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Accounting concepts and applications 11th Edition Albrecht Stice, Stice Swain - Solutions
Brough Oil Company, which prepares financial statements on a calendar-year basis, purchased new drilling equipment on July 1, 2012. A breakdown of the cost follows:Cost of drilling equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,000Cost of cement platform . . . . . . .
At the beginning of 2012, Beefs Steak House constructed a new walk-in freezer that had a useful life of 10 years. At the end of 10 years, the motor could be salvaged for $3,500. In addition to construction costs that totaled $15,000, the following costs were incurred:Sales taxes on components . . .
Borges Corporation purchases a $760,000 piece of equipment on January 2, 2010, for use in its manufacturing process. The equipment’s estimated useful life is 10 years with no salvage value. Borges uses 150% declining-balance depreciation for all its equipment.1. Compute the depreciation expense
Letha Enterprises purchased a new van on January 1, 2011, for $35,000. The estimated life of the van was four years or 76,000 miles, and its salvage value was estimated to be $3,000. Compute the amount of depreciation expense for 2011, 2012, and 2013 using the following methods:1.
On January 1, 2011, MAC Corporation purchased a machine for $60,000. The machine cost $800 to deliver and $2,000 to install. At the end of 10 years, MAC expects to sell the machine for $2,000. Compute depreciation expense for 2011 and 2012 using the following methods:1. Double-declining-balance2.
On January 1, 2011, Sobel Holding Corporation purchased a coal mine for cash, having taken into consideration the favorable tax consequences and the inevitable energy crunch in the future. Sobel paid $1,125,000 for the mine. Shortly before the purchase, an engineer estimated that there were 180,000
On January 1, 2010, Landon Excavation Company purchased a new bulldozer for $120,000. The equipment had an estimated useful life of 10 years and an estimated residual value of $10,000. On January 1, 2012, Landon determined that the bulldozer would have a total useful life of only 8 years instead of
Neilson’s Hardware Company has a giant paint mixer that cost $51,300 plus $700 to install. The estimated salvage value of the paint mixer at the end of its useful life in eight years is estimated to be $4,000. Neilson’s estimates that the machine can mix 720,000 cans of paint during its
On January 1, Stoker Company purchased an $80,000 machine. The estimated life of the machine was eight years, and the estimated salvage value was $6,000. The machine had an estimated useful life in productive output of 110,000 units. Actual output for the first two years was: year 1, 15,000 units;
On July 1, 2011, the consulting firm of Little, Smart, and Quick bought a new computer for $120,000 to help it service its clients more efficiently. The new computer was estimated to have a useful life of five years with an estimated salvage value of $20,000 at the end of five years. It was further
Gretchen, Inc., a firm that makes oversized boots, purchased a machine for its factory. The following data relate to the machine:Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,000Delivery charges . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .
Ironic Metal Products, Inc., acquired a machine on January 2, 2010, for $76,600. The useful life of the machine was estimated to be eight years with a salvage value of $4,600. Depreciation is recorded on December 31 of each year using the sum-of-the-years’-digits method. At the beginning of 2012,
Forest Products, Inc., buys and develops natural resources for profit. Since 2009, it has had the following activities:1/1/09 Purchased for $800,000 a tract of timber estimated to contain 1,600,000 board feet of lumber.1/1/10 Purchased for $600,000 a silver mine estimated to contain 30,000 tons of
Logan Corporation owns and operates three sawmills that make lumber for building homes. The operations consist of cutting logs in the forest, hauling them to the various sawmills, sawing the lumber, and shipping it to building supply warehouses throughout the western part of the United States. To
Dennis Company currently depreciates its assets using the straight-line method for both tax and financial accounting. Total depreciation expense for this year will be $250,000 using straight-line depreciation. A consultant has just advised the company that it should use accelerated depreciation
The higher the interest rate, the lower the present value of a future amount. Why?
What is an annuity? Discuss.
When does the stated amount of a liability equal its present value?
What is the difference between a note payable and a mortgage payable?
When a mortgage payment is made, a portion of it is applied to interest, and the balance is applied to reduce the principal. How is the amount applied to reduce the principal computed?
If a lease is recorded as a capital lease, what is the relationship of the lease payments and the lease liability?
Why do companies prefer to classify leases as operating leases rather than as capital leases?
To whom do companies usually sell bonds?
What are two important characteristics that determine the issuance price of a bond?
Identify four different ways in which bonds can mature or be eliminated as liabilities.
If a bond’s stated interest rate is below the market interest rate, will the bond sell at a premium or at a discount? Why?
If you think the market interest rate is going to drop in the near future, should you invest in bonds?
When do you think bonds will sell at or near face value?
Explain why bonds retired before maturity may result in a gain or loss to the issuing company.
What does the debt ratio measure?
From the standpoint of a lender, which is more attractive: a high times interest earned ratio or a low times interest earned ratio? Explain. Discuss.
Jeppson Company will receive $50,000 in five years when the interest rate is 6%. Compute the present value of this payment.
Casciani Company invests $61,000 today in a savings account that earns 10% compounded annually. What will be the balance in the savings account 10 years from today (e.g., future value)?
The interest rate is 16% compounded quarterly for six years. Compute the interest rate per compounding period.
The interest rate is 12% compounded monthly for seven years. Compute the number of interest periods.
Compute the future value of $15,000 invested today at 12% interest compounded monthly for five years.
Heisman Company will receive $1,600 every six months for eight years. The company’s interest rate is 10% compounded semiannually. Compute the present value of this annuity payment.
Etchey Company borrowed $50,000 to be repaid in equal monthly installments at 12% interest over five years. Compute the periodic payment amount.
Hornsby Company borrowed $20,000 at 8% interest by issuing a note payable. The terms of the note require yearly interest payments for seven years and repayment of the principal at the end of seven years. Make the necessary journal entries to record the following transactions:1. Issuance of the note
On January 1, Fehler Company borrowed $1,000,000 to purchase a new building and signed a mortgage agreement pledging the building as collateral on the loan. The mortgage is at 10% for 30 years, and the monthly payment is $8,776, payable on January 31 with subsequent payments due at the end of each
Refer to the data in PE 10-9. Make the necessary journal entry (or entries) to record the second month’s mortgage payment on February 28. Round to the nearest penny.Data from PE 10-9On January 1, Fehler Company borrowed $1,000,000 to purchase a new building and signed a mortgage agreement
Gray Company leased a delivery truck on January 1, 2012. The lease requires annual payments of $7,500 for seven years at a 12% rate of interest payable at the end of each year. The company classifyes this lease as a capital lease. Make the necessary journal entry (or entries) to record the lease of
Refer to the data in PE 10-11. Make the necessary journal entry (or entries) to record the first lease payment on December 31, 2012. Round amounts to the nearest penny.Data from PE 10-11Gray Company leased a delivery truck on January 1, 2012. Th e lease requires annual payments of $7,500 for seven
Which one of the following statements is false?a. Debentures are bonds that have no underlying assets pledged as collateral to guarantee their payment.b. Serial bonds mature in one single sum on a specified future date.c. Callable bonds can be redeemed by the issuer at any time at a specified
Idaho Company issued 15-year, $100,000 bonds with a stated rate of interest of 8%, compounded quarterly. The effective interest rate demanded by investors for bonds of this level of risk is also 8%. Calculate the issuance price of the bond (e.g., the total present value).
Forkman Company issued five-year, $25,000 bonds with a stated rate of interest of 8%, compounded semiannually. The effective interest rate demanded by investors for bonds of this level of risk is 12%. Calculate the issuance price of the bond (e.g., the total present value).
Kelpax Company issued seven-year, $100,000 bonds with a stated rate of interest of 8%, compounded semiannually. The effective interest rate demanded by investors for bonds of this level of risk is 6%. Calculate the issuance price of the bond (e.g., the total present value).
Arisael Company issued 20-year, $750,000 bonds with a stated rate of interest of 9%, compounded semiannually. The effective interest rate demanded by investors for bonds of this level of risk is also 9%. Since these bonds are issued at face value (i.e., the stated rate of interest is equal to the
Refer to the data in PE 10-17. Assuming all interest has been accounted for, make the necessary journal entry (or entries) following transactions to record the retirement of the bonds at the end of 20 years.Data from PE 10-17Arisael Company issued 20-year, $750,000 bonds with a stated rate of
McGregor Company had $300,000 in callable bonds in the open market. The company’s bonds were selling in the open market at 106 and were callable at 107. The company decided to retire the bonds early. Make the necessary journal entry (or entries) to record the retirement of these bonds.
Using the following information, compute the debt ratio.Total liabilities . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000Annual interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500Total assets . . . . . . .
Refer to the data in PE 10-20. Compute the debt-to-equity ratio.Data from PE 10-20Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000Annual interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to the data in PE 10-20. Compute the times interest earned ratio.Data from PE 10-20Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000Annual interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Find the present value (rounded to the nearest dollar) of:1. $55,000 due in 4 years at 6% compounded annually.2. $15,000 due in 6½ years at 4% compounded semiannually.3. $100,000 due in 5 years at 16% compounded quarterly.4. $85,000 due in 25 years at 10% compounded semiannually.
Compute the future value (rounded to the nearest dollar) of the following investments:1. $15,842 invested to earn interest at 6% compounded annually for 4 years.2. $30,920 invested to earn interest at 4% compounded semiannually for 6½ years.3. $6,846 invested to earn interest at 16% compounded
What is the present value (rounded to the nearest dollar) of an annuity of $25,000 per year for five years if the interest rate is:1. 8% compounded annually2. 10% compounded annually
Howard Company has just borrowed $250,000. The loan is to be repaid in regular annual payments made at the end of each year. What is the amount of each annual payment under the following sets of terms:1. Interest rate of 8% compounded annually; repayment in four annual payments2. Interest rate of
Maloney Company borrowed $60,000 on a two-year, 8% note dated October 1, 2011. Interest is payable annually on October 1, 2012, and October 1, 2013, the maturity date of the note. The company prepares its financial statements on a calendar-year basis. Prepare all journal entries relating to the
Silmaril, Inc., borrowed $25,000 from First National Bank by issuing a three-year, 10% note dated July 1, 2011. Interest is payable semiannually on December 31 and June 30. The principal amount is to be repaid in full on June 30, 2014. Silmaril, Inc., reports on a calendar-year basis. Prepare all
Kohler Kleaners borrowed $50,000 on June 1, 2012, to finance the purchase of a building. The mortgage requires payments of $525 to be made at the end of every month for 12 years with the first payment being due on June 30, 2012. The interest rate on the mortgage is 8%.1. Prepare a mortgage
On January 1, 2012, Paik, Inc., borrowed $250,000 to finance the purchase of machinery. The terms of the mortgage require payments to be made at the end of every month with the first payment being due on January 31, 2012. The length of the mortgage is five years, and the mortgage carries an
Logan Electronics signed a lease to use a machine for five years. The annual lease payment is $14,200 payable at the end of each year.1. Record the lease, assuming that the lease should be accounted for as a capital lease and the applicable interest rate is 12%. (Round to the nearest dollar.)2. For
Digital, Inc., leased computer equipment from Young Leasing Company on January 2, 2012. The terms of the lease required annual payments of $4,141 for five years beginning on December 31, 2012. The interest rate on the lease is 14%.1. Assuming the lease qualifies as an operating lease, what journal
Neukoelln Company issued six-year bonds on January 1. The face value of the bonds is $125,000. The stated interest rate on the bonds is 10%. The market rate of interest at the time of issuance was 8%. The bonds pay interest semiannually. Calculate the issuance price of the bonds.
Hopeful Company issued seven-year bonds on January 1. The face value of the bonds is $80,000. The stated interest rate on the bonds is 7%. The market rate of interest at the time of issuance was 10%. The bonds pay interest semiannually. Calculate the issuance price of the bonds.
Romulus, Inc., issued $500,000 of 10%, five-year bonds at face value on July 1, 2012. Interest on the bonds is payable semiannually on December 31 and June 30.1. Provide the journal entry to record the issuance of the bonds on July 1, 2012.2. Provide the journal entry made on December 31, 2012, to
Schwedt Company issued $280,000 of 9%, 10-year bonds at face value on September 1, 2012. The bonds pay interest on March 1 and September 1. Schwedt uses the calendar year for financial reporting purposes.1. Provide the journal entry to record the bond issuance on September 1, 2012.2. Provide the
The following information comes from the financial statements of Gwynn Company:Long--term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $58,000Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following information comes from the financial statements of Karlla Peterson Company:Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present and Future Value ComputationsRequired:1. Determine the present value in each of the following situations:a. A $9,000 loan to be repaid in full at the end of five years. Interest on the loan is payable quarterly. The interest rate is 8% compounded quarterly.b. A six-year note for $12,000
Present and Future Value ComputationsRequired:1. Compute the present value for each of the following situations, assuming an interest rate of 12% compounded annually.(Round amounts to the nearest dollar.)a. A single payment of $45,000 due on a mortgage five years from now.b. A series of payments
Nathan Smith has just purchased a new car for $35,000. He paid $10,000 down and signed a note for the remaining $25,000. The interest rate on the note is 12% compounded monthly, or 1% per month.Required:1. Compute the amount of Mr. Smith’s monthly payment if he plans to pay off the $25,000 note
Sweet’s Candy Company needed cash for its current business operations. On January 1, 2011, the company borrowed $8,000 on a two-year, interest-bearing note from Peterson Bank at an annual interest rate of 10%. Interest is payable annually on January 1, and the note matures January 1, 2013.
During 2011, Schmaal Corporation had the following transactions relating to long-term liabilities:May 1 Purchased a machine costing $600,000 from Kretschmar Corporation. Issued a three-year, interest-bearing note with interest payable on May 1 of each year. The note matures on May 1, 2014, and
On November 1, 2012, Nydegger Company arranges with an insurance company to borrow $400,000 on a 30-year mortgage to purchase land and a building to be used in its operations. The land and the building are pledged as collateral for the loan, which has an annual interest rate of 12%, compounded
On January 1, 2011, Linda Lou Foods, Inc., leased a tractor. The lease agreement qualifies as a capital lease and calls for payments of $10,000 per year (payable each year on January 1, starting in 2012) for eight years. The annual interest rate on the lease is 10%. Linda Lou Foods uses a
Empire, Inc., leased a starship on January 2, 2012. Terms of the lease require annual payments of $135,746 per year for 14 years. The interest rate on the lease is 10%, and the first payment is due on December 31, 2012.Required:1. Compute the present value of the lease payments.2. Assuming the
Patterson Company issued 30-year bonds on June 30. The face value of the bonds was $1,000,000. The stated interest rate on the bonds was 8%. The market rate of interest at the time of issuance was 6%. Patterson also issued another set of bonds on August 31. These bonds were 20-year bonds and had a
On July 1, 2012, Paramount, Inc., issued $500,000, 8%, 30-year bonds with interest paid semiannually on January 1 and July 1. The bonds were sold when the market rate of interest was 8%. On October 1, 2015, the bonds were retired when their fair market value was $495,000.Required:1. Demonstrate,
Lihue Enterprises issued $1,500,000, 9%, 20-year bonds on November 1, 2011. Interest payment dates are May 1 and November 1. The bonds were sold at face value.Required:1. Provide the journal entry to record the initial issuance of the bonds.2. Provide the required journal entry on December 31,
The following list of accounts is taken from the adjusted trial balance of Goforth Company.Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $45,000Notes Payable (due in 6 months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000Income
The following amounts are shown on Plymouth Company’s adjusted trial balance for the year 2012:Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,000Property Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following information comes from the financial statements of Walker Company:Long-term debt . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000Total
The following information comes from the financial statements of Travis Campbell Company:Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hamburg Company recently began business and purchased a large facility to make beach clothing. Hamburg managed to make a small profit in its initial year of operations, although it used all its cash to purchase inventory and equipment. After preparing its tax return for the year, Hamburg’s
Berlin Company is in a world of hurt. For the past 15 years, the company has been the exclusive toy supplier to Infants-R-Us toy stores. Unfortunately for Berlin, Infants-R-Us just declared bankruptcy and went out of business. Berlin is the supplier for a few local toy stores, but Infants-R-Us was
Gregorian Company has recently issued bonds that are convertible into stock at the bondholder’s request. The interest rate on the bonds is ridiculously low because it is expected that most holders will exercise the conversion options. How should the bonds be reported?
Design Arts Inc. is a young computer game design company that has been in business for two years. The company has been working on a computer game that is scheduled for release in six months. However, it has exhausted all its financial resources and needs one last loan of $100,000 to help it meet
Locate the 2009 Form 10-K for Wal-Mart in Appendix A and consider the following questions:1. Examine Wal-Mart’s balance sheet as of January 31, 2009. What percent of the increase in Wal-Mart’s total assets from 2008 to 2009 was financed with an increase in the company’s long-term debt?2.
International Business Machines (IBM) included the following information in Note K to its 2008 financial statements:1. IBM lists eleven different issues of notes and debentures. What is a debenture?2. What is unusual about the 7.125% debentures?3. IBM has borrowed the equivalent of $5.460 billion
In May 1901, William Knox D€™Arcy convinced the Shah of Persia (present-day Iran) to allow him to hunt for oil. The oil discovered in Persia in 1908 was the first commercially significant amount of oil found in the Middle East. The company making the discovery called itself the
You and your partner, Kathy, own Miss Karma’s Preschool, which provides preschool and day care services for about 100 children per day. Business is booming, and you are right in the middle of expanding your operation. Three months ago, you took your financial statements to the local bank and
What type of account is Discount on Bonds?
Why does the amortization of a bond discount increase the book value of bonds?
Why is the effective-interest amortization method more theoretically appropriate than the straight-line amortization method?
What is the carrying value of a bond?
How does the carrying value of a bond affect the accounting for bonds payable under the effective-interest method?
If the effective rate of interest for a bond is greater than its stated rate of interest, explain why the annual bond interest expense will be different from the periodic cash interest payments to the bondholders.
Kontiki Alarm Company issued $250,000 of 10%, five-year bonds at 98 on June 30, 2012. Interest is payable on June 30 and December 31. The company uses the straight-line method to amortize bond premiums and discounts. The company’s fiscal year is from February 1 through January 31. Prepare all
Sealon Corporation issued $100,000 of 10%, 10-year bonds at 102 on April 1, 2012. Interest is payable semiannually on April 1 and October 1. Sealon Corporation uses the calendar year for financial reporting.1. Record the necessary entries to account for these bonds on the following three dates.
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