Questions and Answers of Introductory Financial Accounting

Singer Company has a line of credit with United Bank. Singer can borrow up to $400,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as
A partial amortization schedule for a five-year note payable that Mercury Co. issued on January 1, Year 1, is shown next:Requireda. What rate of interest is Mercury Co. paying on the note?b. Using a
Lek Hood started a business by issuing a $70,000 face-value note to State National Bank on January 1, Year 1. The note had a 6 percent annual rate of interest and a 10-year term. Payments of $9,581
On January 1, Year 1, Monroe Co. borrowed $80,000 cash from First Bank by issuing a four-year, 6 percent note. The principal and interest are to be paid by making annual payments in the amount of
The following information pertains to Austin, Inc. and Huston Company:Requireda. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed).
On January 1, Year 1, Twain Corp. sold $500,000 of its own 7 percent, 10-year bonds. Interest is payable annually on December 31. The bonds were sold to yield an effective interest rate of 8 percent.
OZ Company was started when it issued bonds with a $500,000 face value on January 1, Year 1. The bonds were issued for cash at 96. OZ uses the straight-line method of amortization. They had a
During Year 1 and Year 2, Agatha Corp. completed the following transactions relating to its bond issue. The corporation’s fiscal year is the calendar year.Year 1Jan. 1 Issued $300,000 of 10-year, 6
Pine Land Co. was formed when it acquired cash from the issue of common stock. The company then issued bonds at a premium on January 1, Year 1. Interest is payable annually on December 31 of each
Arnold Corp. issued $600,000 of 20-year, 8 percent, callable bonds on January 1, Year 1, with interest payable annually on December 31. The bonds were issued at their face amount. The bonds are
Boyd Company has a line of credit with State Bank. Boyd can borrow up to $400,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an
On January 1, Year 1, Brown Co. borrowed cash from First Bank by issuing a $100,000 face value, fouryear term note that had an 8 percent annual interest rate. The note is to be repaid by making
Clayton Industries has the following account balances:Current assets ................................................$20,000 Current liabilities...........................................
On January 1, Year 1, the Christie Companies issued bonds with a face value of $500,000, a stated rate of interest of 10 percent, and a 20-year term to maturity. Interest is payable in cash on
On January 1, Year 1, Hart Company issued bonds with a face value of $150,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of
On January 1, Year 1, Young Company issued bonds with a face value of $300,000, a stated rate of interest of 7 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of
On January 1, Year 1, Parker Company issued bonds with a face value of $80,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31
On January 1, Year 1, the Diamond Association issued bonds with a face value of $300,000, a stated rate of interest of 6 percent, and a 10-year term to maturity. Interest is payable in cash on
On January 1, Year 1, Sayers Company issued $280,000 of five-year, 6 percent bonds at 102. Interest is payable semiannually on June 30 and December 31. The premium is amortized using the
Stuart Company issued bonds with a $150,000 face value on January 1, Year 1. The bonds had a 6 percent stated rate of interest and a five-year term. Interest is paid in cash annually, beginning
On January 1, Year 1, Price Co. issued $190,000 of five-year, 6 percent bonds at 96½. Interest is payable annually on December 31. The discount is amortized using the straight-line method.Requireda.
The Square Foot Grill, Inc. issued $200,000 of 10-year, 6 percent bonds on January 1, Year 2, at 102. Interest is payable in cash annually on December 31. The straight-line method is used for
Diaz Company issued bonds with a $180,000 face value on January 1, Year 1. The bonds had a 7 percent stated rate of interest and a five-year term. Interest is paid in cash annually, beginning
Milan Company issued bonds with a face value of $200,000 on January 1, Year 1. The bonds had a 7 percent stated rate of interest and a six-year term. The bonds were issued at face value. Interest
Nivan Co. issued $500,000 of 5 percent, 10-year, callable bonds on January 1, Year 1, at their face value. The call premium was 3 percent (bonds are callable at 103). Interest was payable annually on
Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, Year 2. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately
On January 1, Year 1, Bell Corp. issued $180,000 of 10-year, 6 percent bonds at their face amount. Interest is payable on December 31 of each year with the first payment due December 31, Year
Colson Company has a line of credit with Federal Bank. Colson can borrow up to $800,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed
A partial amortization schedule for a 10-year note payable issued on January 1, Year 1, is shown next:Requireda. Using a financial statements model like the one shown next, record the appropriate
Dan Dayle started a business by issuing an $80,000 face-value note to First State Bank on January 1, Year 1. The note had an 8 percent annual rate of interest and a five-year term. Payments of
On January 1, Year 1, Beatie Co. borrowed $200,000 cash from Central Bank by issuing a fiveyear, 6 percent note. The principal and interest are to be paid by making annual payments in the amount of
Using either the most current Form 10-K for AutoZone, Inc. or the company’s annual report, answer the following questions. To obtain the Form 10-K, either use the EDGAR system (following the
Nancy, who graduated from State University in June, Year 1, has just landed her first real job. She is excited because her salary is $4,000 per month. Nancy is single and has been planning all month
Advanced Micro Devices, Inc. (AMD) is “a global semiconductor company with facilities around the world.” AMD began operations in 1969. Texas Instruments, Inc. is the company that invented the
In the liabilities section of its 2016 balance sheet, Bank of America reported “noninterest-bearing deposits” in U.S. offices of over $438 billion. Bank of America is a very large banking
The following payroll information is available for three companies for Year 1. Each company has two employees. Assume that the Social Security tax rate is 6 percent on the first $110,000 of earnings
Obtain the Target Corporation’s annual report at http://investors.target.com using the instructions in Appendix B, and use it to answer the following questions:a. What was Target’s current ratio
Ball Company was started in Year 1. The following summarizes transactions that occurred during Year 1:1. Issued a $40,000 face value discount note to Golden Savings Bank on April 1, Year 1. The note
What is U.S. GAAP? What is IFRS?
What is the going concern doctrine?
What is a business liquidation?
If a company has $2,000 cash, $1,200 liabilities, and $800 retained earnings, can it pay a dividend of $1,000?
Use the following information to prepare a multistep income statement and a classified balance sheet for Brown Company for Year 1.Operating expenses
The following transactions apply to Ritter Co. for Year 1:1. Received $40,000 cash from the issue of common stock.2. Purchased inventory on account for $128,000.3. Sold inventory for $200,000 cash
Maddox Co. pays salaries monthly on the last day of the month. The following information is available from Maddox Co. for the month ended December 31, Year 1.Administrative salaries
The following selected transactions were taken from the books of Dodson Company for Year 1:1. On March 1, Year 1, borrowed $60,000 cash from the local bank. The note had a 6 percent interest rate and
The following transactions apply to Barclay Co. for Year 1, its first year of operations:1. Received $50,000 cash from the issue of a short-term note with a 5 percent interest rate and a oneyear
Ingals Co. issued $10,000 of common stock when the company was started. In addition, Ingals borrowed $20,000 from the local bank on April 1, Year 1. The note had an 8 percent annual interest rate
Bricca Co. issued a $60,000 face value discount note to First Bank on June 1, Year 1. The note had a 6 percent discount rate and a one-year term to maturity.RequiredShow the effects of the
Jim Hanks borrowed money by issuing two notes on January 1, Year 1. The financing transactions are described next.1. Borrowed funds by issuing a $60,000 face value discount note to State Bank. The
Mark Miller started a moving company on January 1, Year 1. On March 1, Year 1, Miller borrowed cash from a local bank by issuing a one-year $80,000 face value note with annual interest based on a 12
Use the following information to prepare a classified balance sheet for Latimer Co. at the end of Year 1:Accounts receivable ................................$36,200Accounts payable
The following information is available for the employees of Yui Company for the first week of January Year 1:1. Sam earns $32 per hour and 1½ times his regular rate for hours over 40 per week. He
The two employees at Oswald Co. receive various fringe benefits. Oswald Co. provides vacation at the rate of $500 per day, and each employee earns one day of vacation per month worked. In addition,
Culver Co. employed Jen Sing in Year 1. Jen earned $5,200 per month and worked the entire year. Assume the Social Security tax rate is 6 percent on the first $110,000 of earnings, and the Medicare
Easy Stop has two employees in Year 1. Catherine earns $4,500 per month and Jordan, the manager, earns $11,000 per month. Neither is paid extra if they work overtime. Assume the Social Security tax
Wilkins Enterprises has two hourly employees: Marcia and Clark. Both employees earn overtime at the rate of 1½ times the hourly rate for hours worked in excess of 40 per week. Assume the Social
The following transactions apply to Farmer’s Equipment Sales Corp. for Year 1:1. The business was started when Farmer’s received $60,000 from the issue of common stock.2. Purchased $160,000 of
The Malon Appliance Co. provides a 120-day parts-and-labor warranty on all merchandise it sells. Malon estimates the warranty expense for the current period to be $2,450. During this period, a
To support himself while attending school, Steve Owens sold computers to other students. During the year, Steve purchased computers for $150,000 and sold them for $280,000 cash. He provided his
The following legal situations apply to Zier Corp. for Year 1:1. A customer slipped and fell on a slick floor while shopping in the retail store. The customer has filed a $5 million lawsuit against
The following selected transactions apply to Fast Stop for November and December Year 1. November was the first month of operations. Sales tax is collected at the time of sale but is not paid to the
The Tiger Book Store sells books and other supplies to students in a state where the sales tax rate is 7 percent. The Tiger Book Store engaged in the following transactions for Year 1. Sales tax of 7
Danny Bell started Bell Company on January 1, Year 1. The company experienced the following events during its first year of operation:1. Earned $3,000 of cash revenue for performing services.2.
Union Corporation borrowed $60,000 from the bank on November 1, Year 1. The note had a 6 percent annual rate of interest and matured on April 30, Year 2. Interest and principal were paid in cash on
Don Terry opened Terry Company, an accounting practice, in Year 1. The following summarizes transactions that occurred during Year 1:1. Issued a $120,000 face value discount note to First National
The following accounting information exists for the Aspen and Willow companies:Requireda. Identify the current assets and current liabilities and compute the current ratio for each company.b.
Use the following information to prepare a multistep income statement and a classified balance sheet for Eller Equipment Co. for Year 1.Salaries expense
The following transactions apply to Park Co. for Year 1:1. Received $50,000 cash from the issue of common stock.2. Purchased inventory on account for $180,000.3. Sold inventory for $250,000 cash that
Electronics Service Co. pays salaries monthly on the last day of the month. The following information is available from Electronics for the month ended December 31, Year 1:Administrative salaries
The following selected transactions were taken from the books of Ripley Company for Year 1:1. On February 1, Year 1, borrowed $70,000 cash from the local bank. The note had a 6 percent interest rate
a. Give an example of a contingent liability that is probable and reasonably estimable. How would this type of liability be shown in the accounting records?b. Give an example of a contingent
The following transactions apply to Walnut Enterprises for Year 1, its first year of operations:1. Received $50,000 cash from the issue of a short-term note with a 6 percent interest rate and a
Malco Enterprises issued $10,000 of common stock when the company was started. In addition, Malco borrowed $36,000 from a local bank on July 1, Year 1. The note had a 6 percent annual interest rate
Harden Co. issued a $60,000 face value discount note to National Bank on July 1, Year 1. The note had a 6 percent discount rate and a one-year term to maturity.RequiredShow the effects of the
Sheldon Jones borrowed money by issuing two notes on March 1, Year 1. The financing transactions are described next.1. Borrowed funds by issuing a $52,000 face value discount note to Farmers Bank.
Helen Parish started a design company on January 1, Year 1. On April 1, Year 1, Parish borrowed cash from a local bank by issuing a one-year $120,000 face value note with annual interest based on an
The following information was drawn from the balance sheets of the Kansas and Montana companies:Requireda. Compute the current ratio for each company.b. Which company has the greater likelihood of
Use the following information to prepare a classified balance sheet for Alpha Co. at the end of Year 1.Accounts receivable ........................................$26,500Accounts payable
The following information is available for the employees of Webber Packing Company for the first week of January Year 1:1. Kayla earns $28 per hour and 1½ times her regular rate for hours over 40
The two employees of Silver Co. receive various fringe benefits. Silver Co. provides vacation at the rate of $315 per day. Each employee earns one day of vacation per month worked. In addition,
Sky Co. employed Tom Mills in Year 1. Tom earned $5,100 per month and worked the entire year. Assume the Social Security tax rate is 6 percent for the first $110,000 of earnings, and the Medicare tax
Old Town Entertainment has two employees in Year 1. Clay earns $3,600 per month, and Philip, the manager, earns $10,800 per month. Neither is paid extra for working overtime. Assume the Social
Zolnick Enterprises has two hourly employees: Kelly and Jon. Both employees earn overtime at the rate of 1½ times the hourly rate for hours worked in excess of 40 per week. Assume the Social
The following transactions apply to Ozark Sales for Year 1:1. The business was started when the company received $50,000 from the issue of common stock.2. Purchased equipment inventory of $380,000 on
The Chair Company provides a 120-day parts-and-labor warranty on all merchandise it sells. The Chair Company estimates the warranty expense for the current period to be $2,650. During this period, a
The following selected transactions apply to Topeca Supply for November and December Year 1. November was the first month of operations. Sales tax is collected at the time of sale but is not paid to
Vail Book Mart sells books and other supplies to students in a state where the sales tax rate is 8 percent. Vail Book Mart engaged in the following transactions for Year 1. Sales tax of 8 percent is
Bill Darby started Darby Company on January 1, Year 1. The company experienced the following events during its first year of operation:1. Earned $16,200 of cash revenue.2. Borrowed $12,000 cash from
Abardeen Corporation borrowed $90,000 from the bank on October 1, Year 1. The note had an 8 percent annual rate of interest and matured on March 31, Year 2. Interest and principal were paid in cash
Assume that on October 1, Year 1, Big Company borrowed $10,000 from the local bank at 6 percent interest. The note is due on October 1, Year 2. How much interest does Big pay in Year 1? How much
What is included in the adjustment to record accrued interest expense? How does it affect the accounting equation?
American Greetings Corporation manufactures and sells greeting cards and related items such as gift wrapping paper. CSX Corporation is one of the largest railway networks in the nation. The following
The following ratios are for four companies in different industries. Some of these ratios have been discussed in the textbook, others have not, but their names explain how the ratio was computed.
Sweet’s Bakery makes cakes, pies, and other pastries that it sells to local grocery stores. The company experienced the following transactions during Year 1.1. Started business by acquiring $60,000
Obtain the Target Corporation’s annual report at http://investors.target.com using the instructions in Appendix B, and use it to answer the following questions:a. What method of depreciation does
Bostick Co. acquired the assets of Belk Co. for $1,200,000 in Year 1. The estimated fair market value of the assets at the acquisition date was $1,000,000. Goodwill of $200,000 was recorded at
Doug’s Diner acquired a fast-food restaurant for $1,500,000. The fair market values of the assets acquired were as follows. No liabilities were assumed.Equipment
Metals Exploration Corporation engages in the exploration and development of many types of natural resources. In the last two years, the company has engaged in the following activities:Jan. 1, Year 1
Delta Manufacturing paid $62,000 to purchase a computerized assembly machine on January 1, Year 1. The machine had an estimated life of eight years and a $2,000 salvage value. Delta’s financial

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