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Accounting 23rd Edition Carl S. Warren - Solutions
=+7. Which of the following graphs illustrates how unit variable costs behave with changes in total units produced?(a)Unit Cost 0 Total Units Produced(b)Unit Cost 0 Total Units Produced
=+6. Which of the following graphs illustrates how total fixed costs behave with changes in total units produced?Eye Openers(a) Total Cost 0 Total Units Produced(b)Total Cost 0 Total Units Produced
=+5. In cost analyses, how are mixed costs treated?
=+c. Property rent of $6,000 per month on plant and equipment
=+b. Straight-line depreciation of plant and equipment
=+a. Salary of factory supervisor ($70,000 per year)
=+4. How would each of the following costs be classified if units produced is the activity base?
=+5. Based on the following operating data, what is the operating leverage?Sales $600,000 Variable costs 240,000 ________ Contribution margin $360,000 Fixed costs 160,000 ________ Income from operations $200,000 ________ ________ A. 0.8 C. 1.8 B. 1.2 D. 4.0
=+4. Based on the data presented in Question 3, how many units of sales would be required to realize income from operations of $20,000?A. 11,250 units C. 40,000 units B. 35,000 units D. 45,000 units
=+3. If the unit selling price is $16, the unit variable cost is $12, and fixed costs are $160,000, what are the break-even sales (units)?A. 5,714 units C. 13,333 units B. 10,000 units D. 40,000 units
=+2. If sales are $500,000, variable costs are $200,000, and fixed costs are $240,000, what is the contribution margin ratio?A. 40% C. 52%B. 48% D. 60%
=+5. What is the margin of safety?
=+4. Construct a profit-volume chart, indicating the break-even point.
=+3. Construct a cost-volume-profit chart, indicating the break-even point.
=+2. Determine the break-even point in units.
=+(b) the unit contribution margin?
=+Wyatt Inc. expects to maintain the same inventories at the end of the year as at the beginning of the year. The estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. It is expected that 60,000 units will be sold at a price of $20 per unit. Maximum
=+2. Evaluate this ratio for Williams-Sonoma.
=+1. What is the number of times interest charges are earned for Williams-Sonoma in 2007, 2006, and 2005? (Round your answers to one decimal place.)
=+SA 14-6 Bond ratings Internet Project The following financial data was taken from the financial statements of WilliamsSonoma, Inc.Fiscal Year 2007 2006 2005 Interest expense. . . . . . . . . . . . . $ 800 $ 774 $ 3,188 Earnings before taxes . . . . . . . . . 36,485 20,108 13,255
=+If you were a bond investor or bond issuer, would you care if Moody’s changed the rating on your bonds? Why or why not?
=+SA 14-5 Financing business expansion 656 Chapter 14 Long-Term Liabilities: Bonds and Notes Moody’s Investors Service maintains a Web site at http://www.Moodys.com. One of the services offered at this site is a listing of announcements of recent bond rating changes.Visit this site and read over
=+Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from $750,000 in the previous year to $1,000,000 for this year. Your sister has asked you, as the company treasurer, to
=+SA 14-4 Preferred stock vs.bonds You hold a 25% common stock interest in the family-owned business, a vending machine company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of $7,500,000. Two alternative plans have been suggested as methods of
=+Discuss the advantages and disadvantages of issuing preferred stock versus bonds.
=+SA 14-3 Present values Beacon Inc. has decided to expand its operations to owning and operating long-term health care facilities. The following is an excerpt from a conversation between the chief executive officer, Frank Forrest, and the vice president of finance, Rachel Tucker.Frank: Rachel,
=+Assuming that the effective rate of interest is 12%, which payout option should Finn select? Explain your answer and provide any necessary supporting calculations.
=+c. Receive $1,200,000 per year for 15 years, with the first payment being received one year from today.
=+b. Receive $2,200,000 today and $1,050,000 per year for 15 years, with the first $1,050,000 payment being received one year from today.
=+SA 14-2 Ethics and professional conduct in business Chapter 14 Long-Term Liabilities: Bonds and Notes 655 Finn Kilgallon recently won the jackpot in the Wisconsin lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the
=+Discuss whether Abdou’s proposal is appropriate.
=+SA 14-1 General Electric bond issuance Lachgar Industries develops and produces bio diesel, an alternative energy source. The company has an outstanding $200,000,000, 30-year, 12% bond issue dated July 1, 2005.The bond issue is due June 30, 2035. The bond indenture requires a bond sinking fund,
=+In your opinion, did GE Capital act unethically by selling $11 billion of longterm debt without telling those investors that a few days later it would be filing documents to prepare for another $50 billion debt offering?Source: Jennifer Ablan, “Gross Shakes the Bond Market; GE Calms It, a
=+Bill Gross, a manager of a bond investment fund, “denounced a ‘lack in candor’ related to GE’s recent debt deal. ‘It was the most recent and most egregious example of how bondholders are mistreated.’ Gross argued that GE was not forthright when GE Capital recently issued $11 billion
=+PR 14-6B Bond premium, entries for bonds payable transactions, interest method of amortizing bond premium✔ 3. $2,331,456 Special Activities General Electric Capital, a division of General Electric, uses long-term debt extensively.In a recent year, GE Capital issued $11 billion in long-term debt
=+2. Journalize the entries to record the following:a. The first semiannual interest payment on December 31, 2010, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)b. The interest payment on June 30, 2011, and the amortization of the bond premium,
=+PR 14-4B Entries for bonds payable and installment note transactions objs. 3, 4✔ 3. $12,031,573 654 Chapter 14 Long-Term Liabilities: Bonds and Notes On July 1, 2010, Linux Corporation, a wholesaler of electronics equipment, issued$45,000,000 of 10-year, 10% bonds at an effective interest rate
=+June 30. Recorded the redemption of the bonds, which were called at 101.5. The balance in the bond premium account is $1,912,069 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)
=+31. Closed the interest expense account.2011 June 30. Paid the semiannual interest on the bonds.Sept. 30. Paid the annual payment on the note, which consisted of interest of$18,000 and principal of $30,671.Dec. 31. Accrued $3,887 of interest on the installment note. The interest is payable on the
=+31. Paid the semiannual interest on the bonds.31. Recorded bond premium amortization of $119,504, which was determined using the straight-line method.
=+Dec. 31. Accrued $4,500 of interest on the installment note. The interest is payable on the date of the next installment note payment.
=+July 1. Issued $10,000,000 of 10-year, 15% callable bonds dated July 1, 2010, at an effective rate of 11%, receiving cash of $12,390,085. Interest is payable semiannually on December 31 and June 30.Oct. 1. Borrowed $225,000 as a six-year, 8% installment note from Titan Bank. The note requires
=+5. (Appendix 1) Compute the price of $35,465,423 received for the bonds by using the tables of present value in Appendix A at end of text. (Round to the nearest dollar.)The following transactions were completed by Hobson Inc., whose fiscal year is the calendar year:2010
=+PR 14-3B Bond premium, entries for bonds payable transactions obj. 3✔ 3. $2,280,494
=+5. (Appendix 1) Compute the price of $ 42,390,112 received for the bonds by using the tables of present value in Appendix A at the end of the text. (Round to the nearest dollar.)
=+PR 14-2B Bond discount, entries for bonds payable transactions obj. 3✔ 3. $2,726,729 Chapter 14 Long-Term Liabilities: Bonds and Notes 653 Prosser Corporation produces and sells baseball cards. On July 1, 2010, Prosser Corporation issued $40,000,000 of 10-year, 12% bonds at an effective
=+PR 14-1B Effect of financing on earnings per share obj. 1✔ 1. Plan 3: $5.12 On July 1, 2010, Linux Corporation, a wholesaler of electronics equipment, issued$45,000,000 of 10-year, 10% bonds at an effective interest rate of 14%, receiving cash of$35,465,423. Interest on the bonds is payable
=+2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $7,000,000.
=+Instructions 1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $15,000,000.
=+Problems Series B Three different plans for financing a $60,000,000 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 40% of income.Plan 1 Plan 2 Plan 3 12%
=+PR 14-6A Bond premium, entries for bonds payable transactions, interest method of amortizing bond discount✔ 3. $173,059
=+PR 14-5A Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount✔ 3. $1,965,414 Maui Blends, Inc. produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued $3,000,000 of 15-year, 12% bonds at an effective interest rate of
=+b. The interest payment on June 30, 2011, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
=+On July 1, 2010, Brower Industries, Inc. issued $32,000,000 of 10-year, 12% bonds at an effective interest rate of 13%, receiving cash of $30,237,139. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.Instructions
=+PR 14-4A Entries for bonds payable and installment note transactions objs. 3, 4✔ 3. $17,072,630 5. (Appendix 1) Compute the price of $30,237,139 received for the bonds by using the tables of present value in Appendix A at end of text. (Round to the nearest dollar.)652 Chapter 14 Long-Term
=+3. Determine the carrying amount of the bonds as of December 31, 2011.
=+2. Indicate the amount of the interest expense in (a) 2010 and (b) 2011.
=+1. Journalize the entries to record the foregoing transactions.
=+June 30. Recorded the redemption of the bonds, which were called at 97. The balance in the bond discount account is $794,888 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)Sept. 30. Paid the second annual payment on the note, which
=+31. Closed the interest expense account.2012
=+31. Recorded bond discount amortization of $264,964, which was determined using the straight-line method.
=+31. Closed the interest expense account.2011 June 30. Paid the semiannual interest on the bonds.Sept. 30. Paid the annual payment on the note, which consisted of interest of$28,000 and principal of $28,951.Dec. 31. Accrued $6,493 of interest on the installment note. The interest is payable on the
=+31. Recorded bond discount amortization of $132,482, which was determined using the straight-line method.
=+PR 14-3A Bond premium, entries for bonds payable transactions obj. 3✔ 3. $164,627 The following transactions were completed by Hobson Inc., whose fiscal year is the calendar year:2010 July 1. Issued $18,000,000 of five-year, 10% callable bonds dated July 1, 2010, at an effective rate of 12%,
=+5. (Appendix 1) Compute the price of $ 3,461,181 received for the bonds by using the tables of present value in Appendix A at the end of the text. (Round to the nearest dollar.)
=+4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest?
=+b. The interest payment on June 30, 2011, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
=+a. The first semiannual interest payment on December 31, 2010, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
=+EX 14-24 Number of times interest charges earned Chapter 14 Long-Term Liabilities: Bonds and Notes 651 Maui Blends, Inc. produces and sells organically grown coffee. On July 1, 2010, Maui Blends, Inc. issued $3,000,000 of 15-year, 12% bonds at an effective interest rate of 10%, receiving cash of
=+b. What conclusions can you draw?
=+a. Determine the number of times interest charges were earned for the current and preceding years. Round to one decimal place.
=+PR 14-2A Bond discount, entries for bonds payable transactions obj. 3✔ 3. $2,008,143 The following data were taken from recent annual reports of Southwest Airlines, which operates a low-fare airline service to over 50 cities in the United States.Current Year Preceding Year Interest expense $
=+4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
=+3. Determine the total interest expense for 2010.
=+b. The interest payment on June 30, 2011, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
=+a. The first semiannual interest payment on December 31, 2010, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
=+2. Journalize the entries to record the following:
=+1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
=+PR 14-1A Effect of financing on earnings per share obj. 1✔ 1. Plan 3: $2.60 On July 1, 2010, Brower Industries Inc. issued $32,000,000 of 10-year, 12% bonds at an effective interest rate of 13%, receiving cash of $30,237, 139. Interest on the bonds is payable semiannually on December 31 and
=+3. Discuss the advantages and disadvantages of each plan.
=+2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $950,000.
=+1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
=+EX 14-23 Compute bond proceeds, amortizing discount by interest method, and interest expense✔a. $35,785,876✔b. $305,011 Problems Series A Three different plans for financing a $10,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities
=+c. The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. (Round to the nearest dollar.)
=+b. The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. (Round to the nearest dollar.)
=+EX 14-22 Compute bond proceeds, amortizing premium by interest method, and interest expense✔a. $16,078,384✔c. $85,099 650 Chapter 14 Long-Term Liabilities: Bonds and Notes Seward Co. produces and sells restaurant equipment. On the first day of its fiscal year, Seward Co. issued $40,000,000 of
=+d. The amount of the bond interest expense for the first year.Appendix 2
=+c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. (Round to the nearest dollar.)
=+b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. (Round to the nearest dollar.)
=+EX 14-21 Amortize premium by interest method✔b. $1,027,982 Motocar Co. produces and sells automobile parts. On the first day of its fiscal year, Motocar Co. issued $15,000,000 of five-year, 15% bonds at an effective interest rate of 13%, with interest payable semiannually. Compute the
=+b. Determine the bond interest expense for the first year.Appendix 2
=+2. First semiannual interest payment, including amortization of premium.
=+EX 14-20 Amortize discount by interest method✔b. $2,719,776 Gary Miller Corporation wholesales bike parts to bicycle manufacturers. On March 1, 2010, Gary Miller Corporation issued $8,000,000 of five-year, 14% bonds at an effective interest rate of 12%, receiving cash of $8,588,850. Interest is
=+b. Compute the amount of the bond interest expense for the first year.Appendix 2
=+EX 14-19 Present value of bonds payable;premium✔ $69,265,908 On the first day of its fiscal year, Simon Company issued $25,000,000 of 10-year, 10%bonds to finance its operations of producing and selling video equipment. Interest is payable semiannually. The bonds were issued at an effective
=+EX 14-18 Present value of bonds payable;discount Mason Co. issued $60,000,000 of five-year, 14% bonds with interest payable semiannually, at an effective interest rate of 10%. Determine the present value of the bonds payable, using the present value tables in Exhibits 4 and 5. Round to the
=+EX 14-17 Present value of an annuity Hi-Vis Co. produces and sells high resolution flat panel televisions. To finance its operations, Hi-Vis Co. issued $10,000,000 of five-year, 10% bonds with interest payable semiannually at an effective interest rate of 12%. Determine the present value of the
=+EX 14-14 Present value of amounts due Chapter 14 Long-Term Liabilities: Bonds and Notes 649 Assume the same data as in Appendix 1 Exercise 14-16, except that the current interest rate is 14%.Will the present value of your winnings using an interest rate of 14% be onehalf the present value of
=+EX 14-13 Reporting bonds obj. 5 Determine the present value of $400,000 to be received in three years, using an interest rate of 10%, compounded annually, as follows:a. By successive divisions. (Round to the nearest dollar.)b. By using the present value table in Exhibit 4.Appendix 1
=+Identify the flaws in the reporting practices related to the two bond issues.
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