Kieso Chapter 10

On January 1, 2017, the ledger of Shumway Ltd.
contains the following liability accounts (in £)

Accounts Payable 52,000
Sales Taxes Payable 5,800
Unearned Service Revenue 13,000
During January, the following selected transactions occurred

Jan 5 Sold merchandise for cash totaling £22,470, which includes 7% sales taxes
12 Performed services for customers who had made advance payments of £10,000. (Credit Service Revenue.)
14 Paid revenue department for sales taxes collected in December 2016 (£5,800).
20 Sold 700 units of a new product on credit at £52 per unit, plus 7% sales tax
21 Borrowed £14,000 from DeKalb Bank on a 3-month, 6%, £14,000 note.
25 Sold merchandise for cash totaling £12,947, which includes 7% sales taxes.
Instructions
(a) Journalize the January transactions.
5-Jan Cash 22,470 21-Jan-20 Cash
Sales 21,000 =22470/107%
Sales tax payable 1,470 =7%*21000
12-Jan Unearned service revenue 10,000 25-Jan Cash

Service revenue 10,000
14-Jan Sales tax payable 5,800

Cash 5,800
20-Jan Account receivable 38,948

Sales 36,400 =700*52
Sales tax payable 2,548 =7%*36400
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable.
(Hint: Use one-third of a month for the DeKalb Bank note.)
31-Jan Interest expense 23.33 =14000*6%/12*1/3
Interest payable 23.33
(c) Prepare the current liabilities section of the statement of fi nancial position at January
31, 2017. Assume no change in accounts payable.
Current Liabilites
Accounts Payable 52,000
Sales Taxes Payable 4,865
Unearned Service Revenue 3,000
Notes Payable 14,000
Interest Payable 23.3333333
Total current liabilities 73,888
(Credit Service Revenue.)
Cash 14,000 3 month, 6%

Notes payable 14,000
Cash 12,947
Sales 12,100
Sales tax payable 847
The following are selected transactions of Graves ASA. Graves prepares financial statements quarterly.
2-Jan Purchased merchandise on account from Ally Company, €30,000, terms 2/10, n/30. (Graves uses the perpetual inve
1-Feb Issued a 6%, 2-month, €30,000 note to Ally in payment of account.
31-Mar Accrued interest for 2 months on Ally note.
1-Apr Paid face value and interest on Ally note.
1-Jul Purchased equipment from Clark Equipment paying €8,000 in cash and signing a 7%, 3-month, €40,000 note.
30-Sep Accrued interest for 3 months on Clark note.
1-Oct Paid face value and interest on Clark note
1-Dec Borrowed €15,000 from the Jonas Bank by issuing a 3-month, 6% note with a face value of €15,000
31-Dec Recognized interest expense for 1 month on Jonas Bank note.
Instructions
(a) Prepare journal entries for the listed transactions and events.
2-Jan Merchandise inventory 30,000 30-Sep
Account payable 30,000
1-Feb Account payable 30,000 6%, 2 months 1-Oct

31-Mar Interest expense 300 =30,000*6%*2/12

Interest payable 300 1-Dec
1-Apr Notes payable 30,000

Interest payable 300 31-Dec
Cash 30,300
1-Jul Equipment 48000

Cash 8000
Notes payable 40000 7%, 3 months
(b) Post to the accounts Notes Payable, Interest Payable, and Interest Expense.
Notes Payable Interest Payable
1-Feb Credit 30,000 31-Mar Credit 300
1-Apr Debit (30,000) 1-Apr Debit (300)
1-Jul Credit 40000 30-Sep Credit 700
1-Oct Debit (40,000) 1-Oct Debit (700)
1-Dec Credit 15,000 31-Dec Credit 75
End. Balance 31/12 15,000 End. Balance 31/12 75
(c) Show the statement of financial position presentation of notes and interest payable at December 31.
Current Liabilities
Notes Payable 15,000
Interest payable 75
(d) What is total interest expense for the year?

Total Interest expense 1075
s uses the perpetual inventory system.)
nth, €40,000 note.
Interest expense 700 =7%*40000*3/12

Interest payable 700

Interest payable 700
Cash 40,700
Cash 15,000 6%, 3 months

Interest expense 75 =6%*15000*1/12

Interest payable 75
Interest Expense
31-Mar Debit 300
30-Sep Debit 700
31-Dec Debit 75
End. Balance 31/12 1075
On May 1, 2017, Herron Industries AG issued CHF600,000, 9%, 5-year bonds at
face value. The bonds were dated May 1, 2017, and pay interest annually on May 1. Financial
statements are prepared annually on December 31
Instructions
(a) Prepare the journal entry to record the issuance of the bonds.
1-May-17 Cash 600,000
Bond payable 600,000
(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2017.
31-Dec-17 Interest expense 36,000 =600000*9%*8/12
Interest payable 36,000
(c) Show the statement of financial position presentation on December 31, 2017.
Current liabilities
Non current liabilities

(d) Prepare the journal entry to record payment of interest on May 1, 2018.
1-May-18 Interest payable 36,000
Interest expense 18,000 =600000*4/12*9%
Cash 54,000
(e) Prepare the adjusting entry to record the accrual of interest on December 31, 2018.
31-Dec-18 Interest expense 36,000 =600000*9%*8/12
(f) Assume that on January 1, 2019, Herron pays the accrued bond interest and calls the
bonds at 102. Record the payment of interest and redemption of the bonds.
1-Jan-19 Interest payable 36,000
Cash 36,000

Loss on bond redemption 12,000
Cash 612,000
P10-4A Kershaw Electric Ltd. sold £6,000,000, 10%, 15-year bonds on January 1, 2017.
The bonds were dated January 1, 2017, and paid interest on January 1. The bonds were
sold at 98
Instructions
(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017.
Cash 5,880,000
Bonds payable 6,000,000
(b) At December 31, 2017, the amount of amortized bond discount is £8,000. Show the
statement of fi nancial position presentation of the bond liability at December 31,
2017
(c) On January 1, 2019, when the carrying value of the bonds was £5,896,000, the company
redeemed the bonds at 102. Record the redemption of the bonds assuming that
interest for the period has already been paid.

Kieso Chapter 10

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What journal entries were made for the bond issuance and interest accrual?

What journal entries were made for the bond issuance and interest accrual?

How was the bond liability presented on the statement of financial position?

How was the bond liability presented on the statement of financial position?

On January 1, 2017, the ledger of Shumway Ltd.

contains the following liability accounts (in £)

During January, the following selected transactions occurred

12-Jan Unearned service revenue 10,000 25-Jan Cash

14-Jan Sales tax payable 5,800

20-Jan Account receivable 38,948

Cash 14,000 3 month, 6%

1-Feb Account payable 30,000 6%, 2 months 1-Oct

31-Mar Interest expense 300 =30,000*6%*2/12

1-Apr Notes payable 30,000

1-Jul Equipment 48000

(d) What is total interest expense for the year?

nth, €40,000 note.

Interest expense 700 =7%*40000*3/12

Notes payable 40,000

Cash 15,000 6%, 3 months

Interest expense 75 =6%*15000*1/12

Non current liabilities

Bond payable 600,000

Bonds payable 6,000,000

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31-Mar Interest expense 300 =30,0006%2/12

Interest expense 700 =7%400003/12

Interest expense 75 =6%150001/12