Second Intermediate Company needs your assistance to record the subsequent transactions in its trial balance, as well as your assistance in preparing the entity's financial statements. The Company's Year End is December 31. Points are allocated for:

1. Using the correct accounts
2. Recording the transactions and adjusting entries correctly
3. Correct ending balances in the financial statement accounts
4. Correct placement of the accounts in the financial statements.

Second Intermediate Company has the following unadjusted trial balance:

ACCOUNT	DEBIT	CREDIT
Cash	1,400,000
Accounts Receivable	160,000
Accounts Payable		75,000
Common Stock- $3 Par ?? shares issued and outstanding 1,000,000 shares authorized		135,000
7% cumulative Preferred Stock- $120 Par 1200 shares issued and outstanding 10,000 shares authorized		144,000
Paid-in-Capital- 7% Preferred Stock		180,000
Retained Earnings		796,000
Sales Revenue		860,000
Cost of Goods Sold	490,000
Operating Expense	140,000
Total	2,190,000	2,190,000

See your beginning trial balance for the amount of sales revenue generated during Year 1. The company offers an assurance type warranty that covers all repair costs, including parts and labor, for three years after the date of sale. The company estimates that warranty costs will amount to 5% of total sales. During Year 1, customers made warranty claims of $10,000 (parts) against the assurance-type warranty.

Prepare the journal entries necessary to record the warranty activity.

(Hint: you might need this information when calculating your provision entries)

(Transactions 4/60 points)

The company purchased 300, $1000 face value 8%, 8-year bonds for $337,683 on January 1, Year 1. At the time of purchase, the market rate of interest was 6%. The bonds pay interest semi-annually on June 30 and December 31. These bonds are NOT tax-exempt. The company will hold these securities as available-for-sale. The FMV of the bonds are $341,000 at December 31.

(Transactions 6/60 points)

The company leased a non-specialized asset costing $300,000 on January 1, Year 1. The present value of the lease payments is the same as the cost of the asset. Each payment will be $52,519, beginning the first day of the lease. The implicit borrowing rate is 11%. The first payment was made on the first day of the lease, as well as $2,000 paid in cash for initial direct costs. The lease requires 8 annual payments.

Prepare the journal entries for the first year of the lease. It is not necessary to record the lease payment on January 1, Year 2.

(Transactions 9/60 points)

Record the following transactions using the cost method:

• On March 1, Second Intermediate Company repurchased 6,000 shares of common stock to be held in the Treasury at a cost of $22 per share.
• On October 1, Second Intermediate Company resold 2,000 Treasury shares at $16 per share.

(Transactions 5/60 points)

Record the transactions and adjusting entries related to the following activity:

• Second Intermediate Company borrowed $80,000 on October 1, 2020 to purchase equipment.
• The note payable is due in full in two years, and bears a 8% interest rate.
• The Company determines the equipment's useful life is 5 years, and depreciates the equipment using the straight-line method for book purposes..
• For tax purposes, the Company elects to depreciate the equipment in full during Year 1.
• The Company's tax rate is 21% for 2020, and 21% for all future years.

(Transaction 7/60 points)

Intermediate II Company declared and paid cash dividends of $95,000.

(4/60 points)

Calculate Basic EPS

(3/60 points)