Question 1. On December 31, 2007, Shard Co. has $2,000,000 of short-term notes payable due on February 14, 2008. On January 10, 2008, Shard arranged a line of credit with County Bank which allows Shard to borrow up to $1,500,000 at one percent above the prime rate for three years. On February 2, 2008, Shard borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2007 balance sheet which is issued on March 5, 2008 is:
a. $0.
b. $300,000.
c. $500,000.
d. $800,000.
Question 2. A company gives its 50 employees (assume they were all employed continuously through 2007 and 2008) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2007, they made $14 per hour and in 2008 they made $16 per hour. During 2008, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2007 and 2008 balance sheets, respectively?
a. $67,200; $96,000
b. $76,800; $96,000
c. $67,200; $93,600
d. $76,800; $93,600
Question 3. On January 1, 2007, John Smith loaned $45,078 to Jan Fisher. A zero-interest-bearing note (face amount, $60,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2009. The prevailing rate of interest for a loan of this type is 10%. The present value of $60,000 at 10% for three years is $45,078. What amount of interest income should Mr. Smith recognize in 2007?
a. $6,000
b. $4,508.
c. $18,000.
d. $13,524