Problem 1 - Shown below is an income statement for 2010 that was prepared by a poorly trained bookkeeper of Howell Corporation.
Howell Corporation INCOME STATEMENT December 31, 2010
Sales revenue $945,000
Investment revenue 19,500
Cost of merchandise sold (408,500)
Selling expenses (145,000)
Administrative expense (215,000)
Interest expense (13,000)
Income before special items 183,000
Special items
Loss on disposal of a component of the business (30,000)
Major casualty loss (extraordinary item) (70,000)
Net federal income tax liability (24,900)
Net income $ 58,100
Instructions - Prepare a multiple-step income statement for 2010 for Howell Corporation that is presented in accordance with generally accepted accounting principles (including format and terminology). Howell Corporation has 65,000 shares of common stock authorized and issued there are 15,000 shares of treasury stock and has a 30% federal income tax rate on all tax related items. Round all earnings per share figures to the nearest cent.
Problem 2 - Given the following account information for Leong Corporation, prepare a balance sheet in report form for the company as of December 31, 2010. All accounts have normal balances.
Equipment 40,000
Interest Expense 2,400
Interest Payable 600
Retained Earnings ?
Dividends 50,400
Land 137,320
Inventory 102,000
Bonds Payable 78,000
Notes Payable (due in 6 months) 14,400
Common Stock 60,000
Accumulated Depreciation - Eq. 10,000
Prepaid Advertising 5,000
Revenue 331,400
Buildings 80,400
Supplies 1,860
Taxes Payable 3,000
Utilities Expense 1,320
Advertising Expense 1,560
Salary Expense 53,040
Salaries Payable 900
Accumulated Depr. - Bld. 15,000
Cash 30,000
Depreciation Expense,
Building & Equipment 8,000
Problem 3 - Part (a) Compute the amount that a $20,000 investment today would accumulate at 10% (compound interest) by the end of 6 years.
Part (b) Tom wants to retire at the end of this year (2010). His life expectancy is 20 years from his retirement. Tom has come to you, his CPA, to learn how much he should deposit on December 31, 2010 to be able to withdraw $40,000 at the end of each year for the next 20 years, assuming the amount on deposit will earn 8% interest annually.
Part (c) Judy Thomas has a $1,200 overdue debt for medical books and supplies at Joe's Bookstore. She has only $400 in her checking account and doesn't want her parents to know about this debt. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now:
1. Pay $400 now and $1,000 when she completes her residency, two years from today.
2. Pay $1,600 one year after completion of residency, three years from today.
Assuming that the cost of money is the only factor in Judy's decision and that the cost of money to her is 8%, which alternative should she choose? Your answer must be supported with calculations.