Objective

• To understand and solidify introductory financial accounting course concepts and techniques

Instructions

• Students are to complete the exercises in Word (or some other compatible word processor) and submit to the submission page of Unit 8.

Question 1

On January 2, Dundar Mifflin acquired 30% of the outstanding stock of Steve & Company for $105,000. For the year ending, December 31, Steve & Company earned income of $68,000 and paid dividend $16,000.Prepare the entries for Dundar Mifflin for the purchase of the stock, share of Steve & Company income and dividends received from Steve & Company.

Question 2

Dundar and Mifflin is considering the purchase of new printer and have narrowed down the possibilities to two models which perform equally well.However, the method of paying for the two models is different.Model A requires $8,000 per year payment for the next five years. Model B requires the following payment schedule. Which model should you buy assuming 12% rate?

YearPayment (Model 2)1$10,00029,00038,00045,00053,000

Question 3

Prepare the journal entries for the following transactions for Dundar Mifflin:

1. Dundar Mifflin purchased 1,200 shares of the total of 100,000 outstanding shares of Steve & Company stock for $20.75 per share plus a $70 commission.
2. Steve & Company total earnings for the period are $84,000.
3. Steve & Company paid a total of $40,000 in cash dividends to shareholders of record.

Question 4

To expand its operation in Ontario, the Dundar Mifflin has applied for a $3,500,000 loan from the TD Bank. According to Dundar Mifflin financial analyst, the company can only afford a maximum yearly loan payment of $1,000,000. The bank has offered Dundar Mifflin the following:

Option 1: 3 year loan with an 8 percent interest rate

Option 2: 4 year loan with a 10 percent interest rate

Option 3: 5 year loan with a 12 percent interest rate

Required:

1. Compute the loan payment under each option for year 1.
2. Which option should the company choose?