Devry acct305 week 5 homework

E13-3 The following selected transactions relate to liabilities of United Insulation Corporation. United's fiscal year ends on December 31.

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

2013

Jan. 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 $20 million at the bank's prime rate.

Feb. 1 Arranged a three-month bank loan of $5 million with Parish Bank under the line of credit agreement. Interest at the prime rate of 10% was payable at maturity.

May 1 Paid the 10% note at maturity.

Dec. 1 Supported by the credit line, issued $10 million of commercial paper on a nine-month note. Interest was discounted at issuance at a 9% discount rate.

31 Recorded any necessary adjusting entry(s).

2014

Sept. 1 Paid the commercial paper at maturity.

E13-11 An annual report of Spring Corporation contained a rather lengthy narrative entitled "Review of Segmental Results of Operation." The narrative noted that short-term notes payable and commercial paper outstanding at the end of the year aggregated $756 million and that during the following year "This entire balance will be replaced by the issuance of long-term debt or will continue to be refinanced under existing long-term credit facilities."

Required: How did Sprint report the debt in its balance sheet? Why?

E13-15 Cupola Awning Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 3% of sales. Sales and actual warranty expenditures for the first year of selling the product were:

Sales Actual Warranty Expenditures

$5,000,000 $37,500

Required: 1. Does this situation represent a loss contingency? Why or why not? How should Cupola account for it?

2. Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2013.

3. What amount should Cupola report as a liability at December 31, 2013?

E13-17 Sound Audio manufactures and sells audio equipment for automobiles. Engineers notified management in December 2013 of a circuit flaw in an amplifier that poses a potential fire hazard. An intense investigation indicated that a product recall is virtually certain, estimated to cost the company $2 million. The fiscal year ends on December 31.

Required: 1. Should this loss contingency be accrued, disclosed only, or neither? Explain.

2. What loss, if any, should Sound Audio report in its 2013 income statement?

3. What liability, if any, should Sound Audio report in its 2013 balance sheet?

4. Prepare any journal entry needed.

E13-27 Lee Financial Services pays employees monthly. Payroll information is listed below for January 2013, the first month of Lee’s fiscal year. Assume that none of the employees exceeded any relevant wage base.

Salaries $ 500,000

Federal income taxes to be withheld 100,000

Federal unemployment tax rate 0.60%

State unemployment tax rate (after FUTA deduction) 5.40%

Social Security (FICA) tax rate 7.65%

Required: Prepare the appropriate journal entries to record salaries and wages expense and payroll tax expense for the January 2013 pay period.