More Subjects
Your Name
Instructor Name
Course Number
Date
Chapters 9-12
Problem one-----Depreciation
Solution
Straight-line method Annual depreciation = Original cost- salvage value/ estimated life
= ($600,000 - $50,000)/5 years
= $110,000
Now, using this annual depreciation,
2014 depreciation = $110,000/2 = $55,000
And for 2015
2015 depreciation = $110,000
Accumulated depreciation at December 31, 2015 = $165,000
For book value,
December 31, 2015 book value = $$600,000 - $165,000
= $435,000
Units of production method
Depreciation = monthly units produced /lifetime production * cost
Depreciation per unit = ($600,000 - $50,000)/800,000 units
= $0.6875 per unit
Now, using this depreciation per unit
2014 depreciation = 130,000 units x $0.6875 = $89,375
And for 2015
2015 depreciation =140,000 units x $0.6875 = $96,250
Accumulated depreciation at Dec 31, 2015 = $185,625
For book value,
Book value = $600,000 - $185,625 = $414,375
Problem two— adjusting entries
Solution
Revenue earned for fitness center fees, but not yet billed, totaled $2,700 on November 30
Revenue has been earned but not yet received is requiring the adjusting entry.
Accounts Receivable
$2,700
Service Revenue
$2,700
The note payable is a 9%, 1-year note issued October 1, 2014
Interest expense has been charged but missing in books of accounts.
Interest Expense
$2,400
Interest Payable
$2,400
Interest Expense = (32,000 x 9% x 1/12)
= $2,400
The equipment was purchased on January 2, 2012. It has an estimated life of 8 years and an estimated salvage value of $6,000. Active Fitness uses the straight-line depreciation method.
Interest Expense
$2,400
Interest Payable
$2,400
The equipment was purchased on January 2, 2012. It has an estimated life of 8 years and an estimated salvage value of $6,000. Active Fitness uses the straight-line depreciation method.
The amount for the equipment purchased has not been given. However, there is Depreciation Expense missing in the books.
Depreciation Expense
Equipment value
Accumulated Depreciation
Equipment value
An insurance policy was acquired on June 30, 2014; the premium paid for 1 year had a cost of $15,000.
There is no entry of insurance expense.
Insurance Expense
$625
Prepaid Insurance
$625
Insurance Expense = (15,000 / 24)
= $625
Active Fitness received $22,800 in advance on November 1, 2014, from customers who paid for 3 months of prepaid fitness fees.
Revenue has been received but not realized in books of accounts.
Revenue Unearned
$15,200
Service Revenue
$625
Revenue Unearned = ($22,800 x 2/3)
= $15,200
Problem three— inventory
Solution
FIFO:
Ending inventory = $100
Cost of goods sold = $685
LIFO:
Ending inventory =$70
Cost of goods sold = $ 715
Problem four — ratio analysis
Solution
Current ratio = Current assets/ Current liabilities
= 100,000/ 60, 000
= 1.67
Debt to assets ratio = Total debts/ total assets
= 220, 000+ 60,000/ 390,000
= 280,000/ $390,000
= 0.717
Times interest earned = Earning before interest and taxes/ interest expense
= 110,000/ 33,000
= 3.33
Inventory turnover = COGS / avg inventory
= 360,000/ (43,000+47,000/2)
= 360,000/ 45,000
= 8 times
Profit margin = Net income / Net sales
= 77,000/ $650,000
= 0.12
Return on common stockholders' equity = Net income – dividend on preferred stock/ avg. common stock holder equity
= 77,000 / 140,000
= 0.55
Return on assets = Net income / Avg. total assets
= 77,000/ 420,000+ 390,000
= 77,000 / 810000
= 0.095
Problem five — statement of cash flows
Solution
Indirect Method of Cash Flow Statement
Cash flows from operating activities
Net income $ 19,200 Adjustments:Depreciation 8,600 Loss on equipment disposal 1,400 Increase in accounts receivable (3,600) Decrease in inventories 10,500 Decrease in prepaid expenses 800 Decrease in accounts payable (14,100) Increase in wages payable 1,300 Net cash from operating activities
$24,100
Cash flows from investing activities
Purchase of equipment
Beginning balance of equipment $98,100
Cost of equipment sold ($17,000)
Purchase of equipment$42,900
Ending balance of equipment $124,000
Proceeds from sale of equipment 2,900
Net cash used in investing activities
(42,900)
(40,000)
Cash flows from financing activities
Proceeds from issue of share capital $4,000 Proceeds from issue of bonds $35,000 Dividends paid ($17,200) Net cash from financing activities 21,800 Net increase in cash and cash equivalents CCE at beginning of year CCE at end of year
5,900
26,500
32,400
Cash Flow Statement for Zyr Electronics
Problem six – long term Liabilities
Convertible bond
A convertible bond refers to the fixed-income debt security that yields interest payments. However, it can be converted into a preset number of common stock or equity shares. The conversion is a choice of the bondholder. Thus, these are thelithe financing choice for companies.Upon converting a bond, the number of shares depends upon the bond's conversion ratio. However, there is also disadvantage of these bonds. As these can be converted, thus they offer lower coupon rate.
Advantages of a convertible bond from the standpoint of the bondholders and of the issuing corporation:
One purpose of their issuance is to avoid the negative investor sentiment. The number of shares outstanding increases with the issuance of every new share. This weakens existing investor proprietorship. Thus, by issuing the convertible bonds, company can satisfy the investors. Moreover, these arealso kind of hybrid security as these have interest payments as features of a bonds and ownership as feature of stock. Upon selling convertible bonds, cash interest payments are reduced. Conversely, the bond holder also has advantages. He can trade the bond for equity and get high dividends. Furthermore, the bondholder can also get the bond cash upon its maturity date.
More Subjects
Join our mailing list
© All Rights Reserved 2024