BUSINESS COLLEGE

A company holds $40,000 of 7% bonds as a held-to-maturity security. Assuming all prior interest entries have been accounted for, the bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800. True False

Answers

Answer 1

Answer:

Answer:

False

Explanation:

Since the maturity amount is $40,000 and the interest rate is 7%

So, the receipt of the semiannual interest payment would be

= Maturity amount × interest rate

= $40,000 × 7% ÷ 2

= $1,400

Since the interest payment is semi-annual so we divide the interest rate by 2 and if the time period is given so we double it.

Hence, the given statement is false

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KINGBIRD, INC. Income Statement For the Year Ended December 31, 2020 Sales revenue $446,700
Cost of goods sold 202,300
Gross profit 244,400
Expenses (including $16,300 interest and $20,800 income taxes) 70,800
Net income $ 173,600

Additional information:

1. Common stock outstanding January 1, 2020, was 27,200 shares, and 38,600 shares were outstanding at December 31, 2020.
2. The market price of Kingbird stock was $15 in 2020.
3. Cash dividends of $21,700 were paid, $6,500 of which were to preferred stockholders.

Compute the following measures for 2020.

(a) Earnings per share
(b) Price-earnings ratio
(c) Payout ratio

Answers

Answer and Explanation:

The computation is shown below:

a. Earning per share

= (Net income - preferred dividend) ÷ (Weighted average number of outstanding shares)

= ($173,600 - $6,500) ÷ (27,200 shares + 38,600 shares) ÷ 2

= $167,100 ÷ 32,900 shares

= $5.08 per share

b. Price earnings ratio = Market price ÷ Earning per share

= $15 / $5.08

= 2.95

c. Payout ratio = Dividend paid ÷ Net income

= ($21,700 - $6,500) ÷ ($173,600)

= 8.76%

Caroline is working for a marketing firm making $60,000 per year but considers starting her own marketing company. Caroline has determined that to launch the business, she needs to invest $100,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Caroline plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 6%.Caroline's total implicit cost per year is .

Answers

Answer:

$66,000

Explanation:

The computation of the total implicit cost per year is shown below:

= Given up salary + investment amount × interest rate on investment in the economy

= $60,000 + $100,000 × 6%

= $60,000 + $6,000

= $66,000

We simply added the given up salary and investment amount after considering the interest rate on investment so that the accurate amount could come

Sample Test Problem 9.4 Management is considering developing new computer software. The cost of development will be $675,000, and management expects the net cash flow from sale of the software to be $195,000 for each of the next six years. If the discount rate is 14 percent, What is the IRR on this project? (Round answer to 3 decimal places,e.g. 15.221.) IRR %

Answers

Answer:

Explanation:

Year Cash flow PV factor@15% PV@15% PV factor@20% PV@20%

0 (675,000) 1.000 (675,000) 1.000 (675,000)

1 195,000 0.870 169,565 0.833 162,500

2 195,000 0.756 147,448 0.694 135,417

3 195,000 0.658 128,216 0.579 112,847

4 195,000 0.572 111,492 0.482 94,039

5 195,000 0.497 96,949 0.402 78,366

6 195,000 0.432 84,304 0.335 65,305

NPV 62,974 (26,526)

IRR = Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV)

= 15% + 5%*(62974/(62974 + 26526)

= 18.52%

Therefore, The IRR on this project is 18.52%

AAA Hardware uses the LIFO method to value its inventory. Inventory at the beginning of the year consisted of 16,000 units of the company’s one product. These units cost $10 each. During the year, 66,000 units were purchased at a cost of $13 each and 67,000 units were sold. Near the end of the fiscal year, management is considering the purchase of an additional 8,000 units at $13.a. What would be the effect of this purchase on income before income taxes?
b. What would be the effect of this purchase on income before income taxes using FIFO method?

Answers

Answer:

1. Net income decreases by $3,000

2. The amount of net income would be remains the same.

Explanation:

1. Under LIFO method

(i) Before 8,000 units purchased:

sales = 67,000 units

Cost of goods sold = Quantity × Price

= (66,000 × $13) + (1,000 × $10)

= $858,000 + $10,000

= $868,000

(ii) If 8,000 units purchased at $13 each then,

Cost of goods sold = Quantity × Price

= 67,000 × $13

= $871,000

As the cost of goods increases as a result there will be decrease in the net income before tax under LIFO method.

The amount of net income would be decreased by:

= $871,000 - $868,000

= $3,000

2. Under FIFO method:

(i) Before 8,000 units purchased:

sales = 67,000 units

Cost of goods sold = Quantity × Price

= (16,000 × $10) + (51,000 × $13)

= $160,000 + $663,000

= $823,000

(ii) If 8,000 units purchased at $13 each then,

Cost of goods sold = Quantity × Price

= (16,000 × $10) + (51,000 × $13)

= $160,000 + $663,000

= $823,000

As there will be no change in the cost of goods sold, so, there will be no change in the net income before tax under FIFO method.

The amount of net income would be remains the same.

Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $400. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts: December 4 Freight charge for merchandise purchased $ 62 December 7 Delivery charge for shipping to customer $ 46 December 12 Purchase of office supplies $ 30 December 18 Donation to charitable organization $ 51 If, in addition to these receipts, the petty cash fund contains $201 of cash, the journal entry to reimburse the fund on December 31 will include:

Answers

Answer:

A credit to Cash of $299

Explanation:

Journal Entry Debit Credit

Merchandise inventory $62

Delivery charges $46

Office supplies $30

Miscellaneous expenses $51

Cash over and short $100

Cash $299

Cash to be reimbursed = Minimum cash balance required - Cash balance left

Cash to be reimbursed = $500 - $201

Cash to be reimbursed = $299

Sandlewood Construction Inc. recognizes revenue over time according to percentage of completion for its long-term construction contracts. In 2018, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2019. The accounting records disclosed the following data at the end of 2018: Costs incurred $ 5,400,000 Estimated cost to complete 3,600,000 Progress billings 4,100,000 Cash collections 3,200,000 In addition to accounts receivable, what would appear in the 2018 balance sheet related to the construction accounts?