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accounting

Questions and Answers of Accounting

(Multiple choice)1. What is the present value factor for an annuity of five periods and an interest rate of 10 percent?a. 1.6105 b. 6.1051 c. 3.7908d. 7.72172. The university spirit organization
Kieso Company borrowed $600,000 on a 90-day note at 11 percent interest. The money was borrowed for 30 days in 2011 and 60 days in 2012; the note and interest were to be paid upon maturity in 2012.
Wygant Corporation borrowed $290,000 on October 1, 2011. The note carried a 10 percent interest rate with the principal and interest payable on May 1, 2012. Prepare the journal entry to record the
For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all.1.
The balance sheet for Stevenson Corporation reported the following: quick assets, $20,000; noncurrent assets, $240,000; total assets, $360,000; noncurrent liabilities, $176,000; total
Ospry, Inc., has a quick ratio of 0.50 and working capital in the amount of $1,240,000. For each of the following transactions, determine whether the quick ratio and working capital will increase,
Buzz Coffee Shops is famous for its large servings of hot coffee. After a famous case involving McDonald’s, the lawyer for Buzz warned management (during 2011) that it could be sued if someone were
What is the present value of $500,000 to be paid in 10 years with an interest rate of 8 percent?
What is the present value of 10 equal payments of $15,000 with an interest rate of 10 percent?
As a result of a slowdown in operations, Global Stores is offering employees who have been terminated a severance package of $118,000 cash, another $129,000 to be paid in one year, and an annuity of
You plan to retire in 10 years. Would it be better for you to save $27,500 a year for the last five years before retirement or $16,250 for each of the 10 years? You are able to earn 9 percent
You want a retirement fund of $125,000 when you retire in six years. You are able to earn 8 percent on your investments. How much should you deposit each year to build the retirement fund that you
Diane Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012:Total assets ............
Paul Company completed the salary and wage payroll for March 2011. The payroll provided the following details:Salaries and wages earned ........ $200,000Employee income taxes withheld ....
Oaks Company has completed the payroll for January 2012, reflecting the following data:Salaries and wages earned ......... $86,000Employee income taxes withheld ...... 10,000FICA payroll taxes*
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Neiman Marcus is one of America’s most prestigious retailers. Each Christmas
Using the data from the previous exercise, complete the following requirements.Required:1. Determine the financial statement effects for each of the following:(a) Issuance of the note on November
PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi, Frito-Lay, Tropicana, Quaker, and Gatorade. The company’s annual revenues exceed $22
Super Savers Department Store reported a quick ratio of 0.6. A review of its balance sheet revealed the following information:Quick assets ..... $120,000Current assets .... 750,000Noncurrent assets
Vernon Company sells a wide range of goods through two retail stores operated in adjoining cities. Most purchases of goods for resale are on invoices. Occasionally, a short-term note payable is used
McDonald’s is one of the world’s most popular fast-food restaurants, offering good food and convenient locations. Effective management of its properties is a key to its success. As the following
As the new vice president for consumer products at Heffner Manufacturing, you are attending a meeting to discuss a serious problem associated with delivering merchandise to customers. Bob Smith,
The annual report for American Airlines contained the following information:In addition to pension benefits, other postretirement benefits, including certain health care and life insurance benefits
The following information pertains to the Lewis Corporation.Required:1. For each year, compute income tax expense (assume that no taxes have been paid).2. Explain why tax expense is not simply the
The balance sheet for Nair Corporation provided the following summarized pretax data:
The annual report for Starbucks contains the following information (in millions):Income TaxesThe provision for income taxes consisted of the following (in millions):Required:1. Determine whether tax
On January 1, 2011, Shannon Company completed the following transactions (assume a 10 percent annual interest rate):a. Bought a delivery truck and agreed to pay $50,000 at the end of three years.b.
You have just won the state lottery and have two choices for collecting your winnings. You can collect $50,000 today or receive $10,100 per year for the next seven years. A financial analyst has told
You are a financial adviser working with a client who wants to retire in eight years. The client has a savings account with a local bank that pays 9 percent and she wants to deposit an amount that
Judge Drago has decided to set up an educational fund for his favorite granddaughter, Emma, who will start college in one year. The judge plans to deposit an amount in a savings account that pays 9
An investment will pay $11,000 at the end of the first year, $30,000 at the end of the second year, and $50,000 at the end of the third year. Determine the present value of this investment using a 10
An investment will pay $15,000 at the end of each year for eight years and a one-time payment of $120,000 at the end of the eighth year. Determine the present value of this investment using a 7
Smith Company has purchased a new office building. The company has agreed to pay the developer $55,000 annually for 9 years. Using present value techniques, determine the value that should be
You have the chance to purchase the royalty interest in a gas well in the Barnett Shale. Your best estimate is that the net royalty income will average $25,000 per year for seven years. There will be
On January 1, 2011, you deposited $6,000 in a savings account. The account will earn 10 percent annual compound interest, which will be added to the fund balance at the end of each year.Required
On January 1, 2011, Alan King decided to deposit $58,800 in a savings account that will provide funds four years later to send his son to college. The savings account will earn 8 percent, which will
On each December 31, you plan to deposit $2,000 in a savings account. The account will earn 9 percent annual interest, which will be added to the fund balance at year-end. The first deposit will be
On January 1, 2011, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in a savings account for you. On the
Vigeland Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011.Jan. 15 Purchased and paid for merchandise for resale at an invoice cost of
Rogers Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011. Jan. 8 Purchased merchandise for resale on account at an invoice cost of
Using data from the previous problem, complete the following requirements.Required:1. For each transaction (including adjusting entries) listed in the previous problem, indicate the effects (e.g.,
During 2012, Walnut Company completed the following two transactions. The annual accounting period ends December 31.a. Paid and recorded wages of $130,000 during 2012; however, at the end of December
Using the data from the previous exercise, complete the following requirements.Required:1. Determine the financial statement effects for each of the following:(a) The adjusting entry for accrued
Dell Computers is a leader in the industry with over $56 billion in sales each year. A recent annual report for Dell contained the following note:WarrantyWe record warranty liabilities at the time of
For each of the following situations, determine whether the company should (a) Report a liability on the balance sheet, (b) Disclose a contingent liability, or (c) Not report the situation. Justify
For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same:a. Purchased merchandise on credit.b. Paid an account
PepsiCo, Inc., is a $25 billion company in the beverage, snack food, and restaurant businesses. PepsiCo’s annual report included the following note:At year-end, $3.5 billion of short-term
Mansfield Corporation purchased a new warehouse at the beginning of 2011 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation
On January 1, 2011, Boston Company completed the following transactions (use a 7 percent annual interest rate for all transactions):a. Borrowed $115,000 for seven years. Will pay $8,050 interest at
After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well known magazine subscription company. It has arrived with the good news that you are the big
On December 31, 2011, Mercury Company created a fund that will be used to pay the principal amount of a $120,000 debt due on December 31, 2014. The company will make four equal annual deposits on
On January 1, 2011, Spearfish Company completed the following transactions (use an 8 percent annual interest rate for all transactions):a. Deposited $50,000 in a debt retirement fund. Interest will
Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012.Jan. 15 Recorded tax expense for the year in the amount of $125,000. Current
Using data from problem AP9-1, complete the following requirements.Required:1. For each transaction (including adjusting entries) listed in the previous problem, indicate the effects (e.g., cash + or
Ford Motor Company is one of the world’s largest companies with annual sales of cars and trucks in excess of $170 billion. A recent annual report for Ford contained the following
For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same:a. Purchased merchandise for cash.b. Paid salaries and wages
General Mills is a multibillion-dollar company that makes and sells products used in the kitchens of most American homes. The Company’s annual report included the following note:We have a revolving
On January 1, 2011, Ellsworth Company completed the following transactions (use an 8 percent annual interest rate for all transactions):a. Borrowed $2,000,000 to be repaid in five years. Agreed to
After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. Visiting the human resources office, you find that you have several
On January 1, 2011, Austin Auto Company decided to accumulate a fund to build an addition to its plant. The company will deposit $320,000 in the fund at each year-end, starting on December 31, 2011.
Finding Financial Information Refer to the financial statements of American Eagle given in Appendix B at the end of this book.Required:1. What is the amount of accrued compensation and payroll taxes
Finding Financial Information Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book.Required:1. What is the amount of accrued compensation at the end of
Comparing Companies within an Industry Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of
Many advertisements contain offers that seem too good to be true. A few years ago, an actual newspaper ad offered “a $150,000 house with a zero interest rate mortgage” for sale. If the purchaser
In some cases, a manager can engage in transactions that improve the appearance of financial reports without affecting the underlying economic reality. In this chapter, we discussed the importance of
The president of a regional wholesale distribution company planned to borrow a significant amount of money from a local bank at the beginning of the next fiscal year. He knew that the bank placed a
The New York State Lottery Commission ran the following advertisement in a number of New York newspapers:The Lotto jackpot for Wednesday, August 25, 1999, will be $3 million including interest earned
What are the primary characteristics of a bond? For what purposes are bonds usually issued?
What is the difference between a bond indenture and a bond certificate?
Differentiate secured bonds from unsecured bonds.
Differentiate between callable and convertible bonds.
From the perspective of the issuer, what are some advantages of issuing bonds instead of capital stock?
As the tax rate increases, the net cost of borrowing money decreases. Explain.
At the date of issuance, bonds are recorded at their current cash equivalent amount. Explain.
Explain the nature of the discount and premium on bonds payable.
What is the difference between the stated interest rate and the effective-interest rate on a bond?
Differentiate among the stated and effective rates of interest on a bond (a) Sold at par, (b) Sold at a discount, and (c) Sold at a premium.
What is the book value of a bond payable?
Explain the basic difference between the straight-line and the effective-interest methods of amortizing a bond discount or premium. Explain when each method should or may be used.
(Multiple Choice)1. Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?a. The market rate of interest has increased
For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all.1.
Willams Company plans to issue $600,000, 10-year bonds that pay 8 percent payable semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2011. Determine the issuance
Trew Company plans to issue $900,000, 10-year, 6 percent bonds. Interest is payable semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2011. Determine the issuance
Coffman Company issued $1,000,000, 10-year, 10 percent bonds on January 1, 2011. The bonds sold for $940,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the
Wefald Company issued $600,000, 10-year, 10 percent bonds on January 1, 2011. The bonds sold for $580,000. Interest is payable semiannually each June 30 and December 31. Record the sale of the bonds
Waterhouse Company plans to issue $500,000, 10-year, 10 percent bonds. Interest is paid semiannually on June 30 and December 31. All of the bonds will be sold on January 1, 2011. Determine the
Ernst Company issued $600,000, 10-year, 9 percent bonds on January 1, 2011. The bonds sold for $620,000. Interest is payable annually each December 31. Record the sale of the bonds on January 1,
RKO Company issued $850,000, 10-year, 8 percent bonds on January 1, 2011. The bonds sold for $910,000. Interest is payable annually each December 31. Record the sale of the bonds on January 1, 2011,
The debt-to-equity and times interest earned ratios were discussed in this chapter. Which is a better indicator of a company’s ability to meet its required interest payment? Explain.
If interest rates fell after the issuance of a bond and the company decided to retire the debt, would you expect the company to report a gain or loss on debt retirement? Describe the financial
If a company issues a bond at a discount, will interest expense each period be more or less than the cash payment for interest? If another company issues a bond at a premium, will interest expense be
In what section of the statement of cash flows would you find cash paid to retire bonds? In what section would you find cash paid for interest?
Bond Terminology: Fill in the Missing Blanks1. The ___________ is the amount (a) payable at the maturity of the bond and (b) on which the periodic cash interest payments are computed.2. ___________
As this book was being written, the business press reported the following information concerning bonds issued by AT&T:Bonds Yield
Wynn Resorts owns a variety of popular gaming resorts. Its annual report contained the following information:Debenture ConversionsOur convertible debentures are currently convertible at each
LaTanya Corporation is planning to issue $100,000, seven-year, 8 percent bonds. Interest is payable each December 31. All of the bonds will be sold on January 1, 2011.Required:Compute the issue
James Corporation is planning to issue $500,000 worth of bonds that mature in 10 years and pay 6 percent interest each June 30 and December 31. All of the bonds will be sold on January 1,
You have just started your first job as a financial analyst for a large stock brokerage company. Your boss, a senior analyst, has finished a detailed report evaluating bonds issued by two different
GMAC Corporation issued a $100,000 bond that matures in five years. The bond has a stated interest rate of 6 percent. On January 1, 2011, when the bond was issued, the market rate was 8 percent. The
On January 1, 2011, Clearwater Corporation sold a $750,000, 8 percent bond issue (9 percent market rate). The bonds were dated January 1, 2011, pay interest each December 31, and mature in 10

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