Answer and Explanation:
. What would happen if we use the WACC for all projects regardless of risk?
Ans. If we use the WACC for all projects, we might end up favoring risky projects. We could also potentially reject +NPV less risky project. Thus will lead to poor decision making. We must adjust the WACC to accommodate for risk of a project.
. Assume the WACC = 15%
Project Required Return IRR
A 20% 17%
B 15% 18%
C 10% 12%
which project would be accepted if they used the WACC for the discount rate ? explain why .
Ans. Considering WACC of 15%, acceptable projects would be - Project A & B, since these have IRR>WACC.
. which project would be accepted if you use the required return based on the risk of the project ? explain why
Ans. Considering required rate of return given:
Project Required Return IRR
A 20% 17%
B 15% 18%
C 10% 12%
Reject A (since IRR < Required return)
Accept B & C (since IRR > Required return)
Parent Corporation owns 85% of the common stock and 100% of the preferred stock of Subsidiary Corporation. The common stock and preferred stock have adjusted bases of $500,000 and $200,000, respectively, to Parent. Subsidiary adopts a plan of liquidation on July 3 of the current year, when its assets have a $1 million FMV. Liabilities on that date amount to $850,000. On November 9, Subsidiary pays off its creditors and distributes $150,000 to Parent with respect to its preferred stock. No cash remains to be paid to Parent with respect to the remaining $50,000 of its liquidation preference for the preferred stock, or with respect to any of the common stock. In each of Subsidiary’s tax years, less than 10% of its gross income has been passive income. What are the amount and character of Parent’s loss on the preferred stock? The common stock? Partial list of resources is: IRC Secs. 165(g)(3) and 332(a) Reg. Sec. 1.332-2(b) Spaulding Bakeries, Inc., 27 T.C. 684 (1957) H. K. Porter Co., Inc., 87 T.C. 689 (1986)
Answer and Explanation:
Liquidating distribution in the problem are made in accordance to the preferred stock.since the activity may not meet the section 322 requirement,the section 322 rules will not apply to the case cited in the problem.This means parents has to recognize a capital loss of $50,000 on the distribution,the capital loss can only be used to offset capital gains.
Under the section 165(g)(3) rules for affiliated cooperation's worthlessness securities,parents can recognize an ordinary loss of $500,000 on the common stock.The ordinary loss can be sued to offset ordinary income.
Explanation of the losses on Parent's preferred and common stock in a liquidation scenario.
Parent's Loss on Preferred Stock: The loss is calculated as the excess of the adjusted basis of the stock over the amount received upon liquidation. In this case, Parent's loss on the preferred stock would be $50,000.
Parent's Loss on Common Stock: Since the common stock receives distribution only after the creditors and preferred stockholders are paid, and there are no remaining funds, Parent's loss on the common stock would be the adjusted basis of $500,000.
Green Day Corporation has outstanding 411,800 shares of $10 par value common stock. The corporation declares a 10% stock dividend when the fair value of the stock is $74 per share.
Prepare the journal entries for Green Day Corporation for both the date of declaration and the date of distribution.
Explanation:
The journal entries are shown below:
a. Retained earning A/c Dr $3,047,320
To Paid-in capital in excess of par A/c $2635,520
To Common stock dividend distributable A/c $411,800
(Being the date of declaration is recorded)
It is computed below:
For retained earning
= 411,800 shares × $74 × 10%
= $3,047,320
For common stock, it is
= 411,800 shares × $10 × 10%
= $411,800
b. Common stock dividend distributable A/c Dr $411,800
To Common stock A/c $411,800
(Being the date of distribution is recorded)
The purchase of common stock gives the holder (a) rights to residual cash flows (b) access to monthly Board of Director’s meetings (c) rights to a contractually set coupon (d) access to the CEO to assist in decision-making (e) rights to a good job with benefits
Answer:
The answer is option A) The purchase of common stock gives the holder rights to residual cash flows
Explanation:
Common stocks have the advantage of offering a high earning potential. Compared to bonds or certificates of deposit, they provide a better opportunity to make a larger return on investment. These other investments are guaranteed, so you know the minimum and maximum amount that you stand to gain from them.
Common Stock gives the holder rights to residual cash flows and provides the highest rate of return in the long run; more than bonds and cash.
Answer:
The correct option is A,rights to residual cash flows
Explanation:
Residual cash flows in this sense refers to cash left after bondholders interests have paid as well as the preferred shareholders's dividends.
The equity shareholders are the ultimate bearers of risk in a company, hence they are seen as the real owners of corporations in that they queue behind other providers of finance for dividends payments.
Even sometimes, they are instead of receiving cash dividends availed script dividend or stock dividend where additional shares are issued to shareholders in lieu of cash dividend payments.
A study on global CSR conducted during the recent economic downturn discovered all of the following EXCEPT ________.
a. 35 percent of respondents think CSR has become a victim of its own hype
b. 22 percent of respondents think the crisis will have a negative impact on CSR
c. 28 percent of respondents think the real meaning of CSR will change
d. 44 percent of respondents think the crisis will cause CSR to be applied more often
Answer: B) 22 percent of respondents think the crisis will have a negative impact on CSR
Explanation:
Answer:
A. 35% of respondents think CSR has become victim of its own hype
Suppose that many people who earn a living catching fish decide they can make more money selling fruit smoothies and switch occupations. How will this change affect the number of fish supplied by producers? Choose one: A. supply does not change B. supply decreases C. supply increases
Answer: Supply decreases
Explanation:
Supply is the amount of products a manufacturer is willing to sell at a particular price at a given period. If the suppliers of fishes or fishermen believe that they can generate more income selling fruit smoothies and change their jobs, this will have a negative effect on the supply of fish. There is a direct relationship between the producers and the number of fishes supplied.
More producers will lead to more fishes and less producers will lead to less fishes supplied. Since some fishermen have changed jobs, this implies that there is a reduction in producers which will also lead to reduction in supply.
Purchases Transactions Nieman Company purchased merchandise on account from a supplier for $9,600, terms 1/10, n/30. Nieman Company returned $1,500 of the merchandise and received full credit. a. If Nieman Company pays the invoice within the discount period, what is the amount of cash required for the payment
Answer:
trump 2020
Explanation:
Detailing's cost formula for its materials and supplies is $2,060 per month plus $12 per vehicle. For the month of August, the company planned for activity of 86 vehicles, but the actual level of activity was 46 vehicles. The actual materials and supplies for the month was $2,350. The materials and supplies in the planning budget for August would be closest to:
Answer:
Planning budget amount = $3,052.00
Explanation:
The planning budget is als0 known as the fixed budget . It is the budget prepared for the original level of activity intended or planned for. As it's name implies, it is used for planning purpose.
For the month of August, the planning budget
= $2060 + ($12 × 86)
= $3,052.00
Planning budget amount = $3,052.00
Answer:
$3092
Explanation:
The planning budget is the original budget set aside for the production of a planned quantity of goods and services in a company it can also be refered to as the fixed budget of a company
detailed cost formula for materials and supplies = $2060
planned quantity of goods = 86
extra cost per vehicle = $12
Total extra cost for 86 vehicles = 86 * $12 = $1032
hence the materials and supplies in the planning budget would be
= total extra cost + Detailed cost formula for materials and supplies
= $1032 + $2060
= $3092
Wholesale Company began the year with merchandise inventory of $ 9 comma 000 . During the year, Upper Y purchased $ 90 comma 000 of goods and returned $ 6 comma 500 due to damage. Upper Y also paid freight charges of $ 1 comma 200 on inventory purchases. At year-end, Upper Y 's ending merchandise inventory balance stood at $ 17 comma 800 . Assume that Upper Y uses the periodic inventory system. Compute Upper Y 's cost of goods sold for the year.
Answer:
Cost of goods sold is $ 75.900
Explanation:
Cost of goods sold = Opening Inventory + Net Purchases - Closing Inventory
Opening Inventory $ 9,000
Purchases $ 90,000
Less: Purchase returns $( 6,500)
Add: Freight In $ 1,200
Net purchases $ 84,700
Cost of goods available for sale $ 93,700
Less: Closing Inventory $ (17,800)
Cost of goods sold $ 75,900
Upper Y's cost of goods sold for the year is calculated by adding the beginning inventory, net purchases, and freight charges to find the cost of goods available for sale, then subtracting the year-end inventory. The total comes to $75,900.
Explanation:The cost of goods sold for Upper Y can be calculated by first determining the cost of goods available for sale, and then subtracting the ending inventory. The cost of goods available for sale includes the beginning inventory, the cost of goods purchased, and any additional costs incurred for the merchandise.
Firstly, we calculate the net purchases which is the original purchase price subtracting any returns, giving us $90,000 - $6,500 = $83,500.
By adding the value of the net purchases to the merchandise inventory at the beginning of the year and the freight charges, we would get the cost of goods available for sale which is $9,000+ $83,500 + $1,200 = $93,700.
The cost of goods sold is then calculated by subtracting the ending inventory from the cost of goods available for sale, giving us $93,700 - $17,800 = $75,900.
So, Upper Y's cost of goods sold for the year is $75,900.
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Deferred income taxes arise because a. corporations often make errors in their tax estimations. b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders. c. the IRS owes a company a refund from last year. d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax
Answer:
b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders.
As they use a basis for accounting and prepare the financial statement temporary difference arise which, are settled overtime as in the end both, tax basis and accounting basis much get the same income
The most common example is depreciation if a company uses S179 and depreciate the entire of the asset purchase next year, while the accounting will have a depreciation expense associate with the equipment for tax purposes this assets basis is zero as it was completely depreciate thus, it will have a higher income making more tax payable than accounting income tax expense.
Explanation:
a. corporations often make errors in their tax estimations.
While this can occur is not the reason for deferred income taxes
c. the IRS owes a company a refund from last year.
No, the refund will not generate deferrd income tax It will be a receivable for the company.
d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax
While corporations do operate in foreing countries these doesn't necessary generate deferred taxes. Difference arise when the company uses a different method in his accounting than the State to determinate the tax basis.
In addition to marketing life insurance, life insurers typically sell which of the following products? I. Retirement annuities II. Disability income insurance
Answer:
The correct answer is letter "C": both I and II.
Explanation:
Retirement annuities are perpetual payments received by insurance companies as the result of hiring an insurance paid in a lump sum or small payments. Disability income insurance is one hired to provide employees a percentage of their regular salary when they are not working as a result of an illness or disability while still being employed.
Both types of insurances mentioned above are offered by insurance companies offering life insurances.
Each week your supervisor holds a meeting in which he invites you and all the other employees to give feedback regarding current projects. According to path-goal theory, which behavior best describes your supervisor
Answer: Participatory leadership
Explanation:
Participatory leadership was considered a controversial and tedious way to lead the troops. The old view of leadership was the hierarchal which was style based on hierarchy, then participatory leadership was not common.
Overtime, due to problems encountered within the corporate sphere and after the reduction in customers trust, participatory leadership is now more popular. It is the style that encourages employees to give their ideas and inputs in the company's decision making. The staff gives useful information on company issues.
g Crane Company reported net income of $63000 for the year. During the year, accounts receivable decreased by $7600, accounts payable increased by $4100 and depreciation expense of $4700 was recorded. Net cash provided by operating activities for the year is _____
Answer:
$79,400
Explanation:
The Net Cash Provided income can be calculated as follows:
Net income 63000
Depreciation 4700
Expense
Decrease in A/C
receivables 7600 +
Increase in account
payable 4100
Net Cash Provided: 79,400
Winslow Company expects sales of its financial calculators to be $201,000 in the first quarter and $242,000 in the second quarter. Its variable overhead is approximately 18 percent of sales, and fixed overhead costs are $54,000 per quarter. Compute Winslow’s manufacturing overhead budget for the first two quarters.
Answer:
(a) $90,180
(b) $94,560
Explanation:
Given that,
Sales in the first quarter = $201,000
Sales in the second quarter = $242,000
Variable overhead = 18% of sales
Fixed overhead costs = $54,000 per quarter
Budgeted manufacturing overhead for 1st Quarter:
= Variable overhead + Fixed overhead costs
= ($201,000 × 18%) + $54,000
= $36,180 + $54,000
= $90,180
Budgeted manufacturing overhead for 2nd Quarter:
= Variable overhead + Fixed overhead costs
= ($242,000 × 18%) + $54,000
= $43,560 + $51,000
= $94,560
Mutual funds Group of answer choices provide diversification. Shareholders assume all of the risk associated with the mutual fund. provide diversification. Government insurance eliminates the risk of mutual fund shareholders. do not provide diversification. Shareholders assume all of the risk associated with the mutual fund do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders.
Answer:
The correct answer is letter "A": provide diversification. Shareholders assume all of the risk associated with the mutual fund.
Explanation:
Mutual funds are pools of assets that allow small investors to have a diversified portfolio which reduces risks in their investments. Mutual funds are typically managed by professionals who charge a high fee for their services which reduces the investors' net profit.
Even if mutual funds are managed by professionals, it does not guarantee investors will end up with earnings and, in front of losses, investors assume the whole risk.
Which of the following is not an indication of a company environment ripe for unethical behavior? a. compensation incentive system tied only to sales b. employees with few or no personal values c. employees who are independent d. intense competition threatening survival
Option C
employees who are independent is not an indication of a company environment ripe for unethical behavior
Explanation:
In business knowledge, environmental ethics is regarded with a company's efficiency to defend the environment in which it functions. Breaches of basic ethics can harm your business or take your company money due to acts such as claims or deprivation of goods and ideas.
Unethical practices cover not rewarding workers a decent wage, hazardous or unsanitary functioning conditions. Any disciplines that are not in acquiescence with good labor standards and federal manipulation guidelines befall into this category. Providing independence to the employee is not unethical behavior.
Amir buys a Baskin Robbins franchise. He has made a financial commitment and agrees to conduct business in accordance with Baskin Robbins' standard of operations. In exchange, he can expect to receive all of the following from Baskin Robbins EXCEPT:
a.building specifications and designs.
b.site recommendations.
c.free equipment and training.
d.management and accounting support.
e.immediate name recognition.
Answer:
c.free equipment and training.
Explanation:
A franchise is when a company gives another party the right to use its name and brand to do business. The franchisor provides loscence that covers it's procedures, know how, intellectual property, brand, business model, and rights to sell its products.
The franchisor provides expertise which includes site recommendations, name recognition, accounting and management support. To ensure uniformity of brand it also gives building specifications and designs.
Three payments are made by the franchisee to the franchisor:
- Payment for trademark
- Reimbursement for training and advisory services performed
- An agreed part of sales made
In Sheridan Company, the Cutting Department had beginning work in process of 9000 units, transferred out 24600 units, and had an ending work in process of 3500 units. How many units were started by Sheridan during the month?
Answer:
The 21,100 units were started through company during the month
Explanation:
The number of units were started through company during the month is computed as:
Number of units were started = Transferred out units - Ending work in progress units
where
Transferred out units is 24,600
Ending work in progress units is 3,500
Putting the values above:
Number of units were started = 24,600 - 3,500
= 21,100
Therefore, 21,1600 units were started through company during the month.
Note: The beginning work in progress will be considered as number of units in started is computing.
A firm is considering a project that will yield $10,000 per year for 10 years. The required return on this project is 12.05%, compounded monthly. What is the maximum amount that the firm should be willing to invest in the project to accept this project
Final answer:
The maximum amount the firm should be willing to invest in the project is $3,682.75 to accept this project.
Explanation:
The maximum amount that the firm should be willing to invest in the project can be calculated using the present value formula. The formula is PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the required return, and n is the number of periods. In this case, CF is $10,000 per year for 10 years, r is 12.05% compounded monthly, and n is 10.
First, we need to convert the required return to a monthly rate. We divide 12.05% by 12 to get 1.0042% monthly rate. Next, we plug the values into the formula:
PV = $10,000 / (1 + 0.010042)¹²⁰
PV = $10,000 / (2.7136)
PV = $3,682.75
Therefore, the maximum amount the firm should be willing to invest in the project is $3,682.75 to accept this project.
Vargo Company has bonds payable outstanding in the amount of $440,000, and the Premium on Bonds Payable account has a balance of $7,400. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted into preferred stock.Assuming that the book value method was used, what entry would be made?
Explanation:
The journal entry is shown below:
Bond payable $440,000
Premium on bond payable $7,400
To Preferred stock $440,000
To Paid in excess of par - Preferred stock $7,400
(Being the conversion is recorded)
The computation is shown below:
For preferred stock
= $440,000 ÷ $1,000 × 20 shares × $50
= $7,400
Which of the following items appear on a cash budget? 1. Depreciation 2. Bad debt expenses 3. Noncash items not involving cash transfers 4. Cash receipts and disbursements
Answer:
4. Cash receipts and disbursements
Explanation:
The cash budget is the budget which shows a movement of cash that results in an increase and decrease in the balance of the cash.
The cash inflow or cash receipts increase the cash balance so it would be added while the cash outflow or cash disbursements decrease the cash balance.
It only includes the cash receipts and the disbursements
The other options do not come in the cash budget. Hence, ignored it
Cash receipts and disbursements are the items that appear on a cash budget, as it tracks actual cash flows excluding non-cash items like depreciation and bad debt expenses.
The item that appears on a cash budget is cash receipts and disbursements. A cash budget focuses on the actual cash flow of an organization, tracking the inflow and outflow of cash. It does not include depreciation, bad debt expenses, or noncash items because these items do not reflect actual cash transactions. Depreciation is an allocation of the cost of an asset over its useful life and does not involve a cash transfer. Similar to depreciation, bad debt expenses and noncash items affect an organization's profitability on paper, but not its cash holdings.
Yittercorp regularly trades in securities on a national exchange. The company is a widely-held corporation with 600 shareholders and $15 million in assets. Which of the following is true concerning the company’s requirement to report to the SEC?
a)Must file annual and quarterly financial reports
b)Requirement to file depends on the company’s assets and shareholder base.
c)Not required to report information to the SEC.
d)Required to report major business developments and must file annual and quarterly financial reports.
Answer:
The Correct answer is D "Required to report major business developments and must file annual and quarterly financial reports"
Explanation:
SEC expects organizations to fill the Form 10-K for yearly reports while Form 10-Q for their quarterly reports, and report the business advancement, for example, budgetary exchange, mergers, procurement and so forth to them consistently
Answer:
Required to report major business developments and must file annual and quarterly financial reports ( D )
Explanation:
Large companies who regularly trades in securities on a national exchange is required by law under the security and exchange commission to report major business developments and must file annual and quarterly financial reports using form 10-K and form 10-Q made available by the security and exchange commission
The U.S security and exchange commission is an independent government agency charged with the responsibility of regulating financial markets by maintaining fair and efficient market and also protecting investors
Susan participates in a Section 403(b) plan at work that includes loan provisions. Susan has recently enrolled in college and has inquired about the possible consequences of borrowing from the Section 403(b) plan to help pay for her education. As her financial planner, what is your advice to her?
Answer:
Susan qualifies for the loan under section 403(b) plan at work. However, this loan should be well negotiated as regards repayment of the interest elements and the principal.
Explanation:
When a loan is taken up, one has invariably taken up the pledge to repay the Principal component and the Interest element. At the point of funding the loan, a good and favorable interest rate should be well negotiated. As an active employee, the repayment is taken from the monthly pay, after the deduction of statutory tax payment.
It must be advised that Susan should pursue the intention of applying for the loan with utmost faithfulness, as a deviation from this will be frowned upon. Such loan are not to be invested and/or diverted for other purposes.
Susan should properly understand the attending obligation before her - the repayment of principal and interest within the agreed period of time. A default is not advised as this comes with a penalties. The entirety of the loan may be treated as an income, and subsequently taxed in same breath. Plus other penalties.
What practices at Theo Chocolate reflect the concept of sustainability? What does vice president Debra Music mean when she says that Theo is a ""triple bottom line"" company? How is this different from any other company? What does the term fair trade mean to the leaders at Theo? What happens if fair trade goals conflict with a company’s primary responsibility to be profitable?
Answer:
The triple bottom line according to John Elkington in 1994 is an accounting reporting framework which considers three aspects: social, environmental (or ecological) and financial.
Explanation:
What practices at Theo Chocolate reflect the concept of sustainability?
Sustainability according to the proponents of the triple bottom line reporting is to ''take into consideration social and environmental factors and record the company's performance in addition to financial performance.''
In line with above definition, Theo Chocolate reflect the concept of sustainability as because the company utilizes organic beans in the manufacturing of chocolate. Organic beans are socially sustainable because they are health inclined.
What does vice president Debra Music mean when she says that Theo is a ""triple bottom line"" company?
The triple bottom line according to John Elkington in 1994 is an accounting reporting framework which considers three aspects: social, environmental (or ecological) and financial.
Therefore a Triple Bottom Line company like Theo considers social equity, economic, and environmental factors. The phrase, "people, planet, and profit" summarizes the description and meaning of being a triple bottom line company with the goal of TBL being sustainability
How is this different from any other company?
Usually other companies would only report or be concerned about financial performance which is Profit, without considering People or Planet. Such will ignore and not achieve sustainability.
What does the term fair trade mean to the leaders at Theo?
Fair Trade is a way of buying and selling products that makes certain that the people who produce the goods receive a fair price
What happens if fair trade goals conflict with a company’s primary responsibility to be profitable?
Theo chocolate is a triple bottom line - sustainability minded company that will not compromise ethics for profitability, it would prefer to trade fairly and make a loss than to deal unethically and become profitable
Gwen, an independent consultant, traveled to New York City on a business trip. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen's plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day. Gwen may deduct Group of answer choices
Answer:
The deductible expense = $570
Explanation:
First, the question is not complete, the complete question is as follows
Gwen, an independent consultant, traveled to New York City on a business trip. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen's plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day.Gwen was not reimbursed by her employer for any expenses. Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions. Gwen may deduct (after limitations).
Solution
How much is the plane fare $250
How much was spent on means $640 (160 a day x 4 days)
Subtract: 50% of meal costs ($320) 0.5 x 640
Hotel Expense was $1,000 ($250 x 4 days)
The total is $1,570
Subtract 2% of the AGI $1,000 (0.02 x 50,000)
The final deductible expense $570
This means the amount that Gwen can deduct from the expenses for the trip after the limitations as calculated above is $570
Zeibart Company purchases equipment for $225,000 on July 1, 2016, with an estimated useful life of 10 years and expected salvage value of $25,000. Straight-line depreciation is used. On July 1 2020, economic factors cause the fair value of the equipment to decline to $90,000. On this date Zeibart examines the equipment for impairment and estimates $125,000 in future cash inflows related to use of this equipment Is the equipment impaired at July 1, 2020? Explain If the equipment is impaired on July 1, 2020, compute the impairment loss and prepare a jour- nal entry to record the loss
What amount of depreciation expense would Zeibart record for the 12 months from July 1 2020 through June 30, 2021?
Prepare a journal entry to record this depreciation expense. (Hint: Assume no change in salvage value.) Using the financial statement effects template, show how the entries in parts b and c affect Zeibart Company's balance sheet and income statement
Answer:
At July 1, 2020 the equipment is impaired. The impairment loss is $20000
Journal
Impairment loss - Equipment $ 20000 (debit), Accumulated impairment loss $20000 (credit)
Explanation:
Impairment loss is recognized when the Recoverable Value of an asset is less than the Carrying Amount of the of an asset.
Recoverable Value of the Equipment
The Recoverable Value of Equipment is the Higher of :
1. Value in use of the equipment
Value in use is the Present Value of future cash flows to be obtained from the asset (through use and disposal of asset at the end of its useful life).
Zeibart estimates $125000 from use of equipment.Thus Value in use is $125000
2. Fair Value less of disposal
Fair value is the amount obtained on sale of the equipment in an orderly market transaction
Fair Value on July 1 2020 is $90000
Therefore the recoverable amount is $ 125000 (Value in use) which is higher.
Carrying Amount of the Equipment
Carrying Amount of the Equipment is Cost Less Accumulated Depreciation and Previous Impairment losses.
Cost = $225000
Accumulated Depreciation
Depreciation per year = ($225000-$25000)/10 = $20000
Depreciation July 1, 2016 to July 1, 2020 = $20000 × 4 YEARS = $80000
Accumulated depreciation up to July 1, 2020 is thus $80000
Carrying Amount of the Equipment is$145000 ($225000 - $80000)
Impairment Test
Carrying Amount $ 145000 > Recoverable Amount $ 125000
Therefore the equipment is impaired.
Impairment loss is $ 145000 - $1250000 = $ 20000
Bonds payable—record issuance and premium amortization Jessie Co. issued $2 million face amount of 7%, 20-year bonds on April 1, 2016. The bonds pay interest on an annual basis on March 31 each year.
a. Assume that market interest rates were slightly lower than 7% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b. Independent of your answer to part , assume that the proceeds were $2,060,000. Use the horizontal model (or write the journal entry) to show the effect of issuing the bonds.
c.Calculate the interest expense that Jessie Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2016, assuming that the premium of $60,000 is amortized on a straight-line basis.
Answer:
Explanation:
a. If the market rates are lower than 7% stated bond interest rate, bond can be sold at premium. Market interest rates are lesser but present value cash flows from bonds are higher. That is why people will be willing to pay higher price for the bond in order to get a bond with high coupon rates.
b.
Dr Cash 2,060,000
Cr Bonds payable 2,000,000
Cr Premium on bonds payable 60,000
c. Accrued interest = Face value*Coupon rate*Period of interest/12 = 2,000,000*7%*6/12 = 70,000
Premium amortization = 60,000/20*6/12 = 1,500
Dr Interest expense 70,000
Dr Premium on bonds payable 1500
Cr Interest payable 71,500
a. The proceeds from the bond issue would be more than the face amount when market interest rates are lower than the stated interest rate. b. The journal entry to record the issuance of the bonds is: Debit Cash $2,060,000, Credit Bonds Payable $2,000,000, and Credit Premium on Bonds Payable $60,000. c. The interest expense for the fiscal year ended September 30, 2016, is $137,000.
Explanation:a. When market interest rates are lower than the stated interest rate on the bonds, it means that the bonds are more attractive to investors. In this case, the proceeds from the bond issue would be more than the face amount because investors are willing to pay a premium to earn a higher interest rate than the market rate.
b. The journal entry to record the issuance of the bonds would be:
Debit Cash $2,060,000Credit Bonds Payable $2,000,000Credit Premium on Bonds Payable $60,000c. To calculate the interest expense for the fiscal year ended September 30, 2016, we first need to determine the annual interest payment. The annual interest payment is calculated by multiplying the face amount of the bonds by the stated interest rate. In this case, the annual interest payment is $2,000,000 x 7% = $140,000. Since the premium is amortized on a straight-line basis, the amortization expense would be $60,000 / 20 years = $3,000 per year. Therefore, the interest expense for the fiscal year would be $140,000 - $3,000 = $137,000.
A circuit board manufacturer estimates the yearly demand to be 1,000,000. It costs $400 to set up the 3D printer for the circuit board, plus $10 for each one produced. If it costs the company $2 to store a circuit board for a year, how many should be produced at a time and how many production runs will be needed to minimize costs
Answer:
The manufacturer have to produce 20,000 circuit boards per run with 50 production runs
Explanation:
Let x = number of circuit boards to be produced
An average of x/2 circuit boards are stored throughout the year at a cost of $2 each;
so annual storage cost = x/2*2 = x
Note: it costs $10 each to produce x circuit boards and $400 to set up
Therefore, The cost per run = 10x + 400
The 1,000,000 circuit boards at x circuit board per run would require 1000000/x runs.
Therefore, production costs = cost per run * production run
production costs = (10x + 400)*(1000000/x) = 10,000,000 + 400,000,000/x
Total cost C = storage cost + production cost
C = x + 10,000,000 + 400,000,000/x
Set c to zero and differentiate c with respect to x
0=1+0-400,000,000/x²
Therefore x = 20,000
Number of circuit boards that should be produced to minimize cost is 20,000
While the production runs needed = 1,000,000/x = 1,000,000/20,000= 50
The manufacturer have to produce 20,000 circuit boards per run with 50 production runs
Answer:
The Question here is about Minimizing Inventory Costs. It is a topic treated under the Supply Chain Management. It is a concept very crucial to the work of Supply Chain Managers, Operations Managers as well as Accounting and Finance professionals who are tasked with minimizing cost whilst maximizing profit.
Inventory costs may be reduced by:
• Avoid Minimum Order Quantities
• Know Your Reorder Point.
• Organize Your Warehouse.
• Get Rid of Obsolete Stock.
• Implement a Just-in-Time Inventory System.
• Use Consignment Inventory.
• Reduce Your Lead Time.
• Monitor KPIs
The minimum inventory cost according to the factors given in the question above is:
See how we got there below:
Explanation:
Step 1
Number of Circuit Boards expected to be sold in a year = 1,000,000
Cost of each Circuit Board = $10
Cost of Setting up the 3D printer = $400
Cost of Storage for each Circuit board = $2
Step 2
Let
x = the number of circuit boards in each run
Storage Costs as in the question, an average of ([tex]\frac{X}{2}[/tex]) circuit boards are stored throughout the year, at a cost of $2 each, so annual storage costs are
Storage Costs = [tex]\frac{X}{2}[/tex]* 2 = x
Therefore Storage Costs = x
Production Costs The cost per run is given below:
Cost Per Run = (10x + 400) this is x Circuit Boards at $10 each, plus $400 set up costs
The 1,000,000 circuit boards at x circuit boards per run = [tex]\frac{1,000,000}{X}[/tex]
Therefore production costs are:
(Production Cost ) = (10x + 400) * ([tex]\frac{1,000,000}{X}[/tex])
The above expression is cost per run multiplied by number of runs
Total cost The total cost is storage cost plus production cost:
C(x) = x + (10x +400) (1,000,000/x)
Opening up the brackets we have
> C(x) = x + 10,000,000 + (40,000,000/x)
Step 3
For minimum cost the first derivative of the cost function will be equal to 0. Hence differentiating C(x) respect to x and equating to 0 gives:
C'(x) = x + [tex]\frac{40000000}{X}[/tex] + 10,000,000 = 0
First Derivative =
1 - (40,000,000/[tex]X^{2}[/tex]) = 0
1 = [tex]X^{2}[/tex]/40,000,000
[tex]X^{2}[/tex] = 40,000,000
X = [tex]\sqrt{40,000,000}[/tex]
X = 6324.55532034
X is approximately equal to 6,325
So by the second derivative test,
C'' (X) = [tex]\frac{80,000,000}{X^{3} }[/tex] > 0
= 430.886938006 or approximately 431
Therefore
Now for the cost the total number of orders placed at a time will be
= [tex]\frac{6,325}{431}[/tex]
= 14.6751740139 or approximately 15
Step 4
Therefore for minimizing inventory cost, the order size should be 431 Circuit Boards per order, ordered 15 times in a year.
Cheers!
Johnson and Gomez, Inc. is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation.
During the past 15 months, a new product has been under development that allows users improved access to e-mail and video images. Johnson and Gomez code named the product the Wireless Wizard and has been quietly designing two models: Basic and Enhanced. Development costs have amounted to $183,000 and $264,000, respectively. The total market demand for each model is expected to be 41,000 units, and management anticipates being able to obtain the following market shares: Basic, 20 percent; Enhanced, 15 percent. Forecasted data follow.
Basic Enhanced
Projected Selling Price $350.00 $450.00
Per-unit productions costs:
Direct material 43.00 69.00
Direct labor 23.00 31.00
Variable overhead 37.00 49.00
Marketing and advertising (fixed but avoidable) 196,000 305,000
Sales commissions* 15% 10%
*Computed on the basis of sales dollars.
Since the start of development work on the Wireless Wizard, advances in technology have altered the market somewhat, and management now believes that the company can introduce only one of the two models. Consultants confirmed this fact not too long ago, with Johnson and Gomez paying $35,000 for an in-depth market study. Sales salaries (excluding commission) will be $88,000 no matter which product is sold. The marketing and advertising costs indicated for each product are incurred only if that product is sold. Other fixed overhead is expected to be the same, regardless of which product is introduced.
Compute the unit contribution margin for both models.
Answer:
$158 and $200
Explanation:
Stella deposits $5,000 in a savings account at a bank that offers interest of 5.5% on such accounts. What is the value of the money in her savings account in one year's time
Answer:
Value of money in her saving account in one year = $5275.
Explanation:
As we know that :
P= $5000
i= 5.5%
n=number of years
Simple interest = Principal * interest rate * number of years
= P * i * n
= 5000 * .055 * 1
Simple interest = $ 275
Total = Principle + interest
= $5000+275
= $5275
After one year, Stella's savings account will become worth a total of $5,275 due to the interest accrued over the year.
Explanation:The money Stella deposited in her savings account amounts to $5,000, and the bank offers a yearly interest rate of 5.5%. To calculate the total value of the savings account after one year, we first calculate the interest, which is the product of the principal amount ($5,000), the interest rate (5.5%), and the time in years (1). This comes out to be $5,000 * 5.5/100 * 1 = $275.
Then, the total value of money in the savings account after one year would be the initial deposit amount plus the interest, which would be $5,000 + $275 = $5,275. Therefore, after a year, Stella's savings account would be valued at $5,275.
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Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Reference: Ref 9-18 (Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to:
A. $80,000.
B. $184,500.
C. $100,000.
D. $204,500.
Betty's implicit and explicit costs are equal to
D. $204,500.
Explanation:
Betty runs a cookie shop where she sells cookies for $1 each. She employs five people, each of whom worked a total of 500 hours last year; she paid them $10 per hour. Her costs of equipment and raw materials add up to $75,000. Her business ability is legendary, and other companies have offered to pay Betty $100,000 to come to work for them. She also knows she could sell her cookie shop for $150,000. The bank in town pays an annual interest rate of 3% on all funds deposited with it. Reference: Ref 9-18 (Scenario: Betty's Cookie Shop) Betty's implicit and explicit costs are equal to:D. $204,500.