VIEWS: 23 PAGES: 7 POSTED ON: 11/10/2011
Name: __________________________ Date: _____________ 1. Ariel, Inc., issued $30 million face amount of 9% bonds when market interest rates were 9.30% for bonds of similar risk and other characteristics. (a.) How much interest will be paid annually on these bonds? (b.) Will the bonds be issued at a premium or discount? Explain your answer. (c.) Will the annual interest expense on these bonds be more than, equal to, or less than, the amount of interest paid each year? Explain your answer. 2. The Defiance College sells season tickets for four home football games at a price of $15. For the 2007 season, 5,000 season tickets were sold. (a.) Write the journal entry or use the horizontal model to show the effect of the sale of the season tickets. (b.) Write the journal entry or use the horizontal model to show the effect of hosting a home football game. (c.) Where on the balance sheet would the account balance representing funds received for games not yet played be classified? Assume that The Defiance College follows the same accounting and financial reporting procedures that are used in business. 3. Lone Star Sales & Service acquired a new machine that cost $42,000 in early 2006. The machine is expected to have a five-year useful life and is estimated to have a salvage value of $7,000 at the end of its life. (Round your final answers to the nearest dollar). (a.) Using the straight-line depreciation method, calculate the depreciation expense to be recognized in the second year of the machine's life and calculate the accumulated depreciation after the third year of the machine's life. (b.) Using the double declining balance depreciation method, calculate the depreciation expense for the third year of the machine's life and the net book value of the machine at this point in time. (c.) Using the sum-of-the-years digits depreciation method, calculate the amount of accumulated depreciation after the third year of the machine's life. 4. Goodwill results from the purchase of one firm by another for a price that is greater than the fair market value of the net assets acquired. On January 1, 2007, Blue Grass Co. purchased Red Grass Co for $1,200,000 when the net assets were valued at $1,000,000. Goodwill will be tested annually for impairment. Assume that after the first year there was an impairment of $15,000. Required: (a.) Compute the value of goodwill to be recorded on the books of Blue Grass Company upon the purchase of the business. (b.) What is impairment and how is the first year's impairment recorded in the books? 5. The following are data available for Richards Co. for the month of May: Sales 1,120 units Beginning inventory 200 units @ $1.25 Purchases, in chronological order 500 units @ $1.30 400 units @ $1.40 700 units @ $1.50 Calculate cost of goods sold and ending inventory under the following cost flow assumptions: (1.) Weighted average (2.) FIFO (3.) LIFO 6. Prepare a bank reconciliation for Grace, Inc., as of January 31 from the following information: (a.) The January 31 cash balance in the general ledger is $2,544. (b.) The January 31 balance shown on the bank statement is $2,272. (c.) Checks issued but not returned with the bank statement were No. 435 for $226 and No. 448 for $91. (d.) A deposit made on January 31 for $640 was included in the general ledger balance but not in the bank statement balance. (e.) Interest credited to the account during January but not recorded on the company's books amounted to $36. (f.) A bank charge of $12 for printing new checks was made to the account during January. Although the company was expecting a charge, the amount was not known until the bank statement arrived. (g.) In the process of reviewing canceled checks, it was determined that a check issued to a supplier in payment of an account payable of $125 was recorded as a $152 cash disbursement. Required: (1.) Prepare the bank reconciliation for Grace, Inc., as of January 31. (2.) Prepare the appropriate adjusting entry(ies) or show the reconciling items in a horizontal model, for Grace, Inc. related to the bank reconciliation. 7. Using the column headings provided below, show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity. (1.) During the month, the board of directors declared a cash dividend of $1,200, payable next month. (2.) Employees were paid $1,900 in wages for their work during the first three weeks of the month. (3.) Employee wages of $600 for the last week of the month have not been recorded. (4.) Merchandise that cost $900 was sold for $1,350. Of this amount, $1,000 was received in cash and the balance is expected to be received within 30 days. (5.) A contract was signed with a local radio station for a $100 advertisement; the ad was aired during this month but will not be paid for until next month. (6.) Store equipment was purchased at a cash price of $300. The original list price of the equipment was $400, but a discount was received. (7.) Received $180 of interest income for the current month. (8.) Accrued $310 of interest expense at the end of the month. Transaction/ Owners’ Situation Assets Liabilities Equity Net Income 1 ________ ________ ________ ________ 2 ________ ________ ________ ________ 3 ________ ________ ________ ________ 4 ________ ________ ________ ________ 5 ________ ________ ________ ________ 6 ________ ________ ________ ________ 7 ________ ________ ________ ________ 8 ________ ________ ________ ________ 8. At the beginning of the current fiscal year, the balance sheet of Arches Co. showed liabilities of $380,000. During the year liabilities increased by $10,000, assets increased by $55,000, and paid-in capital increased $20,000 to $165,000. Dividends declared and paid during the year were $60,000. At the end of the year, owners' equity totaled $402,000. Calculate net income or loss for the year. 9. Presented below are the comparative balance sheets of Big Apple, Inc., at December 31, 2007, and 2006. Sales for the year ended December 31, 2007, totaled $890,000. BIG APPLE, INC. Balance Sheets December 31, 2007 and 2006 2007 2006 Assets Cash $ 45,000 $ 49,000 Accounts receivable 134,000 106,000 Merchandise inventory 201,000 197,000 Total current assets $380,000 $352,000 Land 66,000 60,000 Building and Equipment 364,000 325,000 Less: Accumulate depreciation (186,000 ) (157,000 ) Total assets $624,000 $580,000 Liabilities Short-term debt $ 49,000 $ 43,000 Accounts payable 92,000 84,000 Other accrued liabilities 64,000 67,000 Total current liabilities $205,000 $194,000 Long-term debt 87,000 107,000 Total liabilities $292,000 $301,000 Owners’ Equity Common stock, no par, 100,000 shares authorized, 35,000 and 28,000 shares issued respectively $102,000 $ 78,000 Retained earnings: Beginning balance 201,000 168,000 Net income for the year 74,000 67,000 Dividends for the year (45,000 ) (34,000 ) Ending balance $230,000 $201,000 Total owners’ equity $332,000 $279,000 Total liabilities and owners’ equity $624,000 $580,000 Required: (a.) Calculate ROI for 2007. (b.) Calculate ROE for 2007. (c.) Calculate working capital at December 31, 2007. (d.) Calculate the current ratio at December 31, 2007. (e.) Calculate the acid-test ratio at December 31, 2007. 10. Presented below is a statement of cash flows for Peach, Inc., for the year ended December 31, 2007. Also shown is a partially completed comparative balance sheet as of December 31, 2007 and 2006. PEACH, INC. Statement of Cash Flows For the year ended December 31, 2007 Cash flows from operating activities: Net Income $9,000 Add (deduct) items not affecting cash: Depreciation expense 45,000 Decrease in accounts receivable 23,000 Increase in inventory (7,000 ) Increase in short-term debt 5,000 Increase in notes payable 12,000 Decrease in accounts payable (6,000 ) Net cash provided by operating activities $81,000 Cash flows from investing activities: Purchase of equipment $(50,000 ) Purchase of buildings (48,000 ) Net cash used by investing activities $(98,000 ) Cash flows from financing activities: Cash used for retirement of long-term debt $(25,000 ) Proceeds from issuance of common stock 10,000 Payment of cash dividends on common stock (3,000 ) Net cash used by financing activities (18,000 ) Net decrease in cash for the year $(35,000 ) PEACH, INC. Balance Sheets December 31, 2007 and 2006 2007 2006 Assets Current assets: Cash $ $ 88,000 Accounts receivable 73,000 Inventory 56,000 _______ Total current assets $ $ Land 40,000 Building and Equipment 260,000 Less: Accumulate depreciation (123,000 ) Total land, buildings, and equipment _______ _______ Total assets $______ $_______ Liabilities Current liabilities Short-term debt $32,000 $_______ Notes payable 36,000 Accounts payable _______ 29,000 Total current liabilities $ $ Long-term debt 85,000 Owners’ Equity Common stock $ 40,000 Retained earnings $_______ $_______ Total owners’ equity $_______ $_______ Total liabilities and owners’ equity $__________ $_______ Required: (a.) Complete the December 31, 2007 and 2006 balance sheets. (b.) Prepare a Statement of Changes in Retained Earnings for the year ended December 31, 2007.
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