Question 3:
A company has a post-retirement benefit plan for its employees. The company's actuary estimated the following obligations for the plan:
Service cost: $100,000
Interest cost: $50,000
Expected return on plan assets: $30,000
Amortization of unrecognized prior service cost: $20,000
Calculate the net periodic post-retirement benefit cost.
Solution:
The net periodic post-retirement benefit cost can be calculated as:
Service cost + Interest cost - Expected return on plan assets + Amortization of unrecognized prior service cost = $100,000 + $50,000 - $30,000 + $20,000 = $140,000
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Question 4: Company XYZ issued $500,000 of 5% convertible bonds on January 1, 2023, which mature on December 31, 2032. The bonds are convertible into 1,000 shares of common stock. Calculate the initial carrying value of the convertible bonds.
Solution:
The initial carrying value of the convertible bonds can be calculated as the face value of the bonds minus the value of the embedded conversion option. Since the bonds are convertible into 1,000 shares of common stock, and let's assume the market price of the common stock is $50 per share, the embedded conversion option is worth $50,000 (1,000 shares * $50 per share).
Therefore, the initial carrying value of the convertible bonds would be: $500,000 - $50,000 = $450,000.
Question 5: Company XYZ has accounts payable of $200,000. The company negotiated a 2% discount with its supplier for paying within 10 days. If the company takes advantage of the discount and pays within the discount period, calculate the amount of cash payment.
Solution:
The amount of cash payment with the discount can be calculated by deducting the discount amount from the accounts payable. The discount amount is 2% of $200,000, which is $4,000. Therefore, the cash payment with the discount would be: $200,000 - $4,000 = $196,000.
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Question 2: Company LMN has the following inventory data for the year 2022:
Beginning inventory: $50,000
Purchases: $200,000
Ending inventory: $40,000
Sales revenue: $400,000
Calculate the cost of goods sold using the periodic inventory system.
Solution:
The cost of goods sold can be calculated as:
Beginning inventory + Purchases - Ending inventory = $50,000 + $200,000 - $40,000 = $210,000
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Question 1: Company XYZ has accounts receivable of $500,000. Based on historical data, it is estimated that 5% of accounts receivable will not be collected. Prepare the necessary journal entry to record the estimated bad debts expense.
Solution:
The estimated bad debts expense can be calculated as 5% of $500,000, which is $25,000. The journal entry to record the estimated bad debts expense would be:
Debit: Bad Debts Expense $25,000
Credit: Allowance for Doubtful Accounts $25,000