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ACC201 Week 4 P7-26 P7-27 P7-28 P8-18 P8-23
Problem 7- 26 Accounting for short- term debt and sales tax— two accounting cycles.
The following transactions apply to Artesia Co. for 2012, its first year of operations.
1. Received $ 40,000 cash from the issue of a short- term note with a 5 percent interest rate and a one- year maturity. The note was issued on April 1, 2012.
2. Received $ 120,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
Problem 7- 27 Effect of accrued interest on financial statements
Norman Co. borrowed $ 15,000 from the local bank on April 1, 2012, when the company was started. The note had an 8 percent annual interest rate and a one- year term to maturity. Norman Co. recognized $ 42,000 of revenue on account in 2012 and $ 56,000 of revenue on account in 2013. Cash collections from accounts receivable were $ 38,000 in 2012 and $ 58,000 in 2013. Norman Co. paid $ 26,000 of salaries expense in 2012 and $ 32,000 of salaries expense in 2013. Norman Co. paid the loan and interest at the maturity date.
Problem 7- 28 Current liabilities
The following selected transactions were taken from the books of Caledonia Company for 2012.
1. On March 1, 2012, borrowed $ 50,000 cash from the local bank. The note had a 6 percent interest rate and was due on September 1, 2012.
2. Cash sales for the year amounted to $ 225,000 plus sales tax at the rate of 7 percent.
3. Caledonia provides a 90- day warranty on the merchandise sold. The warranty expense is estimated to be 2 percent of sales.
Problem 8-18 Recording and reporting stock transactions and cash dividends across two accounting cycles
Davis Corporation was authorized to issue 100,000 shares of $10 par common stock and 50,000
shares of $50 par, 6 percent, cumulative preferred stock. Davis Corporation completed the following transactions during its first two years of operation.
Problem 8-23 Different forms of business organization
Shawn Bates was working to establish a business enterprise with four of his wealthy friends. Each
of the five individuals would receive a 20 percent ownership interest in the company. A primary
goal of establishing the enterprise was to minimize the amount of income taxes paid. Assume
that the five investors are taxed at the rate of 15% on dividend income and 30% on all other income and that the corporate tax rate is 30 percent. Also assume that the new company is expected to earn $400,000 of cash income before taxes during its first year of operation. All
earnings are expected to be immediately distributed to the owners.