1. (Unknown Periods and Unknown Interest Rate) Consider the following independent situations.

(a) Jafri wishes to accumulate $2 million. His money market fund has a balance of $184,592 and has a guaranteed interest rate of 10%. How many years must Jafri leave that balance in the fund in order to get his desired $2,000,000?

(b) Assume that Jones desires to accumulate $2 million in 15 years using her money market fund of $365,392. At what interest rate must Jones's investment compound annually?

2. (Analysis of Alternatives) Bandit Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Bandit has decided to locate a new factory in the Cedar Rapid 7 area. Bandit will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.

Building A: Purchase for a cash price of $1,500,000, useful life 25 years.

Building B: Lease for 25 years with annual lease payments of $125,000 being made at the beginning of the year.

Building C: Purchase for $1,750,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $21,000. Rental payments will be received at the end of each year. Bandit Inc. has no aversion to being a landlord.

Instructions

In which building would you recommend that Bandit Inc. locate, assuming a 8% cost of funds?

3. (Evaluating Payment Alternatives) BB John has just learned he has won a $2,500,000 prize in the state lottery. He has two options for receiving the payments: (1) If BB takes all the money today, the state and federal governments will deduct taxes at a combined rate of 40% immediately. (2) Alternatively, the lottery offers BB a payout of 20 equal payments of $200,000 with the first payment occurring when BB turns in the winning ticket. BB will be taxed on each of these payments at a rate of 30%.

Instructions

Assuming BB can earn an 6% rate of return (compounded annually) on any money invested during this period, which pay-out option should he choose?

4. (Analysis of Alternatives) Grandma Jonesy died, leaving to her Grandson Bart, an insurance policy contract that provides that the beneficiary (Bart) can choose any one of the following four options.

(a) $200,000 immediate cash.

(b) $12,000 every 3 months payable at the end of each quarter for 5 years.

(c) $50,000 immediate cash and $5,000 every 3 months for 10 years, payable at the beginning of each

(d) $12,000 every 3 months for 4 years and $3,750 each quarter for the following 10 quarters, all pay-

Instructions

If money is worth 2% per quarter, compounded quarterly, which option would you recommend that Brent exercise?

5. (Determining Cash Balance) The controller for Clair Co. is attempting to determine the amount of cash to be reported on its December 31, 2014, balance sheet. The following information is provided.

1. Commercial savings account of $1,200,000 and a commercial checking account balance of

2. A money market fund account of $10,000,000, held at Nguyen Co. (a mutual fund organization)

3. Travel advances of $360,000 for executive travel for the first quarter of next year (employee to re-

4. A separate cash fund in the amount of $3,000,000 is restricted for the retirement of long-term debt.

5. Petty cash fund of $2,000.

6. An I.O.U. from Nyamaan, a company customer, in the amount of $380,000.

7. A bank overdraft of $220,000 has occurred at one of the banks the company uses to deposit its

8. The company has two certificates of deposit, each totaling $1,000,000. These CDs have a maturity

9. Clair has received a check that is dated January 12, 2015, in the amount of $250,000.

10. Clair has agreed to maintain a cash balance of $1,000,000 at all times at First National Bank of

11. Clair has purchased $4,200,000 of commercial paper of Sergio Leone Co. which is due in 60 days.

12. Currency and coin on hand amounted to $15,400.

Instructions

(a) Compute the amount of cash to be reported on Clair Co.'s balance sheet at December 31, 2014.

(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2014, balance sheet.

6. (Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Santillan Inc. shows the following balances.

Debits Credits

Accounts Receivable $180,000

Allowance for Doubtful Accounts 3,500

Sales (all on credit) $1,000,000

Give the entry for estimated bad debts assuming that the allowances is to provide for doubtful accounts on the basis of (a) 5% of gross accounts receivable and (b) 1% of net sales.

( Journalizing Various Receivable Transactions) Presented below is information 8 Junket Corp.

August 1 Junket Corp. sold to Sharper Co. merchandise having a sales price of $21,000 with terms 1/10, net/60. Junket records its sales and receivables net.

5 Accounts receivable of $57,000 (gross) are factored with Easy Credit Corp. with recourse at a financing charge of 5%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)

9 Specific accounts receivable of $30,000 (gross) are pledged to Second Credit Corp. as security for a loan of $20,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)

Sep. 29 Sharper Co. notifies Junket that it is bankrupt and will pay only 20% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable when the discount period passed.)

Instructions

Prepare all necessary entries in general journal form for Junket Corp.

7. (Bank Reconciliation and Adjusting Entries) Elfen Company has just received the October 31, 2014, bank statement, which is summarized below.

Balance, October 1 $21,361

Deposits during October $47,200 68,561

Note collected for depositor, including $40 interest 2,040 70,601

Tri National Bank Disbursements Receipts Balance

Checks cleared during October $54,501 16,100

Bank service charges 10 16,090

Balance, October 31 16,090

The general ledger Cash account contained the following entries for the month of October.

Cash

Balance, October 1 17,801 Disbursements in October 45,271

Receipts during October 45,000

Deposits in transit at October 31 are $4,800, and checks outstanding at October 31 total $1,550. Cash on hand at October 31 is $250. The bookkeeper improperly entered one check in the books at $210.00 which was written for $180.00 for supplies (expense); it cleared the bank during the month of October.

Instructions

(a) Prepare a bank reconciliation dated October 31, 2014, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the October 31 balance sheet?