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ACCT 301B Spring 2009 Midterm A

# ACCT 301B Spring 2009 Midterm A - ACCT 301B Spring 2009...

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ACCT 301B Spring 2009 Midterm Examination; Closed books and notes; no scrap paper; no programmable calculators or other devices; assigned seats. 1. The effective interest on a 12-month, zero-interest-bearing note payable of \$400,000, discounted at the bank at 9% is ____________________________ (show to two decimal places: xx.xx%) Required: Show your supporting computations below to receive credit for correct answers. 36,000 / (400,000 – 36,000) = 36,000 / 364,000 = 9.89% Professor Paul Sheldon Foote, California State University, Fullerton 1

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ACCT 301B Spring 2009 Midterm Examination; Closed books and notes; no scrap paper; no programmable calculators or other devices; assigned seats. 2. During 2006, Younger Co. introduced a new line of machines that carry a three- year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 8% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: Sales Actual Warranty Expenditures 2006 \$ 600,000 \$ 9,000 2007 1,500,000 45,000 2008 2,100,000 135,000 \$4,200,000 \$189,000 What amount should Younger report as a liability at December 31, 2008? \$_____________________________________________________________________ Required: Show your supporting computations below to receive credit for correct answers. 600,000 * 12 % = 72,000 1,500,000 * 12% = 180,000 2,100,000 * 12% = 252,000 Estimated Liability = 504,000 Actual Expenditures = (189,000) Estimated liability for 12/31/08 = 315,000 Professor Paul Sheldon Foote, California State University, Fullerton 2
ACCT 301B Spring 2009 Midterm Examination; Closed books and notes; no scrap paper; no programmable calculators or other devices; assigned seats. 3. A company issues \$5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are \$4,901,036. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2007 balance sheet?

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