Reference no: EM132824863

Questions -

Question 1 - Time Traveler Magazine completed the following transactions during 2016:

Oct 31: Sold one-year subscriptions, collecting cash of $1,750, plus HST of 13%.

Dec 31: Remitted (paid) HST to Canada Revenue Agency (CRA).

Dec 31: Made the necessary adjustment at year-end.

1. Journalize these transactions and then report any liability on the company's balance sheet on December 31st.

Question 2 - During its first year of operations, Keene Limited had sales of $76,500. The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year. During the current year, the company spent $1,200 on warranty repairs.

1. Make a journal entries related to the warranty for the current year.

2. How will the warranty liability be reported on the company's year-end balance sheet?

Question 3 - On January 31, 2016, Muscle Sports Cars issued 10-year, 4% bonds with a face value of $100,000. The bonds were issued at 94 and pay interest on January 31 and June 30. Muscle amortizes their bonds by the straight-line method.

1. Record: (a) the issuance of the bonds on January 31, (b) the semi-annual interest payment and discount amortization on June 30, and (c) the interest accrual and discount amortization on December 31.

Question 4 - On June 30, 2016, the market interest rate was 7%. Starship Enterprises issues $500,000 of 8%, 20-year bonds at 110.625. The bonds pay interest on June 30 and December 31. Starship amortizes bonds by the effective-interest method.

1. Record issuance of the bonds on June 30, 2016, the payment of interest on December 31, 2016, and the semi-annual interest payment on June 30, 2017.

Question 5 - Alliance Agreement Corporation is considering two plans for raising $2,500,000 to expand its current operations. The first plan involves the sale of $2,500,000, 8%, 10-year bonds sold at face value. The second plan involves selling 50,000 common shares at $50 each. Alliance Agreement Corporation currently has outstanding 200,000 shares of stock and a net income of $900,000. Either plan is expected to generate an additional income of $400,000 before interest and taxes. The income tax rate is 30%.

1. Calculate earnings per share for both plans.