Question

In: Accounting

1. On 1/1/24, Traverse Company sold 100 components at $700 each. All sales were cash sales....

1.

On 1/1/24, Traverse Company sold 100 components at $700 each. All sales were cash sales. Estimated total cost servicing the components was $1,100 each year of the five-year warranty. Traverse spent $1,500 servicing the components in 2024 and $500 servicing components in 2025.

This is considered an "assurance-type" warranty; Traverse uses the Expense Warranty approach. What is the 2025 Warranty Expense?

Select one:

a. $0

b. $4,000

c. $1,500

d. $5,500

e. $4,900

2.

On August 1, 2022, Burdick Co. issued bonds with a face value of $600,000. The bonds carry a stated interest rate of 8%; interest is payable each June 1st and December 1st. The bonds were issued at 102 plus accrued interest. The straight-line method is used. The bonds mature on 6/1/25.

What was the total cash received on 8/1/22?

Select one:

a. $622,000

b. $614,000

c. $620,000

d. $638,000

e. $618,000

3.

On January 1, 2024, Bear Cove Co. issued its 11% bonds in the face amount of $3,000, which mature on January 1, 2034. The bonds were issued for $3,385 to yield 9%. Bear Cove uses the effective-interest method of amortizing the bond premium. Interest is payable annually on December 31.

The 2024 Interest Expense is approximately:

Select one:

a. $341

b. $300

c. $272

d. $305

Solutions

Expert Solution

1)Correct option is "A"-0

Since all of the warranty expense was recognized on estimated basis in the year of sale ,so when such expense are paid estimated warranty liability is debited and cash is credited thus no accounting for warranty expenses are done in future years.

2)Correct option is "C" -620000

Issue Price =Face value * Issue price /100

               = 600000 *102 /100

               = 612000

Accrued interest for the period (1June -1Aug ) at the time of issuance =Face value *stated rate *n/12

                                     = 600000*.08*2/12

                                     = 8000

Cash received = 612000+8000= 620000

3)Correct option is "D" -305

Interest expense for year 2024 =carrying value of bond *yield

                    = 3385 * 9%

                    = 304.65 (rounded to 305)


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