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Accounting Questions

3. On October 1, 2001, Coast Financial loaned Barr Corporation $300,000, receiving in exchange a nine-month, 12% note receivable. Coast ends its fiscal year on December 31 and makes adjusting entries to accrue interest earned on all notes receivable. The interest earned on the note receivable from Barr Corporation during 2002 will amount to:

a. $9,000. b. $18,000. c. $27,000. d. $36,000.

4. Trade Credit Rates: Company X sells on a 1/20, net 60, basis. Customer Y buys goods with an invoice of $1,000.
a. How much can Company Y deduct from the bill if it pays on Day 20?
b. How many extra days of credit can Company Y receive if it passes up the cash discount?
c. What is the effective annual rate of interest if Y pays on the due date rather than Day 20?

5. Terms of Sale: Indicate which firm of each pair you would expect to grant shorter or longer credit periods:
a. One firm sells hardware; the other sells bread.
b. One firm's customers have an inventory turnover ratio of 10; the other's customers have turnover of 15.
c. One firm sells mainly to electric utilities; the other to fashion boutiques.

6. Payment Lag: The lag between purchase date and the date at which payment is due is known as the terms lag. The lag between the due date and the date on which the buyer actually pays is termed the due lag, and the lag between the purchase and actual payment dates is the pay lag.
Thus Pay lag = terms lag + due lag
State how you would expect the following events to affect each type of lag:

a. The company imposes a service charge on late payers.
b. A recession causes customers to be short of cash.
c. The company changes its terms from net 10 to net 20.

8. Analyze and record the transactions as journal entries. (Omit explanations.)

The following transactions are for the Burdette Construction Company:

a. The firm bought equipment for $49,000 on credit.
b. The firm purchased land for $500,000, $190,000 of which was paid in cash and a note payable signed for the balance.
c. The firm paid $33,000 it owed to its suppliers.
d. The firm arranged for a $125,000 line of credit (the right to borrow funds as needed) from the bank. No funds have yet been borrowed.
e. The firm sold some of its products for $29,000?$14,000 for cash, the remainder on account.
f. Cost of sales in (e) are $17,000.
g. The firm borrowed $78,000 on its line of credit.
h. The firm issued a $7,500 cash dividend to its stockholders.
i. An investor invested an additional $50,000 in the company in exchange for additional capital stock.
j. One of the primary investors borrowed $75,000 from a bank. The loan is a personal loan.
k. The firm repaid $13,000 of its line of credit.
l. The firm received a $500 deposit from a customer for a product to be sold and delivered to that customer next month.

9. Following are the operating data for an advertising firm for the year ended December 31, 2006.

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . 45,000
Salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . 70,000
Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Administrative expense . . . . . . . . . . . . . . . . . . . . 6,000
Income taxes (30% of income before taxes) . . . . ?

For 2006, determine:
1. Income before taxes.
2. Income taxes.
3. Net income.
4. Earnings per share (EPS), assuming there are 15,000 shares of stock outstanding.

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