Ans Doc217Y



5. Identify three taxes commonly withheld by the employer from an employee’s gross pay.

a) What is a convertible bond?
b)Discuss the advantages of a convertible bond from the standpoint of the bondholders and of the issuing corporation.

BE 10-3. Farm Supply does not segregate sales and sales taxes at the time of sale. The register total of March 16 is $11,395. All sales are subject to a 6% sales tax. Compute sales taxes payable and make the entry to record sales taxes payable and sales.

E10-2. On May 15, Gotts Outback Clothiers borrowed some money on a 4 month note provide cash during the slow season of the year. The interest rate on the note was 8%. At the time the note was due, the amount of interest owed was $400.
a) Determine the amount borrowed by Gotts
b) Assume the amount borrowed was $18,500. What was the interest rate if the amount of interest owed was $555?
c) Prepare the entry for the initial borrowing and the repayment for the facts in part a.

P10-6A. You have been presented with the selected information take from the financial statements of Southwest Airlines as shown below.
a) Calculate each of the following rations for 2006 and 2005
1. Current ratio
2. Free cash flow
3. Debt to total assets
4. Times interest earned ratio
b) Comment on the trend in ratios
c) Read the companies notes on leases. If the operating leases had instead been accounted for like a purchase, assets and liabilities would increase by approximately $1,500 million. Recalculate the debt to total assets ratio for 2006 in light of this information and discuss the implication for analysis.

Southwest Airlines
Balance Sheet (partial)
December 31 (in millions)

(2006 ****** 2005)
Total current assets $2601 ***** 3620
Noncurrent assets 10859 ***** 10383
Total Assets 13460 ***** 14003

Current Liabilities 2887 ***** 3848
Long Term Liabilities 4124 ***** 3480
Total liabilities 7011 ***** 7328
Stockholders equity 6449 ***** 6675
Total liabilities and shareholders equity 13460 ***** 14003

Other information:

Net income(loss) $499 ***** 484
Income tax expense 291 ***** 295
Interest expense 128 ***** 122
Cash provided by operations 1406 ***** 2118
Capital expenditures 1399 ***** 1146
Cash Dividends 14 ***** 14
Note 8.Leases: The majority of the Company’s terminal operations space, as well as 84 aircraft, were under operating leases at December 31, 2006. Future minimum lease payments under noncancelable operating leases are as follows: 2007: $360,000 2008: $318,000 2009: $280,000 2010: $250,000 2011: $203,000 after 2011: $1,000,000