Crosson, Inc. engaged in various transactions related to current and long-term liabilities in 2013. It issued $2.1 million in bonds paying 4% semi-annually, borrowed $1.5 million from a bank paying 2.5% annually over 6 years, and took out a short-term loan of $48,000 at 2%. Journal entries were made to record these transactions as well as interest payments and equipment purchases. Financial statements were prepared showing the company's assets, liabilities, equity, income, and cash flows for the year.

1. DataCURRENT AND LONG-TERM LIABILITIESIn 2013
Crosson, Inc. engaged in the following transactions related to
liabilities:1/2/13Crosson, Inc. issued$ 2,100,000, 5-year
bonds that have a contract interest rate of4%. The termsof the
bonds require Crosson, Inc. to make semi-annual interest
payments which are due on June 30th and December 31st of
each year. The bonds sold at101.751/3/13 Crosson, Inc.
signed a long-term note and borrowed$ 1,500,000from New
Zealand Bank. The loan loan has an annual interest rate of2.5%.
The terms of repayment require 6 annual payments of
principaland the appropriate interest on December 31st of each
year as calculated in the schedule below:For the YearN/P
BalanceTotal AnnualInterestDecreaseN/P BalanceEnding:on
Jan. 1PaymentExpensein N/Pon Dec.
3112/31/131,500,000272,30037,500234,8001,265,20012/31/141,
265,200272,30031,630240,6701,024,53012/31/151,024,530272,
30025,613246,687777,84312/31/16777,843272,30019,446252,8
54524,98912/31/17524,989272,30013,125259,175265,81412/31/
18265,814272,4596,645265,81402/10/13Crosson, Inc. paid cash
to purchase new operating equipment with costing$
3,000,0006/30/13Crosson, Inc. makes the semi-annual interest
payment to its bondholders and records
amortization.12/16/13Crosson, Inc. signed a promissory note to
Brand Bank in exchange for a cash loan of$ 48,000The loan is
for 45 days, with an annual interest rate to be paid at2%.
12/31/13Crosson, Inc. makes the semi-annual interest payment
to its bondholders and records amortization.12/31/13Crosson,
Inc. makes the required annual payment on its note payable to
New Zealand Bank.12/31/13Crosson, Inc. records the
adjustment necessary to accrue interest on the loan from Brand
Bank.12/31/13Crosson, Inc. records the adjustment necessary to
accrue the income taxes payable for the
year.Instructions:1.Using the general journal provided on the
following page, prepare journal entries to record the above

2. transactions associated with liabilities, (be sure to include
correct dates and explanations):2.Using the t-accounts provided
on the following page, post the journal entries prepared to the t-
accounts andupdate the balances in those t-accounts.3.Using the
updated t-account balances, complete the attached financial
statements (note: income tax rate = 35%).4.Answer a-j.
&"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7
&"Arial,Bold"Name __________________
Data (2)CURRENT AND LONG-TERM LIABILITIES4.Answer
the following questions:a.When the bond payable was issued on
1/1/2013, what was the selling price?b.How much was the
premium received by Crosson, Inc. from the sale of the
bonds?b.What is the dollar amount of interest that MUST be
paid every six months on the bonds?c.What is the amount of the
semiannual amortization of the premium on the bond?d.Will the
semi-annual amortization of the premium cause the amount of
the interestexpense recorded, when the interest is paid, to be
more or less than the actual cash that is paid for the semi-annual
interest on the bond?e.Since the bonds sold at a premium on
1/1/2013, what do you know about themarket rate of interest on
1/1/2013?f.What will the carrying value of the bonds be after 1
year (on 12/31/13)?Bond face amountUnamortized
premiumCarrying value at 12/31/15g.If Crosson, Inc. redeems
the bonds early on 12/31/13(after paying the Dec. int.) @
101.5:•Will there be a gain or loss on the redemption?•How
much of a gain or loss will there be?h.On December 31, 2013,
how much of the note payable still owed to New Zealand
Bankwill be presented on the balance sheet as a current
liability?i.Calculate the following for Crosson, Inc. on
December 31, 2013:Working capital=current assets - current
liabilities =-=Current ratio=current assets==current
liabilitiesQuick ratio=quick assets==current liabilitiesNumber
of Times Interest Charges=Income Before Income Tax + Interest
ExpenseAre EarnedInterest Expense=+==j.What do the above
ratios tell you about Crosson, Inc?

3. &"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7
&"Arial,Bold"Name __________________
Journal1.RECORD JOURNAL ENTRIESLONG-TERM
LIABILITIESCROSSON, INC.General
JournalDateDescriptionPost RefDebitCredit
&"Arial,Bold"ACC 212 &"Arial,Bold"Challenge #7
&"Arial,Bold"Name __________________
Ledger 2. POST JOURNAL ENTRIES AND UPDATE
ACCOUNT BALANCESCrosson, Inc.General LedgerDecember
31, 2013 (excluding certain liabilities transactions)Cash
#100Short-Term Note Pay. #200Note Pay.-Long Term
#220Deprec. Exp-Store #601Beg. Balance30,100Beg.
Balance0Beg. Balance0Beg. Balance0Annual
activity175,0005,000Annual activity0Annual activity0Annual
activity116,000subtotal200,100subtotal0subtotal0subtotal116,00
0Advertising Exp. #603Beg. Balance0Accounts Payable
#201Annual activity48,750Beg.
Balance74,350subtotal48,750Annual
activity1,955,5001,900,000Capital Stock
#300subtotal18,850Beg. Balance600,000Office Salaries Exp.
#700Annual activity50,000Beg. Balance0Interest Payable
#202subtotal650,000Annual activity325,000Accounts
Receivable #105Beg. Balance0subtotal325,000Beg.
Balance48,900Annual activity0Retained Earnings
#301Annual activity2,750,0002,735,500subtotal0Beg.
Balance186,000Office Rent Exp.
#702subtotal63,400Annual activity0Beg.
Balance0subtotal186,000Annual
activity240,000subtotal240,000Merch. Inventory #106Income
Taxes Pay. #203Beg. Balance15,350Beg. Balance0Dividends
#302Office Insurance Exp. #705Annual
activity1,475,0001,445,000Annual activity0Beg. Balance0Beg.
Balance0subtotal45,350subtotal0Annual activity25,000Annual
activity18,000subtotal25,000subtotal18,000Prepaid Office Ins.

4. #107Interest Expense #800Beg. Balance36,000Bonds
Payable #210Sales #400Beg.
Balance0Annual activity18,000Beg. Balance0Beg.
Balance0Annual activity0subtotal18,000Annual activity0Annual
activity2,920,750subtotal0subtotal0subtotal2,920,750Equipment
#111Beg. Balance830,000Cost of Merch. Sold #500Annual
activity80,000Beg. Balance0subtotal910,000Premium-Bonds
Pay. #211Annual activity1,445,000Beg.
Balance0subtotal1,445,000Annual activity0Income Tax Exp.
#810subtotal0Beg. Balance0Accum. Deprec. #112Sales
Salaries Exp. #600Annual activity0Beg. Balance100,000Beg.
Balance0subtotal0Annual activity116,000Annual
activity537,000subtotal216,000subtotal537,000Jan.1SubtotalUp
datedDebits =960,350Debits =3,991,600Debits
=2,881,500Credits=960,350Credits=3,991,600Credits=3,991,60
0
&"Arial,Bold"ACC 211 &"Arial,Bold"CHALLENGE #7
&"Arial,Bold"Name __________________
FS-DirectCF-MultiStepIS3.COMPLETE FINANCIAL
STATEMENTS, (Statement of Cash Flows is on separate
page)Crosson, Inc.Income
Statement____________________________________________
___Revenue from sales:2,920,750Cost of merchandise
sold1,445,000Gross profit$1,475,750Operating expenses:Selling
expenses:Sales salaries expense$537,000Depreciation expense -
store 116,000Advertising expense48,750Total selling
expenses$701,750Administrative expenses:Office salaries
expense325,000Office rent expense240,000Office insurance
expense18,000Total administrative epxenses583,000Total
operating expenses1,284,750Income before other items$Other
income and expenses:Interest expenseIncome before income
taxesIncome tax expenseNet income$Crosson, Inc.Retained
Earnings
Statement____________________________________________
__________________________, January 1, 2013$Net

5. income$Less dividendsIncrease in retained earningsRetained
earnings,______________________$Crosson, Inc.Balance
Sheet_______________________________________________A
ssetsLiabilitiesCurrent assets:Current liabilities:Cash$Short
term notes payable$Current portion of LTDAccounts
receivable63,400Accounts payable18,850Merchandise
inventory45,350Income taxes payablePrepaid
insurance18,000Interest payableTotal current assets$Total
current liabilities$Long-term liabilities:Notes payableBonds
payableProperty, plant and equipment:Premium on bonds
payableEquipment0Total long-term liabilitiesLess:
accum.depr.216,000Total liabilitiesStockholders' EquityTotal
property, plant & equipment(216,000)Capital
stock$650,000Retained earningsTotal stockholders' equityTotal
assets$Total liabilities and stockholders' equity$Crosson,
IncStatement of Cash FlowsCash flows from operating
activities:Cash received from customers$2,906,250Deduct cash
payments for:Expenses$(847,250)Creditors(1,955,500)Net cash
flow __________ operating activities$Cash flows used for
investing activities:Deduct cash payment for purchase of
equipment$(3,080,000)Net cash flow ___________ investing
activitiesCash flows from financing activities:Cash received
from:Issue of bonds$2,136,750Sale of stock50,000Notes
payable1,548,000Deduct cash payments for:Notes
payable(234,800)Dividends(25,000)Net cash flow __________
financing activities____________ in cashCash at the beginning
of the yearCash at the end of the year$
&"Arial,Bold"ACC 211 &"Arial,Bold"CHALLENGE #7
&"Arial,Bold"Name ____________________