Problems:

1. Jefferson Company issues $600,000 of 10% bonds that pay interest semiannually and mature in 10 years. The bond was sold for $681,543.90 to yield 8%. Prepare an amortization table showing the interest expense, payment, and amortization amounts for the first THREE interest periods.

2. On November 6, 2012, Mortar Industries, a brick construction company, issued 10,000 of its $0.20 par value common shares for $16 cash per share. On February 6, 2013, Mortar Industries issued 500 shares of $100 par preferred stock at par value. On June 30, Mortar paid $80,000 in dividends (don't worry about which shareholders go how much). Record these transactions either in the space below if using journal entries, or on the financial statements template provided on the last page.

3. Inline Incorporated manufactures skates and equipment for in-line skating. The company offers a one-year warranty on all products. During 2012, the company recorded net sales of $3,887.4 million. Historically, about 2% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 50% of retail value of those items. Assume that at the start of the year Inline's balance sheet included an accrued warranty liability of $16.9 million and at the end of the year, the accrued warranty liability balance was $13.0 million.

a. Calculate Inline's warranty expense for 2012.

b. How much did Inline pay during the year to repair and or replace goods under warranty?

4. International Paper Company's 2011 annual report disclosed the following post-employment information:

In millions                                                     2011          2010
Change in projected benefit obligation:
Benefit obligation, January 1                           $ 425         $ 473
Service cost                                                      2               2
Interest cost                                                  21               23
Participants' contributions                               46                48
Actuarial (gain) loss                                        29               (21)
Benefits paid                                                (108)            (110)
Less: Federal subsidy 10 10
Benefit obligation, December 31                    $ 425            $ 425
Change in plan assets:
Fair value of plan assets, January 1                  $ -                $ -
Company contributions                                  62                 62
Participants' contributions                              46                 48
Benefits paid                                               (108)             (110)
Fair value of plan assets, December 31              $ -                $ -

a. How much total benefits did former employees receive during the year?

b. What proportion of the obligation is funded? Explain.

5. There are two basic types of pensions, defined benefit plans and defined contribution plans. Explain how each of the two types works and why accounting for one type is much more complex than accounting for the other type.

Balance Sheet Income Statement

Transaction Cash Asset + Noncash Assets = Liabilities + Contrib. Capital + Earned
Capital Rev-enues - Expenses = Net