Acc201 Survey of Accounting: Week 4 Assignment (P7-19, P7-22, P7-25, P8-18)

Acc201 Survey of Accounting 
Week 4 Assignment (P7-19, P7-22, P7-25, P8-18) 

The following selected transactions were taken from the books of Chandra Company for 2010. 
1. On February 1, 2010,, borrowed $60,000 cash from the local bank. The note had a 6 percent interest rate and was due on June 1, 2010. 
2. Cash sales for the year amounted to 4310,000 plus sales tax at the rate of 7 percent. 
3. Chandra provides a 90-day warranty on the merchandise sold. The warranty expense is estimated to be 1 percent of sales. 
4. Paid the sales tax to the state sales tax agency on $280,000 of the sales. 
5. Paid the note due on June 1 and the related interest. 
6. On November 1, 2010 borrowed $50,000 cash from the local bank. The note had a 6 percent interest rate and a one-year term to maturity. 
7. Paid $2,400 in warranty repairs. 
8. A customer has filed a lawsuit against Chandra for $500,000 for breach of contract. The company attorney does not believe the suit has merit. 

a. Answer the following questions. 
1) What amount of cash did Chandra pay for interest during the year? 
2) What amount of interest expense is reported on Chandra's income statement for the year? 
3) What is the amount of warranty expense for the year? 
b. Prepare the current liabilities section of the balance sheet at Dec. 31, 2010. 
c. Show the effect of these transactions on the financial statements using a horizontal statements model. Use a + to indicate increase, a - for decrease, and NA for not affected. IN the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA) or financing activity (FA). 

On January 1, 2008, Holmes Co. borrowed cash from First City Bank by issuing an 80,000 face value, three-year term note that had a 7 percent annual interest rate. The note is to be repaid by making annual payments of 30,484 that include both interest and principal on December 31. Holmes invested the proceeds from the loan in land that generated lease revenues of 40,000 cash per year. 

a. Prepare an amortization schedule for the three-year period. 
b. Organize the information in accounts under an accounting equation. 
c. Prepare an income statement, balance sheet, and statement of cash flows for each of the three years. 
d. Does cash outflow operating activities remain constant or change each year? Explain. 

P7-25 Effect of a Line of Credit on Financial Statements 
Hulse Company has a line of credit with Bay Bank. Hulse can borrow up to $250,000 at any time over the course of the 2010 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during 2010. Hulse agreed pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. 

a. Organize the information in account under an accounting equation. 
b. Prepare an income statement, balance sheet, and statement of cash flows for 2010. 
c. Write a memo discussing the advantages to a business of arranging a line of credit. 

Problem 8-18 
Upton Company was started on January 1, 2011, when the owners invested 160,000 cash in the business. During 2011, the company earned cash revenues of 120,000 and incurred cash expenses of 82,000. The company also paid cash distributions of 15,000. 

Prepare a 2011 income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows using each of the following assumptions.(consider each assumption separately.) 
a.  Upton is a sole proprietorship owned by J. Upton. 
b.  Upton is a partnership with two partners, Dan and Nancy Upton. Dan invested 100,000 and Nancy 60,000 of the 160,000 cash that was used to start the business. Nancy was expected to assume the vast majority of the responsibility for operating the business. The partnership agreement called for Nancy to receive 60 percent of the profits and Dan the remaining 40 percent. With regard to the 15,000 distribution, Nancy withdrew 6,000 from the business and Dan withdrew 9,000. 
c.  Upton is a corporation. The owners were issued 10,000 shares of 10 dollar par common stock when they invested the 160,000 cash in the business. 

Problem 8-23 
The stockholders’ equity section of the balance sheet for Atkins Company at December 31, 2010, is as follows. 
Stockholders’ equity 
Paid-in capital 
Preferred stock, ? par value, 6% cumulative, 50,000 shares authorized, 40,000 shares issued and outstanding 400,000 
Common stock, $10 stated value, 150,000 shares authorized, 60,000 shares issued and ? outstanding 600,000 
Paid-in capital in excess of par-preferred 30,000 
Paid-in capital in excess of par-common 200,000 
Total paid-in capital 1,230,000 
Retained earnings 250,000 
Treasury stock, 2,000 shares (50,000) 
Total stockholders’ equity 1,430,000 
Note: the market value per share of the common stock is $25, and the market value per share of the preferred stock is $12. 

a.  What is the par value share of the preferred stock? 
b.  What is the divided per share on the preferred stock? 
c.  What is the number of common stock shares outstanding? 
d.  What was the average issue price per share( price for which the stock was issued) of the common stock? 
e.  Explain the difference between the average issue price and the market price of the common stock. 
f.  If Atkins declared a 2-for-1 stock split on the common stock, how many shares would be outstanding after the split? What amount would be transferred from the retained earnings account because of the stock split? Theoretically, what would be the market price of the common stock immediately after the stock split? 
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