FFA_3e_Solutions_ch09.doc

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Department
Administrative Studies
Course
ADMS 2510
Professor
John Parkinson
Semester
Fall

Description
CHAPTER 9 Liabilities EXERCISES E9-1. a. b. c. Issue date 15-Jul-14 15-Jul-14 15-Jul-14 Maturity date 14-Jul-20 14-Jul-20 14-Jul-20 Annual Annual Annual Face Value (FV) 6,000,000 6,000,000 6,000,000 Number of periods 6 6 6 Effective rate (i) 5.0% 6.0% 7.0% Coupon rate (c) 6.0% 6.0% 6.0% Annual interest payment $360,000 $360,000 $360,000 Proceeds $4,477,29 $4,229,76 $3,998,05 PV of principal repayment 2 3 3 $1,827,24 $1,770,23 $1,715,95 PV of interest payments 9 7 4 $6,304,54 $6,000,00 $5,714,00 Proceeds 2 0 8 E9-3. a. Dr. Cash (A+) $100,000 Cr. Bank loan (L+) 100,000 To record the bank loan b. Dr. Building (A+) 1,000,000 Cr. Mortgage payable (L+) 1,000,000 To record the purchase of the building Dr. Mortgage payable (L–) 1,785 Dr. Interest expense (E+) 3,750 Cr. Cash (A–) 5,535 To record the mortgage payment c. Dr. Cash (A+) 250,000 Cr. Short-term loan (L+) 250,000 To record the short-term loan Dr. Short-term loan (L–) 250,000 Dr. Interest expense (E+) 70 Cr. Cash (A–) 250,070 Copyright © 2010 McGraw-Hill Ryerson Ltd. 1 To record repayment and interest for the short-term loan E9-5. a. Dr. Cash 112,000 Cr. Unearned revenue – gift certificates 112,000 To record the sale of gift cards b. Dr. Unearned revenue – gift certificates 65,000 Cr. Revenue 65,000 Assuming a perpetual inventory system: Dr. Cost of Sales 37,000 Cr. Inventory 37,000 c. The amount of the unused gift cards would be a current liability of $47,000 ($112,000 - $65,000) because the outstanding gifts cards can be redeemed at any time. d. The transaction increases current assets and current liabilities by an equal amount. The effect on the current ratio would depend on the current ratio before. If the ratio was below 1, the transaction would increase the ratio, and if the current ratio was above 1, it would decrease it. When the gift certificates are redeemed the current ratio would increase because the amount of unearned revenue and inventory would decrease, but inventory would decrease less than the unearned revenue. E9-7. Year end September 30, 2014 a. The $50,000 due in October would be a current liability because it’s due within the coming year. The remainder of the balance due in 2016 ($60,000) would be a non-current liability. b. The advance payment of $3,100 (unearned revenue) would be classified as a current liability because the catering will occur within the next fiscal year. c. The $25,000 demand loan would be classified as a current liability because it can be called by the bank at any time. d. Copyright © 2010 McGraw-Hill Ryerson Ltd. 2 The $50,000 in GST is payable to the government and must be remitted in less the 12 months. e. The principal portion of the next mortgage payment would be classified as a current liability ($29,365 less the amount of interest) because it’s due within the next year. The remainder ($220,635) would be a non-current liability. (Remember that the payment is a blend of interest and principal.) (Note that the discussion of blended mortgage payments was taken out of this edition of the book. Students who breakdown the balance sheet amounts into the current and non-current components without consideration of the interest component have the right idea.) f. The accrual would be a current liability because payment will be due in the coming year. E9-9. a. Dr. Cash 152,250 Cr. Sales 145,000 GST payable 7,250 December 10, 2014 Dr. GST payable 7,250 Cr. Cash 7,250 b. Dr. Wages and salaries expense 42,000 Cr. Income tax withholdings payable 13,000 CPP payable 4,105 EI payable 1,860 Pension plan contributions 1,450 Union dues payable 750 Disability insurance payable 1,000 Charitable contributions payable 200 Cash 19,635 December 10, 2014 Dr. Income tax withholdings payable 13,000 CPP payable 4,105 EI payable 1,860 Pension plan contributions 1,450 Union dues payable 750 Disability insurance payable 1,000 Charitable contributions payable 200 Copyright © 2010 McGraw-Hill Ryerson Ltd. 3 Cr. Cash 22,365 E9-11. Dec. 31, 2014 Dr. Pension expense (expense +, equity –) 200,000 Cr. Cash (asset –) 200,000 To record the pension contribution for 2014 In addition, it would be necessary to accrue a liability for the unpaid part of the required contribution: Dr. Pension expense (expense +, equity –) 30,000 Cr. Pension liability (liability +) 30,000 To accrue the liability for the unpaid portion of the pension contribution for 2014 (230  $1,000 = $230,000 – $200,000 = $30,000). The $30,000 pension liability would be reported on Iskut Inc December 31, 2014 balance sheet. Sometime in the future this journal entry would be necessary. Dr. Pension liability (liability +) 30,000 Cr. Cash (asset –) 30,000 To record the final payment to the defined contribution pension plan E9-13. a. This is a subsequent event that must be disclosed in the notes to the financial statements so that the stakeholders are made aware of the acquisition. The acquisition occurred after the end of the year but doesn’t provide information about circumstances that existed at the year end so disclosure is the appropriate treatment. The acquisition will likely have a significant impact in the coming year. It will help to reduce competition in the industry and since it was partially paid for with cash, it would impact Floral’s working capital and therefore it should be disclosed. Full disclosure requires that information that could influence a stakeholder’s decision be provided in the notes to the financial statements. b. This is a contingent liability. It’s a possible obligation whose existence depends on a court ruling or settlement that hasn’t occurred. The amount of any ultimate payment and the probability of having to pay are highly uncertain. Clearly the lawsuit should be disclosed since there is potential for a significant impact on the cash position and cash flow of the company. Copyright © 2010 McGraw-Hill Ryerson Ltd. 4 c. This contract is a commitment that will likely have a substantial impact on business as long as it’s in place. It would be appropriate to disclose the contract in the notes and also make users aware that it can be cancelled by the customer with 90 days notice. It’s important that the cancellation policy is disclosed because if the customer does choose to cancel, this could represent a significant decline in sales for Floral. d. This is a subsequent event because Nokomis went bankrupt after the year end. As Floral had guaranteed the note for Nokomis, it will be required to repay the loan. Since it’s likely that the financial problems of Nokomis existed at year end and the bankruptcy filing simply made the problems known, accruing the liability in the December 31, 2014 financial statements is appropriate. If the bankruptcy was the result of events that took place after the end of 2014 (perhaps a fire destroyed its premises), only disclosure would be required. The payment could have significant cash flow and liquidity consequences for Floral that stakeholders should be aware of. E9-15. (Note: Part a of the question asks for the liability on December 31, 2009 through 2012. The years should be 2014 through 2017.) a. Issue date 31-Dec-14 Maturity date 31-Dec-17 Annual Face value of amount owing $300,000 3 Effective rate 6.0% Annual payment $100,000 Annual Present value of payments $267,301 A liability of $267,301 would be reported on the balance sheet initially. The following table provides the liability amount and interest expense for each year end: Discounted value method [1] [2] [3] [4] Cash Interest Loan Date Payment Expense payable Net Liability previous[4]  6% [1] – [2] previous[4] – [3] 31-Dec-14 $ $ $ $267,301 31-Dec-15 100,000 16,039 83,961 183,340 31-Dec-16 100,000 11,000 89,000 94,340 31-Dec-17 100,000 5,660 94,340 0 b. Recording the liability at $300,000 wouldn’t reflect the time value of money. As a result the asset (heavy equipment) and liability would be overstated. Also, the interest expense Copyright © 2010 McGraw-Hill Ryerson Ltd. 5 would be understated because there would be no interest with the arrangement and the depreciation expense would be overstated because there would be more asset cost to depreciate. E9-17. Note that the straight-line method isn’t used in practice; the purpose of these exercises is to show how the premium/discount is accounted for without getting into the complexity of using the effective interest rate method. a. Issue date 1-Sep-15 Maturity date 31-Aug-30 Annual Face Value $50,000,000 15 years Number of periods 30 semi-annual periods Effective interest rate 7.0% Coupon interest rate 6.0% Semi-annual payment $1,500,000 Annual PV (principal) $17,813,921 PV (annual payments) $27,588,068 Proceeds $45,401,989 *Note: Interest payments are made semi-annually so the present value calculation should be done over 30 periods using a rate of 3.5%. Proceeds of bond issue = $45,446,043. b. Dr. Cash 45,401,989 Discount on bonds payable 4,598,011 Cr. Bonds payable 50,000,000 c. Straight-line amortization = $4,553,957/30 = $153,267 every six months. Straight-line method [1] [2] [3] [4] [5] Interest Interest Amortization Unamortized Net bond Annual Payment Expense of discount discount liability [1] – [3] (previous amount – [3]) (previous amount – [3]) 1-Sep-15 $ $ $ ($4,598,011) $45,401,989 1,500,00 1,653,26 1-Mar-16 0 7 (153,267) (4,444,744) 45,555,256 31-Aug-16 1,500,00 1,653,26 (153,267) (4,291,477) 45,708,523 Copyright © 2010 McGraw-Hill Ryerson Ltd. 6 0 7 1,500,00 1,653,26 1-Mar-17 0 7 (153,267) (4,138,210) 45,861,790 1,500,00 1,653,26 31-Aug-17 0 7 (153,267) (3,984,943) 46,015,057 1,500,00 1,653,26 1-Mar-18 0 7 (153,267) (3,831,676) 46,168,324 1,500,00 1,653,26 31-Aug-18 0 7 (153,267) (3,678,409) 46,321,591 1,500,00 1,653,26 1-Mar-19 0 7 (153,267) (3,525,142) 46,474,858 1,500,00 1,653,26 31-Aug-19 0 7 (153,267) (3,371,875) 46,628,125 1,500,00 1,653,26 1-Mar-20 0 7 (153,267) (3,218,608) 46,781,392 1,500,00 1,653,26 31-Aug-20 0 7 (153,267) (3,065,341) 46,934,659 1,500,00 1,653,26 1-Mar-21 0 7 (153,267) (2,912,074) 47,087,926 1,500,00 1,653,26 31-Aug-21 0 7 (153,267) (2,758,807) 47,241,193 1,500,00 1,653,26 1-Mar-22 0 7 (153,267) (2,605,540) 47,394,460 1,500,00 1,653,26 31-Aug-22 0 7 (153,267) (2,452,273) 47,547,727 1,500,00 1,653,26 1-Mar-23 0 7 (153,267) (2,299,006) 47,700,994 1,500,00 1,653,26 31-Aug-23 0 7 (153,267) (2,145,739) 47,854,261 1,500,00 1,653,26 1-Mar-24 0 7 (153,267) (1,992,472) 48,007,528 1,500,00 1,653,26 31-Aug-24 0 7 (153,267) (1,839,205) 48,160,795 1,500,00 1,653,26 1-Mar-25 0 7 (153,267) (1,685,937) 48,314,063 1,500,00 1,653,26 31-Aug-25 0 7 (153,267) (1,532,670) 48,467,330 1,500,00 1,653,26 1-Mar-26 0 7 (153,267) (1,379,403) 48,620,597 1,500,00 1,653,26 31-Aug-26 0 7 (153,267) (1,226,136) 48,773,864 1,500,00 1,653,26 1-Mar-27 0 7 (153,267) (1,072,869) 48,927,131 1,500,00 1,653,26 31-Aug-27 0 7 (153,267) (919,602) 49,080,398 1-Mar-28 1,500,00 1,653,26 (153,267) (766,335) 49,233,665 Copyright © 2010 McGraw-Hill Ryerson Ltd. 7 0 7 1,500,00 1,653,26 31-Aug-28 0 7 (153,267) (613,068) 49,386,932 1,500,00 1,653,26 1-Mar-29 0 7 (153,267) (459,801) 49,540,199 1,500,00 1,653,26 31-Aug-29 0 7 (153,267) (306,534) 49,693,466 1,500,00 1,653,26 1-Mar-30 0 7 (153,267) (153,267) 49,846,733 1,500,00 1,653,26 31-Aug-30 0 7 (153,267) 0 50,000,000 *Amounts may not add exactly due to rounding. d. With the straight-line method, the following entry will be made each year on August 31. Dr. Interest expense 1,653,267 Cr. Discount on bonds payable 153,267 Cash 1,500,000 e. Dr. Bonds payable 50,000,000 Cr. Cash 50,000,000 E9-19. a. Dr. Bonds payable 25,000,000 Premium on bonds payable 600,000 Loss on redemption of bonds 150,000 Cr. Cash 25,750,000 b. Dr. Bonds payable 25,000,000 Premium on bonds payable 600,000 Cr. Cash 23,500,000 Gain on redemption of bonds 2,100,000 c. The gain or loss is simply the difference between the carrying amount and the market value or redemption price of the bonds at the date of redemption. It really has no economic significance. It simply reflects that the cost of borrowing is actually greater or less than has been reflected on the income statement over the term of the bonds. The loss or gain should be reported separately so that users will understand that this amount is a non-recurring event. Separate disclosure will provide some insight into how management is managing the financing of the company. Copyright © 2010 McGraw-Hill Ryerson Ltd. 8 E9-21. a. The after-tax cost of borrowing is 4% (1-.3) = 2.8% or $70,000 per year. b. The after-tax cost of borrowing is 5% (1-.15) = 4.25% or $21,250 per year. c. The after-tax cost of borrowing is 2.5% plus 2.5% = 5% (no tax benefit for a not-for- profit) or $1,250 per year. d. The after-tax cost of borrowing is lower when the tax rate is higher, but it isn’t beneficial for a firm to face a higher tax rate because the amount of tax the entity will pay on its income will be higher and so its net income will be lower. Also, it will have to pay more dollars out in cash in taxes. E9-23. a, b & c. • 10-year lease • Annual payments of $500,000 beginning May 31, 2016 i) Interest rate = 7% a. Present value of annual lease payments = (PV(7%, 10 years, $500,000 per year)) $3,511,79 Lease liability on June 1,2015 = 1 $3,511,79 Airplanes (asset) = 1 b . Annual depreciation expense Initial carrying amount of asset/useful life $3,511,791/10 years= $351,179 c. Lease interest expense for the year ending May 31, 2016 Lease liability on June 1, 2015  interest rate = $3,511,791  .07= $245,825 ii) Interest rate = 9% a. Present value of annual lease payments = (PV(7%, 10 years, $500,000 per year)) Copyright © 2010 McGraw-Hill Ryerson Ltd. 9 $3,208,82 Lease liability on June 1,2015 = 9 $3,208,82 Airplanes (asset) = 9 b . Annual depreciation expense Initial carrying amount of asset/useful life $3,208,829/10 years= $320,883 c. Lease interest expense for the year ending May 31, 2016 Lease liability on June 1, 2015  interest rate = $3,208,829  .09= $288,795 iii) Interest rate = 11% a. Present value of annual lease payments = (PV(7%, 10 years, $500,000 per year)) $2,944,61 Lease liability on June 1,2015 = 6 $2,944,61 Airplanes (asset) = 6 b . Annual depreciation expense Initial carrying amount of asset/useful life $2,944,616/10 years= $294,462 c. Lease interest expense for the year ending May 31, 2016 Lease liability on June 1, 2015  interest rate = $2,944,616  .11= $323,908 Summary 7% 9% 11% Lease equipment/liability $3,511,791 $3,208,829 $2,944,616 Depreciation expense 351,179 320,883 294,462 Interest expense 245,825 288,795 323,908 E9-25. a. and b. • Six-year lease Copyright © 2010 McGraw-Hill Ryerson Ltd. 10 • Annual payments of $300,000 beginning December 31, 2014 • Interest rate = 8% • First payment is made on the first day of the lease. i) Present value of annual lease payments $1,497,81 (PV(8%, 5 years, $300,000 per year) + $300,000) 3 Payment on December 31, 2014 = 300,000 Lease liability after first payment on December 31, 2014 $1,197,81 = 3 $1,497,81 Initial carrying amount of asset on December 31, 2012 = 3 The current liability is the principal portion of the first payment $300,000 – (8% of $1,497,813) = $180,175 Amounts Accounting for before accounting capital lease Leases Assets for lease Capital Operating Current $785,000 $ $485,000 $785,000* Non-Current 5,255,000 1,497,813 6,752,813 5,255,000 $7,237,81 $6,040,00 Total Assets: 6,040,000 3 0 Liabilities - - Current 621,000 $204,175** $825,175 621,000 Non Current 4,250,000 993,638 5,243,638 4,250,000 Total Liabilities: 4,871,000 6,068,813 4,871,000 Shareholders’ Equity 1,169,000 1,169,000 1,169,000 $7,237,81 $6,040,00 Total liabilities and shareholder’ equity: 6,040,000 3 0 Ratios - - Current ratio 1.26 0.59 1.26 Debt to equity ratio 4.17 5.19 4.17 *It’s assumed that the lease payment made on December 31, 2014 is classified as prepaid rent (since it’s in advance) so current assets don’t decrease. **The calculation of the current portion is tricky so flexibility should be provided in grading. The amount of the current liability is the $300,000 payment less the interest that pertains to fiscal 2015 ($1,197,813  .08 = $95,825); $300,000 – $95,825 = $204,175. There is no effect of the leases on shareholders’ equity or on net income because the calculation is done at the inception of the lease and students were instructed to ignore the impact of the payments. c. Since the lease represents an obligation to the company treating the lease as a capital lease would make the financial statements more complete and better reflects the leverage Copyright © 2010 McGraw-Hill Ryerson Ltd. 11 of the company and, therefore, its risk. The lease payment that is due in one year represents a required cash flow. Not including it on the balance sheet overstates the current ratio. Excluding the entire liability understates the total obligations and understates the debt-to-equity ratio. d. Assuming that the information regarding the lease payments is provided to stakeholders, one could argue that well-informed users of the financial statements will respond to the financial statements in the same way in either case. The treatment affects the accounting numbers, which can affect the outcome of contracts and decisions that are based strictly on the numbers. Also, decision makers who use rules of thumb could be confused. E9-27. Tax basis of asset == Cost – CCA = $350,00 – 0 $52,500 = $297,50 0 Accounting basis of asset = = Cost(-) – Depreciation = $350,00 – 0 $70,000 = $280,00 0 Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($297,500 – $280,000)  .15 = $2,650 future income tax asset E9-29. Income before taxes = $1,700,000 Taxable income = 1,850,000 Tax basis of assets > Accounting basis of assets by $600,000 Future income tax liability on November 30, 2013 = $225,000 a. Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($600,000)  .30 = $180,000 future income tax asset b. Income before taxes $1,700,00 Copyright © 2010 McGraw-Hill Ryerson Ltd. 12 0 Income tax expense Current 555,000 Future (405,000) $1,550,00 Net Income 0 *The opening balance in the future income tax account was a credit or a future tax liability of $600,000. The ending balance needs to be a debit or future tax asset of $180,000 (see part a.). To obtain a debit balance of $180,000, a debit to future income taxes of $405,000 ($180,000 + $225,000) is required. The current portion of the income tax expense is Taxable income  tax rate = $1,850,000  .30 = $555,000. c. If the taxes payable method were used, the income tax expense would be equal to taxes payable. $1,700,00 Income before taxes 0 Income tax expense 555,000 $1,145,00 Net Income 0 d. The amounts differ because the future income tax method requires that the income tax expense be based on the measurements used for financial reporting purposes while the income tax expense using the taxes payable method is the amount of income tax actually paid or payable for the period, which is based on the requirements of the Income Tax Act. e. Dr. Income tax expense (income statement) 150,000 Future income taxes (balance sheet) 405,000 Cr. Income taxes payable (30% of $1,850,000) 555,000 E9-31. The tax basis of the asset is the same for all parts of the question: Tax basis of asset = Cost – CCA = $150,00 – $22,50 0 0 = $127,50 0 a. Accounting basis of asset = Cost(-) – Depreciation = $150,00 – 0 $15,000 Copyright © 2010 McGraw-Hill Ryerson Ltd. 13 = $135,00 0 The accounting depreciation will be $150,000/10 = $15,000. Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($127,500 – $135,000)  .12 = $900 future income tax liability There is a future tax liability of $900 to be reported on the balance sheet. b. Accounting basis of asset = Cost(-) – Depreciation = $150,00 – 0 $30,000 = $120,00 0 The accounting depreciation will be $150,000/5 = $30,000. Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($127,500 – $120,000)  .12 = $900 future income tax asset There is a future tax asset of $900 to be reported on the balance sheet. c. Accounting basis of asset = Cost(-) – Depreciation = $150,00 – 0 $45,000 = $105,00 0 The accounting depreciation will be $150,000  .30 = $45,000. Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($127,500 – $105,000)  .12 = $2,700 future income tax asset There is a future tax asset of $2,700 to be reported on the balance sheet. d. There is no future tax reported on the balance sheet since the asset will have the same accounting and tax values. Future income tax balance = (Tax basis of asset – Accounting basis of asset)  Tax rate = ($127,500 – $127,500)  .12 = $0 Copyright © 2010 McGraw-Hill Ryerson Ltd. 14 e. An income tax liability does indicate that cash will have to be paid at some future date but it’s a tax effect that is relative to expenses and revenues recognized for accounting purposes (that is, future income tax balances give information about how assets and liabilities have been accounted for differently for tax and accounting purposes; they aren’t an actual amount of liability or benefit). (Another way of thinking about this is that future income taxes give information about the amount of CCA available on assets (and the deductibility of expenses) relative to the accounting used for these assets and liabilities.) The payment isn’t really unavoidable, since it’s possible the firm may never pay the amount indicated or at least not in the foreseeable future (and the amount changes with tax rates and accounting policies). If the company continues to acquire capital assets, as would be the case for a growing company, or if the company incurs losses, no payments of cash will occur for a long time. Another difficulty is the fact that no indication is provided regarding when the future cash flows are expected to occur. A future tax liability could represent a cash outflow that is expected in one year or over the next six years. In this situation, because it’s simple, a user can infer the amount of tax benefit (CCA available) on the asset in question. This information is helpful for predicting cash flows. As the situation becomes more complex—more assets, different assets, liabilities that are accounted for differently for accounting and tax—it becomes much more difficult to understand the timing of the impact of future tax amounts on cash flow. Copyright © 2010 McGraw-Hill Ryerson Ltd. 15 PROBLEMS P9-1. a. Yes, there is a liability according to IFRS because: there is an obligation (a contractual obligation to pay royalties), the obligation is the result of a past transaction (clothing with the logo was sold), and there will be an economic sacrifice (cash will have to be paid). Intuitively this is a liability as well because the company agreed to pay royalties. (Note that different people will have different intuitions.) b. Yes, there is a liability according to IFRS because there is an obligation to provide services to the supplier (the company agreed to do so), it results from a past transaction (the receipt of goods), and there will be an economic sacrifice of resources (labour, inventory), Intuitively this is a liability because the company is required to perform services in the future to pay for goods received. c. Environmental liabilities are accrued under IFRS because a sacrifice of resources will be required to clean up the landfill site. Government regulations create a binding obligation (unless government regulations change the company must meet it requirements or face sanctions), will require the sacrifice of economic resources to meet the government regulations, and is the result of past transactions (creating and operating the land fill). It certainly could be considered an obligation intuitively because the costs are required as a result of opening the landfill although some might argue that there is no obligation until the landfill closes. P9-3. Debt-to- Current Interest Cash from Return on Equity Ratio Coverage Operations Assets Ratio Ratio before transaction/ 1.3:1 1.67 3.98 650,000 5.6% economic event a. Pay employees Decrease Increases No effect Decrease Increase (Current assets decrease, current liabilities decrease) b. Arrange capital lease Increase Decrease No effect No effect Decrease (Long-term assets incr. Short-term, Long-term debt increases) c. Record a future income Increase No effect No effect No effect Decrease tax expense and corresponding liability (expenses increase, long- term liabilities increase) Copyright © 2010 McGraw-Hill Ryerson Ltd. 16 d. Receive cash Increase Decrease No effect Increase Decrease (Cash incr., unearned revenue increases) e. Retire bond with loss* Decrease Decrease Decrease No effect Increase f. Pay lawsuit – previously Decrease Increase No effect Decrease Increase accrued amount (cash decreases, current/longer-term liabilities decrease) a. Dr. Wages payable (L–) Cr. Cash (A–) b. Dr. Asset under capital lease (A+) Cr. Lease liability (L+) Assumes lease liability has a current portion. c. Dr. Future income tax expense (E –, OE–) Cr. Non–current future income tax liability (L+) Assumes the future income tax liability is non–current. d. Dr. Cash (A+) Cr. Unearned Revenue (L+) e. Dr. Bonds payable (L–) 1,000,000 Cr. Loss on redemption of bonds (OE–) 25,000 Cr. Cash (A–) 1,025,000 *It’s likely that average assets decreases by much more than net income so return on assets likely i
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