# Acc 552 Week 2 Mini Case

708 Words3 Pages
Submitted by: Patrick R. Hariramani Question # 1 1. First before an expense or any entry should be recognized it must be feasible to estimate at least the minimum amount of gain or loss. In this problem there can be no estimate given because it may win or lose. So no amount is recorded and there was no expense yet incurred. The best way to record the suit is by disclosing in a note to the financial statements. 2. This problem is different from number 1 because there is an estimate on how much it will lose. The \$50,000 should be shown as an expense rather debiting it directly to Retained Earnings. It should be recorded as Law suit loss \$50,000 Low suit Liability \$50,000 Lawsuit Loss will be recorded in Income Statement under…show more content…
The depreciation is based on the car’s life not of the lease agreement. Question # 2 In item #4 we assumed that the \$100,000 bond with a 5% rate involves a 15 year-end annual interest payments of \$5,000 (100,000*.05). The payments is assumed to be annual, at year end. In appendix B the value of 8% for 15 years is 8.559. so the present value of \$5,000 is \$42,795, for interest payments \$100,000*.315 which is \$31,500. In total it will be \$74,295; since the investors paid \$80,000 the yield rate is less than 8%. As for the correctness of the \$748 first year bond discount amortization, the calculation follows: Since the bond proceeds were \$80,000 and the true yield is 7.23% per year. 7.23% came from the interest table that I have. Then for Year 1 net interest should be \$80,000*.0723 =\$5784. But the stated interest payment is \$5,000, thus the \$784 interest expense is amortization of the bond discount. Question # 3 The interest rate is determined by finding the value in Appendix B equal to \$35,000 divided by the annual payments of \$13,581 for a period of 3 years. (35,000/13,581 = 2.577). The interest rate is 8%. Amortization