Keller ACCT 504 Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation

1. Simpson Inc. purchased 5, $4,000, 11% bonds of Hillsdale Corporation when the market rate of interest was 10%. Interest is paid semiannually on the bonds, and the bonds mature in 4 years.

Instructions:
Compute the total price paid by Simpson Inc. for the bonds showing your calculation for the present value of the principal and the present value of the interest payments.

2. The following items are taken from the financial statements of BCT Company for 2013:

Cash

$138,800

Accounts Payable

75,000

Supplies

15,000

Accounts Receivable

35,000

Inventory

45,000

Salaries Payable

30,000

Unearned Revenue

45,000

Property, plant, and equipment, net

318,000

Intangible assets

260,000

Common Stock

100,000

Additional Paid-in Capital

400,000

Retained Earnings, 12/31/2012

21,000

Long-term debt

90,000

Service revenue

746,000

Cost of Goods Sold

639,200

Rent expense

30,000

Supplies expense

5,000

Insurance expense

21,000

Instructions:
(1) Create a classified balance sheet in good form for the year ended 2013.
(2) Calculate the current ratio and debt ratio and explain your findings.

3. The Delta Company gathered the following condensed data for the year ended December 31, 2014:

Cost of goods sold

$300,000

Net sales

525,000

Administrative expenses

110,000

Interest expense

18,000

Common stock dividends paid

25,000

Selling expenses

52,000

Income tax percentage

33%

Instructions:
(1) Prepare a multiple-step income statement for the year ended December 31, 2014.

(2) Compute the gross margin percentage and net profit margin ratio. Delta Company’s assets at the beginning of the year were $800,000, and the total assets were $1,000,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.

4. This is a 2-part question.

Part 1) Please indicate which section of the statement of cash flows should contain each of the following items, and whether each item would result in an inflow or outflow of cash. The sections are Operating, Investing, and Financing.
(a) Sold a building at book value
(b) Decrease in inventory
(c) Purchased land with cash
(d) Depreciation of property, plant, and equipment
(e) Issuance of common stock

Part 2) Please explain how to calculate free cash flow, and also explain why some investors have more faith in investing based on free cash flow rather than reported net income.

5. This is a 2-part question.

Part 1) Journalize the adjusting entries below at year-end December 31, XXXX. Please share your supporting calculations for the adjusting entries requiring computations.

(a) Accrued Service Revenue of $5,000
(b) The unadjusted balance of the Supplies account is $1,700. The total cost of supplies remaining is $900.
(c) Interest revenue of $500 has been earned but not yet received.
(d) Equipment was purchased at the beginning of the year for $35,000. The equipment’s useful life is 5 years and the residual value is $7,000. Record the depreciation for this year.
(e) The weekly payroll is $30,000. Employees are owed for 2 days of a 5-day work week.
(f) Beginning unearned service revenue is $3,000, and ending unearned service revenue is $1,500.

Part 2) Calculate the overall overstatement or understatement of net income if the above adjusting entries were not made. Please share your work.

6. Please review the following 6 ratios for Simpson Company and ABC Inc. for the year ended 2014, and address the 2 questions below.

Ratio Name

Simpson Company

ABC Inc.

(a) Days’ sales outstanding

36

30

(b) Inventory turnover

5.6

4.9

(c) Asset turnover

2.02

3.03

(d) Earnings per share

$1.50

$1.25

(e) Times-interest-earned

6.1

5.2

(f) Return on common stockholders’ equity

15.6%

12.2%

Instructions: This is a 2-part question.

(1) Explain the meaning of each of the Simpson Company ratios above.
(2) State which company performed better for each ratio.