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Chapter 13: Question 2BE (page 692)

BE13-2 (L01) Upland Company borrowed \(40,000 on November 1, 2017, by signing a \)40,000, 9%, 3-month note. Prepare Upland’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

Short Answer

Expert verified

The total amount of interest expense paid by the company over the 3 months notes is $900.

Step by step solution

01

Meaning of Loan

A person or business entity borrows an amount from a lending institution for a pre-determined interest payment. The purpose of the loan is to meet the needs of money. It is shown as a liability on the balance sheet.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

November 1, 2017

Cash

$40,000

Notes Payable

$40,000

December 31, 2017

Interest Expenses

$600

Interest Payable($40,000 x 9% x 2/12)

$600

February 1, 2018

Notes Payable

$40,000

Interest Payables

$600

Interest expenses($40,000 x 9% x 1/12)

$300

Cash

$40,900

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Most popular questions from this chapter

(Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company (\(000 omitted).

Administrative expense

Officers’ salaries \)4,900

Depreciation of office furniture and equipment \(3,960

Cost of goods sold \)60,570

Rent revenue \(17,230

Selling expense

Delivery expense \)2,690

Sales commissions \(7,980

Depreciation of sales equipment \)6,480

Sales revenue \(96,500

Income tax \)9,070

Interest expense $1,860

Instructions

  1. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted).
  2. Prepare an income statement for the year 2017 using the single-step form.
  3. Which one do you prefer? Discuss.

If the bonds in Question 8 are classified as available-for-sale, and they have a fair value at December 31, 2017, of $3,604,000, prepare the journal entry (if any) at December 31, 2017, to record this transaction.

Question: E13-1 (L01) (Balance Sheet Classification of Various Liabilities) How would each of the following items be reported on the balance sheet? (a) Accrued vacation pay. (j) Premium offers outstanding. (b) Estimated taxes payable. (k) Discount on notes payable. (c) Service warranties on appliance sales. (l) Personal injury claim pending. (d) Bank overdraft. (m) Current maturities of long-term debts to be paid (e) Employee payroll deductions unremitted. from current assets. (f) Unpaid bonus to officers. (n) Cash dividends declared but unpaid. (g) Deposit received from customer to guarantee (o) Dividends in arrears on preferred stock. performance of a contract. (p) Loans from officers. (h) Sales taxes payable. (i) Gift certificates sold to customers but not yet redeemed.

(Gain on Sale of Investments and Comprehensive Income) On January 1, 2017, Acker Inc. had the followingbalance sheet.

The accumulated other comprehensive income related to unrealized holding gains on available-for-sale debt securities. The fairvalue of Acker Inc.’s available-for-sale debt securities at December 31, 2017, was \(190,000; its cost was \)140,000. No securities

were purchased during the year. Acker Inc.’s income statement for 2017 was as follows. (Ignore income taxes.)

ACKER INC.

BALANCE SHEET

AS OF JANUARY 1, 2017

Assets Equity

Cash \( 50,000 Common stock \)260,000

Debt investments (available-for-sale) 240,000 Accumulated other comprehensive income 30,000

Total \(290,000 Total \)290,000

ACKER INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Dividend revenue \( 5,000

Gain on sale of investments 30,000

Net income \)35,000

Instructions

(Assume all transactions during the year were for cash.)

(a) Prepare the journal entry to record the sale of the available-for-sale debt securities in 2017.

(b) Prepare the journal entry to record the Unrealized Holding Gain or Loss for 2017.

(c) Prepare a statement of comprehensive income for 2017.

(d) Prepare a balance sheet as of December 31, 2017.

Ramirez Company has a held-for-collection investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for \(1,200,000 in 2016. Early in 2017, Ramirez recorded an impairment of \)300,000 on the Soto investment, due to Soto’s financial distress. In 2018, Soto returned to profitability and the Soto investment was no longer impaired. What entry does Ramirez make in 2018 under (a) GAAP and (b) IFRS?
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