Question

Listed Below are selected transactions of Schultz Department Store for the current year ending Dec. 2017

1. On December 5, the store received $500 from the Selig Players as a deposit to be returned after certain furniture to be used in stage production on January 15, 2018.

2. During December, cash sales totaled 798,000, which includes the 5% sale tax that must be remitted to the state by the 15th day of the following month.

3. Schultz Department Store provides paid vacations to its employees. At Dec. 31, 2017, 30 employees have each earned 2 weeks of vacation time. The employees' average salary is $450 per week.

4. On January 1, 2017, Schultz Department Store issued $600,000 of 7% bonds, due in 10 years. The bond were issued for 559,224 and pay interest July 1 and January 1. Schultz using the straight-line method. The effective interest rate was 8%

5. At December 31,2017, Schultz is involved with a lawsuit . The attorney for the company determined that is is probable that Schultz will loss the case and that a reaonable estimate of damages to be paid by Schultz is $300,000

6. The company has an outstanding notes payable at December 31, 2017 in the amount of 225,000. The note payable is due in installment of 25,000 per quarter. (ignore interest portion)

Prepare IN GOOD FORM the liability section of the balance sheet at December 31, 2017

Answer 1

Schultz Departmental Store
Balance Sheet ( Partial )
December 31, 2017
Liabilities	$	$
Current Liabilities
Interest Payable	21,000
Deposits from Customers	500
Sales Tax Payable	39,900
Accrued Vacation Pay	27,000
Note Payable ( Short Term )	100,000
Total Current Liabilities		188,400
Long Term Liabilities
Bonds Payable	600,000
Less: Unamortized Discount	(37,983)	562,017
Note Payable ( Long Tem )		125,000
Total Long-term Liabilities		687,017
Other Liabilities
Estimated Litigation Liability		300,000
Total Liabilities		$ 1,175,417

Bond Amortization Schedule:

	Amount Paid	Interest Expense	Discount Amortization	Bond Discount	Bonds Payable
Jan 1, 2017				$ 40,776	$ 559,224
July 1, 2017	21,000	22,369	1,369	39,407	560,593
Dec 31, 2017	21,000	22,424	1,424	37,983	562,017

Workings :

Interest payable = $ 600,000 x 7% x 1 / 2 = $ 21,000.

Sales Tax Payable = $ 798,000 x 5 % = $ 39,900.

Accrued vacation pay = 30 employees x 2 weeks x $ 450 per week = $ 27,000.

Note Payable ( Short-term) = $ 25,000 x 4 quarters = $ 100,000.

Carrying value of bond on Jan 1, 2017 : $ 559,224.

Interest expense for half year ended June 30 = $ 559,224 x 8 % x 1/2 = $ 22,369.

Amortization of bond discount = $ 22,369 - $ 21,000 = $ 1,369.

Carrying value of bonds on July 1, 2017 = $ 559,224 + $ 1,369 = $ 560,593

Interest expense for half year ended December 31= $ 560,593 x 8% x 1/2 = $ 22,424.

Amortization of bond discount = $ 22,424 - $ 21,000 = $ 1,424.

Carrying value of bonds on December 31, 2017 = $ 560,593 + $ 1,424 = $ 562,017.