Question 1 During the fiscal year ended December 31, Swanson Corporation engaged in the following… Assignment Help

  

Question 1 During the fiscal year ended December 31, SwansonCorporation engaged in the following transactions involving notespayable:Aug. 6 Borrowed $12,000 from Maple Grove Bank, signing a 45-day,12 percent note payable.Sept. 16 Purchased office equipment from Seawald Equipment. Theinvoice amount was $18,000, and Seawald agreed to accept, as fullpayment, a 10 percent, three-month note for the invoice amount.Sept. 20 Paid Maple Grove Bank the note plus accruedinterest.Nov. 1 Borrowed $250,000 from Mike Swanson, a major corporatestockholder. The corporation issued Swanson a $250,000, 15 percent,90-day note payable.Dec. 1 Purchased merchandise inventory in the amount of $5,000from Gathman Corporation. Gathman accepted a 90-day, 14 percentnote as full settlement of the purchase. Swanson Corporation uses aperpetual inventory system.Dec. 16 The $18,000 note payable to Seawald Equipment maturedtoday. Swanson paid the accrued interest on this note and issued anew 30-day, 16 percent note payable in the amount of $18,000 toreplace the note that matured.Instructionsa. Prepare journal entries (in general journal form) to recordthe above transactions. Use a 360- day year in making the interestcalculations.b. Prepare the adjusting entry needed at December 31, prior toclosing the accounts. Use one entry for all three notes (round tothe nearest dollar).c. Provide a possible explanation why the new 30-day notepayable to Seawald Equipment pays 16 percent interest instead ofthe 10 percent rate charged on the September 16 note.Question 2 The following items were taken from the accountingrecords of Nevada Utility Company for the year ended December 31,2015 (dollar amounts are in thousands): Accounts payable $48,000.00Accrued Expense Payable (other than interest) $ 7,200.0010% Bonds Payable, due April 1, 2016 $ 100,000.008% Bonds payable, due October 1, 2016 $ 150,000.00Unarmotized bond discount (8% bonds of 2016) $ 270.0012% bonds payable, due April 1, 2030 $ 300,000.00Unarmotized bond premium (12% bonds of 2030) $ 2,000.00Accrued interest payable $ 3,650.00Bond interest expense $ 57,000.00Other intesrest expense $ 8,000.00Notes payable (short-term) $ 75,000.00Lease Obligations – Capital leases $ 18,000.00Pension obligation $ 410,000.00Unfunded obligation for postretirement benefits other thanpensions $ 60,000.00Deferred income taxes $ 110,000.00income tax expense $ 42,000.00Income tax Payable $ 8,000.00Operating Income $ 341,250.00Net Income $ 210,000.00Total Assets $ 2,203,590.00Other Information 1. The 10 percent bonds due in April 2016 willbe refinanced in March 2016 through the issuance of $125,000 in 9percent, 20-year bonds payable.2. The 8 percent bonds due October 1, 2016, will be repaidentirely from a bond sinking fund.3. Nevada Utility is committed to total lease payments of$11,000 in 2016. Of this amount, $6,000 is applicable to operatingleases, and $5,000 to capital leases. Payments on capital leaseswill be applied as follows: $2,000 to interest expense and $3,000to reduction in the capitalized lease payment obligation.4. Nevada Utility’s pension plan is fully funded with anindependent trustee.5. The obligation for postretirement benefits other thanpensions consists of a commitment to maintain health insurance forretired workers. During 2016, Nevada Utility will fund $16,000 ofthis obligation.6. The $8,000 in income taxes payable relates to income taxeslevied in 2015 and must be paid on or before March 15, 2016. Noportion of the deferred tax liability is regarded as a currentliability.Instructionsa. Using this information, prepare the current liabilities andlong-term liabilities sections of Nevada Utility Company’sclassified balance sheet as of December 31, 2015. (Within eachclassification, items may be listed in any order.)b. Explain briefly how the information in each of the sixnumbered paragraphs affected your presentation of the company’sliabilities.c. Compute as of December 31, 2015, the company’s (1) debt ratioand (2) interest coverage ratio. d. Solely on the basis ofinformation stated in this problem, indicate whether this companyappears to be an outstanding, medium, or poor long-term creditrisk. State specific reasons for your conclusion

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