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Intermediate Accounting 10th Edition Loren A Nikolai, D. Bazley and Jefferson P. Jones - Solutions

Using the present value tables, solve the following problems:Required1. What is the present value on January 1, 2007 of $30,000 due on January 1, 2012 and discounted at 12% compounded annually?2. What is the present value on July 1, 2007 of $8,000 due January 1, 2012 and discounted at 16%
Using appropriate tables, solve the following future value of annuity problems:Required1. What is the future value on December 31, 2013 of seven cash flows of $10,000, with the first cash payment being made on December 31, 2007 and interest at 12% being compounded annually?2. What is the future
Samuel David wants to make five equal annual withdrawals of $8,000 from a fund that will earn interest at 10% compounded annually.RequiredHow much would David have to invest on:1. January 1, 2007 if the first withdrawal is made on January 1, 2008?2. January 1, 2007 if the first withdrawal is made
Six equal annual contributions are made to a fund, with the first deposit on December 31, 2007.RequiredUsing the future value tables, determine the equal contributions that, if invested at 10% compounded annually, will produce a fund of $30,000, assuming that this sum is desired on December 31,
Beginning December 31, 2011, five equal annual withdrawals are to be made.RequiredUsing the appropriate tables, determine the equal annual withdrawals if $25,000 is invested at an interest of 12% compounded annually on1. December 31, 20102. December 31, 20113. December 31, 2007
R. Lee Rouse borrows $10,000 that is to be repaid in 24 equal monthly installments payable at the end of each subsequent month with interest at the rate of 11⁄2% a month.RequiredUsing the appropriate table, calculate the equal installments.
On January 1, 2007 Charles Jamison borrows $40,000 from his father to open a business. The son is the beneficiary of a trust created by his favorite aunt from which he will receive $25,000 on January 1, 2017. He signs an agreement to make this amount payable to his father and, further, to pay his
Beginning with January 1, 2007, five equal deposits are to be made in a fund.RequiredUsing the appropriate tables, determine the equal deposits if interest at 10% is compounded annually and if $200,000 must be in the fund on1. January 1, 20122. January 1, 2013
The following are several situations involving compound interest.RequiredUsing the appropriate table, solve each of the following:1. Hope Dearborn invests $40,000 on January 1, 2007 in a savings account that earns interest of 8% compounded semiannually. What will be the amount in the fund on
John Goodheart wishes to provide for six annual withdrawals of $3,000 each beginning January 1, 2017. He wishes to make 10 annual deposits beginning January 1, 2007, with the last deposit to be made on January 1, 2016.RequiredIf the fund earns interest compounded annually at 10%, how much is each
On January 1, 2007 Ashly Farms leased a hay baler from Agrico Tractor Company. Ashly was having cash flow problems, so Agrico drew up the lease to allow Ashly to reestablish itself. The lease requires Ashly to make $3,000 payments on January 1 of each year for five years beginning in 2007. The
On July 1, 2007 Boston Company purchased a machine at a cost of $80,000. It paid $56,046.06 in cash and signed a 10% note for the difference. This note is to be paid off in annual installments of $5,000 each, payable each July 1, beginning immediately. The $5,000 includes a payment of interest on
Using the future value tables, solve the following:Required1. What is the future value on December 31, 2011 of a deposit of $35,000 made on December 31, 2007 assuming interest of 10% compounded annually?2. What is the future value on December 31, 2011 of a deposit of $10,000 made on December 31,
Using the present value tables, solve the following:Required1. What is the present value on January 1, 2007 of $30,000 due on January 1, 2011 and discounted at 10% compounded annually?2. What is the present value on January 1, 2007 of $40,000 due on January 1, 2011 and discounted at 11% compounded
Using the future values tables, solve the following:Required1. What is the future value on December 31, 2016 of 10 cash flows of $20,000 with the first cash payment made on December 31, 2007 and interest at 10% being compounded annually?2. What is the future value on June 30, 2017 of 20 cash
On December 31, 2014 Michael McDowell desires to have $60,000. He plans to make six deposits in a fund to provide this amount. Interest is compounded annually at 12%.RequiredCompute the equal annual amounts that McDowell must deposit assuming that he makes the first deposit on1. December 31, 20092.
John Joshua wants to make five equal annual withdrawals of $20,000 from a fund that will earn interest at 12% compounded annually.RequiredHow much would Joshua have to invest on January 1, 2007 if he makes the first withdrawal on1. January 1, 2008?2. January 1, 2007?3. January 1, 2012?
Ralph Benke wants to make eight equal semiannual withdrawals of $8,000 from a fund that will earn interest at 11% compounded semiannually.RequiredHow much would Benke have to invest on:1. January 1, 2007 if the first withdrawal is made on July 1, 2007?2. July 1, 2007 if the first withdrawal is made
You are given the following situations:1. Thomas Petry owes a debt of $7,000 from the purchase of a boat. The debt bears interest of 12% payable annually. Petry will pay the debt and interest in five annual installments beginning in one year. Calculate the equal annual installments that will pay
Using the appropriate tables, solve each of the following:Required1. Beginning December 31, 2008, five equal withdrawals are to be made. Determine the equal annual withdrawals if $30,000 is invested at 10% interest compounded annually on December 31, 2007.2. Ten payments of $3,000 are due at annual
On January 1, 2007 Philip Holding invests $40,000 in an annuity to provide eight equal semiannual payments. Interest is 10%, compounded semiannually.RequiredCompute the equal semiannual amounts that Holding will receive, assuming that the first withdrawal is to be received on1. July 1, 20072.
The following are two independent situations.1. Houser wishes to accumulate a fund of $40,000 for the purchase of a house and lot. He plans to deposit $4,000 semiannually at the end of each six months. Assuming interest at 14% a year compounded semiannually, how many deposits of $4,000 each will be
Ronald McDuffie purchases a new car at a cost of $14,400. He pays $3,000 down and issues an installment note payable by which he promises to pay the balance in 18 equal monthly installments, which include interest at an annual rate of 18% on the remaining unpaid balance at the beginning of each
Rockness needs $40,000 to pay off a loan due on December 31, 2016. His plans included the making of 10 annual deposits beginning on December 31, 2007 in accumulating a fund to pay off the loan. Without making a precise calculation, Rockness made three annual deposits of $4,000 each on December 31,
William Thomas intends to purchase a tractor on credit. Two local implement dealers have offered him the following payment plans for identical tractors:1. Redd Truck & Tractor’s plan calls for five annual payments of $10,350, with the first payment now and the remaining payments at the
At the beginning of 2007 Shanklin Company issued 10-year bonds with a face value of $1,000,000 due on December 31, 2016. The company wants to accumulate a fund to retire these bonds at maturity by making annual deposits beginning on December 31, 2007.RequiredHow much must the company deposit each
BWP, Inc., is considering the purchase of an asset. BWP€™s required rate of return on new assets is 12%. The expected net cash inflows generated by the new asset are as follows:RequiredGiven that the net cash inflows can be realized, what is the maximum amount BWP should be willing to pay
SuMar Company purchased a new piece of machinery by paying $2,000 down and agreeing to pay $1,000 at the end of each year for five years. The appropriate interest rate is 8%.Required1. What is the cost of the machinery?2. Prepare the journal entry to record the purchase of the machinery.3. Prepare
Nello Construction Company has just purchased several major pieces of road-building equipment. Since the purchase price is so large, the equipment company is giving Nello an option of choosing one of four different payment plans:1. $600,000 immediately in cash.2. $200,000 down payment now; $65,000
Part a. Reproduced in the following table are the first three lines from the 2% columns of each of several tables of mathematical values. For each of the following items, you are to select from among these fragmentary tables the one from which the amount required can be obtained most directly
The following are three independent situations:1. M. Herman has decided to set up a scholarship fund for students. She is willing to deposit $5,000 in a trust fund at the end of each year for 10 years. She wants the trust fund to then pay annual scholarships at the end of each year for 30 years.2.
The Johnson Company is considering three different time periods for an insurance policy on its main office building. The premiums on a fire insurance policy covering the building for the amount of $2,000,000 on a one-year, three-year, and five-year basis are as follows:One year ......$ 4,480Three
The manager of the Taylor Company has consulted you, the controller, as to which of the following plans you would recommend in acquiring the use of a piece of heavy equipment:1. Purchase the equipment and pay immediately a cash price of $36,800. The service life of the heavy equipment is estimated
On March 1, 2007 the White Company purchased $400,000 worth of inventory on credit with terms of 1/20, n/60. In the past, White has always followed the policy of making payment one month (30 days) after the goods are purchased. A new member of White’s staff has indicated that the company he
Jane Dough was a teller in a large northeastern bank. She was single and approaching age 30, and she considered herself an honest and upright citizen. After considering what she might do to build a retirement plan for the future, she decided to embezzle $1,500,000. Subsequently she gave herself up
You have just been promoted to manager at a national CPA firm. On your first job a new accountant approaches you with the following situation: He has discovered that the president of the client company has a brother who is both the major stockholder and the president of a local bank. Your client
Jean Perry has a $25,000 whole-life insurance policy that she began many years ago. She is presently 55 years old. One of the benefits of the policy is that Perry can borrow up to a given amount at 12% interest (2% below the current rate), with the principal due two years after the loan is made.
What are the components of cash? What items may be confused with cash, but normally are categorized under other balance sheet captions? What are “cash equivalents”?
What is internal control?
What are the two revenue recognition criteria and how do they relate to receivables in some industries?
Briefly discuss the two methods of recording accounts receivable when cash discounts are involved.
What is a sales return? A sales allowance? Conceptually, when should sales returns and allowances be recorded?
Discuss the differences between the estimation (allowance) methods of recording bad debts and the direct write-off method.
Explain how a company estimates bad debts using(a) The sales or income statement approach, and(b) The accounts receivable or balance sheet approach.
Define the net realizable value of a company’s accounts receivable. How is the net realizable value of accounts receivable reported on the company’s balance sheet?
What method of bad debt estimation categorizes individual accounts receivable based on the length of time outstanding? Why is this length of time an important factor?
Why does the write-off of uncollectible accounts have no effect on the net realizable accounts receivable on the balance sheet if bad debts are estimated? What is the effect of this write-off on the income statement?
Define pledging, assigning, and factoring of accounts receivable.
When does a company record the transfer of accounts receivable as a sale? As a liability?
What is a note receivable? How do notes receivable differ from accounts receivable?
What is a non-interest-bearing note? How does accounting for a short-term non-interest-bearing note differ from a short-term interest-bearing note?
What are notes receivable discounted? How are discounted notes disclosed on the financial statements during the period between the discount date and maturity date?
How are the cash proceeds determined when a note receivable is discounted?
What is the purpose of a petty cash system?
Why are actual expenses, rather than the petty cash account, debited when the fund is replenished?
What is a bank reconciliation? List the causes of the difference between the cash balance listed on a company’s bank statement and the balance shown in the company’s cash account.
Why are adjusting entries made after the bank reconciliation is completed? Give an example of an item on a bank reconciliation which requires an adjusting entry.
Multiple Choice Questions1. Which of the following items should be classified under the heading of cash on the balance sheet?Postdated checks Certificates of deposita. Yes ...... Yesb. Yes ...... Noc. No ...... Nod. No ...... Yes2. Greenfield Company had the following cash balances at
Indicate whether or not each of the following ten items should be included in the cash balance presented on the balance sheet. Also indicate the normal balance sheet treatment for those items not included ascash.
Your audit of the Watt Corporation discovers the following information:1. Reconciled balance in First National Bank checking account .... $ 2,360.752. Reconciled balance in City National Bank checking account .... (40.20)3. Balance in First Federal savings account ............ 28,750.004.
An examination of the accounting records for the Hutton Corporation indicates that all receivables are being recorded in a single account entitled Receivables. An analysis of the account reveals the following:Accounts receivable (trade) ............. $15,500Accounts receivable (officers)
On December 8, 2007, Lynch Incorporated sold $9,000 of merchandise with terms 2/10, n/EOM. On December 18, 2007, collections were made on sales originally billed for $5,000, and on December 31, 2007, additional collections on sales originally billed for $3,000 were received.RequiredPrepare the
The Eastman Corporation sells merchandise with a list price of $13,000 on February 1, 2007, with terms of 1/10, n/30. On February 10, 2007, payment was received on merchandise originally billed for $7,500, and the balance due was received on February 28, 2007.RequiredPrepare journal entries to
Towbin Products sells merchandise on credit for $7,000 on December 1, 2007. The company estimates that returns and allowances will amount to 4% of sales. On December 22, 2007, a customer returns for credit merchandise originally sold on December 1 for $200.Required1. Prepare journal entries to
The Blunt Company makes credit sales of $21,000 during the month of February 2007. During 2007 collections are received on February sales of $20,400, accounts representing $600 of these sales are written off as uncollectible, and a $100 account previously written off is collected.RequiredPrepare
The following information is extracted from the accounting records of the Shelton Corporation at the beginning of 2007:Accounts Receivable .........$63,000Allowance for Doubtful Accounts.....1,400 (credit)During 2007, sales on credit amounted to $575,000, $557,400 was collected on outstanding
Cowen’s, a large department store located in a metropolitan area, has been experiencing difficulty in estimating its bad debts. The company has decided to prepare an aging schedule for its outstanding accounts receivable and estimate bad debts by the due dates of its receivables. This analysis
The following information (prior to adjustment) is available from the accounting records of the Bradford Company on December 31, 2007:Cash sales .......... $ 93,100Net credit sales ........262,900Total sales (net) ..............$356,000Accounts receivable ............. 126,300Allowance for doubtful
At January 1, 2007 the credit balance in the Allowance for Doubtful Accounts of the Master Company was $400,000. For 2007 the provision for doubtful accounts is based on a percentage of net sales. Net sales for 2007 were $50,000,000. Based on the latest available facts, the 2007 provision for
White Corporation has entered into a long-term assignment agreement with a finance company. Under the terms of this agreement, White receives 80% of the value of all accounts assigned and is charged a 1% service charge which is based upon the actual dollar amount of cash received. Additionally, the
The Inder Corporation is experiencing a temporary cash shortage and decides to factor a group of its accounts receivable. The factor accepts $80,000 of Inder’s accounts receivable, remits 90% of the accounts receivable factored, and charges a 16% commission on the gross amount of the factored
The Guide Company requires additional cash for its business. Guide has decided to use its accounts receivable to raise the additional cash as follows:1. On June 30, 2007, Guide assigned $200,000 of accounts receivable to the Cell Finance Company. Guide received an advance from Cell of 85% of the
On December 11, 2007, the Hooper Bank loans a customer $12,000 on a 60-day, 12% note.RequiredPrepare the journal entries necessary to record the receipt of the note by Hooper, the accrual of interest on December 31, 2007, and the customer’s repayment on February 9, 2008, assuming:1. Interest was
Below are several customer notes.1. An $8,000, 60-day, non-interest-bearing note discounted after 15 days at 12%.2. A $9,000, 12%, 60-day note discounted after 30 days at 14%.3. A $6,000, 10%, 90-day note discounted after 30 days at 12%.4. A $10,000, 12%, 120-day note discounted after 45 days at
The following are events of the Singer Corporation for the current year:June 30 Barney Manufacturing gives Singer a $5,000, 11%, 90-day note for merchandise purchased.July 15 Dillon Construction Co. gives Singer a $6,000, 10%, 60-day note for merchandise originally purchased on April 20 of the
The Crown Company established a petty cash fund of $600 for incidental expenditures on January 2, 2007. At the end of the month the count of cash on hand indicated that $57.35 remained in the fund. A sorting of petty cash vouchers disclosed that the following expenses had been incurred during the
The information that follows is available from the general ledger and the bank statement of the Gentry Corporation for the month of August 2007:1. Bank statement balance, August 31 $1,342.502. Note collected by the bank not previously recorded by Gentry 600.003. Interest on the
The following information is extracted from the bank statement and the accounting records of the Sun Corporation for the month of July 2007:1. Cash balance from books, July 31 .......... $1,967.352. Cash balance from bank, July 31 ............ 1,980.203. NSF check returned by bank with bank
The Odum Corporation’s cash account showed a balance of $17,198 on March 31, 2007. The bank statement balance for the same date indicated a balance of $17,924.55. The following additional information is available concerning Odum’s cash balance on March 31, 2007.1. Undeposited cash on hand on
Your cashier I. Amakrook has notified you that he has misplaced all the bank statements for the past year. You decide to review selected accounting records during the year and discover that the following journal entry was made to reconcile the June 30, 2007 bank statement and the accounting
The following information has been extracted from the accounting records of the AtwoodCorporation:1. Cash on hand (undeposited sales receipts) ............ $ 1,0202. Certificates of deposit ................... 25,0003. Customer’s note receivable ................. 1,0004. Reconciled
In 2008, 3 years after it began operations, the Pearce Corporation decided to change from the direct write-off method of recording bad debts to estimating bad debts. The following information is available to you:Required1. Prepare an analysis to determine Pearce€™s estimated bad debt
The following information is extracted from the accounting records of the Tara Corporation:May 1 Received a $6,000, 12%, 90-day note from V. Leigh, a customer.May 6 Received a $9,000, 10%, 120-day note from C. Gable, a customer.May 11 Discounted the Leigh and Gable notes with recourse at the bank
The 2008 audit of the accounting records of the Lane Company discloses the following information:Required1. Reconstruct the journal entries that were made by Lane during 2008 to record changes in the following accounts, assuming sales returns and allowances are estimated in the period of sale and
The Lambert Corporation sells merchandise at a list price of $70,000 with accompanying terms of 2/10, n/30 on December 8, 2007. By December 18, 2007, Lambert had collected from customers for merchandise originally billed at $46,000. By December 31, 2007, additional collections had been received on
On September 30, 2007 (the end of its fiscal year), the Lufkin Corporation reported accounts receivable of $331,750 and an allowance for doubtful accounts of $16,700. During fiscal 2008 the following transactions occurred:Credit sales (terms, n/EOM) .........$2,017,800Collections on accounts
An examination of the accounting records of the Keegan Corporation disclosed the following information for 2007:Cash sales ............ $680,000Net credit sales .......... 527,000Accounts receivable (12/31/07) ... 190,000Allowance for doubtful accounts (12/31/07, prior to adjustment) 1,500
The following notes receivable transactions occurred for the Harris Company during the last three months of the current year. (Assume all notes are dated the day the transaction occurred.)Oct. 9 Received a $5,000, 12%, 60-day note from K. Weedon, a customer.Oct. 12 Received a $6,000, 10%, 90-day
The Furman Corporation entered into an assignment agreement with a finance company whereby Furman would be advanced 80% of all accounts assigned, less a $2,000 service charge. During the year, $300,000 of accounts receivable were assigned, $220,000 collections were made on outstanding assigned
Textile Company frequently factors its accounts receivable. During 2007, Faeber made credit sales of $100,000 to customers, under terms of 2/10, n/30. Faeber records its credit sales using the gross price method. From past experience, sales returns and allowances are expected to be minimal. In
The Lazard Corporation has experienced cash flow problems and decides to improve its current cash position by factoring 30% of its receivables and assigning the remainder with the same finance company. The agreement with the finance company stipulates that a 10% commission will be assessed on
You are engaged in the annual examination of Faulane Company, a wholesale office supply business, for the year ended June 30, 2007. You have been assigned to examine the accounts receivable. The following information is available at June 30, 2007.1. Your review of accounts receivable and
The Installment Jewelry Company has been in business for 5 years but has never had an audit made of its financial statements. Engaged to make an audit for 2007, you find that the company's balance sheet carries no allowance for bad accounts, bad accounts having been expensed as written off and
From inception of operations to December 31, 2006, Harris Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously
From inception of operations in 2004 Summit carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off, and recoveries were credited to income as collected. On March 1, 2008 (after the 2007 financial statements were issued), management recognized that
The December 31, 2006 balance sheet of the Blackmon Corporation disclosed the following information relating to its receivables:*The company is contingently liable for a discounted note receivable of $10,000. During 2007, credit sales (terms, n/EOM) totaled $2,200,000 and collections on accounts
The December 31, 2007 bank statement for Miller Corporation showed a $2,049.25 balance. On this date the company’s Cash account reflected a $325.60 overdraft. In reconciling these amounts, the following information is discovered:1. Cash on hand for undeposited sales receipts, December 31, 2007,
The following information pertains to the Cash account of the Nakamoto Corporation for the month of July 2007:Bank statementBalance July 31 ......................... $22,639.54Service charge for July ..................... 15.00NSF check returned with July bank statement ............
The Daisy Company received a bank statement for February 2007, as follows: From: Central Bank, Denver, Co. 80222To: Daisy Company, 1313 Williams St., Denver, Co. 80218The receipt of $460 on February 14 was for a $445 note collected by the bank, plus $20 current interest, less a $5 service charge.

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