Financial Reporting, Financial Statement Analysis and Valuation
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 2, Problem 20PC

Analyzing Transactions. Using the analytical framework, indicate the effect of the following related transactions of a firm.

  1. a. January 1: Issued 10,000 shares of common stock for $50,000.
  2. b. January 1: Acquired a building costing $35,000, paying $5,000 in cash and borrowing the remainder from a bank.
  3. c. During the year: Acquired inventory costing $40,000 on account from various suppliers.
  4. d. During the year: Sold inventory costing $30,000 for $65,000 on account.
  5. e. During the year: Paid employees $15,000 as compensation for services rendered during the year.
  6. f. During the year: Collected $45,000 from customers related to sales on account.
  7. g. During the year: Paid merchandise suppliers $28,000 related to purchases on account.
  8. h. December 31: Recognized depreciation on the building of $7,000 for financial reporting. Depreciation expense for income tax purposes was $10,000.
  9. i. December 31: Recognized compensation for services rendered during the last week in December but not paid by year-end of $4,000.
  10. j. December 31: Recognized and paid interest on the bank loan in Part b of $2,400 for the year.
  11. k. Recognized income taxes on the net effect of the preceding transactions at an income tax rate of 40%. Assume that the firm pays cash immediately for any taxes currently due to the government.
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It is now January 1. You plan to make a total of 5 deposits of $500 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 14% but uses semiannual compounding. You plan to leave the money in the bank for 10 years. Round your answers to the nearest cent. 1. How much will be in your account after 10 years? 2. You must make a payment of $1,280.02 in 10 years. To get the money for this payment, you will make five equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 14% with quarterly compounding. How large must each of the five payments be?
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