Mgmt 200 Fall 2010 Exam Final solution

# Mgmt 200 Fall 2010 Exam Final solution - First name: _ Last...

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First name: ___________ Last name: ______________ PUID: ________________________ Purdue University Krannert School of Management MGMT 200 – Introductory Financial Accounting Fall 2010 Final Exam – December 15, 2010- SOLUTION This exam consists of 4 questions on 15 pages (excluding this cover page) for a total of 100 points. Pages 13 and 14 are the Caterpillar Inc financial statements, and page 15 has the present value tables. These pages must be returned with your exam. Note: While the exam is out of 100 points, your score will be multiplied by 1.5 to weight the final out of 150 points. Time allowed: 90 minutes. Answer all questions. To ensure full credit and to maximize partial credit, clearly show all supporting calculations. The exam is closed book. A calculator is permitted. GOOD LUCK . Question 1 (30 points) ________ Question 2 (20 points) ________ Question 3 (20 points) ________ Question 4 (30 points) ________ TOTAL (100 points) ________

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Mgmt 351 – Exam 1 – Fall 2003 – page 2
Question 1: Bonds Payable (30 points) Simpson Corporation plans to acquire new piece of factory equipment that will increase the efficiency of its manufacturing processes on January 1, 2011. Simpson Corporation has the option to either purchase the equipment for \$840,000 with financing provided by the equipment manufacturer, or can purchase the asset for \$800,000 cash. The equipment has an estimated economic life of 10 years and a zero residual value. If the asset is purchased for cash then Simpson Corporation has two financing options to raise the necessary cash: 1. Issue 10% coupon bonds on January 1, 2011: \$740,000 face value, 10% coupon (interest payable semi-annually on June 30 and December 31), five- year bonds. 2. Issue 2% coupon bonds on January 1, 2011: \$1,060,000 face value, 2% coupon (interest payable semi-annually on June 30 and December 31), five- year bonds. The market rate of interest for Simpson Corporation is 8%. Required: (Round your answers to the nearest dollar amount) PART A: Assume the 10% bonds are issued: a. Prepare the journal entry to record the issuance of the 10% coupon bonds on January 1, 2011. Proceeds: = 37,000 (PVA, n=10, i=4%) + 740,000 (PV, n=10, i=4%) = 37,000 (8.11090) + 740,000 (0.67556) = 800,020 Cash 800,020 Bonds payable 800,020 Question 1 continued over . . . Mgmt 20000 – Fall 2010 – Final Exam – page 1

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b. Prepare the journal entries to record the interest payments on the 10% coupon bonds for the year ended December 31, 2011. 6/30 Interest expense 32,001* Bonds payable 4,999 Cash 37,000 * = 800,020 x .04 = 32,001 12/31 Interest expense 31,081* Bonds payable 5,199 Cash 37,000 * = 795,021 x .04 = 31,801 PART B: Assume the 2% bonds are issued: c. Prepare the journal entry to record the issuance of the 2% coupon bonds on January 1, 2011.
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## This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt 200 Fall 2010 Exam Final solution - First name: _ Last...

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