Question

1. If $300,000 of bonds paying 7% interest and maturing in 20 years are issued at a price of 98, how much of the discount will be amortized each year?

2. If 500,000 of bonds paying 4% interest and maturing in 10 years are issued at a price of 103, how much of the premium will be amortized each year?

3. what will be the carrying value of the $500,000 bonds above at the en of 5 years?

4. A company has a current ratio of 2:3:1. Its current liabilities are $22,500. What is its working capital?

5. A company's return on common stockholders' equity is 15%. It has 2,000 shares of 8% preferred stock with a $100 par value, and the average amount of paid in capital on its common stock during the year was $15,500,000. What was its net income for the year?

6. A company has a times interest earned ratio of 4.5. Its income before income taxes was $250,000. How much was its interest expense for the period?

7. A company has an asset turn over of 3.8. Its sales for the period were $7,600,000. Its total assets were $2,240,000. How much of the total assets were in long term investments?

8. A company had an average inventory balance of $87,000 during 2017, and its cost of goods sold was $512,177. What was the number days sales in inventory?

Answer 1

Q1.
Total Discount: 3000*2: 6000
Period: 20 years
Annual amortized discount: 6000 /20 = 300
Q2.
Ttotal premmium:5000*3: 15000
Period: 10 years
Premium amortized annually: 15000 /10 = 1500
Q3.
Carrying value:
Issue price at Year-0			515000
Less: Premium amortized			7500
(1500*5)
Book value at the end of 5 years			507500
Q4.
Current ratio: 2.3
Current liabilties: 22500
Current assets: 22500*2.3 = 51750
Working capital= Current assets-Current liabilities
		51750-22500= 29250
Q5.
Return on common Stockholders: 15%
average common Stockholder equity: $15500,000
Net income :15500,000*15%: $2325,000
Add: Preferred Dividend			16000
(200,000 *8%)
Net Income for the year			2341000
Q6.
Times interest earned:			4.5
Net income before tax			250000
Interest expense: Net income before tax / times interest earned
		$ 250000 /4.5 = 55556
Q7.
Assets turnover: 3.8
Sales: 7600,000
Total operating assets: 2000,000 (7600,000 /3.8)
Total assets: $ 2240,000
Long term investment: 2240,000 - 2000,000 = 240,000
Q8.
Average inventory: $ 87000
Cost of Goods sold: $ 512177
Inventory Turnover ratio= Cost of Goods sold/ Average inventory
		512177 / 87000 = 5.88