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ACC Week 5 Assignments




Question;Exercise E6-2;(2)(5) E6-2 (Simple and Compound Interest Computations)Lyle;O?Keefe invests $30,000 at 8% annual interest, leaving the money invested;without withdrawing any of the interest for 8 years. At the end of the 8 years;Lyle withdrew the accumulated amount of money.;Instructions;(a)Compute the amount Lyle would withdraw assuming;the investment earns simple interest.;(b)Compute the amount Lyle would withdraw assuming;the investment earns interest compounded annually.;(c)Compute the amount Lyle would withdraw assuming;the investment earns interest compounded semiannually.;Exercise E6-5;(6)(7) E6-5 (Computation of Present Value)Using the;appropriate interest table, compute the present values of the following;periodic amounts due at the end of the designated periods.;(a)$50,000 receivable at the end of each period for;8 periods compounded at 12%.;(b)$50,000 payments to be made at the end of each;period for 16 periods at 9%.;(c)$50,000 Payable at the end of the seventh;eighth, ninth, and tenth periods at 12%.;Exercise E6-6;(5)(6)(7) E6-6 (Future Value and Present Value Problems)Presented;below are three unrelated situations.;(a)Ron Stein Company recently signed a lease for a;new office building, for a lease period of 10 years.;Under the lease agreement, a security deposit of $12,000 is;made, with the deposit to be returned at the expiration of the lease, with;interest compounded at 10% per year. What amount will the company receive at the;time the lease expires?;(b)Kate;Greenway Corporation, having recently issued a $20 million, 15-year bond issue;is committed to make annual sinking fund deposits of $620,000. The deposits are;made on the last day of each year and yield a return of 10%. Will the fund at;the end of 15 years be sufficient to retire the bonds? If not, what will the;deficiency be?;(c)Under the;terms of his salary agreement, President Juan Rivera has an option of receiving;either an immediate bonus of $40,000, or a deferred bonus of $75,000 payable in;10 years. Ignoring tax considerations, and assuming a relevant interest rate of;8%, which form of settlement should Rivera accept?;Exercise E6-8;(8) E6-8 (Computations for a Retirement Fund)Stephen;Bosworth, a super salesman contemplating retirement on his fifty-fifth;birthday, decides to create a fund on an 8% basis that will enable him to withdraw;$25,000 per year on June 30, beginning in 2014 and continuing through 2017. To;develop this fund, Stephen intends to make equal contributions on June 30 of;each of the years 2010?2013.;Instructions;(a)How much must the balance of the fund equal on;June 30, 2013, in order for Stephen Bosworth to satisfy his objective?;(b)What is;each of Stephen?s contributions to the fund?;Exercise E6-10;(5) E6-10 (Unknown Periods and Unknown Interest Rate)Consider;the following independent situations.;(a)Mark Yoders wishes to become a millionaire. His;money market fund has a balance of $148,644 and has a guaranteed interest rate;of 10%. How many years must Mark leave that balance in the fund in order to get;his desired $1,000,000?;(b)Assume that Elvira Lehman desires to accumulate;$1 million in 15 years using her money market fund balance of $239,392. At what;interest rate must Elvira?s investment compound annually?;Learning Team;Assignments;P6-7 (Time Value;Concepts Applied to Solve Business Problems)Answer the following questions;related to Dubois Inc.;(a)Dubois Inc. has $600,000 to invest. The company;is trying to decide between two alternative uses of the funds. One alternative;provides $80,000 at the end of each year for 12 years, and the other is to;receive a single lump sum payment of $1,900,000 at the end of the 12 years.;Which alternative should Dubois select? Assume the interest rate is constant;over the entire investment.;(b)Dubois Inc. has completed the purchase of new;Dell computers. The fair market value of the equipment is $824,150. The;purchase agreement specifies an immediate down payment of $200,000 and semiannual;payments of $76,952 beginning at the end of 6 months for 5 years. What is the;interest rate, to the nearest percent, used in discounting this purchase;transaction?;(c)Dubois Inc. loans money to John Kruk Corporation;in the amount of $800,000. Dubois accepts an 8% note due in 7 years with;interest payable semiannually. After 2 years (and receipt of interest for 2;years), Dubois needs money and therefore sells the note to Chicago National;Bank, which demands interest on the note of 10% compounded semiannually. What;is the amount Dubois will receive on the sale of the note?;P23-7 (SCF?Direct and Indirect Methods from Comparative;Financial Statements)Chapman Company, a major retailer of bicycles and;accessories, operates several stores and is a publicly traded company. The;comparative statement of financial position and income statement for Chapman as;of May 31, 2010, are shown on the next page. The company is preparing its;statement of cash flows.;CHAPMAN COMPANY;COMPARATIVE;STATEMENT OF FINANCIAL POSITION;AS OF MAY 31;2010 2009;Current assets;Cash $;28,250 $;20,000;Accounts receivable 75,000 58,000;Merchandise inventory 220,000 250,000;Prepaid expenses 9,000 7,000;Total current assets 332,250 335,000;Plant assets;Plant assets 600,000 502,000;Less: Accumulated depreciation 150,000;125,000;Net plant assets 450,000 377,000;Total assets;$782,250 $712,000;Current liabilities;Accounts payable;$123,000 $115,000;Salaries payable 47,250 72,000;Interest payable 27,000;25,000;Total current liabilities 197,250 212,000;Long-term debt;Bonds payable 70,000;100,000;Total liabilities 267,250 312,000;Shareholders? equity;Common stock, $10 par 370,000 280,000;Retained earnings 145,000 120,000;Total shareholders? equity 515,000 400,000;Total liabilities and shareholders? equity $782,250;$712,000;CHAPMAN COMPANY;INCOME STATEMENT;FOR THE YEAR ENDED;MAY 31, 2010;Sales $1,255,250;Cost of merchandise sold 722,000;Gross profit 533,250;Expenses;Salary expense 252,100;Interest expense 75,000;Other expenses 8,150;Depreciation expense 25,000;Total expenses 360,250;Operating income;173,000;Income tax expense 43,000;Net income $ 130,000;The following is additional information concerning Chapman?s;transactions during the year ended;May 31, 2010.;1.All sales during the year were made on account.;2.All merchandise was purchased on account;comprising the total accounts payable account.;3.Plant assets costing $98,000 were purchased by;paying $28,000 in cash and issuing 7,000 shares of stock.;4.The ?other expenses? are related to prepaid items.;5.All income taxes incurred during the year were;paid during the year.;6.In order to supplement its cash, Chapman issued;2,000 shares of common stock at par value.;7.There were no penalties assessed for the;retirement of bonds.;8.Cash dividends of $105,000 were declared and paid;at the end of the fiscal year.;Instructions;(a)Compare and contrast the direct method and the;indirect method for reporting cash flows from operating activities.;GAAP;required using direct and indirect method to prepare the statement of cash;flows report but under FASB proposed of financial statement would utilization;of the direct method rather than the indirect method for calculating cash;flows.;(b)Prepare a statement of cash flows for Chapman;Company for the year ended May 31, 2010, using the direct method. Be sure to;support the statement with appropriate calculations. (A reconciliation of net;income to net cash provided is not required.);(c)Using the indirect method, calculate only the net;cash


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