Liabilities

1 Majestic Rainbows total liabilities at the end of 2008 were: Accounts Payable 20,000 Interest Payable 12,000 Notes Payable (short-term) 33,058 Income Taxes Payable 28,000 Notes Payable (long-term) 36,363 Total 129,421 The Notes Payable is due in 2010, the interest rate is 10% and yearly payments of $40,000 are made on December 31st. During 2009, merchandise on account costing $128,000 was purchased, the total amount paid to suppliers during the year was $140,000. The Interest and Income Taxes Payable were paid in 2009. On June 1, 2009 a machine costing $260,000 was purchased by issuing a 3-year Note Payable with a 12% yearly interest rate. Payments including interest are due monthly. On July 1st, $1 million of 10% 10-year bonds were sold at a price of 98, semi-annual interest payments are due on June 30th and December 31st each year. The bonds are callable at a price of 102.

1. Gross wages amounted to $400,000. Social Security and Medicare taxes are 7.65%, Federal and State Unemployment taxes are 6.2% and Workers Compensation Insurance is 4% of gross pay. Amounts withheld for Federal Income Tax totaled $82,000, while State Income Tax withholdings were $12,000.

2. In December, a $40,000 down payment was received from a customer for services to be provided in January 2009.

3. The company currently has a lawsuit pending in which it is potentially liable for $80,000. At this time, the company believes it is probable the amount will have to be paid. In addition to the above, Pension Expenses incurred and paid during the year were $600,000, while nonpension Postretirement benefits incurred were $280,000 of which $185,000 was paid. Income Tax Expense for the year was $120,000, Income Taxes Payable on the companys income tax return were $80,000. R

equired: 1. Prepare journal entries to record the above transactions. What journal entries would be made if the bonds were issued at 103 instead of 98? 2. Prepare an amortization schedule for the Note Payable of $260,000. 3. Prepare the liability section of the Balance for December 31st, use a classified format, assume the fair value of the equipment being leased is $80,000. 4. Prepare the journal entry that would be made assuming the company called the bonds