Problem 1. Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 × 7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest
|
Periods
|
5%
|
6%
|
7%
|
10%
|
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
|
2
|
0.90703
|
0.89000
|
0.87344
|
0.82645
|
|
3
|
0.86384
|
0.83962
|
0.81630
|
0.75132
|
|
4
|
0.82270
|
0.79209
|
0.76290
|
0.68301
|
|
5
|
0.78353
|
0.74726
|
0.71299
|
0.62092
|
|
6
|
0.74622
|
0.70496
|
0.66634
|
0.56447
|
|
7
|
0.71068
|
0.66506
|
0.62275
|
0.51316
|
|
8
|
0.67684
|
0.62741
|
0.58201
|
0.46651
|
|
9
|
0.64461
|
0.59190
|
0.54393
|
0.42410
|
|
10
|
0.61391
|
0.55840
|
0.50835
|
0.38554
|
Present Value of Annuity of $1 at Compound Interest
|
Periods
|
5%
|
6%
|
7%
|
10%
|
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
|
2
|
1.85941
|
1.83339
|
1.80802
|
1.73554
|
|
3
|
2.72325
|
2.67301
|
2.62432
|
2.48685
|
|
4
|
3.54595
|
3.46511
|
3.38721
|
3.16987
|
|
5
|
4.32948
|
4.21236
|
4.10020
|
3.79079
|
|
6
|
5.07569
|
4.91732
|
4.76654
|
4.35526
|
|
7
|
5.78637
|
5.58238
|
5.38929
|
4.86842
|
|
8
|
6.46321
|
6.20979
|
5.97130
|
5.33493
|
|
9
|
7.10782
|
6.80169
|
6.51523
|
5.75902
|
|
10
|
7.72174
|
7.36009
|
7.02358
|
6.14457
|
Problem 2. Kennedy, Inc. reported the following data:
|
Net income
|
$118,000
|
|
Depreciation expense
|
15,000
|
|
Loss on disposal of equipment
|
(10,000)
|
|
Gain on sale of building
|
20,000
|
|
Increase in accounts receivable
|
7,000
|
|
Decrease in accounts payable
|
(2,000)
|
Prepare the cash flows from operating activities section of the statement of cash flows using the indirect method
Problem 3. Complete each of the columns on the table below, indicating in which section each item would be reported on the statement of cash flows (operating, investing, or financing), the amount that would be reported, and whether the item would create an increase or decrease in cash. For item that affect more than one section of the statement, indicate all affected. Assume the indirect method of reporting cash flows from operating activities.
The first item has been completed as an example.
|
Item
|
Statement Section
|
Amount
to Report
|
+/- Effect
on Cash
|
|
Depreciation of $15,000 for the period
|
Operating
|
$15,000
|
Increase
|
|
Issuance of common stock for $35,000
|
|
|
|
|
Increase in accounts payable of $7,000
|
|
|
|
|
Retirement of $100,000 bonds payable at 97
|
|
|
|
|
Purchase of long-term investments for $94,500
|
|
|
|
|
Dividends declared and paid of $8,300
|
|
|
|
|
Increase in prepaid rent of $4,500
|
|
|
|
|
Decrease in Inventory of $5,300
|
|
|
|
|
Purchase of equipment for $17,600 cash
|
|
|
|
|
Sale of land originally costing $134,000 for $130,000
|
|
|
|
|
Decrease in taxes payable of $2,100
|
|
|
|
Problem 4. On June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present entries to record the following transactions.
(a) Issuance of bonds.
(b) Payment of first semiannual interest on December 31 (record separate entry from premium amortization).
(c) Amortization by straight-line method of bond premium on December 31
Problem 5. Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current year, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year:
May 1 Issued the bonds for cash at their face amount.
Nov. 1 Paid the interest on the bonds.
Dec. 31 Recorded accrued interest for two months