Moon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management issued the above authorized 10-year bonds with a par value of $2,000,000. Interests on these bonds will be paid semiannually on June 30 and December 31. On the issuance day, the annual market rate was 10% and the bonds were sold for 86.4112%. On June 30, Moon made the first interest payment for the $2,000,000, 8% bonds. On July 1, Moon issued the rest of the above authorized 10-year bonds with a par value of $1,000,000. Interests on these bonds will be paid semiannually on July 1 and December 31. Since the annual market rate on the issuance date was 5%, the bonds were sold for 122.39%. At the end of year, Moon note that following information that needs adjustments: (1) The rest of December salaries for employees (December 23 to December 31) totaled to be $29,500 and will be paid on January 5, 2020. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $8,604 of federal income taxes, $1,750 of medical insurance deductions. Moon’s state unemployment tax rate is 3% of the amount paid each employee. The federal unemployment tax rate is 0.8%. (2) Bond interests accrued. Requirements: RECORD the above transactions (Hint: a total of 9 transactions regarding sales, inventory, warranty liabilities, pay-roll-expense incurred and bonds payable). Make any necessary adjustments for payroll-related liabilities and bond interest expenses at 12/31/2019. Show the effects of all the above transactions on Moon’s Balance Sheet as of 12/31/2019 and Income Statement of 2019 (There is no need to prepare the complete financial statements.)

Moon Co. sells food blenders. During 2019, Moon made 37,000 blenders at an average cost of $80. It sold out 25,000 food blenders at an average price of $130. Moon provides a 2-year warranty for each blender sold and estimates 9% of blenders will be returned for warranty with an estimated cost of $36 each. By the end of 2019, Moon has spent $44,000 servicing the warranty repairs. All the above transactions have been settled in cash. During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22. Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds. On January 1, 2019, management issued the above authorized 10-year bonds with a par value of $2,000,000. Interests on these bonds will be paid semiannually on June 30 and December 31. On the issuance day, the annual market rate was 10% and the bonds were sold for 86.4112%. On June 30, Moon made the first interest payment for the $2,000,000, 8% bonds. On July 1, Moon issued the rest of the above authorized 10-year bonds with a par value of $1,000,000. Interests on these bonds will be paid semiannually on July 1 and December 31. Since the annual market rate on the issuance date was 5%, the bonds were sold for 122.39%. At the end of year, Moon note that following information that needs adjustments: (1) The rest of December salaries for employees (December 23 to December 31) totaled to be $29,500 and will be paid on January 5, 2020. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $8,604 of federal income taxes, $1,750 of medical insurance deductions. Moon’s state unemployment tax rate is 3% of the amount paid each employee. The federal unemployment tax rate is 0.8%. (2) Bond interests accrued. Requirements: RECORD the above transactions (Hint: a total of 9 transactions regarding sales, inventory, warranty liabilities, pay-roll-expense incurred and bonds payable). Make any necessary adjustments for payroll-related liabilities and bond interest expenses at 12/31/2019. Show the effects of all the above transactions on Moon’s Balance Sheet as of 12/31/2019 and Income Statement of 2019 (There is no need to prepare the complete financial statements.)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

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During 2019, Moon has 50 employees who work 5-day per week and get paid each other Friday. Salaries of $324,000 and payroll expense of $37,000 have been paid until December 22.

Since the business grows quickly, Moon needs cash to expand. By the end of 2018, the Board of Directors authorized the management to issue 10-year bonds with a par value of $3,000,000, annual contract interest rate of 8% and semi-annual interest payments. Moon chose to use the straight-line method to amortize discount or premium on its bonds.

On January 1, 2019, management issued the above authorized 10-year bonds with a par value of $2,000,000. Interests on these bonds will be paid semiannually on June 30 and December 31. On the issuance day, the annual market rate was 10% and the bonds were sold for 86.4112%.

On June 30, Moon made the first interest payment for the $2,000,000, 8% bonds.

On July 1, Moon issued the rest of the above authorized 10-year bonds with a par value of $1,000,000. Interests on these bonds will be paid semiannually on July 1 and December 31. Since the annual market rate on the issuance date was 5%, the bonds were sold for 122.39%.

At the end of year, Moon note that following information that needs adjustments:

(1) The rest of December salaries for employees (December 23 to December 31) totaled to be $29,500 and will be paid on January 5, 2020. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $8,604 of federal income taxes, $1,750 of medical insurance deductions. Moon’s state unemployment tax rate is 3% of the amount paid each employee. The federal unemployment tax rate is 0.8%.

(2) Bond interests accrued.

Requirements:

RECORD the above transactions (Hint: a total of 9 transactions regarding sales, inventory, warranty liabilities, pay-roll-expense incurred and bonds payable).
Make any necessary adjustments for payroll-related liabilities and bond interest expenses at 12/31/2019.
Show the effects of all the above transactions on Moon’s Balance Sheet as of 12/31/2019 and Income Statement of 2019 (There is no need to prepare the complete financial statements.)

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