Lashawndra Arceo

School of Business, Technology, and Health Care Administration, Capella University

BUS-FPX4060 Financial Acct Principles

Professor Daniela Pavel

September 27, 2022

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FINANCIAL ACCOUNTING PRINCIPLES
Assessment 4: Accounting for Liabilities and Equity Worksheet

Use this worksheet to complete the following three exercises for Assessment 4. Refer to
the instructions in the course for submitting your assessment.

Exercise 4-1
During 2011 and 2012, Data Resources, Inc. engaged in financial transactions that involved
short-term liabilities.
1. Using the financial transaction information provided below, determine the following. Record
your responses on page 2.
a. All three note maturity dates.
b. The interest due on all three notes on the dates they mature, assuming a 360-day year.
c. The interest expense for the 2011 year-end adjusting entry.
d. For distinguished performance, determine the interest expense for 2012.
Note: The company uses a perpetual inventory system.

2011
Mar 19 Purchased $41,250 worth of merchandise from Chipcom, on credit. Terms: 1/10, n/30.
April 29 Replaced the Mar 19 account payable to Chipcom with a 120-day, $35,000 note at 7%
annual interest, plus a cash payment of $6,250.
Jun 16 Borrowed $55,000 cash from Sunnyvale Bank. Signed a 90-day, 8% interest-bearing note,
with a $55,000 face value.
? Paid Chipcom the amount due on the note on the date of maturity.
? Paid Sunnyvale Bank the amount due on the note on the date of maturity.
Oct 30 Borrowed $18,000 cash from UCB Bank. Signed a 90-day, 7% interest-bearing note, with a
$18,000 face value.
Dec 31 Recorded an accrued interest adjustment on the UCB Bank note.

2012
? Paid UCB Bank the amount due on the note on the date of maturity.

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 Sunnyvale
Chipcom UCB
Bank
Starting date Apr 29, 2011 Jun 16, 2011 Oct 30, 2011
+ days + 120 days + 90 days + 90 days
Maturity Aug 27, 2011 Sept 14, 2011 Jan 28, 2012

B. Interest due on notes

Apr 29, 2011
Chipcom Principal $35,000
x Interest 7%
x Fraction of year 120/360
Total interest $816.67
Jun 16, 2011
Sunnyvale Bank Principal $55,000
x Interest 8%
x Fraction of year 90/360
Total interest $1,100
Oct 30, 2011
UCB Principal $18,000
x Interest 7%
x Fraction of year 90/360
Total interest $315

C. Interest expense for the 2011 year-end adjusting entry

Apr 29, 2011
Chipcom Principal $35,000
x Interest 7%
x Fraction of year 120/360
Total interest $816.67

Jun 16, 2011

Sunnyvale Principal $55,000
x Interest 8%
x Fraction of year 90/360
Total interest $1,100

Oct 30, 2011

UCB Principal $18,000
x Interest 7%
x Fraction of year (Oct. 30 to Dec. 31) 62/360
Total interest in 2011 $217

Determine the interest expense for 2012.

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Jan 1, 2011 $18,00
UCB Principal 0
x Interest 7%
x Fraction of year (Jan. 1 to Jan. 28) 28/360
Total interest in 2012 $98

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2. Prepare journal entries for all 2011 and 2012 events and transactions for Data Resources,
Inc.
Mar 19, 2011 Merchandise expense $41,250  
Notes payable   $41,250
Purchase made on credit, 1/10, n/30.    
Apr 29, 2011 Cash $6,250  
Notes payable   $6,250.00
Notes on new terms, Chipcom.    
Jun 16, 2011 Cash $55,000  
Notes payable   $56,100
Borrowed cash by issuing an interest-bearing note,
Sunnyvale Bank.    
Aug 27, 2011 Interest expense $816.67  
Notes payable $35,000.00  
Cash   $35,816.67
Repaid note plus interest, Chipcom.    
Sept 14, 2011 Interest expense $1,100  
Notes payable $55,000  
Cash   $56,100
Repaid note plus interest, Sunnyvale Bank.    
Oct 30, 2011 Cash $18,000  
Notes payable   $18,315
Borrowed cash by issuing an interest-bearing note, UCB.    
Dec. 31, 2011 Interest expense $217  
Interest payable   $217
Accrued interest on note payable, UCB.    
Jan 28, 2012 Interest expense $98  
Notes payable $18,000  
Interest payable $217  
Cash   $18,315
Repaid note plus interest, UCB.    

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Exercise 4-2
On January 1, 2012, Fromer issued $3,000,000 of 12-year, 7 percent bonds. Interest is paid
semi-annually on June 30 and December 31. The issue price was $2,592,000.
1. Prepare the January 1, 2012, journal entry that records the bond issue.

Jan 1, 2012 Cash $2,592,000  

Discount on bonds payable $408,000  
Bonds payable   $3,000,000
Bonds sold at discount.    

2. Compute the following for each semi-annual period:

a. Cash payment.
($3,000,000 x 7%) ÷ 2 = $105,000 (biannually, 24 payments)
b. Straight-line discount amortization.
Discount on bonds = $408,000
Payment period = 24
$408,000 ÷ 24 = $17,000
c. Interest expense

24 payments of $105,000 = $2,520,000

Plus discount = $408,000
Total interest expense = $2,928,000 ÷ 24 = $122,000

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3. Determine the total interest expense recognized over the life of the bonds.
24 payments of $105,000 = $2,520,000
Plus discount = $408,000
Total interest expense = $2,928,000
4. Prepare the first two years of an amortization table (use the straight-line method).

Semiannual Unamortized Carrying

Period-End Discount Value
Jan 1 2012 $408,000 $2,592,000
Jun 30 2012 $391,000 $2,609,000
Dec 31 2012 $374,000 $2,626,000
Jun 30 2013 $357,000 $2,643,000
Dec 31 2013 $340,000 $2,660,000

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5. For distinguished performance, prepare journal entries for the first two interest payments.

2012      
June 30 Bond interest expense $122,000  
Discount on Bonds payable*   $17,000
Cash**   $105,000
*Paid semi-annual interest, $408,000-$17,000    
**$3,000,000 x 7%/2    
Dec 31 Bond interest expense $122,000  
Discount on Bonds payable*   $17,000
Cash**   $105,000
*Paid semi-annual interest, $391,000-$17,000    
**$3,000,000 x 7%/2    

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Exercise 4-3
Stockholders’ equity in TransWorld Inc. on December 31, 2010, is shown below:

Common stock: 60,000 authorized shares, par

value of $15, 25,000 shares issued and outstanding.............................. $375,000
Paid-in capital in excess of par value, common stock............................. 90,000
Retained earnings................................................................................... 430,000
Total equity............................................................................................. 895,000

Stockholder equity accounts were affected by the following transactions in 2011:

Jan 1 TransWorld purchased 2,000 treasury shares at $24/share.
Jan 7 Declared a $3/share dividend, payable on Feb 15 to the Feb 28 stockholders of record.
Feb 15 Paid the dividend (Jan 7 declaration).
May 7 Sold 800 of treasury shares for cash at $27/share.
Aug 15 Sold 1200 of treasury shares for cash at $21/share.
Sep 20 Declared a $3/share dividend, payable on Oct 15 to the Sep 30 stockholders of record.
Oct 15 Paid the dividend (Sep 20 declaration).
Dec 31 Closed the credit balance of $188,000 (from net income) in the Retained Earnings Income
Summary account.

1. Use the information provided to prepare the following:

a. Journal entries for the 2011 transactions.

Jan 1 2011 Treasury shares (2,000 x $24/share) $48,000  

Cash   $48,000
Jan 7 2011 Retained earnings* $75,000  
Common stock payable   $75,000
*25,000 shares outstanding x $3/share    
Feb 15 2011 Dividend payable $75,000  
Cash   $75,000
May 7 2011 Cash (800 shares x $27/share) $21,600  
Treasury stock (800 shares x $24/share)   $19,200
Paid-in capital (800 shares x $27-$24)   $2,400
Aug 15 2011 Cash (1,200 shares x $21/share) $25,200  
Retained earnings (1,200 shares x $3/share) $3,600  
Treasury stock (1,200 shares x $24/share)   $28,800
Sept 20 2011 Retained earnings* $75,000  
Dividend payable   $75,000
*25,000 shares outstanding x $3/share    
Oct 15 2011 Dividend payable $75,000  

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 Cash   $75,000
Dec 31 2011 Net income $188,000  
Retained earnings   $188,000
Close credit balance    

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b. December 31, 2011, retained earnings statement.

TRANSWORLD INC
Statement of Retained Earnings
For Year Ended December 31, 2011
Retained earnings for Dec 31, 2010 430,000
Net income for Dec 31, 2011 $188,000
(Less) Dividends paid ($150,000)
Retained earnings for Dec 31, 2011 468,000

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c. For distinguished performance, prepare the investors’ equity section of TransWorld’s
December 31, 2011, balance sheet.

TRANSWORLD INC
Stockholders’ Equity Section of the Balance Sheet
December 31, 2011
Common stock -- 60,000 authorized shares, par
value of $15, 25,000 shares issued and outstanding $375,000
Paid-in capital in excess of par value, Common stock $90,000
Total contributed capital $465,000
Retained earnings 430,000
  $895,000
(Less) cost of treasury stock ($48,000)
Stockholders' equity $847,000

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