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1. Stanislov Corp. is offered terms of 1/5, net 15 from its supplier. What annual implicit interest rate is the supplier charging Stanislov for the
1. Stanislov Corp. is offered terms of 1/5, net 15 from its supplier. What annual implicit interest rate is the supplier charging Stanislov for the period of time after the discount period ends? Assume there are 365 days in a year. a. 24.58% b. 36.86% C. 1.0% d. 15% e. None of the above 2. Danduroff Corp. offers an original product warranty on the product it sells. The warranty specifies that Danduroff will refund the full purchase price of any units that fail to perform to the customer's satisfaction any time during the first year after purchase. The product sells for $350 per unit. During 2017, 200 units were returned by customers under the warranty. The return of these units during 2017 will: a. Increase Danduroff's warranty expense by $70,000 b. Increase Danduroffs warranty liability balance by $70,000. c. Both a. and b. d. Reduce Danduroff's warranty liability balance by $70,000. e. None of the above 3. Hodson Bay Co. has the following information available regarding its original product warranty program: Warranty liability balance at 12/31/17 Sellin Units sold during 2018 Expected failure rate Actual number of units that failed during 2018 12,000 S16 50,000 1 .25% 800 er unit during 2018 Which of the following statements is true? a. Hodson Bay should report a warranty liability balance at 12/31/18 of $14,800 b. Hodson Bay should report warranty expense for 2018 in the amount of $12,800 c. Both a. and b. are true d. Hodson Bay should report a warranty liability balance at 12/31/18 of $9,200 e. None of the above 4. Under capital lease accounting (which under the new rules is "finance lease accounting"), if a lease is accounted for as a capital lease, the lease will have the following effects for the lessee's financial statements (i.e. the company that will use the asset) a. At the inception of the lease, assets go up by the fair-value of the asset (assume fair-value present value of the lease payments). b. At the inception of the lease, liabilities go up by the present value of the lease payments. c. The lessee will report interest expense going forward from the inception of the lease. d. The lessee will report depreciation expense going forward from the inception of the lease. e. All of the above 5. Under the "old rules" for lease accounting, long-term leases that were accounted for as operating leases resulted in: a. Return on assets that was too low relative to economic reality b. Overstated assets and understated liabilities. c. An inflated interest expense for financial reporting purposes. d. A debt-to-equity ratio that is too low relative to economic reality e. None of the above
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