Three Accounting questions

| June 1, 2016

Question

On October 1, 20X4, Farmer Engineering Services purchased a new laser surveying instrument. Farmer paid $5,000 down and executed the following promissory note:

Promissory note

For value received, the undersigned promises to pay to the order of Laser Equipment Company

the sum of: *******Twenty-Thousand and no/100 Dollars******* ($20,000)

Along with annual interest of 10% on any unpaid balance. This note shall mature and be payable, along with accrued interest, on September 30, 2014.

October 1, 2013 J.D. Farmer Farmer Engineering

Issue Date Signature

(a)

Prepare the appropriate journal entry to record the purchase on October 1, 2013.

(b)

Prepare the appropriate journal entry to record the year-end interest accrual on December 31, 2013.

(c)

Prepare the appropriate journal entry to record the payment of the note and accrued interest on September 30, 2014.

Examine the following items and prepare the current liabilities section of the Balance sheet for Annapolis Corporation as of December 31, 2007

The beginning of year accounts payable was $100,000. Purchases on trade accounts during the year were $650,000, and payments on account were $610,000.

The company incurs substantial costs for electricity to run its servers and air conditioning systems. As of December 31, 2007, it is estimated that $55,000 of electricity has been used, although the monthly billing for December has not yet been received.

Server Planet sells web hosting plans for as low as $25 per month. However, it requires its customers to prepay in 6-month increments. As of the end of the year, $375,000 had been collected for 2008 web hosting plans.

Web hosting services are subject to sales taxes, and Server Planet collected $65,000 during the year. All of these amounts have been remitted to taxing authorities, with the exception of $5,000 that is due to be paid in January, 2008.

The company has total bank loans of $1,500,000. This debt bears interest at 6%, payable monthly. As of December 31, 2007, all interest had been paid, with the exception of accrued interest for the last half of December.

The company’s bank loans ($1,500,000) are all due on June 30, 2008. However, Server Planet has a firm lending agreement with the bank to renew and extend $1,000,000 of this amount on a 5-year basis. The company intends to exercise this renewal option, but is not yet sure about the final disposition of the remainder.

Present and Future Value

(a) What is the present value of $10,000 to be received in six years at an 8% discount rate?

(b) If you put $1,000 in a savings account at the beginning of every year for five years, what is the account balance at the end of five years if it earns 4% interest?

(c) How much would you have if you waited until the end of each year to deposit your $1,000?

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