(Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

A14. (Cost of trade credit) Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms. Calculate the APR and the APY.
a. 5/10, net 50
b. 3/15, net 30
c. 2/10, net 20

Click here for the solution: Calculate the cost of skipping the discount and paying at the end of the net period for each of the following credit terms

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

E7-5 (Record sales gross and net) On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for balance due from Chester Company.

Instructions
a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
Sales and receivables are entered at gross selling price.
Sales and receivables are entered at net of cash discounts.
b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

Click here for the solution: On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

Listed below are several terms and phrases associated with leases

E 15-25 Concepts; terminology

Listed below are several terms and phrases associated with leases. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.

List A
___ 1. Effective rate times balance.
___ 2. Realization principle.
___ 3. Minimum lease payments plus unguaranteed residual value.
___ 4. Periodic lease payments plus lessee-guaranteed residual value.
___ 5. PV of minimum lease payments plus PV of unguaranteed residual value.
___ 6. Initial direct costs.
___ 7. Rent revenue.
___ 8. Bargain purchase option.
___ 9. Leasehold improvements.
___10. Cash to satisfy residual value guarantee.
___11. Capital lease expense.
___12. Deducted in lessor’s computation of lease payments.
___13. Title transfers to lessee.
___14. Contingent rentals.
___15. Lease payments plus lessee-guaranteed and third-part-guaranteed residual value.

List B
a. PV of BPO price.
b. Lessor’s net investment.
c. Lessor’s gross investment.
d. Operating lease.
e. Depreciable assets.
f. Loss to lessee.
g. Executory costs.
h. Depreciation longer than lessee term.
i. Disclosure only.
j. Interest expense.
k. Additional lessor conditions.
l. Lessee’s minimum lease payments.
m. Purchase price less than fair value.
n. Sales-type lease selling expense.
o. Lessor’s minimum lease payments.

Click here for the solution: Listed below are several terms and phrases associated with leases

On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

E5-4 On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30. Meredith pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Leinert for credit on June 12. The scrap value of these goods is $150. On June 19, Meredith pays Leinert Company in full, less the purchase discount. Both companies use a perpetual inventory system.

Instructions
(a) Prepare separate entries for each transaction on the books of Meredith Company.
(b) Prepare separate entries for each transaction for Leinert Company. The merchandise purchased by Meredith on June 10 had cost Leinert $5,000.

Click here for the solution: On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30

Listed Below are six technical accounting terms introduced or emphasized in this chapter

Problem 18.1 Listed Below are six technical accounting terms introduced or emphasized in this chapter.

Job order costing
Process Costing
Conversion Costs
Equivalent Units
Cost of Finished Goods Manufactured
Production Cost Report

Each of the following statements may (or may not) describe these technical terms. For each statement, indicate the term described, or answer "none" if the statement does not correctly describe any of the terms.

a. The type of cost accounting method likely to be used in a Coca-Cola bottling plant.
b. Direct Labor and overhead consumed in a production process
c. A measure of the quantity of production work done during a time period, including work on partially completed units.
d. Process cost information for the period, including physical flow and total cost to account for.
e. The type of cost accounting method likely to be used by a construction company.

Click here for the solution: Listed Below are six technical accounting terms introduced or emphasized in this chapter

What do the terms overapplied overhead and underapplied overhead mean?

9. What do the terms overapplied overhead and underapplied overhead mean?


Click here for the solution: What do the terms overapplied overhead and underapplied overhead mean?

What do the terms liquidity and solvency mean?

2. What do the terms liquidity and solvency mean?


Click here for the solution: What do the terms liquidity and solvency mean?

Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.

June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.

Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.


Click here for the solution: Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.

Instructions
(a) Prepare journal entries on Hunt Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.


Click here for the solution: On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

Match the numbered statements below with the lettered terms

Match the numbered statements below with the lettered terms. An answer (letter) may used more than once, and some terms require more than one answer (letter).

1. Key ingredients in quality of relevance.
2. Traditional assumptions that influence the FASB's conceptual framework.
3. The idea that information should represent what it purports to represent.
4. An important constraint relating to costs and benefits.
5. An example of conservatism
6. The availability of information when it is needed.
7. Recording an item in the accounting records.
8. Determines the threshold for recognition.
9. Implies consensus.
10. Transactions between independent parties.

a) Cost-effectiveness
b) Representational faithfulness
c) Recognition
d) Verifiability
e) Time periods
f) Unrealized
g) Completeness
h) Timeliness
i) Materiality
j) Predictive value
k) Economic entity
l) Lower-of-cost-or-market rule
m) Phrenology
n) Arm's-length transactions


Click here for the solution: Match the numbered statements below with the lettered terms

Bumper Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 1.5/15, net 40

Bumper Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 1.5/15, net 40. If the firm chooses to pay on time but does not take the discount, assuming a 365 day-year, what is the

a. nominal interest cost for passing up (not taking) the credit

b. effective annual percentage cost of its non-free trade credit

Click here for the solution: Bumper Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 1.5/15, net 40

Match each of the following six terms with the phrase that most closely describes it

Match each of the following six terms with the phrase that most closely describes it. Each answer below may be used only once.

______ 1. activity-based costing
______ 2. cost of goods available for sale
______ 3. period costs
______ 4. process costing system
______ 5. just-in-time system
______ 6. work in process

(A) Costs assigned to the goods produced; also known as manufacturing costs
(B) Materials costs that are not traced directly to products produced
(C) System that seeks to minimize Raw Materials Inventory and Work in Process Inventory
(D) Cost of items that are completed and transferred from Work in Process Inventory to Finished Goods Inventory
(E) Costs that are identified with accounting periods rather than with goods produced
(F) Actual overhead is greater than overhead that has been applied to products
(G) Method of assigning overhead costs that uses multiple allocation bases
(H) System that uses job-order sheets to collect costs for each individual job
(I) Cost of all materials and parts that are directly traced to the items produced
(J) Beginning balance in the Finished Goods Inventory plus cost of goods manufactured
(K) Overhead applied to products is greater than the actual overhead costs incurred
(L) Used by companies that produce large quantities of identical items
(M) Cost of all manufacturing activities other than direct material and direct labor
(N) Inventory account that contains the cost of goods that are only partially completed

Click here for the solution: Match each of the following six terms with the phrase that most closely describes it

Compute the effective cost of not taking the cash discount under the following trade credit terms

Problem 4: Compute the effective cost of not taking the cash discount under the following trade credit terms:
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40

Problem 5: What conclusions can you make about credit terms from reviewing your answers to Problem 4?

Click here for the solution: Compute the effective cost of not taking the cash discount under the following trade credit terms

Brecker Company lease an automobile with a fair value of $10,906 from Emporia Motors, Inc, on the following terms

Exercise 21-2 (E21-2) (Lessee Computation and Entries, Capital Lease with Guaranteed Residual Value) Brecker Company lease an automobile with a fair value of $10,906 from Emporia Motors, Inc, on the following terms:

1. Noncancelable term of 50 months
2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.)
3. Estimated residual value after 50 months is $ 1,180.(the present value at 1% per month is $715.) Brecker Company guarantees the residual value of $ 1,180.
4. Estimated economic life of the automobile is 60 months
5. Brecker Company's incremental borrowing rate is 12% a year (1% a month). Emporia's implicit rate is unknown.

Instructions:
(a.) What is the nature of the lease to Brecker Company?
(b.) What is the present value of the minimum lease payments?
(c.) Record the lease on Brecker Company's books a the date of inception.
(d.) Record the first month's depreciation on Brecker Company's books (assume straight lined)
(e.) Record the first month's lease payment.

Click here for the solution: Brecker Company lease an automobile with a fair value of $10,906 from Emporia Motors, Inc, on the following terms