1. Reporting Notes Payable and Calculating Interest Expense North Face is one of the worlds most popular outdoor apparel companies. Assume that North Face borrows $2 million from U.S. Bank and signs a note promising to pay the $2 million back in nine months, at which time North Face will also pay any accrued interest. The interest rate on the note is 8%. Required: 1. Prepare the journal entry North Face will record when it signs the note and receives the cash. 2. Prepare the journal entry that North Face will record when it pays off the note and any accrued interest after nine months.

2. Reporting Contingent Liabilities Jones Soda is a regional soda manufacturer in the Pacific Northwest. Jones is currently facing three lawsuits, summarized below: a. A customer is suing Jones for $1 million because he claims to have found a piece of glass in his soda. Management deems the probability that Jones will lose the lawsuit and have to pay $1 million as reasonably possible. b. An employee is suing Jones for $500,000 for an injury she incurred in the parking lot while walking to work. Management deems the probability that Jones will lose the lawsuit as probable, but estimates that a reasonable payout will be $100,000, not $500,000. c. A customer is suing Jones for $300,000 because her last name is Jones and she claims Jones stole her name. Management deems the probability that Jones will lose the lawsuit and have to pay $300,000 as remote. Required: How should Jones report each of the lawsuits in its financial statements and footnotes?

3. Computing Four Present Value Problems (Use attached tables) On January 1 of this year, Shannon Company completed the following transactions (assume a 10% annual interest rate): a. Bought a delivery truck and agreed to pay $60,000 at the end of three years. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately. c. Established a savings account by depositing a single amount that will increase to $90,000 at the end of seven years. d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $40,000 to a retired employee (payments starting December 31 of this year).

Required (show computations and round to the nearest dollar): 1. In (a), what is the cost of the truck that should be recorded at the time of purchase? 2. In (b), which option for the office building results in the lowest present value? 3. In (c), what single amount must be deposited in this account on January 1 of this year? 4. In (d), what single sum must be deposited in the bank on January 1 of this year?