Quesstion 1

Sara Wald died, leaving to her husband Benno an insurance policy contract that provides

that the beneficiary (Benno) can choose any one of the following options:

55,000 immediate cash

4,000 every 3 months payable at the end of each quarter for 5 years

18,000 immediate cash and 1,800 every 3 months for 10 years, payable at the beginning of each 3-month period

4,000 every 3 months for 3 years and 1,500 each quarter for the following 25 quarters, all payments payable at the end of each quarter

Using the interest rate of 2.5 per quarter, compounded quarterly, which option would you

recommend that Benno exercise?

Quesstion 2

Dessin Company is constructing a building. Construction began on January 1, 2012 and was completed on December 31, 2012. Expenditures were

March 1, 2012	$750,000
June 1, 2012	200,000
September 31, 2012	350,000
October 1, 2012	100,000
December 31, 2012	250,000

Company borrowed $1,300,000 on January 1 on a 7-year, 11% note to help finance construction of the building. In addition, the company had outstanding all year a 12%, 4-year, $2,800,000 note payable and an 10%, 4-year, $3,400,000 note payable.

What are the weighted-average accumulated expenditures?

What is the weighted-average interest rate used for interest capitalization purposes?

What is the avoidable interest for the company?

What is the actual interest for the company?

Quesstion 3

Nelson Ltd publishes textbooks for schools, and sells them to bookstores on the following conditions:

each item has a fixed wholesale price, and payment terms is 60 days after shipment. The retail store

may return a maximum of 30% of an order at the retailers expense. Past experience indicates that the

average return rate is 12% and the average collection period is 72 days.

Make a journal entry on August 1, 2016 than Nelson delivered books invoiced at 15,000,000 USD

(cost of books is 12,000,000 USD).

Make a journal entry on November 3, 2016 than 1.5 mln. of the invoiced sales were returned according

to the return policy and the remaining 13.5 mln was paid. Make journal entry for the return and payment.

Quesstion 4

On January 1, 2011, Nelson, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from ABC Company. The following information pertains to this lease agreement.

The agreement requires equal rental payments at the end of each year.

The fair value of the building on January 1, 2011 is $3,000,000; however, the book value to ABC is $2,500,000.

The building has an estimated economic life of 10 years, with no residual value. Nelson depreciates similar buildings on the straight-line method.

At the termination of the lease, the title to the building will be transferred to the lessee.

Nelson's incremental borrowing rate is 11% per year. ABC Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Nelson Ltd.

The yearly rental payment includes $10,000 of executory costs related to taxes on the property.

What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)

From the lessee's viewpoint, what type of lease exists in this case?

If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight years, what type of lease would this be for the lessee?