Answer:
Depreciation expense for Year 1 Year 2 Year 3 Year 4
Method: Straight-line $71,250 $71,250 $71,250 $71,250
unit-of-production $102,600 $91,200 $62,700 $28,500
Double-declining $160,000 $80,000 $40,000 $20,000
Total depreciation for the four years under:
straight-line is $285,000unit-of-production is $285,000double-declining is $300,000Explanation:
(A) Under straight-line method, depreciation expense is (cost - residual value) / Estimated useful life = ($320,000 - $35,000) / 4 years = $71,250 yearly depreciation expense.
Accumulated depreciation for 4 years is $71,250 x 4 years $285,000.
The net book value (NBV) of the asset (cost - accumulated depreciation) is at the end of Year 4: $320,000 - $285,000 = $35,000.
(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
At Year 1, depreciation expense (DE) is: ($320,000 - $35,000) / 20,000 operating hours x 7,200 hours = $102,600/year
At Year 2, depreciation expense (DE) is: ($320,000 - $35,000) / 20,000 operating hours x 6,400 hours = $91,200/year
At Year 3, depreciation expense (DE) is: ($320,000 - $35,000) / 20,000 operating hours x 4,400 hours = $62,700/year
At Year 4, depreciation expense (DE) is: ($320,000 - $35,000) / 20,000 operating hours x 2,000 hours = $28,500/year
Accumulated depreciation for 4 years is $102,600 + $91,200 + $62,700 + $28,500 = $285,000.
Note that this depreciation method results in higher depreciation charge when the asset is heavily used, at this time, it was in Year 1.
The NBV under this method is is: $320,000 - $285,000 = $35,000.
(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%/4 years = 25%, then 25% multiplied by 2 to give 50%
At Year 1, 50% X $320,000 = $160,000
At Year 2, 50% X $160,000 ($320,000 - $160,000) = $80,000
At Year 3, 50% X $80,000 ($160,000 - $80,000) = $40,000
At Year 4, 50% X $40,000 ($80,000 - $40,000) = $20,000
Accumulated depreciation for 4 years is $160,000 + $80,000 + $40,000 + $20,000 = $300,000.
The NBV under this method is is: $320,000 - $300,000 = $20,000.
SaveCo Services, Inc., has $ 8 comma 600 cash on hand on May 1. The company requires a minimum cash balance of $ 7 comma 500. May cash collections are $ 548 comma 480. Total cash payments for May are $ 563 comma 420. Prepare a cash budget for May. How much cash, if any, will SaveCo need to borrow by the end of May?
Answer:
$13,840
Explanation:
The computation of the borrowed amount is shown below:
= Beginning cash balance + expected cash collections - expected cash payments - minimum monthly cash balance
= $8,600 + $548,480 - $563,420 - $7,500
= $13,840
Simply we added the expected cash collections and less the expected cash payments and minimum monthly cash balance to the beginning cash balance so that accurate value can come.
Cerrone Inc. has provided the following data for the month of July. The balance in the Finished Goods inventory account at the beginning of the month was $54,000 and at the end of the month was $49,500. The cost of goods manufactured for the month was $248,600. The actual manufacturing overhead cost incurred was $81,400 and the manufacturing overhead cost applied to jobs was $77,000. The adjusted cost of goods sold that would appear on the income statement for July is:
a. $283,600
b. $264,400
c. $277,800
d. $289,400
Answer:
The correct answer is $257,500(not one of the multiple choices)
Explanation:
The costs of good sold =opening inventory+costs of goods manufactured-closing inventory
opening inventory is worth is $54,000
costs of goods manufactured is $248,600
closing inventory is n $49,500
costs of goods sold=$54,000+$248,600-$49,500=$ 253,100.00
However overhead was under-applied by $4400 ($81400-$77,000) which must be added to costs of goods sold ,hence the corrected costs of goods sold is $257,500($253,100+$4,400)
This is not one of the options
The revenue for a new product that will stay in market for five years is projected at $45,000 in year 1, and the revenue is expected to reduce by $5,000 per year. What is the present value of the projected revenue stream if the interest rate is 8% per year compounded annually?
Answer:
$142,810
Explanation:
Net present value is the Net value all cash inflows and outflows in present value term. All the cash flows are discounted using a required rate of return.
* Working for Net Present value is attached with this answer, Please find it.
Smashing Pumpkins Co. uses the LCM method, on an individual-item basis, in pricing its inventory items. The inventory at Dec. 31, 2014, costs of products D, E, F, and G. Relevant per-unit data for these products appear below: D E F G Estimated Selling Price $120 $110 $95 $90 Cost 75 80 80 80 Replacement Cost 120 72 70 30 Estimated Selling Expense 30 30 30 25 Normal Profit 20 20 20 20 Instructions: Using the LCM rule, determine the proper unit value for balance sheet reporting purposes at Dec. 31, 2104, for each of the inventory items. g
Answer:
For detailed tables of balance sheet refer to the attached files
Explanation:
Final answer:
Using the LCM method, the proper unit values for inventory items D, E, F, and G at Dec. 31, 2014 are $75, $72, $70, and $30 respectively, based on a comparison of cost, replacement cost, and net realizable value.
Explanation:
When using the Lower of Cost or Market (LCM) method for inventory valuation, the goal is to ensure that inventory is reported at the lesser of the actual cost or the current market replacement cost, taking into account the net realizable value (estimated selling price minus selling expenses minus normal profit). We determine the proper unit value for balance sheet reporting purposes as follows:
For product D: Cost is $75, Replacement Cost is $120, and Estimated Selling Price is $120. Therefore, the LCM is $75 since it is lower than the market replacement cost and the estimated selling price.For product E: Cost is $80, Replacement Cost is $72, and Estimated Selling Price is $110. The net realizable value (NRV) would be $110 - $30 (Selling Expenses) - $20 (Normal Profit) = $60. The LCM is $72, since it is higher than the NRV but lower than the cost.For product F: Cost is $80, Replacement Cost is $70, and Estimated Selling Price is $95. The NRV would be $95 - $30 - $20 = $45. The LCM is $70, since it is higher than the NRV but lower than the cost.For product G: Cost is $80, Replacement Cost is $30, and Estimated Selling Price is $90. The NRV would be $90 - $25 - $20 = $45. The LCM is $30, since it is lower than both the cost and NRV.The proper unit values for balance sheet reporting purposes at Dec. 31, 2014 for inventory items D, E, F, and G are $75, $72, $70, and $30, respectively.
JDS Shipyard's projected benefit obligation, accumulated benefit obligation, and plan assets were $40 million, $30 million, and $25 million, respectively, at the end of the year. a. What, if any, pension liability or pension asset must be reported in the balance sheet? b. What, if any, pension liability or pension asset must be reported in the balance sheet if the plan assets were $45 million instead?
Answer:
The correct answer for option (a) is $15 million and for option (b) is -$5 million.
Explanation:
According to the scenario, the given data are as follows:
Projected benefit obligation = $40 million
Accumulated benefit obligation = $30 million
Plan assets = $25 million
(a). We can calculate the pension liability by using following formula:
Pension liability = Projected benefit obligation - Plan assets
= $40 million - $25 million
= $15 million
(b). If Plan assets = $45 million
Than, Pension liability = $40 million - $45 million
= -$5 million
Final answer:
JDS Shipyard has to report a pension liability of $15 million with plan assets of $25 million and a pension asset of $15 million with plan assets of $45 million. Accurately reporting pension liabilities or assets is essential for assessing an organization's long-term solvency.
Explanation:
When examining JDS Shipyard's pension situation, we need to consider the projected benefit obligation (PBO), accumulated benefit obligation (ABO), and plan assets to determine the pension liability or asset that must be reported on the balance sheet.
a. Pension Liability with Plan Assets of $25 million
The PBO is $40 million and the plan assets are $25 million, resulting in a pension liability of $15 million ($40 million PBO - $25 million assets) that must be reported on the balance sheet as the plan assets are less than the PBO.b. Pension Asset with Plan Assets of $45 million
If the plan assets were instead $45 million, the accumulated benefit obligation (ABO) is the relevant measure since it is lower than both the PBO and plan assets. The pension asset reported would be $15 million ($45 million assets - $30 million ABO) as the plan assets exceed the ABO.The importance of accurately reporting pension liabilities or assets can't be overstated as it affects the organization's long-term solvency. This is critical for understanding how such obligations will impact future cash flows and organizational sustainability.
An express warranty is created when a seller: makes an affirmation of fact or promise concerning the goods that becomes part of the basis of the bargain. uses descriptive terms as a part of the bargaining process, but the buyer does not take it into consideration when making the purchase. sells goods meant for use for ordinary purposes. avoids using a sample or model as the basis for the contract.
Question:
An express warranty is created when a seller:
A) makes an affirmation of fact or promise concerning the goods that becomes part of the basis of the bargain.
B) uses descriptive terms as a part of the bargaining process, but the buyer does not take it into consideration when making the purchase.
C) sells goods meant for use for ordinary purposes.
D) avoids using a sample or model as the basis for the contract.
Answer:
The correct choice is A)
An express warranty is created in the contract when a supplier makes a promise concerning the goods that the buyer can hold on to as an incentive to purchase the product.
Explanation:
For example, if a consumer buys a Laptop online, but when it arrives the item is the wrong specifications, wrong color, or is dented or damaged in anyway, an express warranty might entitle the consumer to a refund or replacement.
This warranty usually is stated upfront prior to or during the execution of the sales transaction.
Cheers!
Bramble Corp. has these accounts at December 31:
Common Stock, $12 par, 6,900 shares issued, $82,800;
Paid-in Capital in Excess of Par Value $20,400;
Retained Earnings $45,400;
and Treasury Stock, 640 shares, $14,080.
Prepare the stockholders' equity section of the balance sheet.
Answer:
Total shareholders' equity is $134,520
Explanation:
Bramble Corp.
Extract of balance sheet as at 31st December:
Common stock,$12 par,6900 shares issued and outstanding $82,800
Paid-in capital in excess of par $20,400
Total paid-in capital $103,200
Retained earnings $45,400
Total paid-in capital and retained earnings $148,600
less:treasury stock 640 shares ($14,080)
Total stockholders' equity $134,520
This is a standard proforma for the equity section of the balance sheet which comprises of the funds in the business attributed to the owners of the business,the shareholders.
After this section comes the liabilities,the non-current and current liabilities.
Geary Co. assigned $1,600,000 of accounts receivable to Kwik Finance Co. as security for a loan of $1,340,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $440,000 on assigned accounts after deducting $1,520 of discounts. Geary accepted returns worth $5,400 and wrote off assigned accounts totaling $11,920. Entries during the first month would include a A. debit to Accounts Receivable of $458,840. B. debit to Bad Debt Expense of $11,920. C. debit to Cash of $441,520. D. debit to Allowance for Doubtful Accounts of $11,920.
Answer:
Option D is correct one.
Debit to Allowance for Doubtful Accounts of $11,920
Explanation:
Allowance for doubtful accounts $11,920 Debit
Accounts Receivables $11,920 Credit
Jones Company has a target capital structure of 40% debt, 10% preferred stock, and 50% common equity. The company's after-tax cost of debt is 8%, its cost of preferred stock is 10%, its cost of retained earnings is 14%, and its cost of new common stock is 16%. The company stock has a beta of 1.2 and the company's marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion
Answer:
11.2%
Explanation:
WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs. weightage can be calculated by using the market value of the equity and debt.
The formula for WACC is
Weighted average cost of capital = (Cost of Common stock x Weightage of Common stock) + (Cost of debt (1 - tax ) x Weightage of debt) + (Cost of Preferred stock x Weightage of Preferred stock)
Weighted average cost of capital = (14% x 50%) + (8% x 40% ) + (10% x 10%)
Weighted average cost of capital = 7% + 3.2% + 1% = 11.2%
The weighted average cost of capital (WACC) for Jones Company, if they use retained earnings for the common equity portion, is 11.2%.
Explanation:The weighted average cost of capital (WACC), for Jones Company can be calculated by multiplying the cost of each capital component by its proportional weight and then summing:
WACC = (Weight of debt * Cost of debt) + (Weight of preferred stock * Cost of preferred stock) + (Weight of equity * Cost of equity)
So, using the figures from the question, the calculation would be:
WACC = (0.4 * 0.08) + (0.1 * 0.1) + (0.5 * 0.14) = 0.032 + 0.01 + 0.07 = 0.112 or 11.2%
Therefore, if Jones Company uses retained earnings to fund the common equity portion, the company's WACC is 11.2%.
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On July 1, 2012, you purchase a $10,000 par T-note that matures in five years. The coupon rate is 8 percent and the price quoted is 98.1875. The last coupon payment was May 1, 2012, and the next payment is November 1, 2012 (184 days total). The accrued interest is ______.
Answer:
$132.61
Explanation:
132.61 ((8%/2) x 10,000) x (61 days since last coupon/184) = $132.61
Final answer:
Accrued interest on a Treasury note is calculated based on the coupon rate, the purchase price, and the number of days since the last coupon payment. For a T-note purchased on July 1, 2012, with a last payment on May 1, 2012, the accrued interest is approximately $132.61.
Explanation:
The question pertains to the calculation of accrued interest on a Treasury note (T-note) with a coupon rate and a specific purchase price. To calculate this, we must determine the amount of interest that has accumulated since the last coupon payment until the purchase date. Given that the last payment was on May 1, 2012, and the purchase date is July 1, 2012, the following steps are followed:
Determine the total interest for a 6-month period, which would be: $10,000 × 0.08 / 2 = $400.
Calculate the number of days from the last payment to the purchase date: July 1 - May 1 = 61 days.
Calculate the daily interest rate: $400 / 184 days = $2.1739 per day.
Calculate the accrued interest: $2.1739 per day × 61 days = $132.6089.
Therefore, the accrued interest on the T-note as of July 1, 2012, is approximately $132.61.
Countercyclical monetary policy means that _________________. Select the correct answer below: the Fed lowers interest rates during recessions and raises them during economic booms the Fed raises interest rates during recessions and lowers them during economic booms the Fed lowers interest rates during both recessions and economic booms the Fed raises interest rates during both recessions and economic booms
Answer:
the Fed lowers interest rates during recessions and raises them during economic booms
Explanation:
Countercyclical monetary policy is a monetary policy used to work against any cyclical tendencies in order to slow down the economy when it is booming, and to stimulate economic activity then there is a recession.
Example of such policy is therefore a reduction of interest by the Fed during recessions and an increase of interest rate when there are economic booms.
Your uncle, Larson E. Whipsnade, has asked you for some financial advice. His retirement savings are currently invested as follows: $30,000 in the risk-free asset and $70,000 in GM stock. He wants to know if this is a sensible portfolio. You decide to analyze it based on the CAPM model.
You look in a Beta Book and find that GM stock has a Beta of 1.1 and the R2 of the regression is 0.40. Microsoft stock has a Beta of 0.8 and the R2 of the regression is 0.30. Suppose further that the correlation between the return to GM stock and the return to Microsoft stock is 0.3.
If the market return have the standard deviation 20%, compute the variance and standard deviation in current portofolio.
Answer:
Explanation:
If the market return was known, our calculation would have been easier
[tex]As Portfolio variance = (W1S1)2+(W2S2)2+(W3S3)2+2W1S1W2S2P12+2W2S3W3S3P23+2W1S1W3S3P13[/tex]
Where W=Weight, S= Standard Deviation, P=Covariance
1= General Motors, 2= Microsoft and 3= Risk free Asset
It gets easier as
All Weights (W) are known, W1= 0.4, W2= 0.4 and W3= 0.2
S1 and S2 can be easily found out and S3 is zero (Standard Deviation of Risk Free Asset)
Covariance (P) of any stock with risk free asset is zero, so P23 and P13 are zero
We need S1, S2, P12
+As Beta of GM = 1.1 and Standard Deviation of Market = 0.2 and R2 of GM = 0.4
We can find S1 by the formula Beta=(Sd of Stock/Sd of Market) * RGM2
Standard Deviation of Gm (S1) = BetaGM * (Standard Deviation of Market / RGM2 )
= 1.1 * (0.2 / 0.4)
= 0.55
+As Beta of Microsoft = 0.8 and Standard Deviation of Market = 0.2 and R2 of Microsoft = 0.3
We can find S2 by the formula Beta=(Sd of Stock/Sd of Market) * RM2
Standard Deviation of Gm (S2) = BetaM * (Standard Deviation of Market / RM2 )
= 0.8 * (0.2 / 0.3)
= 0.5333333
+As Correlation between Microsoft and General Motors is given as 0.3 and S1and S2 are known from above,
Covariance of General Motors and Microsoft (P12) can be found out from the formula
Corelation 12 = Covariance 12/(Standard Deviation 1 * Standard Deviation2)
So Covariance of the Stocks P12 = Corelation12 * S1 * S2
= 0.3 * 0.55 * 0.533
= 0.087945 or 0.088
So Portfolio Variance = (W1S1)2+(W2S2)2++2W1S1W2S2P12
Note
[any term with S3 gets cancelled hence, omitted for easier comprehension]
= (0.4*0.55)2+(0.4*0.533)2+2(0.4)(0.55)(0.4)(0.533)(0.88)
= 0.0484 + 0.04545 + 0.008255
= 0.102105 or 0.102
= √0.102
= 0.3195 or 0.32
The variance and standard deviation of a portfolio can be calculated using the weights and variances of each investment. In this case, the risk-free asset has a weight of 0.3 and the GM stock has a weight of 0.7. The portfolio variance is 0.1694 and the standard deviation is 0.4119.
Explanation:The variance and standard deviation of a portfolio can be calculated by considering the weights and variances of each individual investment in the portfolio.
To calculate the variance of the portfolio, you can use the formula:
Variance = (Weight of asset 1 * Variance of asset 1) + (Weight of asset 2 * Variance of asset 2)
In this case, the risk-free asset has a weight of $30,000/$100,000 = 0.3 and the GM stock has a weight of $70,000/$100,000 = 0.7.
Since the risk-free asset has no variance, its contribution to the portfolio variance is 0. To calculate the variance of the GM stock, you can use the formula:
Variance of GM stock = Beta^2 * Variance of market = 1.1^2 * 0.2^2 = 0.242.
Using the weights and variances, we can calculate the portfolio variance as:
Variance = (0.3 * 0) + (0.7 * 0.242) = 0.1694.
The standard deviation is the square root of the variance. Therefore, the standard deviation of the portfolio is:
Standard deviation = sqrt(0.1694) = 0.4119.
Carla Vista Co. purchased a new machine on October 1, 2022, at a cost of $79,310. The company estimated that the machine has a salvage value of $7,210. The machine is expected to be used for 70,600 working hours during its 7-year life. Compute the depreciation expense under the straight-line method for 2022 and 2023, assuming a December 31 year-end.
Answer:
$2,575; $10,300
Explanation:
Given that,
Cost of new machine = $79,310
Salvage value = $7,210
Machine used for = 70,600 working hours
Useful life = 7 years
Depreciation refers to the fall in the value of the fixed assets with the passage of time.
Here, we are using the straight-line method for calculating the depreciation expense:
= (Cost of machine - Salvage value) ÷ useful life
= ($79,310 - $7,210) ÷ 7
= $72,100 ÷ 7
= $10,300
Therefore, the annual depreciation expense for 2023 is $10,300.
For the year 2022:
The machine is purchased on October 1, 2022. Hence, the depreciation expense is calculated for the 3 months (i.e, From October 1, 2022 to December 31, 2022).
Depreciation expense = Annual depreciation expense × (3/12)
= $10,300 × (3/12)
= $2,575
Edwin is the HR manager at a customer care unit with approximately 1,000 employees. He wants to statistically analyze the service data to make the recruitment process more effective by identifying desirable and undesirable qualities of employees. Edwin observes a high positive correlation between the employees' ability to adapt and the turnaround time. However, he decides to avoid using this criterion when recruiting employees. Which of the following, if true, would MOST strengthen this decision to avoid the criterion
Full Question:
Edwin is the HR manager at a customer care unit with approximately 1,000 employees. He wants to statistically analyze the service data to make the recruitment process more effective by identifying desirable and undesirable qualities of employees. Edwin observes a high positive correlation between the employees' ability to adapt and the turnaround time. However, he decides to avoid using this criterion when recruiting employees. Which of the following, if true, would MOST strengthen this decision to avoid the criterion
A) The statistical significance of the correlation was found to be sixty percent.
B) Another trait, honesty, had a higher correlation coefficient than employees' ability to adapt.
C) The sample size used by Edwin was significantly larger than what was required.
D) Multiple regressions were observed among the variables used for the analysis.
Answer:
The correct answer here is A)
Explanation:
The key to decision making using statistical research is Statistical Significance. This means that a statistically significant observation is probably true. In this case, the statistical significance of his findings is 60%.
Cheers!
Edwin can strengthen his decision to avoid using the ability to adapt as a criterion in the recruitment process by considering other criteria that are more effective in identifying desirable qualities, investing in training programs for adaptability development.
Explanation:The presence of a high positive correlation between the employees' ability to adapt and the turnaround time suggests that employees who are better able to adapt tend to have shorter turnaround times. However, the decision to avoid using this criterion in the recruitment process would be strengthened if it is true that there are other criteria that are more effective in identifying desirable and undesirable qualities of employees. For example, if Edwin finds through further analysis that certain personality traits or specific skills are better indicators of employee performance, he may choose to focus on those criteria instead.
Furthermore, Edwin may consider that the ability to adapt is a quality that can be developed through training and support. Instead of using it as a criterion for recruitment, he may decide to prioritize other attributes and invest in training programs to help employees develop their adaptability skills.
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Use the following for the next five questions: The following data is given for the Walker Company: Budgeted production...............................................1,000 units Actual production........................................................980 units Materials: Standard price per lb.......................................................$2.00 Standard pounds per completed unit....................................12 Actual pounds purchased and used in production.........11,800 Actual price paid for materials......................................$23,000 Labor: Standard hourly labor rate....................................$14 per hour Standard hours allowed per completed unit.........................4.5 Actual labor hours worked................................................4,560 Actual total labor costs..................................................$62,928 The total direct labor variance is:
Answer:
$1,188 unfavorable
Explanation:
The computation of the total direct labor variance is shown below:
Total Labor Variance is
= Total standard cost - total actual cost
= (Standard hours × Standard rate) - (Actual hours × Actual rate)
= (980 units × 4.5 × $14) - ($62,928)
= 61,740 - $62,928
= $1,188 unfavorable
Since the actual cost is more than the standard cost which results into unfavorable variance
Middlefield Motors is evaluating project A, which would require the purchase of a piece of equipment for 395,000 dollars. During year 1, project A is expected to have relevant revenue of 143,000 dollars, relevant costs of 57,000 dollars, and some depreciation. Middlefield Motors would need to borrow 395,000 dollars for the equipment and would need to make an interest payment of 31,600 dollars to the bank in year 1. Relevant net income for project A in year 1 is expected to be 39,000 dollars and operating cash flows for project A in year 1 are expected to be 80,000 dollars. Straight-line depreciation would be used. What is the tax rate expected to be in year 1? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.
Answer:
First calculate depreciation
Operating cash flow = Net profit + Depreciation
=68000 = 33000+ Depreciation
Depreciation = 68000-33000
=35000$
Now let's calculate EBT
EBT = Revenue - cost - depreciation
= 146000-74000-35000
=37000$
Now , EBIT - Tax = Net Income
=37000 - Tax = 33000
Thus Tax = 4000
Tax rate = Tax amount/EBT
=4000/37000
=0.1081
i.e 10.81%
Explanation:
You dream of endowing a chair in finance at the local university that will provide a salary of $250,000 per year forever, with the first cash flow to be one year from today. If the university promises to invest the money at a rate of 4% per year, how much money must you give the university today to make your dream a reality?
Answer:
$6,250,000
Explanation:
Data provided in the question
Salary per year = $250,000
Rate of interest = 4% per year
So by considering the above information, the amount given today should be equal to
= Salary per year ÷ Rate of interest
= $250,000 ÷ 4%
= $6,250,000
By dividing the salary with the rate of interest we can get the amount that has to be given today
To fulfill your dream of endowing a chair in finance, which will provide a yearly salary of $250,000 indefinitely at a 4% interest rate, you would need to give the university $6,250,000 today.
Explanation:This question involves understanding the concept of a perpetuity in finance. A perpetuity is an infinite series of equal payments at fixed intervals. In this scenario, we are asked to find how much money you must give the university today for it to pay a yearly salary of $250,000 indefinitely, if it can invest the money at 4% per year.
Since we're dealing with a perpetuity, the formula for present value is: Present Value = Cash Flow / Interest Rate. You want to provide a cash flow (salary) of $250,000 per year, and the university can earn 4% interest, which in decimal form is 0.04. Substitute these values into the formula, and you get: Present Value = $250,000 / 0.04, which equals $6,250,000. Therefore, you would need to endow $6,250,000 to the university today in order to achieve your goal.
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Consider the Solow model, presented in chapter 7. Suppose that the economy is initially in a steady state and that some of the nation’s capital stock is destroyed because of a natural disaster or a war. (a) Determine the long-run effects of this on the quantity of capital per worker and on output per worker.
Answer:
Output per Worker will fall. Then, Net Investment will increase & steady state will be resumed.
Explanation:
As per Solows model : Output or income per worker depends on capital stock per worker.
Output per worker is directly related to capital per worker : more capital per worker implies more output per worker & vice versa. So, output per worker curve is upward sloping, dependent on capital per worker. However, output per worker rises at a diminishing rate with capital per worker. So, it is a swamp shaped curve.
Solow model steady state is where : constant proportion of this 'income per worker' saved & invested = constant depreciation of the existing capital stock.
Disaster or war reducing capital per worker : reduces the output per worker also [as they are directly related]. This denotes the state before the steady state. Here, saving (gross investment) per worker is more than depreciation of the existing capital stock. So, there will be net addition to capital stock. Capital stock & output per worker would increase, proceeding towards steady rate.
The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00 The firm is considering moving to a capital structure that is comprised of 40% debt and 60% equity, based on market values. The new funds would be used to replace the old debt and to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on debt to rise to 7%, while the required rate of return on equity would rise to 9.5%. If this plan were carried out, what would be AJC's new WACC and total value
Answer:
Old WACC 7.50%
New WACC 7.38%
Explanation:
D 200,000
E 600,000 (10,000 sahres x $60)
V 800,000
[tex]WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})[/tex]
Ke 0.08800
Equity weight 0.75
Kd 0.06
Debt Weight 0.25
t 0.4
[tex]WACC = 0.088(0.75) + 0.06(1-0.4)(0.25)[/tex]
WACC 7.50000%
New WACC:
[tex]WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})[/tex]
Ke 0.09500
Equity weight 0.6
Kd 0.07
Debt Weight 0.4
t 0.4
[tex]WACC = 0.095(0.6) + 0.07(1-0.4)(0.4)[/tex]
WACC 7.38000%
Paid $52,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years. Paid $260 cash per truck for the cost of their annual tune-ups. Paid $208 for the monthly cost of replacement filters on an air-conditioning system. Completed an addition to an office building for $292,500 cash. 1. Classify the above transactions as either a revenue expenditure or a capital expenditure. 2. Prepare the journal entries to record transactions a and d.
Answer:
1. Paid $52,000 cash to replace a compressor on a refrigeration system that extends its useful life by four years - Capital expenditure.
Paid $260 cash per truck for the cost of their annual tune-ups - This is a maintenance cost, a revenue expenditure.
Paid $208 for the monthly cost of replacement filters on an air-conditioning system - This is a maintenance cost, a revenue expenditure.
Completed an addition to an office building for $292,500 cash - Capital expenditure.
2. Debit Fixed asset (equipment) $52,000
Credit Cash $52,000
Being entries to capitalize the cost of compressor replaced
Debit Fixed asset (Building) $292,500
Credit Cash $292,500
Being entries to record the cost of addition to an office building
Explanation:
Revenue expenditure are cost or expenses incurred on items that would not last beyond a year. They are current in nature. Capital expenditure are cost incurred on items that will last beyond a year.
In other words, cash inflows from an items of capital expenditure are expected to flow to the entity for more than a year.
In 2020, HD had reported a deferred tax asset of $250 million with no valuation allowance. At December 31, 2021, the account balances of HD Services showed a deferred tax asset of $320 million before assessing the need for a valuation allowance and income taxes payable of $120 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2021. What amount should HD report as income tax expense in its 2021 income statement
Answer:
The answer given below;
Explanation:
Amount in Million $
Income tax payable-Unadjusted $120
Reversal of deferred tax asset $320*30%= $96
Total Income Tax Expense $216
As the deferred tax asset reversal will result in deferred tax expense therefore $216 in total will be reported as income tax expense.
Schedule of Cash Collections of Accounts Receivable OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 30% pay their accounts in the month of sale, while the remaining 70% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows: October $58,000 November 65,000 December 72,000 The Accounts Receivable balance on September 30 was $35,000. Prepare a schedule of cash collections from sales for October, November, and December. Enter all amounts as positive numbers. OfficeMart Inc. Schedule of Cash Collections from Sales For the Three Months Ending December 31 October November December Receipts from cash sales: Cash sales $ $ $ September sales on account: Collected in October October sales on account: Collected in October Collected in November November sales on account: Collected in November Collected in December December sales on account: Collected in December Total cash collected $ $ $
Answer and Explanation:
The preparation of the schedule of cash collections from sales for October, November, and December is presented below:
Particulars October November December
Sales $58,000 $65,000 $72,000
Cash sales $14,500 $16,250 $18,000
($58,000 × 0.25) ($65000 × 0.25) ($72,000 ×.25 )
Credit sale $43,500 $48,750 $54,000
($58,000 - $14,500)
September account receivable $35,000
current month payment
October credit sale: $13,050 $30,450
($43,500 × 30%) (43500 ×70%)
November credit sale $14,625 $34,125
($48,750 × 30%) (48750 × 70% )
December credit sale: $16,200
($54,000 × 30% )
Total cash collected $62,550 $61,325 $68,325
($14,500 + $35,000 + $13,050) ($16,250 + $30,450 + $14,625) ($18,000 + $34,125 + $16,200)
OfficeMart Inc. Schedule of Cash Collections from Sales for the Three Months Ending December 31: $39,750, $61,450, $66,000.
The Schedule of Cash Collections from Sales for OfficeMart Inc. is designed to outline the expected cash receipts for the three months ending December 31. The calculation takes into account the company's sales mix between cash and credit customers, as well as the payment patterns of credit customers.
For the month of October, the schedule includes cash collections from cash sales and collections from credit customers for both September and October sales. Given that 25% of sales are estimated to be in cash, the remaining 75% represents credit sales. Of these credit sales, 30% are collected in the same month, and the remaining 70% are collected in the following month.
In November, the schedule incorporates cash collections from cash sales and credit collections for both October and November sales. The same methodology is applied, considering the estimated percentages for cash and credit sales, as well as the collection patterns.
For December, the schedule includes collections from cash sales and credit collections for November and December sales. The calculations maintain the proportions of cash and credit sales and incorporate the expected collection timings.
The total cash collected for each month is the sum of cash sales and the collections from credit customers based on the specified percentages and payment patterns. The resulting figures of $39,750 for October, $61,450 for November, and $66,000 for December represent the anticipated cash inflows for each respective month.
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First Link Services granted 4.4 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. The common shares have a market price of $5 per share on the grant date of the restricted stock award. 1. Ignoring taxes, what is the total compensation cost pertaining to the restricted shares? 2. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives? (For all requirements, enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)
Answer and Explanation:
First Link Services granted
1. Total compensation
$4.4 million × $5
=$ 22 million
2.
Dr Compensation Expenses 11 million
Cr Paid in capital restricted stock 11 million
Dr Paid in capital restricted stock 22 million
Cr Common stock 4.4 millon
Cr Paid in capital excess of 17.6 million
In each of the following cases, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change.a) As a result of new discoveries of iron ore used to make steel, producers now pay less for steel, a major commodity and used in production.b) An increase in the money supply by the Federal Reserve increases the quantity of money that people wish to lend, lowering interest rates.c) Greater union activity leads to higher nominal wages.d) A fall in the aggregate price level increases the purchasing power of households' and firms' money holdings. As a result, they borrow less and lend more.
Answer: Please refer to Explanation
Explanation:
a) Due to the laws of supply and demand, new discoveries of Iron ore that have been discovered had the impact of reducing the price of Iron Ore. Iron Ore is a major component of Steel so it means Steel becomes cheaper to make. As a result of this, more steel will be produced. This would shift the short run AGGREGATE SUPPLY curve to the RIGHT.
b) The actions of the FED will result in the Short run AGGREGATE DEMAND CURVE shifting to the right. This is because interest rates are lower so people and businesses will borrow more for consumption and investment. Hence increasing Aggregate Demand.
c) Higher nominal wages will have to effect of increasing the labour cost for suppliers and producers. This would mean that input costs for Production will increase. This will have the impact of SHIFTING the short run AGGREGATE SUPPLY curve to the LEFT because the suppliers will supply less as it would be more expensive to produce more.
d) The AGGREGATE DEMAND CURVE is plotted against price. If prices drop, there will be a DOWNWARD movement ALONG the shortrun Aggregate Supply Curve as will buy more and invest more. I included a graph to demonstrate this.
Variable and Absorption Costing Scott Manufacturing makes only one product with total unit manufacturing costs of $56, of which $38 is variable. No units were on hand at the beginning of 2015. During 2015 and 2016, the only product manufactured was sold for $87 per unit, and the cost structure did not change. Scott uses the first-in, first-out inventory method and has the following production and sales for 2015 and 2016 Units Manufactured Units Sold 2015 120,000 90,000 2016 120,000 130,000 a. Prepare gross profit computations for 2015 and 2016 using absorption costing.
Answer:
Gross profit computations for 2015 and 2016 using absorption costing
2015 2016
Sales $7,830,000 $11,310,000
Less Cost of Goods Sold ($5,040,000) ($7,280,000)
Opening Stock 0 $1,680,000
Add Cost of Manufacture $6,720,000 $6,720,000
Less Closing Stock ($1,680,000) ($1,120,000)
Gross Profit $2,790,000 $4,030,000
Explanation:
Absorption Costing Product Cost = Direct Material + Direct Labor + Variable Overheads + Fixed Overheads
Gross profit computations for 2015 and 2016 using absorption costing
2015 2016
Sales $7,830,000 $11,310,000
Less Cost of Goods Sold ($5,040,000) ($7,280,000)
Opening Stock 0 $1,680,000
Add Cost of Manufacture $6,720,000 $6,720,000
Less Closing Stock ($1,680,000) ($1,120,000)
Gross Profit $2,790,000 $4,030,000
2015
Cost of Manufacture = $56×120,000 = $6,720,000
Closing Stock = $56× (120,000-90,000) = $1,680,000
2016
Cost of Manufacture = $56×120,000 = $6,720,000
Closing Stock = $56× (30,000+120,000-130,000) = $1,120,000
A company that usually sells satellite TV equipment for $50 and two years of satellite TV service for $450 has a special, time-limited offer in which it sells the equipment for $300 and gives the two years of satellite service for free. If the company sells one of these packages on July 1, how much revenue should the company recognize on July 1 when it delivers the equipment and receives the full price in cash?
The company should recognize $300 in revenue on July 1 from the sale of the satellite TV equipment as per the accrual accounting principle. However, this revenue also implicitly includes the charge for two years of satellite TV service, which will need to be recognized over the two year period.
Explanation:Under the accrual accounting principle, a company must recognize revenue when it is earned, not when payment is received. In this case, the company delivers the satellite TV equipment and begins providing the TV service on July 1. Therefore, the revenue the company should recognize on July 1 is the cash received for the sale of the equipment, which in this scenario, is $300. The service revenue will be recognized over the two year period.
The satellite TV equipment, which was previously sold for $50, is now being sold for $300 in the special offer, while the two years of satellite TV service that was previously sold for $450 is now given for free. Therefore, you can think of the $300 as payment for both the equipment and the two years of service bundled together in one package. It would be misleading to recognize the entire $300 as revenue for the equipment and treat the service as free, since customers are likely purchasing the package with the understanding that they are paying for both the equipment and the service.
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The company should recognize $300 in revenue on July 1 when it delivers the equipment and receives the full price in cash, reflecting the fair value of the goods delivered.
To determine the revenue recognized on July 1 when the company delivers the equipment and receives the full price in cash, we need to account for the fair value of the delivered goods and services.
1. Calculate the fair value of the delivered goods (satellite TV equipment):
Fair value of equipment = $300 (as per the special offer)
2. Determine the revenue recognized:
Revenue recognized = Fair value of equipment
= $300
Therefore, the company should recognize $300 in revenue on July 1 when it delivers the equipment and receives the full price in cash.
The revenue recognized is based on the fair value of the goods delivered, which in this case is the satellite TV equipment sold at the discounted price.
Morris Company had the following adjusted trial balance:
Account Titles Debit Credit
Cash $21,460
Accounts Receivable 19,060
Supplies 7,690
Equipment 36,600
Accumulated Depreciation $8,700
Accounts Payable 4,690
Unearned Rent Revenue 2,240
Capital Stock 23,580
Retained Earnings 22,500
Dividends 15,000
Commission Revenue 49,700
Rent Revenue 7,300
Depreciation Expense 5,200
Utilities Expense 8,600
Supplies Expense 5,100
Total $118,710 $118,710
The president of Morris Company has asked you to close the books (prepare and process the closing entries).
Required:
After the closing process has been completed, answer the following questions:
During the closing process, what amount was transferred from the income summary account to the Retained Earnings account in the third closing entry (i.e., after revenue and expense accounts have been closed to Income Summary)?
$
What is the balance in the Retained Earnings account?
What is the balance in the depreciation expense account?
Answer:
$38,100 ; $45,600 and $0
Explanation:
The computation is shown below:
For amount transferred from the income summary account to the Retained Earnings account in the third closing entry i.e net income or net loss
As we know that
Net income = Total revenues - total expenses
Commission revenue $49,700
Rent revenue $7,300
Less: expenses
Depreciation expense - $5,200
Utilities expense -$8,600
Supplies expense -$5,100
Net income $38,100
The balance in retained earning account is
= Opening retained earning balance + net income - dividend paid
= $22,500 + $38,100 - $15,000
= $45,600
And, the balance in depreciation expense account is zero as this depreciation expense account is closed while closing the expenses account i.e utilities expense, supplies expense and depreciation expenses
Bradford Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost: C = $83,000 + $12M where: C = monthly manufacturing overhead cost, and M = machine hours The standard error of estimate of the regression is $7,500. The standard time required to manufacture one six-unit case of Bradford's single product is two machine hours. Bradford applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 53,000 cases. Bradford's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,300 cases would be:
Answer:
Bradford's estimated variable manufacturing overhead cost is $127,200
Explanation:
The cost function=$83,000+$12M
where M stands for machine hours required to produce the expected output in the month under review.
Each one-six unit case of Bradford's single product requires two machine hours,hence 5,300 cases would require 10,600 hours(5,300*2hrs).
Total estimated variable manufacturing overhead=cost per machine hour*expected number of machine hours
cost per machine hour is $12 as seen in the cost function
estimated variable manufacturing overhead=$12*10,600=$127,200
An outside supplier has offered to make and sell the part to the company for $24.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part Z95 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income
Answer:
Net operating income would decrease by $36,000 per year.
Explanation:
The company's current cost of manufacturing a part Z95 is $33.9 which includes all the material, labor and overhead costs. If the company buys this part from an outside supplier it will cost $24.10 each. but the depreciation and factory overhead cannot be avoided. The depreciation is $5.40 and factory overheads are $8.60. This will be added to the cost of buying each part.
$24.10 + $5.40 + $8.60 = $38.1
The cost of buying the part is greater than the cost of making it.
Wilson’s is reviewing a project with an internal rate of return of 13.09 percent and a beta of 1.42. The market risk premium is 8.1 percent, the tax rate is 35 percent, and the risk-free rate is 2.9 percent. The firm's WACC is 12.68 percent. Will the project be accepted if the WACC is used as the discount rate for the project? Should the project be accepted according to the CAPM, and why or why not?
Answer:
Accepted and rejected
Explanation:
Since the internal rate of return is 13.09% and the WACC is 12.68%
As we can see that the internal rate of return is higher than the WACC as WACC is considered as the discount rate
So the project should be accepted
And, if CAPM is used
So, the expected rate of return is
If CAPM is used
Risk-free rate of return + Beta × market risk premium
= 2.9% + 1.42 × 8.1%
= 2.9% + 11.502%
= 14.40%
And, The Internal rate of return = 13.09%
Since the internal rate of return is less than the expected rate of return therefore the project should be rejected