Embed Size (px)
Citation preview
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall
Chapter 11
Demonstration Problems
Current Liabilities and Payroll
11-1
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-2
Consider the following note payable transactions of Cadmium Manufacturing Company.
E11-15D
2014
Mar. 1 Purchased equipment costing $30,000 by issuing a one-year, 8% note payable.
Dec. 31 Accrued interest on the note payable.
2015
Mar. 1 Paid the note payable plus interest at maturity.
Requirements
Journalize the transactions for the company.
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-3
Mar. 1 Purchased equipment costing $30,000 by issuing a one-year, 8% note payable.
E11-15D
Date Accounts and Explanation Debit Credit
2014
Mar. 1 Equipment 30,000
Notes Payable 30,000
To purchase equipment in exchange for one year, 8% note.
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-4
Dec. 31 Accrued interest on the note payable.
E11-15D
Date Accounts and Explanation Debit Credit
2014
Dec. 31 Interest Expense ﴾$30,000 × 0.08 × 10/12﴿ 2,000
Interest Payable 2,000
To accrue interest expense at year-end.
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-5
Mar. 1, Paid the note payable plus interest at maturity.
E11-15D
Date Accounts and Explanation Debit Credit
2015
Mar. 1 Notes Payable 30,000
Interest Expense ($30,000 × 0.08 × 2/12) 400
Interest Payable 2,000
Cash 32,400
To pay note and interest at maturity.
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-6
Lobo Industries completed the following transactions during 2014:
E11-22D
Sep. 1 Made sales of $20,000. Mr Lobo estimates that warranty expense is 5% of sales. (Record only the warranty expense.)
20 Paid $250 to satisfy warranty claims.
Dec. 31 Estimated vacation benefits expense to be $2,000
31 Mr Lobo expected to pay its employees a 1% bonus on net income after deducting the bonus. Net income for the year is $35,000.
Requirements
Journalize the transactions (explanations are not required).
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-7
Sep. 1 Made sales of $20,000. Mr Lobo estimates that warranty expense is 5% of sales. (Record only the warranty expense.)
E11-22D
Date Accounts and Explanation Debit Credit
2014
Sep. 1 Warranty Expense (5% × $20,000) 1,000
Estimated Warranty Payable 1,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-8
Sep. 20 Paid $250 to satisfy warranty claims.
E11-22D
Date Accounts and Explanation Debit Credit
2014
Sep. 20 Estimated Warranty Payable 250
Cash 250
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-9
Dec. 31 Estimated vacation benefits expense to be $2,000.
E11-22D
Date Accounts and Explanation Debit Credit
2014
Dec. 31 Vacation Benefits Expense 2,000
Vacation Benefits Payable 2,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-10
Dec. 31 Mr Lobo expected to pay its employees a 1% bonus on net income after deducting the bonus. Net income for the year is $35,000.
E11-22D
Date Accounts and Explanation Debit Credit
2014
Dec. 31 Employee Bonus Expense ﴾1% × 35,000 ﴿ / 1.01 347
Employee Bonus Payable 347*
*Rounded
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-11
The following financial information was obtained from the year ending 2014 income statements for Smith Inc. and Brown Inc.:
E11-24D
Smith Brown Net income $ 30,000 $ 75,000
Income tax expense 10,000 28,000Interest expense 500 3,000
Requirements
1. Compute the times-interest-earned ratio for each company.
2. Which company was better able to cover its interest expense?
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-12
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-13
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $30,000 + $10,000 + $500$500
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-14
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $30,000 + $10,000 + $500$500
═ $40,500$500
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-15
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $30,000 + $10,000 + $500$500
═ $40,500$500
═ 81
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-16
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $75,000 + $28,000 + $3,000$3,000
.
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-17
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $75,000 + $28,000 + $3,000$3,000
═ $106,000$3,000
.
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-18
E11-24D—Req.1
Times-interest-earned ratio ═
Net income + Income tax expense + Interest expense Interest expense
═ $75,000 + $28,000 + $3,000$3,000
═ $106,000$3,000
═ 35 (Rounded)
.
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 11-19
E11-24D—Req.2
Smith is better able to cover its interest expense.
.
Smith BrownNet income $30,000 $75,000Income tax expense 10,000 28,000Interest expense 500 3,000Times-interest-earned ratio 81 35
End of Chapter 11
11-20Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall
