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1. UOP ACC 422 Week 5 WileyPLUS Assignment
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Problem 13-9
Sycamore Candy Company offers a CD single as a
premium for every 5 candy bar wrappers
presented by customers together with $3.35. The
candy bars are sold by the company to
distributors for 30 cents each. The purchase price
of each CD to the company is $3.10; in addition, it
costs 50 cents to mail each CD. The results of the
premium plan for the years 2012 and 2013 are as
follows. (All purchases and sales are for cash.)

2. 2012 2013
CDs purchased 257,500
339,900
Candy bars sold 2,970,900
2,801,800
Wrappers redeemed 1,236,000
1,545,000
2012 wrappers expected to be redeemed in 2013
298,700
2013 wrappers expected to be redeemed in 2014
360,500
(a) Prepare the journal entries that should be
made in 2012 and 2013 to record the transactions
related to the premium plan of the Sycamore
Candy Company. (If no entry is required, select
"No Entry" for the account titles and enter 0 for
the amounts. Credit account titles are
automatically indented when amount is entered.
Do not indent
(b) Indicate the amounts for each accounts, and
classifications of the items related to the premium
plan that would appear on the balance sheet and
the income statement at the end of 2012 and
2013.
manually.)

3. Exercise 13-13 (Essay)
Presented below are three independent situations.
Answer the question at the end of each situation.
1. During 2012, Maverick Inc. became involved in a
tax dispute with the IRS. Maverick's attorneys
have indicated that they believe it is probable that
Maverick will lose this dispute. They also believe
that Maverick will have to pay the IRS between
$800,000 and $1,400,000. After the 2012 financial
statements were issued, the case was settled with
the IRS for $1,200,000. What amount, if any,
should be reported as a liability for this
contingency as of December 31, 2012?
2. On October 1, 2012, Holmgren Chemical was
identified as a potentially responsible party by the
Environmental Protection Agency. Holmgren's
management along with its counsel have
concluded that it is probable that Holmgren will be
responsible for damages, and a reasonable
estimate of these damages is $6,000,000.
Holmgren's insurance policy of $9,000,000 has a
deductible clause of $500,000. How should
Holmgren Chemical report this information in its
financial statements at December 31, 2012?

4. 3. Shinobi Inc. had a manufacturing plant in
Darfur, which was destroyed in the civil war. It is
not certain who will compensate Shinobi for this
destruction, but Shinobi has been assured by
governmental officials that it will receive a definite
amount for this plant. The amount of the
compensation will be less than the fair value of the
plant but more than its book value. How should
the contingency be reported in the financial
statements of Shinobi Inc.?
Exercise 14-22
On December 31, 2012, the American Bank enters
into a debt restructuring agreement with Barkley
Company, which is now experiencing financial
trouble. The bank agrees to restructure a 14%,
issued at par, $3,167,000 note receivable by the
following modifications:
1. Reducing the principal obligation from
$3,167,000 to $2,533,600.
2. Extending the maturity date from December
31, 2012, to January 1, 2016.
3. Reducing the interest rate from 14% to 10%.

5. Barkley pays interest at the end of each year. On
January 1, 2016, Barkley Company pays
$2,533,600 in cash to Firstar Bank.
(a) Will the gain recorded by Barkley be equal to
the loss recorded by American Bank under the
debt restructuring?
(b) Can Barkley Company record a gain under the
term modification mentioned above?
(c) Assuming that the interest rate Barkley
should use to compute interest expense in future
periods
is 1.4276%, prepare the interest payment
schedule of the note for Barkley Company after the
debt restructuring. (Round answers to 0 decimal
places, e.g. $38,548.)
(d) Prepare the interest payment entry for
Barkley Company on December 31, 2014. (Round
answers
to 0 decimal places, e.g. $38,548. Credit account
titles are automatically indented when amount is
entered. Do not indent manually.)
(e) What entry should Barkley make on January
1, 2016? (Round answers to 0 decimal places, e.g.
$38,548. Credit account titles are automatically
indented when amount is entered. Do not indent
manually.)

6. Exercise 21-7
On January 1, 2012, Palmer Company leased
equipment to Woods Corporation. The following
information pertains to this lease.
1. The term of the noncancelable lease is 6
years, with no renewal option. The equipment
reverts to the lessor at the termination of the
lease.
2. Equal rental payments are due on January 1
of each year, beginning in 2012.
3. The fair value of the equipment on January 1,
2012, is $235,200, and its cost is $199,920.
4. The equipment has an economic life of 8
years, with an unguaranteed residual value of
$11,510. Woods depreciates all of its equipment
on a straight-line basis.
5. Palmer sets the annual rental to ensure an 10%
rate of return. Woods's incremental borrowing
rate is 11%, and the implicit rate of the
lessor is unknown.
6. Collectibility of lease payments is reasonably
predictable, and no important uncertainties
surround the amount of costs yet to be incurred by
the lessor.

7. (Both the lessor and the lessee's accounting
period
ends on December 31.)
B.) Calculate the amount of the annual rental
payment. (Round present value factor calculations
to 5 decimal places, e.g. 1.25124 and the final
answer to 0 decimal places e.g. 58,971.)
C. ) Prepare all the necessary journal entries for
Woods for 2012. (Credit account titles are
automatically indented when amount is entered.
Do not indent manually. Round present value
factor calculations to 5 decimal places, e.g.
1.25124 and the final answer to 0 decimal places
e.g. 58,971.)
D. ) Prepare all the necessary journal entries for
Palmer for 2012. (Credit account titles are
automatically indented when amount is entered.
Do not indent manually. Round present value
factor calculations to 5 decimal places, e.g.
1.25124 and the final answer to 0 decimal places
e.g. 58,971.)