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Accounting
Presented below is selected account information related to Martin Burke Inc. as of December 21, 2008. All these accounts have debit balances.Cable television franchises ... Film contract rightsMusic
Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2008.Organization costs ........................ $24,000Trademarks ............................ 15,000Discount
Presented below is selected information for Alatorre Company.1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2006. The patent is being amortized over its remaining legal
As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2008, are prepared. The
Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2008.1/2/08
In early January 2007, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January of 2008, Outkast incurred $7,800 of legal fees in a successful defense of its trade
Lovett Corporation was organized in 2007 and began operations at the beginning of 2008. The company is involved in interior design consulting services. The following costs were incurred prior to the
Clinton Company has provided information on intangible assets as follows.A patent was purchased from Reagan Company for $2,000,000 on January 1, 2007. Clinton estimated the remaining useful life of
During 2004, Wonder Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2004, and had
Tones Industries has the following patents on its December 31, 2007, balance sheet.The following events occurred during the year ended December 31, 2008.1. Research and development costs of $245,700
Fred Moss, owner of Moss Interiors, is negotiating for the purchase of Zweifel Galleries. The balance sheet of Zweifel is given in an abbreviated form below.Moss and Zweifel agree that:1. Land is
On July 1, 2007, Brigham Corporation purchased Young Company by paying $250,000 cash and issuing a $100,000 note payable to Steve Young. At July 1, 2007, the balance sheet of Young Company was as
Presented below is information related to equipment owned by Suarez Company at December 31, 2007.Cost ............... $9,000,000Accumulated depreciation to date ... 1,000,000Expected future net cash
Assume the same information as E11-14, except that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000.Instructions(a) Prepare the
The management of Luis Andujar Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000,
Presented below is information related to copyrights owned by Tom Holder Company at December 31, 2008.Cost ........... $8,600,000Carrying amount ....... 4,300,000Expected future net cash flows .
Presented below is net asset information related to the Carlos Division of Santana, Inc.The purpose of the Carlos division is to develop a nuclear-powered aircraft. If successful, traveling delays
Information concerning Haerhpin Corporation’s intangible assets is as follows.1. On January 1, 2008, Haerhpin signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an
During 2005, Bloom Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2006.The building was
Olsson Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2008 for $8,000,000 and had an estimated useful life of 8 years with no salvage
Phil Mickelson Company operates several plants at which limestone is processed into quicklime and hydrated lime. The Eagle Ridge plant, where most of the equipment was installed many years ago,
After securing lease commitments from several major stores, Lobo Shopping Center, Inc. was organized and built a shopping center in a growing suburb.The shopping center would have opened on schedule
On June 30, 2008, your client, Bearcat Company, was granted two patents covering plastic cartons that it had been producing and marketing profitably for the past 3 years. One patent covers the
Differentiate between term bonds, mortgage bonds, collateral trust bonds, debenture bonds, income bonds, callable bonds, registered bonds, bearer or coupon bonds, convertible bonds, commodity-backed
Zeno Company sells its bonds at a premium and applies the effective interest method in amortizing the premium. Will the annual interest expense increase or decrease over the life of the bonds?
Congo Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Congo purchased $40,000 of inventory, terms 2/10, n/30, and FOB shipping
Shin’s Company borrowed $50,000 on November 1, 2008, by signing a $50,000, 9%, 3-month note. Prepare Shin’s November 1, 2008, entry; the December 31, 2008, annual adjusting entry; and the
Kawasaki Corporation borrowed $50,000 on November 1, 2008, by signing a $51,125, 3-month, zero-interest-bearing note. Prepare Kawasaki’s November 1, 2008, entry; the December 31, 2008, annual
Game Pro Magazine sold 10,000 annual subscriptions on August 1, 2008, for $18 each. Prepare Game Pro’s August 1, 2008, journal entry and the December 31, 2008, annual adjusting entry.
Ghostbusters Corporation issues $300,000 of 9% bonds, due in 10 years, with interest payable semiannually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the
The Goofy Company issued $200,000 of 10% bonds on January 1, 2009. The bonds are due January 1, 2009, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare
Assume the bonds in BE12-6 were issued at 98. Prepare the journal entry at January 1, 2009.
Assume the bonds in BE12-6 were issued at 103. Prepare the journal entry at January 1, 2009.
At December 31, 2009, Treasure Land Corporation has the following account balances.Bonds payable, due January 1, 2017 ....... $2,000,000Discount on bonds payable ............ 98,000Bond interest
On January 1, 2009, Uncharted Waters Corporation retired $600,000 of bonds at 99. At the time of retirement, the unamortized premium was $15,000 and unamortized bond issue costs were $5,250. Prepare
Justice League Inc. is involved in a lawsuit at December 31, 2008.(a) Prepare the December 31 entry assuming it is probable that Justice League will be liable for $700,000 as a result of this
Kohlbeck Company recently was sued by a competitor for patent infringement. Attorneys have determined that it is probable that Kohlbeck will lose the case and that a reasonable estimate of damages to
Frantic Factory provides a 2-year warranty with one of its products which was first sold in 2008. In that year, Frantic spent $70,000 servicing warranty claims. At year-end, Frantic estimates that an
Herzog Zwei Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2008, Herzog Zwei sold 15,000 warranty contracts at $99 each. The corporation
Darby’s Drillers erects and places into service an off-shore oil platform on January 1, 2008, at a cost of $10,000,000. Darby is legally required to dismantle and remove the platform at the end of
On January 1, 2009, Qix Corporation issued $400,000 of 7% bonds, due in 10 years. The bonds were issued for $372,816, and pay interest each July 1 and January 1. Qix uses the effective interest
Assume the bonds in BE12-16 were issued for $429,757 and the effective interest rate is 6%. Prepare the company’s journal entries for(a) The January 1 issuance,(b) The July 1 interest payment,
Izzy Corporation issued $400,000 of 7% bonds on November 1, 2009, for $429,757. The bonds were dated November 1, 2009, and mature in 10 years, with interest payable each May 1 and November 1. Izzy
The following are selected 2008 transactions of Sean Astin Corporation.Sept. 1 Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic
Presented below are various account balances of K.D. Lang Inc.(a) Unamortized premium on bonds payable, of which $3,000 will be amortized during the next year.(b) Bank loans payable of a winery, due
Presented below are two independent situations.1. On January 1, 2008, Paul Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and
Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece, together with a one-year warranty. Maintenance on each machine during the warranty period averages $330.Instructions(a)
Sheryl Crow Equipment Company sold 500 Rollomatics during 2008 at $6,000 each.During 2008, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable
On January 2, 2003, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2012. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds is
Eddie Haskel, Inc. had outstanding $6,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,000,000 of 10%, 15-year bonds (interest payable July 1
Katie Couric Company had bonds outstanding with a maturity value of $300,000. On April 30, 2009, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these
Presented below are three independent situations. Answer the question at the end of each situation.1. During 2008, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa’s
Oil Products Company purchases an oil tanker depot on January 1, 2009, at a cost of $600,000. Oil Products expects to operate the depot for 10 years, at which time it is legally required to dismantle
Presented below is a list of possible transactions.1. Purchased inventory for $80,000 on account (assume perpetual system is used).2. Issued an $80,000 note payable in payment on account (see item 1
Sprague Company has been operating for several years, and on December 31, 2008, presented the following balance sheet.The net income for 2008 was $25,000. Assume that total assets are the same in
At December 31, 2007, Zeta-James Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2010. The second is a $6,000,000 bond issue which
Hood Company's condensed financial statements provide the following information.Instructions(a) Determine the following for 2008.(1) Current ratio at December 31.(2) Acid-test ratio at December
Presented below is information related to Carver Inc.Instructions(a) Compute the following ratios or relationships of Carver Inc. Assume that the ending account balances are representative unless the
Celine Dion Company issued $600,000 of 10%, 20-year bonds on January 1, 2009, at 102. Interest is payable semiannually on July 1 and January 1. Dion Company uses the effective interest method of
Dan Majerle Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2008, and mature January 1, 2013. Interest is payable annually on January
Presented below are two independent situations.(a) CeCe Winans Corporation incurred the following costs in connection with the issuance of bonds:(1) Printing and engraving costs, $12,000;(2) Legal
On June 30, 2009, Mischa Auer Company issued $4,000,000 face value of 13%, 20-year bonds at $4,300,920, a yield of 12%. Auer uses the effective interest method to amortize bond premium or discount.
Willy Randolph Corporation sells portable computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2008
Albert Pujols Company sells a machine for $7,400 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the
On November 24, 2008, 26 passengers on Tom Paris Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $5,000,000 were
Shoyo Corporation, in preparation of its December 31, 2008, financial statements, is attempting to determine the proper accounting treatment for each of the following situations.1. As a result of
You are the independent auditor engaged to audit Christine Agazzi Corporation’s December 31, 2008, financial statements. Christine Agazzi manufactures household appliances. During the course of
Alex Rodriguez Inc., a publishing company, is preparing its December 31, 2008, financial statements and must determine the proper accounting treatment for the following situations; they have
In each of the following independent cases the company closes its books on December 31.1. Billips Co. sells $250,000 of 10% bonds on March 1, 2008. The bonds pay interest on September 1 and March 1.
PepsiCo, Inc. based in Purchase, New York, is a leading company in the beverage industry. Assume that the following events occurred relating to PepsiCo’s long-term debt in a recent year.1. The
Presented below is the current liabilities section of Nizami Corporation.InstructionsAnswer the following questions.(a) What are the essential characteristics that make an item a liability?(b) How
The following items are listed as liabilities on the balance sheet of Eleutherios Company on December 31, 2008.Accounts payable ... $ 420,000Notes payable ..... 750,000Bonds payable ....
On January 1, 2009, Branagh Company issued for $1,075,230 its 20-year, 13% bonds that have a maturity value of $1,000,000 and pay interest semiannually on January 1 and July 1. Bond issue costs were
Emma Thompson Company has completed a number of transactions during 2008. In January the company purchased under contract a machine at a total price of $1,200,000, payable over 5 years with
What is capital budgeting?
Identify four reasons that capital budgeting decisions by managers are risky.
Capital budgeting decisions require careful analysis because they are generally the ________ ________ and ________ decisions that management faces.
Identify two disadvantages of using the payback period for comparing investments.
Why is an investment more attractive to management if it has a shorter payback period?
What is the average amount invested in a machine during its predicted five-year life if it costs $200,000 and has a $20,000 salvage value? Assume that net income is received evenly throughout each
If the present value of the expected net cash flows from a machine, discounted at 10%, exceeds the amount to be invested, what can you say about the investment’s expected rate of return? What can
Why is the present value of $100 that you expect to receive one year from today worth less than $100 received today? What is the present value of $100 that you expect to receive one year from today,
Why should managers set the required rate of return higher than the rate at which money can be borrowed when making a typical capital budgeting decision?
Why does the use of the accelerated depreciation method (instead of straight line) for income tax reporting increase an investment’s value?
The management of Best Buy is planning to invest in a new companywide computerized inventory tracking system. What makes this potential investment risky?
Circuit City is considering expanding a store.Identify three methods management can use to evaluate whether to expand.
The management of Apple is planning to acquire new equipment to manufacture some of its computer peripherals, and it intends to evaluate that investment decision using net present value. What are
Trek Company is considering two alternative investments. The payback period is 2.5 years for Investment A and 3 years for Investment B. (1) If management relies on the payback period, which
Foster Company is considering an investment that requires immediate payment of $360,000 and provides expected cash inflows of $120,000 annually for four years. What is the investment’s payback
If Kimball Company invests $100,000 today, it can expect to receive $20,000 at the end of each year for the next seven years plus an extra $12,000 at the end of the seventh year. What is the net
Tinto Company is planning to invest in a project at a cost of $135,000. This project has the following expected cash flows over its three-year life: Year 1, $45,000; Year 2, $52,000; and Year 3,
Camino Company is considering an investment expected to generate an average net income after taxes of $3,825 for three years. The investment costs $90,000 and has an estimated $12,000 salvage value.
Fast Feet, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital
Jemak Company is considering two alternative projects. Project 1 requires an initial investment of $800,000 and has a net present value of cash flows of $1,600,000. Project 2 requires an initial
Compute the payback period for each of these two separate investments (round the payback period to two decimals):a. A new operating system for an existing machine is expected to cost $250,000 and
Walker Company is considering the purchase of an asset for $90,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback
A machine can be purchased for $600,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and
A machine costs $200,000 and is expected to yield an after-tax net income of $5,040 each year.Management predicts this machine has a 12-year service life and a $40,000 salvage value, and it uses
MLM Co. is considering the purchase of equipment that would allow the company to add a new product to its line. The equipment is expected to cost $324,000 with a 12-year life and no salvage value. It
After evaluating the risk of the investment described in Exercise 11-5, MLM Co. concludes that it must earn at least a 10% return on this investment. Compute the net present value of this investment.
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