Accounting Homework -

Question 1: Purchase Commitments

On September 5, 2011, Maloney Corporation signed a purchase commitment to purchase inventory for $180,000 on or before March 31, 2012. The company's fiscal year-end is December 31. The contract was exercised on March 4, 2012 and the inventory was purchased for cash at the contract price. On the purchase date of March 4, the market price of the inventory was $182,000. The market price of the inventory on December 31, 2011, was $168,000.

a. Prepare the necessary adjusting journal entry (if any is required) on December 31, 2011.

b. Prepare the journal to record the purchase on March 4, 2012.

Question 2: Contingencies

Nice Company files a lawsuit against Cheater Corp. for $4,000,000 in December 2010 alleging patent infringement. Cheater Corp.'s manager thinks it is probable that Cheater Corp. will eventually have to pay something to settle the suit, and the best estimate of the expected amount ranges from $1,200,000 to $2,400,000.

In your answers below, you may ignore income taxes

a. Show any related journal entries Cheater Corp. will record in 2010.

b. Assume that the managers of Nice Company have information indicating that it is highly probable that Nice will win the lawsuit and they expect to collect the entire $4,000,000. Show any related journal entries Nice Company will record in 2010.

c. Assume that the lawsuit is settled in 2011 and Cheater Corp. pays Nice Company $2,300,000 in cash. Calculate the effect this company will have on the 2011 net income for each company.

Question 3: Short-term liabilities

Kendall Products began operations in 2013. Kendall's fiscal year ends on December 31. Kendall issued its 2013 financial statements on February 15, 2014.

2013 Activity

a. On September 1, Kendall borrowed $10,000,000 on a short-term line of credit with Big Bank. Kendall can repay the amount any time within the next six months. The borrowing carries a 6% interest rate with interest payable on the first of each month (first interest payment is due on October 1 2013). Kendall intends to use the line of credit to provide temporary financing until a long-term funding can be arranged.

b. On October 1, Kendall borrowed $1,000,000 from Small Bank by signing a 5-year promissory note with 8% interest payable at maturity. Although the note is callable by the lender, Kendall management expects to pay the entire amount due at maturity.

c. Kendall received $3,000 of refundable deposits in December for reusable containers. Kendall expects refunds to be paid within six months of the initial sale and that 10% of the containers will not be returned.

Additional information:

a. On January 5, 2014 Kendall refinanced the short-term line of credit by obtaining a three-year loan from Big Bank with a 9% interest rate.

b. On March 1, 2014 Small Bank waived its right to call the promissory note.

c. Throughout the entire 2014 year Kendall refunded a total of $2,500 of the deposits received in December 2013.

Required

Prepare the liability section of the balance sheet at December 31, 2013 based on the information provided. Be sure to list current and noncurrent liabilities in separate sections.

Question 4: Bonds

The financial statement notes for Green Duck Inc. show the following information about the company's 6%, 5 year bonds with a face amount of $12,000 due in December 2012. The bonds pay interest semi-annually on June 30 and December 31.

date - carrying value of bonds

12/31/2008 - $11,192.07

6/30/2009 - $11,279.75

12/31/2009 - $11,370.94

a. How much interest was paid in cash for these bonds in 2009?

b. What was the interest expense for these bonds in 2009?

c. When the bonds were issued, what was the market interest rate?

d. What will be the interest expense for these bonds in 2010?

e. How much were the bonds originally issued for?

Question 5: Analyzing Rite Aid's Long-term debt

Following is an excerpt from the debt note provided along with Rite Aid's financial statements for the year ended February 26, 2011.

1. Refer to the 10.25% senior secured notes due in October 2019 to answer the following questions:

a. What is the face value (or principal amount) of these notes?

b. Calculate the amount of cash interest Rite Aid paid for these notes for the year ended February 26, 2011.

c. Calculate the amount of discount amortization recorded during the year ended February 26, 2011. Does this amortization increase or decrease interest expense recorded during the period?

2. Refer to the 8.00% senior secured notes due in August 2020 to answer the following questions.

a. These notes were issued in August 2010. What journal entry did Rite Aid make to record the issuance of these notes? What effect would the issuance have on the Statement of Cash Flows?

b. Calculate the amount of interest expense related to these notes that would be included on Rite Aid's income statement for the year ended February 25, 2012.   

3. Assume that on February 27, 2011, Rite Aid repurchased the 9.5% senior notes due in June 2017 for $797,769. Prepare the journal entry to record this transaction.

Attachment:- Assignment File.rar