Look at P6-6.

(3.60478),(5.65022-3.60478),(8.24378-8.05518). Where are they getting these numbers from?

Teia Wadkins Week 4 Assignment E6-4 (Computation of Future Values and Present Values) Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of $5,000 each made at the beginning of each period and compounded at 8%? Future Value of an ordinary annuity of $5,000 a period for 20 periods at 8% $228,809.80 ($5,000 X 45.76196) Factor (1+.08) X 1.08 Future value of an annuity due of $5,000 a period at 8% $247,114.58 (b) What is the present value of $2,500 to be received at the beginning of each of 30 periods, discounted at 10% compound interest? Present value of an ordinary Annuity of $2,500 for 30 Periods at 10% Factor (1 + .10) Present value of annuity Due of $2,500 for 30 periods At 10% X $23,567.28 ($2,500 X 9.42691) 1.10 $25,924.01 (c) What is the future value of 15 deposits of $2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.) Future value of an ordinary Annuity of $2,000 a period For 15 periods at 10% Factor (1 + .10) $63,544.96 ($2,000 X 31.77248) X 1.10 Future value of an annuity Due of $2,000 a period For 15 periods at 10% $69,899.46 (d) What is the present value of six receipts of $3,000 each received at the beginning of each period, discounted at 9% compounded interest? Present value of an ordinary Annuity of $3,000 for 6 Periods at 9% $13,457.76 ($3,000 X 4.48592) Factor (1 +.09) X 1.09 Present value of an annuity Date of $3,000 for 6 periods at 9% $14,668.96 P6-6 (Purchase Price of a Business) During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (1-5). In the next 5 years (6-10), Stacy estimates that the vines will bear grapes that can be sold for $60,000 each year. For the next 20 years (11-30), she expects the harvest will provide annual revenues of $110,000. But during the last 10 years (31-40) of the vineyard's life, she estimates that revenues will decline to $80,000 per year. During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $9,000; during the years of production, 6-40, these costs will rise to $12,000 per year. The relevant market rate of interest for the entire period is 12%. Assume that all receipts and payments are made at the end of each year. Instructions Dick Button has offered to buy Stacy's vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept? 30,000 + 9000 = 39,000 39,000 x (3.60478) = (140,586.42) 60,000 - 30,000 - 12,000 = 18,000 18,000 x (5.65022-3.60478) = 36,817.92 110,000- 30,000 - 12,00 0= 68,000 68,000 x (8.24378-8.05518) = 7,166.80 (-140,586.42) + 36,817.92 + 163,537.28 +7,166.80 Minimum amount she should accept is $66,935.58 P6-10 (Analysis of Lease vs. Purchase) Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,850,000. An immediate down payment of $400,000 is required, and the remaining $1,450,000 would be paid off over 5 years at $350,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $500,000. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) $40,000 Insurance (to be paid at the beginning of each year) 27,000 Other (primarily maintenance which occurs at the end of each year) 16,000 $83,000 Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Dunn Inc. if Dunn will lease the completed facility for 12 years. The annual costs for the lease would be $270,000. Dunn would have no responsibility related to the facility over the 12 years. The terms of the lease are that Dunn would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $100,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming no unusual damage to the building structure or fixtures. Instructions Which of the two approaches should Dunn Inc. follow? (Currently, the cost of funds for Dunn Inc. is 10%.) Dunn Inc. should lease the building and related facilities instead of buying them. The net cost for leasing is $2,091,803 compared to the net costs of purchasing which is $2,151,396. Purchasing: Down payment Installments Property taxes/other Insurance Total costs Less: Salvage Net Cost for Purchase Leasing: 400,000 1,326,777 381,567 202,367 2,310,711 (159,315) 2,151,396 Lease Payment Interest Lost Net cost for leasing 2,023,666 68,137 2,091,803 E7-2 (Determine Cash Balance) Presented below are a number of independent situations. Instructions For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale. 1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180. Cash balance of $925,000. Only the checking account balance should be reported as cash. The certificates of deposit of $1,400,000 should be reported as a temporary investment, the cash advance to subsidiary of $980,000 should be reported as a receivable, and the utility deposit of $180 should be identified as a receivable from the gas company. 2. Checking account balance $500,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350. Cash balance is $584,650 computed as follows: Checking account balance $500,000 Overdraft (17,000) Petty Cash 300 Coin and currency 1350 $484,650 Cash held in a bond sinking a fund is restricted. Assuming that the bonds are noncurrent, the restricted cash is also reported as noncurrent. 3. Checking account balance $590,000; postdated check from a customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620. Checking account balance Certified check from customer $590,000 9,800 $599,800 The postdated check of $11,000 should be reported as a receivable. Cash restricted due to compensating balance should be described in a note indicating the type of arrangement and amount. Postage stamps on hand are reported as part of office supplies inventory or prepaid expenses. 4. Checking account balance at bank $42,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800. Checking account balance Money market mutual fund $42,000 48,000 $90,000 The NSF check received from customer should be reported as a receivable. 5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract. Checking account balance Cash advance received from customer $700,000 900 $700,900 Cash restricted for future plant expansion of $500,000 should be reported as a noncurrent asset. Short-term treasury bills of $180,000 should be reported as a temporary investment. Cash advance received from customer of $900 should also be reported as a liability; cash advance of $7,000 to company executive should be reported as a receivable; refundable deposit of $26,000 paid to federal government should be reported as a receivable. E7-5 (Record Sales Gross and Net) On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of $2,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Arquette on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Arquette Company. Instructions (a) Prepare journal entries on the Bolton Company books to record all the events noted above under each of the following bases. (1) Sales and receivables are entered at gross selling price. (2) Sales and receivables are entered at net of cash discounts. (b) Prepare the journal entry under basis 2, assuming that Arquette Company did not remit payment until July 29. 1. June 3 Accounts receivable 2,000 Sales 2,000 June 12 June 3 2. Cash ($2,000 x 98%) 1,960 Sales discounts 40 Accounts receivable 2,000 Accounts Receivable 1,960 Sales 1,960 Cash 1,960 Accounts Receivable 1,960 Cash 2,000 Accounts Receivable 1,960 Sales Discounts forfeited 40 June 12 B. July 29 E7-7 (Recording Bad Debts) Sandel Company reports the following financial information before adjustments. Dr. Accounts Receivable Cr. $160,000 Allowance for Doubtful Accounts $ 2,000 Sales Revenue (all on credit) 800,000 Sales Returns and Allowances 50,000 Instructions Prepare the journal entry to record bad debt expense assuming Sandel Company estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable. A. Bad Debt Expense Allowance for Doubtful Accounts $8,000 $9000 B. Bad Debt Expense $7,500 Allowance for Doubtful Account $7,500 10% * ($800,000 - $50,000) = $7,500 Bad Debt Expense $6,000 Allowance for Doubtful Accounts $6,000 E7-12 (Journalizing Various Receivable Transactions) Presented below is information related to Sanford Corp. July 1 Sanford Corp. sold to Legler Co. merchandise having a sales price of $10,000 with terms 2/10, net/60. Sanford records its sales and receivables net. 5 Accounts receivable of $12,000 (gross) are factored with Rothchild Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.) 9 Specific accounts receivable of $9,000 (gross) are pledged to Rather Credit Corp. as security for a loan of $6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.) Legler Co. notifies Sanford that it is bankrupt and will pay only 10% of its account. Give Dec.29 the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.) Instructions Prepare all necessary entries in general journal form for Sanford Corp. July 1 July 5 July 9 Accounts Receivable Sales 9,800 Cash Loss on sale of receivables Account Receivables Sales Discounts Forfeited 10,920 1,080 Cash 5,640 9,800 11,760 240 Interest Expense Notes Payable Accounts Receivables Sales discounts forfeited July 11 Dec 29 180 Accounts Receivables Sales discounts forfeited July 9 360 200 Allowance for doubtful accounts Accounts Receivables 6,000 180 200 9,000 9,000 *E7-24 (Bank Reconciliation and Adjusting Entries) Kipling Company deposits all receipts and makes all payments by check. The following information is available from the cash records. June 30 Bank Reconciliation Balance per bank $ 7,000 Add: Deposits in transit 1,540 Deduct: Outstanding checks (2,000) Balance per books $ 6,540 Month of July Results Per Bank Per Books Balance July 31 $8,650 $9,250 July deposits 4,500 5,810 July checks 4,000 3,100 July note collected (not included in July deposits) 1,500 July bank service charge 15 July NSF check from a customer, returned by the bank 335 (recorded by bank as a charge) Instructions (a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance. Kipling Company Bank Reconciliation July 31, 2012 July 31 Balance per bank statement, July 31 $ 8,650 Add: Deposit Transit 2,850 Deduct: Outstanding Check (1,100) Correct cash balance $ 10,400 Balance per books, July 31 Add: Note Correction Less: Service Charge $ 15 NSF 335 Corrected cash balance, July 31 $ 9,250 1,500 (350) $ 10,400 (b) Prepare the general journal entry or entries to correct the Cash account. Cash Office ExpensesBank Service Charge Accounts Receivable Notes Receivable $1,150 15 335 1,500 P7-4 (Bad-Debt Reporting) From inception of operations to December 31, 2012, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Fortner's usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was $130,000 at January 1, 2012. During 2012, credit sales totaled $9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,000. Fortner installed a computer system in November 2012, and an aging of accounts receivable was prepared for the first time as of December 31, 2012. A summary of the aging is as follows. Classification by Month of Sale Balance in Each Category Estimated % Uncollectible November-December 2012 $1,080,00 2% $21,600 July-October 650,000 10% $65,000 January-June 420,000 25% $150,000 Prior to 1/1/12 150,000 80% $2,300,000 $72,000 (90000*.8) $263,600 Based on the review of collectibility of the account balances in the \"prior to 1/1/12\" aging category, additional receivables totaling $60,000 were written off as of December 31, 2012. The 80% uncollectible estimate applies to the remaining $90,000 in the category. Effective with the year ended December 31, 2012, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Instructions (a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2012. Show supporting computations in good form. (Hint: In computing the 12/31/12 allowance, subtract the $60,000 write-off). Computation of Allowance for Doubtful Accounts December 31, 2012 Category Nov - Dec 2012 July - Oct Jan - June Prior to 1/1/12 Balance 1,080,000 650,000 420,000 90,000 Percentage 2% 10% 80% 80% Doubtful Accounts $ 21,600 $ 65,000 $ 105,000 $ 72,000 $ 263,600 (b) Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2012.(AICPA adapted) Bad Debt Expense Allowance for Doubtful Accounts $88,600 $88,600