1. Lake Co. receives nonrefundable advance payments with special orders for containers constructed to customer specifications. Related information for 2009 is as follows ($ in millions):
Customer advances balances, Dec. 31, 2008 $110
Advances received with 2009 orders $195
Advances applicable to orders shipped in 2009 $180
Advances from orders canceled in 2009 $45
What amount should Lake report as a current liability for advances from customers in its Dec. 31, 2009, balance sheet?
B. $80 .
2. MullerB Company's employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately, meaning an employee is entitled to the pay even if employment terminates. During 2009, total wages paid to employees equaled $808,000, including $8,000 for vacations actually taken in 2009, but not including vacations related to 2009 that will be taken in 2010. All vacations earned before 2009 were taken before January 1, 2009. No accrual entries have been made for the vacations.
Prepare the appropriate adjusting entry for vacations earned but not taken in 2009.
3. In its 2009 annual report to shareholders, Health Foods, Inc. disclosed the following information about some of its indebtedness: The fair value of convertible subordinated debentures is estimated using quoted market prices. Carrying amounts and estimated fair values of our financial instruments other than those for which carrying amounts approximate fair values as noted above are as follows (in thousands)
Carrying Amount Estimated fair value Carrying Amount Estimated Fair value
convertible subordinated debentures $158,791 $295,923 $151,449 $200,396
In addition, the company disclosed the following:
We have outstanding zero coupon convertible subordinated debentures which had a carrying amount of approximately $158.8 million and $151.4 million at September 26, 2009 and September 28, 2008, respectively. The debentures have an effective yield to maturity of 5 percent and a principal amount at maturity on March 2, 2023 of approximately $308.8 million. The debentures are convertible at the option of the holder, at any time on or prior to maturity, unless previously redeemed or otherwise purchased. The debentures have a conversion rate of 10.640 shares per $1,000 principal amount at maturity, representing approximately 3,280,000 shares. The debentures may be redeemed at the option of the holder on March 2, 2013 or March 2, 2018 at the issue price plus accrued original discount totaling approximately $188 million and $241 million, respectively.
Required: Suppose that half of the bondholders had converted them into Health Foods' stock at the end of the 2009 fiscal year when the stock price is $90 per share. What gain or loss from this conversion would Whole Foods have recorded on the transaction using the book value method? The market value method?
What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2010?
4. Python Company leased equipment from Hope Leasing on January 1, 2009. Hope purchased the equipment at a cost of $222,666.
Lease term 3 years
Annual payments $80,000 on January 1 each year
Life of asset 3 years
Fair value of asset $222,666
Implicit interest rate 8%
Incremental rate 8%
The solution provides Entries for Lake Co, MullerB, Health Food, Inc, Python Co. related to straight line depreciation and vacation earned, calculate interest exoenses for debentures.