POA11e10 - Ch10 SE1 to SE3 CURRENT LIABILITIES AND FAIR...

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Unformatted text preview: Ch10 SE1 to SE3 CURRENT LIABILITIES AND FAIR VALUE ACCOUNTING Chapter 10, SE 1. 1. d 3. e 5. a 2. c 4. b Chapter 10, SE 2. Key Ratios: Working Capital = Current Assets Current Liabilities = $65,000 $40,000 = $25,000 Payables Turnover = Cost of Goods Sold +/ Change in Merchandise Inventory Average Accounts Payable = $230,000 + $10,000 ( $35,000 + $25,000 ) 2 = $240,000 = 8.0 times $30,000 Days' Payable = 365 days = 365 days = 45.6 days Payables Turnover 8.0 times Chapter 10, SE 3. 1. a 4. a 7. c 2. d 5. b 3. b 6. d CHAPTER 10 Solutions Ch10 SE4 to SE5 Chapter 10, SE 4. 1. Aug. 31 Cash 240,000.00 Notes Payable 240,000.00 Bank loan for 60 days at 12 percent, interest not included in face of note 2. Oct. 30 Notes Payable 240,000.00 Interest Expense 4,734.25 Cash 244,734.25 Payment of note plus interest $240,000.00 x 12 / 100 x 60 / 365 = $4,734.25 Chapter 10, SE 5. 1. Total payroll for April equals salaries: $223,000.00 Components of the payroll: Employees' federal income taxes payable $ 31,440.00 Social Security tax payable 13,826.00 Medicare tax payable 3,234.00 Medical insurance premiums payable 6,580.00 Salaries payable 167,920.00 Total monthly payroll $223,000.00 2. Payroll expenses: Social Security tax payable $13,826.00 Medicare tax payable 3,234.00 Medical insurance premiums payable 26,320.00 Federal unemployment tax payable 1,252.80 State unemployment tax payable 8,456.40 Total payroll expenses $53,089.20 Computations: $6,580 0.20 = $32,900 $32,900 $6,580 = $26,320 0.008 x $156,600 = $1,252.80 0.054 x $156,600 = $8,456.40 Ch10 SE6 Chapter 10, SE 6. Oct. 31 Product Warranty Expense 32,500 Estimated Product Warranty Liability 32,500 To record estimated product warranty expense, calculated as follows: Number of units sold 52,000 Rate of replacement x 0.05 Estimated units to be replaced 2,600 Estimated cost per unit x $12.50 Estimated liability $32,500 31 Estimated Product Warranty Liability 35,000 Merchandise Inventory 35,000 To record replacement of clocks under warranty ( 2,800 clocks x $12.50 ) Ch10 SE7 to SE8 Chapter 10, SE 7. 1. Single payment of $36,000 at 4% in 12 years from now (see Table 1 in the appendix on present value tables) $36,000 x 0.625 = $22,500.00 2. Twelve annual payments of $3,000 at 4% (see Table 2 in the appendix on present value tables) $3,000 x 9.385 = $28,155.00 3. Single payment of $7,000 at 8% in 6 years from now (see Table 1 in the appendix on present value tables) $7,000 x 0.630 = $4,410.00 4. Six annual payments of $7,000 at 8% (see Table 2 in the appendix on present value tables) $7,000 x 4.623 = $32,361.00 Chapter 10, SE 8. To find the present value of the purchase transaction: $ 7,200 annual net cash flow 5.335 factor, Table 4, for 8 years at 10% $38,412 present value of net cash flows 30,000 less machine purchase price $ 8,412 net present value of transaction At a required rate of return of 10 percent, the present value of the cash flows is greater than the cost of the machine. Purchasing the machine appears to be a smart business decision....
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POA11e10 - Ch10 SE1 to SE3 CURRENT LIABILITIES AND FAIR...

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