1. ACCT 550 Week 4 Homework Assignment
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E6-5 (Computation of Present Value)
Using the appropriate interest table, compute the
present values of the following periodic 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%.
(b) $30,000 payments to be made at the end of
each period for 16 periods at 9%.
(c) $30,000 payable at the end of the seventh,
eighth, ninth, and tenth periods at 12%.

2. E6-12 (Analysis of Alternatives)
The Black Knights Inc., a manufacturer of low-
sugar, low-sodium, 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.
E7-2 (Determining Cash Balance)
Presented below are a number of independent
situations.

3. Instructions For each individual situation,
determine the amount that should be reported as
cash. If the item(s) is not reported as cash, explain
the rationale.
1. Checking account balance $925,000; certificate
of deposit $1,400,000; cash advance to subsidiary
of $980,000; utility deposit paid to gas company
$180.
2. Checking account balance $600,000; an
overdraft in special checking account at same bank
as normal checking account of $17,000; cash held
in a bond sinking fund $200,000; petty cash fund
$300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated
check from customer $11,000; cash restricted due
to maintaining compensating balance requirement
of $100,000; certified check from customer
$9,800; postage stamps on hand $620.
4. Checking account balance at bank $37,000;
money market balance at mutual fund (has
checking privileges) $48,000; NSF check received
from customer $800.
5. Checking account balance $700,000; cash
restricted for future plant expansion $500,000;
short-term Treasury bills $180,000; cash advance

4. received from customer $900 (not included in
checking ac- count balance); cash advance of
$7,000 to company executive, payable on demand;
refundable de- posit of $26,000 paid to federal
government to guarantee performance on
construction contract.
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.

5. (b) Prepare the journal entry under basis 2,
assuming that Chester Company did not remit
payment until July 29
E7-7 (Recording Bad Debts)
Duncan Company reports the following financial
information before adjustments.
Instructions
D C
Accounts Receivable
$100,000
Allowance for Doubtful Accounts
$2,000
Sales Revenue (all on credit)
900,000
Sales Returns and Allowances 50,000
Prepare the journal entry to record Bad Debt
Expense assuming Duncan Company estimates bad
debts at (a) 1% of net sales and (b) 5% of accounts
receivable.