Question 1. A company uses the FIFO inventory method and reports the following data for 2004:
Beginning Inventory $75,000
Purchases during 2004 300,000
Ending Inventory 100,000
Income before income taxes 80,000
Tax Rate 40%
If the company had used LIFO ending inventory would have been valued at 85,000 dollars
a. Compute the tax liability using FIFO
b. Compute the tax liability if the company had used the LIFO inventory method.
Question 2: On April 1, 2004 Bob Allen Wrench Company issues 1,000,000 of 7% 10 year bonds, with interest payments made each Oct 1 and April 1. The bonds are issued at 98. Bob's Allen Wrench Company amortizes any premium or discount using the Straight line method
a. Prepare the journal entry on April, 2004 to issue the bonds
b. Prepare the journal entry on October 1, 2004 to record the payment of interest and the amortization of any discount or premium.
c. Prepare the journal entry on December 31, 2004 to record the accrued interest and amortization of any discount or premium
Question 3: A company issued 1,000,000 of 6.5% 8-year bonds dated June 1, 2004 with semiannual interest payments on June 1 and December 1. The bonds were issued on June 1, 2004 at 103 3/8. The company's year end is December 31.
a. Were the bonds issued at a premium, a discount, or at par?
b. Was the market rate of interest higher, lower, or the same as the contract rate of interest?
c. If the company uses the straight-line method of amortization what is the amount of interest expense the company will show for the year ended December 31, 2004?
d. What is the carrying value of the bonds on December 31, 2004?
Question 4: Waterford Place Corporation has issued 75,000 shares of $10 par value common stock. The average issuance price was $23 per share. Waterford Place Corporation recently engaged in the following treasury stock transactions.
a. Purchased 15,000 shares of its own stock at $25.00 per share
b. Sold 2,500 shares of the treasury stock for $25.50 per share
c. Sold the remaining 12,500 shares of treasury stock for $24.00 per share.