Problem 1

Salaries Expense 135,700

Salaries Payable 135,700

Inventory 268,280
Cash 41,295
Accounts Payable 226,985

Cash 1,940,000
Discount on Notes Payable 60,000
Notes Payable 2,000,000

Interest Expense 30,000

Discount on Notes Payable 30,000

Cash/Accounts Receivable 782,880

Sales 711,709
Sales Tax Payable 71,171

Equipment 550,000
Cash 150,000
Notes Payable 400,000

Interest Expense 1,111

Interest Payable 1,111

Income Tax Expense 32,500

Income Tax Payable 32,500

Provisions per quarter (78,750 x 4) 315,000

Actual Income Tax Expense 347,500
Additional Provision 32,500

Problem 2

Warranties

Sales from musical instruments and equipment 5,400,000

Estimated percentage of warranty cost 2%
Warranty Expense 108,000
Warranty Expense 108,000
Warranty Liability 108,000

Warranty Liability 164,000

Cash 164,000

Warranty Liability, 1/1 136,000

Add: Warranty Expense 108,000
Less: Warranty Cost (164,000)
Warranty Liability, 12/31 80,000

Premiums

Sales of recorded and sheet music 1,800,000

Estimated percentage of redemption 60%
Estimated coupons to be redeemed 1,080,000
Coupons needed to exchange 200
Estimated Premiums for the year 5,400
Cash out for each premium 14
Premium Expense 75,600

Premium Expense 75,600

Premium Claims Outstanding 75,600

Inventory - Cassette Players 221,000

Cash 221,000

Cash 120,000
Premium Claims Outstanding 84,000
Inventory - Cassette Players 204,000

Premium Claims Outstanding, 1/1 44,800

Add: Premium Expense 75,600
Less: Premiums Redeemed (84,000)
Premium Claims Outstanding, 12/31 36,400

Inventory - Cassette Players, 1/1 39,950

Add: Cassette Players Purchased 221,000
Less: Cassette Players Redeemed (204,000)
Inventory - Cassette Players, 12/31 56,950

Problem 3
2004

January

Cash 4,500,000
Discount on Bonds Payable 500,000
Bonds Payable 5,000,000

July

Interest Expense 300,000

Cash 300,000

Interest Expense 25,000

Discount on Bonds Payable 25,000

December

Interest Expense 300,000

Interest Payable 300,000

Interest Expense 25,000

Discount on Bonds Payable 25,000

2005

January

Interest Payable 300,000

Cash 300,000

July

Interest Expense 300,000

Cash 300,000

Interest Expense 25,000

Discount on Bonds Payable 25,000

December
Interest Expense 300,000
Interest Payable 300,000

Interest Expense 25,000

Discount on Bonds Payable 25,000

2006

January

Interest Payable 300,000

Cash 300,000

July

Interest Expense 300,000

Cash 300,000

Interest Expense 25,000

Discount on Bonds Payable 25,000

October

Interest Expense 12,500

Discount on Bonds Payable 12,500

As if the 1,100,000 was the Face Value of the Bonds Redeemed

Bonds Payable 1,100,000

Interest Expense 33,000
Loss on Bond Redemption 167,750
Discount on Bonds Payable 79,750
Cash 1,221,000

As if the 1,100,000 was the Redemption Price of the Bonds Redeemed

Bonds Payable 990,991

Interest Expense 29,730
Loss on Bond Redemption 151,126
Discount on Bonds Payable 71,847
Cash 1,100,000
December

As if the 1,100,000 was the Face Value of the Bonds Redeemed

Interest Expense 234,000

Interest Payable 234,000

Interest Expense 9,750

Discount on Bonds Payable 9,750

As if the 1,100,000 was the Redemption Price of the Bonds Redeemed

Interest Expense 240,541

Interest Payable 240,541

Interest Expense 10,023

Discount on Bonds Payable 10,023

Problem 3

Notes Payable Current Non-Current

April 31, 2010 720,000
July 31, 2010 1,080,000
September 1, 2010 540,000
February 1, 2011 540,000
April 1, 2011 onwards 3,240,000
Total 2,880,000 3,240,000

Warranties
Warranties Liability, 3/31/09 302,400
Add: Warranty Expense 756,000
Less: Actual Warranty Costs (644,400)
Warranties Liability, 3/31/10 414,000

Trades Payable 672,000

Dividends Payable 1,800,000

Bonds Payable
Face Value of the Bonds 6,000,000
Less: Unamortized Bond Discount (108,000)
Bonds Payable, Carrying Amount 5,892,000
Interest Payable, Bonds 360,000
Interest Payable, Notes Payable 408,000

Total Current Liabilities 6,534,000

Total Non-Current Liabilities 9,132,000

Problem 5

Accounting Income 10,000,000

Add/Less: Permanent Differences
Life Insurance - Company as Beneficiary 100,000
Interest Income (200,000) (100,000)
Accounting Income after Permanent Differences 9,900,000
Add/Less: Temporary Differences
Excess Tax Depreciation (2,000,000)
Unamortized Computer Software (3,000,000) (5,000,000)
Warranty Expense 200,000
Litigation Accrual 500,000
Unearned Rent Income 400,000 1,100,000
Taxable Income 6,000,000

Accounting Income after Permanent Differences 9,900,000

Tax Rate 35%
Income Tax Expense 3,465,000

Taxable Income 6,000,000

Tax Rate 35%
Current Tax Expense 2,100,000

Taxable Temporary Differences 5,000,000

Tax Rate 35%
Deferred Tax Liability 1,750,000

Deductible Temporary Differences 1,100,000

Tax Rate 35%
Deferred Tax Asset 385,000