Reference no: EM132058309
Exercise 1 - A cash flow of $500,000 may be received by Cynthia Bennett Company in one year, two years, or three years, with probabilities of 30%, 60%, and 20%, respectively. The rate of interest on default risk-free investments is 8%.
Required: What is the expected present value of Cynthia Bennett' cash flow? Round your answers to the nearest whole dollar.
Exercise 2 - Toro, Inc. paid $9,330 to renew its only insurance policy for three years on March 1, year 1, the effective date of the policy. At March 31, year 1, Toro's unadjusted trial balance showed a balance of $450 for prepaid insurance and $9,330 for insurance expense.
Required: What amounts should be reported for prepaid insurance and insurance expense in Toro's financial statements for the three months ended March 31, year 1? Hint: The price of the insurance premium increased in the current year.
Exercise 3 - If the beginning merchandise inventory was understated $8,000 in 2014, purchases were overstated $6,000 in 2014 and the ending merchandise inventory was overstated $10,000 in 2015. Assume that no corrections were made during 2014 or 2015. All other items in the income statement were correct.
Required:
1) What affect does this have on the cost of goods sold and net income for 2014 in dollars understated or overstated?
2) What affect does this have on net income and retained earnings in dollars understated or overstated for 2015?
Exercise 4 - The following information relates to Rem Corp's accounts receivable for 2015:
Accounts receivable, 1/1/15 $ 500,000
Credit sales for 2015 2,000,000
Sales returns for 2015 60,000
Accounts written off during 2015 37,000
Collections from customers during 2015 1,500,000
Estimated future sales returns at 12/31/15 35,000
Estimated uncollectible accounts at 12/31/15 73,000
Required: What amount should Rem report for accounts receivable before sales returns and uncollectible accounts, at December 31, 2015?
Exercise 5 - On January 1, 2015, Canden Company started to make annual deposits in order to accumulate $1,500,000 by January 1, 2019. This fund will earn annual interest of 8%.
Required: What are the four annual deposits that Canden should make at the beginning of each year. Round your answers to the nearest whole dollar.
Exercise 6 - US Steel issues a $2,000,000 bond at 10% for 8 years. The market interest rate is 9%.
Required:
1. What is the issue price of these bonds and the bond discount or premium?
2. Assume that US Steel uses the effective interest method to amortize the bond discount or premium for the annual interest payments, what is the interest expense and the amount of cash paid the second interest payment?
Exercise 7 - Sally Smith owns a furniture store. One of her most popular items is a leather recliner.
Following is the recliner inventory activity for August. The recliners on hand at August 1 had a unit cost of $300.
Date Purchases Sales Units on Hand
8/1 Balance fwd 60
8/6 100 units @ $315 ' 160
8/15 120 units @ $500 40
8/22 150 units @ $325 190
8/30 100 units @ $530 90
Required:
1) If the furniture store uses the first-in, first-out (FIFO) inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?
2) If the furniture store uses the last-in, first-out (LIFO) inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?
3) If the furniture store uses the weighted-average inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?
Exercise 8 - Dillon's Camping Equipment was burglarized on 3/10/15. It is unclear how many items were stolen. Dillon and its insurance company are currently working to estimate the dollar value of the stolen goods in order to reach a financial settlement under the existing property insurance policy.
Dillon's tax return prepared at the end of 2014 revealed that the ended 2014 with a total inventory of $750,000. Dillon uses the same inventory account methods for tax and accounting purposes.
The insurance company has contacted Dillon's suppliers and confirmed Dillon's claim that purchases for 2015, prior to the date of the burglary, were $1,250,000. All inventory was purchased, FOB destination.
2015 sales taxes collected by Dillon and remitted to the state, prior to the date of the theft, were $155,000. The sales tax rate is 6% of sales.
An inventory was taken immediately after the burglary and the cost of equipment in stock was $165,000.
Dillon consistently sells equipment at a gross profit margin of 30%.
Required: Use the gross profit method to estimate the dollar value of stolen property.
Exercise 9 - Seven Star Corporation purchased a piece of equipment at the beginning of 2012. The equipment cost $140,000. Its estimated service life is 8 years and has an expected salvage value of $8,000. The sum-of-the-years-digits method is used. The depreciation schedule has a $22,000 annual depreciation expense for a certain year.
Required: Determine what year the depreciation expense of $22,000 is on the depreciation schedule. Round all answers to the nearest whole dollar.
Exercise 10 - Sunshine Company purchased equipment for $100,000 in 2012. The machinery originally had an estimated life of 8 years and a salvage value of $10,000. Sunshine used the straight-line depreciation method. In 2016, the estimated life was changed to 11 years.
Required: What is the annual depreciation expense for 2016?