premium on Bonds Payable CA Problem 6-2 Requirement 1

6,000,000 690,700 6,690,700

46,300

Date

Interest Paid – 3%

1/1/2020 6/30/2020 12/31/2020 6/30/2021 12/31//2021

150,000 150,000 150,000 150,000

Interest Expense – Discount Amortization CA 4% 4,818,500 192,740 42,740 4,861,240 194,450 44,450 4,905,690 196,228 46,228 4,951,918 198,077 48,077 5,000,000

Requirement 2 2020 

Jan 1 Cash Discount on Bonds Payable Bonds Payable

4,818,500 181,500 5,000,000



Jun 30 Interest Expense Cash Discount on Bonds Payable

192,740 150,000 42,740



Dec 31 Interest Expense Cash Discount on Bonds Payable

194,450 150,000 44,450



Jun 30 Interest Expense Cash Discount on Bonds Payable

196,228 150,000 46,228



Dec 31 Interest Expense Cash Discount on Bonds Payable

198,077 150,000 48,077



Dec 31 Bonds Payable Cash

2021

5,000,000

5,000,000

Problem 6-3 Requirement 1 Date 1/1/2020 6/30/2020 12/31/2020

Interest Paid – 8%

Interest Expense – 10%

240,000 240,000

273,868 277,255

Discount Amortization CA 2,738,682 33,868 2,772,550 37,255 2,809,805

6/30/2021 12/31//2021 6/30/2022 12/31/2022

240,000 240,000 240,000 240,000

280,981 285,079 289,587 294,545

40,981 48,079 49,587 54,545

2,850,786 2,895,865 2,945,452 3,000,000

Requirement 2 2020 

Jan 1 Cash Discount on Bonds Payable Bonds Payable

2,738,682 261,318 3,000,000



Jun 30 Interest Expense 273,868 Cash 240,000 Discount on Bonds Payable 33,868



Dec 31 Interest Expense 277,255 Cash 240,000 Discount on Bonds Payable 37,255

2022 

Dec 31 Interest Expense 294,545 Cash 240,000 Discount on Bonds Payable 54,545

2023 

Jan 1 Bonds Payable Cash

3,000,000

3,000,000 Retirement of bonds at maturity.

Problem 6-4 Requirement 1 Date 4/1/2020 10/1/2020 4/1/2021 10/1/2021 4/1//2022 10/1/2022 4/1/2023

Interest Paid – 6%

Interest Expense – 5%

Premium Amortization

120,000 120,000 120,000 120,000 120,000 120,000

105,076 104,330 103,546 102,724 101,860 100,953

14,924 15,670 16,454 17,276 18,140 19,047

CA 2,101,520 2,086,596 2,070,926 2,054,472 2,037,196 2,019,056 2,000,000

Requirement 2 2020 

Apr 1 Cash

Bonds Payable Premium on Bonds Payable

2,101,250 2,000,000 101,250



Oct 1 Interest Expense Premium on Bonds Payable Cash

105,076 14,924 120,000



Dec 31 Interest Expense Accrued Interest Payable (120,000 x 3/6)

60,000



Dec 31 Premium on Bonds Payable Interest Expense (15,670 x 3/6)

7,835

Jan 1 Accrued Interest Payable Interest Payable

60,000



April 1 Interest Expense Premium on Bonds Payable Cash

104,330 15,670 120,000



Oct 1 Interest Expense Premium on Bonds Payable Cash

103,546 16,454 120,000



Dec 1 Interest Expense Accrued Interest Payable (120,000 x 3/6)

60,000



Dec 31 Premium on Bonds Payable Interest Expense (17,276 x 3/6)

8,638

2021 

Problem 6-5 Requirement 1 Interest Expense Interest Paid Discount on BP 2021

380,560 320,000 60,560

60,000

7,835

60,000

60,000

8,638

Bonds Payable 4,000,000 Principal Payment (800,000) Discount on BP (194,400 – 60,560) (133,840) CA, 12/31/2021 3,066,160 Requirement 2 2021 

Cash Discount on Bonds Payable Bonds Payable

3,805,600 194,400 4,000,000



Interest Expense Cash

320,000 320,000



Interest Expense Discount on BP

60,560



Bonds Payable Cash

800,000

60,560 800,000

Problem 6-6 Requirement 1 – Market or Issue Price Date Principal Payment Interest Payment 12/31/202 2,000,000 360,000 0 12/31/202 2,000,000 240,000 1 12/31/202 2,000,000 120,000 2

Total 2,360,000

PV Factor .9259

Present Value 2,185,124

2,240,000

.8573

1,920,352

2,120,000

.7938

1,682,856

Requirement 2 2020 

Cash Discount on Bonds Payable Bonds Payable

5,788,332 211,668 6,000,000



Interest Expense Cash

360,000 360,000

5,788,332



Interest Expense Discount on BP

103,067 103,067

Interest Paid 360,000 Interest Expense 463,067 Discount amortization 103,067 

Bonds Payable Cash

2,000,000

2,000,000

Requirement 3 Bonds Payable Principal Payment Discount CA, 12/31/2020

6,000,000 (2,000,000) (108,601) 3,891,399

Problem 6-7 Requirement 1 Principal (20,000,000 x .3118) Interest (1,000,000 x 11.47) Bonds price, January 1, 2020

6,236,000 11,470,000 17,706,000

Requirement 2 

Cash Discount on Bonds Payable Bonds Payable

17,706,000 2,294,000 20,000,000

Requirement 3 

Interest Expense 1,062,360 Cash 1,000,000 Discount on Bonds Payable 62,360

Requirement 4 

Interest Expense 1,066,102 Cash 1,000,000 Discount on Bonds Payable 66,102

Problem 6-8 Requirement 1

Principal (20,000,000 x .377) Interest (1,200,000 x 12.46) Bonds price, January 1, 2020

7,540,000 14,952,000 22,492,000

Requirement 2 

Cash

22,492,000 Bonds Payable 20,000,000 Premium on Bonds Payable 2,492,000

Requirement 3 

Interest Expense Premium on Bonds Payable Cash

1,124,600 75,400 1,200,000

Requirement 4 

Interest Expense Premium on Bonds Payable Cash

1,120,830 79,170 1,200,000

Problem 6-9 Requirement 1 Date 06/30/2020 12/31/2020 06/30/2021 12/31/2021

Principal Payment 2,000,000 2,000,000

Interest Payment 240,000 240,000 120,000 120,000

Total 240,000 2,240,000 120,000 2,120,000

PV Factor .9615 .9246 .8890 .8548

Present Value 230,760 2,071,104 106,680 1,812,176 4,220,720

Requirement 2 Date 1/1/2020 06/30/2020 12/31/2020 06/31/2021 12/31//2021

Interest Paid – Interest Expense – Premium 6% 4% Amortization 240,000 240,000 120,000 120,000

168,829 165,982 83,021 81,542

71,171 74,018 36,979 38,458

Principal Payment 2,000,000 2,000,000

Requirement 3 2020 

Jan 1 Cash

4,220,720

CA 4,220,720 4,149,549 2,075,531 2,038,552 -

Bonds Payable Premium on Bonds Payable

4,000,000 220,720



Jun 30 Interest Expense Cash

240,000 240,000



Jun 30 Premium on Bonds Payable Interest Expense

71,171



Dec 31 Interest Expense Cash

240,000 240,000



Dec 31 Premium on Bonds Payable Interest Expense

74,018



Dec 31 Bonds Payable Cash

2021 

2,000,000

71,171

74,018 2,000,000

Jun 30 Interest Expense Cash

120,000 120,000



Jun 30 Premium on Bonds Payable Interest Expense

36,979



Dec 31 Interest Expense Cash

120,000 120,000



Dec 31 Premium on Bonds Payable Interest Expense

38,458



Dec 31 Bonds Payable Cash

2,000,000

36,979

38,458 2,000,000

Problem 6-10 Requirement 1 Principal (7,000,000 x .456) Interest (350,000 x 13.590) Market or Issue Price of Bonds

3,192,000 4,756,500 7,948,500

Requirement 2 Date 03/1/2020

Interest Paid – 5%

Interest Expense – 4%

Premium Amortization

CA 7,948,500

9/1/2020 03/1/2021

350,000 350,000

317,940 316,658

32,060 33,342

7,916,440 7,883,098

Requirement 3 

Mar 1 Cash

7,948,500 7,000,000 948,500



Sep 1 Interest Expense Cash

350,000 350,000



Sep 1 Premium on Bonds Payable Interest Expense

32,060



Dec 31 Interest Expense Accrued Interest Payable

233,333 233,333



Dec 31 Premium on Bonds Payable Interest Expense

22,228

Bonds Payable Premium on Bonds Payable

32,060

22,228

Problem 6-11 Requirement 1 Principal (6,000,000 x .57) Interest (600,000 x 3.60) Market or Issue Price of Bonds

3,420,000 2,160,000 5,580,000

Requirement 2 Date

Interest Paid – 10%

06/1/2020 06/1/2021 06/1/2022

Interest 12%

600,000 600,000

669,600 677,952

Expense

– Discount Amortization 69,600 77,952

Requirement 3 2020 



Jun 1 Cash Discount on Bonds Payable Bonds Payable

5,580,000 420,000 6,000,000

Dec 31 Interest Expense Accrued Interest Payable

350,000 350,000

CA 5,580,000 5,649,600 5,727,552

 2021 

Dec 31 Interest Expense 40,600 Discount on Bonds Payable 40,600 Jan 1 Accrued Interest Payable Interest Payable

350,000 350,000



Jun 1 Interest Expense Cash

600,000 600,000



Jun 1 Interest Expense 29,000 Discount on Bonds Payable 29,000



Dec 31 Interest Expense Accrued Interest Payable



Dec 31 Interest Expense 45,472 Discount on Bonds Payable 45,472

350,000 350,000

Problem 6-12 2020 

Cash



Interest Expense Cash

500,000 500,000



Loss from change in FV Bonds Payable

331,000 331,000



Interest Expense Cash

500,000 500,000



Bonds Payable 570,000 Loss from change in FV

Bonds Payable

5,000,000 5,000,000

2021

570,000

Problem 6-13 Interest Expense (5,316,000 x 6%)

318,960 (B)

Problem 6-14 Interest Paid (4,000,000 x 4%)

160,000

Interest Expense (3,504,000 x 5%) Discount Amortization

175,200 15,200 (D)

Problem 6-15 Interest Expense (3,987,000 x 6%)

239,220 (B)

Problem 6-16 FA of BP Issue Price Discount on BP

4,000,000 3,756,000 244,000

Interest paid (4,000,000 x 9%) Interest expense (3,756,000 x 10%) Discount on amortization

360,000 375,600 15,600

244,000 – 15,600 = 228,400 (A) 3,756,000 + 15,600 = 3,771,600 (C) Problem 6-17 FA of BP 5,000,000 Issue Price 5,675,000 Premium on BP 675,000 Interest paid (5,000,000 x 10%) Interest expense (5,675,000 x 8%) Discount on amortization

500,000 454,000 46,000

675,000 – 46,000 = 629,000 (B) 5,675,000 – 46,000 = 5,629,000 (B) Problem 6-18 FA of BP 5,000,000 Issue Price 5,250,000 Premium on BP 250,000 Interest paid (5,000,000 x 7%) Interest expense (5,250,000 x 6%) Discount on amortization

350,000 315,000 35,000

250,000 – 35,000 = 215,000 (C) 5,250,000 – 35,000 = 5,215,000 (C) Problem 6-19 4,695,000 x 10% = 469,500 (B) Interest paid (5,000,000 x 9%)

450,000

Interest expense (4,695,000 x 10%) Discount on amortization

469,500 19,500

4,695,000 + 19,500 = 4,714,500 (C) Problem 6-20 (5,000,000 x .98) Bond Issue Cost Issue Price

4,900,000 (140,000) 4,760,000

Interest paid (5,000,000 x 10%) Interest expense (4,760,000 x 12%) Discount on amortization

500,000 571,200 71,200

4,760,000 + 71,200 = 4,831,200 (B) Problem 6-21 Date 1/1/2020 7/1/2020 1/1/2020

Interest paid

Interest expense

Discount amortization

250,000 250,000

274,800 276,288 551,088 (A)

24,800 26,288

CA 4,580,000 4,604,800 4,631,088 (C)

Problem 6-22 5,000,000 x 110 Bond Issue Cost Total

5,500,000 (80,000) 5,420,000

Interest paid (5,000,000 x 8%) Interest expense (5,420,000 x 6%) Premium on amortization CA, 12/31/2020

400,000 325,200 74,800 5,420,000 – 74,800 = 5,345,200 (A)

Problem 6-23 Date 1/1/2020 12/31/202 0

Problem 6-24

Interest paid

Interest expense

Discount amortization

Principal payments

400,000

475,700

75,700

1,000,000

CA 4,757,000 3,832,700 (B)

Interest expense (3,680,000 x 10%) Interest paid (4,000,000 x 9%) Discount amortization 8,000 x 6/12

8,000

368,000 360,000

4,000

Bonds Payable 4,000,000 Discount on bonds payable (320,000 – 4,000) (316,000) CA, July 1, 2020 3,684,000 Retirement Price (4,000,000 x 103) 4,120,000 Loss on extinguishment 436,000 (A) Problem 6-25 Interest expense (5,700,000 x 6%) Interest paid (6,000,000 x 5%) Discount amortization

42,000

342,000 300,000

Bonds Payable 6,000,000 Discount on bonds payable (300,000 – 42,000) (258,000) CA, July 1, 2020 5,742,000 (B) Retirement Price (6,000,000 x 102) 6,120,000 Loss on extinguishment 378,000 (B) Problem 6-26 1. D 2. D 3. D 4. C 5. D 6. D 7. A 8. B 9. C 10. A Problem 6-27 1. C 2. B 3. A 4. D 5. A

Problem 6-28 1. C 2. D 3. A 4. B 5. B 6. B 7. C 8. D 9. D 10. B

Problem 7-1 

Cash (5,000,000 x 120) Bonds Payable Premium on BP Share Warrants Outstanding

6,000,000 5,000,000 735,000 265,000

Issue Price 6,000,000 MV without warrants (5M x 114.7) 5,735,000 Residual amount allocated 265,000 

Interest Expense Cash (5,000,000 x 8%)

400,000 400,000



Premium on BP 55,900 Interest Expense 55,900 (5,735,000 x 6% = 344,100 – 400,000)



Cash (20,000 x 30) Share Warrants Outstanding Share capital Share Premium

600,000 265,000

500,000 265,000

Problem 7-2 

Cash Discount on BP Bonds Payable Share Warrants Outstanding Issue Price MV without warrants Residual amount allocated

5,100,000 343,000 5,000,000 443,000

5,100,000 4,657,000 443,000



Interest Expense Cash (5,000,000 x 12%)

600,000 600,000



Interest Expense 51,980 Discount on Bonds Payable 51,980 (4,657,000 x 14% = 651,980 – 600,000)



Cash (25,000 x 100) Share Warrants Outstanding

2,500,000 443,000

Share capital Share Premium

1,250,000 1,693,000

Problem 7-3 

Jan 1 Cash

Principal PV (8,000,000 X .61) Interest (480,000 x 7.72) Total PV Date 1/1/2020 6/30/2020 12/31/202 0

9,600,000 8,000,000 585,600 1,014,400

Bonds Payable Premium on Bonds Payable Share warrants outstanding 4,880,000 3,705,600 8,585,600

Interest paid

Interest expense

Premium amortization

480,000 480,000

429,280 426,744

50,720 53,256

IP (8,000,000 X 120) 9,600,000 PV of BP (8,585,600) Residual amount to allocate warrants 1,014,400 

Jun 30 Interest Expense Premium on BP Cash

429,280 50,720 480,000



Dec 31 Interest Expense Premium on BP Cash

426,744 53,526 480,000



Dec 31 Cash (16,000 x 150) Share Warrants Outstanding Share capital Share premium

2,400,000 1,014,400 1,600,000 1,814,400

Problem 7-4 

Cash (2,000,000 x 110) Discount on BP Bonds Payable Share Premium – conversion privilege Total IP IP of bonds w/o privilege Residual amount

2,200,000 1,843,600 356,400

2,200,000 156,400 2,000,000 356,400

CA 8,585,600 8,534,880 8,481,624

Principal PV (2,000,000 x .77) Interest (120,000 x 2.53) PV Bonds Payable Allocated IP Discount

1,540,000 303,600 1,843,600

2,000,000 1,843,600 156,400



Interest Expense Cash

120,000 120,000



Interest Expense Discount on BP

45,924



Bonds Payable Share Premium – CP Discount on BP SP- Issuance Share Capital

2,000,000 356,400 110,476 1,245,924 1,000,000

BP Discount (156,400 – 45,924) Share Premium – CP Total Consideration Par Value (50,000 x 20) Share Premium - Issuance

2,000,000 (110,476) 356,400 2,245,924 (1,000,000) 1,245,924

45,924

Problem 7-5 Requirement 1 

Cash (5,000,000 x 105) Discount on BP Bonds Payable Share Premium – conversion privilege Total IP IP of bonds w/o privilege Residual amount Bonds Payable Allocated IP Discount

Requirement 2

5,250,000 4,700,000 550,000

5,000,000 4,700,000 300,000

5,250,000 300,000 5,000,000 550,000



Interest Expense Cash Discount on Bonds Payable

658,000 600,000 58,000

Requirement 3 

Bonds Payable Share Premium – CP Discount on BP SP- Issuance Share Capital

5,000,000 550,000 242,000 1,308,000 4,000,000

BP 5,000,000 Discount (300,000 – 58,000) (242,000) Share Premium – CP 550,000 Total Consideration 5,308,000 Par Value (40,000 x 100) (4,000,000) Share Premium - Issuance 1,308,000 Problem 7-6 



Bonds Payable Premium on BP Share Premium – CP Share Capital Share Premium - Issuance

5,000,000 250,000 500,000 2,500,000 3,250,000

BP Premium Share Premium – CP Total Consideration Par Value (50,000 x 50) Share Premium - Issuance

5,000,000 250,000 500,000 5,750,000 (2,500,000) 3,250,000

Share Premium – Issuance Cash

200,000 200,000

Problem 7-7 Requirement 1  Cash (4,000,000 x 105) Discount on BP Bonds Payable

4,200,000 220,800 4,000,000

Share Premium – conversion privilege

420,800

Total IP IP of bonds w/o privilege Residual amount

4,200,000 3,779,200 420,800

Principal (4,000,000 x .79) Interest (240,000 x 2.58) PV of BP Face amount Discount on BP

3,160,000 619,200 3,779,200 4,000,000 220,800



Bonds Payable Interest Expense Cash

4,000,000 240,000 4,240,000



Share Premium – conversion privilege Share Premium – issuance

Requirement 2

420,800 420,800

Problem 7-8 Requirement 1 

Cash

Bonds Payable Premium on BP Share Premium – conversion privilege (6,000,000 – 5,399,300 = 600,700)

6,000,000 5,000,000 399,300 600,700

Requirement 2 

Bonds Payable Premium on BP Share Premium – conversion privilege Loss on extinguishment Cash Total payment Liability component Equity component CA of BP Payment applicable Loss on extinguishment



Interest Expense Cash

5,000,000 178,300 150,000 221,700 5,550,000

5,550,000 5,400,000 150,000 5,178,300 5,400,000 221,700 500,000 500,000



Share Premium – conversion privilege Share Premium – issuance (600,700 – 150,000)

450,700 450,700

Problem 7-9 1. Principal (5,000,000 x .52) Interest (600,000 x 3.43) Issue Price of bonds FA Discount on BP

2,600,000 2,058,000 4,658,000 5,000,000 342,000 (B)

2. Issue Price of bonds (5,000,000 x 103) PV of bonds Equity component

5,150,000 4,658,000 492,000 (C)

3. Cash (150,000 x 50) Share warrants outstanding Total consideration Par value (150,000 x 25) Share Premium

7,500,000 492,000 7,992,000 3,750,000 4,242,000 (A)

Problem 7-10 1. Principal (5,000,000 x .57) Interest (550,000 x 3.60) Issue Price of bonds

2,850,000 1,980,000 4,830,000 (B)

2. Issue Price of bonds FA Discount on BP

4,830,000 5,000,000 170,000 (A)

3. Issue Price of bonds (5,000,000 x 109) PV of bonds Equity component

5,450,000 4,830,000 620,000 (C)

4. Cash (50,000 x 120) Share warrants outstanding Total consideration Par value (50,000 x 100) Share Premium

6,000,000 620,000 6,620,000 5,000,000 1,620,000 (D)

Problem 7-11 1. 5,000,000 x .95 = 4,750,000 (B) 2. Total payment (5,000,000 x 103)

5,150,000

Liability component Equity component

4,750,000 400,000 (D)

3. Cash (150,000 x 50) Share warrants outstanding Total consideration Par value (150,000 x 25) Share Premium

7,500,000 400,000 7,900,000 3,750,000 4,150,000 (C)

Problem 7-12 Total IP IP of bonds w/o privilege Residual amount

5,500,000 5,150,000 350,000 (A)

Problem 7-13 Total IP IP of bonds w/o privilege Residual amount

5,500,000 4,609,000 891,000 (C)

Principal (5,000,000 x .77) Interest (300,000 x 2.53) Issue Price of bonds

3,850,000 759,000 4,609,000

Problem 7-14 Face amount Premium CA

5,000,000 300,000 5,300,000

CA converted (2,000/5,000 x 5,300,000) 5,000 x 50 shares x 10 par value Share premium Conversion cost Share Premium

2,120,000 1,000,000 1,120,000 (20,000) 1,100,000 (B)

Problem 7-15 Face amount Discount CA

10,000,000 (500,000) 9,500,000

CA converted (5,000/10,000 x 9,500,000) Applicable Share Premium (5/10 x 2,000,000) Share premium Par value (5,000 x 40 x 20) Share Premium

4,750,000 1,000,000 5,750,000 (4,000,000) 1,750,000 (D)

Problem 7-16 1. 4,000,000 – 500,000 = 3,500,000 (C) 2. FV of bonds with conversion privileges (5M x 105) FV of bonds without conversion privileges (5M x 95) Fair value of equity component CA of BP Payment Loss on extinguishment

3,500,000 3,800,000 300,000 (D)

3. FV of bonds with conversion privileges (5M x 105) Interest Expense (4,000,000 x 6%) Total payment Problem 7-17 1. B 2. A 3. D 4. D 5. D 6. C 7. B 8. D 9. A 10. D

4,200,000 3,800,000 400,000

4,200,000 240,000 4,440,000 (B)

Problem 8-1 1. Cash

8,000,000 8,000,000

NP

2. Interest Expense Accrued Interest Payable (8,000,000 x 12% x 2/12)

160,000 160,000

3. NP Accrued Interest Payable Interest Expense Cash (8,000,000 x 12% x 7/12)

8,000,000 160,000 560,000 8,720,000

Problem 8-2 1. Cash Discount on NP (6M x 12% x 8/12) NP

5,520,000 480,000 6,000,000

2. Interest Expense Discount on NP (480,000 x 3/8)

180,000 180,000

3. NP is a current liability: NP

6,000,000

Discount NP

(300,000) 5,700,000

4. Interest Expense (480,000 x 5/8) 300,000 Notes Payable 6,000,000 Discount on NP 300,000 Cash 6,000,000 5. Cash

6,000,000 6,000,000

NP

6. Interest Expense Interest Payable (6,000,000 x 12% x 3/12)

180,000 180,000

7. Notes Payable Interest Expense Cash

6,000,000 300,000 6,300,000

Problem 8-3 1. Cash

Note Payable

24,000,000 24,000,000

2. Interest Expense Accrued Interest Payable (24,000,000 x 12% x 4/12)

960,000 960,000

3. Note Payable Accrued Interest Payable Interest Expense Cash

24,000,000 960,000 1,200,000 26,160,000

Problem 8-4 2020 Feb 1 There’s no entry for a line of credit. It would be disclosed in a note. Apr 1 Cash

Note Payable

12,000,000 12,000,000

July 1 Note Payable 12,000,000 Interest Expense 240,000 Cash 12,240,000 (12,000,000 x 8% x 3/12)

Nov 1 Cash 19,100,000 Discount on NP 900,000 NP 20,000,000 (20,000,000 x 8% x 9/12) Dec 31 Interest Expense Discount on NP (900,000 x 2/9) 2021 Aug 1 Interest Expense 900,000 x 7/9) Discount on NP NP

Cash

200,000 200,000

700,000 700,000 20,000,000 20,000,000

Problem 8-5 1. Jan 1

Land Cash NP

2. Dec 31 Interest Expense Accrued Interest Payable (900,000 x 10%)

1,000,000 100,000 900,000 90,000

90,000

3. Dec 31 Interest Expense 99,000 Accrued Interest Payable 99,000 (900,000 + 90,000 x 10%) 4. Jan 1 Note Payable 900,000 Interest Expense 108,900 Cash 1,008,900 (900,000 + 90,000 + 99,000 x 10%) Problem 8-6 Jan 1 Machinery Discount on NP Cash Notes Payable

750,000 250,000 200,000 800,000

Dec 31 Note Payable Cash

200,000 200,000

Interest Expense Discount on NP

100,000 100,000

(8/20 x 250,000) Problem 8-7 5,000,000 – 500,000= 4,500,000 / 3 equal annual installments = 1,500,000 1,500,000 x 2.4018 = 3,602,700 + 500,000 down payment = 4,102,700 Jan 1 Building Discount on NP (4,500,000 – 3,602,700) Cash Note Payable

4,102,700 897,300 500,000 4,500,000

Dec 31 Note Payable Cash

1,500,000 1,500,000

Interest Expense Discount on NP (12% x 3,602,700)

432,324 432,324

Problem 8-8 Jan 1 Land Discount on NP Cash NP

4,097,200 1,152,800 1,250,000 4,000,000

5,250,000 – 1,250,000 = 4,000,000 x .7118 = 2,847,200 + 1,250,000 = 4,097,200 Dec 31 Interest Expense Discount on NP (2,847,200 x 12%)

341,664 341,664

Jan 1 Note Payable Cash

4,000,000 4,000,000

Problem 8-9 Requirement 1 Jan 1 Accrued Interest Payable Interest Expense (2,800,000 x 12% x 9/12)

252,000 252,000

Apr 1 Note Payable Interest Expense (2,800,000 x 12%) Cash

700,000 336,000 1,036,000

Jul 1

1,774,000 226,000 2,000,000

Cash Discount on NP Note Payable

Dec 31 Interest Expense (2,800,000 – 700,000 x 12% x 9/12) Accrued Interest Payable Interest Expense Discount on NP (226,000 x 6/12)

189,000 189,000 113,000 113,000

Requirement 2 Note Payable – bank Note Payable – shareholder Discount on NP Accrued Interest Payable Total current liabilities

2,000,000 (113,000)

700,000 1,887,000 189,000 2,776,000

Requirement 3 Interest Expense Note Payable – bank Jan 1 to April 1, 2020 (2,800,000 x 12% x 3/12) April 1 to Dec. 31, 2020 (2,100,000 x 12% x 9/12) Note Payable – shareholder Amortization from July 1 to Dec. 31, 2020 (226,000 x 6/12) Total Interest Expense Problem 8-10 1. 600,000 x 3.60 = 2,160,000 (B) 2. 2,160,000 X 12% = 259,200 (A) Problem 8-11 3,600,000 – 1,200,000 = 2,400,000 2,400,000 x 10% x 9/12 = 180,000 (B) Problem 8-12

84,000 189,000

273,000

386,000

113,000

200,000 x 5.712 (annuity because of first payment) = 1,142,400 1,142,400 – 200,000 = 942,400 (D) Problem 8-13 2,550,000 x 12% = 306,000 (C) Problem 8-14 1,000,000 (B) Problem 8-15 1,800,000 – 600,000 = 1,200,000 x 12% x 4/12 = 48,000 (B) Problem 8-16 Accrued Interest from March 1, 2019 to February 28, 2020 (1,000,000 x 12%) 120,000 Accrued Interest from March 1, 2019 to December 31, 2019 (1M + 120,000 x 12% x 10/12) 112,000 Total accrued interest payable, December 31, 2020 232,000 (C)

Problem 8-17 Note Payable PV Discount Amortization (1,989,600 x 10%) Discount, December 31, 2020

2,400,000 1,989,600 410,400 (198,960) 211,440

Note Payable Annual Payment Note Payable – 12/31/2020 Discount CA, 12/31/2020

2,400,000 (800,000) 1,600,000 (211,440) 1,388,560 (C)

Problem 8-18 Note Payable, October 1, 2019 Annual Payment Note Payable, October 1, 2020

1,200,000 (400,000) 800,000

Interest paid from Jan 1 to September 30 (1,200,000 x 15% x 9/12) Interest paid from Oct 1 to December 31 (800,000 x 15% x 3/12) Interest Expense 2020

135,000 30,000 165,000 (A)

Problem 8-19 Jan 1, 2020 to October 31, 2020 (500,000 x 12% x 10/12) Feb 1, 2020 to July 31, 2020 (1,500,000 x 12% x 6/12) May 1, 2020 to December 31, 2020 (800,000 x 12% x 8/12) Interest Expense, 2020 Less: Recorded Interest Expense Understated of Interest Expense

50,000 90,000 64,000 204,000 (B) 150,000 54,000 (A)

Problem 8-20 Interest Expense 2020 (1,000,000 x 10% x 6/12) CA, 12/31/2020 1,000,000 – 975,000 = 25,000 (C)

50,000 (B) 975,000 (C)

Problem 8-21 CA, 12/31/2020 408,150 (C) 500,000 x 8% 40,000 (A) 500,000 – 408,150 91,850 (C) FV through profit or loss does not report discount or premium (D)

Problem 8-22 1,000,000 x .751 = 751,000 (A) 1,000,000 x .842 = 842,000 (D) 1,000,000 – 842,000 = 158,000 gain (A) Problem 8-23 1. C 2. B 3. B 4. A 5. D 6. A 7. D 8. D 9. B

10. B

Problem 9-1 Total Liability Carrying amount Land 1,500,000 Building 4,200,000 Gain on extinguishment of debt 

6,000,000 (5,700,000) 300,000

Mortgage Payable Accrued Interest Accumulated Depreciation Land Building Gain on extinguishment

5,000,000 1,000,000 1,800,000 1,500,000 6,000,000 300,000

Problem 9-2 Under IFRS 

Note Payable 1,000,000 Accrued Interest Payable 200,000 Patent 600,000 Gain on extinguishment 600,000

Under USA GAAP FV of patent CA of patent Gain on exchange

1,100,000 (600,000) 500,000

Total Liability FV of patent Gain on extinguishment

1,200,000 1,100,000 100,000



Note Payable Accrued Interest Payable Patent Gain on exchange Gain on extinguishment

1,000,000 200,000 600,000 500,000 100,000

Bonds Payable Premium on Bonds Payable Accrued Interest Payable Land Gain on extinguishment

5,000,000 150,000 300,000 3,200,000 2,250,000

Problem 9-3  

Problem 9-4 1. FV of shares issued FV of shares issued (35,000 x 130) Par value of shares issued (35,000 x 100) Share Premium

4,550,000 3,500,000 1,050,000

CA of MP FV of shares issued Loss on extinguishment

4,300,000 4,550,000 250,000



Mortgage Payable

4,000,000

Accrued Interest Payable Loss on extinguishment Share Capital Share Premium

300,000 250,000 3,500,000 1,050,000

2. FV of liability is used FV of liability Par value of shares issued (35,000 x 100) Share Premium

4,500,000 3,500,000 1,000,000

CA of MP FV of liability Loss on extinguishment

4,300,000 4,500,000 200,000



Mortgage Payable Accrued Interest Payable Loss on extinguishment Share Capital Share Premium

4,000,000 300,000 200,000 3,500,000 1,000,000

3. CA of MP is used CA of MP Par value of shares issued (35,000 x 100) Share Premium 

Mortgage Payable Accrued Interest Payable Share Capital Share Premium

4,300,000 3,500,000 800,000 4,000,000 300,000 3,500,000 800,000

Problem 9-5 

Note Payable Accrued Interest Payable Inventory Gain on extinguishment

Problem 9-6 1. FV of shares issued

6,000,000 600,000 3,600,000 3,000,000

FV of shares issued (300,000 x 10) Par value of shares issued (300,000 x 5) Share Premium - Ordinary

3,000,000 1,500,000 1,500,000

FV of shares issued (25,000 x 60) Par value of shares issued (25,000 x 10) Share Premium - Preference

1,500,000 250,000 1,250,000

CA of NP FV of shares issued (3,000,000 + 1,500,000) Gain on extinguishment 

Note Payable Accrued Interest Payable Ordinary Share Capital Share Premium – Ordinary Preference Share Capital Share Premium – Preference Gain on extinguishment

2. FV of liability is used Ordinary Preference

5,400,000 4,500,000 900,000 5,000,000 400,000 1,500,000 1,500,000 250,000 1,250,000 900,000

Market Price 3,000,000 1,500,000 4,500,000

Fractions 30/45 15/45

FV of liability Par value of shares issued (300,000 x 5) Share Premium

3,200,000 1,500,000 1,700,000

FV of liability Par value of shares issued (25,000 x 10) Share Premium

1,600,000 250,000 1,350,000

CA of NP FV of liability Gain on extinguishment 

5,400,000 4,800,000 600,000

Note Payable 5,000,000 Accrued Interest Payable 400,000 Ordinary Share Capital Share Premium – Ordinary Preference Share Capital Share Premium – Preference Gain on extinguishment

3. CA of NP is used

1,500,000 1,700,000 250,000 1,350,000 600,000

Issue Price 3,200,000 1,600,000 4,800,000

Ordinary Preference

Market Price 3,000,000 1,500,000 4,500,000

Fractions 30/45 15/45

CA of NP Par value of shares issued (300,000 x 5) Share Premium

3,600,000 1,500,000 2,100,000

CA of NP Par value of shares issued (25,000 x 10) Share Premium

1,800,000 250,000 1,550,000



Note Payable 5,000,000 Accrued Interest Payable 400,000 Ordinary Share Capital Share Premium – Ordinary Preference Share Capital Share Premium – Preference

1,500,000 2,100,000 250,000 1,550,000

Problem 9-7 1. FV of shares issued FV of shares issued (50,000 x 90) Par value of shares issued (50,000 x 50) Share Premium

4,500,000 2,500,000 2,000,000

CA of BP FV of shares issued Gain on extinguishment

5,050,000 4,500,000 550,000



Bonds Payable 5,000,000 Accrued Interest Payable 250,000 Discount on Bonds Payable 200,000 Share Capital 2,500,000 Share Premium 2,000,000 Gain on extinguishment 550,000

2. FV of liability is used FV of liability Par value of shares issued (50,000 x 50) Share Premium

4,600,000 2,500,000 2,100,000

CA of BP

5,050,000

Issue Price 3,600,000 1,800,000 5,400,000

FV of liability Gain on extinguishment 

4,600,000 450,000

Bonds Payable 5,000,000 Accrued Interest Payable 250,000 Discount on Bonds Payable 200,000 Share Capital 2,500,000 Share Premium 2,100,000 Gain on extinguishment 450,000

3. CA of BP is used CA of BP Par value of shares issued (50,000 x 50) Share Premium 

5,050,000 2,500,000 2,550,000

Bonds Payable 5,000,000 Accrued Interest Payable 250,000 Discount on Bonds Payable Share Capital Share Premium

200,000 2,500,000 2,550,000

Problem 9-8 

Note Payable 5,000,000 Land 2,800,000 Gain on extinguishment 2,200,000



Note Payable 5,000,000 Share Capital 4,000,000 Share Premium 800,000 Gain on extinguishment 200,000

FV of shares issued (40,000 x 120) Par value of shares issued (40,000 x 100) Share Premium

4,800,000 4,000,000 800,000

CA of BP FV of shares issued Gain on extinguishment

5,000,000 4,800,000 200,000

Problem 9-9 2020 

Jan 1 Note Payable – old Accrued Interest Payable

8,000,000 640,000

Note Payable – new 7,000,000 Premium on Note Payable 249,410 Gain on extinguishment 1,390,590 Extinguishment of old note payable. PV of principal (7,000,000 x .8573) PV of interest payments (700,000 x 1.7833) PV of new note payable Face amount Premium on note payable CA of old liability PV of new note Gain on extinguishment

6,001,100 1,248,310 7,249,410 7,000,000 249,410 8,640,000 7,249,410 1,390,590



Dec 31 Interest Expense Cash

700,000 700,000



Dec 31 Premium on Note Payable 120,047 Interest Expense 120,047 (7,249,410 x 8% = 579,953 – 700,000 = 120,047)

2021 

Dec 31 Interest Expense Cash

700,000 700,000



Dec 31 Premium on Note Payable Interest Expense (249,410 – 120,047)

129,363 129,363



Dec 31 Note Payable Cash

7,000,000 7,000,000

Problem 9-10 2020 

Jan 1 Note Payable – old 6,000,000 Accrued Interest Payable 720,000 Discount on Note Payable 668,338 Note Payable – new 5,500,000 Gain on extinguishment 1,888,338 Extinguishment of old note payable. PV of principal (5,500,000 x .6355) 3,495,250 PV of interest payments (440,000 x 3.0373) 1,336,412 PV of new note payable 4,831,662

Face amount Discount on note payable

5,500,000 668,338

CA of old liability PV of new note Gain on extinguishment

6,720,000 4,831,662 1,888,338



Dec 31 Interest Expense Cash (5,500,000 x 8%)

440,000 440,000



Dec 31 Interest Expense 139,799 Discount on Notes Payable 139,799 (4,831,662 x 12% = 579,799 – 440,000 = 139,799)

Problem 9-11 2020 

Jan 1 Note Payable – old 8,500,000 Discount on Note Payable 668,338 Note Payable – new 8,000,000 Gain on extinguishment 1,888,338 Extinguishment of old note payable. PV of principal (8,000,000 x .8772) PV of interest payments (800,000 x .8772) PV of new note payable Face amount Discount on note payable CA of old liability PV of new note Gain on extinguishment

7,017,600 701,760 7,719,360 8,000,000 280,640 8,500,000 7,719,360 780,640

*The gain is less than 10% from the old CA, so there’s no extinguishment of liability. But there is a modification. Gain or loss will be recorded in profit or loss.  Note Payable 500,000 Discount on NP 280,640 Gain on Modification 780,640 

Interest Expense Cash (8,000,000 x 10%)



Interest Expense 280,640 Discount on Notes Payable 280,640 (8,000,000 - 7,719,360) Note Payable 8,000,000



800,000 800,000

Cash

8,000,000

Problem 9-12 2020 

Jan 1 Note Payable – old 5,000,000 Accrued Interest Payable 1,000,000 Note Payable – new 4,500,000 Premium on Note Payable 155,970 Gain on extinguishment 1,344,030 Extinguishment of old note payable. PV of principal (4,500,000 x .8264) PV of interest payments (540,000 x 1.7355) PV of new note payable Face amount Premium on note payable

3,718,800 937,170 4,655,970 4,500,000 155,970

CA of old liability PV of new note Gain on extinguishment

6,000,000 4,655,970 1,344,030



Interest Expense Cash (4,500,000 x 12%)

540,000 540,000



Premium on NP Interest Expense (540,000 – 465,597)

74,403

Problem 9-13 Total liability CA – Acquisition cost Pretax gain on extinguishment

5,600,000 3,600,000 2,000,000 (A)

Problem 9-14 CA of liability liquidated CA of real estate transferred Gain on extinguishment

1,500,000 1,000,000 500,000 (B)

Problem 9-15 CA of liability Payment Gain from extinguishment

5,750,000 (4,100,000) 1,650,000 (A)

74,403

Problem 9-16 PV (4,000,000 x .75) PV of interest payment (320,000 x 2.49) PV of new liability FA Discount on NP

3,000,000 796,800 3,796,800 4,000,000 203,200

CA of liability PV of new liability Gain on extinguishment

5,500,000 3,796,800 1,703,200 (A)

3,796,800 x 10% = 379,680 (B) Problem 9-17 PV (5,000,000 x .77) PV of interest (650,000 x 2.53) PV of new liability FA Premium on NP

3,850,000 1,644,500 5,494,500 (C) 5,000,000 494,500

CA of liability PV of new liability Gain on modification

6,000,000 5,494,500 505,500 (C)

5,494,500 x 9% = 494,505 (C) Problem 9-18 PV (6,000,000 x .683) PV of interest (720,000 x 3.17) PV of new liability FA Premium on NP CA of liability PV of new liability Gain on extinguishment 6,380,400 x 10% = 638,040 (D) Problem 9-19 1. D 2. C 3. B

4,098,000 2,282,400 6,380,400 (A) 5,000,000 494,500 8,800,000 6,380,400 2,419,600 (C)

4. A Problem 9-20 1. A 2. A 3. A 4. A 5. B

Problem 10-1 Requirement 1 2020  Jan 1 ROUA

Lease Liability Cash (800,000 x 4.17)

3,436,000

3,336,000 100,000



Jan 1 Lease Liability Cash



Dec 31 Interest Expense Accrued Interest Payable

253,600 253,600



Dec 31 Depreciation Accumulated Depreciation (3,436,000 / 5)

687,200 687,200



Dec 31 Taxes

40,000

2021 

800,000 800,000

Cash

40,000

Jan 1 Accrued Interest Payable Lease Liability Cash

253,600 546,400 800,000



Dec 31 Interest Expense Accrued Interest Payable

198,960 198,960



Dec 31 Depreciation Accumulated Depreciation

687,200 687,200



Dec 31 Taxes

40,000

Date 1/1/2020 1/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024

Cash

Payment 800,000 800,000 800,000 800,000 800,000

40,000

Interest

Principal

253,600 198,960 138,856 72,742

800,000 546,400 601,040 661,144 727,258

PV 3,336,000 2,536,000 1,989,600 1,388,560 727,416

Requirement 2 2025 

Accumulated Depreciation ROUA

3,436,000 3,436,000

Problem 10-2 2020 

Jan 1 ROUA



Jan 1 ROUA



Jan 1 Cash Date 1/1/2020 12/31/202 0 12/31/202 1 12/31/202 2

Lease Liability (1,000,000 x 3.79) Cash

(150,000 + 50,000 – 50,000)

3,790,000

150,000 150,000 50,000

ROUA

3,790,000

50,000

Payment

Interest

Principal

1,000,000

379,000

621,000

PV 3,790,000 3,169,000

1,000,000

316,900

683,100

2,485,900

1,000,000

248,590

751,410

1,734,490



Dec 31 Interest Expense Lease Liability Cash

379,000 621,000 1,000,000



Dec 31 Depreciation Accumulated Depreciation (3,890,000 / 10)

389,000 389,000



Dec 31 Taxes Insurance Cash

75,000 125,000 200,000

Dec 31 Interest Expense Lease Liability Cash

316,900 683,100 1,000,000

2021 



Dec 31 Depreciation Accumulated Depreciation (3,890,000 / 10)

389,000 389,000



Dec 31 Taxes Insurance Cash

75,000 125,000 200,000

Problem 10-3 2020 

Jan 1 ROUA

6,392,400

Lease Liability

1,000,000 x 6.328 200,000 x .322 Total 

6,328,000 64,400 6,392,400

Jan 1 Lease Liability Cash Date 1/1/2020 1/1/2020 1/1/2021 1/1/2022

6,392,400

1,000,000 1,000,000

Payment

Interest

Principal

1,000,000 1,000,000 1,000,000

647,088 604,739

1,000,000 352,912 395,261



Dec 31 Interest Expense Accrued Interest Payable

647,088 647,088



Dec 31 Depreciation Accumulated Depreciation (6,392,400 / 15)

426,160 426,160



Jan 1 Accrued Interest Payable Lease Liability Cash

647,088 352,912 1,000,000



Dec 31 Interest Expense Accrued Interest Payable

604,739 604,739

2021

PV 6,392,400 5,392,400 5,039,488 4,644,227



Dec 31 Depreciation Accumulated Depreciation

426,160 426,160

Problem 10-4 2020 

Jan 1 ROUA

Cash

(1,000,000 x 7.606)

7,606,000 7,606,000



Leasehold Improvement Cash

600,000 600,000



ROUA

644,000 644,000



Depreciation Accumulated Depreciation (7,606,000 + 644,000 / 15)

550,000 550,000



Depreciation Leasehold Improvement (600,000 / 5)

120,000 120,000



Interest Expense Lease Liability Cash (7,606,000 x 10%)

760,600 239,400 1,000,000

Estimated Liability for restoration

Problem 10-5 Requirement 1 Date 1/1/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024

Payment

Interest

Principal

1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

560,000 489,600 407,936 313,206 203,319

440,000 510,400 592,064 686,794 796,681

PV (1,000,000 x 3.2743) PV (474,060 x .4761) Total Requirement 2 2020

3,274,300 225,700 3,500,000

PV 3,500,000 3,060,000 2,549,600 1,957,536 1,270,742 474,061



Jan 1 ROUA



Dec 31 Interest Expense Lease Liability Cash

560,000 440,000 1,000,000



Dec 31 Depreciation Accumulated Depreciation (3,500,000 – 474,060 / 5)

605,188 605,188

Dec 31 Interest Expense Lease Liability Cash

489,600 510,400 1,000,000

2021 

3,500,000

Lease Liability



Dec 31 Depreciation Accumulated Depreciation (3,500,000 – 474,060 / 5) Requirement 3 

Accumulated Depreciation Lease Liability ROUA

3,500,000

605,188 605,188

3,025,940 474,060 3,500,000

Requirement 4 

Accumulated Depreciation Lease Liability ROUA

3,025,940 474,060 3,500,000



Loss on Finance Lease Cash (474,060 – 300,000)

174,060 174,060

Requirement 5 

Accumulated Depreciation Lease Liability ROUA

3,025,940 474,060 3,500,000

Problem 10-6 Requirement 1 Date 1/1/2020 1/1/2020 1/1/2021

Payment 500,000 500,000

Interest

Principal

212,120

500,000 287,880

PV 2,621,200 2,121,200 1,833,320

1/1/2022 1/1/2023 1/1/2024 1/1/2025 1/1/2026

500,000 500,000 500,000 500,000 400,000

183,332 151,665 116,832 78,515 36,366

PV (500,000 x 4.7908) PV (400,000 x .5645) Total Requirement 2 2020  Jan 1 ROUA

316,668 348,335 383,168 421,485 363,634

1,516,652 1,168,317 785,149 363,664

2,395,400 225,800 2,621,200

Lease Liability

2,621,200

2,621,200



Jan 1 Lease Liability Cash



Dec 31 Interest Expense Accrued Interest Payable

212,120 212,120



Dec 31 Depreciation Accumulated Depreciation (2,621,200 – 400,000 / 6)

370,200 370,200

Jan 1 Accrued Interest Payable Lease Liability Cash

212,120 287,880 500,000



Dec 31 Interest Expense Accrued Interest Payable

183,332 183,332



Dec 31 Depreciation Accumulated Depreciation (2,621,200 – 400,000 / 6)

370,200 370,200

2021 

500,000 500,000

Requirement 3 

Accumulated Depreciation (370,200 x 6) Accrued Interest Liability Lease Liability ROUA

2,221,200 36,366 363,634 2,621,200

Requirement 4 

Accumulated Depreciation (370,200 x 6) Accrued Interest Liability

2,221,200 36,366



Lease Liability ROUA

363,634 2,621,200

Loss on Finance Lease Cash (400,000 – 300,000)

100,000 100,000

Problem 10-7 Requirement 1 Date 12/31/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024

Payment

Interest

Principal

400,000 400,000 400,000 400,000 200,000

84,161 62,052 38,396 13,084

400,000 315,839 337,948 361,604 186,916

PV (420,000 – 20,000 x 3.6243) PV (200,000 x .7629) Total

PV 1,602,300 1,202,300 886,461 548,513 186,909 -

1,449,720 152,580 1,602,300

Requirement 2 2020  

2021  



Dec 31 ROUA

Lease Liability

1,602,300

1,602,300

Dec 31 Prepaid Insurance Lease Liability Cash

20,000

Jan 1 Insurance Expense Prepaid Insurance

20,000

Dec 31 Prepaid Insurance Interest Expense Lease Liability Cash

20,000 13,084

Dec 31 Depreciation Accumulated Depreciation (1,602,300 – 200,000 / 4)

350,575 350,575

Requirement 3

400,000 420,000

20,000

315,839 420,000



Accumulated Depreciation (350,575 x 4) Interest Expense Lease Liability ROUA



Loss on Finance Lease Cash (200,000 – 50,000)

1,402,300 13,091 186,909 1,602,300 150,000 150,000

Problem 10-8 Requirement 1 2020  Jan 1 ROUA

Lease Liability PV (600,000 x 3.60)

2,160,000

2,160,000



Dec 31 Interest Expense Lease Liability Cash

259,200 340,800 600,000



Dec 31 Depreciation Accumulated Depreciation (2,160,000 / 5)

432,000

Requirement 2  Accumulated Depreciation Equipment

432,000

2,160,000 2,160,000

Problem 10-9 ROUA 4,000,000 Accumulated Depreciation (2,465,000) CA 1,535,000 Cash Payment 1,600,000 Total consideration 3,135,000 Lease Liability (1,300,000) Cost of equipment purchased 1,835,000 

Equipment Accumulated Depreciation Lease Liability ROUA Cash

Problem 10-10

1,835,00 2,465,000 1,300,000 4,000,000 1,600,000

Requirement 1  Jan 1 ROUA

985,150

Lease Liability

Requirement 2  Dec 31 Interest Expense Lease Liability Cash 

98,515

Dec 31 Executory Cost Cash

30,000

Requirement 3  Dec 31 Depreciation Accumulated Depreciation (985,150 – 50,000 / 4) Requirement 4  Interest Expense Lease Liability Cash 

Executory Cost Cash

233,788

31,766

50,000

Requirement 5  Accumulated Depreciation Lease Liability ROUA

935,150

985,150

201,485 300,000 30,000

233,788

268,234 300,000 50,000

50,000 985,150

Problem 10-11 PV (400,000 x 5.95) PV (500,000 x .27) Cost of ROUA

2,380,000 135,000

2,515,000 (A)

Problem 10-12 PV (800,000 x 5.11)

4,088,000 (B)

Problem 10-13 PV (1,000,000 x 6.145) IDC Cost of ROUA Depreciation (6,345,000 / 10) Lease Liability, beg

6,145,000

6,145,000 200,000 634,500 (B)

6,345,000 (B)

1,000,000 (614,500) Lease Liability, end

(385,500) 5,759,500 (C)

Problem 10-14 Cost of ROUA Residual Value Total

2,400,000 (200,000) 2,200,000

Depreciation (2,200,000 / 8)

275,000 (D)

Problem 10-15 5,000,000 – 200,000 = 4,800,000 / 8 = 600,000 (B) Problem 10-16 1,080,000 / 12 = 90,000 (B) Problem 10-17 6,000,000 – 600,000 = 5,400,000 / 8 = 675,000 (A)

Problem 10-18 1. PV (500,000 x 5.33) PV (500,000 x .47) Lease Liability IDC Cost of ROUA

2,665,000 235,000 200,000

2,900,000 3,100,000 (B)

2. 2,900,000 x 10% = 290,000 (A) 3. Lease Liability, beg 500,000 290,000 Lease Liability, end

2,900,000 210,000 2,690,000 (A)

4. 3,100,000 / 10 = 310,000 (A) Problem 10-19 1. 1,352,000 – 200,000 = 1,152,000 (B) 2. Lease Liability, 12/31/2020

1,152,000

200,000 (115,200) Lease Liability, noncurrent

(84,800) 1,067,200 (C)

3. 1,152,000 x 10% = 115,200 (B) 4. 1,352,000 / 20 = 67,600 (C) Problem 10-20 1. 3,165,000 – 500,000 = 500,000 (266,500) Lease Liability, 12/31/2021 Problem 10-21 100,000 (90,000) Lease Liability, 12/31/2020

2,665,000 (233,500) 2,431,500 (B) 1,125,000 (10,000) 1,115,000 (B)

Problem 10-22 12/31/2020 12/31/2020 12/31/2021

200,000 200,000

115,000

200,000 85,000 (B)

1,350,000 1,150,000

Problem 10-23 Lease Liability Annual Rentals Lease Liability, 12/31/2020 Accrued Interest Payable (4,200,000 x 9%) Total Lease Liability, 12/31/2020

4,900,000 (700,000) 4,200,000 378,000 4,578,000 (A)

Problem 10-24 1,000,000 1,000,000

317,000

1,000,000 683,000

4,170,000 3,170,000 2,487,000 (D)

Problem 10-25 1,300,000 x 4.240 1,000,000 x .650 Lease Liability First payment

5,512,000 650,000 6,162,000 (1,300,000)

Lease Liability

4,862,000 (A)

Problem 10-26 1,000,000 x 6.14 = 6,140,000 x 10% = 614,000 1,000,000 – 614,000 = 386,000 – 6,140,000 = 5,754,000 (C) Problem 10-27 400,000 400,000

400,000 230,00 0 (B) 170,000 (D)

2,700,000 2,300,000 2,130,000 (C)

Problem 10-28 ROUA 4,000,000 Accumulated Depreciation (2,450,000) CA 1,550,000 Cash Payment 1,600,000 Total consideration 3,150,000 Lease Liability (1,300,000) Cost of equipment purchased 1,850,000 (A) Problem 10-29 ROUA, beg Accumulated Depreciation (4,800,000 – 300,000 / 8 x 6) CA Purchase option Loss on Finance Lease  Accumulated Depreciation 3,375,000 Lease Liability Loss on Finance Lease ROUA

4,800,000 (3,375,000) 1,425,000 (100,000) 1,325,000 (A) 100,000 1,325,000 4,800,000

Problem 10-30 1. 1,000,000 x 4.31 = 4,310,000 (B) *Purchase option is not reasonably certain to be exercised. 2. Initial Lease Liability IDC Lease incentive Lease Bonus Restoration Cost of ROUA 3. 4,810,000 / 5 years = 962,000 (C)

4,310,000 350,000 (150,000) 100,000 200,000

4,810,000 (B)

4. 1,000,000 1,000,000

264,800 (C)

1,000,000

4,310,000 3,310,000

Problem 10-31 1. A 2. C 3. A 4. D 5. A 6. D 7. A 8. A 9. B 10. B Problem 10-32 1. B 2. C 3. B 4. D 5. B 6. D 7. A 8. C 9. C 10. D Problem 11-1 Requirement 1 Date 1/1/2020 12/31/2020 12/31/2021 12/31/2022

Payment

Interest

Principal

600,000 600,000 600,000

210,060 174,965 136,712

389,940 425,035 463,288

PV 2,334,000 1,944,060 1,519,025 1,055,737

Requirement 2 - 2020 

Jan 1 ROUA



Dec 31 Interest Expense

Lease Liability

2,334,000 210,060

2,334,000

Lease Liability Cash 

389,940 600,000

Dec 31 Depreciation (2,334,000 / 5 years) Accumulated Depreciation

466,800

466,800

Requirement 3 Annual rental for remaining 2 years Multiply by PV OA 1 at 12% for 2 periods PV – Jan. 1, 2023

600,000 1.690 1,014,000

Annual rental for 5 years starting Jan. 1, 2025 Multiply by PV OA 1 at 12% for 5 periods PV, Jan. 1, 2025 Multiply by PV 1 at 12% for 2 periods PV – Jan. 1, 2023

800,000 3.605 2,884,000 .797 2,298,548

PV of remaining rentals of old lease term PV of rentals extended lease term Total PV – Jan. 1, 2023 PV – December 31, 2022 Increase in lease liability on Jan. 1, 2023

1,014,000 2,298,548 3,312,548 (1,055,737) 2,256,811

ROUA Accumulated Depreciation (466,800 x 3) CA, Dec. 31, 2022 Increase in liability on Jan. 1, 2023 New CA – Jan. 1, 2023

2,334,000 (1,400,400) 933,600 2,256,811 3,190,411

Requirement 4 Date 1/1/2023 12/31/2023 12/31/2024 12/31/2025 12/31/2026 12/31/2027 12/31/2028 12/31/2029 Requirement 5

Payment

Interest

Principal

600,000 600,000 800,000 800,000 800,000 800,000 800,000

397,506 373,206 345,991 291,510 230,491 162,150 86,958

202,494 226,794 454,009 508,490 569,509 637,850 713,402

PV 3,312,548 3,110,054 2,883,260 2,429,251 1,920,761 1,351,252 713,402 -



Jan 1 ROUA

2,256,811



Dec 31 Interest Expense Lease Liability Cash

397,506



Dec 31 Depreciation Accumulated Depreciation (3,190,411 / 7 years)

455,773

Lease Liability

2,256,811

202,494 600,000 455,773

Problem 11-2 Requirement 1 Annual rental for first 2 years Multiply by PV OA 1 at 8% for 2 periods PV – Jan. 1, 2020 Annual rental for next 3 years Multiply by PV OA 1 at 8% for 3 periods PV – Jan. 1, 2022 Multiply by PV 1 at 8% for 2 periods PV – Jan. 1, 2020

200,000 1.783 356,600 300,000

PV of annual rentals for 2 periods PV of annual rentals for 3 periods Lease Liability – Jan. 1, 2020

2.577 773,100 .857 662,547 356,600 662,547 1,019,147

Requirement 2 Lease Liability – Jan. 1, 2020 Initial Direct Cost Restoration cost Cost of ROUA

1,019,147 100,000 50,000 1,169,147

Requirement 3 Depreciation (1,169,147 / 5)

233,829

Requirement 4 Date 1/1/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023

Payment

Interest

Principal

200,000 200,000 300,000 300,000

81,532 72,054 61,819 42,764

118,468 127,946 238,181 257,236

PV 1,019,147 900,679 772,733 534,552 277,316

12/31/2024

300,000

22,185

277,316

Requirement 5 2020 

ROUA

1,169,147

Lease Liability Cash Estimated Liability – restoration cost



Interest Expense Lease Liability Cash

81,532



Depreciation Accumulated Depreciation

233,829

100,000 50,000

1,019,147

118,468 200,000 233,829

Requirement 6 2022 

Interest Expense Lease Liability Cash

61,819

238,181 300,000

Problem 11-3 Requirement 1 2020  ROUA



Lease Liability (200,000 x 6.1944)

Interest Expense Lease Liability Cash



Depreciation Accumulated Depreciation Requirement 2 New separate lease – 2023 

ROUA



Interest Expense Lease Liability Cash

Lease Liability (200,000 x 6.1944)

1,238,880

148,666

103,240

1,238,880

51,334 200,000 103,240

1,238,880

148,666

1,238,880

51,334 200,000

-



Depreciation Accumulated Depreciation

103,240

103,240

Problem 11-4 Requirement 1 Date 1/1/2020 12/31/2020 12/31/2021

Payment

Interest

Principal

300,000 300,000

95,100 74,610

204,900 225,390

Lease Liability 951,000 746,100 520,710

Requirement 2 2020 

ROUA

951,000

Lease Liability (300,000 x 3.17)



Interest Expense Lease Liability Cash

95,100



Depreciation Accumulated Depreciation (951,000 / 4)

237,750

951,000

204,900 300,000 237,750

Requirement 3 Remeasure the lease liability PV of lease payments on Jan. 1, 2022 (300,000 x 3.605) CA on Jan. 1, 2022 before the extension Increase in lease liability

1,081,500 (520,710) 560,790

Requirement 4 Date 1/1/2022 12/31/2022 12/31/2023 12/31/2024 12/31/2025

Payment

Interest

Principal

300,000 300,000 300,000 300,000

129,780 109,354 86,472 60,849

170,220 190,646 213,528 239,151

Lease Liability 1,081,500 911,250 720,604 507,076 267,925

12/31/2026

300,000

32,151

267,925

-

Requirement 5 2022 

ROUA

560,790

Lease Liability



Interest Expense Lease Liability Cash

129,780



Depreciation Accumulated Depreciation (1,081,500 / 4)

207,258

Cost of ROUA Accumulated Depreciation (951,000 / 4 x 2 years) CA – December 31, 2021 Increase in lease liability Adjusted CA, January 1, 2022

560,790 170,220 300,000 207,258 951,000 (475,500) 475,500 560,790 1,036,290

1,036,290 / 5 years = 207,258 Problem 11-5 Requirement 1 Date 1/1/2020 12/31/2020 12/31/2021

Payment

Interest

Principal

200,000 200,000

75,816 63,398

124,814 136,602

200,000 x 3.7908 = 758,160

Requirement 2 2020 

ROUA

Lease Liability

758,160

758,160

Lease Liability 758,160 633,976 497,374



Interest Expense Lease Liability Cash

75,816



Depreciation Accumulated Depreciation (758,160 / 5)

151,632

124,814 200,000 151,632

Requirement 3 5,000 – 3,750 = 1,250/5,000 = 25% Decrease in CA in lease liability (497,374 x 25%) Decrease in CA in ROUA (454,896 x 25%) Termination Gain 758,160 (151,632 x 2years) (303,264) 454,896

124,344 (113,724) 10,620

Requirement 4 Lease Liability, Jan. 1, 2022 Reduction of lease liability Remaining old lease liability, Jan. 1, 2022

497,374 (124,344) 373,030

PV of lease payments, Jan. 1, 2022 (150,000 x 2.5771) Remaining old lease liability, Jan. 1, 2022 Increase in lease liability

386,565 (373,030) 13,535

Requirement 5 Date 1/1/2022 12/31/2022 12/31/2023 12/31/2024

Payment

Interest

Principal

150,000 150,000 150,000

30,925 21,399 11,111

119,075 128,601 138,889

Lease Liability 386,565 267,490 138,889 -

Requirement 6 Cost

Accumulated Depreciation

Carrying Amount

ROUA Reduction by 25% Balance Increase in Lease Liability Adjusted Balance

758,160 (189,540) 568,620 13,535 582,155

303,264 (75,816) 227,448 227,448

454,896 (113,724) 341,172 13,535 354,707



Jan 1 Lease Liability Accumulated Depreciation ROUA Termination Gain

124,344 75,816 189,540 10,620



Jan 1 ROUA

13,535



Dec 31 Interest Expense Lease Liability Cash

30,925 119,075 150,000



Dec 31 Depreciation Accumulated Depreciation (354,707 / 3)

118,236 118,236

Lease Liability

13,535

Problem 11-6 Requirement 1 Date 1/1/2020 12/31/2020 12/31/2021

Payment

Interest

Principal

100,000 100,000

25,274 20,791

74,726 79,209

100,000 x 4.2124 = 421,240 Requirement 2 2020 

ROUA

Lease Liability

421,240



Interest Expense Lease Liability Cash

25,274



Depreciation Accumulated Depreciation (421,240 / 5)

84,248

Requirement 3

421,240 74,726 100,000 84,248

Lease Liability 421,240 346,514 267,305

Modified lease liability – Jan. 1, 2022 (80,000 x 2.5771) CA of lease liability – Jan. 1, 2022 Decrease in lease liability Cost of ROUA Accumulated Depreciation (421,240 / 5 x 2 years) CA – December 31, 2021 Decrease in lease liability Adjusted CA, January 1, 2022

206,168 (267,305) (61,137) 421,240 (168,496) 252,744 (61,137) 191,607

Requirement 4 Date 1/1/2022 12/31/2022 12/31/2023 12/31/2024

Payment

Interest

Principal

80,000 80,000 80,000

16,493 11,413 5,926

63,507 68,587 74,074

Requirement 5 2022 

Lease Liability ROUA

61,137 61,137



Interest Expense Lease Liability Cash

16,493



Depreciation Accumulated Depreciation (191,607 / 3)

63,869

63,507 80,000 63,869

Problem 11-7 Annual rental for first 3 years Multiply by PV OA 1 at 8% for 3 periods PV – Jan. 1, 2020 Annual rental for next 5 years Multiply by PV OA 1 at 8% for 5 periods PV – Jan. 1, 2022 Multiply by PV 1 at 8% for 3 periods PV – Jan. 1, 2020 PV of annual rentals for 2 periods PV of annual rentals for 3 periods Lease Liability – Jan. 1, 2020

300,000 2.49 747,000 400,000

3.79 1,516,000 .75 1,137,000 747,000 1,137,000 1,884,000 (C)

Lease Liability 206,168 142,661 74,074 -

Date 1/1/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023

Payment

Interest

Principal

300,000 300,000 300,000 400,000

188,400 (A) 177,240 164,964 151,460 (A)

111,600 122,760 135,036 248,540

PV 1,884,000 1,772,400 1,649,640 1,514,604 1,266,064 (B)

Problem 12-1 Requirement 1 – Books of lessor  Equipment Cash Purchased equipment.

3,000,000 3,000,000



Cash (40,000 x 9) Rent Income

360,000



Cash

120,000



Repair and Maintenance Cash

20,000



Unearned Rent Income Rent Income (120,000 / 3 x 9/12)

30,000



Depreciation Accumulated Depreciation (3,000,000 / 10)

300,000

Unearned Rent Income

360,000 120,000 20,000 30,000

300,000

Requirement 2 Rent Income (360,000 + 30,000) Less: Repairs Depreciation Net Income of Lessor

20,000 300,000

390,000 (320,000) 70,000

Problem 12-2 

Tractor



Cash



Repair Cost Transportation Cost Cash

15,000 5,000

Rent Income Unearned Rent Income

150,000



Cash Rent Income

1,600,000 1,600,000 600,000

600,000

20,000 150,000

(50,000 x 3) 

Depreciation Accumulated Depreciation (1,600,000 – 100,000 / 5) Problem 12-3 Requirement 1  Machine Cash

300,000

300,000

2,400,000 2,400,000



Cash (36,000 x 9) Rent Income

324,000



Deferred Initial Direct Cost Cash

120,000



Amortization of IDC Deferred Initial Direct Cost (120,000 / 4 x 9/12)

22,500



Depreciation Accumulated Depreciation (2,400,000 / 10 x 9/12)

180,000

324,000 120,000 22,500

180,000

Requirement 2 Machine Depreciation Deferred IDC (120,000 – 22,500) Adjusted CA of machine, 12/31/2020

2,400,000 (180,000) 97,500 2,317,500

Problem 12-4 Requirement 1 

Machine Cash

5,000,000 5,000,000



Cash

1,200,000 1,200,000



Lease Expense Cash

60,000



Depreciation Accumulated Depreciation (5,000,000 / 10)

500,000

Rent Income

60,000 500,000



Rent Income Unearned Rent Income (1,200,000 / 12 x 2)

200,000

200,000

Requirement 2 Rent Income Unearned Rent Income Lease Expense Depreciation Adjusted Rent Income

1,200,000 (200,000) (60,000) (500,000) 440,000

Problem 12-5 

Machine Cash

4,800,000 4,800,000



Cash

850,000



Cash



Insurance Cash

80,000



Depreciation Accumulated Depreciation (4,800,000 / 12)

400,000



Unearned Rent Income Rent Income (300,000 / 3)

100,000

Rent Income Unearned Rent Income

300,000

850,000 300,000 80,000 400,000

100,000

Problem 12-6 2020   2021 

Equipment Cash

375,000

Equipment Cash

75,000

Cash

180,000

Rent Income

375,000 75,000 180,000



Repairs Maintenance Cash

7,000 3,000



Rent Income Unearned Rent Income (180,000 / 12 x 3)

45,000



Depreciation Accumulated Depreciation (450,000 / 5)

90,000

10,000 45,000

90,000

Problem 12-7 2020

Rent Receivable Rent Income

765,000

765,000

Total rent (100,000 x 51 months) 5,100,000 Average annual rent (5,100,000 / 5) 1,020,000 Rent from April to December 31, 2020 (1,020,000 x 9/12) 765,000 2021

Cash (100,000 x 12) Rent Income Rent Receivable

1,200,000 1,020,000 180,000

2022

Cash (100,000 x 12) Rent Income Rent Receivable

1,200,000 1,020,000 180,000

2023

Cash (100,000 x 12) Rent Income Rent Receivable

1,200,000 1,020,000 180,000

2024

Cash (100,000 x 12) Rent Income Rent Receivable

1,200,000 1,020,000 180,000

2025

Cash (100,000 x 3) Rent Income ( 1,020,000 x 3/12) Rent Receivable

300,000

255,000 45,000

Problem 12-8 2020

Rent Receivable Rent Income Total rent (300,000 x 117 months)

877,500

877,500 35,100,000

Average annual rent (35,100,000 / 10) Rent from April to December 31, 2020 (3,510,000 x 3/12)

3,510,000 877,500

2021

Cash (300,000 x 12) Rent Income Rent Receivable

3,600,000 3,510,000 90,000

2030

Cash (300,000 x 9) Rent Income (3,510,000 x 9/12) Rent Receivable

2,700,000 2,632,500 67,500

Problem 12-9 2020 (50,000 x 12) 2021 (75,000 x 12) 2022 (175,000 x 12) Total rent Average annual rent (3,600,000 / 3)

600,000 900,000 2,100,000 3,600,000 1,200,000

2020

Cash Rent Receivable Rent Income

600,000 600,000 1,200,000

2021

Cash Rent Receivable Rent Income

900,000 300,000 1,200,000

2022

Cash

2,100,000 1,200,000 900,000

Rent Income Rent Receivable

Problem 12-10 First Year (1,000 x 1,200) Second Year (1,000 x 3,000) Third Year (1,000 x 3,000) Total Rental Revenue

1,200,000 3,000,000 3,000,000 7,200,000

Average Annual Rental (7,200,000 / 3) 2,400,000 Rental Revenue from Jan. 1 to Sep. 30 (2,400,000 x 9/12) Problem 12-11 First Year (800,000 x 6/12) Second Year Third Year Fourth Year

400,000 1,250,000 1,250,000 1,250,000

1,800,000 (C)

Fifth Year Total Rental Revenue

1,250,000 5,400,000

Rental Revenue for 2020 (5,400,000 / 5) Problem 12-12 2020 (100,000 x 12) 2021 (150,000 x 12) 2022 (200,000 x 12) 2023 (250,000 x 12) Total Rental Revenue

1,200,000 1,800,000 2,400,000 3,000,000 8,400,000

8,400,000 / 4 = 2,100,000 2020 

2021 

Cash Rent Receivable Rent Income

1,200,000 900,000 2,100,000

Cash Rent Receivable Rent Income

1,800,000 300,000 2,100,000

2020 2021 Rent Receivable

900,000 300,000 1,200,000 (B)

Problem 12-13 2020 2021 2022 2023 2024 Total Rental Revenue

1,000,000 1,000,000 1,400,000 1,700,000 1,900,000 7,000,000

7,000,000 / 5 = 1,400,000 2020 

2021 

Cash Rent Receivable Rent Income

1,000,000 400,000 1,400,000

Cash Rent Receivable

1,000,000 400,000

1,080,000 (C)

Rent Income 2020 2021 Rent Receivable

1,400,000

400,000 400,000 800,000 (B)

Problem 12-14 Rent Income Less: Amortization of IDC (150,000 / 10) Depreciation Insurance and property tax Net rent income

500,000 (15,000) (120,000) (90,000) 275,000 (A)

Problem 12-15 Annual rental Amortization of lease bonus (500,000 / 5) Total rent revenue

900,000 100,000 1,000,000 (C)

Problem 12-16 Annual rental Amortization of lease bonus (300,000 / 3) Depreciation Insurance expense Operating profit

850,000 100,000 (400,000) (80,000) 470,000 (C)

Problem 12-17 500,000 (Current Liability) is unearned rent income because it was received on the first year 1,000,000 (Noncurrent Liability) is unearned rent deposit it is applied as payment of rent for the last two years of the lease (B). Problem 12-18 Refundable security deposit 50,000 (B) Problem 12-19 From Elder Company (60,000 x 6 – January to June 30) From Toil Company (75,000 x 6 – July to December) Rent Revenue Depreciation (4,800,000 / 8) Net rental income Problem 12-20

360,000 450,000 810,000 (600,000) 210,000 (A)

Pretax income (720,000 – 64,000 – 360,000)296,000 (A) Problem 12-21 1. D 2. D 3. A 4. D 5. D

Problem 12-22 1. C 2. B 3. D 4. A 5. C Problem 12-23 1. A 2. C 3. C 4. C 5. B

Problem 13-1 Requirement 1 Gross rentals (600,000 x 10) Net Investment in the lease: Cost of equipment IDC Total financial revenue

6,000,000 (3,390,000) (143,400) 2,466,600

Requirement 2 Lower than 12% = 11% PV 5.889 5.889 x 600,000 = 3,533,400 (3,390,000 + 143,400) Requirement 3 

Lease Receivable Machinery Unearned Interest Income

6,000,000 3,390,000 2,466,600



Equipment Cash

143,400



Cash

600,000



Unearned Interest Income Interest Income (3,533,400 x 11%)

Problem 13-2

Lease Receivable

388,674

143,400 600,000 388,674

Requirement 1 Gross rentals (900,000 x 8) Residual Value Gross investment Net investment Total Financial Revenue Requirement 2 Date Payment 1/1/2020 1/1/2020 900,000 1/1/2021 900,000 1/1/2022 900,000 1/1/2023 900,000 1/1/2024 900,000 1/1/2025 900,000 1/1/2026 900,000 1/1/2027 900,000 1/1/2028 600,000 7,800,000

7,200,000 600,000 7,800,000 5,250,000 2,550,000 Interest – 12%

Principal

522,000 476,640 425,837 368,937 305,210 233,835 153,895 64,362 2,550,000

900,000 378,000 423,360 474,163 531,063 594,790 666,165 746,105 535,638

Requirement 3 2020  Lease Receivable Equipment Unearned Interest Income

7,800,000 5,250,000 2,550,000



Cash



Unearned Interest Income Interest Income

522,000

Cash

900,000

2021  

Lease Receivable

Lease Receivable

Unearned Interest Income Interest Income

900,000

476,640

900,000 522,000

900,000 476,640

Requirement 4 2027  

Jan 1 Cash

Lease Receivable

Dec 31 Unearned Interest Income

900,000 64,362

900,000

PV 5,250,000 4,350,000 3,972,000 3,548,640 3,074,477 2,543,414 1,948,624 1,282,459 536,354 -

Interest Income

64,362

Requirement 5 2028 

Equipment Loss on Finance Lease Lease Receivable

500,000

100,000 600,000

Problem 13-3 Requirement 1 Cost PV (200,000 x .5066) Net Investment Divide by PV Annual rental

Requirement 2 Date Payment 1/1/2020 1/1/2020 629,490 12/31/202 629,490 0 12/31/202 629,490 1 12/31/202 629,490 2 12/31/202 629,490 3 12/31/202 629,490 4 12/31/202 200,000 5

3,000,000 (101,320) 2,898,680 4.6048 629,490

Interest – 12%

Principal

284,461

629,490 345,029

PV 3,000,000 2,370,510 2,025,481

243,058

386,432

1,639,049

196,686

432,804

1,206,245

144,749

484,741

721,504

86,580

542,910

178,594

21,431

178,594

-

Requirement 3 – 2020 

Jan 1 Machinery Cash

3,000,000 3,000,000



Jan 1 Lease Receivable Machinery Unearned Rent Income

3,976,940 3,000,000 976,940

Gross rental (629,490 x 6) Residual Value Gross investment Net Investment Unearned Rent Income

3,776,940 200,000 3,976,940 3,000,000 976,940



Jan 1 Cash

Lease Receivable

629,490 629,490



Dec 31 Cash

Lease Receivable

629,490 629,490



Dec 31 Unearned Rent Income Interest Income

284,461 284,461

Requirement 4 – 2025  Dec 31 Unearned Interest Income Interest Income

21,431 21,431

Requirement 5 

Machinery Lease Receivable

200,000

200,000

*Lease Receivable has 200,000 balance equal to unguaranteed residual value and unearned interest income has zero balance.

Problem 13-4 Requirement 1 Gross rentals (400,000 x 4) Net investment Total Financial Revenue Requirement 2 Date Payment 1/1/2020 1/1/2020 400,000 1/1/2021 400,000 1/1/2022 400,000 1/1/2023 400,000 Requirement 3

1,600,000 (1,377,480) 222,520 Interest – 12%

Principal

107,523 75,350 39,639

400,000 292,477 324,650 360,361

PV 1,377,480 977,480 685,003 360,353 -

2020 

Jan 1 Lease Receivable 1,600,000 Machinery Unearned Interest Income



Jan 1 Cash



Dec 31 Unearned Interest Income Interest Income

107,523

Jan 1 Cash

440,000

2021 

 2022 

 2023 

Lease Receivable Lease Income

Lease Receivable Lease Income

440,000

Dec 31 Unearned Interest Income Interest Income

75,350

Jan 1 Cash

440,000

Lease Receivable Lease Income

Dec 31 Unearned Interest Income Interest Income

39,639

Jan 1 Cash

440,000

Lease Receivable Lease Income

Problem 13-5 Gross investment (900,000 x 8) Residual value unguaranteed Gross investment

7,200,000 600,000 7,800,000 (B)

Cost of equipment IDC Net Investment

5,000,000 250,000 5,250,000 (B)

Gross investment Net investment Total interest income

7,800,000 (5,250,000) 2,550,000 (A)

Net Investment

5,250,000

1,377,480 222,520 400,000 40,000 107,523

400,000 40,000 75,350

400,000 40,000 39,639

400,000 40,000

Annual payment PV

(900,000) 4,350,000

4,350,000 x 12%

522,000 (B)

Problem 13-6 Cost of equipment Unguaranteed RV (200,000 x .466) Net investment

4,361,200 (93,200) 4,268,000 (C)

4,268,000 / .466

800,000 (A)

4,361,200 x 10%

436,120 (A)

Problem 13-7 1. Lease Receivable = Cost of asset

6,000,000 (C)

2. Gross investment (1,730,541 x 5) Residual Value Gross investment

8,652,705 400,000 9,052,705 (B)

3. Gross Investment Net Investment Unearned Interest Income

9,052,705 (6,000,000) 3,052,705 (A)

4. 6,000,000 x 15% = 900,000 (C) Problem 13-8 1. PV of rentals (1,000,000 x 3.79) PV of RV (1,200,000 x .62) Net Lease Receivable

3,790,000 744,000 4,534,000 (A)

2. Gross investment (1,000,000 x 5) Residual Value Gross investment

5,000,000 1,200,000 6,200,000 (B)

3. Gross investment Net Lease Receivable (cost of asset) Unearned Interest Income 4. 4,534,000 x 10% = 453,400 (C) Problem 13-9

6,200,000 (4,534,000) 1,666,000 (B)

1. 3,234,000 / 4.312 = 750,000 Gross Rentals (750,000 x 5) PV of rentals Interest Revenue

3,750,000 (3,234,000) 516,000 (C)

Problem 13-10 PV of rent equal to the cost of asset Annual Payment Balance

8,400,000 (1,200,000) 7,200,000

7,200,000 x 9% = 648,000 (B) Problem 13-11 Cost of the machine PV of RV (200,000 x .51) Net investment to be recovered from rental 2,898,000 Divide by PV of an annuity Annual Lease Payment

3,000,000 (102,000) 4.60 630,000 (A)

Problem 13-12 Cost of the machine PV of RV (2,000,000 x .68) Net investment to be recovered from rental 3,879,000 Divide by PV of an annuity Annual Lease Payment

5,239,000 (1,360,000) 4.31 900,000 (C)

Problem 13-13 Cost of the machine Divide by PV of an annuity Annual Lease Payment

7,994,000 2.855 2,800,000 (C)

Problem 13-14 Cost of the machine Divide by PV of an annuity Annual Lease Payment

2,300,000 4.60 500,000 (A)

Problem 13-15 Fair Value Divide by PV of OA 10% Annual Lease Payment

2,949,600 6.145 480,000 (C)

Annual Lease Payment Executory Cost Total Annual Lease Payment Gross investment (480,000 x 10) FV of building Unearned Interest Income

500,000 (D)

480,000 20,000 4,800,000 (2,949,600) 1,850,400 (A)

Problem 13-16 1. A 2. B 3. C 4. B 5. C 6. C 7. D 8. C

Problem 14-1 2020 

Lease Receivable (600,000 x 8) Sales Unearned Interest Income

Gross rentals (600,000 x 8) PV of rentals

4,800,000 3,520,000 1,280,000 4,800,000 (3,520,000)

Unearned interest income

1,280,000



Initial Direct Costs Cash

50,000



Cash

600,000



Unearned Interest Income Interest Income

Lease Receivable

Date 1/1/2020 1/1/2020 1/1/2021 1/1/2022 2021  

Cash

292,000

50,000 600,000 292,000

Payment

Interest

Principal

600,000 600,000 600,000

292,000 261,200

600,000 308,000 338,800 600,000

Lease Receivable

Unearned Interest Income Interest Income

261,200

PV 3,520,000 2,920,000 2,612,000 2,273,200

600,000 261,200

Problem 14-2 2020 – Books of Lessor  Lease Receivable (500,000 x 10) Sales Unearned Interest Income

5,000,000 3,165,000 1,835,000

Gross rentals (500,000 x 10) PV of rentals Unearned interest income

5,000,000 (3,165,000) 1,835,000



Cost of Goods Sold Inventory

2,675,000 2,675,000



Cash

500,000



Unearned Interest Income Interest Income

Lease Receivable

Date 1/1/2020 1/1/2020

319,800

500,000

319,800

Payment

Interest

Principal

500,000

-

500,000

PV 3,165,000 2,665,000

1/1/2021 1/1/2022

500,000 500,000

2021 – Books of Lessor  Cash Lease Receivable 

Unearned Interest Income Interest Income

2020 – Books of Lessee  ROUA Lease Liability

319,800 298,176

180,200 201,824 500,000 298,176

Lease Liability Cash



Depreciation Accumulated Depreciation (3,165,000 / 10)

316,500



Interest Expense Accrued Interest Payable

319,800

2021 – Books of Lessee  Accrued Interest Payable Lease Liability Cash

500,000 298,176

3,165,000



2,484,800 2,282,976

3,165,000

500,000 500,000

319,800



Depreciation Accumulated Depreciation (3,165,000 / 10)

316,500



Interest Expense Accrued Interest Payable

298,176

316,500

319,800

180,200 500,000 316,500

298,176

Problem 14-3 2020 – Books of Lessor Gross Rentals (700,000 x 8) Unguaranteed RV Lease Receivable – GI

5,600,000 400,000 6,000,000

PV of gross rentals (700,000 x 4.968) PV of unguaranteed RV (400,000 x .404) Total PV – NI

3,477,600 161,600 3,639,200

Lease Receivable – GI

6,000,000

Total PV – NI Unearned Interest Income

(3,639,200) 2,360,800

Cost of equipment PV of unguaranteed RV Cost of goods sold

2,000,000 (161,600) 1,838,400

Sales Cost of goods sold Gross Income

3,477,600 (1,838,400) 1,639,200



Lease Liability Cost of goods sold Sales Unearned Interest Income Inventory

6,000,000 1,838,400 3,477,600 2,360,800 2,000,000



Cash

700,000



Unearned Interest Income Interest Income (3,639,200 x 12%)

Lease Receivable

436,704

700,000 436,704

Books of Lessee  ROUA 3,477,600 Lease Liability 3,477,600 (700,000 x 4.968) – RV is unguaranteed so it is not included in computing LL. 

Interest Expense (3,477,600 x 12%) Lease Liability Cash

417,312



Depreciation Accumulated Depreciation (3,477,600 / 8)

434,700

282,688 700,000 434,700

Problem 14-4 2020 – Books of Lessor Gross Rentals (3,000,000 x 5) Guaranteed RV Lease Receivable – GI

15,000,000 1,000,000 16,000,000

PV of gross rentals (3,000,000 x 3.60) PV of guaranteed RV (1,000,000 x .57) Total PV – NI

10,800,000 570,000 11,370,000

Lease Receivable – GI Total PV – NI Unearned Interest Income

16,000,000 (11,370,000) 4,630,000

Cost of equipment PV of unguaranteed RV Cost of goods sold

8,000,000 (570,000) 1,838,400

Sales Cost of goods sold Initial Direct Cost Gross Income

11,370,000 (8,000,000) (300,000) 3,070,000



Lease Liability Cost of goods sold Sales Unearned Interest Income Inventory

16,000,000 8,000,000 11,370,000 4,630,000 8,000,000



Cost of Goods Sold Cash To record the initial direct cost.

300,000



Cash

3,000,000 3,000,000



Unearned Interest Income Interest Income (11,370,000 x 12%)

Lease Receivable

300,000

1,364,400 1,364,400

2020 - Books of Lessee Annual rentals (3,000,000 x 3.60) RV Guaranteed (1,000,000 x .57) Lease Liability 

ROUA



Interest Expense Lease Liability Cash



Lease Liability

Depreciation Accumulated Depreciation (11,370,000 – 1,000,000 / 5) Problem 14-5

10,800,000 570,000 11,370,000 11,370,000

11,370,000

1,364,400 1,635,600 3,000,000 2,074,000 2,074,400

Requirement 1 Lease Receivable (3,328,710 x 5) PV of gross rentals (3,328,710 x 3.605) Unearned Rent Income

16,643,550 (12,000,000) 4,643,550

Requirement 2 Sales Cost of goods sold Initial Direct Cost Manufacturer Profit

12,000,000 (8,000,000) (200,000) 3,800,000

Requirement 3 Interest Income (12,000,000 x 12%)

1,440,000

Requirement 4 

Lease Receivable Sales Unearned Interest Income

16,643,550 12,000,000 4,643,550



Cost of Goods Sold Inventory

12,000,000 12,000,000



Cost of Goods Sold Cash Initial direct cost.

200,000



Cash

3,328,710 3,328,710



Unearned Interest Income Interest Income

Lease Receivable

200,000

1,440,000 1,440,000

Problem 14-6 Requirement 1 Lease Receivable (700,000 x 8) PV of gross rentals (700,000 x 5.868) Unearned Rent Income

5,600,000 (4,107,600) 1,492,400

Requirement 2 Sales Cost of equipment Gross Profit

4,107,600 (3,700,000) 407,600

Requirement 3 Date 4/1/2020 4/1/2020 4/1/2021 4/1/2022 2020 

Payment

Interest

Principal

700,000 700,000 700,000

340,760 304,836

700,000 359,240 395,164

Lease Receivable Sales

PV 4,107,600 3,407,600 3,048,360 2,653,196

5,600,000 4,107,600

Unearned Interest Income

1,492,400



Cost of Goods Sold Inventory

3,700,000 3,700,000



Cash

700,000



Unearned Interest Income Interest Income (340,760 x 9/12)

255,570

Cash

700,000

2021  

Lease Receivable

Lease Receivable

700,000 255,570

700,000

Unearned Interest Income 313,817 Interest Income 313,817 (304,836 x 9/12) + (340,760 x 3/12)

Problem 14-7 Requirement 1 Lease Receivable (900,000 x 20) PV of gross rentals (900,000 x 9.36) Unearned Rent Income Requirement 2

18,000,000 (8,424,000) 9,576,000

Sales Cost of equipment Gross Profit Requirement 3 Date 4/1/2020 4/1/2020 4/1/2021 4/1/2022 2020 

8,424,000 (6,000,000) 2,424,000

Payment

Interest

Principal

900,000 900,000 900,000

752,400 737,640

900,000 147,600 162,360

Lease Receivable Sales

PV 8,424,000 7,524,000 7,376,400 7,214,040

18,000,000 8,424,000

Unearned Interest Income

9,576,000



Cost of Goods Sold Inventory

6,000,000 6,000,000



Cash

900,000



Unearned Interest Income Interest Income (752,400 x 9/12)

564,300

Cash

900,000

2021  

Lease Receivable

Lease Receivable

900,000 564,300

900,000

Unearned Interest Income 741,300 Interest Income 741,300 (737,640 x 9/12) + (752,400 x 3/12)

Problem 14-8 Requirement 1 Gross rentals (875,000 x 8) Purchase option GI – Lease Receivable

7,000,000 300,000 7,300,000

PV of gross rentals (875,000 x 5.8684) PV of purchase option (300,000 x .4665) Total PV – NI

5,134,850 139,950 5,274,800

GI – Lease Receivable Total PV – NI Unearned Interest Income

7,300,000 (5,274,800) 2,025,200

Requirement 2 Sales Cost of goods sold Gross Profit

5,274,800 (3,100,000) 2,174,800

Requirement 3 Date 1/1/2020 1/1/2020 1/1/2021 1/1/2022 2020 

Payment

Interest

Principal

875,000 875,000 875,000

439,980 396,470

875,000 435,020 478,530

Lease Receivable Cost of Goods Sold Sales Unearned Interest Income Inventory

7,300,000 3,100,000



Cash

875,000



Unearned Interest Income Interest Income

439,980

Cash

875,000

2021  

Lease Receivable

Lease Receivable

Unearned Interest Income Interest Income

396,470

5,274,800 2,025,200 3,100,000 875,000 439,980

875,000 396,470

Requirement 4 2027 

Cash

Requirement 5

Lease Receivable

300,000

300,000

PV 5,274,800 4,399,800 3,964,700 3,486,170

2027 

Inventory Loss on Finance Lease Lease Receivable

200,000

100,000 300,000

Problem 14-9 Requirement 1 Lease Receivable (500,000 x 5) NI (500,000 x 3.60) Unearned Interest Income

2,500,000 (1,800,000) 700,000

Requirement 2 Sales Cost of goods sold Gross Profit

1,800,000 (1,000,000) 800,000

Requirement 3 Date 1/1/2020 12/31/2020 12/31/2021 12/31/2022 2020 

Payment

Interest

Principal

500,000 500,000 500,000

216,000 181,920 143,750

284,000 318,080 356,250

PV 1,800,000 1,516,000 1,197,920 841,670

Lease Receivable Sales Unearned Interest Income

2,500,000 1,800,000 700,000



Cash

500,000



Unearned Interest Income Interest Income

216,000

Cash

500,000

2021  

Lease Receivable

Lease Receivable

Unearned Interest Income Interest Income

181,920

500,000 216,000

500,000 181,920

2022 



Unearned Interest Income Interest Income (143,750 x ½)

71,875

Cash Unearned Interest Income Loss on sale of leased equipment Lease Receivable

1,200,000 230,205 69,795 1,500,000

Lease Receivable, July 1, 2022 Unearned Interest Income, July 1, 2022 Carrying Amount Actual Sale Price Loss on sale price

71,875

1,500,000 (230,205) 1,269,795 (1,200,000) 69,795

Problem 14-10 Sales revenue (PV of lease payment) CA of equipment Profit on sale

2,780,000

(2,000,000) 780,000 (B)

Problem 14-11 Sales revenue (PV of lease payment) CA of equipment Profit on sale

1,700,000

Sales revenue (PV of lease payment) Annual payment Total

1,700,000

(1,100,000) 600,000 (B) (300,000) 1,400,000

1,400,000 x 11% = 154,000 (D) Problem 14-12 Selling price of equipment Cost of equipment Profit on sale

3,520,000 (2,800,000) 720,000 (B)

3,520,000 – 600,000 = 2,920,000 x 10% x ½ = 146,000 (B) Problem 14-13 Selling Price Cost of machine Profit on sale

2,400,000 (2,000,000) 400,000 (C)

2,400,000 – 355,080 = 2,044,920 x 10% = 204,492 (C) Profit on sale Interest Income Income before tax

400,000 204,492 604,492 (B)

Problem 14-14 GI - Annual rental (1,500,000 x 20 years)

30,000,000 (A)

NI – PV of annual rental (1,500,000 x 8.37)

12,555,000 (A)

Selling price of equipment Cost of equipment Profit on sale

12,555,000 (8,000,000) 4,555,000 (B)

PV of lease payments Annual rental Total

12,555,000 (1,500,000) 11,055,000

11,055,000 x 12% = 1,326,600 (C) Problem 14-15 Annual rental (1,500,000 x 5) Unguaranteed RV Gross investment

7,500,000 500,000 8,000,000 (B)

PV of lease payments (1,500,000 x 3.60) PV of RV Unguaranteed (500,000 x .57) NI

5,400,000 285,000 5,685,000 (B)

5,685,000 x 12% = 682,200 (A) Sales Cost of equipment Initial Direct Cost Profit on sale

5,685,000 (4,000,000) (200,000) 1,485,000 (B)

Problem 14-16 Gross rentals (2,000,000 x 10) PV of lease payment (2,000,000 x 6.33) Financial revenue

20,000,000 12,660,000 7,340,000 (B)

Sales Cost of equipment

12,660,000 (9,000,000)

Profit on sale

3,660,000 (B)

PV of rentals Annual rental Total

12,660,000 (2,000,000) 10,660,000

10,660,000 x 12% = 1,279,200 (C) Problem 14-17 Sales Cost of equipment Initial Direct Cost Profit on sale

14,875,000 (8,500,000) (500,000) 5,875,000 (A)

GI (2,500,000 x 10) NI Unearned Interest Income

25,000,000 (14,875,000) 10,125,000 (A)

PV of annual payments Annual payment Total

14,875,000 (2,500,000) 12,375,000

12,375,000 x 14% = 1,732,500 (B) Problem 14-18 5,280,000 – 900,000 = 4,380,000 x 10% = 438,000 (C) Problem 14-19 Sales Cost of equipment Initial Direct Cost – Legal fees Profit on sale

750,000 (600,000) (20,000) 130,000 (B)

Problem 14-20 GI NI Unearned Interest Income

5,850,000 (4,850,000) 1,000,000

4,850,000 x 10% = 485,000 (B) Lease Receivable Unearned Interest Income (1,000,000 – 485,000) CA of the lease, December 31, 2020

5,850,000 (515,000) 5,335,000 (C)

Selling Price CA Loss on leased equipment

3,250,000 5,335,000 2,085,000 (A)

Problem 14-21 1. D 2. A 3. C 4. B 5. C 6. D 7. C 8. B

Problem 15-1 Books of Seller-Lessee  Cash Accumulated Depreciation Equipment Gain on right transferred 

Rent Expense Cash

Books of Buyer-Lessor  Equipment Cash 

Cash



Depreciation Accumulated Depreciation (1,200,000 / 5)

Rent Income

1,200,000 1,500,000 2,500,000 200,000 300,000

300,000

1,200,000 1,200,000 300,000 240,000

300,000 240,000

Problem 15-2 Books of Seller-Lessee  Cash Accumulated Depreciation Machinery Gain on right transferred 

Rent Expense

500,000 120,000

100,000

600,000 20,000

Cash

100,000

Books of Buyer-Lessor  Machinery Cash

500,000



Cash

100,000



Depreciation Accumulated Depreciation (500,000 / 10)

Rent Income

50,000

500,000 100,000 50,000

Problem 15-3 Requirement 1 Initial measurement of lease liability (600,000 x 3.791)

2,274,600

Requirement 2 Cost of ROUA (2,274,600 / 5,000,000 x 4,500,000)

2,047,140

Requirement 3 Selling price CA Total Gain

5,000,000 (4,500,000) 500,000

FV Lease Liability Gain on right to transferred to buyer-lessor

5,000,000 (2,274,600) 2,725,400

Requirement 4 Books of seller-lessee  Cash 5,000,000 ROUA 2,047,140 Machinery Lease Liability Gain on Right Transferred (2,725,400 / 5,000,000 x 500,000) 

Interest Expense Lease Liability Cash

227,460



Depreciation

409,428

4,500,000 2,274,600 272,540

372,540 600,000

Accumulated Depreciation (2,074,140 / 5) Books of buyer-lessor  Machinery Cash

409,428

5,000,000 5,000,000



Cash

600,000



Depreciation Accumulated Depreciation (5,000,000 / 10)

Rent Income

500,000

600,000 500,000

Problem 15-4 Requirement 1 Initial measurement of lease liability (800,000 x 3.312)

2,649,600

Requirement 2 Sale price FV of machine Excess SP over FV

6,000,000 5,000,000 1,000,000

PV of lease liability Excess PV of LL

2,649,600 (1,000,000) 1,649,600

Cost of ROUA (1,649,600 / 5,000,000 x 4,500,000)

1,484,640

Requirement 3 FV of machine CA Adjusted total gain

5,000,000 (4,500,000) 500,000

FV of machine PV of LL Right transferred to buyer-lessor

5,000,000 (1,649,600) 3,350,400

Gain to be recognized (3,350,400 / 5,000,000 x 500,000) Requirement 4 Books of seller-lessee

335,040



Cash ROUA

6,000,000 1,484,640

Machinery Lease Liability Gain on Right Transferred



Interest Expense (2,649,600 x 8%) Lease Liability Cash

211,968



Depreciation Accumulated Depreciation (1,484,640 / 4)

371,160

Books of buyer-lessor  Machinery Financial Asset Cash Cash



Cash



Depreciation Accumulated Depreciation (5,000,000 / 10)

Financial Asset Interest Income (1,000,000 x 8%)

Fraction 1,649,600/2,649,600 1,000,000/2,649,600

Requirements 1 1,335,000

Requirement 2 FV of equipment Sale Price Excess FV over SP

301,932

500,000

Problem 15-5

PV rentals (500,000 x 2.67)

371,160

498,068

Rent Income

Present Value 1,649,600 1,000,000 2,649,600

588,032 800,000

5,000,000 1,000,000 6,000,000



Rental Income Financial Asset Total PV

4,500,000 2,649,600 335,040

5,000,000 (4,000,000) 1,000,000

498,068

221,932 80,000 500,000 Allocation 498,068 301,932 800,000

PV of rentals Excess FV Total lease liability

1,335,000 1,000,000 2,335,000

Cost of ROUA (2,335,000 / 5,000,000 x 3,500,000)

1,634,500

Requirement 3 FV CA Total gain

5,000,000 (3,500,000) 1,500,000

FV 5,000,000 Total lease liability (2,335,000) Right transferred to buyer-lessor 2,665,000 Gain to be recognized (2,665,000 / 5,000,000 x 1,500,000) 799,500 Requirement 4 Books of seller-lessee  Cash ROUA Machinery Lease Liability Gain on Right Transferred

4,000,000 1,634,500



Interest Expense (1,335,000 x 6%) Lease Liability Cash

80,100



Depreciation Accumulated Depreciation (1,634,500 / 3)

544,833

Books of buyer-lessor  Machinery Cash 

Cash



Depreciation Accumulated Depreciation (4,000,000 / 10)

Problem 15-6 Requirement 1

Rent Income

3,500,000 1,335,000 799,500 419,900 500,000 544,833

4,000,000 4,000,000 500,000 400,000

500,000 400,000

PV of rentals (300,000 x 6.21)

1,863,000

Requirement 2 Cost of ROUA (1,863,000 / 2,400,000 x 1,600,000)

1,242,000

Requirement 3 SP at FV CA Total gain

2,400,000 1,600,000 800,000

FV PV of rentals Right transferred to buyer-lessor

2,400,000 (1,863,000) 537,000

Gain to be recognized (537,000 / 2,400,000 x 800,000)

179,000

Requirement 4 Books of seller-lessee  Cash ROUA Building Lease Liability Gain on Right Transferred

2,400,000 1,242,000



Interest Expense Lease Liability Cash

111,780



Depreciation Accumulated Depreciation (1,242,000 / 8)

409,428

Books of buyer-lessor  Building Cash 

Cash



Depreciation Accumulated Depreciation (2,400,000 / 15)

Problem 15-7

Rent Income

1,600,000 1,863,000 179,000

188,220 300,000 409,428

2,400,000 2,400,000 300,000 160,000

300,000 160,000

Requirement 1 PV of rentals (300,000 x 3.465)

1,039,500

Requirement 2 Cost of ROUA (1,039,500 / 5,000,000 x 6,500,000)

1,351,350

Requirement 3 SP at FV CA Total loss

5,000,000 (6,500,000) (1,500,000)

FV PV of rentals Right transferred to buyer-lessor

5,000,000 (1,039,500) 3,960,500

Loss to be recognized (3,960,500 / 5,000,000 x 1,500,000)

1,188,150

Requirement 4 Books of seller-lessee  Cash ROUA Loss on Right Transferred Machine Lease Liability

5,000,000 1,351,500 1,188,150



Interest Expense Lease Liability Cash

62,70



Depreciation Accumulated Depreciation (1,351,350 / 4)

337,838

Books of buyer-lessor  Building Cash

6,500,000 1,039,500 237,630 300,000 337,838

5,000,000 5,000,000



Cash

300,000



Depreciation Accumulated Depreciation (5,000,000 / 20)

Rent Income

250,000

300,000 250,000

Problem 15-8 Date

Payment

Interest

Principal

PV

1/1/2020 12/31/2020 12/31/2021 12/31/2022

500,000 500,000 500,000

144,000 101,280 53,434

Books of Seller-Lessee  Cash Lease Liability 

144,000

Books of Buyer-Lessor  Lease Receivable Cash 

Cash

500,000

Problem 15-9 Sale Price Carrying Amount Total Gain

360,000 330,000 30,000 (B)

Problem 15-10 Sale Price Carrying Amount Total Gain

480,000 360,000 120,000 (A)

Problem 15-11 1. 600,000 x 3.037 = 1,822,200 (A) 1,822,200 1,000,000 822,200

(822,200 / 8,000,000 x 7,200,000) 3. FV

1,200,000

356,000 500,000

1,200,000 1,200,000

Lease Receivable Interest Income

2. PV of LL Additional financing PV

356,000 398,720 445,280 1,200,000

Interest Expense Lease Liability Cash

1,200,000 844,000 445,280 -

739,980 (B)

8,000,000

144,000 356,000

CA Adjusted total gain

7,200,000 800,000

FV PV Right transferred to buyer-lessor

8,000,000 (822,200) 7,177,800

7,177,800 / 8,000,000 x 800,000 = 717,780 (C) 4. 822,200 / 1,822,200 x 600,000 = 270,728 (C) Problem 15-12 1. 500,000 x 4.21 = 2,105,000 2,105,000 / 5,000,000 x 6,000,000 = 2,526,000 (B) 2. SP CA Total loss FV PV Right

5,000,000 6,000,000 1,000,000 5,000,000 2,105,000 2,895,000

2,895,000 / 5,000,000 x 1,000,000 = 579,000 (A) 3. Lease Liability, beg Payment Interest (2,105,000 x 6%) Lease Liability, end

500,000 (126,300)

4. Annual rental Depreciation (5,000,000 / 20) Net annual rental

500,000 (250,000) 250,000 (D)

Problem 15-13 1. 800,000 x 3.17

2,536,000 (A)

2. 2,536,000 / 6,000,000 x 4,500,000 3. SP CA Total gain

6,000,000 (4,500,000) 1,500,000

FV

6,000,000

1,902,000 (A)

2,105,000 (373,700) 1,731,300 (C)

PV Right transferred

(2,536,000) 3,464,000

3,464,000 / 6,000,000 x 1,500,000 = 4. 1,902,000 / 4 years

866,000 (A)

475,500 (A)

Problem 15-14 1. 1,000,000 x 3.60

3,600,000 (A)

2. SP FV Excess FV over SP

18,000,000 20,000,000 2,000,000

PV Excess Total LL

3,600,000 2,000,000 5,600,000

5,600,000 / 20,000,000 x 24,000,000

6,720,000 (D)

3. FV 20,000,000 CA 24,000,000 Total loss 4,000,000 FV 20,000,000 Excess 5,600,000 Right transferred 14,400,000 14,400,000 / 20,000,000 x 4,000,000

2,880,000 (B)

4. 3,600,000 x 12%

432,000 (D)

5. Annual rent income 1,000,000 Depreciation (18,000,000 / 30) (600,000) Net annual rental income 400,000 (A) Problem 16-1 Requirement 1 

Income Tax Expense Income Tax Payable (1,500,000 x 30%)

450,000



Income Tax Expense Deferred Tax Liability (500,000 x 30%)

150,000



Income Tax Payable

200,000

450,000

150,000

Cash

200,000

Requirement 2 Current Tax Expense Deferred Tax Expense Total Income Tax Expense

450,000 150,000 600,000

Problem 16-2 Requirement 1 

Income Tax Expense Income Tax Payable (4,000,000 x 30%)

1,200,000 1,200,000



Deferred Tax Asset Income Tax Expense (1,000,000 x 30%)

300,000



Income Tax Payable Cash

500,000

300,000

500,000

Requirement 2 Current Tax Expense Deferred Tax Expense Total Income Tax Expense

1,200,000 (300,000) 900,000

Problem 16-3 Requirement 1 2020  Income Tax Expense Income Tax Payable (7,000,000 x 30%) 

2021 



2,100,000 2,100,000

Deferred Tax Asset Income Tax Expense (1,000,000 x 30%)

300,000

Income Tax Expense Income Tax Payable (8,000,000 x 30%)

2,400,000 2,400,000

Income Tax Expense

300,000

300,000

Deferred Tax Asset

300,000

Requirement 2 2020 – Income Statement presentation Income before tax Income tax expense: Current Tax Expense Income Tax Benefit Net Income

6,000,000 2,400,000 (300,000)

(1,800,000) 4,200,000

2021 – Income Statement presentation Income before tax Income tax expense: Current Tax Expense Decrease in DTA Net Income

9,000,000 2,400,000 300,000

(2,700,000) 6,300,000

Problem 16-4 Requirement 1 2020  Income Tax Expense Income Tax Payable (5,000,000 x 30%) 

2021 



1,500,000 1,500,000

Income Tax Expense Deferred Tax Liability (500,000 x 30%)

150,000

Income Tax Expense Income Tax Payable (7,500,000 x 30%)

2,250,000 2,250,000

Deferred Tax Liability Income Tax Expense

150,000

150,000 150,000

2020 – Income Statement presentation Income before tax Income tax expense: Current Tax Expense Deferred Tax Expense Net Income

5,500,000 1,500,000 150,000

(1,650,000) 3,850,000

2021 – Income Statement presentation Income before tax Income tax expense: Current Tax Expense Decrease in DTL Net Income

7,000,000 2,250,000 (150,000)

(2,100,000) 4,900,000

Problem 16-5 2020 



2021 



2022 



Income Tax Expense Income Tax Payable (2,400,000 x 30%)

720,000

Income Tax Expense Deferred Tax Liability (600,000 x 30%)

180,000

Income Tax Expense Income Tax Payable (3,600,000 x 30%)

1,080,000 1,080,000

Income Tax Expense Deferred Tax Liability (1,500,000 x 30%)

450,000

Income Tax Expense Income Tax Payable (6,200,000 x 30%)

1,860,000 1,860,000

Income before construction income Construction Income Taxable Income

3,200,000 3,000,000 6,200,000

Deferred Tax Liability Income Tax Expense (2,100,000 x 30%)

720,000

180,000

450,000

630,000 630,000

Problem 16-6 Requirement 1 2020 – current expense Income before depreciation

2020 4,000,000

2021 4,000,000

2022 4,000,000

2023 4,000,000

SYD Method Taxable Income

(400,000) 3,600,000 x 30% 1,080,000

Current Tax Expense 2020 2021 2022 2023 Balance 2020   2021   2022   2023  

Temporary Difference 150,000 50,000 (50,000) (150,000) -

(300,000) 3,700,000 x 30% 1,110,000 Rate 30% 30% 30% 30%

(200,000) 3,800,000 x 30% 1,140,000

Deferred Tax Liability 45,000 15,000 (15,000) (45,000) -

Income Tax Expense Income Tax Payable

1,080,000 1,080,000

Income Tax Expense Deferred Tax Liability

45,000

Income Tax Expense Income Tax Payable

1,110,000 1,110,000

Income Tax Expense Deferred Tax Liability

15,000

Income Tax Expense Income Tax Payable

1,140,000 1,140,000

Deferred Tax Liability Income Tax Expense

45,000

15,000

15,000 15,000

Income Tax Expense Income Tax Payable

1,170,000 1,170,000

Deferred Tax Liability Income Tax Expense

45,000 45,000

Requirement 2 Noncurrent Liability Deferred Tax Liability Problem 16-7 Requirement 1

(45,000 + 15,000)

60,000

(100,000) 3,900,000 x 30% 1,170,000

Accounting Income Doubtful Accounts Rent Income Warranty Cost Taxable Income Tax Rate Current Tax Expense 2020 2021 2022 2023 Balance 2020   2021   2022   2023  

2020 2,000,000 100,000 120,000 300,000 2,520,000 30% 756,000

Temporary Difference 520,000 (160,000) (120,000) (240,000) -

2021 3,000,000 (100,000) (40,000) (20,000) 2,840,000 30% 852,000 Rate 30% 30% 30% 30%

2022 4,000,000

2023 5,000,000

(40,000) (80,000) 3,880,000 30% 1,164,000

(40,000) (200,000) 4,760,000 30% 1,428,000

Deferred Tax Liability 156,000 (48,000) (36,000) (72,000) -

Income Tax Expense Income Tax Payable

756,000

Deferred Tax Asset Income Tax Benefit

156,000

Income Tax Expense Income Tax Payable

852,000

Income Tax Expense Deferred Tax Asset

48,000

Income Tax Expense Income Tax Payable

1,164,000 1,164,000

Income Tax Expense Deferred Tax Asset

36,000

Income Tax Expense Income Tax Payable

1,428,000 1,428,000

Income Tax Expense Deferred Tax Asset

72,000

Requirement 2 – SFP on December 31, 2021 (DTA) Noncurrent Assets Deferred Tax Asset (156,000 - 48,000) Problem 16-8

756,000 156,000

852,000 48,000

36,000

72,000

108,000

Requirement 1 2020 Accounting Income Tax depreciation Litigation loss Warranty cost Taxable Income Tax rate Current tax expense

7,900,000 (1,000,000) 400,000 300,000 7,600,000 x 30% 2,280,000



Income Tax Expense Income Tax Payable

2,280,000 2,280,000



Income Tax Expense Deferred Tax Liability (1,000,000 x 30%)

300,000



Deferred Tax Asset Income Tax Benefit (700,000 x 30%)

210,000

300,000

210,000

Requirement 2 Income Statement presentation Income before income tax Current Tax Expense Deferred Tax Liability Deferred Tax Asset Net Income

2,280,000 300,000 (210,000)

Statement of Financial Position Noncurrent Assets Deferred Tax Asset

210,000

Current Liabilities Income Tax Payable

2,280,000

Noncurrent Liabilities Deferred Tax Liabilities

300,000

Requirement 3 DTL DTA

300,000 (210,000)

7,900,000 (2,370,000) 5,530,000

DTE 90,000 Problem 16-9 Requirement 1 Accounting Income Computer Software cost Equipment Accrued Liability Taxable Income Tax rate Current tax expense

13,000,000 (4,000,000) (3,000,000) 2,000,000 8,000,000 x 30% 2,400,000



Income Tax Expense Income Tax Payable

2,400,000 2,400,000



Income Tax Expense Deferred Tax Liability (7,000,000 x 30%)

2,100,000



Deferred Tax Asset Income Tax Benefit (2,000,000 x 30%)

600,000

2,100,000

600,000

Requirement 2 Income before income tax Income Tax Expense Current Tax Expense Deferred Tax Liability Deferred Tax Asset Net Income

13,000,000 2,400,000 2,100,000 (600,000)

(3,900,000) 9,100,000

Problem 16-10 Requirement 1 Equipment Accumulated Depreciation (8,000,000 / 8 x 3) (12,000,000 / 8 x 3) CA 

Equipment Accumulated Depreciation Revaluation Surplus

Requirement 2

Cost 8,000,000 (3,000,000) 5,000,000

Replacement Cost 12,000,000

Appreciation 4,000,000

(4,500,000) 7,500,000

(1,500,000) 2,500,000

4,000,000 1,500,000 2,500,000



Revaluation Surplus Deferred Tax Liability (2,500,000 x 30%) Requirement 3

750,000

Income before income tax Depreciation (5,000,000 / 5) Taxable Income

10,000,000

(1,000,000)

9,000,000 x 30% 

9,000,000 2,700,000

Income Tax Expense Income Tax Payable

2,700,000 2,700,000

Requirement 4 Equipment at replacement cost Accumulated Depreciation Depreciation (7,500,000 / 5) CA, December 31, 2020

4,500,000 1,500,000

Equipment at replacement cost Accumulated Depreciation Depreciation (5,000,000 / 5) Tax base, December 31, 2020

3,000,000 1,000,000

12,000,000 (6,000,000) 6,000,000 8,000,000 (4,000,000) 4,000,000

CA 6,000,000 Tax Base (4,000,000) Taxable temporary difference 2,000,000 DTL – 12/31/2020 (2,000,000 x 30%) DTL – 01/01/2020 Decrease in DTL 

600,000 (750,000) 150,000

Deferred Tax Liability Income Tax Expense

150,000 150,000

Requirement 5 Revaluation Surplus – 1/1/2020 DTL (2,500,000 x 30%) Net Revaluation Surplus 

Revaluation Surplus Retained Earnings (1,750,000 / 5)

750,000

2,500,000 (750,000) 1,750,000 350,000

350,000

Requirement 6 Income before depreciation and tax Depreciation Income before tax Current Tax Expense Decrease in DTL Net Income Revaluation Surplus Total effect on retained earnings

10,000,000 2,700,000 (150,000)

(1,500,000) 8,500,000 (2,550,000) 5,950,000 350,000 6,300,000

Problem 16-11 Requirement 1 Motor vehicle CA 1,650,000 Tax base (1,250,000) Taxable temporary difference 400,000 Tax rate 30% Deferred Tax Liability 120,000 Requirement 2 Accounts Receivable (1,750,000 – 1,500,000) Warranty cost Deposits received in advance Taxable 520,000 x 30%

156,000

Requirement 3 DTL DTA Income Tax Benefit

120,000 156,000 36,000

Requirement 4 Pretax accounting income FTA FDA Taxable Income Tax rate

8,000,000 (400,000) 520,000 8,120,000 30%

250,000 120,000 150,000 520,000

Current Tax Expense

2,436,000

Requirement 5 Current Tax Expense Income Tax Benefit Total income tax expense Problem 16-12

2,436,000 (36,000) 2,400,000 CA 10,000,000 5,000,000 4,000,000 3,000,000 6,000,000 2,000,000

Property Plant Inventory Trade Receivables Trade Payable Cash Accounting income FTA FDA Taxable Income

Tax Base 7,000,000 4,000,000 6,000,000 4,000,000 6,000,000 2,000,000

Difference (3,000,000) (1,000,000) 2,000,000 1,000,000 -

9,000,000 (4,000,000) 3,000,000 8,000,000



Income Tax Expense Income Tax Payable (8,000,000 x 30%)

2,400,000 2,400,000



Income Tax Expense Deferred Tax Liability (4,000,000 x 30%)

1,200,000



Deferred Tax Asset Income Tax Benefit (3,000,000 x 30%)

900,000

DTL DTA DTE

1,200,000 900,000 300,000

Current Tax Expense Deferred Tax Expense Total income tax expense

2,400,000 300,000 2,700,000

Problem 16-13 Accounting income Interest revenue from government Depreciation Taxable Income

6,200,000 (200,000) (100,000) 5,900,000

1,200,000

900,000

Current Tax Expense (5,900,000 x 30%)

1,770,000 (C)

Problem 16-14 Current Tax Expense (5,100,000 x 30%) Temporary Difference (400,000 x 30%) Total Income Tax Expense

1,530,000 120,000 1,650,000 (C)

Problem 16-15 Pretax Income Royalty Income FTA Penalty Taxable Income Tax Rate Current Tax Expense

400,000 (20,000) (25,000) 15,000 370,000 x 30% 111,000 (A)

Problem 16-16 Pretax Income Nontaxable gain Depreciation Taxable Income Tax rate Current Tax Expense Estimated tax payments Current tax liability

800,000 (350,000) (50,000) 400,000 x 30% 120,000 (70,000) 50,000 (C)

Problem 16-17 Current provision (150,000 x 30%)

45,000 (A)

Problem 16-18 Pretax income Rent Income Depreciation Premium on life insurance Taxable Income Tax rate Current Tax Expense

1,000,000 (50,000) (60,000) 90,000 980,000 x 30% 294,000

Current Tax Expense FTA (110,000 x 30%) Total tax expense

294,000 33,000 327,000 (D)

Problem 16-19 Pretax income Rent received in advance Interest income on time deposit Depreciation Taxable Income Tax rate Current Tax Expense Estimated income tax Current tax liability Problem 16-20 Taxable income TD (1,350,000 – 960,000) Pretax income

900,000 150,000 (200,000) (100,000) 750,000 x 30% 225,000 (125,000) 100,000 (B) 2,400,000 390,000 2,790,000 (B)

Problem 16-21 Noncurrent DTL

75,000 (D)

Problem 16-22 Income Tax Payable Income Tax Benefit increase (400 – 300) Total Income Tax Expense

260,000 (100,000) 160,000 (D)

Problem 16-23 Increase in deferred tax liability (1,500,000 – 1,000,000) Decrease in deferred tax asset (400,000 – 0) Deferred Tax Expense

500,000 400,000 900,000 (B)

Problem 16-24 DTL (1,000,000 + 700,000) x 30% DTA DTE

510,000 90,000 600,000 (D)

Problem 16-25 Uncollectible accounts expense Depreciation expense DTE Problem 16-26 800,000 (C)

300,000 (2,900,000)

x 40% x 40%

(120,000) 1,160,000 1,040,000 (C)

Problem 16-27 Keyword: Cumulative, 12/31/2020 500,000 x 30%

150,000 (A)

Problem 16-28 2021 1,100,000 2022 1,200,000 2023 1,200,000 Total FTA 3,500,000 FDA 1,500,000 Deferred Tax Expense Problem 16-29 2020 2021 FTA

x 30% x 30%

1,050,000 (450,000) 600,000 (C)

2,000,000 2,400,000 4,400,000

4,400,000 x 30%

1,320,000 Liability (B)

Problem 16-30 FTA (1,800,000 – 900,000) Deferred Tax Liability

900,000 x 30%

Problem 16-31 Key: Can offset in both countries Singapore: DTA DTL DTA

800,000 (600,000) 200,000

Malaysia DTL

300,000 (D)

Problem 16-32 1. Taxable Income Tax rate Current Tax Expense

1,400,000 x 30% 420,000 (B)

2. Current Tax Expense DTE (250,000 – 100,000 x 30%) Total Income Tax Expense

420,000 45,000 465,000 (C)

270,000 (B)

3. DTL (250,000 x 30%)

75,000 (C)

4. DTA (100,000 x 30%)

30,000 (A)

Problem 16-33 1. Taxable Income (7,000,000 x 30%)

2,100,000 (A)

2. Current Tax Expense DTE (1,000,000 – 200,000 x 30%) Total Income Tax Expense

2,100,000 240,000 2,340,000 (B)

3. DTL (1,000,000 x 30%)

300,000 (C)

4. DTA (200,000 x 30%) Problem 16-34

60,000 (C)

1. Permanent difference 360,000 (B) 2. Pretax income Interest income Tax depreciation Rent received in advance Taxable Income Tax rate Current Tax Expense

2,500,000 (360,000) (160,000) 280,000 2,260,000 30% 678,000 (D)

3. Current Tax Expense Estimated Tax Payment Income Tax Payable

678,000 (180,000) 498,000 (A)

4. Current Tax Expense Deferred Taxes (160,000 – 280,000 x 30%) Total tax expense

678,000 (36,000) 642,000 (C)

Problem 16-35 1. 1,200,000 x 30% = 360,000 (B) 2. 2,600,000 + 800,000 = 3,400,000 x 30% = 1,020,000 (A) 3. Net deferred tax expense (1,020,000 – 360,000)

660,000 (C)

4. Current Tax Expense (8,000,000 x 30%) DTE Total income tax expense

2,400,000 660,000 3,060,000 (A)

Problem 16-36

1. Pretax accounting income Insurance Premium Interest Income Accounting income subject to tax Warranty Liability Gross Profit Operating Loss Carryover 2. Warranty Liability Operating Loss Carryover FDA Tax rate DTA

2,000,000 100,000 (500,000) 1,600,000 (B) 2,000,000 (4,500,000) (900,000) 2,000,000 900,000 2,900,000 30% 870,000 (A)

3. DTL (4,500,000 x 30%)

1,350,000 (B)

4. Zero because there is no taxable income. 5. DTL DTA Deferred Tax Expense

1,350,000 870,000 480,000

Accounting Income subject to tax Tax rate Total tax expense Problem 16-37 1. C 2. B 3. A 4. B 5. B 6. A 7. B 8. A 9. A 10. B Problem 16-38 1. A 2. C 3. D 4. A 5. A

1,600,000 30% 480,000 (C)

Problem 16-39 1. C 2. C 3. C 4. D 5. D 6. D 7. D 8. C 9. C 10. C

Problem 16-40 1. C 2. B 3. D 4. C 5. C

Problem 17-1 2020 

2021 

Employee Benefit Expense Cash (4,000,000 x 5%)

200,000

Employee Benefit Expense Cash (4,200,000 x 5%)

210,000

200,000

210,000

Problem 17-2 December 31, 2020  Employee Benefit Expense Accrued Benefit Payable

300,000

February 15, 2021  Accrued Benefit Payable Cash

300,000

300,000

300,000

Problem 17-3 

Employee Benefit Expense Prepaid Benefit Expense Cash

350,000

50,000 400,000

Problem 17-4 Requirement 1 2020  Employee Benefit Expense Prepaid/Accrued Benefit Cost Cash 2021 

Employee Benefit Expense Prepaid/Accrued Benefit Cost Cash

850,000 150,000

50,000

700,000

1,000,000 1,050,000

Requirement 2 Noncurrent Liability, 12/31/2020 Accrued Benefit Cost

150,000

Noncurrent Liability, 12/31/2021 Accrued Benefit Cost

100,000

Problem 17-5 Annual Pension Payment – PBO (300,000 x 1.48 x 3% x 12 years) Problem 17-6 Future salary (500,000 x 2.094)

1,047,000

Annual pension payment (1,047,000 x 2% x 10 years) Multiplied by PV of ordinary annuity 8.559 PV of – 12/31/2045 Multiply by PV PBO – 12/31/2020

209,400 1,792,255 .146 261,669

Problem 17-7 Future salary (600,000 x 1.480)

888,000

Annual pension payment (888,000 x 2% x 15 years) Multiplied by PV of ordinary annuity 5.335 PV of – 12/31/2045 Multiply by PV PBO – 12/31/2020

266,400

Problem 17-8

1,421,244 .386 548,600

159,840

Annual benefit (1,500,000 x 5%) Date 2020 2021 2022

CSC 75,000 75,000 75,000

Date 12/31/2020 12/31/2021 12/31/2022

75,000 PV Factor .361 .404 .452

CSC 27,075 30,300 33,900

Discounted 27,075 30,300 33,900 Interest Expense 3,249 7,275

Present Value 27,075 60,624 101,799

Problem 17-9 Annual benefit (1,440,000 x 10%)

144,000

Date 2020 2021 2022

CSC 144,000 144,000 144,000 432,000

PV Factor .9070 .9524 1.000

Discounted 130,608 137,146 144,000 411,754

Date 2020 2021 2022

CSC 130,608 137,146 144,000

Interest Cost 65,304 13,714

Present Value 130,608 274,284 431,988

Problem 17-10 Future salary (500,000 x 1.217)

608,500

Annual pension payment (608,500 x 3% x 15 years) Multiplied by PV of ordinary annuity 4.111 PV of – 12/31/2045 Multiply by PV PBO – 12/31/2020

273,825 1,125,695 .567 638,269

Problem 17-11 Annual benefit (1,500,000 x 20%) Date 2020 2021 2022

CSC 300,000 300,000 300,000

300,000 PV Factor .826 .909 1.000

Discounted 247,800 272,700 300,000

900,000 Date 2020 2021 2022 Problem 17-12 1. B 2. B 3. C 4. D 5. B 6. C 7. C 8. A 9. B 10. A

Problem 17-13 1. D 2. D 3. D 4. D 5. D 6. C 7. C 8. B 9. D 10. A

CSC 247,800 272,700 300,000

820,500 Interest Cost 24,780 54,528

Present Value 247,800 545,280 900,000

Problem 18-1 Requirement 1 Current service cost 1,550,000 Plan asset (5,000,000 x 10%) (500,000) PBO (6,000,000 x 10%) 600,000 Employee benefit expense 1,650,000 Requirement 2 Actual return 650,000 Plan asset (5,000,000 x 10%) (500,000) Remeasurement 150,000 Requirement 3 

Employee Benefit Expense

1,650,000

Cash Remeasurement Gain – OCI Accrued Benefit Cost

1,200,000 150,000 300,000

Requirement 4 Accrued Benefit Cost, Jan. 1, 2020 Credit adjustment Balance, ending

(1,000,000) (300,000) (1,300,000)

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return FVPA, Dec. 31

5,000,000 1,200,000 650,000 6,850,000

PBO, Jan. 1 Current Service Cost Interest Expense on PBO PBO, Dec. 31

6,000,000 1,550,000 600,000 8,150,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

6,850,000 (8,150,000) (1,300,000)

Problem 18-2 Requirement 1 Current service cost Plan asset (5,750,000 x 10%) PBO (6,500,000 x 10%) Employee benefit expense

600,000 (575,000) 650,000 675,000

Requirement 2 Actual return Plan asset (5,750,000 x 10%) Remeasurement Requirement 3

700,000 (575,000) 125,000



Employee Benefit Expense Prepaid Benefit Cost Cash Remeasurement Gain – OCI

675,000 350,000

900,000 125,000

Requirement 4 Accrued Benefit Cost, Jan. 1, 2020 Debit adjustment Balance, ending

(750,000) 350,000 (400,000)

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Benefits paid FVPA, Dec. 31

5,750,000 900,000 700,000 (100,000) 7,250,000

PBO, Jan. 1 Current Service Cost Interest Expense on PBO Benefits paid PBO, Dec. 31

6,500,000 600,000 650,000 (100,000) 7,650,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

7,250,000 (7,650,000) (400,000)

Problem 18-3 Requirement 1 Current service cost 1,450,000 Past Service Cost 300,000 Plan asset (6,700,000 x 10%) (670,000) PBO (7,600,000 x 10%) 760,000 Employee benefit expense 1,840,000 Requirement 2 Actual return 500,000 Plan asset (6,700,000 x 10%) (670,000) Remeasurement (170,000)

Requirement 3  Employee Benefit Expense Remeasurement Loss – OCI Cash Prepaid Benefit Cost

1,840,000 170,000 1,500,000 510,000

Requirement 4 Accrued Benefit Cost, Jan. 1, 2020 Credit adjustment Balance, ending

(900,000) (510,000) (1,410,000)

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Benefits paid FVPA, Dec. 31

6,700,000 1,500,000 500,000 (800,000) 7,900,000

PBO, Jan. 1 Current Service Cost Past Service Cost Interest Expense on PBO Benefits paid PBO, Dec. 31

7,600,000 1,450,000 300,000 760,000 (800,000) 9,310,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

7,900,000 (9,310,000) (1,410,000)

Problem 18-4 Requirement 1  Retained Earnings Prepaid/Accrued Benefit Cost

300,000 300,000

Requirement 2 Current Service Cost 900,000 PBO - Interest Expense 600,000 Plan Assets (6,000,000 x 8%) (480,000) Employee benefit expense 1,020,000 Requirement 3  Employee Benefit Expense Cash Remeasurement Gain – OCI Accrued Benefit Cost

1,020,000 500,000 220,000 300,000

Requirement 4 Accrued Benefit Cost, Jan. 1, 2020 Credit adjustment Balance, ending

(1,500,000) (300,000) (1,800,000)

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Benefits paid FVPA, Dec. 31

6,000,000 500,000 700,000 (150,000) 7,050,000

PBO, Jan. 1 Current Service Cost Interest Expense on PBO Benefits paid PBO, Dec. 31

7,500,000 900,000 600,000 (150,000) 8,850,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

7,050,000 (8,850,000) (1,800,000)

Problem 18-5 Requirement 1 Current Service Cost Plan Asset (6,500,000 x 10%) PBO (7,500,000 x 10%) Employee Benefit Expense

1,200,000 (650,000) 750,000 1,300,000

Requirement 2 Actual return on PA Plan Asset (6,500,000 x 10%) Remeasurement Decrease in PBO Total remeasurement gain – OCI

800,000 (650,000) 150,000 200,000 350,000

Requirement 3  Employee Benefit Expense Prepaid Benefit Cost Cash Remeasurement gain – OCI

1,300,000 250,000 1,200,000 350,000

Requirement 4 Accrued Benefit Cost Debit adjustment Accrued Benefit Cost

(1,000,000) 250,000 750,000

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Benefits paid FVPA, Dec. 31 PBO, Jan. 1 Current Service Cost Interest Expense on PBO Benefits paid Actuarial Gain PBO, Dec. 31

6,500,000 1,200,000 800,000 (1,500,000) 7,000,000

(200,000)

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

7,500,000 1,200,000 750,000 (1,500,000) 7,750,000 7,000,000 (7,750,000) (750,000)

Problem 18-6 Requirement 1  Retained Earnings Prepaid/Accrued Benefit Cost  Prepaid/Accrued Benefit Cost 850,000 Retained Earnings Requirement 2 Current Service Cost Plan assets (4,750,000 x 6%) PBO (5,500,000 x 6%) Employee Benefit Expense

850,000 925,000 (285,000) 330,000 970,000

Requirement 3 Actual Return 485,000 Plan Assets (4,750,000 x 6%) Remeasurement Increase in PBO Total remeasurement gain – OCI Requirement 4  Employee Benefit Expense Prepaid Benefit Cost Cash Remeasurement gain – OCI Requirement 5 Accrued Benefit Cost

1,250,000 1,250,000

(750,000)

(285,000) 200,000 (150,000) 50,000 970,000 430,000

1,350,000 50,000

Debit adjustment Accrued Benefit Cost

430,000 320,000

Requirement 6 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Benefits paid FVPA, Dec. 31

4,750,000 1,350,000 485,000 (995,000) 5,590,000

PBO, Jan. 1 Current Service Cost Interest Expense on PBO Benefits paid Actuarial Loss PBO, Dec. 31

5,500,000 925,000 330,000 (995,000) 150,000 5,910,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

5,590,000 (5,910,000) (320,000)

Problem 18-7 Requirement 1 PV of defined obligation Lump sum Gain on settlement

1,000,000 800,000 200,000

Current Service Cost Plan Assets (6,000,000 x 12%) PBO (8,000,000 x 12%) Settlement Gain Employee Benefit Expense

900,000 (720,000) 960,000 (200,000) 940,000

Requirement 2 Actual Return Plan Assets (6,000,000 x 12%) Remeasurement

800,000 (720,000) 80,000

Requirement 3  Employee Benefit Expense Cash Remeasurement Gain – OCI Accrued Benefit Cost

940,000

700,000 80,000 160,000

Requirement 4 Accrued Benefit Cost, Jan 1 Credit adjustment Accrued Benefit Cost, Dec 31

(2,000,000) (160,000) (2,160,000)

Requirement 5 Reconciliation FVPA, Jan. 1 Contribution to the plan Actual return Lump sum payment FVPA, Dec. 31

6,000,000 700,000 800,000 (800,000) 6,700,000

PBO, Jan. 1 Current Service Cost Interest Expense on PBO PV of obligation PBO, Dec. 31

8,000,000 900,000 960,000 (1,000,000) 8,860,000

FVPA, December 31 PBO, December 31 Accrued Benefit Cost

6,700,000 (8,860,000) (2,160,000)

Problem 18-8 Requirement 1 FVPA, beginning Actual return Contribution FVPA, ending

6,000,000 900,000 1,000,000 7,900,000

Requirement 2 PBO, beginning Current Service cost Interest Expense Past Service cost Actuarial Gain PBO, ending

5,000,000 700,000 500,000 200,000 (500,000) 5,900,000

Requirement 3 FVPA, end PBO, end Prepaid/Accrued Benefit Cost

7,900,000 (5,900,000) 2,000,000

Asset ceiling year end Effect of asset ceiling – year end

(1,200,000) 800,000

Requirement 4 Current Service Cost Past service cost Plan Asset (6,000,000 x 10%) PBO (5,000,000 x 10%) Interest Expense (300,000 x 10%) Employee Benefit Expense

700,000 200,000 (600,000) 500,000 30,000 830,000

Requirement 5 Actual return Plan Asset (6,000,000 x 10%) Remeasurement Actuarial Gain Total

900,000 (600,000) 300,000 500,000 800,000

EAC, ending EAC, beginning Total change in the effect of EAC Interest Expense Remeasurement Loss on the effect of EAC

800,000 (300,000) 500,000 (30,000) 470,000

Remeasurement (800,000 – 470,000)

330,000

Requirement 6  Employee Benefit Cost Prepaid Benefit Cost Cash Remeasurement Gain – OCI Requirement 7 Asset ceiling, beginning Debit adjustment Prepaid benefit cost

Problem 18-10

1,000,000 330,000

700,000 500,000 1,200,000

Problem 18-9 PBO, beg Service cost Interest Expense Benefits paid PBO, end

830,000 500,000

7,200,000 1,800,000 720,000 (1,500,000) 8,220,000 (D)

PBO, beg Interest Expense Current Service Cost Benefits paid PBO, end

3,000,000 300,000 ? 700,000 (A) (500,000) 3,500,000

Problem 18-11 PBO, beg (120,000 / 8%) Interest Expense Current Service Cost Benefits paid PBO, end

1,500,000 120,000 ? 675,000 (A) (135,000) 2,160,000

Problem 18-12 PBO, beg Interest Expense Current Service Cost Past Service Cost Actuarial Loss Benefits paid PBO, end

3,500,000 350,000 ? 400,000 (A) 500,000 200,000 (250,000) 4,700,000

Problem 18-13 FVPA, beginning Actual return Contribution to the plan Benefits paid FVPA, ending

3,500,000 ? 1,500,000 (A) 1,100,000 (850,000) 5,250,000

Problem 18-14 FVPA, beginning Actual return Contribution Benefits FVPA, ending

8,750,000 950,000 700,000 (600,000) 9,800,000 (B)

Problem 18-15 FVPA, beginning Actual return Contribution to the plan Benefits paid FVPA, ending

3,500,000 ? 370,000 (B) 280,000 (250,000) 3,900,000

Problem 18-16 FVPA, beginning Actual return Contribution to the plan Benefits paid FVPA, ending

9,000,000 ? 600,000 1,000,000 (700,000) 9,900,000

Actual return Interest Income Remeasurement Loss

600,000 (900,000) (300,000)

Problem 18-17 Current service cost Interest Expense on PBO Interest Income Past Service Cost Employee benefit expense Contribution Accrued pension cost Prepaid pension cost Accrued pension cost, year-end

190,000 380,000 (400,000) 500,000 670,000 (400,000) 270,000 (20,000) 250,000 (A)

Problem 18-18 FVPA PBO Accrued liability, year-end

3,450,000 (5,700,000) 2,250,000 (B)

Problem 18-19 1. Current service cost Interest Income Interest Expense Settlement gain Employee Benefit Expense

1,400,000 (700,000) 750,000 (100,000) 1,350,000 (C)

2. Actual return Interest Income Remeasurement Actuarial gain Remeasurement gain

840,000 (700,000) 140,000 200,000 340,000 (C)

3. FVPA, beginning Actual return Contribution to the plan Benefits paid

7,000,000 840,000 1,200,000 (1,500,000)

Settlement price FVPA, ending

(400,000) 7,140,000 (A)

4. PBO, beginning Interest Expense Current Service Cost Benefits paid PV of defined obligation Actuarial gain PBO, ending

7,500,000 750,000 1,400,000 (1,500,000) (500,000) (200,000) 7,450,000 (B)

5. FVPA, ending PBO, ending Accrued benefit cost

7,140,000 7,450,000 310,000 (B)

Problem 18-20 1. Current service cost Interest Income Interest Expense Employee Benefit Expense

1,200,000 (828,000) 900,000 1,272,000 (A)

2. Actual return Interest Income Remeasurement Loss

250,000 (828,000) 578,000 (B)

3. Employee Benefit Expense Remeasurement Loss Defined benefit cost Contribution Accrued liability Accrued liability, beg Pension liability

1,272,000 578,000 1,850,000 (1,050,000) 800,000 800,000 1,600,000 (A)

Problem 18-21 1. Current Service Cost Interest Income Interest Expense Past Service Cost Employee Benefit Expense

30,000 (105,000) 110,000 115,000 150,000 (A)

2. FVPA, beg Actual return Contribution to the fund Benefits FVPA, end

2,100,000 ? 310,000 (A) 21,000 (31,000) 2,400,000

3. PBO, beg Current Service Cost Past Service Cost Interest Expense Actuarial Loss Benefits paid PBO, end

2,200,000 30,000 115,000 110,000 ? 76,000 (D) (31,000) 2,500,000

4. Actual return Interest Income Remeasurement Actuarial Loss Remeasurement gain

310,000 (105,000) 205,000 (76,000) 129,000 (C)

5. FVPA, end PBO, end Accrued

2,400,000 2,500,000 (100,000) (C)

Problem 18-22 1. FVPA, beg Actual return Contribution Benefits Paid FVPA, end 2. PBO, beg Current Service Cost Interest Expense Actuarial Gain Benefits paid PBO, end

2,600,000 ? 200,000 (A) 350,000 (150,000) 3,000,000 2,000,000 100,000 200,000 ? 50,000 (A) (150,000) 2,100,000

3. Current Service Cost Interest Income Interest Expense Interest Expense – EAC Employee Benefit Expense

100,000 (260,000) 200,000 40,000 80,000 (C)

4. Actual return Interest Income Remeasurement Loss Actuarial gain Loss

200,000 (260,000)

(60,000) 50,000 (10,000)

EAC, end EAC, beg Loss Interest Loss Net Remeasurement Loss Problem 18-23 1. A 2. D 3. C 4. A 5. B 6. C 7. D 8. D 9. A 10. C Problem 18-24 1. B 2. D 3. C 4. D 5. A

600,000 400,000 200,000 (40,000)

(160,000) (170,000) (D)

Problem 19-1 Requirement 1  Vacation Pay Expense Cash (1,000 x 3,000) 

Vacation Pay Expense Accrued Vacation Pay (500 x 3,300)

Requirement 2  Vacation Pay Expense Cash (1,000 x 3,000)

3,000,000

1,650,000

3,000,000

3,000,000

1,650,000

3,000,000

Problem 19-2  Bonus Expense 4,000,000 Bonus Payable 4,000,000 Bonus for 2020 (50,000,000 x 8%). 

Bonus Payable Cash

4,000,000 Payment of bonus.

Problem 19-3  Bonus Expense Bonus Payable



4,000,000

9,120,000 9,120,000

Maximum possible bonus (80,000,000 x 12%) Saving through staff turnover (9,600,000 x 5%) Estimated Liability

9,600,000 (480,000) 9,120,000

Bonus Payable Cash

9,120,000

Problem 19-4

9,120,000 Payment of bonus.

Unused sick leave on Jan. 1, 2020 Sick leave taken in 2020 Sick leave not taken – forfeited

Aye 10 (7) 3

Bee 6 (6) 0

Cee 4 (4) 0

Sick leave earned in 2020 Sick leave taken in 2020 from current year Unused sick leave – December 31, 2020

Aye 10 (0) 10

Bee 10 (3) 7

Cee 10 (2) 8

Expected daily wage Aye (1,500 x 120%) Bee (2,500 x 125%) Cee (4,000 x 130%)

5,200

Accrued sick leave pay Aye (1,800 x 10 days) Bee (3,125 x 7 days) Cee (5,200 x 8 days) Total accrued liability – December 31, 2020

1,800 3,125

18,000 21,875 41,600 81,475

Problem 19-5 Vacation pay 1,100,000 Sick pay 900,000 Liability for compensated absences 2,000,000 (B) Problem 19-6 Liability for compensated absences, December 31, 2020 (150 x 1,000)

150,000 (D)

Problem 19-7 Employee 2 (600 x 5) Employee 3 (800 x 15) Accrued Vacation Pay

3,000 12,000 15,000 (C)

Problem 19-8 Liability for accumulated vacations, beginning Payment for pre-2020 accrued vacations Balance

350,000 (200,000) 150,000

Vacation earned for work in 2020 Adjustment of pre-2020 vacation (150,000 x 10%) Vacation pay expense in 2020

300,000 15,000 315,000 (C)

Problem 19-9

Vacation pay expense (200 x 10,000) Increase in 2020 recognized in 2021 (2,000,000 x 10%)

2,000,000 200,000 (C)

Problem 19-10 Total wages for 2020 8,160,000 Vacations actually taken in 2020 (160,000) Nonvacation wages 8,000,000 Vacation pay earned in 2020 (8,000,000 / 40 x 2) Vacation pay taken in 2020 Accrued Liability – 12/31/2020 Problem 19-11 Vacation days in 2020 Vacation days in 2021 Total Vacation days taken Vacation days not taken

12

400,000 (160,000) 240,000 (B)

12 24 (9) 15

Accrued Liability – 12/31/2021 (50 x 15 x 8 x 80)

480,000 (B)

Problem 19-12 Accrued overtime Accrued salaries payable (900,000 x 3/10) Total accrual

50,000 270,000 320,000 (B)

Problem 19-13 Vacation pay expense (35 employees x 8 hours x 10 days x 129) Vacation days earned in 2020, 2021 & 2022 Vacation days taken Vacation days not taken

361,200 (A) 30 (18) 12

Vacation days earned in 2021 not taken (2 x 135 x 8 x 35) Vacation days earned in 2022 not taken (10 x 142.50 x 8 x 35) Accrued Liability – 12/31/2022

75,600 399,000 474,600 (A)

Problem 19-14 Vacation pay expense (50 employees x 8 x 15 x 150) Vacation days earned in 2020, 2021 & 2022 Vacation days taken Vacation days not taken

900,000 (A) 45 (28) 17

Vacation days earned in 2021 not taken (2 x 200 x 8 x 50) Vacation days earned in 2022 not taken (15 x 250 x 8 x 50) Accrued Liability – 12/31/2022

160,000 1,500,000 1,660,000 (B)

Problem 19-15 Lump sum payments PV of periodic payments Termination benefits

475,000 155,000 630,000 (C)

Accrued pension cost Termination benefits Liability for termination benefits

45,000 585,000 (C)

630,000

Problem 19-16 Employees leaving before closure (150 x 20,000) Employees leaving until closure (50 x 60,000) Total cash outflow

3,000,000 3,000,000 6,000,000 (A)

Termination benefit (20,000 x 200)

4,000,000 (A)

Total payment for eight-month 60,000 Termination benefit (20,000) Short-term employee benefit 40,000 Multiply by employees leaving until closure 50 Short-term employee benefits 2,000,000 (A) Problem 19-17 Employees leaving before closure (130 x 30,000) Employees leaving until closure (20 x 80,000) Total cash outflow

3,900,000 1,600,000 5,500,000 (A)

Termination benefit (30,000 x 150)

4,500,000 (C)

Total payment for eight-month 80,000 Termination benefit (30,000) Short-term employee benefit 50,000 Multiply by employees leaving until closure 20 Short-term employee benefits 1,000,000 (B) Problem 19-18 1. C 2. D 3. A 4. C

5. A Problem 19-19 1. A 2. C 3. D 4. C

Problem 19-20 1. D 2. C 3. D 4. B 5. D 6. B 7. D 8. B

Problem 20-1 Requirement 1 Memo entry – Ocean Company was authorized to issue share capital of 100,000 shares of P50 par value. 

Subscription Receivable Subscribed Share Capital (100,000 x 25% x 50)

1,250,000 1,250,000



Cash

312,500



Cash

Subscription Receivable (1,250,000 x 25%) Subscription Receivable

562,500

Subscription price (15,000 x 50) Less: Partial payment (750,000 x 25%) Balance Subscribed Share Capital Share Capital

750,000



Land

600,000



Cash

Share Capital

562,500 750,000 (187,500) 562,500



Ordinary Share Capital Share Premium

312,500

300,000

750,000 500,000 100,000 250,000

Share Premium (5,000 x 60) 

Legal Expenses Share Capital (2,000 x 50)

50,000 100,000

100,000

Requirement 2 Statement Presentation Share Capital, P50 par, 100,000 shares authorized, 32,000 shares issued Subscribed Share Capital, 10,000 shares Subscription Receivable Share Premium Shareholder’s Equity

1,600,000 500,000 (375,000) 150,000 1,875,000

Problem 20-2 Requirement 1 

Unissued Share Capital Authorized Share Capital (50,000 x 100)

5,000,000 5,000,000



Subscription Receivable Subscribed Share Capital (50,000 x 40% x 100)

2,000,000 2,000,000



Cash

500,000 500,000



Cash

Subscription Receivable (2,000,000 x 25%) Subscription Receivable

750,000 750,000

Subscription Price (10,000 x 100) Less: Partial payment (1,000,000 x 25%) Balance

1,000,000 (250,000) 750,000



Subscribed Share Capital Unissued Share Capital

1,000,000 1,000,000



Patent

500,000 500,000

Unissued Share Capital

(5,000 x 100) 

Cash

Unissued Share Capital Share Premium (15,000 x 120)

1,800,000 1,500,000 300,000

Requirement 2 Statement Presentation Authorized Share Capital, P100 par, 50,000 shares Unissued Share Capital Issued Share Capital Subscribed Share Capital Subscription Receivable Share Premium Shareholder’s Equity

5,000,000 (2,000,000) 3,000,000 1,000,000 (750,000) 300,000 3,550,000

Problem 20-3 Requirement 1 

Subscription Receivable Subscribed Share Capital (40,000 x 100)

4,000,000 4,000,000



Accounts Receivable Notes Receivable Inventory Accounts Payable Subscription Receivable

350,000 70,000 680,000 100,000 1,000,000



Land Building Subscription Receivable

150,000 850,000 1,000,000



Cash

375,000 375,000



Legal Expenses Share Capital

50,000 50,000



Subscription Receivable

120,000

Subscription Receivable (15,000 x 25% x 100)

Subscribed Share Capital Share Premium 

Cash



Cash A B C Total



100,000 20,000

Subscriptions Receivable

40,000 40,000

Subscriptions Receivable

1,100,000 1,100,000

200,000 300,000 600,000 1,100,000

Subscribed Share Capital Share Capital (33,000 x 100)

3,300,000 3,300,000

Requirement 2 Shareholder’s Equity Share Capital, P100 par Authorized, 50,000 shares Issued and outstanding – 33,500 shares x 100 Subscribed share capital Subscription Receivable Share Premium Shareholder’s Equity

3,350,000 800,000 (605,000) 20,000 3,565,000

Problem 20-4 Requirement 1 Memorandum entry: Brook Company was authorized to issue share capital as follows: Preference Share Capital, 100 par, 30,000 shares 3,000,000 Ordinary Share Capital, 50 par, 100,000 shares 5,000,000 Total 8,000,000 

Cash

2,400,000 Ordinary Share Capital Share Premium – Ordinary Share

2,000,000 400,000

(40,000 x 60) 

Cash



Subscriptions Receivable Subscribed Preference Share Capital

1,000,000 1,000,000



Cash

Subscriptions Receivable

400,000 400,000



Legal Expenses Preference Share Capital

100,000 100,000



Property, Plant and Equipment Ordinary Share Capital Share Premium

1,300,000 1,000,000 300,000



Subscriptions Receivable Subscribed Ordinary Share Capital

750,000 750,000



Cash

300,000 300,000



Cash



Subscribed Preference Share Capital Preference Share Capital



Profit or Loss Retained Earnings

Preference Share Capital Share Premium – Preference Share

Subscriptions Receivable (750,000 x 40%)

Subscriptions Receivable

1,200,000 1,000,000 200,000

600,000 600,000 1,000,000

1,000,000

2,000,000 2,000,000

Requirement 2 Shareholder’s Equity Preference Share Capital Ordinary Share Capital Subscribed Ordinary Share Capital Subscriptions Receivable Share Premium – Ordinary Share Premium – Preference Retained Earnings Shareholder’s Equity

2,100,000 3,000,000 750,000 (450,000) 700,000 200,000 2,000,000 8,300,000

Problem 20-5 1. Unissued Ordinary Share Capital Authorized Ordinary Share Capital

10,000,000 10,000,000

2. Subscriptions Receivable Subscribed Ordinary Share Capital (10,000,000 x 25%)

2,500,000 2,500,000

3. Cash

4. Cash

625,000 625,000

Subscription Receivable (2,500,000 x 25%)

750,000 750,000

Subscription Receivable (10,000 x 100 x 75%)

5. Subscribed Ordinary Share Capital Unissued Ordinary Share Capital (10,000 x 100)

1,000,000

1,000,000

6. Land Building Unissued Ordinary Share Capital (30,000 x 100) Share Premium

800,000 2,500,000 3,000,000 300,000

7. Loan Payable Accrued Interest Payable Unissued Ordinary Share Capital (10,000 x 100) Share Premium Gain on extinguishment

1,100,000 200,000 1,000,000 200,000 100,000

8. Profit or Loss Retained Earnings

3,000,000 3,000,000

Requirement 2 Shareholder’s Equity Authorized Share Capital, P100 par, 100,000 shares Unissued Share Capital Issued Share Capital Subscribed Ordinary Share Capital Subscription Receivable Share Premium

10,000,000 (5,000,000) 5,000,000 1,500,000 (1,125,000) 500,000

Retained Earnings Shareholder’s Equity

3,000,000 8,875,000

Problem 20-6 1. Subscriptions Receivable Subscribed Preference Share Capital (20,000 x 100)

2,000,000 2,000,000

2. Subscriptions Receivable Subscribed Preference Share Capital Share Premium – PS (4,000 x 120)

480,000 400,000 80,000

3. Cash

2,360,000 2,360,000

Subscriptions Receivable (2,480,000 – 120,000)

4. Subscribed Preference Share Capital Preference Share Capital (22,000 x 100)

2,200,000 2,200,000

5. Land Ordinary Share Capital Share Premium (8,000 x 10)

230,000 80,000 150,000

6. Subscriptions Receivable Subscribed Ordinary Share Capital (40,000 x 10) Share Premium – OS (950,000 – 150,000)

1,200,000 400,000 800,000

7. Cash

840,000 840,000

Subscriptions Receivable – Ordinary (1,200,000 – 360,000)

8. Subscribed Ordinary Share Capital Ordinary Share Capital (24,000 – 8,000 x 10)

160,000

160,000

Requirement 2 Issued Subscribed Share Premium Subscriptions Receivable Contributed Capital

Preference 2,200,000 200,000 80,000 (120,000) 2,360,000

Ordinary 240,000 240,000 950,000 (360,000) 1,070,000

Problem 20-7 Requirement 1 Jan. 1

Land 2,500,000 Organization Expense 500,000 Ordinary Share Capital (10,000 x 100) 1,000,000 Share Premium – OS 2,000,000

Feb. 20

Cash (15,000 x 120) Preference Share Capital Share Premium – PS

1,800,000 1,500,000 300,000

Share Premium – PS Cash

50,000 50,000

Cash (25,000 x 260) Ordinary Share Capital Share Premium

6,500,000 2,500,000 4,000,000

Mar. 10

Share Premium – OS Cash

200,000

200,000

Apr. 1

Subscription Receivable (20,000 x 350) Subscribed Ordinary Share Capital Share Premium

7,000,000 2,000,000 5,000,000

July 15

Cash

3,000,000 1,000,000 2,000,000

Aug. 1

Ordinary Share Capital Share Premium

Building Ordinary Share Capital (12,000 x 100) Share Premium – OS Preference Share Capital (20,000 x 100) Share Premium – PS

7,000,000 1,200,000 2,400,000 2,000,000 1,400,000

Cash

4,500,000 4,500,000

Subscription Receivable

Subscribed Ordinary Share Capital Ordinary Share Capital (10,000 x 100) Aug. 31

1,000,000 1,000,000

Subscribed Ordinary Share Capital (5,000 x 100) 500,000 Share Premium – Ordinary (5,000 x 250) 1,250,000 Subscription Receivable 1,500,000

Dec. 31

Share Premium – forfeited subscriptions

250,000

Income Summary Retained Earnings

3,000,000 3,000,000

Requirement 2 Shareholder’s Equity Preference Share Capital – 100 par, 35,000 issued and outstanding Share Premium – preference Ordinary Share Capital – 100 par, 67,000 issued and outstanding Share Premium – ordinary Share Premium – forfeited subscriptions Subscribed Ordinary Share Capital – 5,000 shares Subscription Receivable Retained Earnings Total shareholder’s Equity

3,500,000 1,650,000 6,700,000 13,950,000 250,000 500,000 (1,000,000) 3,000,000 28,550,000

Problem 20-8 Requirement 1 a. Preference Share Capital (5,000 x 100) Share Premium – PS (5,000 / 50,000 x 500,000) Ordinary Share Capital (5,000 x 50) Share Premium - OS

500,000 50,000 250,000 300,000

b. Preference Share Capital (5,000 x 100) Share Premium – PS (5,000 / 50,000 x 500,000) Retained Earnings Ordinary Share Capital (5,000 x 4 x 50)

500,000 50,000 450,000 1,000,000

Requirement 2 a. Preference Share Capital (5,000 x 100) Share Premium – PS (5,000 / 50,000 x 500,000) Retained Earnings Ordinary Share Capital (5,000 x 120)

500,000 50,000 50,000 600,000

b. Preference Share Capital (5,000 x 100) Share Premium – PS (5,000 / 50,000 x 500,000) Ordinary Share Capital (5,000 x 80) Share Premium – redemption

500,000 50,000 400,000 150,000

Problem 20-9

2020 Jan 1 Cash

Redeemable Preference Shares

Dec 31 Interest Expense Accrued Interest Payable (5,000,000 x 10%)

5,000,000 5,000,000 500,000 500,000

2021 Dec 31 Interest Expense Accrued Interest Payable (5,500,000 x 10%)

550,000 550,000

2022 Jan 1 Redeemable Preference Shares Accrued Interest Payable Cash

5,000,000 1,050,000 6,050,000

Problem 20-10 Authorized Share Capital Unissued Share Capital Issued Share Capital Subscribed Share Capital Subscription Receivable Share Premium RE, Unappropriated RE, Appropriated Revaluation Surplus Total shareholder’s equity

5,000,000 (2,000,000) 3,000,000 1,000,000 (400,000) 500,000 600,000 300,000 200,000 5,200,000 (A)

Problem 20-11 Share Capital Subscribed Share Capital Subscription Receivable Share Premium Contributed Capital

5,000,000 3,000,000 (2,000,000) 1,500,000 7,500,000 (B)

Problem 20-12 Ordinary Share Capital

18,000,000

Preference Share Capital (50,000 x 60) Subscribed Preference Capital (20,000 x 100) Total Contributed Capital

3,000,000 2,000,000 23,000,000 (C)

Problem 20-13 25,000 x 20 1,000 x 40 5,000 x 60 Total Share Premium

500,000 40,000 300,000 840,000 (A)

Problem 20-14 Preference Share Capital Ordinary Share Capital Subscribed Ordinary Share Capital Legal Capital

2,300,000 5,250,000 500,000 8,050,000 (A)

Problem 20-15 

Legal Expense (1,000 x 140) Share Capital (1,000 x 5) Share Premium

140,000 5,000 135,000 (A)

Problem 20-16 Cash received Market value Residual amount Ordinary Share Share Premium

11,000,000 (4,000,000) 7,000,000 (500,000) 6,500,000 (B)

Problem 20-17

Ordinary (10,000 x 360) Preference (20,000 x 270)

Proceeds from preference shares Par Value of preference shares (20,000 x 200) Share Premium – Preference Proceeds from ordinary shares Par Value of ordinary shares (10,000 x 200) Share Premium – Ordinary

Market Value

Fraction

3,600,000 5,400,000 9,000,000

36/90 54/90

4,800,000 (4,000,000) 800,000 (C) 3,200,000 (2,000,000) 1,200,000 (C)

Allocation Proceeds 3,200,000 (C) 4,800,000 (C) 8,000,000

Problem 20-18 Ordinary Share Capital (475,000 x 10) Share Premium – OS Net Income Dividend Shareholder’s Equity, 2020

4,750,000 2,375,000 1,025,000 (230,000) 7,920,000 (A)

Ordinary Shares (100,000 x 17) Preference Share (150,000 x 8) Additional PS (50,000 x 9) Net Income Declared Dividend Shareholder’s Equity, 2020 Shareholder’s Equity, 2021

1,700,000 1,200,000 450,000 1,215,000 (635,000) 7,920,000 11,850,000 (A)

Problem 20-19 Issue Price of Preference Share (8,000 x 105) Par value of ordinary shares (8,000 x 3 x 25) 600,000 Share Premium

840,000 240,000 (B)

Problem 20-20 

Cash (15,000 x 110) 1,650,000 Preference Share Capital 1,500,000 Share Premium 150,000 To record the issuance of preference shares.



Preference Share Capital Share Premium – PS Ordinary Share Capital (15,000 x 3 x 25) Share Premium – OS

Problem 20-21 1. B 2. C 3. B 4. B 5. B Problem 20-22 1. C 2. C 3. C 4. A

1,500,000 150,000 1,125,000 (A) 525,000 (B)

5. B 6. D 7. A 8. D 9. C 10. B Problem 20-23 1. C 2. C 3. C 4. D 5. C 6. D 7. D 8. D 9. C 10. B Problem 20-24 1. D 2. A 3. C 4. B 5. D 6. B 7. D 8. D 9. C 10. B Problem 20-25 1. A 2. D 3. B 4. B 5. B

Problem 21-1 Requirement 1

a. Treasury Shares Cash b. Cash

800,000

1,000,000 800,000 200,000

Treasury Shares Share Premium – TS

c. Cash Retained Earnings Treasury Shares

800,000

700,000 100,000

800,000

Requirement 2 Ordinary Share Capital Share Premium – issuance Retained Earnings Treasury Shares

500,000 20,000 280,000

800,000

Problem 21-2 Requirement 1  Cash

Share Capital Share Premium

4,000,000



Cash



Treasury Shares Cash (50,000 x 20)

1,000,000



Cash (50,000 x 25) Treasury Shares Share Premium

1,250,000

Requirement 2  Cash

Share Capital Share Premium

Share Capital

6,250,000

4,000,000



Cash



Treasury Shares Cash (50,000 x 20)

1,000,000



Cash (50,000 x 25)

1,250,000

Share Capital Share Premium

6,250,000

3,000,000 1,000,000 3,750,000 2,500,000 1,000,000 1,000,000 250,000

4,000,000 5,000,000 1,250,000 1,000,000

Treasury Shares Share Premium

1,000,000 250,000

Problem 21-3 Requirement 1 

Cash



Cash



Preference Share Capital Share Premium – PS Ordinary Share Capital Share Premium – OS

4,200,000

5,500,000 500,000

3,000,000 1,200,000 5,000,000

Preference Share Capital 1,000,000 Share Premium – PS 400,000 Cash Share Premium – retirement

1,200,000 200,000



Treasury Shares Cash

780,000

780,000



Cash

600,000



Cash



Profit or Loss Retained Earnings



Retained Earnings 260,000 Retained Earnings appropriated for treasury earnings 260,000

Treasury Shares Share Premium – TS Donated Capital

Requirement 2 Preference Share Capital Share Premium – PS Ordinary Share Capital Share Premium – OS Treasury Shares Share Premium – TS Share Premium – retirement Donated Capital Retained Earnings – Appropriated Retained Earnings – Unappropriated Total Shareholder’s Equity

650,000 3,000,000

2,740,000

520,000 80,000 650,000 3,000,000

2,000,000 800,000 5,000,000 500,000 (260,000) 80,000 200,000 650,000 260,000 11,970,000

Problem 21-4 a. Share Capital Share Premium Share Capital (40,000 x 50) Share Premium – Recapitalization

3,000,000 200,000

2,000,000 1,200,000

b. Memo – Issued 100,000 new shares with par of P30 as a result of 5 for 1 split of 20,000 original shares with par of P150. c. Share Capital (20,000 x 50) Share Premium – Recapitalization

2,000,000

d. Share Capital Share Premium Retained Earnings Share Capital (80,000 x 50)

3,000,000 200,000 800,000

2,000,000

4.000,000

Problem 21-5 1. Cash (20,000 x 50) Ordinary Share Capital

1,000,000 1,000,000

2. Treasury Share – Ordinary Cash (5,000 x 60)

300,000

300,000

3. Memo – Issued 140,000 new ordinary shares with par of P25 as a result of a 2 for 1 split of 70,000 original shares with a par of 150 4. Cash

120,000

Treasury Shares (3,000 / 10,000 x 300,000) Share Premium – TS

5. Memo – Received 15,000 ordinary shares by way of donation. Cash

Donated Capital (10,000 x 40)

400,000

6. Profit or Loss Retained Earnings

500,000

7. Retained Earnings (300,000 – 90,000) Appropriated Retained Earnings for TS

210,000

400,000 500,000 210,000

90,000 30,000

Requirement 2 Shareholder’s Equity Preference Share Capital Ordinary Share Capital Share Premium – PS Share Premium – OS Treasury shares Share Premium – TS Donated Capital Retained Earnings – Appropriated Retained Earnings – Unappropriated Shareholder’s Equity

2,290,000

500,000 3,500,000 200,000 500,000 (210,000) 30,000 400,000 210,000 7,420,000

Problem 21-6 a. Share Capital (5,000,000 x 10%) Donated Capital

500,000 500,000

Donated Capital Retained Earnings

500,000 500,000

b. Share Capital (50,000 x 50) Share Premium – Recapitalization

2,500,000 2,500,000

Share Premium Retained Earnings

500,000 500,000

c. Share Capital Share Premium Share Capital (100,000 x 55) Retained Earnings

5,000,000 1,000,000 5,500,000 500,000

d. Share Capital Share Premium Share Capital (150,000 x 20) Share Premium - Recapitalization

5,000,000 1,000,000 3,000,000 3,000,000

Share Premium – Recapitalization Retained Earnings

500,000 500,000

Problem 21-7 1. Cash

(4,000 x 60)

240,000

Ordinary Share Capital (20,000 / 5 rights = 4,000 shares) Share Premium

200,000 40,000

2. Sales price Less: Market Value of warrants (20,000 x 10) Issue Price of preference shares

2,500,000 200,000 2,300,000

Cash

2,500,000 2,000,000 300,000 200,000

Preference Share Capital Share Premium – PS Share Warrants Outstanding

Cash (18 / 20 x 600,000) Share Warrants Outstanding (18,000 / 20,000 x 200,000) Ordinary Share Capital (18 / 20 x 500,000) Share Premium – OS Share Warrants Outstanding Share Premium – Unexercised (2,000 x 10)

180,000

540,000 450,000 270,000 20,000 20,000

3. Market value of OS 80 Less: Exercise price (60) Intrinsic value of warrant 20 OS under the warrants 25,000 Total value of share warrants 500,000 Sale Price Value of share warrants Value assigned to preference share Cash

6,000,000 (500,000) 5,500,000

Preference share capital Share Premium – PS Share warrants outstanding

Cash (25,000 x 60) Share Warrants Outstanding Ordinary Share Capital (25,000 x 50) Share Premium – OS Problem 21-8 Requirement 1 2020

6,000,000 5,000,000 500,000 500,000 1,500,000 500,000 1,250,000 750,000

May 31

Cash Bonds Payable 5,000,000 Premium on Bonds Payable Share Warrants Outstanding

Sales Price Less: Market value of bonds ex-warrants Share warrants outstanding

6,000,000 250,000 750,000

6,000,000 (5,250,000) 750,000

Dec 31

Cash (10,000 x 120) Share Warrants Outstanding (10,000 / 15,000 x 750,000) Ordinary Share Capital (10,000 x 100) Share Premium – OS

Dec 31

Profit or Loss Retained Earnings

1,200,000 500,000 1,000,000 700,000

2,000,000 2,000,000

2021 July 15Memo – Issued 60,000 rights permitting shareholders to acquire 1 share at P130 for every 5 rights. Dec 31

Cash (60,000 / 5 x 130) Ordinary Share Capital (12,000 x 100) Share Premium

1,560,000 1,200,000 360,000

Dec 31

Share Warrants Outstanding (750,000 – 500,000) Share Premium – Unexercised Share Warrants

Dec 31

Profit or Loss Retained Earnings

250,000 250,000

3,000,000 3,000,000

Requirement 2 Shareholder’s Equity – December 31, 2021 Ordinary Share Capital, P100 par Authorized – 200,000 shares Issued and outstanding – 72,000 shares Share Premium Retained Earnings Shareholder’s Equity

7,200,000 2,310,000 8,000,000 17,510,000

Problem 21-9 Issuance (200,000 x 15) Net Income Dividends Treasury shares (12,000 x 12)

3,000,000 750,000 (380,000) (144,000)

Reissue of treasury shares (8,000 x 8) Shareholder’s Equity

64,000 3,290,000 (A)

Problem 21-10 Per book TS (1,000 x 28) TS (900 x 30) TS sold (1,500 x 32) Net Income Shareholder’s Equity

980,000 (28,000) (27,000) 48,000 110,000 1,083,000 (C)

Problem 21-11 Share split does not affect the elements of the shareholder’s equity. (C) Problem 21-12 675,000 x 4 90,000 x 7 Share Premium

2,700,000 630,000 3,330,000 (A)

Problem 21-13 10,000 / 5 reverse split = 5,000 x 50 = 100,000 (C) Problem 21-14 2018 2019 OS outstanding

200,000 shares 100,000 shares (75,000 shares) 225,000 shares (D)

Problem 21-15 Number of shares issued (80,000 x 2) Number of shares reacquired (10,000 x 2) OS outstanding

160,000 (20,000) 140,000 (A)

Problem 21-16 Issued shares (125,000 x 3)

375,000

Less: Old treasury shares (12,000 x 3) New Treasury shares Outstanding shares

36,000 5,000

(41,000) 334,000 (A)

Problem 21-17 Issued shares (100,000 x 2) 10,000 x 2 Less: Treasury shares (4,000 x 2) Outstanding shares

200,000 20,000 (8,000) 212,000 (A)

Problem 21-18 Share Capital (2,000 x 10) Share Premium (2,000 x 90) Retained Earnings (balancing) Cash (2,000 x 150)

20,000 180,000 100,000 (C)

300,000

Problem 21-19 Share Capital (20,000 x 20) Share Premium (20,000 x 6) Cash (20,000 x 24) Share Premium – Treasury

400,000 120,000

Share Premium, beginning Share Premium Share Premium – Treasury Share Premium, ending

2,550,000 (120,000) 40,000 2,470,000 (B)

480,000 40,000

Par value method? Problem 21-20 Treasury shares (5,000 x 100) 500,000 Share Premium – issuance (5,000 x 40) 200,000 Cash (5,000 x 110) Share Premium – treasury (balancing)

550,000 150,000 (B)

Problem 21-21 Share Capital (5,000 x 50) Share Premium – Issuance Retained Earnings Treasury Shares 1. Canceled: 5,000 x 50 Share Capital, beginning

250,000 125,000 225,000 (250,000) 2,500,000

600,000

Share Capital, ending

2,250,000 (A)

2. 1,250,000 – 125,000 = 1,125,000 (B) 3. 1,000,000 – 225,000 = 775,000 (C)

Problem 21-22 Treasury Shares Cash

500,000

Cash (5,000 x 60) Treasury Shares (5,000 x 50) Share Premium – TS

300,000

Cash (2,000 x 45) Share Premium – TS Treasury Shares (2,000 x 50)

90,000 10,000

Share Premium, beg Share Premium – TS Share Premium, end

1,500,000 40,000 1,540,000 (C)

Share Capital

2,250,000 (A)

Share Capital Treasury Capital Share Premium Retained Earnings Shareholder’s Equity

2,250,000 (150,000) 1,540,000 2,000,000 5,640,000 (A)

500,000 250,000 50,000

100,000

Problem 21-23 Share Capital – issuance (30,000 x 50) Issuance (10,000 x 20) Issuance (20,000 x 30) Share Premium Share Capital Share Premium

1,500,000 (A) 200,000 600,000 800,000 (A)

1,500,000 800,000

Net Income Dividends Treasury Shares Shareholder’s Equity

1,000,000 (200,000) (300,000) 2,800,000 (A)

Share Capital Share Premium Contributed Capital

1,500,000 800,000 2,300,000 (A)

Problem 21-24 1. 7,500,000 / 5 Treasury Shares Outstanding Shares 2021

1,500,000 (600,000) 900,000 (C)

2. 4,500,000 / 5 Treasury Shares Outstanding Shares 2020

900,000 (400,000) 500,000 (B)

3. 2021 2020 Shares issued

7,500,000 4,500,000 3,000,000

3,000,000 / 5

600,000 (A)

4. Increase in Share Capital Increase in Share Premium Total Divided by additional shares issued Average Price

3,000,000 12,000,000 15,000,000 600,000 25 (A)

Problem 21-25 1. Jan 1 30,000 x 100 Feb 1 2,000 x 100 Dec 15 20,000 x 100 / 2 Share Capital

200,000 1,000,000 4,200,000 (C)

2. Jan 1 30,000 x 50 Feb 1 FV (250,000) Oct 31 Issued 5,000,000 x 120 6,000,000 Market Price 5,000,000 x 98 (4,900,000) Share Premium Dec 15 20,000 x 25 Share Premium 3. Share Capital Share Premium

4,200,000 3,150,000

3,000,000

50,000

1,500,000

1,100,000 500,000 3,150,000 (B)

Treasury Shares Net Income Total Shareholder’s Equity 4. Jan 1 Feb 1 Mar 15 Split 2 in 1 Dec 15 Total Shares

Problem 21-26 1. A 2. A 3. B 4. C 5. C 6. D 7. A 8. C 9. D 10. C Problem 21-27 1. C 2. B 3. B 4. D 5. D Problem 21-28 1. B 2. C 3. C 4. C 5. C 6. C 7. B 8. B

(600,000) 2,000,000 8,750,000 (A) 30,000

2,000 (5,000) 27,000 x2 54,000 20,000 74,000 (C)