Buy the full version to view expert answers 1. On January 1, 2008, Capitech Corporation acquired Logirun, Inc. as a long-term investment for $250,000 (a 30 percent common stock interest in Logirun). On that date, Logirun had net assets with a book value and current market value of $800,000. During 2008, Logirun reported net income of $90,000 and declared and paid cash dividends of $20,000. What is the maximum amount of income that Capitech should report from this investment for 2008? A. $6,000 B. $21,000 C. $26,750 D. $27,000 For each situation listed in questions 2–3, indicate by letter the appropriate accounting assumption being discussed. 2. When preparing the financial statements for MacNeil & Sons, the accountant included certain personal assets of MacNeil and his sons in preparing the statements. A. Stable monetary units B. Specific economic entity C. Going concern D. Arm’s-length transactions 3. The operations of Uintah Savings and Loan are being evaluated by the federal government. During their investigations, government officials have determined that numerous loans made by top management were unwise and have seriously endangered the future of the savings and loan. A. Stable monetary units B. Specific economic entity C. Going concern D. Arm’s-length transactions Answers 1. D. $27,000 2. B. Specific economic entity 3. C. Going concern Buy the full version to view expert answers 1. On October 1, Dennis Company purchased $200,000 face value 12 percent bonds for 98 plus accrued interest and brokerage fees and classified them as held-to-maturity securities. Interest is paid semiannually on January 1 and July 1. Brokerage fees for this transaction were $700. At what amount should this acquisition of bonds be recorded? A. $196,000 B. $196,700 C. $202,000 D. $202,700 2. All payments out of petty cash are debited to miscellaneous expense. A. Materiality B. Representational faithfulness C. Economic entity D. Historical cost 3. Periodic payments of $1,500 per month for services of H. Hay, who is the sole proprietor of the company, are reported as withdrawals. A. Materiality B. Representational faithfulness C. Economic entity D. Historical cost Answers 1. B. $196,700 2. A. Materiality 3. C. Economic entity Buy the full version to view expert answers 1. Investments in equity securities are initially recorded at cost. A. Materiality B. Representational faithfulness C. Economic entity D. Historical cost 2. A note describing the company’s possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date. A. Materiality B. Representational faithfulness C. Economic entity D. Historical cost 3. In March of 2007, Moon Corp. bought 45,000 shares of McMahon Corp.’s listed stock for $450,000 and classified the shares as available-for-sale securities. The market value of these shares had declined to ...

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1. On January 1, 2008, Capitech Corporation acquired Logirun,
Inc. as a long-term investment for $250,000 (a 30 percent
common stock interest in Logirun). On that date, Logirun had
net assets with a book value and current market value of
$800,000. During 2008, Logirun reported net income of $90,000
and declared and paid cash dividends of $20,000. What is the
maximum amount of income that Capitech should report from
this investment for 2008?
A. $6,000
B. $21,000
C. $26,750
D. $27,000
For each situation listed in questions 2–3, indicate by letter the
appropriate accounting assumption being discussed.
2. When preparing the financial statements for MacNeil & Sons,
the accountant included certain personal assets of MacNeil and
his sons in preparing the statements.
A. Stable monetary units
B. Specific economic entity
C. Going concern

2. D. Arm’s-length transactions
3. The operations of Uintah Savings and Loan are being
evaluated by the federal government.
During their investigations, government officials have
determined that numerous loans made by top management were
unwise and have seriously endangered the future of the savings
and loan.
A. Stable monetary units
B. Specific economic entity
C. Going concern
D. Arm’s-length transactions
Answers
1. D. $27,000
2. B. Specific economic entity
3. C. Going concern
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1. On October 1, Dennis Company purchased $200,000 face
value 12 percent bonds for 98 plus accrued interest and
brokerage fees and classified them as held-to-maturity
securities. Interest is paid semiannually on January 1 and July
1. Brokerage fees for this transaction were $700.
At what amount should this acquisition of bonds be recorded?
A. $196,000

3. B. $196,700
C. $202,000
D. $202,700
2. All payments out of petty cash are debited to miscellaneous
expense.
A. Materiality
B. Representational faithfulness
C. Economic entity
D. Historical cost
3. Periodic payments of $1,500 per month for services of H.
Hay, who is the sole proprietor of the company, are reported as
withdrawals.
A. Materiality
B. Representational faithfulness
C. Economic entity
D. Historical cost
Answers

4. 1. B. $196,700
2. A. Materiality
3. C. Economic entity
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1. Investments in equity securities are initially recorded at cost.
A. Materiality
B. Representational faithfulness
C. Economic entity
D. Historical cost
2. A note describing the company’s possible liability in a
lawsuit is included with the financial statements even though no
formal liability exists at the balance sheet date.
A. Materiality
B. Representational faithfulness

5. C. Economic entity
D. Historical cost
3. In March of 2007, Moon Corp. bought 45,000 shares of
McMahon Corp.’s listed stock for
$450,000 and classified the shares as available-for-sale
securities. The market value of these shares had declined to
$300,000 by December 31, 2007. Moon changed the
classification of these shares to trading securities in June of
2008 when the market value of this investment in McMahon’s
stock had risen to $345,000. How much should Moon include as
a loss on transfer of securities in its determination of net
income for 2008?
A. $0
B. $45,000
C. $105,000
D. $150,000
Answers
1. D. Historical cost
2. B. Representational faithfulness
3. C. $105,000
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1. Walsh, Inc. began business on January 1, 2007, and at

6. December 31, 2007, Walsh had the following investment
portfolios of equity securities:
Trading
Available-For-Sale
Aggregate cost
$150,000
$225,000
Aggregate market value
120,000
185,000
None of the declines is judged to be other than temporary.
Unrealized losses at
December 31, 2007, should be recorded with corresponding
charges against
Income
Stockholders’ Equity
A. $70,000
$0
B. $40,000
$30,000
C. $30,000
$40,000
D. $0 $70,000
2. Martin Co. purchased the following portfolio of trading

7. securities during 2007 and reported the following balances at
December 31, 2007. No sales occurred during 2007. All declines
are considered to be temporary.
Security
Cost
Market Value at 12/31/2007
X
$ 80,000
$ 82,000
Y
140,000
132,000
Z
32,000
28,000
The carrying value of the portfolio at December 31, 2007, on
Martin Co.’s balance sheet would be
A. $222,000.
B. $240,000.
C. $242,000.
D. $252,000.
3. An increase in net assets through the issuance of stock

8. A. Investment by owners
B. Distributions to owners
C. Owners’ equity
D. Revenues
Answers
1. C. $30,000
$40,000
2. C. $242,000.
3. A. Investment by owners
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Time Value of Money
Resource: Ch. 12, 12-A, & 12-C of Health Care Finance
Part I: Complete the following table by inserting your responses
to the questions. Cite any sources you use.
Part II: Complete the following table by calculating the ratios.
Answers
Define the time value of money.
AS the worth of money which is received after some specific
period can not be equal to the worth of money today, therefore
the time value of money concept is used to determine the
present value of future cash flows or to find future value of
present cash flows at a specified rate.
Provide a real-world example for the time value of money.
Jean will receive $8,500 per year for the next 15 years from her
trust. If a 7% interest rate is applied, what is the current value
of the future payments

9. Present value of annuity formula = PMT x (1-(1/1+r^n)/r)
Pv OF ANNUITY = 8500 *1-1/1.07^15/.07 = 8500*9.108 =
77417
Why is time such an important factor in financial matters?
If you receive cash today and if it is received in future, it has
different values. The 100000 received after one year is not
equal to today’s 100000 due to discount rate, which can be
inflation rate or interest rate. To decide which option is better
either to receive cash today or in future, depends on the worth
of future payment than today’s payment. If present value or
worth of future payment is more than today’s payment it should
be accepted otherwise today’s cash is better than future
payments.
How would you use the time value of money to your financial
benefit?
When some money is put into retirement benefit plan at some
specific rate of interest, what amount will be reeived at the time
of retirement is calculated by using time value of money.
Present Value
Amount
Compounding period
Rate of interest
Present value
$100,000
Annual
6% for 10 years
55839.47
$70,000
Annual
4% for 15 years
38868.52

10. Internal Rate of Return
Initial cost of investment
Periods of useful life
Estimated annual net cash inflow generated
Look-up table value
Rate of interest
$75,000
10
$10,190
7.36
6%
$56,000
6
$12,115
4.62
8%
Payback Period: Assume there are no income taxes for both
scenarios.
Purchase price of equipment
Period of useful life
Annual revenue generated per year
Operating costs associated with revenue
Depreciation expense per year
Payback period result
$550,000
10 years
$100,000
$32,000
$55,000
8.09 years
$350,000
10 years
$80,500
$36,000

11. $35,000
7.87 years