1.Carter Company earned net income of $350,000 last year. This year it wants to earn net income of $450,000. The company's fixed costs are expected to be $300,000, and variable costs are expected to be 70% of sales.
Instructions
(a) Determine the required sales to meet the target net income of $450,000 using the mathematical equation.
(b) Using a CVP income statement format, prove your answer.
2. Logan Company's budgeted sales and direct materials purchases are as follows.
Budgeted Sales Budgeted D.M. Purchases
January $300,000 $60,000
February 330,000 70,000
March 350,000 80,000
Logan's sales are 40% cash and 60% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible. Hagen's purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month of purchase, and 60% in the month following purchase.
Instructions
(a) Prepare a schedule of expected collections from customers for March.
(b) Prepare a schedule of expected payments for direct materials for March.
3. Jack Birch invested his inheritance at 4% annual interest and left the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Jack withdrew the accumulated amount of money plus the accumulated interest of $35,000. What amount had Jack invested, assuming the investment earned simple interest?
4. The amount you must deposit now in your savings account, paying 6% compound interest, in order to accumulate $15,000 for your first tuition payment when you start college in 4 years is____?
5. Davis Company is about to issue $900,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are available time value of money factors that Davis uses to calculate compound interest.
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8 periods, 10%
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16 periods, 5%
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8 periods, 12%
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16 periods, 6%
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Present Value of 1
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0.46651
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0.45811
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0.40388
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0.39365
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Future Value of 1
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2.14359
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2.18287
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2.47596
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2.54035
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Present Value of an Annuity of 1
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5.33493
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10.83777
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4.96764
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10.10590
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Future Value of an Annuity of 1
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11.43589
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23.65749
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12.29969
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15.67253
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To the closest dollar, how much can Davis expect to receive for the sale of these bonds?
6. Striegel Company has purchased equipment that requires annual payments of $60,000 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the equipment?
7. When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table for the
1. present value of 1.
2. present value of an annuity of 1.
8. If a single future amount of $6,000 is to be received in 5 years and discounted at 6%, its present value is ____?
9. The amount you must deposit now in your savings account, paying 4% interest compounded annually, in order to accumulate $20,000 for a down payment 3 years from now on a new car is ____?
10. The amount you must deposit now in your savings account, paying 4% compound interest, in order to accumulate $5,000 for a down payment 4 years from now on a new car is ____?
11. Sturm Corporation earns 8% on an investment that will return $600,000, 5 years from now. Below is some of the time value of money information that Sturm has compiled that might help in planning compound interest decisions.
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Present Value of 1 for 5 periods at 8%
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0.68058
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Future Value of 1 for 5 periods at 8%
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1.46933
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Present Value of an Annuity of 1 for 5 periods at 8%
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3.99271
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Future Value of an Annuity of 1 for 5 periods at 8%
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5.86700
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To the closest dollar, what is the amount Sturm should invest now to earn this rate of return?
12. Which of the following discount rates will produce the largest present value?
13. When determining the proceeds received when issuing a bond, the factor applied to the amount of the bond principal is determined from the table for the
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present value of annuity of 1.
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14. Forrest Company issued $200,000 of 5-year bonds, with a stated rate of interest of 8%, payable semiannually. The market rate for such securities is 10%. How much did Forrest receive from the sale of these bonds? (Round to the nearest dollar.)
15. Justine Company is considering purchasing machinery. The machinery will produce the following cash flows:
Year 1 $100,000
Year 2 $140,000
Justine requires a minimum rate of return of 12%. What is the maximum price Justine should pay for this machinery?
16.
Presented below are long-term liability items for Lind Company at December 31, 2014.
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Bonds payable, due 2016
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$460,000
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Lease liability
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62,520
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Notes payable, due 2019
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72,720
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Discount on bonds payable
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36,800
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Prepare the long-term liabilities section of the balance sheet for Lind Company.
17. What is the present value of $13,950 due 7 periods from now, discounted at 12%?
18. Presented below is the partial bond discount amortization schedule for Ferree Corp. Ferree uses the effective-interest method of amortization.
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Semiannual Interest Periods
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Interest to Be Paid
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Interest Expense to Be Recorded
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Discount Amortization
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Unamortized Discount
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Bond Carrying Value
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Issue date
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$84,240
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$1,319,760
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1
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$63,180
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$65,988
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$2,808
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81,432
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1,322,568
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2
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63,180
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66,128
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2,948
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78,484
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1,325,516
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(a) Prepare the journal entry to record the payment of interest and the discount amortization at the end of period
19. Sweetwood Company issues $4,200,000, 10-year, 12% bonds at 95, with interest payable on July 1 and January 1. The straight-line method is used to amortize bond discount.
Prepare the journal entry to record the sale of these bonds on January 1, 2014.
20 Golden Inc. issues $2,600,000, 5-year, 12% bonds at 104, with interest payable on July 1 and January 1. The straight-line method is used to amortize bond premium.
Prepare the journal entry to record the sale of these bonds on January 1, 2014.
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