Exam II - Key - Wayne State University ACC 5110 Exam II...

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Wayne State University ACC 5110 Exam II Winter 2010 ANSWER SHEET NAME___________________________________ MULTIPLE CHOICE ANSWERS: 1) C 2) B 3) C 4) D 5) D 6) A 7) B 8) A 9) A 10) D 11) C 12) A 13) D 14) B 15) B 16) C 17) D 18) C 19) B 20) D
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Problem 1 (10 points) Described below are certain transactions of Carson Company for 2008: On December 27, the company purchased goods from Jay Company for $50,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts . On September 30, the company issued its $120,000 at 90, one-year zero-interest- bearing note at First State Bank. The firm did not amortize the discount of note. On December 1, the company declared cash dividends of $100,000 and stock dividend of 1,000 common shares with par value of $10 per share (market price of common share at the declaration is $35). The dividends are not paid yet until at the end of 2008. On December 31, 2008, the company has $2,000,000 of short-term notes payable due on February 14, 2009. On January 10, 2009, the company arranged a line of credit with County Bank which allows Carson to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 2, 2009, Carson borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The company issued financial statement of 2008 on March 15, 2009. A suit for breach of contract seeking damages of $3,400,000 was filed by an author against Carson Co. on October 4, 2008. Carson's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $1,000,000 and $1,900,000. No amount within this range is a better estimate of potential damages than any other amount. The company expects that the law suit will be settled in 2009. Prepare a partial balance sheet for Carson Company, showing the manner in which the above liabilities should be presented at December 31, 2008 (Please indicate the manner in which the above transactions should be reflected in the l iabilities section – current or long-term ). Current liability: Account name Amount Account payable $ 49,000 Note payable (First State) 120,000 Discount on N/P (12,000) Dividend payable 100,000 Note payable 800,000 Contingent liability 1,000,000 Long-term liability: Account name Amount
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Note payable 1,200,000
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Problem 2 (20 points) On March 1, 2008, Pyne Furniture Co. issued $700,000 of 10 percent bonds to yield 8 percent. Interest is payable semiannually on March 1 and September 1. The bonds mature in ten years.
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This note was uploaded on 01/18/2011 for the course ACC 5110 taught by Professor Lee during the Winter '10 term at Wayne State University.

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Exam II - Key - Wayne State University ACC 5110 Exam II...

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