Int act quiz - Notes PDF

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1. Select the appropriate reporting method for each of the items listed below. Reporting Method

Item 1.

Accounts payable.

Current liability

2.

Current portion of long-term debt.

Current liability

3.

Sales tax collected from customers.

Current liability

4.

Notes payable due next year.

Current liability

5.

Notes payable due in two years.

6.

Advance payments from customers.

7.

Commercial paper.

8.

Unused line of credit.

Long-term liability Current liability Current liability Disclosure note only

A contingent liability with a probable likelihood of occurring within the next year Current liability and can be estimated. A contingent liability with a reasonably possible likelihood of occurring within the Disclosure note 10. next year and can be estimated. only 9.

2. On November 1, 2018, Aviation Training Corp. borrows $59,000 cash from Community Savings and Loan. Aviation Training signs a three-month, 6% note payable. Interest is payable at maturity. Aviation’s year-end is December 31. Required: 1., 2. & 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No 1

Date

General Journal

November 01, Cash 2018

Debit

Credit 59,000

Notes payable

2

3

December 31, Interest expense 2018 Interest payable February 01, Notes payable 2019 Interest expense

59,000

590 590

59,000 295

Interest payable

590

Cash

59,885

3. During January, Luxury Cruise Lines incurs employee salaries of $1.8 million. Withholdings in January are $137,700 for the employee portion of FICA, $270,000 for federal income tax, $112,500 for state income tax, and $18,000 for the employee portion of health insurance (payable to Blue Cross/Blue Shield). The company incurs an additional $111,600 for federal and state unemployment tax and $54,000 for the employer portion of health insurance. Required: 1., 2.& 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).) No 1

Date

General Journal

January Salaries expense 31 FICA tax payable Income tax payables elected answer correct Accounts payable

Debit

Credit

1,800,000 137,700 382,500 18,000

Salaries payable

2

3

January Salaries expense 31 Accounts payable January Payroll tax expense 31 FICA tax payable Unemployment tax payable

1,261,800

54,000 54,000

249,300 137,700 111,600

4. [The following information applies to the questions displayed below.] Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments. Assume Apple sells $20.4 million in iTunes gift cards in November, and customers redeem $13.4 million of the gift cards in December. Required:

1. & 2. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5.5 should be entered as 5,500,000).) No 1

2

Date

General Journal

November Cash 30 Deferred revenue December Deferred revenue 31 Sales revenue

Debit

Credit

20,400,000 20,400,000

13,400,000 13,400,000

5. 3. What is the ending balance in the Deferred revenue account? (Enter your answer in dollars, not in millions. (i.e. 5.5 should be entered as 5,500,000).)

Ending balance $7,000,000

6. During December, Far West Services makes a $1,200 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. Record sales and sales tax payable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Transaction General Journal Debit Credit 1

1

Accounts receivable

1,302

Sales revenue Sales tax payable

1,200 102

7. The ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2018. 1. Environmental Printing is being sued for $9.2 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible. 2. Environmental Printing is the plaintiff in an $7.2 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.7 and $7.2 million.

3. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $320,000 and $720,000. Required: Record any amounts as a result of each of these contingencies. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answer in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).) No

Transaction

General Journal

1

1

No journal entry required

2

2

No journal entry required

3

3

Loss

Debit

Credit

320,000

Contingent liability

320,000

8. [The following information applies to the questions displayed below.] Computer Wholesalers restores and resells notebook computers. It originally acquires the notebook computers from corporations upgrading their computer systems, and it backs each notebook it sells with a 90-day warranty against defects. Based on previous experience, Computer Wholesalers expects warranty costs to be approximately 6% of sales. Sales for the month of December are $410,000. Actual warranty expenditures in January of the following year were $13,500.

1. Does this situation represent a contingent liability? Yes No Yes, it’s probable that costs for warranties will be incurred and based on previous experience the amount is reasonably estimable.

9. 2. & 3. Record the necessary entries in the Journal Entry Worksheet below. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Transaction General Journal Debit Credit 1

1

Warranty expense

24,600

Warranty liability 2

2

Warranty liability Cash

24,600 13,500 13,500

10. 4. What is the balance in the Warranty Liability account after the entries in Part 2 and 3?

Warranty liability $11,100

11. Alec, Daniel, William, and Stephen decide today to save for retirement. Each person wants to retire by age 68 and puts $10,400 into an account earning 10% compounded annually. ( FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.) Required: Calculate how much each person will have accumulated by the age of 68.

Person Age Alec Daniel William

Initial Investment

Accumulated Investment by Retirement (age 68)

58 48 38

$10,400 10,400 10,400

$26,974.90 69,966.00 181,473.76

Stephen 28

10,400

470,696.30

12. Maddy works at Burgers R Us. Her boss tells her that if she stays with the company for four years, she will receive a bonus of $5,600.

With an annual discount rate of 7%, calculate the value today of receiving $5,600 in four years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Present value $4,272.24

13. You would like to start saving for retirement. Assuming you are now 20 years old and you want to retire at age 60, you have 40 years to watch your investment grow. You decide to invest in the stock

market, which has earned about 8% per year over the past 80 years and is expected to continue at this rate. You decide to invest $2,000 at the end of each year for the next 40 years. Required: Calculate how much your accumulated investment is expected to be in 40 years. ( FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Accumulated investment amount $518,113.00

14. Denzel needs a new car. At the dealership, he finds the car that he likes. The dealership gives him two payment options: 1. Pay $34,000 for the car today. 2. Pay $3,800 at the end of each quarter for three years. Required: 1-a. Assuming Denzel uses a discount rate of 12% (or 3% quarterly), calculate the present value. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to 2 decimal places.)

Option 1 Option 2

Present Value $2,704.76 (incorrect) 53,929.60 (incorrect)

1-b. Which option gives him the lower cost? Option 1...