Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 13, Problem 13.10P
Subsequent events; classification of debt; loss contingency; financial statement effects
• LO13–4, LO13–5
Van Rushing Hunting Goods’ fiscal year ends on December 31. At the end of the 2018 fiscal year, the company had notes payable of $12 million due on February 8, 2019. Rushing sold 2 million shares of its $0.25 par, common stock on February 3, 2019, for $9 million. The proceeds from that sale along with $3 million from the maturation of some 3-month CDs were used to pay the notes payable on February 8.
Through his attorney, one of Rushing’s construction workers notified management on January 5, 2019, that he planned to sue the company for $1 million related to a work-site injury on December 20, 2018. As of December 31, 2018, management had been unaware of the injury, but reached an agreement on February 23, 2019, to settle the matter by paying the employee’s medical bills of $75,000.
Rushing’s financial statements were finalized on March 3, 2019.
Required:
1. What amount(s) if any, related to the situations described should Rushing report among current liabilities in its
2. What amount(s) if any, related to the situations described should Rushing report among long-term liabilities in its balance sheet at December 31, 2018? Why?
3. How would your answers to requirements 1 and 2 differ if the settlement agreement had occurred on March 15, 2019, instead? Why?
4. How would your answers to requirements 1 and 2 differ if the work-site injury had occurred on January 3, 2019, instead? Why?
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€ 17.4 (L01) (Debt Investments) Assume the same information as in E17.3 (in the picture)except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year end is as follows.
2019 $ 534.200
2020 $ 515,000
2021 $ 513,000
2022 $ 517,000
2023 $ 500,000
Instructions
a. Prepare the journal entry at the date of the bond purchase.
b. Prepare the journal entries to record the interest received and recognition of fair value for 2019.
c. Prepare the journal entry to record the recognition of fair value for 2020.
d. Discuss how the response to (c) will be different assuming Roosevelt has a strategy of held-for-collection and selling.
EA6. LO 13.2 Oak Branch Inc. issued $700,000 of 5%, 10-year bonds when the market rate was 4%. They received $757,243. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds.
Cash Interest Payment
Rate 0.025
Interest on Carrying Value
Rate 0.02
Amortization of Premium
Carrying Value
Jan. 1, Year 1
757,243
June 30, Year 1
Dec. 31, Year 1
June 30, Year 2
Dec. 31, Year 2
June 30, Year 3
Dec. 31, Year 3
Chapter 13 Solutions
Intermediate Accounting
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