1. Keller Company is considering investing in an annuity contract that will return $20,000 annually at the end of each year for 10 years. What amount should Franco Company pay for this investment if it earns an 10% return?
2. Jim Yates deposited $3,000 in an account paying interest of 4% compounded annually. What amount would be in the account at the end of 4 years?
3. Stein Company earns 15% on an investment that will return $600,000 eleven years from now. What is the amount that Stein Company should invest now to earn this rate of return?
4. Starr Company issued $300,000, 10-year bonds and agreed to make annual deposits of $24,000. The deposits are made at the end of each year to a fund paying 5% interest compounded annually. What amount will be in the sinking fund at the end of the 10 years?
5. The first payroll of the current year for Boomer Company’s for the week ending January 15 amounted to $50,000 for Office Salaries and $75,000 for Store Wages. None of the employees’ current year’s earnings have been used to calculate the federal or state employer payroll taxes. The following deductions were withheld from employees’ salaries and wages:
Federal Income Tax $ 25,300
State Income Tax $ 5,900
FICA Taxes $ 9,150
Union Dues $ 2,500
Federal unemployment tax (FUTA) rate is 6.9% less a credit equal to the rate paid for state unemployment taxes. The state unemployment tax (SUTA) rate is 5.4%.
Prepare the journal entries to record the weekly payroll ending January 15 and also the employer’s payroll tax expense on the payroll.
6. Oliver Products is undecided about which base to use in estimating uncollectible accounts. On December 31, 2000, the balance in Accounts Receivable was $680,000 and net credit sales amounted to $3,400,000 during 2000. An aging analysis of the accounts receivable indicated that $15,000 in accounts is expected to be uncollectible. Past experience has shown that about 1/2 of 1% of net credit sales eventually are uncollectible.
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage of sales basis and (2) the percentage of receivable basis under each of the following independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $2,200 before adjustment.
7. On January 1, 2000, Drexel Company issued 15,000 shares of $5 par value common stock for $100,000. On March 1, 2000, the company purchased 2,000 shares of its common stock for $13 per share for the treasury. On June 1, 2000, 800 of the treasury shares are sold for $16 per share.
Journalize the stock transactions of Drexel Company in 2000.
8. Walton Corporation has the following stockholders’ equity accounts on January 1, 2000:
Common Stock, $10 par value $ 1,500,000
Paid-in Capital in Excess of Par $ 300,000
Retained Earnings $ 500,000
Total Stockholders’ Equity $ 2,300,000
The company uses the cost method to account for treasury stock transactions. During 2000, the following treasury stock transactions occurred:
Apr. 1: Purchased 9,000 shares at $18 per share.
Aug. 1: Sold 3,000 shares at $22 per share.
Oct. 1: Sold 3,000 shares at $15 per share.
(a) Journalize the treasury stock transactions for 2000.
(b) Prepare the Stockholders’ Equity section of the balance sheet for Vowell Corporation at December 31, 2000. Assume net income was $130,000 for 2000.
9. Wichita Clinic purchased a new surgical laser for $54,000. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,900 hours in year 4; 2,000 hours in year 5.
(a) Compute the annual depreciation for each of the five years under each of the following methods:
(b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer.
(c) Which method would result in the lowest reported income in the first year? Which method would result in the lowest total reported income over the five-year period?
10. Vicks Company prepared the tabulation below at December 31, 2000.
Show how each item should be reported in the statement of cash flows. Use parentheses for deductions.
11. Caldwell Corporation had the following comparative current assets and current liabilities:
Dec. 31, Dec. 31,
Cash $ 35,000 $ 30,000
Marketable securities $ 40,000 $ 10,000
Accounts receivable $ 55,000 $ 95,000
Inventory $ 110,000 $ 90,000
Prepaid expenses $ 30,000 $ 20,000
Total current assets $ 270,000 $ 245,000
Accounts payable $ 140,000 $ 110,000
Salaries payable $ 40,000 $ 30,000
Income tax payable $ 20,000 $ 15,000
Total current liabilities $ 200,000 $ 155,000
During 2000, credit sales and cost of goods sold were $600,000 and $330,000, respectively.
Compute the following liquidity measures for 2000:
1. Current ratio.
2. Working capital.
3. Quick ratio.
4. Receivables turnover.
5. Inventory turnover.
12. The adjusted trial balance for Perkins Corporation at the end of the current year contained the following accounts:
Bonds payable, 10% $ 1,000,000
Bond interest payable $ 25,000
Discount on bonds payable $ 80,000
Mortgage notes payable, 9%, due 2009 $ 60,000
Accounts payable $ 120,000
(a) Prepare the long-term liabilities section of the balance sheet.
(b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section.
13. Three plans for financing a $20,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount and the income tax rate is estimated at 30%.
Plan 1 Plan 2 Plan 3
12% Bonds $ – $ $ 10,000,000
8% Preferred stock, $100 par $ – $ 10,000,000 $ 5,000,000
Common stock, $10 par $ 20,000,000 $ 10,000,000 $ 5,000,000
Total $ 20,000,000 $ 20,000,000 $ 20,000,000
It is estimated that income before interest and taxes will be $5,000,000.
Determine for each plan, the expected net income and the earnings per share on common stock.