Answer and Explanation:
The Journal entry is shown below:-
Cash Dr, $1,800
Inventory Dr, $3,600
Land Dr, $6,600
To Notes payable $3,800
To Krug's Capital $8,200
(Being Krug’s investment is recorded)
Therefore to record the
Here the assets are increasing so we debited the cash, inventory and land while the liabilities and stakeholder equity also increase so we credited the notes payable and Krug's capital.
The WACC is a weighted average of the cost of debt, preferred stock, and common equity. Would the WACC be different if the equity for the coming year came solely in the form of retained earnings versus some equity from the sale of new common stock? Would the calculated WACC depend in any way on the size of the capital budget? How might dividend policy affect the WACC?
Answer:
The answer is:
Question 1: WACC will be lower if the equity came solely from retained earnings.
Question 2: Yes, WACC depends on the size of the capital budget
Question 3: Dividend policy affects WACC. The The higher the firm’s dividend payout, the smaller the addition to retained earnings and this will make the WACC higher
Explanation:
Weighted Average Cost of Capital (WACC) is the rate at which a company will pay for raising finances. Company raises money issuance of new shares, issuance of note or bonds(debts). The WACC is also the same as Cost of Capital.
Question 1: WACC are going to be different if the equity for the approaching year came solely from retained earnings. WACC are going to be lower if equity comes solely from retained earnings because the price of retained earnings is zero or smaller than if new equity is issued.
Question 2: WACC does rely on the dimensions of the capital budget. If usage of retained earnings is above new equity, WACC will decrease and vice-versa.
Question 3. Dividend policy affects WACC. If a firm’s dividend payout is high, there will be smaller addition to retained earnings and this will make the WACC to increase and vice-versa
The WCU maintenance department used 850 brackets during the course of a year. The brackets are purchased from a supplier in Asheville. These brackets cost $10 apiece to purchase. The inventory holding coat as a percentage of cost that WCU uses for their accountants is 13%. Based on the number of orders that are placed each year, the cost of placing an order is $21. The supplier can get the brackets to WCU 3 days after receiving the order. The maintenance department operates 250 days per year. Determine: 1) how many brackets should be ordered when WCU places an order with their supplier, and, 2) how many brackets do they have when they should place a new order with the supplier.
Answer:
a. 166 units should be ordererd of brackets
b. They have when they should place a new order with the supplier 10 brackets
Explanation:
According to the given data we have the following:
Annual Demand= 850 brackets
Buying cost=$10
carrying cost=13%×$10=$1.30
ordering cost per order=$21
a. To calculate how many brackets should be ordered when WCU places an order with their supplier we have to calculate the EOQ as follows:
EOQ=√2AO
C
EOQ=√2×850×21
1-30
EOQ=166 Units
166 units should be ordererd of brackets
b. To calculate how many brackets do they have when they should place a new order with the supplier we would habe to make the following calculation:
Reorder point=Annual Demand × lead time
working days in year
Reorder point=850 × 3
250
=10 brackets
They have when they should place a new order with the supplier 10 brackets
In its first month of operations, Multiplex Corporation purchased 40,000 pounds of material for $3.40 per pound. The company used 38,000 pounds of the material to produce 18,000 units of its only product. Multiplex uses a standard cost system and its standard quantity and price per unit are 2 pounds at $3.50 per pound. What was the material efficiency variance for the month
Answer:
$7,000 Unfavorable
Explanation:
data provided
Material in units = 18,000
Price per unit = 2
Actual hours = 38,000
Selling price = $3.50
The computation of material efficiency variance is shown below:-
Materials efficiency variance = (Standard hours - Actual hours) × Selling price
= (18,000 × 2 - 38,000) × $3.50
= $7,000 Unfavorable
Therefore for computing the material efficiency variance we simply applied the above formula.
Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $190,000 and would have a ten-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $28,000 per year to operate and maintain, but would save $60,000 per year in labor and other costs. The old machine can be sold now for scrap for $19,000.
The simple rate of return on the new machine is closest to (Ignore income taxes.):
Answer:
The simple rate of return is closest to 87.1%
Explanation:
To calculate the rate of return, we will determine first determine the net return on investment on the machine after 10 years as follows:
cost of maintenance per year = $28,000
cost of maintenance for 10 years (expenditure) = 28,000 × 10 = $280,000
Labor savings per year = $60,000
Labor savings for 10 years ( income) = 60,000 × 10 = $600,000
Net income after 10 years = Total income - total expenditure
= 600,000 - 280,000 = $320,000
Next, we will determine the cost of investment as shown below:
cost of new machine = $190,000
scrap value of old machine = $19,000
Net cost of machine = 190,000 - 19,000 = $171,000
Therefore, the net return on investment is calculated as:
Net return on investment = Net income - cost of machine
= 320,000 - 171,000 = $149,000
Finally the rate of return in percentage, is calculated as follows:
rate of return = [(Net return on investment) ÷ (cost of investment) ] × 100
= ( 149,000 ÷ 171,000 ) × 100 = 87.1% (to 1 decimal place).
Layton Company purchased tool sharpening equipment on October 1 for $29,160. The equipment was expected to have a useful life of three years or 3,780 operating hours, and a residual value of $810. The equipment was used for 700 hours during Year 1, 1,300 hours in Year 2, 1,100 hours in Year 3, and 680 hours in Year 4.
Answer:
Straight-line method
December 31, 2012: $9,450 x 3/12 = $2,362.5
December 31, 2013: $9,450
December 31, 2014: $9,450
December 31, 2015: $9,450 x 9/12 = $7,087.5
Unit-of-production method:
December 31, 2012: 700 hours x 7.5* = $5,250
December 31, 2013: 1,300 hours x 7.5 = $9,750
December 31, 2014: 1,100 hours x 7.5 = $8,250
December 31, 2015: 680 hours x 7.5 = $5,100
7.5*: ($29,160 - $810) / 3,780 operating hours
Double declining method:
December 31, 2012: $29,160 x 2/3 x 3/12= $4,860
December 31, 2013: ($29,160 - $4,860) x 2/3 = $16,200
December 31, 2014: ($29,160 - $4,860 - $16,200) x 2/3 = $5,400
December 31, 2015: ($29,160 - $4,860 - $16,200 - $5,400) x 2/3 x 9/12 = $1,350
Explanation:
Requirement of the question: Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, 2014, and 2015, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method.
(a) Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($29,160 - $810) / 3 years = $9,450 yearly depreciation expense.
(b)The unit-of-production method is used when the asset value closely relates to the units of output it is able to produce. It is expressed with the formula below:
(Original Cost - Salvage value) / Estimated production capacity x Units/year
(c) The double-declining method is otherwise known as the reducing balance method and is given by the formula below:
Double declining method = 2 X SLDP X BV
SLDP = straight-line depreciation percentage
BV = Book value
SLDP is 100%/3 years = 33.33%, then 33.33% multiplied by 2 to give 66.67% or simply 2/3
On July 31, 2020, Novak Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction begun immediately and was completed on November 1, 2020. To help finance construction, on July 31 Novak issued a $326,400, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31. $217,400 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Novak made a final $109,000 payment to Minsk. Other than the note to the Netherlands, Novak’s only outstanding liability at December 31, 2020, is a $31,400, 8%, 6-year note payable, dated January 1, 2017, on which interest is payable each December 31.
Calculate the interest revenue, weighted-average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2020.
Answer:
weighted expenditures 54,350
avoidable interest 6,522
capitalized interest 6,522
interest revenue 2,725
Total Interest expense 12,310
Explanation:
217,400 paid to Misk and capitalized until Nov 1st:
August, September, October: 3 months
217,400 x 3/12 = 54,350 weighted expenditures
We apply to this the specific borrowing rate:
54,350 x 12% = 6,522
Interest revenue
amount invested: 326,400 - 217,400 = 109,000
at 10% for a period of 3 month:
109,000 x 10% x 3/12 = 2,725
Interest expense:
326,400 x 12% x 5/12 = 16,320
31,400 x 8% x full-year = 2,512
avoidable interest (6,522)
Total Interest expense 12,310
Common-Sized Income Statement Revenue and expense data for the current calendar year for Lyons Electronics Company and for the electronics industry are as follows. Lyons Electronics Company data are expressed in dollars. The electronics industry averages are expressed in percentages. Lyons Electronics Company Electronics Industry Average Sales $ 7,500,000 100 % Cost of goods sold (4,125,000) (61.0) Gross profit $3,375,000 39.0 % Selling expenses $(2,250,000) (23.0) % Administrative expenses (525,000) (10.0) Total operating expenses $(2,775,000) (33.0) % Operating income $600,000 6.0 % Other revenue and expense: Other revenue 30,000 3.0 Other expense $(7,500) (1.0) Income before income tax $ 622,500 8.0 % Income tax (187,500) (2.5) Net income $435,000 5.5 % a. Prepare a common-sized income statement comparing the results of operations for Lyons Electronics Company with the industry average. If required, round percentages to one decimal place.
Answer:
Explanation:
In common sized income statement , each line item is expressed as a percentage of sales turnover and compared to the percentage industry standard for analysis purpose.
Lyon % Industry %
Revenue 7,500,000 100 100
Cost of goods (4,125,000) 55 61
Gross profit 3,375,000 45 39
Selling expenses (2,250,000) 30 23
Admin Expenses (525,000) 7 10
Total Operating Exp (2,775,000) 37 33
Operating income 600,000 8 6
Other revenue 30,000 0.4 3
Other expenses (7500) 0.1 1
Income before tax 622,500 8.3 8
Income Tax 187,500 2.5 2.5
Net Income 435,000 5.8 5.5
Your answer is partially correct. Try again. Tabares Corporation had these transactions during 2019. Indicate whether each transaction is an operating activity, investing activity, financing activity, or noncash investing and financing activity. (a) Issued $50,000 par value common stock for cash. (b) Purchased a machine for $30,000, giving a long-term note in exchange. (c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. (d) Declared and paid a cash dividend of $18,000. (e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. (f) Collected $16,000 from sale of goods. (g) Paid $18,000 to suppliers. Click if you would like to Show Work for this question: Open Show Work
Answer:
(a) Issued $50,000 par value common stock for cash. - Financing activity
(b) Purchased a machine for $30,000, giving a long-term note in exchange. - noncash investing and financing activity
(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. - Financing activity
(d) Declared and paid a cash dividend of $18,000. - Financing activity
(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. - Investing activity
(f) Collected $16,000 from sale of goods. - Operating activity
(g) Paid $18,000 to suppliers - Operating activity
Explanation:
The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.
The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.
The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.
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Beerbo purchased a patent from Mitter Lite Co. for $1,000,000 on January 1, 2018. At that time, the patent's useful life was 10 years, expiring on December 31, 2027. In early 2020, Beerbo determined that the economic benefits of the patent would not last longer than 4 more years (6 years from the date of acquisition). Given the revised useful life, Beerbo expects the useful life of the patent to expire on December 31, . (Input year; e.g. "2020") At the end of 2019 / beginning of 2020, what was the value / net book value of the patent in Beerbo's books
Answer:
Given the revised useful life, Beerbo expects the useful life of the patent to expire on December 31, 2024 .
Book Value at the end of 2019 / beginning of 2020 = $666,667
Explanation:
In the Books Of Beerbo
Given
Cost of Patent= $ 1000,000
Useful Life = 10 years
In early 2020, Beerbo determined that the economic benefits of the patent would not last longer than 4 more years.
So the useful life of the patent will expire on December 31,2024.
As Beerbo estimated the useful life of the patent to be 6 years instead of 10 years so amortizing the patent accordingly would given
Amortization for 1 year = Cost/ Useful life= $ 1000,000/6= $ 166666.67
Amortization for 2 years=$ 166666.67*2= $ 333,333
Book Value at the end of 2019 / beginning of 2020= Cost - Amortization= $ 1000,000-$ 333,333= $666,667
The logistics/supply chain network transformation team _____________________________. a. must be aware of the firm's overall business and corporate strategies and the supply chain in which it participates. b. will not consider the potential involvement of third-party logistics suppliers as part of their responsibilities. c. includes workers from divisional levels only. d. should not include outside consultants.
Answer:
a. must be aware of the firm's overall business and corporate strategies and the supply chain in which it participates.
Explanation:
A logistics/supply chain network transformation team should not only be knowledgeable about the specifics of the supply chain of the firm, but also about the firm's overal business strategy, in order to devise its own logistics/supply chain network transormation strategy, that is coherent with the general corporate strategy, and that improves upon it at the same time.
The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $ 15 comma 000 comma 000 bond issuance, the Electric Mixer Division used $ 9 comma 300 comma 000 and the Electric Lamp Division used $ 5 comma 700 comma 000 for expansion. Interest costs on the bond totaled $ 1 comma 000 comma 000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
Answer:
Amount allocated = $620,000
Explanation:
As per the data given in the question,
Bond issuance = $15,000,000
Electric mixer division used = $9,300,000
Electric lamp division used = $5,700,000
Interest cost on the bond = $1,000,000
Electric mixer division = Electric mixer division used ÷ Bond issuance
= $9,300,000 ÷ $15,000,000
=0.62
So, Allocated interest expense = Interest cost on the bond × Electric mixer division
= $1,000,000 × 0.62
= $620,000
Opal Production Company uses a standard costing system. The following information pertains to the current year: Actual factory overhead costs ($15,000 is fixed) $50,000 Actual direct labor costs (10,000 hours) $130,000 Standard direct labor for 6,000 units: Standard hours allowed 9,500 hours Labor rate $10.00 The factory overhead rate is based on an activity level of 12,000 hours. Standard cost data on an activity level of 12,000 hours is as follows: Variable factory overhead $18,000 Fixed factory overhead 12,000 Total factory overhead $30,000 What is the variable overhead efficiency variance for Opal Production Company?
Answer:
$750 Unfavorable
Explanation:
The calculation of variable overhead efficiency variance is shown below:-
Variable overhead efficiency variance = (Actual direct labor hours - Standard hours allowed) × (Variable factory overhead ÷ Factory overhead rate)
= (10,000 hours - 9,500 hours) × ($18000 ÷ 12000)
= 500 hours × $1.5
= $750 Unfavorable
Therefore for computing the variable overhead efficiency variance we simply applied the above formula.
Vasco Company purchased equipment on January 1, 2001 at a purchase price of $50,000. Vasco paid $2,500 in shipping costs on the new machine and $500 on insurance on the new machine while in transit. Vasco has determined that the sum-of-the-years digits method is the appropriate depreciation method and estimates the useful life of the equipment to be 6 years and the residual value to be $5,000. On January 1, 2003, the estimate of the useful life was changed to be a total of 10 years, and the estimate of residual value was changed to $1,000. Determine the amount of depreciation expense
Answer:
The amount of depreciation expense is $3,871.86.
Explanation:
Sum-of-the-years digits method is determined by: (Remaining useful life/Sum of the years' digits) x Depreciable cost.
Depreciable cost = Cost - Salvage value
Depreciable cost = $50,000 + $2,500 - $5,000 = $47,500
Insurance premium is usually for a period of 1 year. This will be treated as prepayment instead of being added to the cost of the equipment. Shipping cost is added based on the recommendation of IAS 16 Property, Plant and Equipment.
Depreciation expense = 6/21 x $47,500 = $13,571.43 for Year 2001
Depreciation expense = 5/21 x $47,500 = $11,309.52 for Year 2002
As at December 2002, the accumulated depreciation will be $13,571.43 + $11,309.52 = $24,880.95; so, net book value is $52,500 - $24,880.95 = $27,619.05.
Change in estimate: 8/55 x $27,619.05 - $1,000 = $3,871.86.
55 = 10+9+8+7+6+5+4+3+2+1
Monthly sales are $530,000. Warranty costs are estimated at 5% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to: A. Sales for $26,500. B. Warranty Expense for $26,500. C. Estimated Warranty Payable for $26,500. D. Inventory for $26,500.
Answer:
C. Estimated warranty payable for $26,500.
Explanation:
The monthly sales are $530,000 and the warranty costs are 5% of monthly sales,
Therefore, Warranty costs will be = $530,000*5% = $26,500.
Now, we know that no defective products were returned during the current month, hence the other options in the questions are discarded and Estimated warranty payable is taken at the month end.
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Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state). a. What would be the call option hedge ratio for each of the following exercise prices: $120, $104, $93, $80, given the possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state)?
Answer:
Exercise prices (Hedge ratio): $120 (0.000), $104 (0.400), $93 (0.675), $80 (1.000).
Explanation:
Upper state (uS0) = 120
Down State (dS0) = 80
Difference = 40
Exercise Price($) Hedge Ratio
120 120-120/40 = 0/40 = 0.000
104 120-104/40 = 16/40 = 0.400
93 120-93 = 27/40 = 0.675
80 120-80/40 = 40/40 = 1.000
As the option becomes more in the money, the hedge ratio increases to a maximum of 1.0.
Final answer:
Hedge ratios for call options with exercise prices of $120, $104, $93, and $80 are 0, 0.4, 0.675, and 1, respectively, when the stock price can either go up to $120 or down to $80.
Explanation:
When determining the hedge ratio for call options, one can establish the number of shares to hold for hedging one call option. The hedge ratio can be calculated using the change in option payoff against the change in stock price in each state.
Calculating Hedge Ratios
For a call option with exercise prices of $120, $104, $93, and $80, the possible up state ($uS_0$) is $120, and the down state ($dS_0$) is $80.Exercise price at $120: The call option payoff is $0 in both up and down states (since the stock price is equal to the exercise price in the up state and lower in the down state), resulting in a hedge ratio of 0.Exercise price at $104: The call option payoffs are $16 in the up state (120 - 104) and $0 in the down state. The hedge ratio is therefore (16 - 0) / (120 - 80) = 0.4.Exercise price at $93: Payoffs are $27 in the up state and $0 in the down state. The hedge ratio is (27 - 0) / (120 - 80) = 0.675.Exercise price at $80: Payoffs are $40 in the up state and $0 in the down state, giving a hedge ratio of (40 - 0) / (120 - 80) = 1.The hedge ratio provides the proportion of shares needed to hedge against the price movement of one call option.
Two projects are presented to the project selection committee. Project A will cost $250,000 to implement and is expected to have annual net cash flows of $75,000. Project B will cost $150,000 to implement and should generate annual net cash flows of $52,000. Using the payback period method which project is better? Show your work or no credit will be given.
Answer: Project B at 2.88 years
Explanation:
The Payback period analyses the viability of a project by measuring how long it will take to pay back the initial outlay.
In the case of a constant inflow, it can be calculated by simply dividing the initial outlay by the constant inflow to find out how long it will take to reach that Outflow.
Project A will cost $250,000 and bring in $75,000 a year.
= 250,000/75,000
= 3.33 years
Project B will cost $150,000 and bring in 52,000 a year.
= 150,000/52,000
= 2.88 years
Project B takes the shorter time to repay it's initial cost/outlay so it is the better project out of the 2.
A particular product line is most likely to be dropped when: Group of answer choices its total fixed costs are more than its contribution margin. its variable costs are more than its fixed costs. its variable costs are equal to the square root of fixed costs less the wages of the factory security personnel its avoidable fixed costs are more than its contribution margin. its unavoidable fixed costs are more than its contribution margin.
Answer:
A particular product line is most likely to be dropped when:
its total fixed costs are more than its contribution marginits variable costs are more than its fixed costsits unavoidable fixed costs are more than its contribution margin.Explanation:
The aim of every producer is to maximize profit and to make this possible, the cost of producing a particular product should fall below the contribution margin.
In the case that the gross profit is always negative due to high cost of production, further production should be discouraged.
The decision to drop a particular product line is usually reached when:
Its total fixed costs are more than its contribution margin: Here, the company will run at a loss. It is sustainable to continue production..Its variable costs are more than its fixed costs: This is also an unfavorable situation that does not sustain mass production. Therefore, further production should discontinue.its unavoidable fixed costs are more than its contribution margin: At this rate, profit cannot be maximized. It is a lose-lose situation for the company.2. The nominal interest rate in the U.S. is 6% and the nominal interest rate in Canada is 3%. The spot value of the U.S. dollar is 1.1 ($/Canadian dollar) and the forward rate is 1.3 ($/Canadian dollar). Calculate the forward discount or premium for the dollar. Does the interest parity condition hold? If not explain what is likely to occur in foreign exchange markets. Assume that interest rates cannot change.
Answer:
The forward discount is 1.0688679245. Interest parity does not hold. In foreign markets Dollar will not appreciate in spot because it is trading at forward discount
Explanation:
According to the given data we have the following:
1 USD = 1.1 Canadian dollar (Spot)
1 USD = 1.3 Canadian dollar (Forward)
In order to calculate forward discount we would have to use the following formula:
Forward= Spot rate * (1+ Interest rate of Canada) / (1+ Interest rate of US)
Forward = 1.1*(1+0.03) / (1+0.06) = 1.0688679245
1.0688679245 < 1.2 (Interest parity does not hold)
Here dollar is trading at forward discount
In foreign markets Dollar will not appreciate in spot because it is trading at forward discount
Rego Circuits supplies microcomputer circuitry for customers that build super computers. Their annual demand is 36,000 units, with a setup cost of $25 per batch and a holding cost of $0.45 per unit per year. Their manufacturing facility can produce circuits at a rate of 300 units per day, and they are able to operate 360 days a year. (Total 10 Points) a) What is Cesar Rego’s economic production quantity? What is the maximum inventory level, the time between orders, the total setup cost, and the total holding cost for this EPQ? (5 Points) b) Please draw one inventory cycle of the saw tooth model for this EPQ. Do not forget to label the x and y axis on your model! (5 Points)
Answer:
EOQ = 2,000
Time between order = 10 days
Setup and Ordering Cost $450
ATTACHED GRAPH
Explanation:
[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]
Where:
D = annual demand = 36,000
S= setup cost = ordering cost = 25
H= Holding Cost = 0.45
[tex]Q_{opt} = \sqrt{\frac{2(36,000)(25)}{0.45}}[/tex]
EOQ = 2,000
2,000 / 300 unit per day = 6.67
Setup cost:
36,000 units / 2,000 per batch x $25 cost per batch = $ 450
Holding cost:
2,000 units / 2 x $0.45 per unit = $ 450
36,000 units / 360 days = 100 units per day
2,000 units / 100 unit = 20 days
IMPORTANT DISCLAMER
As we are given with no safety stock we assume is zero
If there was any, then we should draw a line at this stock and move the graph upwards.
Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not.
Answer:
The company should process further
Explanation:
The preparation of The company should process further or not is as follows:-
Sell as Process further
Sales $700,000 $1,372,000
(5,600 × $105 + 11,200 × $70)
Relevant cost
Process Cost to
further 0 $420,000
Total relevant
cost 0 $420,000
Income $700,000 $952,000
($1,372,000 - $420,000)
Incremental
Income $252,000
So, the company should process further
Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2016, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Lance Brothers paid $600,000 for the investment in bonds and will receive interest semiannually on June 30 and December 31. Prepare the journal entries (a) to record Lance Brothers’ investment in the bonds on July 1, 2016, and (b) to record interest on December 31, 2016, at the effective (market) rate.
Answer:
A) July 1, 2016, 3% bonds are acquired as long term investment.
Dr Investment in 3% bonds 720,000
Cr Cash 600,000
Cr Discount on investment in 3% bonds 120,000
B) December 31, 2016, interest earned from investment in 3% bonds.
Dr Cash 10,800
Dr Discount on investment in 3% bonds 1,200
Cr Interest revenue 12,000
Explanation:
the bonds' face value is $720,000 but since the company paid only $600,000 for them, it means that it bought them at a discount price. Therefore, the discount, $720,000 - $600,000 = $120,000, must be recorded, and later amortized.
To calculate the amount of interest revenue that will be amortized as discount on investment:
(bonds' market price x market interest rate x 1/2) - (bonds' face value x coupon rate x 1/2) = ($600,000 x 4% x 1/2) - ($720,000 x 3% x 1/2) = $12,000 - $10,800 = $1,200
Answer:
(a)
July 1, 2016
Dr. Investment in Bonds $720,000
Cr. Discount on Bonds $120,000
Cr. Cash $600,000
(b)
December 31, 2016
Dr. Cash $10,800
Dr. Discount on Bonds $1200
Cr. Interest Income $12,000
Explanation:
Investment in the bonds with intention to hold the bond until maturity is classified as the fixed investment and reported in the fixed assets section of the balance sheet.
When the bond is purchased below the face value of the bond, it is issued on discount by the issuer. This discount will be recorded and amortized over the bond life to maturity. Amortized discount will be added to the interest received amount to adjust this value in interest income.
Interest Received = Face value x Coupon rate x 6/12 = $720,000 x 3% x 6/12 = $10,800 semiannually
Interest income = Carrying Balance of Bond x market Rate x 6/12 = $600,000 x 4% x 6/12 = $12,000 semiannually
Now we will calculate the difference between the interest received and interest income to determine the value of discount amortized.
Amortized Discount = $12,000 - $10,800 = $1,200
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Georgey's Pawn Shop had 1,000 shares of its $1.00 par value common stock issued and outstanding Before a 2 for 1 stock split. Each of the shares had a market value of $8.00 per share. AFTER the 2 for 1 stock split, which of the following statements is FALSE? The market value of each share should be $4.00 The par value per share would be $.50 per share The number of shares issued and outstanding would be 2,000 None of the above (i.e., all of the above statements are 'True' After the 2 for 1 stock split).
Answer:
None of the above(i.e., all of the above statements are 'True' After the 2 for 1 stock split).
Explanation:
Stock split is a way of increasing total of shares a company's shareholders have while proportionately reducing the share price per unit.In essence , it is about re-denominating the shares of a company.
A 2-1 stock split means for every one share that shareholders possess previously.they now have 2 in place of 1.
In other words,the shareholders now have 2,000 shares in all(2/1*1000)
The par value now=$1*1/2=$0.50
The market price now=$8*1/2=$4
Without mincing words,the last option is the correct answer.
J Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment $ 30,500 Annual cash inflows $ 6,200 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The simple rate of return for the investment (rounded to the nearest tenth of a percent) is:
Answer:
Simple accounting rate of return= 27.32%
Explanation:
The accounting rate of return = Average annual operating income / Average investment
Annual depreciation = ( Cost - Salvage value)/No of years = (30,500 - 0 )/15
= 2033.33
Average Investment -= (Cost + scrap Value)/ 2
= (30500 + 0)/2 =15,250
Average Annual income = 6,200 - 2033.33
= 4166.67
Simple accounting rate of return =( 4,166.667/ 15,250 )× 100
= 27.32%
Change Corporation expects an EBIT of $57,000 every year forever. The company currently has no debt, and its cost of equity is 13 percent. The corporate tax rate is 23 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose the company can borrow at 10 percent. What will the value of the firm be if the company takes on debt equal to 30 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Suppose the company can borrow at 10 percent. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-1. What will the value of the firm be if the company takes on debt equal to 30 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-2. What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The value of the company is $438,461.54, regardless of its capital structure due to the Modigliani-Miller theorem. This holds true even if the company decides to take on debt equal to 30% or 100% of its levered or unlevered value.
Explanation:The subject of this question falls under the field of Business Finance. Here we deal with the valuation of a firm using the Modigliani-Miller theorem which states that a firm's value is not affected by its capital structure in perfect markets.
a. The current value of the company can be calculated as the expected EBIT divided by the cost of equity. So, the unlevered value (Vu) of the company is $57,000 / 0.13 = $438,461.54.
b-1. If the company takes on debt equal to 30% of its unlevered value, the levered value (Vl) will be the same as the unlevered value. This is because in perfect markets, the value doesn’t change with capital structure. So, Vl = Vu = $438,461.54.
b-2. Similarly, if the company takes on debt equal to 100% of its unlevered value, the levered value (Vl) remains the same, i.e., Vl = Vu = $438,461.54.
c-1 & c-2. Again following Modigliani-Miller theorem, even if the company takes on debt equal to 30%, or 100% of its levered value, the firm value would remain the same, i.e., at $438,461.54.
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The following transactions for Wolfe Corporation relate to long-term bonds classified as available-for-sale: 2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000. July 1 Received interest on Lake bonds. Dec. 31 Accrued interest on Lake bonds. Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019 Jan. 1 Received interest on Lake bonds. Jan. 1 Sold $25,000 Lake bonds for $26,650. July 1 Received interest on Lake bonds. a) Journalize the transactions.
Answer:
2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000.
Dr 10% bonds available for sale 50,000 Cr Cash 50,000available for sale
July 1 Received interest on Lake bonds.
Dr Cash 2,500 Cr Interest revenue on 10% bonds available for sale 2,500Dec. 31 Accrued interest on Lake bonds.
Dr Interest receivable 10% bonds available for sale 2,500 Cr Interest revenue 10% bonds available for sale 2,500Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019
Dr 10% bonds available for sale 5,000 Cr Unrealized gain - other comprehensive income 5,000Jan. 1 Received interest on Lake bonds.
Dr Cash 2,500 Cr Interest receivable on 10% bonds available for sale 2,500Jan. 1 Sold $25,000 Lake bonds for $26,650.
Dr Cash 26,650Dr Unrealized gain - other comprehensive income 2,500 Cr 10% bonds available for sale 27,500 Cr Realized gain on 10% bonds available for sale 1,650July 1 Received interest on Lake bonds.
Dr Cash 1,250 Cr Interest receivable on 10% bonds available for sale 1,250Problem 10-16 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials ? $ 6.00 per yard $ ? Direct labor ? ? ? Variable manufacturing overhead ? $ 2 per direct labor-hour ? Total standard cost per unit $ ? Overhead is applied to production on the basis of direct labor-hours. During March, 400 backpacks were manufactured and sold. Selected information relating to the month’s production is given below: Materials Used Direct Labor Variable Manufacturing Overhead Total standard cost allowed* $ 9,120 $ 5,040 $ 960 Actual costs incurred $ 5,520 ? $ 2,620 Materials price variance ? Materials quantity variance $ 1,920 U Labor rate variance ? Labor efficiency variance ? Variable overhead rate variance ? Variable overhead efficiency variance
Answer and Explanation:
Particulars Amount
Standard variable manufacturing overhead cost for march $960
Standard variable manufacturing overhead rate per direct labor hour $2
Standard direct labor hours for march
=960/2
= $ 480
Standard direct labor rate per hour
=$ 5,040/$480
= $ 10.5
The labor efficiency variance
Actual Cost per unit of back pack production
=(9,120+5,040+960)/(400)
=15,120/400
=$ 37.8
Total Number of produced Back packs 400
Total Actual cost of production $ 15,120
Less: Actual cost of materials $5,520
Actual cost of manufacturing Overhead 2,620
Actual cost of Direct Labor 6,980
Labor efficiency varaince = 5040-6980 = -$ 1940
Variable overhead rate variance=(Actual Hour*Actual Rate)-(Actual Hour of input*Standard Rate)
=(2620*2)
= $ 5240
Variable overhead rate variance = $ 5240
The question pertains to variance analysis, a tool used in managerial accounting to reveal the differences between actual and planned costs in a business' operations. The specific focus here is on understanding variable costs, which include direct materials, direct labor and variable manufacturing overhead and their respective variances.
Explanation:To analyze this variance report, we need to understand several components of cost behavior, specifically understanding what variable costs are. Variable costs are those costs that change in total in direct proportion to changes in production volume or activity. This includes items like direct materials, direct labor, and variable manufacturing overhead.
Let's define each variance reported. The materials price variance is the difference between the actual price paid for the materials and the standard price, multiplied by the quantity purchased. The materials quantity variance indicates the additional costs incurred due to using more materials than planned.
The labor rate variance is the difference between the actual hourly labor rate and the standard rate, multiplied by the actual hours worked. The labor efficiency variance shows how efficiently the labor hours were used in production. The variable overhead rate variance shows the difference between actual variable overhead costs and standard variable overhead costs, while the variable overhead efficiency variance indicates the difference between actual hours worked and standard hours allowed, multiplied by the standard variable overhead rate.
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*The primary benefit of using the indirect strategy to communicate bad news is that it a. ensures that your reasoning will be read while the receiver is still receptive. b. disguises the bad news. c. demonstrates your writing abilities. d. places the bad news before the explanation.
Answer: A.
ensures that your reasoning will be read while the receiver is still receptive.
Explanation: Indirect strategy can contain some positive news or a carefully worded cautionary statement. After a buffer statement, the message should contain valid reasons for the bad news. Next, the bad news should be delivered as nicely as possible. Finally, try and end with positive communication.
The main advantage of the indirect strategy in communicating bad news is that it ensures your reasoning is read while the receiver is still open-minded. This strategy starts by explaining the reasoning, softening the impact of the bad news.
Explanation:The primary benefit of using the indirect strategy to communicate bad news is option a: it ensures that your reasoning will be read while the receiver is still receptive. This method typically involves presenting the reasoning or explanation first, before delivering the bad news. It prepares the receiver for what is coming and they are likely in a more understanding and accepting state of mind. It doesn't aim to disguise the news or demonstrate your writing abilities (option b and c), nor does it place the bad news before the explanation (option d).
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In comparing the Cournot equilibrium with the competitive equilibrium,
a. both profit and output level are higher in Cournot.
b. both profit and output level are higher in the competitive equilibrium.
c. profit is higher, and output level is lower in the competitive equilibrium.
d. profit is higher, and output level is lower in Cournot.
Answer:
Profit is higher, and output level is lower in Cournot.
Explanation:
Cournot competition is a type of economic model which describes an industry setting whereby firms that produce the same product compete on the amount of product to manufacture.
This type of competition involves more than one firm in which each firm's output decision affects the price of the product in the market. In cournot equilibrum each firm decide on the quantity of products to produce inorder to maximise profit.