Question 1

What is the difference between simple interest and compound interest? Is the amount of interest higher or lower when the interest is simple rather than compound?

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Question 2

You have received an email from a new accounting client,Jamal Parker,who has just started a new business.Jamal would like you to explain whether it is really that beneficial for him to take advantage of a 2/10,net 30 discount offered by one of his suppliers,given his limited cash flow.In a memo,explain to him why this is or is not a sound financial move for his new company.Most firms attempt to pay their accounts payable within the discount period to take advantage of the discount.Why is that normally a sound financial move?

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Question 3

Your friend,Sal Dunn,has started a new business,but has recently encountered a slight cash flow problem.He obtains a $1,000 loan at 10% per year from a local bank,but would like to ask you about the terms.The bank has deducted the interest in advance and he wants to know if 10% is his effective interest rate.How would you respond in an email?

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Question 4

The present value and future value concepts are applied to measure the amount of several accounts common in accounting.What are some accounts that are valued in this manner?

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Question 5

Tyson Trucking won a settlement in a lawsuit and was offered four different payment alternatives by the defendant's insurance company.The interest rate is 6%.Ignoring tax considerations,which of the following four alternatives has the highest present value? Support your answer with the appropriate calculations.
 I) $\quad \$ 150,000$ now

II) $\quad \$ 45,000$ per year for the next four years (payment made at the end of the year)

III) $\quad \$ 5,000$ now and then $\$ 20,000$ per year for the next ten years (payment made at the end of the year)
 
IV) $\quad \$ 5,000$ now and then $\$ 5,000$ per year for the next ten years (payment made at the end of the year) plus a lump-sum payment of $\$ 200,000$ at the end of the eleventh year

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Question 6

Note Disclosure of Legal Matters

Use the note disclosure of legal matters below to answer the questions that follow.

Note 13—Legal Matters

On December 14, 2017, the Company was served with a class action complaint filed in federal court in Burlington, Vermont. The complaint, captioned John Doe vs. The Company was filed by a Company’s shareholder on behalf of himself and purportedly on behalf of all other Company’s shareholders who purchased the common stock of the Company during the period from March 25, 2016, through December 19, 2016. Plaintiff alleges that the Company violated the federal securities laws by making, in 2016, untrue statements of material facts and omitting to state material facts primarily concerning the Company's construction and start-up of its new manufacturing facility. Also named as defendants in the Complaint are certain present and former officers and directors of the Company. Plaintiff is seeking an unspecified amount of monetary damages.

While this action is in its preliminary stages, management believes, based on an initial review, the allegations made in the lawsuit are without merit and the Company intends to defend the lawsuit vigorously.

-Review the note disclosure of legal matters.
 
Required
 (1)If you were to make an entry for the lawsuit against the company,what monetary amount should be recorded? On what did you base your decision with regard to the amount?
 
(2)Does the disclosure imply that the company is involved in only this litigation at this time?
 
(3)Why did this lawsuit arise? Do you believe it to be a reasonable one,or do you think that the plaintiff,has little grounds for this lawsuit?

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Use the note...

Question 7

Below are three notes payable:
 
 $$\begin{array} { l l l l } 
& \text { Note Face Value (Principal) } & \text { Rate } & \text { Term } \
\text { 1. } & \$ 30,000 & 4 \% & 6 \text { years } \
\text { 2. } & 30,000 & 6 \% & 4 \text { years } \
\text { 3. } & 30,000 & 8 \% & 3 \text { years }
\end{array}$$ Required
Part 1.For each of the notes,calculate the simple interest due at the end of the term.
Part 2.Now assume that the interest on the notes is compounded annually.Calculate the amount of interest due at the end of the term for each note.
Part 3.Finally,assume that the interest on the notes is compounded semiannually.Calculate the amount of interest due at the end of the term for each note.
Part 4.What conclusion can you draw from a comparison of your results of each of the three scenarios?

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 \[\begin{array}...

Question 8

Assume that you want to accumulate $20,000 as a down payment on a home.You believe that you can save $2,000 per semiannual period,and your bank will pay interest of 6% per year,or 3% per semiannual period.How long will it take you to accumulate the desired amount?

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Question 9

Define the term annuity.Can the present value of an annuity be calculated as a series of single amounts? If so,how?

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Question 10

You just purchased an automobile for $19,450 and must decide how to pay for it.Your local bank has granted you a five-year loan.Annual payments on the loan will be made at the end of each year and the amount of the loan payments,which include principal and interest,is $5,000 per year.What interest rate is being charged on the loan?

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Question 11

Riley Corporation manufactures and sells weedeaters.Riley provides all customers with a three-year warranty guaranteeing to repair,free of charge,any defects reported during this time period.During the year,it sold 85,000 weedeaters for $225 each.Analysis of past warranty records indicates that 8% of all sales will be returned for repair within the warranty period.Riley expects to incur expenditures of $15 to repair each weedeater.The account Estimated Liability for Warranties had a balance of $115,000 on January 1.Riley incurred $90,000 in actual expenditures during the year.
?
Required
?Analyze the impact of all journal entries necessary to record the events related to the warranty transactions during the year.Determine the adjusted ending balance in the Estimated Liability for Warranties account.

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Question 12

You just won the lottery.You can take your $2 million in a lump sum today,or you can receive $220,000 per year over the next 12 years.Assuming a 6% interest rate,which would you prefer,ignoring tax considerations?

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Question 13

According to the text,almost all current liabilities appear in the Operating Activities category of the statement of cash flows,but there are exceptions.Explain the exceptions and give an example.

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Question 14

Dallas Company uses the indirect method of preparing the statement of cash flows and has the following current liabilities at the beginning of the period: Accounts Payable,$35,000;Taxes Payable,$15,000.At the end of the period,the balances of the account are as follows: Accounts Payable,$25,000;Taxes Payable,$20,000.What amounts will appear in the cash flow statement? In what category of the statement will they appear?

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Question 15

There are very important differences between U.S.and international standards regarding contingencies.Even the terms used to refer to situations with unknown outcomes differ.Explain these differences.

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Question 16

A firm's year ends on December 31.Its tax is computed and submitted to the U.S.Treasury on March 15 of the following year.When should the taxes be reported as a liability?

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Quiz 9: Current Liabilities, Contingencies, and the Time Value of Money