The Johnsons Change Their Life Insurance Coverage Harry and Belinda Johnson spend $20 per month on life insurance in the form of a premium on a $10,000, paid-at-65 cash-value policy on Harry that his parents bought for him years ago. Belinda has a group term i-surance policy from her employer with a face amount of $200,000. By choosing a group life insurance plan from his menu of employee benefits, Harry now has $100,000 of group term life insurance. Harry and Belinda have decided that, because they have no children, they could reduce their life insurance needs by protecting one another's income for only four years, assuming the survivor would be able to fend for himself or herself after that time. They also realize that their savings fund is so low that it would have no bearing on their life insurance needs. Harry and Belinda are basing their calculations on a projected 4 percent rate of return after taxes and inflation. They also estimate the following expenses: $15,000 for final expenses, $20,000 for readjustment expenses,

and $5,000 for repayment of short-term debts.

Requirement:

(a) Should the $3,000 interest earnings from Harry's trust fund be included in his annual income for the purposes of calculating the likely dollar loss if he were to die? (See the discussions about the Johnsons in Chapter 1 beginning on page 34.) Explain your response.

(b) Based on your response to the previous question, how much more life insurance does Harry need? Use the Run the Numbers worksheet on page 366 to arrive at your answer.

(c) Repeat the calculations to arrive at the additional life insurance needed on Belinda's life.

(d) How might the Johnsons most economically meet any additional life insurance needs you have determined they may have?

e) In addition to their life insurance planning, how might the Johnsons begin to prepare for their retirement years?

A list of the accounts of Medford Corporation is given below, followed by some selected transactions. Indicate the accounts that should be debited and credited for the transaction or adjusting entry by placing the appropriate account codes in the debit and credit columns provided. (10 points) Code Account Code Account A. Cash Common stock B. Prepaid expenses J. Retained earnings C. Accounts receivable K. Rent revenue D. Service trucks L. Service revenue Accumulated E. M. Expenses depreciation Dividends F. Accounts payable N. payable G. Notes payable O. Utility Payable H. Unearned revenue P. Rent payable Transaction or Debit Credit Closing entry Purchased a service truck for EX. D $50,000, paid in A cash. Paid $600 for a two-year 1. premium on the insurance policy covering the truck. Collected $1,000 in advance for 2. service to be provided next year. Declared a cash 3. dividend, $2,000. Depreciation of $1,500 on the 4. truck must be recorded. Truck insurance used for one full 5. year must be recorded (see 1,One fundamental difference between social benefitcost analysis (BCA) and financial cash flow analysis is 0 financial analysis incorporates inflation while BCA does not 0 financial analysis takes into account taxes while BCA does not 0 financial analysis uses social discount factor (rate) while BCA uses market interest rate 0 financial analysis uses social values of costs and benefits while BCA uses market values 0 financial analysis takes into account time value of money while BCA does not QUESTION 1 Financial analysis is: if a. The process of evaluating financial information 3. other information for decision-making 7\" b. An informal process used only by undergraduate business students 75 c. Used only for calculating nancial ratios 5; d. Used in finance but not in accounting QUESTION 2 The six-step process for systematic financial analysis does not include: \"i\"? a. Financial analysis techniques \"f\" b. Corporate overview 'f\" c. Sampling analysis f\"- d. Detailed accounting analysis QUESTION 3 Using the six-step process, the corporate overview step includes: \"f\" a. Industry analysis and business strategy \"T'- b. Calculating all nancial ratios \"f\" c. Model building and financial ratios "f d. Earnings forecasting and footnote review