Question

dud LC POLLUT b. c. Calculate the interest expense on the bonds for the first year. Calculate the book value of the bonds at the end of the first year. SERIAL PROBLEM: KATE'S CARDS (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapters / through 9.) SP10. Recall that Kate previously obtained a $15,000 bank loan, signing a note payable, on November 30. The note required semiannual interest payments at the rate of six percent. The entire principal balance was due two years from the origination date of the note. Kate has been accruing interest on a monthly basis in the amount of $75. Kate would like to know how she should record the interest in May, the month she makes the first interest payment. She is unsure how much expense will need to be recorded in May. The upcoming interest payment is really not Kate's main concern right now. She was just notified by a lawyer that she is being sued for copyright infringement. Mega Cards Incorporated, one of the largest greeting card companies, believes that one of Kate's designs is too similar to one of Mega's designs for it to be coincidence, and has, therefore, decided to sue Kate's Cards. Mega has a prior reputation for suing small companies and settling out of court for lesser damages. Kate, however, knows that her design is original and that she had never previously seen the Mega design that is the

Answer 1

1. Interest on Notes Payable - Dr 450

To Bank 450

(Being Interest On Notes Payable @6% on 15,000 paid in the month of May) (15000*6%*6/12).

Further, this Interest on Notes payable will going to hit the Profit & Loss accout.

2. The above incident will not be recorded in the financial statements. However, the same will be reported in the 'Notes to Accounts' at the year end.

Since the amount of the lawsuit is not decided and also this is contingent upon the final happening of the court. So this will be given in the Notes to Accouts, as disclosure. The disclosure will be given as there are high chances of a lawsuit being filed by the Mega Cards Inc. against the company regarding the copyright infringement. However the company is quite sure about wining the above case as we had not done any copyright violation. But still the company is going to fight the lawsuit, regardless of the cost. In this way a disclosure will be given in the Notes to Accounts regarding the same.