Problem I:
For each of the following accounts, indicate whether the account normally possesses a debit (DR) or a credit (CR) balance.
1. Accumulated depreciation
2. Rent expense
3. Cash
4. Sales
5. Notes payable
6. Paid-in capital
7. Prepaid rent
8. Cost of goods sold
9. Depreciation expense
10. Merchandise inventory
11. Wage expense
12. Equipment
13. Utility expense
14. Accounts payable
15. Accounts receivable
Problem II:
The unadjusted trial balance and information regarding adjusting entries for Dreame House's Carpets, Inc., is given below. Show the effect of the adjusting entries by preparing an adjusted trial balance.
Dreame House's Carpet, Inc.
Unadjusted Trial Balance
December 31, 2009
Debit Credit
Cash $ 25,500
Accounts receivable 15,000
Supplies 4,500
Prepaid insurance 5,000
Equipment 89,000
Accumulated depreciation-Equipment $ 6,000
Accounts payable 1,800
Unearned services revenue 3,700
Common stock 93,200
Retained earnings 21,000
Service revenue 30,700
Salary expense 15,700
Advertising expense 1,700
Total $156,400 $156,400
Adjusting entry information:
- Salaries earned but unpaid at the end of the year, $1,500
- Insurance expired, $700
- Depreciation expense, $800
- Unearned service revenue earned during the year, $1,500
Problem Three:
Given the following year-end balances, prepare a classified balance sheet for Orchard Company dated December 31, 2009. (Hint: compute net income first.)
Interest Expense.................................................................. $2,000
Beginning Retained Earnings................................................. 13,100
Depreciation Expense........................................................... 5,200
Cash................................................................................. 26,900
Accounts Payable................................................................. 3,300
Rent Expense...................................................................... 7,200
Accumulated Depreciation..................................................... 13,500
Wage Expense..................................................................... 59,200
Prepaid Rent........................................................................ 1,400
Paid-in Capital..................................................................... 9,000
Accounts Receivable............................................................. 13,600
Wages Payable.................................................................... 3,200
Equipment........................................................................... 63,000
Sales.................................................................................. 249,600
Inventory.............................................................................. 14,400
Long-term Note Payable......................................................... 20,000
Income Tax Expense.............................................................. 24,500
Dividends Declared................................................................ 21,000
Cost of Goods Sold................................................................ 94,300
Dividends Payable................................................................. 21,000
Problem IV:
Burnap Company uses the periodic inventory method and recorded the following inventory transactions for the month of November 2009.
Date Transaction Units Unit Cost Total
Nov. 1 Beginning Inventory 3,000 units @$1.00 $3,000
Nov. 3 Purchases 900 units @ $1.20 1,080
Nov. 10 Purchases 800 units @ $1.40 1,120
Nov. 17 Purchases 600 units @ $1.60 960
Nov. 24 Purchases 300 units @ $1.80 540
1. Determine the ending inventory balance at November 30 and the cost of goods sold for the month of November 30, 2009 for Burnap Company. Burnap Company sold 3,100 units during November 2009. On November 30, a physical inventory count was conducted and 2,500 units were on hand. Assume the company uses the first-in-first-out (FIFO) cost flow assumption.
2. Determine the ending inventory balance at November 30 and the cost of goods sold for the month of November, 2009 for Burnap Company. Burnap Company sold 3,100 units during November, 2009. On November 30, a physical inventory count was conducted, and 2,500 units were on hand. Assume the company uses the last-in-first-out (LIFO) cost flow assumption.
Problem V:
A stock just paid a dividend of $1. The dividend for the next three years is expected to grow at a 30% rate, after which the dividend in the fourth year and all future years is expected to grow at a rate consistent with a return of equity of 10% and a dividend payout ratio of 60%. If the discount rate is 14%, calculate the value of the stock. (given, g = ROE x retention rate; and retention rate = 1 - dividend payout ratio).
Problem VI:
Orchard Company has a bond that currently sells for $932.90. It pays an annual coupon of $70, and it matures in 10 years. It has a face value of $1000. What are its coupon rate, current yield, and yield to maturity (YTM)?
Problem VII:
Viacom Corp. has a bond issue outstanding that has a coupon rate of 6 1/8%, and a current yield of 6.9%. The yield to maturity on this bond is 7 5/8%. What is the market price of the Viacom bond if it pays interest semi-annually and has 12 years to maturity?
Problem VIII:
Over the past 10 years, the dividends of McCabe, Inc. have grown from $0.45 to $1.82 per share. Determine the value of McCabe's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.