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ACCT 2331 Study Guide - Midterm Guide: Contingent Liability, Promissory Note, Premium Bond

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sapphiremole43
4 May 2016
School
University of Houston
Department
Accounting
Course
ACCT 2331
Professor
Goble Sam

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Document Summary

Study guide for final exam chapters 8 through 11. Please note that this study guide highlights the central concepts in each chapter. The study guide is not exhaustive and does not represent the actual test questions in any way. It is meant to be used along with the notes. The student is expected to apply concepts in the exam confidently after reviewing all the material. Interest expense (face value of note x annual interest rate x fraction of the year) (debit) Interest expense (fv x interest rate x fraction of year) (debit) Interest payable (fv x interest rate x fraction of year) (debit) Journal entry to record interest incurred, but not paid (when you are earning interest) Interest revenue (face value of note x annual interest rate x fraction of the year) (credit) Journal entry for paying off notes payable and interest. Interest revenue (fv x interest rate x fraction of year) (credit)

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Related Questions

The following items were selected from among the transactions completed by Sherwood Co. during the current year:

Mar. 1 Purchased merchandise on account from Kirkwood Co., $366,000, terms n/30.
31 Issued a 30-day, 6% note for $366,000 to Kirkwood Co., on account.
Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31.
Jun. 1 Borrowed $198,000 from Triple Creek Bank, issuing a 45-day, 8% note.
Jul. 1 Purchased tools by issuing a $270,000, 60-day note to Poulin Co., which discounted the note at the rate of 6%.
16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by issuing a new 30-day, 6.5% note for $198,000. (Journalize both the debit and credit to the notes payable account.)
Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16.
30 Paid Poulin Co. the amount due on the note of July 1.
Dec. 1 Purchased equipment from Greenwood Co. for $400,000, paying $108,000 cash and issuing a series of ten 8% notes for $29,200 each, coming due at 30-day intervals.
22 Settled a product liability lawsuit with a customer for $320,000, payable in January. Accrued the loss in a litigation claims payable account.
31 Paid the amount due to Greenwood Co. on the first note in the series issued on December 1.
Required:
1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Round your answers to the nearest dollar.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles):
a. Product warranty cost, $29,000.
b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

Chart of Accounts

CHART OF ACCOUNTS
Sherwood Co.
General Ledger
ASSETS
110 Cash
111 Accounts Receivable
112 Interest Receivable
113 Notes Receivable
115 Inventory
116 Supplies
118 Prepaid Insurance
120 Land
123 Building
124 Accumulated Depreciation-Building
125 Office Equipment
126 Accumulated Depreciation-Office Equipment
127 Tools
128 Accumulated Depreciation-Tools
LIABILITIES
210 Accounts Payable-Kirkwood Co.
211 Accounts Payable-Greenwood Co.
212 Accounts Payable-Poulin Co.
213 Interest Payable
214 Notes Payable
215 Salaries Payable
216 Social Security Tax Payable
217 Medicare Tax Payable
218 Employees Federal Income Tax Payable
219 Employees State Income Tax Payable
220 Group Insurance Payable
221 Bond Deductions Payable
224 Federal Unemployment Tax Payable
225 State Unemployment Tax Payable
226 Vacation Pay Payable
227 Unfunded Pension Liability
228 Product Warranty Payable
229 Litigation Claims Payable
EQUITY
310 Common Stock
311 Retained Earnings
312 Dividends
313 Income Summary
REVENUE
410 Sales
610 Interest Revenue
EXPENSES
510 Cost of Goods Sold
520 Salaries Expense
524 Depreciation Expense-Building
525 Delivery Expense
526 Repairs Expense
529 Selling Expenses
531 Rent Expense
532 Depreciation Expense-Office Equipment
533 Depreciation Expense-Tools
534 Insurance Expense
535 Supplies Expense
536 Payroll Tax Expense
537 Vacation Pay Expense
538 Pension Expense
539 Cash Short and Over
540 Product Warranty Expense
541 Miscellaneous Expense
710 Interest Expense
720 Litigation Loss

Journal

1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Scroll down to access page 12 of the journal. Round your answers to the nearest dollar.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles):
A. Product warranty cost, $29,000.
B. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

PAGE 12

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

Adjusting Entries

2

3

4

5
There are three problems thisweek. Click the tabs at the bottom of the spreadsheet to accesseach one.
On 1/1/2015, Snickers Company issued 10-year bondswith a face value of $700,000 at 101. The bonds carry a statedinterest rate of 8%, with
interest payable semi-annually on January 1 andJuly 1. Snickers uses the straight-line method of amortizing bondpremium or discount.
(a) Prepare the journal entry to record theissuance of the bonds.
(b) Prepare the journal entry to record payment ofinterest on July 1, 2015.
(c) Prepare the adjusting entry to record theaccrual of interest on December 31, 2015.
(d) Prepare the balance sheet presentation for thebond on 12/31/2015.
(e) Prepare the balance sheet presentation for thebond on 12/31/2016.
Solutions:
Date Account Debit Credit
1/1/2015 Cash 707,000
Bonds Payable 700,000
Premium on Bonds Payable 7,000
7/1/2015 Interest Expense 28,000 Note that it would also be correct to combine thetwo entries into one.
Cash 28,000
Premium on Bonds Payable 350
Interest Expense 350
12/31/2015 Interest Expense 28,000 Note that it would also be correct to combine thetwo entries into one.
Interest Payable 28,000
Premium on Bonds Payable 350
Interest Expense 350
Snickers Corporation
Balance Sheet (Partial)
12/31/2015
Long Term Liabilities
Bonds Payable 700,000
Add: Premium on Bonds Payable 6,300
706,300
Snickers Corporation
Balance Sheet (Partial)
12/31/2016
Long Term Liabilities
Bonds Payable 700,000
Add: Premium on Bonds Payable 5,600
705,600

Liability Transactions The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year: Feb. 15. Purchased merchandise on account from Hood Co., $240,000, terms n/30. Mar. 17. Issued a 60-day, 8% note for $240,000 to Hood Co., on account. May 16 Paid Hood Co. the amount owed on the note of March 17. June 15. Borrowed $142,800 from Acme Bank, issuing a 60-day, 9% note. July 21. Purchased tools by issuing a $78,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 7%. Aug. 14. Paid Acme Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $142,800. (Journalize both the debit and credit to the notes payable account.) Oct. 15. Paid Acme Bank the amount due on the note of August 14. Oct. 19. Paid Columbia Supply Co. the amount due on the note of July 21. Dec. 1. Purchased office equipment from Mountain Equipment Co. for $96,000, paying $16,000 and issuing a series of ten 6% notes for $8,000 each, coming due at 30-day intervals. Dec. 12. Settled a product liability lawsuit with a customer for $68,000, payable in January. Emerald Bay accrued the loss in a litigation claims payable account. Dec. 31. Paid the amount due Mountain Equipment Co. on the first note in the series issued on December 1. Required: 1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. If required, round to one decimal place. Date Account Debit Credit Feb. 15 Mar. 17 May 16 June 15 July 21 Aug. 14 Oct. 15 Oct. 19 Dec. 1 Dec. 12 Dec. 31 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $16,600; (b) interest on the nine remaining notes owed to Mountain Equipment Co. Item Account Debit Credit a.