SOLUTIONS TO ASSIGNMENTS

OF CHAPTER 11

EXERCISE 11-1

(a)   6/1       Cash....................................................................     70,000

                             Notes Payable..........................................................                        70,000

(b)   6/30     Interest Expense...............................................      700

                             Interest Payable......................................................                        700

                               [($70,000 X 12%) X 1/12]

(c)   12/1     Notes Payable................................................... 70,000

                     Interest Payable................................................    4,200

                             Cash..........................................................................                      74,200

(d)   $4,200

EXERCISE 11-2

VALARIE FLYNN COMPANY

Apr. 10     Cash.......................................................................       26,500

                          Sales.............................................................................                          25,000

                          Sales Taxes Payable................................................                           1,500

FLEURY COMPANY

        15     Cash.......................................................................       18,404

                          Sales ($18,404 ÷ 1.07)...............................................                          17,200

                          Sales Taxes Payable................................................                           1,204

                            ($18,404 – $17,200)

EXERCISE 11-3

(a)   Nov. 30     Cash..............................................................      240,000

                                  Unearned Subscriptions.................................                         240,000

                                    (8,000 X $30)

(b)   Dec. 31     Unearned Subscriptions...........................       20,000

                                  Subscription Revenue.....................................                          20,000

                                    ($240,000 X 1/12)

EXERCISE 11-3 (Continued)

(c)   Mar. 31     Unearned Subscriptions...............................       60,000

                                  Subscription Revenue.......................................                        60,000

                                    ($240,000 X 3/12)

EXERCISE 11-4

(a)   Estimated warranties outstanding:

        Estimated warranty liability—1,280 X $15 = $19,200.

(b)   Warranty Expense (2,480 X $15)....................................       37,200

                Estimated Warranty Liability...............................................                        37,200

        Estimated Warranty Liability...........................................       18,000

                Repair Parts, Wages Payable, Cash, etc..........................                        18,000

(c)   Estimated Warranty Liability (550 X $15).....................        8,250

                Repair Parts, Wages Payable, Cash, etc..........................                         8,250

EXERCISE 11-5

(a)                                         LEASK ONLINE COMPANY

                                                   Partial Balance Sheet

        Current liabilities

                Accounts payable..................................................................       $ 66,000

                Long-term debt due within one year..................................          30,000

                Interest payable......................................................................      8,000

                Unearned ticket revenue......................................................      24,000

                Sales taxes payable..............................................................      10,000

                Estimated warranty liability.................................................       18,000

                        Total current liabilities..................................................       $156,000

EXERCISE 11-5 (Continued)

(b)   Leask Online Company’s working capital is $144,000 and its current ratio is 1.92:1. Although a current ratio of 2:1 has been considered the standard for a good credit rating, many companies operate successfully with a current ratio below 2:1.

 (a)  Jan.  5     Cash...................................................................       16,632

                                  Sales ($16,632 ÷ 108%).......................................                        15,400

                                  Sales Taxes Payable..........................................                             1,232

                                    ($16,632 – $15,400)

                12     Unearned Service Revenue..........................       10,000

                                  Service Revenue.................................................                        10,000

                14     Sales Taxes Payable......................................        7,700

                                  Cash.......................................................................                         7,700

                20     Accounts Receivable......................................       27,000

                                  Sales......................................................................                        25,000

                                  Sales Taxes Payable..........................................                         2,000

                                    (500 X $50 X 8%)

                21     Cash...................................................................       18,000

                                  Notes Payable......................................................                        18,000

                25     Cash...................................................................       11,340

                                  Sales ($11,340 ÷ 108%).......................................                        10,500

                                  Sales Taxes Payable..........................................                           840

                                    ($11,340 – $10,500)

 (b)  (1)   Jan. 31     Interest Expense.....................................           50

                                          Interest Payable...........................................                            50

                                            ($18,000 X 10% X 1/12 =

                                            ($150; $150 X 1/3)

        (2)   Jan. 31     Warranty Expense..................................        1,750

                                    ($25,000 X 7%)

                                          Estimated Warranty

                                            Liability......................................................                         1,750
PROBLEM 11-1A (Continued)

(c)   Current liabilities

                Notes payable...........................................................................       $18,000

                Accounts payable....................................................................           52,000

                Unearned service revenue ($16,000 – $10,000).................                 6,000

                Estimated warranty liability....................................................      1,750

                Sales taxes payable ($1,232 + $2,000 + $840)....................      4,072

                Interest payable........................................................................       50

                        Total current liabilities....................................................       $81,872