account2113exam3 - ACCOUNTING 2113 FALL 2000 Knapp’s...

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Unformatted text preview: ACCOUNTING 2113 FALL 2000 Knapp’s Third exam Show your work when appropriate. For the computational items, Write your ansWers on the lines provided. pd _ ,- .. t 1 'r PART I, TIME VALUE PROBLEMS — .32 PIOINTS [Note Use compounded Interest not simple interest In all of these problems.] 1 Thxs mommg, Bobby Bonds decided to purchase a lumber yard Bonds agreed to pay $750,000 for the busmess He made $100,000 down payment today, wrll pay the former owner $200,000 two years fr m today on November 21, 2002, and Wt]! make a final $450,000 payment five years om today on November 21, 2005 Required: Assuming that the appropriate interest rate for this scenario is 12%, what would be the cash price of this business? 0 ‘ 25‘ g I 89011475 2 Thu: mornmg, Dusty Baker decided I purchase a nursery, as to flowers Baker and the former owner agreed that the bus ness had a current value of $295,000 However, Baker doesn’t have that amount of cash available So, the former owner agreed to accept a four-year, nonmterest-beanng promissory note In payment for the business WFA—jg Requixed: Assuming that the appxlopriate interest rate for this scenario is 9%, what would be the maturitf value of the promissory note that Baker save the nursery, former ch“: 9'90 fl]: PVX FVqup 1 | 3 Just a few hours ago, Elhs Burks agreed to pay hrs former brother-m-law, erl Clark, $3 50,000 for Clark’s one-half interest In B&C Shoppes, a busmess that the two mdtvrduals had owned jOlntly for several years However, 151115 does not have to make the $350,000 payment until five years from today To make sure that he can accumulate the $350,000, Ellis plans to open a bank account in whtch he wrll make equal annual deposrts over the following five years The first deposu will be made one year from today 3 Required: Assuming that the bank account Ellis opens earns an annual interest rate of 6%, what is the amount of the equal annual deposit that he must make at the end of ehch of the following five years to WA: A a< FV’": um 'Jmooo = A :4 $6370? I .. 7.10.00” A“ 9L 70$ [1: '6 2,017 4 Russell Ortrz was recently Injured whllle working for hrs employer, Cable Cars Limited Cable Cars‘ management ahd Russell are presently negotranng to resolve thls matter Cable Cars has offered I of hrs ltfe Mortality tables suggest t i pay Russell $46,000 per year for the rematnder at Russell wrll live forty more years Required: What lump sum payment would be equivalent to the present value of the annuity offered to Russell by Cable Cars assuming that the appropriate interest rate for this scenario is 8%? d = A 1 WA! ) \. y; :32. f"!- I i | | | PART II, EVERYTHING ELSE - 68 POINT‘B A French bakery, LaBass & LaReese, borrowed $200,000 from the Nash Nanonal Bank on January 1, 1999 The repayment terms requrre LaBass & LaReese to repay $$25,000 of the princrpal amount of the loan on December 31 of each year, begmnmg December 31, fi‘i‘i, plus 12% Interest on the unpaid pnncrpal at the begmnmg of the year Required: What is the long-term liability that LaBass as LaReese will report in its December 31, 2001, balance sheet for th debt? I Rem/«cm»? 75, urn/MD ‘_ PHW’IML ' b. o 0, con 00° / 5 POINTS ' /'2$ooo c3/1. 125°°°\ 3,0,0... L'T Required: How much interest expense related to this debt will be reported in LaBass 85 LaReese’s income statement for the year ended December 31, 2002? 'A: 000 5 POINTS ’/I/oz m. brow X / 300 1—1—— 400:) 2. Elfstrom Logsdon & Floyd (ELF) borrowed $40,000 from the Ferns National Bank on September 2, 2000 On that date, ELF’sIchlef execunve sngned a 9%, ISO-day promissory note ' a. Required: Prepare the Decembiar 31, 2000, adjusting journal entry that will be necessary in ELF’s accounting records for this item. Select the account titles to be use in this adjusting journal entry from the following: Gasmlnleresll'anmel leresmmansemrenidlnletesl. llneamell Revenue. (4 points] 7' rr 6x2 mo b. Required: What is the dollar amount of the payment that ELF will make to Ferris National Bank on the promissory note’s m turity date? 4 POINTS 7 3. Earlier today, Kan Kent purchased a corporate bond that has a face value of $1,000 This bond has a stated Interest rate of l 1% and Interest on the bond IS pard semiannually REQUIRED: a Suppose that Karl purchased tlus bond at a quoted market price of 105 How much dld she pay for the bond‘7 5 I, 0‘0 mm. x 1000:3350 2 POINTS b Again, assume that Karl purchased this bond at a quoted market price of 105 How much interest will she receive on each interest payment date? Lowxll‘lox’vmsqs: $__.(_!____ 2 POINTS 6 Again, assume that Kari purchased thlS bond at a quoted market price of 105 What is the bond’s current yield? I‘ d /0.5 9. ’0 ZPOINTS %‘ mm“ d Suppose that Kari paid $970 for this bond today Was the market interest rate higher or lower than the band’s stated interest rate of l 1%? Circle one (2 points) Lower 8 4 Archer Elwell Electronics Issued $5,000,000 of nme-year, 9% bonds on January 1, 2000 Interest on thesc bonds IS payable semranhually on January 1 and July I a Requrred Suppose that the market ime st rate was 10% on the date (January 1, 2000) that these bonds were sold How much sh did Archer Elwell receive from the sale of the bonds? . 7 7 ,yrwéé' ?VA:. A t (VAf\g v), 1 l : zziooox "@715? = 2,030,“? , lrrcfim ?V= FVK WK“. = 5,000.0” an .vrm: 2,077,600 more?“ M b How much interest will Archer Elwell pay its bondholders on each interest payment date? 1:: (1(er : 50m) oOOX 9 5 McCortney, Overland & Bounds (MOB) recently announced a cash drvrdend of $ 45 per share on IIS outstanding common stock The declaration date was November 1, the payment date ts December 1, and the record date was November 15 The company has 2,000,000 common shares outstanding for the followrng four Items—three of which are Journal entries, write m the lme to the left of each item the most appropnate date from the followmg four dates November 1. November 15, December 1, December 31. (8 points) ' Decca-men 3t Retained Eammgs 900,000 Divihends 900,000 1 Dividends Payable 900,000 Cash 900,000 M '1 Dividends 900,000 Dividends Payable 900,000 N M‘ i I I No entry required 6 Followmg are data for the leplty Zap Rallroad that operates between Cushlng, Oklahoma, and Springfield, Mo 1 9 9 7 1 9 98 1 9 9 9 Revenues I $231,400 $179,400 $241,800 Net Income l 71,200 82,800 42,200 Year-end Common Stockholders’ Equity 588,777 711,422 988,333 Year-end Common Shares outstanding 40,000 48,000 55,100 REQUIRED: a # 6/5 609317 d?"333 C/s 0/: ' ' b Compute the book value per share of Zippity Zap's common stock at the end of 1999. ‘ s 5 POINTS 4 :5: «5 £111? Compute Zippity Zap’s return on equity for 1 ll 7 Suppose that Blue Skye Corporatton hadl240,000 shares of common stock outstanding for the first five months of the year The company sold an addlttonal 100,000 shares on June I and an addmonal 60,000 shares 01‘; September 1 REQUIRED Compute Blue Skye’s eargings per share assuming company reported a Net Income for the gtven year of $144,0 0 . ‘IS 8 POINTS 8 Followmg are selected financ1al data for Thakur Company as of December 3 l, 1999 Common Stock pnce--$24, Common Shares outstandmg--200,000, Total Assets-- $2,400,000, Total LlabllltleS--$ 1 £00,000 REQUIRED: a Compute Thakur’s year-end booH value per share ‘ I $_.__3____ 7A 2' a. 2 Forms TL ‘ co a. cab i- ’M “: °'° m 3 fey, I [H A!” b Compute Thakur’s year-end mark price to book value ratio 510 ——_.——_—_ E 4 Forms 12 ...
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This homework help was uploaded on 04/19/2008 for the course MATH 1743 taught by Professor Davidson-rossier during the Spring '08 term at The University of Oklahoma.

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account2113exam3 - ACCOUNTING 2113 FALL 2000 Knapp’s...

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