.08 mjm On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable made 1 answer below »

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.08 mjm
On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable made one year ago to Arma State Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.

Instructions
(1) Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.
(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount. Document Preview:

.08 mjm
On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable made one year ago to Arma State Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.

Instructions
(1) Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.
(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

2. Below are three independent situations.
1. In August, 2012 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Wesley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

2. A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Greer Co. on October 4, 2012. Greer’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

Quinn is involved in a pending court case. Peete’s lawyers believe it is probable that Quinn will be awarded damages of $1,000,000.

Instructions
Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

ESSAY QUESTION: What accounting treatment is required for convertible
debt? Why? What accounting treatment is required for debt issued with stock warrants? Why?

On July 1, 2012, Spear Co….

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