Week Six Exercise

Week Six Exercise. Exercise 7-1Recognizing accrued interest expense

Harveys Corporation borrowed $60,000 from the bank on November 1, 2014. The note had a 6 percent annual rate of interest and matured on April 30, 2015. Interest and principal were paid in cash on the maturity date.

Required

a.What amount of interest expense was paid in cash in 2014?

b.What amount of interest expense was reported on the 2014 income statement?

c.What amount of total liabilities was reported on the December 31, 2014, balance sheet?

d.What total amount of cash was paid to the bank on April 30, 2015, for principal and interest?

e.What amount of interest expense was reported on the 2015 income statement?

Exercise 7-18Determining the amount of bond premiums and discounts

Required

For each of the following situations, calculate the amount of bond discount or premium, if any:

a.Wolfe Co. issued $120,000 of 6 percent bonds at 101.

b.Riley, Inc., issued $80,000 of 10-year, 8 percent bonds at 98.

c.Rais, Inc., issued $200,000 of 15-year, 9 percent bonds at 102¼.

d.Beaux Co. issued $400,000 of 20-year, 8 percent bonds at 99¾.

Exercise 8-4Effect of issuing common stock on the balance sheet

Newly formed Electronics Services Corporation has 100,000 shares of $10 par common stock authorized. On March 1, 2014, Electronics Services issued 20,000 shares of the stock for $12 per share. On May 2 the company issued an additional 30,000 shares for $15 per share. Electronics Services was not affected by other events during 2014.

Required

a.Record the transactions in a horizontal statements model like the following one. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element was not affected by the event.

b.Determine the amount Electronics Services would report for common stock on the December 31, 2014, balance sheet.

c.Determine the amount Electronics Services would report for paid-in capital in excess of par.

Exercise 9-11Accounts receivable turnover, inventory turnover, and net margin

Selected data from Komar Company follow.

Balance Sheet

As of December 31

2014 2013

Accounts receivable $500,000 $450,000

Allowance for doubtful accounts  (20,000)  (16,000)

Net accounts receivable $480,000 $434,000

Inventories, lower of cost or market $600,000 $525,000Page 351

Income Statement for the Years Ended December 31

2014 2013

Net credit sales $2,000,000 $1,760,000

Net cash sales     400,000     320,000

Net sales  2,400,000  2,080,000

Cost of goods sold  1,600,000  1,440,000

Selling, general, and administrative expenses     240,000     216,000

Other expenses       40,000       24,000

Total operating expenses $1,880,000 $1,680,000

Required

Compute the following and round computations to two decimal points.

a.The accounts receivable turnover for 2014.

b.The inventory turnover for 2014.

c.The net margin for 2013.

Exercise 9-12Ratio analysis

During 2014, Desny Corporation reported after-tax net income of $3,890,000. During the year, the number of shares of stock outstanding remained constant at 10,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The company’s total stockholders’ equity is $20,000,000 at December 31, 2014. Desny Corporation’s common stock was selling at $52 per share at the end of its fiscal year. All dividends for the year have been paid, including $4.80 per share to common stockholders.

Required

Compute the following by rounding to two decimal points.

a.Earnings per share

b.Book value per share of common stock

c.Price-earnings ratio

d.Dividend yield

Week Six Exercise

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