Question

Comprehensive Liability Problem-Balance Sheet Presentation Balzac Inc has been producing quality children's apparel for more than 25 years. The company's fiscal year runs from April 1 to March 31. The following information relates to the obligations of Balzac as of March 31, 2015. Bonds Payable-Balzac issued $5,000,000 of 11% bonds on July 1, 2009, at 96 which yielded proceeds of $4,800,000 The bonds will mature on July 1, 2019. Interest is paid semiannually on July 1 and January 1. Balzac uses the straight-line method to amortize the bond discount. Notes Payable -Balzac has signed several long-term notes with financial institutions and insurance companies. The maturities of these notes are given below. The total unpaid interest for all of these notes amount to $210,000 on March 31, 2015. April 1, 2015 July 1, 2015 October 1, 2015 January 1, 2016 March 31, 2017 April 1, 2017-March 31, 2018 April 1, 2018-March 31, 2019 April 1, 2019-March 31, 2020 April 1, 2020-March 31, 2021 Amount Due 200,000 300,000 150,000 150,000 600,000 500,000 700,000 400,000 $3,500,000 Estimated Warranties -Balzac has a one-year product warranty on some selected items in its product line. The estimated warranty liability on sales made during the 2013-2014 fiscal year and still outstanding as of March 31, 2014 amounted to $84,000. The warranty costs on sales made from April 1, 2014 through March 31, 2015 are estimated at $210,000. The actual warranty costs incurred during the current 2014-15 fiscal year are as follows: Warranty claims honored on 2013-14 sales Warranty claims honored on 2014-15 sales Total warranty claims honored 84,000 95,000 $179,000 Other Information: 1 Trade payables -Accounts Payable for supplies, goods and services amounted to $370,000 as of March 31, 2015. 2. Payroll Related items-Outstanding obligations related to Balzac's payroll as of March 31, 2015 are: Accrued Salaries and Wages FICA Taxes State & Federal Income Tax Withheld-Employees Other Payroll Deductions $150,000 22,000 25,000 3. Taxes The following taxes incurred but not due until the next fiscal year are: $310,000 125,000 182,000 State and Federal Income Taxes Property Taxes Sales and Use Taxes

Answer 1

Ans: Balzac Inc.

a) Journal Entries

Date	Particulars	Debit ($)	Credit
1.July 2014	Bank A/c Dr. To Interest on 11% Bonds A/c To Accrued Interest on 11% Bonds A/c ( Being interest paid for 1.Jan 2014 to 31. June 2014)	275,000	137,500 137,500
1.Jan 2015	Bank A/c Dr. To Interest on 11% Bonds A/c To Accrued Interest on 11% Bonds A/c ( Being interest paid for 1.July 2014 to 31.Dec.2014)	275,000	137,500 137,500
31.Mar 3015	Interest on 11% Bonds A/c Dr. To Accrued Interest on 11% Bonds A/c (Being accrued interest for 1.Jan 2015 to 31.Mar 2015 recorded)	137,500	137,500
31.Mar 2015	Profit & loss A/c Dr. To Interest on 11% Bonds A/c Being Interest expenses transferred to Profit & loss A/c)	137,500	137,500
31.Mar 2015	Profit & loss A/c Dr. To Discount on debenture A/c (being discount on debenture being amortized)	20,000	20,000
31.Mar 2015	Dividend A/c Dr. To Dividend payable A/c (Being Dividend declared)	2,700,000	2,700,000

b)

Balance sheet of Balzac Inc. as on 31 March 2015
Particulars	Notes to Accounts	Amount($)
Shareholders fund and Liabilities
Shareholder's fund
Share capital	1	15000000
Reserves and Surplus	2	-3,540,000
Liabilities
Long term Liabilities	3	7700000
Current Liability & Provision	4	5016500
Total Shareholders fund and Liabilities		24176500

	Notes to accounts		Amount($)
1)	Share capital
	No. of share Issued and Outsatnding		3000000
	Issues Price		5
	Share capital		15000000
2)	Reserves and surplus
	Discount on Issue of 11% bonds	-80000
	Interest on 11% bonds	-550000
	Warranty Expense	-210,000
	Dividend	-2,700,000
			-3,540,000
3)	Long term Liabilities
	11% Bonds	5000000
	Notes payable	2700000
			7700000
4)	Current Liability & Provision
	Accrued Interest	137500
	Dividend Payable	2700000
	Provision for Tax (310000+125000+182000)	617000
	Outstanding Staff welfare expenses (150000+22000+25000+5000)	202000
	Trade Payables	370000
	Current Note payables	800000
	Misc. Accruals	75000
	Provision for Warranties (210000-95000)	115000
			5016500

Working Note

Classification of Notes Payable
Particulars	Amount($)
Current Note payables
1.April 2015	200000
1.July 2015	300000
1.October 2015	150000
1.January 2016	150000
	800000
Non Current Note payables
31.March 2017	600000
1. April 2017 to 31.March 2018	500000
1. April 2018 to 31.March 2019	700000
1. April 2019 to 31.March 2020	400000
1. April 2020 to 31.March 2021	500000
	2700000