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1. Notes payable—discount basis On August 1, 2013, Colombo Co.'s treasurer signed a note promising to pay $120,000 on December 31, 2013. The proceeds of the note were $114,000.

Required:
a. Calculate the discount rate used by the lender.
b. Calculate the effective interest rate (APR) on the loan.
c. Use the horizontal model (or write the journal entry) to show the effects of
d. Signing the note and the receipt of the cash proceeds on August 1, 2013.
e. Recording interest expense for the month of September.
f. Repaying the note on December 31, 2013.

2. Other accrued liabilities—warranties Prist Co. had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of 2013. Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was estimated at 0.3% of sales. During 2013, sales totaled $3,450,000. Actual costs of servicing products under warranty totaled $9,700.

Required:
a. Use the horizontal model (or a T-account of the Estimated Warranty Liability) to show the effect of having the warranty program during 2013.
b. What type of accrual adjustment should be made at the end of 2013?
c. Describe how the amount of the accrual adjustment could be determined.

3.Bonds payable—record issuance and discount amortization Coley Co. issued $15 million face amount of 9%, 10-year bonds on June 1, 2013. The bonds pay interest on an annual basis on May 31 each year.

Required:
a. Assume the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b. Assume that the proceeds were $14,820,000. Use the horizontal model to show the effect of issuing the bonds.
c. Calculate the interest expense that Coley Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2013, assuming that the discount of $180,000 is amortized on a straight-line basis.

4. Bonds payable—calculate market value On March 1, 2008, Matt purchased $189,000 of Lawson Co.'s 8%, 20-year bonds at face value. Lawson Co. has paid the annual interest due on the bonds regularly. On March 1, 2013, market interest rates had risen to 12%, and Matt is considering selling the bonds.

Required: Using the present value tables in Chapter 6, calculate the market value of Matt's bonds on March 1, 2013. Note: Tables are at the end of the Document

5. Unearned revenues—subscription fees Evans Ltd. publishes a monthly newsletter for retail marketing managers and requires its subscribers to pay $75 in advance for a one-year subscription. During the month of September 2013, Evans Ltd. sold 200 one-year subscriptions and received payments in advance from all new subscribers. Only 120 of the new subscribers paid their fees in time to receive the September newsletter; the other subscriptions began with the October newsletter.

Required:
a. Use the horizontal model (or write the journal entries) to record the effects of the following items:
1. Subscription fees received in advance during September 2013.
2. Subscription revenue earned during September 2013.
b. Calculate the amount of subscription revenue earned by Evans Ltd. during the year ended December 31, 2013, for these 200 subscriptions.
Optional continuation of Problem 7.26—lifetime subscriptions offer (Note: This is an analytical assignment involving the use of present value tables and accounting estimates. Only the first sentence in Problem 7.26 applies to this continuation of the problem.) Evans Ltd. is now considering the possibility of offering a lifetime membership option to its subscribers. Under this proposal, subscribers could receive the monthly newsletter throughout their lives by paying a flat fee of $900. The one-year subscription rate of $75 would continue to apply to new and existing subscribers who choose to subscribe on an annual basis. Assume that the average age of Evans Ltd.'s current subscribers is 38 and their average life expectancy is 78 years. Evans Ltd.'s average interest rate on long-term debt is 12%.
c. Using the information given, determine whether it would be profitable for Evans Ltd. to sell lifetime subscriptions. (Hint: Calculate the present value of a lifetime membership for an average subscriber using the appropriate table in Chapter 6.) Note: Tables are at the end of the Document
d. What additional factors should Evans Ltd. consider in determining whether to offer a lifetime membership option? Explain your answer as specifically as possible.

6.Bonds payable—callable Hurley Co. has outstanding $30 million face amount of 15% bonds that were issued on January 1, 2001, for $29,250,000. The 20-year bonds mature on December 31, 2020, and are callable at 102 (that is, they can be paid off at any time by paying the bondholders 102% of the face amount).

Required:
a. Under what circumstances would Hurley Co. managers consider calling the bonds?
b. Assume that the bonds are called on December 31, 2013. Use the horizontal model (or write the journal entry) to show the effect of the retirement of the bonds. ( Hint: Calculate the amount paid to bondholders; then determine how much of the bond discount would have been amortized prior

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1.
Notes payable—discount basis On August 1, 2013, Colombo Co.'s treasurer signed a note promising to pay $120,000 on December 31, 2013. The proceeds of the note were $114,000.
Required:
a. Calculate the discount rate used by the lender.
Discount Rate = (120000-114000)/114000 = 5.26%

b. Calculate the effective interest rate (APR) on the loan.
(discount is for 5 months)
APR = 5.26%*12/5 = 12.62%
c. Use the horizontal model (or write the journal entry) to show the effects of
1. Signing the note and the receipt of the cash proceeds on August 1, 2013.
Debit Cash $114,000
Debit Prepaid Interest Expenses $6,000
Credit Notes Payable $120,000
2. Recording interest expense for the month of September.
Debit Interest Expenses $1,2000
Credit Prepaid Interest Expenses $1,200
3. Repaying the note on December 31, 2013.
Debit Notes Payable $120,000
Credit Cash $120,000

2.
Other accrued liabilities—warranties Prist Co. had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of 2013. Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was estimated at 0.3% of sales. During 2013, sales totaled $3,450,000. Actual costs of servicing products under warranty totaled $9,700.
Required:
a. Use the horizontal model (or a T-account of the Estimated Warranty Liability) to show the effect of having the warranty program during 2013.

First we create provision for warranty for 2013
Debit Warranties 2013 Exp. $10,350 (3450000*.3%)
Credit Provision for Warranties 2013 $10,350

Then, to record the actual cost

Debit Provision for Warranties 2013 $9,700
Credit Cash $9,700

b. What type of accrual adjustment should be made at the end of 2013?
No adjustment is needed for year 2013 (for balance of $ 650) as a lot of product sold during 2013 will be still under warranties. For actual cost the entry is passed above.

c. Describe how the amount of the accrual adjustment could be determined.
The difference between the actual cost & estimated provision for warranty ...

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The expert examines finance and accounting questions. The proceeds of the notes are given.

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Financial Accounting

Please see the questions attached.
An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a stockholders' equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500.

12. An accountant has debited an asset account for $1,000 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
a. Credit an asset account for $500.
b. Credit another liability account for $500.
c. Credit a stockholders' equity account for $500.
d. Debit a stockholders' equity account for $500.

On June 1, 2000 Donna Lane buys a copier machine for her business and finances this purchase with cash and a note. When journalizing this transaction, she will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this
type of transaction

15. A company spends $10 million dollars for an office building.
Over what period should the cost be written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned

Reed Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be to
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies,
$1,200.
b. Debit Office Supplies, $2,800; Credit Office Supplies Expense,
$2,800.
c. Debit Office Supplies Expense, $2,800; Credit Office Supplies,
$2,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense,
$1,200.

19. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.

20 On July 1 the Dryer Shoe Store paid $9,000 to Ace Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the
adjusting entry to be made by the Dryer Shoe Store is
a. Debit Rent Expense, $9,000; Credit Prepaid Rent, $1,500.
b. Debit Prepaid Rent, $1,500; Credit Rent Expense, $1,500.
c. Debit Rent Expense, $1,500; Credit Prepaid Rent, $1,500.
d. Debit Rent Expense, $9,000; Credit Prepaid Rent, $9,000.

21. Neal Realty Company received a check for $15,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $15,000. Financial statements will be prepared on July 31. Neal Realty should make the following adjusting entry on July 31:
a. Debit Unearned Rent, $2,500; Credit Rent Revenue, $2,500.
b. Debit Rent Revenue, $2,500; Credit Unearned Rent Revenue,
$2,500.
c. Debit Unearned Rent, $15,000; Credit Rent Revenue, $15,000.
d. Debit Cash, $15,000; Credit Rent Revenue, $15,000.

22 A lawyer collected $960 of legal service revenue in advance. He erroneously debited Cash for $690 and credited Accounts Receivable for $690. The correcting entry is
a. Cash .................................. 690
Accounts Receivable ................... 270
Unearned Legal Service Revenue .... 960
b. Cash .................................. 960
Legal Service Revenue ............. 960
c. Cash .................................. 270
Accounts Receivable ................... 690
Unearned Legal Service Revenue .... 960
d. Cash .................................. 270
Accounts Receivable ............... 270

40 A company has goods available for sale during a period at cost and at retail of $60,000 and $100,000, respectively. If sales during the period amounted to $80,000, an estimate of the ending inventory at cost at the end of the period under the retail method is
a. $32,000.
b. $48,000.
c. $12,000.
d. $20,000.

42. Winter Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 70%. Goods available for sale at retail amounted to $300,000 and goods were sold during the period for $200,000. The estimated cost of the ending inventory is
a. $100,000.
b. $210,000.
c. $70,000.
d. $142,857.

43 Winter Department Store utilizes the retail inventory method to
estimate its inventories. It calculated its cost to retail ratio
during the period at 70%. Goods available for sale at retail
amounted to $300,000 and goods were sold during the period for
$200,000. The estimated cost of the ending inventory is
a. $100,000.
b. $210,000.
c. $70,000.
d. $142,857.

1. A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for
a total of $250 and used FIFO costing, the gross profit for the
period would be
a. $75.
b. $85.
c. $70.
d. $60.

2. The income statement and balance sheet columns of Grant Company's
work sheet reflects the following totals:
?????????????????????????????????????????
Income Statement Balance Sheet
?????????????????? ???????????????????
Dr. Cr. Dr. Cr.
??????? ??????? ??????? ???????
Totals $45,000 $55,000 $44,000 $34,000

24. The net income (or loss) for the period is
a. $45,000 income.
b. $10,000 loss.
c. $10,000 income.
d. not determinable.

1 A lawyer collected $960 of legal service revenue in advance. He
erroneously debited Cash for $690 and credited Accounts Receivable for $690. The correcting entry is
a. Cash .................................. 690
Accounts Receivable ................... 270
Unearned Legal Service Revenue .... 960
b. Cash .................................. 960
Legal Service Revenue ............. 960
c. Cash .................................. 270
Accounts Receivable ................... 690
Unearned Legal Service Revenue .... 960
d. Cash .................................. 270
Accounts Receivable ............... 270

2 Jeff is a barber who does his own accounting for his shop. When he buys supplies, he routinely debits Supplies Expense. Jeff purchased $1,500 of supplies in January and his inventory at the end of January shows $400 of supplies remaining. What adjusting entry should Jeff make on January 31?
a. Supplies Expense ...................... 400
Supplies .......................... 400
b. Supplies Expense ...................... 1,500
Cash .............................. 1,500
c. Supplies .............................. 400
Supplies Expense .................. 400
d. Supplies Expense ...................... 1,100
Supplies .......................... 1,100

32. A new accountant working for McCoy Company records $600 Depreciation Expense on store equipment as follows:
Dr. Depreciation Expense ............ 600
Cr. Cash ........................ 600
The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at
December 31.
d. understate the book value of the depreciable assets as of
December 31.

38 On January 2, 2000, Columbia Savings and Loan purchased a general
liability insurance policy for $2,400 for coverage for the calendar year. The entire $2,400 was charged to Insurance Expense on January 2, 2000. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2000, will be:
a. Insurance Expense ..................... 2,200
Prepaid Insurance ................. 2,200
b. Prepaid Insurance ..................... 2,200
Insurance Expense ................. 2,200
c. Insurance Expense ..................... 200
Prepaid Insurance ................. 200
d. Prepaid Insurance ..................... 200
Insurance Expense ................. 200

39. Reed Company purchased office supplies costing $4,000 and debited
Office Supplies for the full amount. At the end of the accounting
period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies,
$1,200.
b. Debit Office Supplies, $2,800; Credit Office Supplies Expense,
$2,800.
c. Debit Office Supplies Expense, $2,800; Credit Office Supplies,
$2,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense,
$1,200.

40 Larkin Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an
inventory of the laundry supplies indicated only $2,000 on hand.
The adjusting entry that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies,
$2,000.
b. Debit Laundry Supplies Expense, $4,500; Credit Laundry Supplies,
$4,000.
c. Debit Laundry Supplies, $4,500; Credit Laundry Supplies Expense,
$4,500.
d. Debit Laundry Supplies Expense, $4,500; Credit Laundry Supplies,
$4,500.

1. Carey Guitar Company borrowed $20,000 from the bank signing a 9%,
3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be
a. Debit Interest Expense, $1,800; Credit Interest Payable, $1,800.
b. Debit Interest Expense, $150; Credit Interest Payable, $150.
c. Debit Note Payable, $1,800; Credit Cash, $1,800.
d. Debit Cash, $450; Credit Interest Payable, $450.

2. Jill Ryan has performed $600 of CPA services for a client but
has not billed the client as of the end of the accounting period.
What adjusting entry must Jill make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue

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