1. A company had the following accounts and balances on December 31, 2018: Accou

ID: 2517454 • Letter: 1

Question

1. A company had the following accounts and balances on December 31, 2018: Accounts Receivable Accounts Payable Salaries Payable Short -term note payable Unearned Revenue Bond Payable, due Jan. 2024 Estimated Liability Long-term note payable 6,000 Discount on short-term notes payable 4,000 1,500 Current Maturity of Long-term debt 8,000 1,300 Inventory 620 Allowance for Doubtful Accounts Interest Receivable Prepaid Expenses 2,000 200 9,000 1,500 800 10,000 1,400 Accumulated Depreciation 6,000 How much should the company report as current liabilities on December 31, 2018? A. $15,580 B. $17,580 C. $18,820 D. $16,960 E. $16,180 A company determines that the maximum they should pay for a new machine is $46,679. The company estimates the machine will produce a net cash flow of $8,000 per year and will last for 7 years. The interest rate that is acceptable to the company is 5%. At the end of 7 years the company estimates it will be able to sell the machine for what amount? 2. A. $980 B. $391 C. $1,186 D. $68 E. $550 3. An analysis of a company's estimated liability account revealed the following information: Balance - March i, 2018: Balance -March 31, 2018: $14,200 15,960 Sales of product with 2-year warranty: $600,000 Estimated liability recorded in March 2018: $26,000 What is the total amount of warranty work performed during March, 2018? A. $26,000 B. $1,760 C. $27,760 D. $24,240 E. $575,760

Explanation / Answer

The Answer is B. $17,580

Computations -

Current Liabilities

Accounts Payable

$4,000

Salaries Payable

$1,500

Short-term note payable

$8,000

Less: Discount

620

$7,380

Unearned Revenue

$1,300

Estimated liability

$1,400

Current maturity of long-term debt

$2,000

Total current liabilities

$17,580

Sol 2:

The Answer is E, $550

Computation of the amount at which the asset can be sold at the end of year 7:

Estimated payment for new machine $46,679

Annual net cash flow for 7 years = $8,000

Acceptable interest rate – 5%

Assuming residual value to be X

NPV at 5% = -$46,679 + $8,000 (P/A, 5%, 7) + residual value (P/F, 5%, 7)

= -$46,679 + 8,000 (5.786) + X (0.7107)

= 0.7107X = $391

X = 391/0.7107 = $550

The answer is D. $24,240

Computations –

Beginning balance

$14,200

Add: Estimated liability recorded in March 2018

$26,000

Total

$40,200

Less: Ending balance

$15,960

total amount of warranty work performed in March, 2018

$24,240