Chapter 5 Gift Cards 1. On Dec. 1, Key, Inc reported a balance in unearned revenue of $728,000 from the sale of gift cards. Prepare the necessary journal entries for the following events: a. During December, Key sold $578,000 more in gift cards. b. During December, gift cards totaling $327,000 were redeemed to purchase inventory that had originally cost OK $190,000. c. On December 31, Key, Inc. determines that 3% of the outstanding gift cards have expired. d. What amount would appear on Key's balance sheet for unearned revenues, on Dec. 31? 2. We are considering issuing 14%. 5-year bonds with a par value of $5 000 000 on lanuary 1 2020 to b. During December, gift cards totaling $327,000 were redeemed to purchase inventory that had originally cost OK $190,000. c. On December 31, Key, Inc. determines that 3% of the outstanding gift cards have expired. d. What amount would appear on Key's balance sheet for unearned revenues, on Dec. 31? 2. We are considering issuing 14%, 5-year bonds with a par value of $5,000,000 on January 1, 2020 to build a new production facility. Interest will be paid semiannually. The bonds are issued at $5,368,035 cash, the market rate is 12%. Prepare the general journal entry to record the issuance of the bonds on January 1, 2020 and the first and second interest payments. On May 15, Sports World borrowed $75,000 from 1s Bank by signing a 6%, 10 year loan. The monthly 11.02 the first and second interest payments. 3. On May 15, Sports World borrowed $75,000 from 1st Bank by signing a 6%, 10 year loan. The monthly payment will be $832. a. Prepare Sports World's journal entry to record the issuance of the loan. b. Prepare Sports World's journal entry to record the payments for the first three months. 8 4 December 1 Randall sold 10 go-karts on account. The selling price of each go-kart was $1,000; the cost of goods sold for each was $250. S Randall received notice of a class-action lawsuit being filed against it. The Lawsuit claims that Randall's go-karts have engine defects that appear after damages). Randall's attorney believes that it is reasonably possible that Randall will lose the case, but the attorney cannot provide a dollar estimate of the potential loss amount. 20 Randall performed repairs due to product warranty complaints for two go-karts sold earlier in the year, Randall's cost of the repairs, paid in cash, was $500. 22 An individual claims that he suffered emotional distress from a high-speed ride on a Randall Go-Kart and is seeking $500,000 in damages. Randall's attorney believes the case is frivolous because it does not have any legal merit. 27 Another customer is suing Randall for $200,000 because a defect in the customer's Randall Go-Kart engine started a fire and destroyed the customer's garage. Randall's attorney believes the customer will probably win the case and receive $200,000. (Use the following account names: Loss from Lawsuit and Accrued Liability from Lawsuit.) 31 Randall estimates that the warranty expense is 5% of gross sales. Randall's gross sales for the period totaled $700,000. Record the necessary journal entries and explain how each contingent liability would be handled. 5.Jaguar Corporation issues 4 year, term bonds with a face value of $300,000 on January 1, 2021. They have a stated interest rate of 7% that is paid annually on December 31. The market rate (effective rate) on the date of issuance was %. Record all necessary journal entries. 1. How much would investors be willing to pay for the bonds on January 1, 2021? 2.Determine the amount of each annual cash interest payment. 3. What would be the journal entries to record payment of interest on December 31, 2021 and December 31, 2022 9