Question

?1. Days' sales in inventory measures how quickly a company can collect its receivables.

True or False

2.Steve owns? 64% and Mark owns? 36% of a partnership business. They purchase equipment with a suggested value of? $9,600. The current market value of the equipment at the time of purchase was?$9,100. At the time of the balance sheet? preparation, depreciation of? $160 was recorded. Based on the information? provided, which of the following is true of the? partnership?
A.The Equipment account will be debited at? $9,600 on the date of purchase.

B.The Equipment account will be debited at? $9,100 on the date of purchase.

C.The Equipment account will be debited at? $9,440 on the date of purchase.

D.The Equipment account will be debited at? $8,940 on the date of purchase.

3.On January? 1, 2019, Commercial Equipment Sales issued? $28,000 in bonds for? $15,700. These are?six-year bonds with a stated interest rate of? 10%, and pay semiannual interest on June 30 and December 31. Commercial Equipment Sales uses the? straight-line method to amortize the Bond Discount. What amount is debited to Interest Expense on June? 30, 2019?
A.$1,025

B.$25,067

C.$2,425

D.?$1,400

Answer 1

Solution:

‘1) False

Days Sales in inventory measures how quickly a company is can convert its inventory to sale.

Average Collection Period measures how quickly a company can collect its receivable.

2) The Correct option is A.The Equipment account will be debited at $9,600 on the date of purchase.

3)

Issue price of the bonds = $15,700

Face Value of the bonds = $28,000

Issue price is less than face value, it means bonds are issued at discount.

Discount on Bonds Payable = 28,000 – 15,700 = $12,300

This discount will be amortized over the life of bonds.

Half Yearly period to maturity = 6*2 = 12

Semi Annual Amortization of Discount = Discount 12,300 / 12 = $1,025

Coupon Interest = Face value 28,000 * Coupon Rate 10% * Half yearly ½ = $1,400

Interest Expense on June 30, 2019 = Cash/Coupon Interest + Amortization of Bond Discount

= $1,400 + $1,025

= $2,425

The correct option is C. $2,425

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