HW Assignment 5 –
You MUST show all work in order to receive credit for the problems.
Problem 1
Jessup Inc., a lawn care and pest control service that also sells lawn
equipment, had the following events occur throughout the year 2012.
A. Jessup owned two warehouses next to its corporate office. Given
that they were only using one of the warehouses for operations,
they rented the other one to Dagwood Corp for $54,000 a year.
The rental period is for ten years and Dagwood must prepay a
year’s worth of rent every April 1.
B. On October 12, 2012, Jessup was sued for $150,000 by a former
employee who claimed wrongful termination. Jessup’s lawyer
indicated that a loss was possible and that a judge would most
likely deem the amount fair, should the lawsuit go to court.
C. Jessup offers a one-year warranty on its lawn equipment. Based
on past experience, Jessup estimates its warranty expense to be
2% of sales. Sales of lawn equipment during 2012 were
$1,500,000. The company paid $12,000 in warranty costs for the
year. (Assume the accrual method is used).
D. On December 3, 2012, Jessup Inc. initiated a lawsuit in the
amount of $400,000 against a former employee for violating a
non-compete clause. It is probable that Jessup will win the
lawsuit.
E. On June 1, Jessup purchased a new production facility. On that
date, Jessup obtained a 10-year, $600,000, 8% mortgage from
Atlas Bank to help finance the purchase.
(Assume simple
interest and, for the sake of simplicity, that payment is due on
May 31 of each year).
F. On December 20, 2012, Jessup declared $40,000 in cash
dividends to be paid on January 30th.
G. On November 1, Jessup borrowed $50,000 by signing a 12-month
note bearing interest at 8%. Interest is payable in full at
maturity on October 31, 2013.
H. In May of 2012, Jessup became involved in a tax dispute with the
IRS. At December 2012, the tax attorney for Jessup indicated that
an unfavorable outcome to the dispute was probable. The
additional taxes were estimated to be $450,000, but could be as
high as $600,000. On March 15, 2013, Jessup accepted an IRS
settlement offer of $500,000.
I. Jessup collects 6 percent sales tax from customers for all sales
and remits each month’s collections to the state on the 20th of
the month following the sale. December sales totaled $473,290,
including sales tax for the month.
Required:
For each of the items listed above, determine the amount current
liability to be reported on the December 31st 2012 Balance Sheet. If an
amount from the list above is not included in the current liabilities
section, indicate why it is not included in current liabilities and, if
applicable, how it should be accounted for
Problem 2
Thames Company had the following payroll information for
September 2015:
Gross Salaries
Federal Income Tax Withheld
401(k) Deductions
Federal Unemployment Rate
State Unemployment Rate
FICA Tax Rate
$ 850,000
20,000
40,000
0.80%
4.50%
7.65%
Assume that the company matches the 401(k) deductions.
Required:
1. Prepare the journal entry to record the salaries and wages.
2. Prepare the journal entry to record the employer payroll taxes.
3. Prepare the journal entry to record the employer 401(k) match.
Problem 3
On January 1, a company issued 10%, 10-year bonds payable with a face value
of $720,000. The bonds pay interest on July 1 and January 1.
Required:
Calculate the selling price under each of the following scenarios:
1. The market rate at the time of issuance was 9%.
2. The market rate at the time of issuance was 12%.
3. The market rate at the time of issuance was 10%.
Problem 4
On January 1, 2015, a company issues 8%, 5 year, $300,000 bonds that pay
interest semiannually each June 30 and December 31. On the issue date, the
annual market rate of interest is 6%.
Required:
1.
2.
3.
4.
5.
Compute the price of the bonds on their issue date.
Prepare the amortization table for all 5 years.
Prepare the journal entry on January 1, 2015 for the issuance.
Prepare the journal entry on June 30, 2015.
Prepare the journal entry at the end of the 5 years to record the
redemption of the bonds.
Problem 5
Mandarin Company has 9%, 20-year bonds outstanding with a face value of
$500,000 and a carrying value of $475,000. The company calls the bonds at
$482,000.
Required:
1. Calculate the gain or loss on the retirement of these bonds.
2. Prepare the journal entry to record the retirement of the bonds.
