intermediate accounting pt 2

A company is putting together a list of transactions that are affected by the time value of money.
 
Which transaction should be included in this list?

Long-term leases

Company A sells a parcel of land to Company B in exchange for a note receivable. The terms of the note require Company B to make a single payment of $600,000 in two years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10 = $60,000, and the present value of the note is $600,000 × 0.82645 = $495,870.
 
Which amount must Company A consider as the proceeds from the sale of the land in order to calculate gross profit or gain/loss on the sale in accordance with generally accepted accounting principles (GAAP)?

$495,870

A company performs services for a customer in exchange for a noninterest-bearing note. The customer agrees to make a payment of $100,000 in three years. Using a 5% interest rate, the implied annual interest is $100,000 × 0.05 = $5,000, and the present value of the note is $100,000 × 0.86384 = $86,384.
 
Which amount must this company record as service revenue from this transaction in accordance with generally accepted accounting principles (GAAP)?

86,384

A company will receive $10,000 each year in lease payments for the next five years. The payments will start at the end of the first year. Assuming an annual interest rate of 4% is appropriate, the present value of an ordinary annuity is 4.45182 × $10,000 = $44,518, and the present value of an annuity due is 4.62989 × $10,000 = $46,299.
 
Which amount should be recorded for this sale?

44,518

A student has saved $40,000 to take a year to study abroad. The cash was deposited into a money market account earning 2% monthly interest for 12 months. The student wants to withdraw equal amounts each month at the end of the month for living expenses. Assuming a monthly interest rate of 2% is appropriate, the present value of an ordinary annuity is $40,000/10.57534 = $3,782.38, and the present value of an annuity due is $40,000/10.78685 = $3,708.22.
 
What is the amount that this student should withdraw each month?

3,782.38

A company has the following items:

Cash	$ 10,000
Petty cash	$      100
Short term paper	$   1,500
Post dated customer check	$   2,000
Bank overdraft	$        50

How much should be recorded as cash equivalents?

1,500

A company uses the allowance method for uncollectible accounts. On November 10, 2019, the company wrote off a customer's $4,000 account receivable. The company received payment in full from the customer on December 1, 2019.
 
Which entry or entries should this company record on December 1?

Debit accounts receivable for $4,000; credit allowance for doubtful accounts for $4,000
Debit cash for $4,000; credit accounts receivable for $4,000

A company had the following details related to a three-year note receivable on the date of issue:

• face value of note: $15,000

• present value of the principal: $10,677

• present value of the interest: $3,603

What is the carrying amount of this note at the end of three years?

15,000

A company receives a four-year, $50,000 zero-interest-bearing note in exchange for a piece of equipment. The market rate at the date of receipt is 6%.

Which statement is true regarding the initial recording of the note?

The discount on notes receivable account will be credited.

A company sold goods in exchange for a $5,000, two-year zero-interest-bearing note. The note is issued to a high-risk customer and the market rate for a note of similar risk is 7%. Assuming an annual interest rate of 7% for two years is appropriate, the present value of the principal is $5,000 × 0.87344 = $4,367.

Which journal entry is recorded at the time of sale?

Debit notes receivable for $5,000; credit revenue for $4,367; credit discount on notes receivable for $633

A company issues a $4,000, four-year zero-interest-bearing note for the sale of inventory. Assuming an annual interest rate of 4% for four years is appropriate, the present value of the principal is $4,000 × 0.85480 = $3,419.

Which journal entry should be recorded at the time of sale?

Debit notes receivable for $4,000; credit revenue for $3,419; credit discount on notes receivable for $581

A grocery store that uses a perpetual inventory system purchases goods for resale.
 
Which account is debited at the time of purchase? 

Merchandise inventory

On January 10, a company purchased $5,000 of inventory on terms 1/10, net 30. Payment was made on January 18. The company uses the periodic system.

Which journal entries are needed to record the purchase and the payment using the gross method?

Jan 10 debit purchases for $5,000; credit accounts payable for $5,000
Jan 18 debit accounts payable for $5,000; credit cash for $4,950; credit purchase discounts for $50

On January 10, a company purchased $5,000 of inventory on terms 1/10, net 30. Payment was made on January 18. The company uses the periodic system.

Which journal entries are needed to record the purchase and the payment using the gross method?

Jan 10 debit purchases for $5,000; credit accounts payable for $5,000
Jan 18 debit accounts payable for $5,000; credit cash for $4,950; credit purchase discounts for $50

A company recorded the purchase of 500 units on December 28, Year 1, free on board (FOB) shipping point. The units were shipped immediately and expected to arrive on January 3, Year 2. The company did not include these units in December's ending inventory.
 
Which effect does this action have on the financial statements for December 31, Year 1?

Inventory is understated.