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1. On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31, balance sheet, what amount should World report as note payable? 2. Gain contingencies are usually recognized in the income statement when 3. For a bond issue which sells for less than its par value, the market rate of interest is 4. In December year 1, Mill Co. began including one coupon in each package of candy that it sells and offering a toy in exchange for 50 cents and five coupons. The toys cost Mill 80 cents each. Eventually 60% of the coupons will be redeemed. During December, Mill sold 110,000 packages of candy and no coupons were redeemed. In its December 31, year 1 balance sheet, what amount should Mill report as estimated liability for coupons? 5. When the interest payment dates of a bond are May 1 and November 1, and the bond is issued on June 1, year 1, the amount of interest expense for the year ended December 31, year 1, would be for 6. White Airlines sold a used jet aircraft to Brown Company for $800,000, accepting a 5-year 6% note for the entire amount. Brown’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be $189,930. The aircraft could have been sold at an established cash price of $651,460. The present value of an ordinary annuity of $1 at 8% for five periods is 3.99. The aircraft should be capitalized on Brown’s books at 7. Which formula should Foley use in cell E3 to calculate the bonds’ carrying amount at the end of year 2? 8. On September 1, year 1, a company borrowed cash and signed a 2-year interestbearing note on which both the principal and interest are payable on September 1, year


3. The company did not elect the fair value option for reporting this note. At December 31, year 2, the liability for accrued interest should be 9. On January 1, 2000, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2010 but were callable at 101 any time after December 31, 2003. Interest was payable semi-annually on July 1 and January 1. On July 1, 2005, Fox called all of the bonds and retired them. 10. The bond premium was amortized on a straight-line basis. Before income taxes, Fox's gain or loss in 2005 on this early extinguishment of debt was 11. An investor purchased a bond classified as a long-term investment between interest dates at a premium. At the purchase date, the carrying value of the bond is more than the 12. A company has outstanding accounts payable of $30,000 and a short-term construction loan in the amount of $100,000 at year-end. The loan was refinanced through issuance of long-term bonds after year-end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet? 13. Bonds payable issued with scheduled maturities at various dates are called 14. A loss contingency for which the amount of loss can be reasonably estimated should be accrued when the occurrence of the loss is 15. On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note’s market rate of interest was 11%. Fleur recorded the purchase at the note’s face amount. All of the merchandise was sold by December 1, year 1. Fleur’s year 1 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, year 2. As a result of Fleur’s accounting treatment of the note, interest, and merchandise, which of the following items was reported correctly? 16. Agee Corp. pays its outside salespersons fixed monthly salaries and commissions on net sales. Sales commissions are computed and paid on a monthly basis (in the month following the month of the sale), and the fixed salaries are treated as advances against commissions. However, if the fixed salaries for salespersons exceed their sales commissions earned for a month, such excess is not charged back to them. Pertinent data for the month of April year 2 for the three salespersons in sales region 330 are as follows:

17. For sales region 330, what total amount should Agee accrue for sales commissions payable at April 30, year 2?


18. On January 1, a company issued a $50,000 face value, 8% five-year bond for $46,139 that will yield 10%. Interest is payable on June 30 and December 31. What is the bond carrying amount on December 31 of the current year? 19. Album Co. issued ten-year $200,000 debenture bonds on January 2. The bonds pay interest semiannually. Album uses the effective interest method to amortize bond premiums and discounts. The carrying value of the bonds on January 2 was $185,953. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,016 and crediting cash for $12,000. What is the annual stated interest rate for the debenture bonds? 20. An investor purchased a bond classified as a long-term investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than the 21. On January 1, year 1, Korn Co. sold to Kay Corp. $400,000 of its 10% bonds for $354,118 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Korn report as interest expense for the 6 months ended June 30, year 1? 22. Bryce Corp. signed an agreement with Casey, which requires that if Casey does not meet certain contractual obligations, Casey must forfeit land worth $100,000 to Bryce. Bryce’s accountants believe that Casey will not meet its contractual obligations, and it is probable Bryce will receive the land by the end of year 3. Bryce uses IFRS for reporting purposes. How should Bryce report the land in its December 31, year 2 financial statements? 23. On March 1, year 1, Cain Corp. issued at 103 plus accrued interest 200 of its 9%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain should realize net cash receipts from the bond issuance of 24 .On April 1, year 1, Girard Corporation issued at 98 plus accrued interest, 200 of its 10%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. From the bond issuance Girard would realize net cash receipts of 25. Bell Co. is a defendant in a lawsuit that could result in a large payment to the plaintiff. Bell’s attorney believes that there is a 90% chance that Bell will lose the suit, and estimates that the loss will be anywhere from $5,000,000 to $20,000,000 and possibly as much as $30,000,000. None of the estimates are better than the others. What amount of liability should Bell report on its balance sheet related to the lawsuit? 26. Stark, Inc. has $1,000,000 of notes payable due June 15, year 2. At the financial statement date of December 31, year 1, Stark signed an agreement to borrow up to $1,000,000 to refinance the notes payable on a long-term basis. The financing


agreement called for borrowings not to exceed 80% of the value of the collateral Stark was providing. At the date of issue of the December 31, year 1 financial statements, the value of the collateral was $1,200,000 and was not expected to fall below this amount during year 2. On the December 31, year 1 balance sheet, Stark should classify 27. On October 1, year 1, a company borrowed cash and signed a 3-year interestbearing note on which both the principal and interest are payable on October 1, year 4. The company did not elect to use the fair value option for reporting financial liabilities. At December 31, year 3, accrued interest should 28. On January 1, year 1, Jaffe Corporation issued at 95 five hundred of its 9%, $1,000 bonds. Interest is payable semiannually on July 1 and January 1, and the bonds mature on January 1, year 11. Jaffe paid bond issue costs of $20,000 which are appropriately recorded as a deferred charge. Jaffe uses the straight-line method of amortizing bond discount and bond issue costs. Assume Jaffe does not elect the fair value option for reporting financial liabilities. On Jaffe’s December 31, year 1 balance sheet, the bonds payable should be reported at their carrying value of 29. In year 1, Jeremy Corporation issued 1,000 of its 8% $1,000 bonds for $1,040,000. The bonds were due on December 1, year 11. Jeremy did not elect the fair value option for reporting financial liabilities. On October 1, year 7, as part of its normal financing management strategy, Jeremy Corporation redeemed the bonds at a time when the carrying value of the bonds was $50,000 more than the cash paid to retire the bonds. Jeremy should report the $50,000 gain as 30. On December 31, year 1, Wall Corp. issued $100,000 maturity value, 10% bonds for $100,000 cash. The bonds are dated December 31, year 1, and mature on December 31, year 11. Interest will be paid semiannually on June 30 and December 31. In Wall’s September 30, year 2 balance sheet, the amount of accrued interest expense should be 31. Which of the following statements is true? 32. For a troubled debt restructuring involving only modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt 33. Tone Company is the defendant in a lawsuit filed by Witt in year 1 disputing the validity of a copyright held by Tone. At December 31, year 1, Tone determined that Witt would probably be successful against Tone for an estimated amount of $400,000. Appropriately, a $400,000 loss was accrued by a charge to income for the year ended December 31, year 1. On December 15, year 2, Tone and Witt agreed to a settlement providing for cash payment of $250,000 by Tone to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on Tone’s accounting records was $60,000 at December 15, year 2. What would be the effect of the settlement on Tone’s income before income tax in year 2?


34. Blake Foods Corporation mails coupons to consumers which may be presented by a stated expiration date at retail food stores to obtain discounts on certain Blake products. Retailers are reimbursed for the face value of coupons redeemed, plus 10% of coupon value as compensation for handling costs. Blake honors requests for coupon redemption by retailers received up to 3 months after the consumer expiration date. In Blake’s experience, 60% of the coupons issued ultimately are redeemed. Information with respect to the two separate series of coupons issued by Blake during year 1 is as follows: 35. What amount should Blake report as a liability for unredeemed coupons at December 31, year 1? 37. In determining whether to accrue employees’ compensation for future absences, among the conditions that must be met are that the obligation relates to rights that 38. On September 1, year 1, a company borrowed cash and signed a 1-year interestbearing note on which both the principal and interest are payable on September 1, year 2. How will the note payable and the related interest be classified in the December 31, year 1 balance sheet? 39. Dell Company sells its products in reusable, expensive containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Dell accounts for the containers not returned within the time limit as being retired by sale at the deposit amount. Information for year 3. concerning the containers is as follows:

40. What amount should Dell report as a liability for returnable containers at December 31, year 3? 41. On December 31, year 2, Marsh Company entered into a debt restructuring agreement with Saxe Company, which was experiencing financial difficulties. Marsh restructured a $100,000 note receivable as follows:

42. Marsh does not elect the fair value option for recording this note receivable. In accordance with the agreement, Saxe made payments to Marsh on December 31, year 3 and year 4. How much interest income should Marsh report for the year ended December 31, year 4? 43. If the payment of compensation is probable, the amount can be reasonably estimated, and the obligation relates to rights that vest, employees’ compensation for future absences should be


44. Witt Corp. has outstanding at December 31, year 1, two long-term borrowings with annual sinking fund requirements and maturities as follows:

45. In the notes to its December 31, year 1 balance sheet, how should Witt report the above data? 46. On January 1, year 1, Hansen, Inc. issued for $939,000, 1,000 of its 9%, $1,000 bonds. The bonds were issued to yield 10%. The bonds are dated January 1, year 1, and mature on December 31, year 10. Interest is payable annually on December 31. Hansen uses the interest method of amortizing bond discount. In its December 31, year 1 balance sheet, Hansen should report unamortized bond discount of 47. During year 1 Cain Corporation incurred the following costs in connection with the issuance of bonds:

48. What amount should be recorded as a deferred charge to be amortized over the term of the bonds? 49. Reserves for contingencies for general or unspecified business risks should 50. What amount should Pak report for professional fees expense for the year ended December 31, year 1? 51. On March 1, year 1, a suit was filed against Dean Company for patent infringement. Dean’s legal counsel believes an unfavorable outcome is probable, and estimates that Dean will have to pay between $500,000 and $900,000 in damages. However, Dean’s legal counsel is of the opinion that $600,000 is a better estimate than any other amount in the range. The situation was unchanged when the December 31, year 1 financial statements were released on February 24, year 2. How much of a liability should Dean report on its balance sheet at December 31, year 1 in connection with this suit? 52. How would the amortization of premium on bonds payable affect each of the following? 53. Ace Corp. entered into a troubled debt restructuring agreement with National Bank. National agreed to accept land with a carrying amount of $75,000 and a fair value of $100,000 in exchange for a note with a carrying amount of $150,000. Disregarding income taxes, what amount should Ace report as a gain on restructuring the debt? 54. Ray Finance, Inc. issued a 10-year, $100,000, 9% note on January 1, year 1. The note was issued to yield 10% for proceeds of $93,770. Ray did not elect the fair value option to report financial liabilities. Interest is payable semiannually. The note is


callable after 2 years at a price of $96,000. Due to a decline in the market rate to 8%, Ray retired the note on December 31, year 6. On that date, the carrying amount of the note was $94,582, and the discounted market rate was $105,280. What amount should Ray report as gain (loss) from retirement of the note for the year ended December 31, year 6? 55. Snelling Co. did not record an accrual for a contingent loss, but disclosed the nature of the contingency and the range of the possible loss. How likely is the loss? 56. On June 1 of the current year, Cross Corp. issued $300,000 of 8% bonds payable at par with interest payment dates of April 1 and October 1. In its income statement for the current year ended December 31, what amount of interest expense should Cross report? 57. Hope Corporation prepares its financial statements in accordance with IFRS. Hope intends to refinance a $500,000 note payable due on March 1, year 2. The company expects the note to be refinanced for a period of five years. Under what circumstances can Hope report the note payable as a noncurrent liability on its December 31, year 1 statement of financial position? 58. Arno Corp.’s liability account balances at June 30, year 2, included a 10% note payable in the amount of $1,800,000. The note is dated October 1, year 1, and is payable in three equal annual payments of $600,000 plus interest. Arno does not elect the fair value option for reporting this financial liability. The first interest and principal payment was made on October 1, year 2. In Arno’s June 30, year 3 balance sheet, what amount should be reported as accrued interest payable for this note? 59. Which of the following contingencies should generally be accrued on the balance sheet as a liability when the occurrence of the contingent event is reasonably possible and its amount can be reasonably estimated? 60. Office supplies were ordered by Dwyer Company from Orcutt Company on December 15, year 1. The terms of sale were FOB destination. Orcutt shipped the office supplies on December 28, year 1, and Dwyer received them on January 3, year 2. When should Dwyer record the account payable? 61. A state requires quarterly sales tax returns to be filed with the sales tax bureau by the 20th day following the end of the calendar quarter. However, the state further requires that sales taxes collected be remitted to the sales tax bureau by the 20th day of the month following any month such collections exceed $500. These payments can be taken as credits on the quarterly sales tax return. Taft Corp. operates a retail hardware store. All items are sold subject to a 6% state sales tax, which Taft collects and records as sales revenue. The sales taxes paid by Taft are charged against sales revenue. Taft pays the sales taxes when they are due. Following is a monthly summary appearing in Taft’s first quarter year 2 sales revenue


account: 62. In its financial statements for the quarter ended March 31, year 2, Taft’s sales revenue and sales taxes payable would be

63. A company has the following liabilities at year-end:

64. What amount should the company include in the current liability section of the balance sheet? Wall Co. sells a product under a two-year warranty. The estimated cost of warranty repairs is 2% of net sales. During Wall’s first two years in business, it made the following sales and incurred the following warranty repair costs:

65. What amount should Wall report as warranty expense for year 2? 66. Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return for a loan. Which of the following statements is correct? 67. On March 1, year 1, Williams Corporation issued at 103 plus accrued interest, 100 of its 9%, $1,000 bonds. The bonds are dated January 1, year 1, and mature on January 1, year 11. Interest is payable semiannually on January 1 and July 1. Williams paid bond issue costs of $5,000. Based on the information above, Williams would realize net cash receipts from the bond issuance of 68. On May 1, year 2, Winston Corporation received notification of legal action against the firm. Winston’s attorneys determine that it is probable the company will lose the suit, and the loss is estimated at $5,000,000. Winston’s accountants believe this amount is material and should be disclosed. Winston prepares its financial statements in accordance with IFRS. How should the estimated loss be disclosed in Winston’s financial statements at December 31, year 2? 69. Webb Co. has outstanding a 7%, 10-year $100,000 face-value bond. The bond was originally sold to yield 6% annual interest. Webb uses the effective interest rate method to amortize bond premium. On June 30, year 1, the carrying amount of the outstanding bond was $105,000. What amount of unamortized premium on bond should Webb report in its June 30, year 2 balance sheet?

70. What amount should Bloy accrue as its share of payroll taxes in its October 31, year 1 balance sheet?


71. Glen Corporation had the following long-term debt:

72. The total of the serial bonds amounted to 73. Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows the accounting concept of 74. An expropriation of assets which is imminent and for which the amount of loss can be reasonably estimated should beBronson Apparel, Inc. operates a retail store and must determine the proper December 31, year 1 year-end accrual for the following expenses: 75. In its December 31, year 1 balance sheet, Bronson should report accrued expenses of 76. How would the amortization of discount on bonds payable affect each of the following?

77. What type of bonds in a particular bond issuance will not all mature on the same date? 78. During year 2, a former employee of Dane Co. began a suit against Dane for wrongful termination in November year 1. After considering all of the facts, Dane’s legal counsel believes that the former employee will prevail and will probably receive damages of between $1,000,000 and $1,500,000, with $1,300,000 being the most likely amount. Dane’s financial statements for the year ended December 31, year 1, will not be issued until February year 2. In its December 31, year 1 balance sheet, what amount should Dane report as a liability with respect to the suit? 79. Fulton Cereal Company inaugurated a new sales promotional program. For every 10 cereal box tops returned to the company, customers receive an attractive prize. Fulton estimates that only 30% of the cereal box tops reaching the consumer market will be redeemed. Additional information is as follows:

80. At the end of its year, Fulton recognized a liability equal to the estimated cost of potential prizes outstanding. What is the amount of this estimated liability? 81. Baker Co. sells consumer products that are packaged in boxes. Baker offered an unbreakable glass in exchange for two box tops and $1 as a promotion during the current year. The cost of the glass was $2.00. Baker estimated at the end of the year that it would be probable that 50% of the box tops will be redeemed. Baker sold 100,000 boxes of the product during the current year and 40,000 box tops were


redeemed during the year for the glasses. What amount should Baker accrue as an estimated liability at the end of the current year, related to the redemption of box tops? 82. An estimated loss from a loss contingency that is probable and for which the amount of the loss can be reasonably estimated should 83. Finch Co. reported a total asset retirement obligation of $257,000 in last year’s financial statements. This year, Finch acquired assets subject to unconditional retirement obligations measured at undiscounted cash flow estimates of $110,000 and discounted cash flow estimates of $68,000. Finch paid $87,000 toward the settlement of previously recorded asset retirement obligations and recorded an accretion expense of $26,000. What amount should Finch report for the asset retirement obligation in this year’s balance sheet? 84. E & S Partnership purchased land for $500,000 on May 1, year 1, paying $100,000 cash and giving a $400,000 note payable to Big State Bank. E & S made three annual payments on the note totaling $179,000, which included interest of $89,000. E & S then defaulted on the note. Title to the land was transferred by E & S to Big State, which cancelled the note, releasing the partnership from further liability. At the time of the default, the fair value of the land approximated the note balance. In E & S’s year 4 income statement, the amount of the loss should be 85. On December 31, year 1, Taylor, Inc. signed a binding agreement with a bank for the refinancing of an existing note payable scheduled to mature in February, year 2. The terms of the refinancing included extending the maturity date of the note by three years. On January 15, year 2, the note was refinanced. How should Taylor report the note payable in its December 31, year 1 balance sheet? 86. In March year 2, an explosion occurred at Nilo Co.’s plant, causing damage to area properties. By May year 2, no claims had yet been asserted against Nilo. However, Nilo’s management and legal counsel concluded that it was reasonably possible that Nilo would be held responsible for negligence, and that $3,000,000 would be a reasonable estimate of the damages. Nilo’s $5,000,000 comprehensive public liability policy contains a $300,000 deductible clause. In Nilo’s December 31, year 2 financial statements, for which the auditor’s fieldwork was completed in April year 3, how should this casualty be reported? 87. Grim Corporation operates a plant in a foreign country. It is probable that the plant will be expropriated. However, the foreign government has indicated that Grim will receive a definite amount of compensation for the plant. The amount of compensation is less than the fair market value but exceeds the carrying amount of the plant. The contingency should be reported 88. In determining whether to accrue employees’ compensation for future absences, one of the conditions that must be met is that the employer has an obligation to make payment even if an employee terminates. This an example of a(n)


89. On October 1, year 1, Fleur Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note’s market rate of interest was 11%. Fleur recorded the purchase at the note’s face amount. All of the merchandise was sold by December 1, year 1. Fleur’s year 1 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, year 2. Fleur’s year 1 cost of goods sold for the holiday merchandise was 90. Verona Co. had $500,000 in short-term liabilities at the end of the current year. Verona issued $400,000 of common stock subsequent to the end of the year, but before the financial statements were issued. The proceeds from the stock issue were intended to be used to pay the short-term debt. What amount should Verona report as a short-term liability on its balance sheet at the end of the current year? 91. Strand, Inc. provides an incentive compensation plan under which its president receives a bonus equal to 10% of the corporation’s income in excess of $200,000 before income tax but after deduction of the bonus. If income before income tax and bonus is $640,000 and the tax rate is 40%, the amount of the bonus would be 92. In year 1, May Corp. acquired land by paying $75,000 down and signing a note with a maturity value of $1,000,000. On the note’s due date, December 31, year 6, May owed $40,000 of accrued interest and $1,000,000 principal on the note. May was in financial difficulty and was unable to make any payments. May and the bank agreed to amend the note as follows:

93. May does not elect the fair value option for reporting its financial liabilities. As a result of the troubled debt restructuring, May should report a gain, before taxes, in its year 6 income statement of 94. Bloy Company pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Bloy accrues salaries expense only at its December 31 year-end. Data relating to salaries earned in December year 1 are as follows: 95. Assuming a 5-day work week, Bloy should record a liability at December 31, year 1, for accrued salaries of 96. On March 1, year 1, Harbour Corporation issued 10% debentures dated January 1, year 1, in the face amount of $1,000,000, with interest payable on January 1 and July 1. The debentures were sold at par and accrued interest. How much should Harbour debit to cash on March 1, year 1? 97. On December 1, year 1, Paxton Co. had a note payable due on August 1, year 2. On January 20, year 2, Paxton signed a financing agreement to borrow the balance of


the note payable from a lending institution to refinance the note. The agreement does not expire within one year, and no violation of any provision in the financing agreement exists. On February 1, year 2, Paxton was informed by its financial advisor that the lender is not expected to be financially capable of honoring the agreement. Paxton’s financial statements were issued on March 31, year 2. How should Paxton classify the note on its balance sheet at December 31, year 1? 98. On November 1, year 1, Beni Corp. was awarded a judgment of $1,500,000 in connection with a lawsuit. The decision is being appealed by the defendant, and it is expected that the appeal process will be completed by the end of year 2. Beni’s attorney feels that it is highly probable that an award will be upheld on appeal, but that the judgment may be reduced by an estimated 40%. In addition to footnote disclosure, what amount should be reported as a receivable in Beni’s balance sheet at December 31, year 1? 99. The following information pertains to a fire insurance policy in effect during calendar year 1, covering Vail Co.’s inventory: 100. Vail’s inventory averages $1,000,000 uniformly throughout the year. Vail’s income tax rate is 40%. How much of a contingent liability should Vail accrue at December 31, year 1, to cover possible future fire losses? 101. Which of the following is generally associated with payables classified as accounts payable?

102. Which of the following is generally associated with payables classified as accounts payable? 103. Which of the following is classified as an accrued liability?

104. Morgan Company determined that: (1) it has a material obligation relating to employees’ rights to receive compensation for future absences attributable to employees’ services already rendered, (2) the obligation relates to rights that vest, and (3) payment of the compensation is probable. The amount of Morgan’s obligation as of December 31, year 1, is reasonably estimated for the following employee benefits:

105. What total amount should Morgan report as its liability for compensated absences in its December 31, year 1 balance sheet? 106. Bold Company estimates its annual warranty expense at 2% of annual net sales. The following data are available:


107. After recording the year 2 estimated warranty expense, the warranty liability account would show a December 31, year 2 balance of 108. A 15-year bond was issued in year 1 at a discount. The fair value option was not elected to value financial liabilities. During year 10 a 10-year bond was issued at face amount with the proceeds used to retire the 15-year bond at its face amount. The net effect of the year 10 bond transactions was to increase long-term liabilities by the excess of the 10-year bond’s face amount over the 15-year bonds. 109. After three profitable years, Dodd Co. decided to offer a bonus to its branch manager, Cone, of 25% of income over $100,000 earned by his branch. For year 1, income for Cone’s branch was $160,000 before income taxes and Cone’s bonus. Cone’s bonus is computed on income in excess of $100,000 after deducting the bonus, but before deducting taxes. What is Cone’s bonus for the year year 1? 110. Wyatt Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be 111. A company issued 10-year term bonds at a discount in year 1. Bond issue costs were incurred at that time. The company uses the effective interest method to amortize bond issue costs. Reporting the bond issue costs as a deferred charge would result in 112. On June 30, year 1, Dean Company had outstanding 8%, $1,000,000 face value, 15-year bonds maturing on June 30, year 11. Interest is payable on June 30 and December 31. The unamortized balances on June 30, year 1, in the bond discount and deferred bond issue costs accounts were $45,000 and $15,000, respectively. Dean reacquired all of these bonds at 93 on June 30, year 1, and retired them. How much gain should Dean report on this early extinguishment of debt? 113. A retail store sells gift certificates that are redeemable in merchandise. When the gift certificate was sold for cash, a 114. Bake Co.’s trial balance included the following at December 31, year 1:

115. The deferred income tax liability is not related to an asset for financial accounting purposes and is expected to reverse in year 2. What amount should be included in the current liability section of Bake’s December 31, year 2 balance sheet? 116. In open market transactions, Oak Corp. simultaneously sold its long-term investment in Maple Corp. bonds and purchased its own outstanding bonds. The broker remitted the net cash from the two transactions. Oak’s gain on the purchase of its own bonds exceeded its loss on the sale of Maple’s bonds. Oak should report the


117. Gar, Inc.’s trial balance reflected the following liability account balances at December 31, year 1:

118. The deferred income tax liability is based on temporary differences stemming from different depreciation methods for financial reporting and income taxes. In Gar’s December 31, year 1 balance sheet, the current liabilities total was 119. On July 1, year 1, Cody Company obtained a $2,000,000, 180-day bank loan at an annual rate of 12%. The loan agreement requires Cody to maintain a $400,000 compensating balance in its checking account at the lending bank. Cody would otherwise maintain a balance of only $200,000 in this account. The checking account earns interest at an annual rate of 6%. Based on a 360-day year, the effective interest rate on the borrowing is 120. For the week ended June 30, year 1, Free Co. paid gross wages of $20,000, from which federal income taxes of $2,500 and FICA were withheld. All wages paid were subject to FICA tax rates of 7% each for employer and employee. Free makes all payroll-related disbursements from a special payroll checking account. What amount should Free have deposited in the payroll checking account to cover net payroll and related payroll taxes for the week ended June 30, year 1? 121. A company receives an advance payment for special-order goods that are to be manufactured and delivered within 6 months. The advance payment should be reported in the company’s balance sheet as a 122. On December 31, year 1, Key Co. received two $10,000 noninterest-bearing notes from customers in exchange for services rendered. The note from Alpha Co., which is due in nine months, was made under customary trade terms, but the note from Omega Co., which is due in two years, was not. The market interest rate for both notes at the date of issuance is 8%. The present value of $1 due in nine months at 8% is .944. The present value of $1 due in two years at 8% is .857. At what amounts should these two notes receivable be reported in Key’s December 31, year 1 balance sheet?

123. On January 1, year 2, Battle Corporation sold at 97 plus accrued interest 200 of its 8%, $1,000 bonds. The bonds are dated October 1, year 1, and mature on October 1, year 12. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, year 1, to January 1, year 2 amounted to $4,000. As a result on January 1, year 2, Battle would record bonds payable, net of discount, at 124. Jackson Corporation provides an incentive compensation plan under which its president is to receive a bonus equal to 10% of Jackson’s income in excess of


$100,000 before deducting income tax but after deducting the bonus. If income before income tax and the bonus is $320,000, the amount of the bonus should be


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