Accounting 291 Exercises

E10-6 According to the accountant of Ulner Inc., its payroll taxes for the week were as follows:

$198.40 for FICA taxes

$19.84 for federal unemployment taxes

$133.92 for state unemployment taxes

Payroll Tax Expense: $352.16

Instructions

Journalize the entry to record the accrual of the payroll taxes.

Record accrual of payroll taxes. (SO 3)

Ulner Inc. Payroll Tax Accrual Page1

Date Description Post Ref. Debit Credit

1 Payroll Tax Accrual Expense $352.16 1

2 FICA Taxes Payable $198.40 2

3 State Unemployment Taxes Payable 133.92 3

4 Federal Unemployment Taxes Payable 19.84 4

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E10-8 Jim Thome has prepared the following list of statements about bonds.

1. Bonds are a form of interest-bearing notes payable.

2. When seeking long-term financing, an advantage of issuing bonds over issuing

common stock is that stockholder control is not affected.

3. When seeking long-term financing, an advantage of issuing common stock over issuing bonds is that tax savings result.

4. Secured bonds have specific assets of the issuer pledged as collateral for the bonds.

5. Secured bonds are also known as debenture bonds.

6. Bonds that mature in installments are called term bonds.

7. A conversion feature may be added to bonds to make them more attractive to bond buyers.

8. The rate used to determine the amount of cash interest the borrower pays is called the stated rate.

9. Bond prices are usually quoted as a percentage of the face value of the bond.

10. The present value of a bond is the value at which it should sell in the marketplace.

Instructions

Identify each statement above as true or false. If false, indicate how to correct the statement.

Evaluate statements about bonds. (SO 4)

1. True

2. True

3. False - When seeking long-term financing, an advantage of issuing common stock over issuing bonds is that there are No tax savings result.

4. True

5. False - Debenture bonds are Not secured bonds; they are backed by the corporations credit rather than any specific assets.

6. False - Bonds that mature in installments are called serial bonds Not term bonds. Serial bonds are issued in a series and have a specific amount that matures every year. Term bonds all have the same maturity date.

7. True

8. True

9. True

10. True

E10-18 Hrabik Corporation issued $600,000, 9%, 10-year bonds on January 1, 2011, for

$562,613.This price resulted in an effective-interest rate of 10% on the bonds. Interest is payable semiannually on July 1 and January 1. Hrabik uses the effective-interest method to amortize bond premium or discount.

Instructions

Prepare the journal entries to record the following. (Round to the nearest dollar.)

(a) The issuance of the bonds.

(b) Int. paymt & discount amortization July 1, 2011 assume int. not accrued on June 30.

(c) The accrual of interest and the discount amortization on December 31, 2011.

Prepare entries for issuance of bonds, payment of interest, and amortization of discount using effective-interest method. (SO 5, 10)

(a) The issuance of the bonds.

Bonds Payable: 600,000

Less Discount on bonds Payable: 37,387 = 562,613

Hrabik Corporation Page1

Date Description Post Ref. Debit Credit

1 Jan. 1 Cash $562,613 1

2 Discount on Bonds Payable 37,387 2

3 Bonds Payable $600,000 3

4 (Record sale of bonds at discount) 4

(b) Pymt of int and discount amortization on July 1, 2011, assuming int not accrued on June 30.

Bond Interest expense: (562,613 x 10% / 2) = $28,131; Cash: (600,000 x 9% / 2) = $27,000 Amortization of discount: (28,131 - 27,000) = $1,131; Net bond: ($562,613 + $1,131) =$563,744

Hrabik Corporation Page1

Date Description Post Ref. Debit Credit

1 July 1 Bond Interest Expense $28,131 1

2 Amortization of Discount $ 1,131 2

3 Cash 27,000 3

4