Problem 1: Amortization of discount on note.
On December 31, 2006, Green Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2009, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.
The following interest factors are provided:
Interest Rate
Table Factors For Three Periods 5% 10%
Future Value of 1 1.15763 1.33100
Present Value of 1 .86384 .75132
Future Value of Ordinary Annuity of 1 3.15250 3.31000
Present Value of Ordinary Annuity of 1 2.72325 2.48685
The present value of the note is $525,398 using the above information
To arrive at the answer to this question it will help to prepare a Schedule of Note Discount Amortization for Green Company under the effective interest method. (Round to whole dollars.) Go to the test worksheet for a template that will help in calculation the correct answer.
The amount of the effective interest for 12/31/09 (year three) is (a small rounding adjustment may be necessary)
a. $50,062
b. $51,794
c. $57,268
d. $74,602
Bank reconciliation use the following information to determine the answer to questions 2 and 3.
Adcock Plastics Company deposits all receipts and makes all payments by check. The following information is available from the cash records:
MARCH 31 BANK RECONCILIATION
Balance per bank $26,746
Add: Deposits in transit 2,100
Deduct: Outstanding checks (3,800)
Balance per books $25,046
Month of April Results:
Per Bank Per Books
Balance April 30 $27,995 $24,355
April deposits 10,784 12,889
April checks 11,100 13,080
April note collected (not included in April deposits) 3,000 -0-
April bank service charge 35 -0-
April NSF check of a customer returned by the bank
(recorded by bank as a charge) 900 -0-
Problem 2. What is the amount of the outstanding checks on April 30
a. $1,980
b. $5,780
c. $8,780
d. $9,280
Problem 3. What is the April 30 adjusted cash balance
a. $24,164
b. $24,546
c. $24,855
d. $26,420
Problem 4. On January 1, 2008, North Co. exchanged equipment for a $600,000 zero-interest-bearing note due on January 1, 2011. The prevailing rate of interest for a note of this type at January 1, 2008 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in North's 2009 income statement?
a. $10,000
b. $15,000
c. $49,500
d. $60,000
Problem 5. Sandy, Inc. had the following bank reconciliation at March 31, 2008:
Balance per bank statement, 3/31/08 $37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/08 $34,900
Data per bank for the month of April 2008 follow:
Deposits $42,700
Disbursements 49,700
All reconciling items at March 31, 2008 cleared the bank in April. Outstanding checks at April 30, 2008 totaled $5,000. There were no deposits in transit at April 30, 2008. What is the cash balance per books at April 30, 2008?
a. $12,200
b. $27,900
c. $30,200
d. $35,500
Dollar-value LIFO. Use the following information to answer test questions 6 and 7.
Eller Company manufactures one product. On December 31, 2005, Eller adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was $200,000. Inventory data are as follows:
Inventory at Price index
Year year-end prices (base year 2005)
2006 $336,000 1.05
2007 437,000 1.15
2008 425,000 1.25
Problem 6. The inventory at December 31, 2006 using the dollar-value LIFO method for the year is
a. $316,000
b. $326,000
c. $336,000
d. $346,000
Problem 7. The inventory at December 31, 2008 using the dollar-value LIFO method for the year is
a. $339,000
b. $349,000
c. $359,000
d. $469,000
FIFO and LIFO inventory methods. Use the following information to answer questions 8 and 9
During June, the following changes in inventory item 27 took place:
June 1 Balance 1,400 units @ $24
14 Purchased 800 units @ $35
24 Purchased 700 units @ $30
8 Sold 400 units @ $50
10 Sold 900 units @ $40
29 Sold 600 units @ $44
Perpetual inventories are maintained.
Problem 8. What is the cost of the ending inventory for item 27 under the FIFO method
a. $30,000
b. $30,900
c. $31,500
d. $35,000
Problem 9. What is the cost of the ending inventory for item 27 under the LIFO method
a. $24,000
b. $30,000
c. $33,400
d. $35,000
Problem 10. Noll Co. had 300 units of product A on hand at January 1, 2008, costing $42 each. Purchases of product A during January were as follows:
Date Units Unit Cost
Jan. 10 400 $44
18 500 46
28 200 48
A physical count on January 31, 2008 shows 400 units of product A on hand. The cost of the inventory at January 31, 2008 under the LIFO method is:
a. $18,800.
b. $17,800.
c. $17,000.
d. $16,400.
Problem 11. Dyer Co. adopted the dollar-value LIFO inventory method on December 31, 2008. Dyer's entire inventory constitutes a single pool. On December 31, 2008, the inventory was $240,000 under the dollar-value LIFO method. Inventory data for 2009 are as follows:
12/31/09 inventory at year-end prices $330,000
Relevant price index at year-end (base year 2008) 110
Using dollar value LIFO, Dyer's inventory at December 31, 2009 is
a. $264,000.
b. $306,000.
c. $300,000.
d. $330,000.
Problem 12: Lye Co. prepared an aging of its accounts receivable at December 31, 2008 and determined that the net realizable value of the receivables was $290,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/08—credit balance $29,000
Accounts written off as uncollectible during 2008 23,000
Accounts receivable at 12/31/08 320,000
Uncollectible accounts recovered during 2008 5,000
For the year ended December 31, 2008, Lye's uncollectible accounts expense would be
a. $8,000.
b. $22,000.
c. $44,000.
d. $19,000.
Problem 13: Dial Corp.'s accounts payable at December 31, 2008, totaled $800,000 before any necessary year-end adjustments relating to the following transactions:
• On December 27, 2008, Dial wrote and recorded checks to creditors totaling $350,000 causing an overdraft of $100,000 in Dial's bank account at December 31, 2008. The checks were mailed out on January 10, 2009.
• On December 28, 2008, Dial purchased and received goods for $200,000, terms 2/10, n/30. Dial records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2009.
• Goods shipped f.o.b. destination on December 20, 2008 from a vendor to Dial were received January 2, 2009. The invoice cost was $65,000.
At December 31, 2008, what amount should Dial report as total accounts payable?
a. $2,411,000.
b. $1,346,000.
c. $1,050,000.
d. $8,000,000.