ACCT 550 (Intermediate Accounting) Entire Course

amounts due
at the end of
the
designated
periods.
(a) $30,000
receivable at
the end of
each period
for 8 periods
compounded
at 12%.
This is a case
of annuity
because the
person is
receiving the
amount at the
end of each
period.
E6-12 (Analysis of Alternatives) The Black Knights Inc., a manufacturer of low-sugar, lowsodium,
low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In
order to do so, Black Knights has decided to locate a new factory in the Panama City area. Black
Knights will either buy or lease a site depending upon which is more advantageous. The site
location committee has narrowed down the available sites to the following three buildings.
Building A: Purchase for a cash price of $600,000, useful life 25 years. Building B: Lease for 25
years with annual lease payments of $69,000 being made at the beginning of the year. Building
C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space
can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at
the end of each year. The Black Knights Inc. has no aversion to being a landlord. Instructions In
which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost
of funds?
E7-5 (Recording Sales Gross and Net) On June 3, Arnold Company sold to Chester Company
merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An
invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport
Service for the freight cost. On June 12, the company received a check for the balance due from
Chester Company.
Instructions (a) Prepare journal entries on the Arnold Company books to record all the events
noted above under each of the following bases. (1) Sales and receivables are entered at gross
selling price.
(2) Sales and receivables are entered at net of cash discounts. (b) Prepare the journal entry under
basis 2, assuming that Chester Company did not remit payment until July 29