| Course | ACC-2020 Intermediate Accounting II |
|---|---|
| Module | Module 2 |
| Paper type | Written Assignment 2: bonds, long-term notes and income taxes |
| Length | About 699 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Bachelor of Science in Business Administration |
| Updated | October 2026 |
Free sample paper for ACC 2020 Module 2
Barnegat Marine Supply, Inc.: A Bond Discount, an Installment Note and Three Temporary Tax Differences
Student Name
Bachelor of Science in Business Administration, Thomas Edison State University
ACC-2020: Intermediate Accounting II
Mentor Name
Month Day, Year
Barnegat Marine Supply, Inc.: A Bond Discount, an Installment Note and Three Temporary Tax Differences
Introduction
In 2025 Barnegat financed growth with bonds and a machine purchase on credit, and its tax return diverged from its books in several ways. Each event raises a measurement question about long-term obligations: what the debt is worth when issued, how its cost is spread over time and how taxes owed later are reported today.
Part A: Bonds Issued at a Discount
Barnegat sold $500,000 of bonds on the first day of 2025, maturing in 2029, carrying a 6% coupon paid in two installments each year at midyear and year end. The market rate for similar bonds was 8%, so investors paid less than face value. With 10 semiannual periods at 4%:
The issue price is rounded to the dollar, and the $40,556 discount is extra interest that Barnegat pays at maturity. Under the effective interest method, expense each period equals the carrying amount times the market rate per period (Spiceland et al., 2020).
Interest expense for 2025 is $36,891. The carrying amount climbs toward $500,000 as the discount is amortized, and expense rises each period because it is a constant rate applied to a growing balance. Had the market rate been below 6%, investors would have paid a premium, and the schedule would run the other way, with expense below the cash paid and the carrying amount falling toward face value. If Barnegat retired the bonds early, any difference between the price paid and the carrying amount on that date would be a gain or loss on extinguishment.
| Component | Calculation | Present value | ||
|---|---|---|---|---|
| Face amount | $500,000 x 0.67556 | $337,780 | ||
| Interest payments | $15,000 x 8.11090 | 121,664 | ||
| Issue price | Sum of the two | $459,444 | ||
| Date | Cash paid | Interest expense at 4% | Discount amortized | Carrying amount |
| January 1, 2025 | None | None | None | $459,444 |
| June 30, 2025 | $15,000 | $18,378 | $3,378 | 462,822 |
| December 31, 2025 | 15,000 | 18,513 | 3,513 | 466,335 |
Part B: Installment Note
Barnegat bought a forklift on January 1, 2025, signing a note with a present value of $90,000 at 7%, payable in three equal year-end installments. The payment is $90,000 / 2.62432 = $34,294.
The $2 remaining in 2027 is rounding, removed by adjusting the last interest figure. On the December 31, 2025 balance sheet, the $29,954 principal due in 2026 is a current liability and $32,052 is long term.
| Year | Payment | Interest at 7% | Principal | Balance |
|---|---|---|---|---|
| Start | None | None | None | $90,000 |
| 2025 | $34,294 | $6,300 | $27,994 | 62,006 |
| 2026 | 34,294 | 4,340 | 29,954 | 32,052 |
| 2027 | 34,294 | 2,244 | 32,050 | 2 |
Part C: Income Taxes
Barnegat's 2025 pretax book income is $400,000, and the federal rate of 21% is used throughout. Three differences arise.
Taxable income is $400,000 minus $60,000 plus $38,000 plus $150,000, or $528,000, so income taxes payable are $110,880. The journal entry debits Income Tax Expense $84,000 and Deferred Tax Asset $39,480 and credits Income Taxes Payable $110,880 and Deferred Tax Liability $12,600. Total tax expense equals 21% of book income because every difference is temporary and will reverse. On the balance sheet, the deferred tax asset and liability are netted for the same tax jurisdiction and reported as one noncurrent amount, here a net deferred tax asset of $26,880. If Congress changed the rate, the deferred balances would be remeasured at the new enacted rate in the year of enactment.
A deferred tax asset is reported only to the extent it is more likely than not to be realized. Barnegat has a history of taxable income and expects more, so no valuation allowance is needed. A company with recent losses would need positive evidence before carrying the asset at full value. Graham et al. (2012) note that the valuation allowance is one of the most judgment-heavy estimates in tax accounting, and Phillips et al. (2003) found that changes in deferred tax expense helped detect earnings management aimed at avoiding losses or declines.
| Item | Effect on taxable income | Deferred tax result |
|---|---|---|
| Tax depreciation exceeds book depreciation by $60,000 | Subtract $60,000 | Deferred tax liability of $12,600 |
| Warranty expense of $60,000 exceeds repairs deducted of $22,000 | Add $38,000 | Deferred tax asset of $7,980 |
| Lawsuit loss of $150,000 accrued but not yet deductible | Add $150,000 | Deferred tax asset of $31,500 |
References
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434. https://doi.org/10.1016/j.jacceco.2011.11.006
Phillips, J., Pincus, M., & Rego, S. O. (2003). Earnings management: New evidence based on deferred tax expense. The Accounting Review, 78(2), 491-521. https://doi.org/10.2308/accr.2003.78.2.491
Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2020). Intermediate accounting (10th ed.). McGraw-Hill Education.
What the ACC 2020 Module 2 instructions ask for
The second ACC-2020 set covers debt and deferred taxes, two chapters heavy with present value factors and reconciliations. Its numbered items come from the long-term liabilities and income tax chapters, and the syllabus wants every factor and schedule written out. Expect bond pricing with present value factors, effective interest amortization schedules for discounts or premiums, early retirement of debt, installment and non-interest-bearing notes and the reconciliation of book and taxable income into current and deferred taxes, including valuation allowances and tax rate changes. The problems on this page are original and written in that format, for practice before you tackle your assigned items. Read each problem twice before choosing factors, because a single wrong period count changes every figure that follows.
Inside the ACC 2020 Module 2 example
Part A prices the bonds in a short table that separates the face amount from the interest stream, then builds the first two lines of the amortization schedule with each column calculated. Part B computes the equal payment and splits it into interest and principal over three years, then classifies the current and noncurrent portions. Part C uses a table to show each temporary difference, its effect on taxable income and the resulting deferred tax item, then computes taxes payable, records the entry and checks that total expense equals the rate times book income. A short paragraph on the valuation allowance, with two research findings, completes the analysis. Every amount in the entries can be found in one of the schedules above it.
Where the marks sit in the ACC 2020 Module 2 rubric
The six homework sets in ACC-2020 carry a third of the grade, and on each one the visible working counts alongside the answer. On this module, they check that bond prices use the market rate and the right number of periods, that interest expense follows the effective interest method, that installment payments are split correctly and that the current portion of debt is classified properly. For income taxes, they look for the correct direction of each temporary difference, accurate deferred asset and liability amounts, a balanced journal entry and a reasoned conclusion on the valuation allowance. Schedules with labeled columns make partial credit possible when one figure slips. A short comment on what each schedule means, such as why interest expense rises over time, also shows understanding.
ACC 2020 Module 2 help from the desk
Bond problems go wrong when students use the stated rate to discount cash flows or annual periods for semiannual interest; halve the rate and double the periods. In amortization schedules, compute interest on the carrying amount, not the face amount. For income taxes, ask whether each difference makes taxable income larger or smaller now: smaller now means taxes later, a liability; larger now means a deduction later, an asset. Permanent differences, such as municipal bond interest, create no deferred taxes. Check that the entry balances. Send your bond and tax problem numbers, and a writer will build the schedules for you; the first custom set is on us. Keep factors to five decimal places.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Thomas Edison State University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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ACC 2020 Module 2 questions, answered
Where can I find a free ACC 2020 Module 2 sample paper?
This page carries the full Module 2 solution: bond pricing and effective interest amortization, an installment note schedule and current and deferred income taxes with the entry.
How is the issue price of a bond calculated?
As the present value of the face amount plus the present value of the interest payments, both discounted at the market rate per period.
What creates a deferred tax liability?
Deducting something on the tax return sooner than on the books, accelerated depreciation being the usual case, which pushes tax into later years.
When is a valuation allowance needed for a deferred tax asset?
Once the evidence suggests a better than even chance that part of the future deduction will never be usable, for example after a run of tax losses.
How is interest expense computed under the effective interest method?
Take the bonds' book value as the period begins and multiply it by the yield investors demanded, per period, when the bonds were sold.