ACCT 306 WEEK 5 HOMEWORK

Exercise 13-1 (Algo) Bank loan; accrued interest [LO13-2]

On November 1, 2024, Quantum Technology, a geothermal energy supplier, borrowed $6 million cash to fund a geological survey. The loan was made by Nevada BancCorp under a noncommitted short-term line of credit arrangement. Quantum issued a nine-month, 12% promissory note. Interest was payable at maturity. Quantum’s fiscal period is the calendar year.

Required:

  1. Prepare the journal entry for the issuance of the note by Quantum Technology.
  2. & 3.Prepare the appropriate adjusting entry for the note by Quantum on December 31, 2024 and journal entry for the payment of the note at maturity.

Note: For all requirements, if no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in whole dollars.

Exercise 13-3 (Algo) Short-term notes [LO13-2]

The following selected transactions relate to liabilities of United Insulation Corporation. United’s fiscal year ends on December 31.

2024

January 13 Negotiated a revolving credit agreement with Parish Bank that can be renewed annually upon bank approval. The amount available under the line of credit is $25.0 million at the bank’s prime rate.
February 1 Arranged a three-month bank loan of $4.2 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 14% was payable at maturity.
May 1 Paid the 14% note at maturity.
December 1 Supported by the credit line, issued $15.9 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 13% discount rate.
December 31 Recorded any necessary adjusting entry(s).

2025

September 1 Paid the commercial paper at maturity.

Required:

Prepare the appropriate journal entries through the maturity of each liability.

Note: Do not round intermediate calculations. If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Enter your answers in whole dollars.

Exercise 13-9 (Algo) Gift cards; financial statement effects [LO13-3]

CircuitTown commenced a gift card program in January 2024 and sold $13,550 of gift cards in January, $15,200 in February, and $21,750 in March 2024 before discontinuing further gift card sales. During 2024, gift card redemptions were $8,300 for the January gift cards sold, $6,000 for the February cards, and $6,000 for the March cards. CircuitTown considers gift cards to be “broken” (not redeemable) 10 months after sale.

Required:

  1. How much revenue will CircuitTown recognize with respect to January gift card sales during 2024?
  2. Prepare journal entries to record the sale of January gift cards, redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards.
  3. How much revenue will CircuitTown recognize with respect to March gift card sales during 2024?
  4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2024?

Exercise 13-10 (Static) FASB codification research [LO13-3, 13-4, 13-5]

Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org) and select Basic View for free access.

Required:

Determine the specific eight- or nine-digit Codification citation (XXX-XX-XX-XX) that describes the following items:

  1. If it is only reasonably possible that a contingent loss will occur, the contingent loss should be disclosed.
  2. Criteria allowing short-term liabilities expected to be refinanced to be classified as long-term liabilities.
  3. Accounting for the revenue from separately priced extended warranty contracts.
  4. The criteria to determine if an employer must accrue a liability for vacation pay.

 Exercise 13-13 (Algo) Current–noncurrent classification of debt; financial statement effects [LO13-1, 13-4]

At December 31, 2024, Newman Engineering’s liabilities include the following:

  1. $15 million of 9% bonds were issued for $15 million on May 31, 2002. The bonds mature on May 31, 2032, but bondholders have the option of calling (demanding payment on) the bonds on May 31, 2025. However, the option to call is not expected to be exercised, given prevailing market conditions.
  2. $19 million of 8% notes are due on May 31, 2025. A debt covenant requires Newman to maintain current assets at least equal to 180% of its current liabilities. On December 31, 2024, Newman is in violation of this covenant. Newman obtained a waiver from National City Bank until June 2025, having convinced the bank that the company’s normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2025.
  3. $12 million of 11% bonds were issued for $12 million on August 1, 1995. The bonds mature on July 31, 2025. Sufficient cash is expected to be available to retire the bonds at maturity.

Required:

What portion of each liability is reported as a current liability and as a noncurrent liability?

Note: Enter your answers in millions (i.e., 10,000,000 should be entered as 10).

Problem 13-4 (Algo) Various liabilities; financial statement effects [LO13-1, 13-2, 13-3, 13-4]

The unadjusted trial balance of the Manufacturing Equitable at December 31, 2024, the end of its fiscal year, included the following account balances. Manufacturing’s 2024 financial statements were issued on April 1, 2025.

Accounts receivable $ 104,000
Accounts payable 40,000
9% notes, payable to bank 616,000
Mortgage note payable 1,445,000

Other information:

  1. The bank notes, issued August 1, 2024, are due on July 31, 2025, and pay interest at a rate of 9%, payable at maturity.
  2. The mortgage note is due on March 1, 2025. Interest at 8% has been paid up to December 31 (assume 8% is a realistic rate). Manufacturing intended at December 31, 2024, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $492,500 in cash on the principal balance and refinanced the remaining $952,500.
  3. Included in the accounts receivable balance at December 31, 2024, were two subsidiary accounts that had been overpaid and had credit balances totaling $20,700. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases.
  4. On November 1, 2024, Manufacturing rented a portion of its factory to a tenant for $31,200 per year, payable in advance. The payment for the 12 months ended October 31, 2025, was received as required and was credited to deferred revenue.

Required:

  1. Prepare any necessary adjusting journal entries at December 31, 2024, pertaining to each item of other information (a–d).
  2. Prepare the current and long-term liability sections of the December 31, 2024, balance sheet.