Intermediate Accounting Writing Paper
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#1 Calculate the implied interest rate for the lease payments.
Lease A — Lease A covers office equipment which could be purchased for $108,144. Arthur Fleck Company, however, has chosen to lease the equipment for $30,000 per year, payable at the end of each of the next 5 years.
Lease B — Lease B applies to a machine, which can be purchased for $114,978. Leslie Chow Company has chosen to lease the machine for $24,000 per year on a 6-year lease. Payments are due at the start of each year.
Please use the handout, Accounting and the Time Value of Money – Chapter 6 for this problem
#2 Erik Killmonger is a new accountant with Pear Company. Pear purchased merchandise on account for $9,000. The credit terms are 2/10, n/30. Erik has talked with the company’s banker and learned that Pear would earn 8% (simple interest) on any money invested in the company’s savings account.
Instructions
(a) Should Erik pay the invoice within the discount period or should he keep the $9,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best. Hint: remember, PxRxT; use a 360-day year in your calculations.
(b) If Erik forgoes the discount, it may be viewed as paying an interest rate of 2% for the use of $9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.
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#3 On December 31, 2021, Jocinda Fowler Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2024, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:
Interest Rate
Table Factors for Three Periods 5% 10%
Future Value of 1 1.15763
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685
Instructions
Determine the present value of the note (at December 31, 2021)
#4 On January 1, 2022 Ginger Knowles Corporation issued five-year bonds with a face value of $400,000 and a stated interest rate of 12% payable semiannually on July 1 and January 1. The bonds were sold to yield 10%.
Present value table factors are:
Present value of 1 for 5 periods at 10% .62092
Present value of 1 for 5 periods at 12% .56743
Present value of 1 for 10 periods at 5% .61391
Present value of 1 for 10 periods at 6% .55839
Present value of an ordinary annuity of 1 for 5 periods at 10% 3.79079
Present value of an ordinary annuity of 1 for 5 periods at 12% 3.60478
Present value of an ordinary annuity of 1 for 10 periods at 5% 7.72173
Present value of an ordinary annuity of 1 for 10 periods at 6% 7.36009
Calculate the issue price of the bonds.
#5 Selected financial statement information and additional data for Vontae Mack Enterprises is presented below. Prepare a statement of cash flows for the year ending December 31, 2021, using the indirect method.
VONTAE MACK ENTERPRISES
Balance Sheet and Income Statement Data
December 31, December 31
2021 2020
Current Assets:
Cash $153,000 $119,000
Accounts Receivable 238,000 306,000
Inventory 391,000 340,000
Total Current Assets 782,000 765,000
Property, Plant, and Equipment 1,241,000 1,122,000
Less: Accumulated Depreciation (476,000) (442,000)
Total Assets $1,547,000 $1,445,000
Current Liabilities:
Accounts Payable $187,000 $102,000
Notes Payable 51,000 68,000
Income Tax Payable 85,000 76,500
Total Current Liabilities 323,000 246,500
Bonds Payable 340,000 391,000
Total Liabilities 663,000 637,500
Stockholders’ Equity:
Common Stock 510,000 467,500
Retained Earnings 374,000 340,000
Total Stockholders’ Equity 884,000 807,500
Total Liabilities & Stockholders’ Equity $1,547,000 $1,445,000
Sales 1,615,000 $1,513,000
Less Cost of Goods Sold 731,000 731,000
Gross Profit 884,000 782,000
Expenses:
Depreciation Expense 153,000 136,000
Salary Expense 391,000 357,000
Interest Expense 34,000 34,000
Loss on Sale of Equipment 17,000 0
Income Before Taxes 289,000 255,000
Less Income Tax Expense 119,000 102,000
Net Income $170,000 $153,000
Additional Information :
During the year, Vontae Mack sold equipment with an original cost of $153,000 and accumulated depreciation of $119,000 and purchased new equipment for $272,000.
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#6 On January 1, 2022, Patience Phillips Company issued ten-year bonds with a face value of $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%.
Table values are:
Present value of 1 for 10 periods at 10% .386
Present value of 1 for 10 periods at 12% .322
Present value of 1 for 20 periods at 5% .377
Present value of 1 for 20 periods at 6% .312
Present value of annuity for 10 periods at 10% 6.145
Present value of annuity for 10 periods at 12% 5.650
Present value of annuity for 20 periods at 5% 12.462
Present value of annuity for 20 periods at 6% 11.470
Instructions
(a) Calculate the issue price of the bonds.
(b) Without prejudice to your solution in part (a), assume that the issue price was $2,652,000. Prepare the amortization table for 2022, assuming that amortization is recorded on interest payment dates using the effective-interest method.
#7 Tony Stark Corporation issued the following bonds:
TONY STARK CORPORATION
$4,000,000
8%, NC, due December 31st, 2023
Semi-annual pay: July 1st and January 1st
Issue Date: January 1st, 2020
Additional Information:
· Tony Stark Corporation has a December 31st year-end
· Tony Stark Corporation uses the straight-line method to amortize any discount or premium on outstanding debt
· Because of poor marketing efforts by the deal underwriter, no bonds were sold until February 1st, 2020, at that time the entire issue was sold
Instructions
For each of the following environments/markets provide the answers to 1), 2), 3) and 4).
· 6% environment/market
· 8% environment/market
· 10% environment/market
1) Provide the pricing at issue
2) What was the dollar amount of the bond discount at issue?
3) What was the dollar amount of the bond premium at issue?
4) What was the JE made by Tony Stark Corporation on the issue date?
Use this chart for your answers:
Price @ $ Discount $ Premium JE made on
@ Issue @ Issue @ Issue Issue Date__
6%
8%
10%
#8 A comparative balance sheet for Leticia Musgrove Company appears below:
LETICIA MUSGROVE COMPANY
Comparative Balance Sheet
Dec. 31, 2021 Dec. 31, 2020
Assets
Cash $ 27,000 $10,000
Accounts receivable 18,000 14,000
Inventory 25,000 18,000
Prepaid expenses 6,000 9,000
Long-term investments -0- 18,000
Equipment 60,000 32,000
Accumulated depreciation—equipment (20,000) (14,000)
Total assets $116,000 $87,000
Liabilities and Stockholders’ Equity
Accounts payable $ 17,000 $ 7,000
Bonds payable 37,000 47,000
Common stock 40,000 23,000
Retained earnings 22,000 10,000
Total liabilities and stockholders’ equity $116,000 $87,000
Additional information:
1. Net income for the year ending December 31, 2021 was $27,000.
2. Cash dividends of $15,000 were declared and paid during the year.
3. Long-term investments that had a cost of $18,000 were sold for $14,000.
4. Sales for 2021 were $120,000.
Instructions
Prepare a statement of cash flows for the year ended December 31, 2021, using the indirect method.
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#9 On June 30, 2021, Dean Keaton Corporation sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2021, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2024. The following schedule was prepared by the accountant for 2021.
Semi-Annual Interest to Interest Unamortized Bond
Interest Period be Paid Expense Amortization Amount Carrying Value
$75,000 $2,925,000
1 $120,000 $131,625 $11,625 63,375 1,936,625
Instructions
On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)
1. What is the stated interest rate for this bond issue?
2. What is the market interest rate for this bond issue?
3. What was the selling price of the bonds as a percentage of the face value?
4. Prepare the journal entry to record the sale of the bond issue on June 30, 2021.
5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2021.
#10 Present value and future value computations.
Part (a) Compute the amount that a $20,000 investment today would accumulate at 10% (compound interest) by the end of 6 years.
Part (b) Alan Garner wants to retire at the end of this year (2022). His life expectancy is 20 years from his retirement. Mr.Garner has come to you, his CPA, to learn how much he should deposit on December 31, 2022 to be able to withdraw $40,000 at the end of each year for the next 20 years, assuming the amount on deposit will earn 8% interest annually.
Part (c) Halle Berry has a $1,200 overdue debt for medical books and supplies at Ira’s Bookstore. She has only $400 in her checking account and does not want anyone to know about this debt. Ira tells her that she may settle the account in one of three ways since she cannot pay it all now:
1. Pay $400 now and $1,000 when she completes her residency, two years from today.
2. Pay $1,600 one year after completion of residency, three years from today.
3. Marry Ira and he will erase the debt completely.
Assuming that the cost of money is the only factor in Halle’s decision and that the cost of money to her is 8%; also assume Ira’s accountant will not accept alternative #3, which alternative (#1 or #2 ONLY) should she choose?
Your answers must be supported with calculations.
Intermediate Accounting Writing Paper Essay
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