ACG 2021, Introduction to Financial Accounting, Fall 2000, Exam 2 Explanations :: UFL Florida Business Accounting

ACG 2021Fall 2000 Exam 2Answer Key ExplanationBased on the Order of Version A1) A delimit contri hardlyion program is one with Regular, defined contributions to thefund. The fund balance changes in value with the accumulation of contributions andearnings and is decreased by benefits paid. Benefits received depend on the fund balanceavailable at retirement. (9-21 in the arguments on page 247)2) This is an error because ordinary repairs (ones that do not increase the original usefullife, competency or capacity of the asset) ar to be treated as expenses and entirely reportedon the income statement in the year they are incurred. This error mislead assets byadding the $3,000 to the asset account incorrectly and understated N.I. by failing torecord the $3,000 as an expense.3) If the bonds are selling at 98 ($24,625,000) then they are selling at a discount. Thismeans that the market rate is higher than the stated rate. When the bonds were issued themarket rate was the same as the state d rate so the market rate must have increased.(10-20 in the notes on page 274)4) Here we need to consider two issues. Interest is not capitalized when an asset ispurchased but it is capitalized when the company constructs its own asset (only for theperiod of construction). These concepts are discussed in chapter 8. Inventory is not acapital asset and therefore does not include financial support costs.(8-3 on page 193 and 8-7 on page 197).5) Financial Leverage is Average Total Assets/ Average Stockholders Equity. Itmeasures how many dollars of assets are employed for each dollar of stockholderinvestment. It can be increased by increased borrowing or repurchasing outstandingstock. In laymens terms it is the proper use of debt to bring a higher return to owners.(Page 266 of the book, letter C of the ROE Profit Driver Analysis)6) 8) Segments that are used to answer the three questions have boxes around them.Using the utile method (assumed unless stated otherwise)Interest Expense = Be ginning Carrying Value x Market Rate(Carrying Value = Face Value ignore)The Present Value of the note isP.V. = 400,000 x factor (using single sum table where i=8 and n=3).317,520 = 400,000 x 7.938 (the attached table has 7.9383 on it but this gives a get along close enough to be able to pick 317,520)The following journal entries would be made throughout the life of the note1/1/00Equipment 317,520Discount 82,480Notes Payable 400,00012/31/00Interest Expense 25,402* (Question (8))Discount 25,402*1/1/00 Carrying value of 317,520 (400,000 82,480) x .