E6-5 (Computation of Present Value) Using the appropriate interest table, compute the present values
of the following periodic amounts due at the end of the designated periods.
a. $30,000 receivable at the end of each period for 8 periods compounded at 12%
b. $30,000 payments to be made at the end of each period for 16 periods at 9%
c. $30,000 payable at the end of the seventh, eighth, ninth and tenth periods at 12%
E6-12 (Analysis of Alternatives) The Black Knights Inc., a manufacture of low-sugar, low-sodium, low
cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Black
Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or
lease a site depending upon which is more advantages. The site location committee has narrowed down
the available sites to the following three buildings.
Building A: Purchase for a cash price of $600,000 useful life 25 years
Building B: Lease for 25 years with annual lease payment of $69,000 being made at the beginning of the
year
Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space
can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end
of each year. The Black Knights Inc. has no aversion to being a landlord.
Instructions: In which building would you recommend that The Black Knights Inc. locate, assuming a 12%
cost of funds?
E7-2 Instructions: For each individual situation, determine the amount that should be reported as cash.
If the item(s) is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of
$980,000; utility deposit paid to gas company $180
2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal
checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and
currency on hand $1,350
3. Checking account balance $590,000; posted check from customer $11,000; cash restricted due to
maintaining compensating balance requirement of $100,000; certified check from customer $9,800;
postage stamps on hand $620
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking
privileges) $48,000; NSF check received from customer $800
5. Checking account balance $700,000; cash restricted for future plant expansion$500,000; short-term
Treasury bills $180,000; cash advance of $7,000 to company executive, payable on demand; refundable
deposit of $26,000 paid to federal government to guarantee performance on construction contract.
E7-5 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 the 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.
1. Sales and receivables are entered at gross selling price
2. 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
E7-7 (Reporting Bad Debts) Duncan Company reports the following financial information before
adjustments.
DR.
Accounts Receivable
CR.
$100,000
Allowance for Doubtful Accounts
$2,000
Sales Revenue (all on credit)
$900,000
Sales Returns and Allowances
$50,000
Instructions: Prepare the journal entry to record Bad Debt Expense assuming Duncan Company
estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable
