WGU D103 - Intermediate Accounting - OA2 (Units 5-7)

D103 - Intermediate Accounting - OA2 (Units 5-7) 20 studiers today 5.0 (7 reviews) Students also studied Terms in this set (100) Western Governors UniversityD 077 Save Intermediate Accounting II D104; Pr...16 terms AcidApplesPreview WGU D104 Intermediate Accounting...144 terms kristineburrow Preview D103 Units 5-7 Pre Assessment 35 terms brandy_stahura Preview WGU D Teacher Am A company issues a five-year zero-interest-bearing note for a new lathe it purchased for $25,000. The market rate of interest at the time the note was issued is 4%. Assuming an annual interest rate of 4% for five years is appropriate, the present value of the principal is $25,000 × 0.82193 = $20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the present value of the principal is

$25,000 × 0.82270 =

$20,568.

What amount should be recorded for the cost of the lathe?The lathe is recorded at its present value of $20,548. No calculation is required.Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is valued at the present value of the note.Equipment is exchanged for a noninterest-bearing note.Payment of $20,000 on the note is to be made in one year. The market rate for notes of similar risk is 5%.Assuming an annual interest rate of 5% is appropriate, the present value of the principal is $20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the principal is

($20,000/2) × 1.92742 = $19,274.

What amount should be recorded for the purchase of this equipment?The equipment is recorded at its present value of $19,048. No calculation is required.Accounting Rule: An asset acquired in exchange for a noninterest-bearing note is valued at the present value of the note.

Company A sells land to Company B for $100,000.Company A takes a note from Company B that is due in two years. Assuming an annual interest rate of 5% is appropriate, the implied annual interest is $100,000 × 0.05 = $5,000, and the present value of the note is

$100,000 × 0.90703

= $90,703.

What amount should Company A record for the sale?The note is recorded at its present value of $90,703. No calculation is required.Accounting Rule: A note received in exchange for property is valued at its present value.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.

What amount must Company A consider as proceeds from the sale of the land in order to calculate gross profit or gain/loss on the sale, and be in accordance with generally accepted accounting principles (GAAP)?The note is recorded at its present value of $495,870. No calculation is required.Accounting Rule: A note received in exchange for property is valued at its present value.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.

What amount should the company record as service revenue from this transaction to be in accordance with generally accepted accounting principles (GAAP)?The note is recorded at its present value of $86,384. No calculation is required.Accounting Rule: A note received in exchange for service is valued at its present value.A customer signs a noninterest-bearing note, promising to pay the company $11,664 in two years. The payment amount is based on an annual interest rate of 8%, which the company believes is appropriate, resulting in the present value of the note of

$11,664 × 0.85734 = $10,000.

Which amount should the company record as sales revenue from this transaction to be in accordance with generally accepted accounting principles (GAAP)?The note is recorded at its present value of $10,000. No calculation is required.

Accounting Rule: A note received in exchange for goods is valued at its present

value.

A company requires $8,000 cash in a savings account earning 2% interest at the end of the year. Assuming an annual interest rate of 2% is appropriate, the implied annual interest is $8,000 × 0.02 = $160, and the present value of the savings is $8,000 × 0.98039 = $7,843.What amount should be deposited into the savings account at the beginning of the year?The present value of $8,000 at the beginning of the year is $7,843. No calculation is required.This is a single-sum problem that requires determining the unknown present value of a known single sum of money in the future that is discounted for a certain number of periods at a certain interest rate.

Accounting Rule: Present value is the amount that must be invested now to

produce a known future value. It is always a smaller amount than the given future value.A company collects $1,500 of rent from a tenant at the end of the year. The company invests the rent money in an investment earning 4% interest per year. Assuming a 4% annual interest rate is appropriate, the implied annual interest is $1,500 × 0.04 = $60, and the present value of the rent is $1,500 × 0.96154 = $1,442.What is the discounted value of this rent at the beginning of Year 1?Discounting is the process of reducing the face/principal amount to a present value. The present value of $1,500 at the beginning of the year is $1,442. No calculation is required.This is a single-sum problem that requires determining the unknown present value of a known single sum of money in the future that is discounted for a certain number of periods at a certain interest rate.

Accounting Rule: Present value is the amount that must be invested now to

produce a known future value. It is always a smaller amount than the given future value.

A company has the following cash balances:

Large bank: $ 127,000

Small bank: $ 17,000

Continental bank: $ (42,000)

Petty cash: $ 450

3-month treasury bill: $ 60,000

CD maturing in 18 months: $ 100,000

What is the amount of cash and cash equivalents that should be reported?

$204,450 = $127,000 + $17,000 + $450 + $60,000

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts. Petty cash funds and change funds are also cash.Cash equivalents is treasury bills, commercial paper, money market funds, money market savings certificates, certificates of deposit, and similar types of deposits with liquidity of less than 3 months (90 days).The bank overdraft for Continental bank is reported as a current liability. It cannot be offset against the other banks’ cash account. However, the overdraft could be offset if the company had another cash account with Continental bank.

A company has the following items at year-end:

cash in bank: $30,000

petty cash: $500

short-term paper with maturity of two months: $7,000

postdated checks: $2,000

What amount should be reported as cash and cash equivalents in the balance sheet?

$37,500 = $30,000 + $500 + $7,000

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts. Petty cash funds and change funds are also cash.Cash equivalents is treasury bills, commercial paper, money market funds, money market savings certificates, certificates of deposit, and similar types of deposits

with liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90

days or less.) Postdated checks are reported as receivables.

A company has the following items at year-end:

cash in bank - checking account of $18,500 cash on hand of $500 post-dated checks received totaling $3,500 certificates of deposit totaling $124,000 How much should be reported as cash in the balance sheet?

$19,000 = $18,500 + $500

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts. Petty cash funds and change funds are also cash.Cash equivalents is treasury bills, commercial paper, money market funds, money market savings certificates, certificates of deposit, and similar types of deposits with liquidity of less than 3 months (90 days).Postdated checks are reported as receivables.

A company has the following items at year-end:

cash in bank: $35,000

petty cash: $300

short-term paper with maturity of 120 days: $5,500

postdated checks: $1,400

How much should be reported as cash in the balance sheet?

$35,300 = $35,000 + $300

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts. Petty cash funds and change funds are also cash.Cash equivalents is treasury bills, commercial paper, money market funds, money market savings certificates, certificates of deposit, and similar types of deposits with liquidity of less than 3 months (90 days).Postdated checks are reported as receivables.A company has cash in the bank of $20,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000.How much should the company report in cash?

$20,000

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts.The bank overdraft is reported as a current liability. It cannot be offset against the other bank’s cash account. However, the overdraft could be offset if the company had it in the same bank where it has the $20,000.Restricted cash refers to cash that is held by a company for specific reasons and is, therefore, not available for immediate ordinary business use. It appears as a separate item from cash and cash equivalents on the balance sheet. Restricted cash can be classified as a current (short-term) or non-current (long-term) asset depending on when the cash is expected to be used.A company has cash in the bank of $10,000, restricted cash in a separate account of $1,000 deemed immaterial, and a bank overdraft of $3,000 in the same bank that houses the $10,000 in cash.What amount should this company report as cash in the balance sheet?

$8,000 = $10,000 + $1,000 - $3,000

Accounting Rule: Cash is coin, currency, bank deposits including checking and

savings accounts, and negotiable instruments such as money orders, cashiers’ checks, personal checks, and bank drafts.The bank overdraft can be offset against the $10,000 since that cash account is in the same bank as the overdraft.Since the restricted cash is immaterial in amount, it doesn’t need to be segregated from cash.