Answer: increased, trade- offs, marginal thinking, small.
Explanation:
According to the passage, The coach is weighing a slightly increased risk of losing against a slightly decreased risk of injury to the star quarterback. This weighing of trade-offs is an example of marginal thinking, because the star quarterback was in for most of the game, and the coach's decision concerns small shifts in probabilities with the game nearly over.
The coach is weighing a slightly increased risk of losing against a slightly decreased risk of injury to the star quarterback. This weighing of trade- offs is an example of marginal thinking because the star quarterback was in for most of the game, and the coach's decision concerns small shifts in probabilities with the game nearly over.
The increase in risk implies the chances of return of positive gain is less but the gain would be higher than less risky opportunities.
Trade-offs situations represent the increase of one variable but with fall in other variable values. Thus, the coach is making a trade-off between the risk of losing and the risk of injury.
Marginal thinking implies a comparison of benefits and costs when one more unit is added for optimal decision.
The shift in probabilities refers to small variations made in chances of winning by stimulation the strategy to get better outcomes.
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Cheer, Inc., wishes to expand its facilities. The company currently has 8 million shares outstanding and no debt. The stock sells for $34 per share, but the book value per share is $42. Net income for Teardrop is currently $4.7 million. The new facility will cost $50 million and will increase net income by $800,000. The par value of the stock is $1 per share. Assume a constant price-earnings ratio.
a-1.
Calculate the new book value per share. Assume the stock price is constant. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a-2. Calculate the new total earnings. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
a-3. Calculate the new EPS. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.)
a-4. Calculate the new stock price. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a-5. Calculate the new market-to-book ratio. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)
b. What would the new net income for the company have to be for the stock price to remain unchanged? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
Answer:
Explanation:
Solution :- (A)
(1) :- Book value per share = Total Assets / Total Number of Shares
Total Assets = ( $42 * 8,000,000 ) + $50,000,000 = $386,000,000
Total No. of Shares = ( $50,000,000 / 34 ) + 800,000 = 9,470,588.24
Book Value per share = $386,000,000 / 9,470,588.24
= $40.76
(2)
New Total Earnings = Current Net Income + Additional Income
= $4,700,000 + 800,000
= $5,500,000
(3)
New EPS = New Earnings / New total number of shares
= $5,500,000 / 9,470,588.24
= $0.581
(4)
New Price of Stock =
Old EPS = 4,700,000 / 8,000,000 = 0.5875
New Price = P/E Ratio * New EPS
= ( 34 / 0.5875 ) * 0.5807
= $33.61
(5) New Market to Book Ratio
= Market price / Book Value
= $33.61 / $40.76
= 0.825 times
(b)
Net Income = EPS old * Total New number of shares
= $0.5875 * 9,470,588
= $5,563,970.45
You have two clients that are considering trading machinery with each other. Although the machines are different from each other, you believe that an assessment of expected cash flows on the exchanged assets will indicate the exchange lacks commercial substance. Your clients would prefer that the exchange be deemed to have commercial substance, to allow them to record gains. Here are the facts:
Client A Client B
Original cost $104,700 $158,100
Accumulated depreciation 43,600 79,800
Fair value 88,400 115,700
Cash received (paid) 27,300 27,300
Record the trade-in on Client A's books assuming the exchange has commercial substance.
Record the trade-in on Client A's books assuming the exchange lacks commercial substance.
Answer:
the exchange has commercial substance
New Machine at Fair Value $115,700 (debit)
Cash Received $27,300 (debit)
Accumulated Depreciation Asset Given Up $43,600 (debit)
Cost of Asset Given Up $104,700 (credit)
Profit from Exchange $81,900 (credit)
the exchange lacks commercial substance.
New Machine at Carrying Amount of Asset Given up $61,100 (debit)
Cash Received $27,300 (debit)
Accumulated Depreciation Asset Given Up $43,600 (debit)
Cost of Asset Given Up $104,700 (credit)
Profit from Exchange $27,300 (credit)
Explanation:
the exchange has commercial substance
Cost price of Asset acquired is measured at Fair Value of Asset given up.
the exchange lacks commercial substance.
Cost price of Asset acquired is measured at Carrying Amount of Asset given up.
Sharon is a skilled toy maker who is able to produce both trucks and puzzles. She has 8 hours a day to produce toys. The following table shows the daily output resulting from various possible combinations of her time.
Choice Hours Producing Produced
(Trucks) (Puzzles) (Trucks) (Puzzles)
A 8 0 4 0
B 6 2 3 11
C 4 4 2 16
D 2 6 1 19
E 0 8 0 20
Required:
1. Suppose Sharon is currently using combination D, producing one truck per day. Her opportunity cost of producing a second truck per day is _________ per day.2. Now, suppose Sharon is currently using combination C, producing two trucks per day. Her opportunity cost of producing a third truck per day is_________ per day.
Answer:
1. Opportunity Cost of 2nd truck from 1st Truck = 1T : 3P
2. Opportunity Cost of 3rd truck from 2nd truck = 1T : 5P
Explanation:
Choice Hours Producing Produced
(Trucks) (Puzzles) (Trucks) (Puzzles)
A 8 0 4 0
B 6 2 3 11
C 4 4 2 16
D 2 6 1 19
E 0 8 0 20
Opportunity Cost is the cost of a good sacrifised to achieve additional unit of other good.
From point D ( 1 truck) to point C ( 2nd truck ), opportunity cost in terms of puzzles sacrifised is 19 - 16 = 3. So, opportunity cost is 1T : 3P From point C ( 2 trucks ) to point D (3rd truck ), opportunity cost in terms of puzzles sacrifised is 16 - 11 = 5. So, opportunity cost is 1T : 5PSharon's opportunity cost of producing a second truck per day is 3 puzzles, and that of producing a third truck per day is 5 puzzles.
1) Since Sharon is currently using combination D, producing one truck per day. Her opportunity cost of producing a second truck per day is 3 puzzles per day.
This is so because by producing 2 trucks, she has the capacity to produce 16 puzzles, while by producing just 1 truck, she can produce 19 puzzles (19-16 = 3).
2) Given that Sharon is currently using C, producing two trucks per day. Her opportunity cost of producing a third truck per day is 5 puzzles per day.
This is so because by producing 3 trucks, she has the capacity to produce 11 puzzles, while by producing 2 trucks, she can produce 16 puzzles (16-11 = 5).
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Consider a Swiss subsidiary (Swiss AS) of a US firm, Kendall Systems. The current exchange rate is $0.80/SF. Swiss AS sells 6 million units, of which 3 million are sold at home and 3 million are exported selling at SF15/unit. It has fixed overhead costs of SF 6 million and direct costs (labor, raw material, etc.) of SF 10/unit. The firms has a straight line depreciation of SF 1 million each year and has a tax rate of 30%.
As a result of sudden depreciation of SF from $0.80/SF to $0.75/$, prices remain same at home (SF15 / unit) but there is an increase in export prices to SF20 / unit). Costs remain same.
Find the Cash flows in $ post-depreciation of SF?
a.
$21.28 million
b.
$20.70 million
c.
$19.95 million
d.
$22.08 million
Answer:
The Cash flows in $ post-depreciation of SF is $20.70 million. The right answer is b
Explanation:
To calculate the Cash flows in $ post-depreciation of SF we would to have to make the following table:
Description Domestic sale Export sale Total
Selling revenue -
(3000000*15) 45,000,000 45,000,000
(3000000*20) 60,000,000 60,000,000
Variable cost
(3000000*10) (30,000,000) (30,000,000)
(3000000*10) (30,000,000) (30,000,000)
Contribution 45,000,000
Fixed cost (6,000,000)
Depreciation (1,000,000)
Profit before tax 38,000,000
Tax 30% (11,400,000)
Profit after tax 26,600,000
Add depreciation 1,000,000
Cash profit after tax 27,600,000
Exchange rate $ 0.75
Cash flow in USD 27,600,000*0.75
Cash flow in USD $ 20,700,000
The Cash flows in $ post-depreciation of SF is $20.70 million
Lakeisha is a management assistant at the Fourth Bank and Trust Company of Pasadena. Wilson is a senior vice president of the bank. The romantic attraction between Lakeisha and Wilson was very strong and they have become lovers. Wilson is concerned that the bank and he could be accused of sexual harassment. The director of human resources recommends that Wilson and Lakeisha sign a "love contract." Although such arrangements are not a perfect solution to liability in such a situation, Wilson decides to send Lakeisha a letter that:
a. Restate the voluntary nature of their relationship and assure Lakeisha that decisions regarding her employment will not be influenced by the end of their relationship.
b. Affirm that they end the relationship with immediate effect and that Lakeisha accept money in return for any damages caused during their relationship.
c. Affirm that they shall resolve any work-related dispute through litigation and not through other alternative dispute resolution mechanisms.
d. Restate that under no circumstances shall Lakeisha adopt retaliatory conduct against Wilson in the future if their relationship ends in a bad manner.
Answer:
d. Restate that under no circumstances shall Lakeisha adopt retaliatory conduct against Wilson in the future if their relationship ends in a bad manner
Explanation:
In such a situation, Wilson decides to send Lakeisha a letter that:
Restate that under no circumstances shall Lakeisha adopt retaliatory conduct against Wilson in the future if their relationship ends in a bad manner even though the romantic attraction between Lakeisha and Wilson was very strong and they have become lovers in which Wilson is concerned that the bank and he could be accused of sexual harassment which is why The director of human resources recommends that Wilson and Lakeisha sign a "lovecontract." Despite such arrangements was not a perfect solution to liability.
Thunder Bolt Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. The G36 motorcycles sell for an average price of $8,200. Budgeted fixed manufacturing overhead costs for 2012 are estimated at $6,480,000. Thunder Bolt Inc., uses subassembly operators that provide component parts. The following are the denominator-level options that management has been considering:a. Theoretical capacity--based on three shifts, completion of five motorcycles per shift, and a 360-day year--3 x 5 x 360 = 5,400.b. Practical capacity--theoretical capacity adjusted for unavoidable interruptions, breakdowns, and so forth--3 x 4 x 320 = 3,840.c. Normal capacity utilization--estimated at 3,240 units.d. Master-budget capacity utilization--the strengthening stock market and the growing popularity of motorcycles have prompted the marketing department to issue an estimate for 2012 of 3,600 units.Required:1. Calculate the budgeted fixed manufacturing overhead cost rates under the four denominator-level concepts.2. What are the benefits to Thunder Bolt, Inc., of using either theoretical capacity or practical capacity?3. Under a cost-based pricing system, what are the negative aspects of a master-budget denominator level? What are the positive aspects?
Answer:
Explanation:
Ans1. budgeted fixed manufacturing overhead costs rates:
denominator, level capacity concept budgeted fixed manufacturing overhaed per period budgeted capacity level budgeted fixed manufacturig overhead cost rate ;
theoritical= $6,480,000 5,400$1,200.00
practical 6,48,000 3,840 1,687.50
normal 6,480,000 3240 2,000.00
master - budget 6,480,000 3,600 1,800
The rates are different because of varying denominator- level concepts. theoriitical and practical capacity levels are driven by supply-side concepts,i.e," how much can I produce?" Normal and master budgete capacity levels are driven by demand- side concepts, i.e ," how much can I sell"/
Ans 2 :- The variance that arise from use of the theoritical or practical levels concepts will signal that there is a divergence between for capacity. this is useful input to managers. As a general rule, however , it is important not to place undue reliance on the production volume variance as a measure of the economic costs of unused capacity.
Ans 3:- Under a cost - based pricing system, the choice of a master - budget level deniminator will lead to high prices when demand is low (more fixed costs allocated to the individual product level), further eroding demand ; conversely ,it will lead to low prices when demand ; conversely , it will lead to low prices when demand is high, forgoig profits. This has been refered to as the downward demand spiral- the continuing reduction in demand that occurs when the prices of the competitors are not met and demand drops , resulting in even higher unit costs and even more reluctance to meet the prices of competitors. The positive aspects of the master - budget denominator level are that it is based on demand for the product and indicates the price at which all costs per unit would be recovered to enable teh company to make a profit.Master budget denominator level is also a good bench mark against which to evaluate performance.
Why do you think government bonds usually have a low risk of default?
Answer:
In particular, the explanation government bonds being viewed as a secure option for investment is that they are guaranteed by the administration's absolute faith and confidence. Most shareholders are convinced government of the country won't default itself on debt trustees commitments.
Also if certain issues raised governments holds the power to increase taxes on the investment as well as they have the printing power of currency which makes such investments risk free.
Miracle Pill. Katie advertised that she had developed a pill for women that would result in weight loss, wrinkle loss, and improved vitality; and for men would result in all those things, plus hair growth. Her television advertisement showed miracle results allegedly obtained by consumers. Katie cautioned, however, that ingestion of the pill for six months was required before results would be evident. The pill was wildly popular. The Federal Trade Commission, however, investigated and determined that Katie had failed to have a reasonable basis for the claims she made in advertisements. Katie claimed that she was merely involved in the use of generalities and clear exaggerations. The Federal Trade Commission disagreed and issued a formal administrative complaint against her. After a hearing, the Federal Trade Commission issued an order requiring that Katie stop advertising and selling the pills. After losing all appeals, Katie continued selling the pills until she was fined by the Federal Trade Commission. She has since left the country and cannot be located. If a company violates a cease-and-desist order issued by the Federal Trade Commission and upheld by the courts, which of the following is the fine that the Federal Trade Commission may impose?
A) Up to $3,000 per violationB) Up to $5,000 per violationC) Up to $10,000 per violationD) Up to $50,000 per violationE) Up to $100,000 per violation
Answer:
B) Up to $5,000 per violation
Explanation:
FTC or U.S. Federal Trade Commission is a federal agency that is independent and its major objective is to enforce various consumer protection and anti-trust laws.
Journalize the following transactions of Trapper Jon’s Productions. Assume 360 days in a year. If an amount box does not require an entry, leave it blank.
June 23 Received a $48,000, 90-day, 8% note dated June 23 from Radon Express Co. on account.
Sept. 21 The note is dishonored by Radon Express Co.
Oct. 21 Received the amount due on the dishonored note plus interest for 30 days at 10% on the total amount charged to Radon Express Co. on September 21.
June 23
Notes Receivable __________
Accounts Receivable-Radon Express Co. _______
Sept. 21
Accounts Receivable-Radon Express Co. _________
Notes Receivable ________
Interest Revenue _________
Oct. 21
Cash ________
Accounts Recelvable-Radon Express Co. _____
Interest Revenue ________
Answer:
June 23 Received a $48,000, 90-day, 8% note dated June 23 from Radon Express Co. on account.
Dr Notes receivable 48,000 Cr Accounts receivable 48,000Sept. 21 The note is dishonored by Radon Express Co.
Dr Accounts receivable 48,960 Cr Notes receivable 48,000 Cr Interest revenue 960When a customer defaults on a note, the company is allowed to convert the note back to accounts receivable and charge any accrued interests. Depending on the client, the company can give them more time (by switching back the note into accounts receivable) or the company can write off the note and try to sell it to a collection company.
Oct. 21 Received the amount due on the dishonored note plus interest for 30 days at 10% on the total amount charged to Radon Express Co. on September 21.
Dr Cash 49,368 Cr Accounts receivable 48,960 Cr Interest revenue 408Liukko Corporation's standard wage rate is $14.90 per direct labor-hour (DLH) and according to the standards, each unit of output requires 2.8 DLHs. In June, 1,800 units were produced, the actual wage rate was $15.80 per DLH, and the actual hours were 5,110 DLHs. The Labor Efficiency Variance for June would be recorded as a:__________.
a. credit of $1,043.
b. debit of $1,043.
c. credit of $1,106.
d. debit of $1,106.
Answer:
Direct labor time (efficiency) variance= $1,043 unfavorable
Direct labor time (efficiency) variance= $1,043 debit
Explanation:
Giving the following information:
The standard wage rate is $14.90 per direct labor-hour (DLH)
Each unit of output requires 2.8 DLHs.
In June, 1,800 units were produced, the actual wage rate was $15.80 per DLH, and the actual hours were 5,110 DLHs
First, we need to calculate the direct labor efficiency variance:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Direct labor time (efficiency) variance= (2.8*1,800 - 5,110)*14.9
Direct labor time (efficiency) variance= $1,043 unfavorable
On September 1 of the current year, Joy Tucker established a business to manage rental property, She completed the following transactions during September.
a. Opened a business bank account with a deposit of $49,000 in exchange for common stock.
b. Purchased office supplies on account, $3,010.
c. Received cash from fees earned for managing rental property, $8,240.
d. Paid rent on office and equipment for the month, $3,690.
e. Paid creditors on account, $1,370. Billed customers for fees earned for managing rental property, $6,840.
g. Paid automobile expenses for month, $820, and miscellaneous expenses, $410.
h. Paid office salaries, $2,600
l. Determined that the cost of supplies on hand was $1,780; therefore, the cost of supplies used was $1,230. Paid dividends $2,460.
Required:
1. Indicate the effect of each transaction and the balances after each transaction.
Answer:
a. Assets : Increase $49,000 , Equity : Increase $49,000 , Liabilities : No Effect
b. Assets : Increase $3,010 , Equity : No Effect , Liabilities : Increase $3,010
c. Assets : Increase $8,240 , Equity : Increase $8,240 , Liabilities : No Effect
d. Assets : decrease $3,690 , Equity : decrease $3,690 , Liabilities : No Effect
e. Assets : decrease $1,370 , Equity : No Effect , Liabilities : decrease $1,370
f. Assets : Increase $6,840 , Equity : Increase $6,840 , Liabilities : No Effect
g.Assets : decrease $1,230 , Equity : decrease $1,230 , Liabilities : No Effect
h.Assets : decrease $2,600 , Equity : decrease $2,600 , Liabilities : No Effect
i. Assets : decrease $2,460 , Equity : decrease $2,460 , Liabilities : No Effect
Explanation:
For Each Transaction First Identify the Two Accounts Affected and Then classify in one of the Categories of Assets , Liabilities and Equity. Finally determine the effect (decrease/increase/no effect in the category items are placed.
Shamrock Co. purchased land as a factory site for $456,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months.
The company paid $47,880 to raze the old buildings and sold salvaged lumber and brick for $7,182. Legal fees of $2,109 were paid for title investigation and drawing the purchase contract. Shamrock paid $2,508 to an engineering firm for a land survey, and $77,520 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,710, and a liability insurance premium paid during construction was $1,026. The contractor’s charge for construction was $3,123,600. The company paid the contractor in two installments: $1,368,000 at the end of 3 months and $1,755,600 upon completion. Interest costs of $193,800 were incurred to finance the construction.
Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buberk Co. Assume that the land survey was for the building.
Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Cost of Land Recorded on The Book of Martin Buberk Co.
Particular Amount ($)
Cost of land 456,000
Add-company paid to raze the old building($47,880-$7,182) 40,698
Add-Title insurance on the property cost 1,710
Add-Legal fees paid 2,109
Total cost of land 500,517
Cost of Building Recorded on the Book of Martin Buberk Co.
Particular Amount ($)
Cost of drawing the factory plans 77,520
Add-Land survey cost 2,508
Add-Liability insurance premium paid during construction 1,026
Add-contractor’s charge for construction 3,123,600
Add-Interest cost 193,800
Total cost of building 3,398,454
We simply applied the above format
• 25,000 shares of preferred stock, cumulative, 5%, $40 par was issued for $60/share. • The annual cash dividend was declared and paid to the above preferred stock. • The company purchased 12,000 shares of common stock at $68 per share to be held as Treasury stock. • Interest of $32,000 was paid to bondholders. • Bonds Payable with a par value of $400,000 were retired at $432,000. Compute the net cash flow from financing activities (parentheses indicate an outflow).
Answer:
$202,000
Explanation:
Computation of Net Cash Generated From Financing Activities
Cash generated from the preferred stock (25,000 * $60) $1500,000
Less: Preferred stock Dividend (25000 * $40 par * 5%) ($50,000)
Less: Treasury stock (12,000 shares * $68 per share) ($816,000)
Less: Interest Payments ($32,000)
Less: Bond Redemption (Interest Exclusive) ($400,000)
Net Cash Generated From Financing Activities $202,000
Suppose the government wants to reduce the total pollution emitted by three firms. Currently, each firm is creating 4 tons of pollution, for a total of 12 tons. The government is considering the following two methods to reduce total pollution to 6 tons:
1. The government sets regulation specifying that each of the three firms must cut its pollution in half.
2. The government allocates two tradable pollution permits to each of the three firms. Each permit allows the firm to emit 1 ton of pollution. Assume the negotiation and exchange of permits are costless.
The following table shows the cost each firm faces to eliminate each unit of pollution.
Cost of Eliminating: Firm X Firm Y Firm Z
First ton of pollution $950 $280 $600
Second ton of pollution $1,650 $300 $720
Third ton of pollution $2,500 $350 $880
Fourth ton of pollution $3,550 $450 $1,050
Suppose the owners of the three firms get together and agree on a trading price of $800 per permit.
Complete the following table with the action each firm will take at this permit price and the amount of pollution each firm will eliminate.
Firm Initial Pollution Permit Allocation (Tons of pollution) Action Final Amount of Pollution Eliminated (Tons of pollution)
Firm X 2
Firm Y 2
Firm Z 2
Determine the total cost of eliminating 6 tons of pollution under each method, and enter the amounts in the following table.
Method Total Cost of Eliminating 6 Tons of Pollution (Dollars)
Regulation
Tradable pollution permits
Answer:
The method cost of eliminating 6 is stated below in the explanation section while,The regulation = 4500, The tradable pollution permits = 2700
Explanation:
Solution
Now,
Every Firm will remove the pollution until the cost of eliminating is lower than the cost of permit.
Thus,
Firm A will not eliminate any pollution as cost is higher than the permit cost, he will prefer to buy 2 more permits from other Firm
Firm B will eliminate 4 tons of pollution as cost is lower for elimination therefore will not require permit and thus sell his 2 permits to firm A.
Then
Firm C will eliminate 2 tons as after that cost is higher than the permit cost.
Firm A Action : Eliminate 2 tons and purchase 2 permits, Total tons eliminated 0
Firm B Action: Eliminate 4 tons and sell 2 permits, Total tons eliminated 4
Firm C Action : Eliminate 2 tons, Total Tons eliminated 2
If the government would have regulated then each firm would have to eliminate 2 tons each hence the cost would have been = 950+1650 + 280+300+600+720=4500
While with tradable permits cost is =280+300+350+450+600+720=2700
Riley Company promises to pay Janet Anderson or her estate $150,000 per year for the next 10 years, even if she leaves the company or passes away to try to induce her to stay with the company. Riley Company wants to properly record this transaction as deferred compensation, but is unsure how to record the cost. In addition, Riley Company purchased a whole life insurance policy for Janet, naming the company as the beneficiary. Riley Company wants to determine if it can offset the cash surrender value of the life insurance policy against the deferred compensation liability.
Answer:
The Answer is explanatory so it is given as under:
Explanation:
Part 1. At the start of the year:
The part of the salary includes $150,000 per year for the next 10 years and this must be recorded as an deferred compensation liability. All we have to do is to calculate the present value of the annual salary payments.
Present Value = Annual Payment * Annuity factor
And for Annuity factor we will use 5% rate of interest.
So
Annuity Factor = (1 - (1-r)^n) / r
Here
r = 5%
n = 10 years
Which means
Annuity Factor = (1 - (1 + 5%)^10) / 5% = 7.722
Hence
Present value = $150,000 * 7.722 = $1,158,260
So the journal entry would be as under:
Dr Deferred Compensation expense $1,158,260
Cr Deferred Compensation Liability $1,158,260
Part 2. At the end of the Year 1:
At the first year end, the annual payment of $1,158,260 will be discounted back by using the following formula:
Discounted Back Amount = Annual Amount * (1- (1+r)^n)
Remember for the first year n is 10, for second n is 9 and so on.
Discounted Back Amount = 150,000 x (1 - 0.614) = $57,913
Dr Deferred Compensation Expense $57,913
Cr Deferred Compensation Liability $57,913
Part 3. And when the first payment of the salary is made, the journal entry would be:
Dr Deferred compensation Liability $ 150,000
Cr Cash Account $150,000
Likewise we will till the year 10 and will record the part 2 and part 3 until at the end of the year 10, the whole of the deferred tax liability is reduced to zero.
The life insurance policy payments can not be offset against the deferred compensation liability because it will be accounted for as a different transaction and hence must not be treated as Riley desires.
So the Cash surrender value will be treated as an asset and annual increase in this asset would be treated as an income.
Dinklage Corp. has 7 million shares of common stock outstanding. The current share price is $73, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value of $90 million, a coupon rate of 6 percent, and sells for 98 percent of par. The second issue has a face value of $75 million, a coupon rate of 5 percent, and sells for 110 percent of par. The first issue matures in 22 years, the second in 7 years. Both bonds make semiannual coupon payments.Required:a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
Answer:
a. 0.7467 and 0.2534
b. 0.2504 and 0.7495
Explanation:
As per the data given in the question,
The capital structure is a combination of the both debt and equity where debt is the cheapest source while the equity is the expensive source and the risk and return is high in case of equity as compared with the debt
a)
Company's capital structure weight on the basis of Book Value Weight :
Debt = (face value of first issue + face value of second issue)÷ (face value of first issue + (face value of second issue + year × share value)
= ($90+$75) ÷ ($90+$75+7×$8)
= 0.7467
Equity = 1 - Debt
= 1 - 0.7467
= 0.2534
b)
Company's capital structure weight on the basis of Market Value Weight :
Debt = (face value of first issue × % sale +face value of second issue × sale %) ÷ (face value of first issue × % sale +face value of second issue × sale% + year × current share price)
= ($90× 98%+$75× 110%) ÷ ($90× 98%+$75× 110%+7×$73)
= 0.2504
Equity = 1 - debt
= 1 - 0.2504
= 0.7495
The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below: Sales $ 794,600 Variable expenses $ 412,900 Fixed manufacturing expenses $ 270,200 Fixed selling and administrative expenses $ 230,600 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $191,000 of the fixed manufacturing expenses and $165,500 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued. Required: What would be the financial advantage (disadvantage) of dropping B90D? Should the product be dropped?
Answer:
$25,200
Net operating income would reduced by $25,200
Explanation:
As per the given question the solution of financial advantage (disadvantage) of dropping B90D is provided below:-
Net operating income of Dropping B90D = Sales - Variable Expenses - Fixed Manufacturing Expenses - Fixed Selling & Administrative expenses
= $794,600 - $412,900 - $191,000 - $165,500
= $25,200
So, we have calculated the financial advantage (disadvantage) of dropping B90D by using the above formula.
Net operating income would reduced by $25,200
This week's assignment is to pretend that the career services office at your university wants to develop a system that collects student resumes and makes them available to students and recruiters over the Web. Students should be able to input their résumé information into a standard resume template. The information then is presented in a résumé format, and it also is placed in a database that can be queried through an online search form. You have been placed in charge of the project.
a. Create the work breakdown structure (WBS) listing the tasks that will need to be completed to meet the project's objectives.
Answer:
The aim here is to create a list of tasks that will enable the team to complete and deliver the project within the given timeline. It would be appropriate if there are four students selected and each of them is assigned particular tasks based on the kind of background they have. They would be obliged to keep track of their progress and share it with everyone else on a regular basis so that the project can be completed on time.
Hope that answers the question, have a great day!
Which journal entry reflects the adjusting entry needed on December 31? In November, BOC received a $5,000 cash deposit from a customer for custom-build goods that will be delivered in January (BOC recorded an entry for this $5,000 in November). Now, it is December 31, the end of the fiscal year.
a. Dr. Unearned Revenue 5,000
b. Cr. Inventory 5,000
c. No entry needed.
d. Dr. Cash 5,000
e. Cr. Revenue 5,000
f. Dr. Advances from Customers 5,000
g. Cr. Revenue 5,000
h. Dr. Unearned Revenue 5,000
i. Cr. Revenue 5,000
Answer:
The correct option is C,no entry needed
Explanation:
The $5,000 received as as revenue in advance would have been debited to cash and credited to revenue in advance as a liability,hence as at December 31st of the same year,no single adjusting entry is required since the actual sales of goods did not take place in December.
In January,when sales is expected to have taken place by transferring the goods paid for to the customer,the adjustment in the books of accounts would a credit to sales revenue and a debit to revenue in advance.
Read the case study, Business Model and Competitive Strategy of IKEA in India, from the Deresky textbook Part 3 Comprehensive Cases. Analyze the content and prepare a paper addressing the following prompts. Analyze the reasons for IKEA’s delayed entry into the Indian market. Discuss the market entry strategy of IKEA for the Indian market. Identify the advantages and disadvantages of adopting the wholly-owned subsidiary route in entering the market. Be specific with your responses and validate with research.
Answer:
Explanation:
1.Analyze the reasons for IKEA’s delayed entry into the Indian market.The deferral of IKEA section into the Indian market was as needs be of India's controls on Foreign Direct Investment that bound the association to develop its stores in the country. Despite India revealing a coupleof enhancements to the FDI rules, the firm expected to sit tight for one year to get the Indian government support to set up its stores in the country. Fundamentally, the affiliation expected to ensure that its store show fit the Indian customer slants, sourcing outlines and FDI rules.
2.Discuss the market entry strategy of IKEA for the Indian market. What are the advantages and disadvantages of adopting the wholly-owned subsidiary route in entering the market?
Eastport Inc. was organized on June 5, 2018. It was authorized to issue 380,000 shares of $11 par common stock and 25,000 shares of 5 percent cumulative class A preferred stock. The class A stock had a stated value of $25 per share.
The following stock transactions pertain to Eastport Inc.:
1. Issued 15,000 shares of common stock for $12 per share.
2. Issued 5,000 shares of the class A preferred stock for $51 per share.
3. Issued 60,000 shares of common stock for $15 per share.
Required:
a. Prepare general journal entries for these transactions.
b. Prepare the stockholders' equity section of the balance sheet immediately after these transactions.
Answer:
Dr cash $180,000
Cr common stock $165,000
Cr paid-in capital in excess of par value-common stock $15,000
Dr cash $255,000
Cr preferred stock $125,000
Cr paid-in capital in excess of par -preferred stock $130,000
Dr cash $900,000
Cr common stock $660,000
Cr paid-in capital in excess of par value-common stock $240,000
Stockholders' equity
Common stock $11 par,380,000 authorized,75,000 issued ($165,000+$660,000) $825,000
Preferred stock $25 par,25,000 authorized,5,000 issued $125,000
Total par value $950,000
paid-in capital in excess of par value-common stock
($15,000+$240,000) $255,000
paid-in capital in excess of par -preferred stock $130,000
Total stockholders' equity $ 1,210,000
Explanation:
The issue of 15,000 shares of common stock for $12 each means that cash proceeds of $180,000 (15,000*$12) which is debited to cash and common stock is credited with $165,000 (15,000*$11) while the remaining $15,000 is credited to paid-in capital in excess of par value-common stock
The issue of 5,000 shares of preferred stock for $51 each means that cash proceeds of $ 255,000 (5,000*$51) which is debited to cash and preferred stock is credited with $125,000 (5,000*$25) while the remaining $130,000 is credited to paid-in capital in excess of par value-preferred stock
The issue of 60,000 shares of common stock for $15 each means that cash proceeds of $900,000 (60,000*$15) which is debited to cash and common stock is credited with $660,000 (60,000*$11) while the remaining $ 240,000 is credited to paid-in capital in excess of par value-common stock
In its 2015 fiscal year annual report, Texas Roadhouse reports net operating income after tax (NOPAT) of $102,495 thousand. As of the beginning of fiscal year 2015 it reports net operating assets of $596,104 thousand.
a. Did Texas Roadhouse earn positive residual operating income (ROPI) in 2015 if its weighted average cost of capital (WACC) is 7%. Explain
1. TXRH earned a negative ROPI because the realized NOPAT exceeds the expected NOPAT.
2. TXRH earned a positive ROPI because the realized NOPAT was less than the expected NOPAT.
3. TXRH earned a positive ROPI because the realized NOPAT exceeds the expected NOPAT.V
4. TXRH earned a negative ROPI because the realized NOPAT was less than the expected NOPAT.
b. At what level of WACC would Texas Roadhouse not report positive residual operating income for 2015?
Answer:
a. 3. TXRH earned a positive ROPI because the realized NOPAT exceeds the expected NOPAT.
b. ROPI which is 17.9% will be in negative
Explanation:
a. The explanation of positive residual operating income is here below:-
Expected net operating income after tax = Operating asset × Weighted average cost of capital
= $596,104 × 7%
= $41,727.28
Therefore the actual net operating income after tax is higher than Expected net operating income after tax.
TXRH earned a positive ROPI because realized net operating income after tax is higher than Expected net operating income after tax
b. For ROPI to be 0, Weighted average cost of capital
Realised net operating income after tax = Operating asset × weighted average cost of capital
= $102,495 = $596,104 × weighted average cost of capital
weighted average cost of capital = 17.19%
So, The ROPI which is 17.9% will be in negative
Squat XFit Inc. reported the following activities and select balance sheet items ($ in millions). You may also view this data in Excel with the SquatFix Activities and Balance Sheet file. Select results during the year ending December 31, 2020 Revenue 453.2 Interest expense 12.5 Depreciation expense 43.2
Stock-based compensation 12.5 Tax rate 40% Net income 134.5 Balances as of: 12/31/2019 12/31/2020 Accounts payable 120.5 130.5 Accounts receivable 74.8 82.4 Common Stock & APIC 146.4 163.5
Deferred revenue 453.0 532.0
Inventory 132.6 143.2
Current portion of debt 214.0 275.0
Net PP&E 212.7 246.0
Pre-paid expenses 50.0 35.0
Treasury stock (112.3) (123.2)
Accrued wages 67.8 72.5
Other comprehensive income 12.1 13.5
Calculate cash flow from operations for the year ending 12/31/2020:
a. $204.7 million
b. $250.7 million
c. $271.3 million
d. $280.7 million
Answer:
b. $250.7 million
Explanation:
Cash flow from operations is obtained from Cash flow from Operating Activity Section when the Indirect Method is used to prepare that section as follows :
Cash flow from Operating Activity
Net income before taxation 134.50
Adjustment for Non- Cash Items :
Depreciation expense 43.20
Adjustment for Working Capital Items :
Increase in Accounts payable 10.00
Increase in Accounts receivable (7.60)
Increase in Inventory (10.60)
Increase in Current portion of debt 61.00
Decrease in Pre-paid expenses 15.00
Increase in Accrued wages 4.70
Cash Generated from Operations 250.20
May Corporation, a merchandising firm, has budgeted sales as follows for the third quarter of the year:
July $80,000
August $90,000
September $70,000
Cost of goods sold is equal to 65% of sales. The company wants to maintain a monthly ending inventory equal to 130% of the Cost of Goods Sold for the following month. The inventory on June 30 is less than this ideal since it is only $65,000. The company is now preparing a Merchandise Purchases Budget.
Required:
a. The budgeted purchases for July are ____________.
Answer:
Purchases= $63,050
Explanation:
Giving the following information:
Sales:
July $80,000
August $90,000
September $70,000
The cost of goods sold is equal to 65% of sales.
The company wants to maintain a monthly ending inventory equal to 130% of the Cost of Goods Sold for the following month.
The inventory on June 30 is less than this ideal since it is only $65,000.
To calculate the purchases for July, we need to use the following formula:
Purchases= sales + desired ending inventory - beginning inventory
Purchases= 80,000*0.65 + (90,000*0.65)*1.3 - 65,000
Purchases= $63,050
The budgeted purchases for July are $63,050.
Budgeted cost of goods sold $52,000
(65% × $80,000)
Add desired ending merchandise inventory $76,050
[(65% × $90,000)×130%]
Total needs $128,050
($52,000+$76,050)
Less beginning merchandise inventory ($65,000)
Required purchases $63,050
($128,050-$65,000)
Inconclusion the budgeted purchases for July are $63,050.
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Resources fall broadly into two categories: tangible and intangible. Tangible resources have physical attributes and are visible. Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, and reputation.
1. Which of the following is an example of an intangible resource?Multiple Choice:A) equipmentB) copyrightC) cashD) landE) inventory
Answer:
copyright.
Explanation:
Intangible resource do not have any physical attributes and therefore are invisible, can not be seen but can only be felt. Accordingly, from the choices provided, equipment, cash, land and inventory are all physical resources and hence are called tangible resources. Only copyright fall under intangible resource. Hence the correct answer is copyright.
Answer:
B) copyright
Explanation:
Intangible Resource is the intangible assets which we can’t touch this resource and can’t see or intangible in nature. Intangible resource does not have in physical form. We can only feel that. Intangible Resource is necessary for any business.
So according to the analysis, option (B) is the correct example of intangible resources.
We can’t see copyright we just feel it. Copyright also don’t have a physical attribute but the other options have i.e current assets, fixed assets
Kristen Lu purchased a used automobile for $16,750 at the beginning of last year and incurred the following operating costs:
Depreciation ($16,750 ÷ 5 years) $3,350
Insurance $1,700
Garage rent $900
Automobile tax and license $450
Variable operating cost $0.06 per mile
The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen estimates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $3,350. The car is kept in a garage for a monthly fee.
Required:
a. Kristen drove the car 16,000 miles last year. Compute the average cost per mile of owning and operating the car. (Round your answers to 2 decimal places.)
b. Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision?
Answer:
The average operating cost is $0.46 per mile
In deciding whether to to her use her own car or rent a car the costs are analysed below:
Variable operating cost is a relevant cost
Depreciation is not relevant as it is already cost and also it is sunk cost
insurance is not relevant as well
automobile tax and license is not relevant as it would be paid regardless of the option chosen
Explanation:
The average cost comprises of the variable operating cost per mile as well as the fixed operating cost per mile
variable operating cost per mile is $0.06
fixed cost operating cost=fixed costs/total miles driven=($3,350+$1,700+$900+$450)/16000=$6400 /16000=$0.40
average cost per mile=$0.06+$0.40=$0.46
KAPC, a pharmaceutical company located in rural Kansas, is finding it difficult to retain its employees, who frequently leave after just six months of working at KAPC for jobs at pharmaceutical companies paying higher wages in Chicago. To address its problem with labor turnover, human resource officers at KAPC decide to run an experiment. Of their next 100 newly hired employees, 25 will randomly be selectedto receive a housing voucher worth up to $4,000 per year to offset property taxes. To take advantage of this program, the employee must not only be randomly selected into the program but she must also purchase a home. Of the 25 employees selected into the housing voucher program, 7 leave KAPC within 12 months of starting. Of the 75 employees not selected into the program, 37 leave KAPC within 12 months of starting.
a. Provide an estimate of the effect the housing voucher program has on retention at KAPC.
b. Suppose KAPC spends $10,000 in hiring costs each time a position is vacated. Would you endorse expanding the housing voucher program to all new employees? Justify your decision.
Answer: a) Positive Effect.
b) No.
Explanation:
a) Out of the 25 that were offered the housing program, 7 left in the first year after starting.
This proportion goes to,
= 7/25
= 28%
Only 28% of people left when offered the housing program.
When people were not offered the housing program, 37 left in the first year out of 75.
That means the proportion of those who left is,
= 37/75
= 49%.
When people were not offered the programme, 49% of them left. This means that offering the program reduces the turnover rate by 21% which means that it has a positive effect.
b) No it would be more expensive to expand it to everyone.
Currently, the total cost of hiring and offering the program the company is going through is,
= (4,000 * 25 people ) + (10,000 * 7 for those who still left ) + (10,000 * 37 for those who left with no housing plan)
= 100,000 + 70,000 + 370,000
= $540,000
If it is expanded to everyone then the following costs are incurred,
28% of the 100 would still leave even after offered the programme so the company would have to spend to replace them.
= (100 * 4,000 if all Employees offered) + (28 * 10,000 to replace employees that will still leave)
= 400,000 * 280,000
= $680,000
Expanding the program is more expensive than keeping it as it is. They should therefore not expanded it.
The wholesale cost box of 25 pieces of chocolate is 50 AEDYou decide to sel each bar of chocolate with a 20% profit plus 5% VAT tax Based on this information alone, how much will the cost of a single bar be? (2 Marks)
Answer:
Cost of a single bar = 2.52 AED (2.4 AED + 0.12 AED)
Explanation:
Cost of a box of 25 pieces of chocolate = 50 AED
Cost per bar for seller = 50 AED/25 = 2 AED
Selling price = 2.4 AED (2 AED * 1.2)
Plus 5% VAT = 0.12 AED (2.4 AED * 5%)
Cost of a single bar = 2.52 AED (2.4 AED + 0.12 AED)
b) The cost price to the seller is the cost of a box divided by the pieces or bars in the box, = 50 AED / 25 = 2AED
c) The cost price to the buyer is the selling price plus 5% VAT. This cost includes the seller's cost, profit, and VAT.
A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm's cost of capital is 15 percent. Please show the work.
Project Initial Investment IRR NPV
1 $200,000 19% $100,000
2 400,000 17 20,000
3 250,000 16 60,000
4 200,000 12 -5,000
5 150,000 20 50,000
6 400,000 15 150,000
Using the internal rate of return approach to ranking projects, which projects should the firm accept?
Using the net present value approach to ranking projects, which projects should the firm accept?
Answer:
On IRR basis projects 1, 2, 3, and 5 will be selected.
On NPV basis projects 1, 3, 5, and 6 will be selected.
Explanation:
The firm will accept or choose all the project that has a higher or equal internal rate of interest than cost of capital. However, in the given case project 4 has a lower internal rate of interest (12 percent) than the cost of capital. Thus, projects 1, 2, 3, and 5 will be chosen by the firm. While the firm has budget constraints so it will have no money for projects 4 and 6.
The firm will select all the projects with positive NPV when there is no budget constraint. But in case of budget constraint, the firm will select the project that has high NPV. Thus, Project 1, 6, 3, and 5 will be selected and there will be no money left for projects 2 and 4.
What is online bill payment? A. a service that provides consumers with credit for bill payments B. a service that pays bills without consumer verification C. a service that allows consumers to set up recurring payments D. a bill-organizing service that banks offer in traditional banking
Answer: B
Explanation:
C. Online bill payment is a service that allows consumers to set up recurring payments for their bills.
How is this service used?Through this service, individuals can schedule automatic payments for various bills, such as utilities, credit cards, loans, and more. It provides convenience, saving time and effort, as consumers don't need to manually initiate each payment.
Online bill payment typically involves securely linking a bank account or credit card to the service, ensuring timely and efficient bill settlement. It's a popular feature offered by banks and financial institutions, enhancing the ease of managing regular expenses for users.
Option C is correct.
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