Answer:
1. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations FALSE, IT IS EXACTLY THE OPPOSITE, SINCE THE PORTFOLIO'S RISK IS LIKELY TO BE SMALLER DUE TO DIVERSIFICATION.
2. The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio TRUE, NEGATIVELY CORRELATED STOCKS ARE USED TO DECREASE A PORTFOLIO'S RISK
3. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk. TRUE, THIS STATEMENT IS JUST THE OPPOSITE OF STATEMENT 1 WHICH WAS FALSE.
Diversification helps to reduce the risk of a portfolio by spreading it across different assets.
Explanation:1. False. Due to the effects of diversification, the portfolio's risk is likely to be less than the average of all stocks' standard deviations. Diversification helps to spread the risk across different assets, reducing the overall risk of the portfolio.
2. True. By adding negatively correlated stocks to the portfolio, the unsystematic risk component of the total portfolio risk can be reduced. This is because negatively correlated stocks tend to move in opposite directions, offsetting each other's risks.
3. True. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations because diversification lowers the portfolio's risk. Diversification helps to reduce the impact of individual stock price movements on the overall portfolio.
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You are attempting to value a call option with an exercise price of $105 and one year to expiration. The underlying stock pays no dividends, its current price is $105, and you believe it has a 50% chance of increasing to $122 and a 50% chance of decreasing to $88. The risk-free rate of interest is 10%. Calculate the call option’s value using the two-state stock price model.
Final answer:
Using the two-state stock price model, the value of a call option with a strike price of $105 given the provided stock price scenarios and a risk-free rate of 10% is $7.73.
Explanation:
The question asks us to value a call option using the two-state stock price model, sometimes referred to as the binomial option pricing model. This model considers two possible future outcomes for the stock price at the expiration of the option: it can either go up or down. Here, we'll calculate the value of a call option with a strike price of $105, an expiration of one year, a current stock price of $105, and a risk-free rate of 10%. The stock has a 50% chance to increase to $122 (the up-state) and a 50% chance to decrease to $88 (the down-state), and it pays no dividends.
First, calculate the payoff in each state. If the stock price goes up to $122, the option will be worth $122 - $105 = $17 because this is the amount by which the stock price exceeds the exercise price. If the stock price goes down to $88, the option will be worthless because the stock price is below the exercise price. We then calculate the expected value of the option at expiration, which is (0.5 * $17) + (0.5 * $0) = $8.50.
Next, we discount this expected payoff back to the present value using the risk-free rate. The formula for the present value is $8.50 / (1 + 0.10) = $7.73. Therefore, the value of the call option today, according to the two-state stock price model, is $7.73.
PowerTrain Sports Inc. manufactures and sells two styles of All Terrain Vehicles (ATVs), the Mountain Monster, and Desert Dragon from a single manufacturing facility. The manufacturing facility operates at 100% of capacity.
The following per unit information is available for the two products:
Mountain Monster
Sales price $5,400
Variable cost of goods $3,285
Manufacturing margin $2,115
Variable selling expenses $1,035
Contribution margin $1,080
Fixed expenses $485
Income from operations $595
Desert Dragon
Sales price $5,250
Variable cost of goods sold $3,400
Manufacturing margin $1,850
Variable selling expenses $905
Contribution margin $945
Fixed expenses $310
Income from operations $635.00
In addition, the following sales unit volume information for the period is as follows: Mountain Monster
Sales unit volume 5,000
Desert Dragon
Sales unit volume 4,850
a. Prepare a contribution margin by product report.
b. Calculate the contribution margin ratio for each product as a percent, rounded to one decimal place.
c. Calculate the contribution margin ratio for each product as a percent, rounded to one decimal place.
Answer:
Contribution margin ratio Mountain Monster *100= 20.0 %
Contribution margin ratio Desert Dragon * 100= 18.00%
Explanation:
PowerTrain Sports Inc.
Contribution Margin
Product Report
Mountain Monster, Desert Dragon
Sales price $5,400 $5,250
Variable cost of goods $3,285 $3,400
Manufacturing margin $2,115 $1,850
Variable selling expenses $1,035 $905
Contribution margin $1,080 $945
Fixed expenses $485 $310
Income from operations $595 $635.00
b.Contribution margin ratio= Contribution Margin / Sale
Contribution margin ratio= Sales - Variable Costs / Sale
b. Contribution margin ratio Mountain Monster *100=
=1080/5400 * 100= 0.2*100= 20.0 %
b.Contribution margin ratio Desert Dragon * 100=
=945/5250* 100 = 0.18*100= 18.00%
c.Contribution margin ratio Mountain Monster *100=
=1080/5400 * 100= 0.2*100= 20.0 %
c.Contribution margin ratio Desert Dragon * 100=
=945/5250* 100 = 0.18*100= 18.00%
Explanation of contribution margin for Mountain Monster and Desert Dragon ATVs.
a. Contribution Margin by Product Report:
Mountain Monster:
Sales price: $5,400Variable cost of goods: $3,285Contribution margin: $1,080Desert Dragon:
Sales price: $5,250Variable cost of goods sold: $3,400Contribution margin: $945b. Contribution Margin Ratio:
Mountain Monster: $1,080 / $5,400 = 0.2 or 20%
Desert Dragon: $945 / $5,250 = 0.18 or 18%
c. Contribution Margin Ratio:
Mountain Monster: $1,080 / $3,285 = 0.33 or 33%
Desert Dragon: $945 / $3,400 = 0.278 or 27.8%
Emily Turnbull, president of Aerobic Equipment Corporation, is concerned about her employees’ well-being. The company offers its employees free medical, dental, and life insurance coverage. It also matches employee contributions to a voluntary retirement plan up to 6% of their salaries. Assume that no employee’s cumulative wages exceed the relevant wage bases. Payroll information for the biweekly payroll period ending January 24 is listed below.
Wages and salaries $2,300,000
Employee contribution to voluntary retirement plan 115,000
Medical insurance premiums paid by employer 46,000
Dental insurance premiums paid by employer 16,100
Life insurance premiums paid by employer 8,050
Federal and state income tax withheld 494,500
FICA tax rate 7.65%
Federal and state unemployment tax rate 6.20%
1. Record the employee salary expense, withholdings, and salaries payable (or say No journal entry required.)
2. Record the employer-provided fringe benefits (or say No journal entry required.)
3. Record the employer payroll taxes (or say No journal entry required.)
Answer:
1. Salary expense = $2,300,000
Withholdings = $494,500
Salary payable = $1,805,500
2. Total fringe benefits = $185,150
3. Payroll tax = $494,500
Explanation:
1. Employee salary expense is given as $2,300,00
Withholdings is given as $494,500. This is the sum total of federal and state FICA taxes and unemployment tax.
Salaries payable is employee salary expense less withholdings.
Salaries payable = 2,300,000 - 494,500
= $1,805,500
2. Employer-provided fringe benefits includes medical insurance, dental insurance, life insurance and voluntary retirement plan contribution. The corporation matches employee contributions to a voluntary retirement plan up to 6% of their salaries and employee contribution to voluntary retirement plan is $115,000. Since this amount is 5% of salaries, the corporation will contribute an equal amount.
Medical insurance premiums paid by employer = $46,000
Dental insurance premiums paid by employer = $16,100
Life insurance premiums paid by employer = $8,050
Employer contribution to voluntary retirement plan = $115,000
Total fringe benefits = $185,150
3. Employer payroll taxes includes Federal and state FICA taxes and unemployment tax.
Federal FICA tax (rate of 7.65%) = (7.65/100) * 2300000 = $175,950
State FICA tax (rate of 7.65%) = (7.65/100) * 2300000 = $175,950
Unemployment tax (rate of 6.20%) = (6.20/100) * 2300000 = $142,600
Total pay roll tax = 175950 + 175950 +142600
= $494,500
No journal entry required. The employer-provided fringe benefits include medical insurance, dental insurance, and life insurance. The employer payroll taxes include FICA tax, federal unemployment tax, and state unemployment tax.
Explanation:No journal entry required.The employer-provided fringe benefits are:
Medical insurance premiums paid by employer: $46,000Dental insurance premiums paid by employer: $16,100Life insurance premiums paid by employer: $8,050The employer payroll taxes are:
FICA tax: $176,145Federal unemployment tax: $28,600State unemployment tax: $28,600Learn more about Employer-provided fringe benefits and payroll taxes here:https://brainly.com/question/32558788
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The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2020, its first year of operations. The enacted income tax rate is 20% for all years. Pretax accounting income $800,000 Excess tax depreciation (480,000) Litigation accrual 70,000 Unearned rent revenue deferred on the books but appropriately recognized in taxable income 60,000 Interest income from New York municipal bonds (20,000) Taxable income $430,000 1. Excess tax depreciation will reverse equally over a four-year period, 2021-2024. 2. It is estimated that the litigation liability will be paid in 2024. 3. Rent revenue will be recognized during the last year of the lease, 2024. 4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2024. Instructions (a) Prepare a schedule of future taxable and (deductible) amounts. (b) Prepare a schedule of the deferred tax (asset) and liability at the end of 2020. (c) Since this is the first year of operations, there is no beginning deferred tax asset or liability. Compute the net deferred tax expense (benefit). (d) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2020
Answer:
income tax expense 156,000 debit
deferred income tax liability 70,000 credit
income tax payable 86,000 credit
schedule:
2021 2022 2023 2024
depreciation 120,000 120,000 120,000 120,000
litigation (70,000)
rent revenue 60,000
taxable income 120,000 120,000 120,000 110,000
2021 2022 2023 2024
beginning 70,000 46,000 22,000 (2,000)
dep adjustment (24,000) (24,000) (24,000) (24,000)
rent revenue 12,000
litigation 14,000
ending 46,000 24,000 (2,000)* 0
Explanation:
pretax income 800,000
permanent difference:
municipal bonds interest (20,000)
accounting taxable income 780,000
temporary difference:
depreciation expense (480,000)
litigation 70,000
rent revenue 60,000
taxable income 430,000
480,000 / 4 = 120,000
we have income tax payable: 430,000 x 20% = 86,000
income tax expense 780,000 x 20% = 156,000
deferred tax income laibility 156,000 - 86,000 = 70,000
*on the tax schedule as the value switches to negative we no longer have a tax liability but asset.
the municipal bonds are not considered into calcualtikon as they are tax exempt therefore do not create temporary difference.
a. Deductible Amounts:
- Excess Tax Depreciation (reversal): 120,000 ($480,000 / 4)
- Litigation Accrual (payment): 0
- Unearned Rent Revenue (recognition): 60,000
Taxable Amounts:
- Excess Tax Depreciation (reversal): 120,000 annually
- Litigation Accrual (payment): 0 annually
- Unearned Rent Revenue (recognition): 0 annually
- Interest Income from New York Municipal Bonds: 20,000 annually
b. Deferred Tax Asset:
- Excess Tax Depreciation (reversal): 120,000
Deferred Tax Liability:
Net Deferred Tax Liability: 14,000 (Liability) + 12,000 (Liability) - 120,000 (Asset) = 6,000 (Liability)
c. Net Deferred Tax Expense (Benefit) = 6,000 (Liability)
d. Deferred Tax Expense (Income Statement) = 6,000 (from part c)
Income Taxes Payable (Balance Sheet) = 160,000 (Income Tax Expense) - 6,000 (Deferred Tax Expense) = 154,000
Journal Entry:
- Debit Income Tax Expense: 160,000
- Debit Deferred Tax Expense: 6,000
- Credit Income Taxes Payable: 154,000
Schedule of Future Taxable and (Deductible) Amounts:
Year 2020:
Taxable Amounts:
- Pretax Accounting Income: 8,00,000
- Interest Income from New York Municipal Bonds: 20,000
Deductible Amounts:
- Excess Tax Depreciation (reversal): 1,20,000 (4,80,000 / 4)
- Litigation Accrual (payment): 0
- Unearned Rent Revenue (recognition): 60,000
Year 2021-2024 (Estimates):
Schedule of Deferred Tax (Asset) and Liability at the End of 2020:
Deferred Tax Liability:
- Litigation Accrual (payment): 14,000 (70,000 x 20%)
- Unearned Rent Revenue (recognition): 12,000 (60,000 x 20%)
Since there is no beginning deferred tax asset or liability, the Net Deferred Tax Expense (Benefit) for 2020 is equal to the change in the deferred tax liability:
Net Deferred Tax Expense (Benefit) = Change in Deferred Tax Liability
Net Deferred Tax Expense (Benefit) = 6,000 (Liability)
Journal Entry to Record Income Tax Expense, Deferred Taxes and Income Taxes Payable for 2020:
Income Tax Expense (Income Statement) = 8,00,000 (Pretax Accounting Income) x 20% = 1,60,000
Deferred Tax Expense (Income Statement) = 6,000 (from part c)
Income Taxes Payable (Balance Sheet) = 1,60,000 (Income Tax Expense) - 6,000 (Deferred Tax Expense) = 1,54,000
This entry records the income tax expense for 2020, the deferred tax expense and the income taxes payable for the year.
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The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate increasesbanks' incentives to borrow reserves from the Federal Reserve, thereby increasingthe quantity of reserves in the banking system and causing the money supply to rise The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system decreases banks' need to borrow from each other rises ▼ , and the federal funds rate increases ▼
The discount rate is the interest rate on loans from the Federal Reserve to banks, while the federal funds rate is the interest rate on loans between banks. The discount rate affects banks' borrowing incentives and the money supply, while the federal funds rate is influenced by open market operations.
Explanation:The discount rate is the interest rate on loans that the Federal Reserve makes to banks. This rate affects banks' incentives to borrow reserves from the Federal Reserve, which in turn impacts the quantity of reserves in the banking system and the money supply. On the other hand, the federal funds rate is the interest rate that banks charge one another for short-term loans, and it is influenced by open market operations conducted by the Federal Reserve.
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The sales of Carephase Company for the year are as given below: Quarter 1 $400,000 Quarter 2 $360,000 Quarter 3 $620,000 Quarter 4 $580,000 Fifty percent of the sales of the company are paid in cash. Of the sales on account, 60 percent are collected in the quarter of sale, the remaining 40 percent are collected in the quarter following the sale. Calculate the cash receipts for Quarter 4.
Answer:
The correct answer is $588,000.
Explanation:
According to the scenario, the computation of the given data are as follows:
We can calculate the cash receipts for Quarter 4 by using following formula:
Cash receipts for Quarter 4 = Cash Sales + Cash collected from credit sales in Qtr 4 + Accounts receivable of Qtr 3
Where, Cash sales = $580,000 × 50% = $290,000
Cash collected from credit sales in Qtr 4 = ($580,000 × 50%) ×60% = $174,000
Accounts receivable of Qtr 3 = ($620,000 × 50%) × 40% = $124,000
By putting the value, we get
Cash receipts = $290,000+$174,000+$124,000
= $588,000
Final answer:
Quarter 4 cash receipts for Carephase Company are calculated by summing 50% of the Quarter 4 sales, 60% of Quarter 4 sales on account, and 40% of Quarter 3 sales on account. The total cash receipts for Quarter 4 are $588,000.
Explanation:
To calculate the cash receipts for Carephase Company in Quarter 4, we need to consider the cash sales and the collections from sales made on account in both Quarter 3 and Quarter 4. According to the information given, 50% of the sales are paid in cash, and of the sales on account, 60% are collected in the quarter of the sale and the remaining 40% in the following quarter.
So for Quarter 4, the cash receipts from cash sales would be 50% of Quarter 4 sales, which is 50% of $580,000, equating to $290,000. In addition, 60% of the sales on account from Quarter 4 (50% of $580,000) will be collected, amounting to $174,000. Furthermore, 40% of the sales on account from Quarter 3 will be collected in Quarter 4, which is 40% of $310,000 (being 50% of $620,000 as sales on account for Quarter 3), yielding $124,000.
Summing these up gives us the total cash receipts for Quarter 4: $290,000 (cash sales) + $174,000 (Quarter 4 collections on account) + $124,000 (Quarter 3 collections on account) = $588,000.
The following price quotations are for exchange-listed options on Primo Corporation common stock. Company Strike Expiration Call Put Primo 61.12 55 Feb 7.25 0.48 With transaction costs ignored, how much would a buyer have to pay for one call option contract. Assume each contract is for 100 shares.
Answer: $725
Explanation:
One call option is valued at $7.25.
We are to find the value of a Call Option contract which is assumed to have a 100 shares in it.
If therefore, 1 call option is $7.25, then 100 call options is,
= 7.25 * 100
= $725
A buyer would have to pay $725 for one call option contract.
If you need any clarification do react or comment.
The cost for one call option contract for Primo Corporation common stock, ignoring transaction costs, would be $725.
Explanation:In the provided question, we're given data on exchange-listed options for Primo Corporation common stock. The price quotation for the call option is listed as $7.25. An options contract typically represents 100 shares of the underlying stock, unless otherwise specified. Therefore, ignoring transaction costs as mentioned in the question, the cost for one call option contract would be the price of the call option times 100. In this case, the cost for one contract would be 7.25 x 100, hence $725.
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On November 1, 2018, Aviation Training Corp. borrows $46,000 cash from Community Savings and Loan. Aviation Training signs a three-month, 6% note payable. Interest is payable at maturity. Aviation’s year-end is December 31.Required: Record the necessary entries in the Journal Entry.i. Record the issuance of note.ii. Record the adjustment for interest.iii. Record the repayment of the note at maturity.
Answer and Explanation:
The journal entries are shown below:
1. Cash $46,000
To Note payable $46,000
(Being the issuance of the note is recorded)
2. Interest expense ($46,000 × 6% × 2 months ÷ 12 months) $460
To interest payable $460
(Being the interest expense is recorded)
3. Note payable $46,000
Interest payable $460
Interest expense ($46,000 × 6% × 1 months ÷ 12 months ) $230
To cash $46,690
(Being the repayment of the note is recorded)
On April 1, 2017, Shannon Company, a U.S. company, borrowed 100,000 euros from a foreign bank by signing an interest-bearing note due April 1, 2018. The dollar value of the loan was as follows: Date Amount April 1, 2017 $ 97,000 December 31, 2017 103,000 April 1, 2018 105,000 How much foreign exchange gain or loss should be included in Shannon’s 2017 income statement?
Answer:
Foreign exchange loss of $6000
Explanation:
The dollar loan should recognized in the balance of Shanon Company as $97,000 on 1 April 2017,at end of the year the loan amount should e revalued to reflect its current fair value.
At end of the year 2017,the dollar value of the loan has risen to $103,000,hence the obligation being owed has increased by $6,000($103,000-$97000),hence the increase in value of debt should be credited to loan account and debited to Shanon's 2017 income statement
Final answer:
Shannon Company should record a foreign exchange gain of $6,000 in the 2017 income statement due to the increase in the dollar value of the loan from $97,000 to $103,000 between April 1 and December 31, 2017.
Explanation:
On April 1, 2017, Shannon Company took out a loan for 100,000 euros, and the dollar value of this loan was $97,000. By December 31, 2017, the value of the same amount of euros rose to $103,000. To determine the foreign exchange gain or loss, Shannon Company should calculate the change in the dollar value of the loan between these two dates.
The process of calculating foreign exchange gains or losses involves comparing the dollar value of the loan at the beginning and end of the given period. In this case, Shannon Company's loan value went from $97,000 (April 1, 2017) to $103,000 (December 31, 2017), resulting in an increase of $6,000. This increase represents a foreign exchange gain that should be recorded in Shannon's 2017 income statement.
It is important to note that Shannon Company will have to reassess the value of the loan once more on the due date, April 1, 2018, at which point the dollar value is $105,000. However, for the 2017 income statement, only the change up to December 31, 2017, is relevant.
Farmer and Taylor formed a partnership with capital contributions of $250,000 and $300,000, respectively. Their partnership agreement calls for Farmer to receive a $80,000 per year salary. The remaining income or loss is to be divided equally. Assuming net income for the current year is $195,000, the journal entry to allocate net income is:
Answer:
The journal entry is made as follows;
Explanation:
Net Income $195,000
Salary of farmer ($80,000)
Net distributive income $115,000
Per partner share $115,000/2=$57,500
Income Summary Dr.$115,000
Farmer Capital Cr.$57,500
Taylor Capital Cr.$57,500
Variable and Absorption Costing During its first year, Walnut, Inc., showed a $14 per-unit profit under absorption costing but would have reported a total profit $16,000 less under variable costing. If production exceeded sales by 1,000 units and an average contribution margin of 62.5% was maintained, what is the apparent: Fixed cost per unit? Sales price per unit? Variable cost per unit? Unit sales volume if total profit under absorption costing was $168,000?
Answer and Explanation:
The computation is shown below:
Fixed cost per unit is
= Higher Profit under Absorption costing ÷ units exceeded than sales
= $16,000 ÷ 1,000 units
= $16 per unit
Sales price per unit
= Contribution Margin Per Unit ÷ Contribution Margin Ratio
= ($16 + $14) ÷ (62.50%)
= $48
Variable Cost Per Unit is
= Sales Price Per Unit - Contribution Margin Per Unit
= $48 - $30
= $18 per unit
Unit sales volume is
= Total Profit under Absorption costing ÷ profit per unit
= $168,000 ÷ $14 per unit
= 12000 units
We simply applied the above formulas
The fixed cost per unit is $16. The sales price per unit is $22.40, the variable cost per unit is $8.40 and the unit sales volume of total profit under absorption costing is 10,857 units.
Explanation:If Walnut Inc. had a full-year profit of $168,000 under absorption costing, they would have had a total profit of $152,000 under variable costing (which is $16,000 less). The difference between variable costing and absorption costing profit gives us insight into the fixed manufacturing overhead per unit. Since production exceeds sales by 1,000 units, the fixed cost per unit would be $16 (the $16,000 difference divided by the 1,000 units).
Since the contribution margin is 62.5% and under absorption costing the profit per unit is $14, the selling price per unit is $14 divided by 62.5% which is $22.40. Therefore, the variable cost per unit would be the selling price minus profit per unit, which means $22.40 - $14 = $8.40.
To find the unit sales volume, we'll subtract the difference between absorption and variable costing profits from the absorption costing total profit and divide that result by the profit per unit under absorption costing. Hence, ($168,000 - $16,000) ÷ $14 = 10,857 units (rounded to the nearest whole number).
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During December, Far West Services makes a $2,000 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. Record sales and sales tax payable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Answer:
Debit Accounts receivable $2170
Credit sales revenue $2000
Credit State tax $120
Credit Local tax $50
Explanation:
When sales are made on credit, the entries required are debit Accounts receivable and credit Sales revenue.
Considering the taxes, the entries would then be grossed by the tax percentage and the grossed amount is debited to accounts receivable while the taxes are credited to the tax payable account.
State tax
= 6% * $2,000
= $120
Local tax
= 2.5% * $2,000
= $50
Total receivable
= $2000 + $120 + $50
= $2170
Answer:
Dr. Account Receivable $2,170
Cr. Sales tax Payable $170
Cr. Sales $2,000
Explanation:
Goods and Services are subject to taxes and these taxed are collected by the business from its customers on the behalf of the government. The tax is included in the invoices and recorded separately from the sales.
Credit sales = $2,000
Sales Tax = $2,000 x 6% = $120
Local sales tax = $2,000 x 2.5% = $50
Total Sales tax Payable = $120 + 50 = $170
Receivable amount = $2,000 + $120 + $50 = $2,170
Northwestern Bells stocks a certain switch connector at its central warehouse for supplying field service offices. The yearly demand for these connectors is 38,948 units. Northwestern estimates its annual holding cost for this item to be $25 per unit per year. The cost to place and process an order from the supplier is $4.26. The company operates 300 days per year, and the lead time to receive an order from the supplier is 2 working days. What is the economic order quantity?
Answer:
115 units
Explanation:
The computation of the economic order quantity is shown below:
[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
where,
Annual demand is 38,948 units
Ordering cost is $4.26 per order
And, the carrying cost or holding cost is $25 per unit per year
Now placing these values to the above formula
So,
[tex]= \sqrt{\frac{2\times \text{38,948}\times \text{\$4.26}}{\text{\$25}}}[/tex]
= 115 units
We simply applied the above formula so that the economic order quantity could come
A movie theater faces the following hourly inverse demand curves:
Seniors: PS = 88 - Q
Adults: PA = 94 - Q
The theater has a fixed cost of $40, and a constant marginal cost of $2 per ticket.
a) If the movie theater uses segmenting, calculate the ticket prices charged to adults and seniors.
Answer:
Price for Seniors $ 45
Price for Adults $ 46
Explanation:
As the theater uses segmenting it will solve to maximize profit on each segment:
PS = 88- Q
Total Revenue = price x quantity = (88 - Q) Q = -Q^2 + 88Q
Marginal Revenue = 88-2Q
Marginal Revenue = Marginal Cost --> point to maximize profit
88 - 2Q = 2
(88 - 2) / 2 = Q
43 = Q
P = 88 - 43 = 45
For Adults:
Revenue (94 - Q)*Q = 94Q - Q^2
Marginal Revenue = 94 - 2Q
Marginal Revenue = Marginal Cost --> point to maximize profit
(94 - 2)Q = 2
Q = 46
P = 94 - 46 = 46
Harvard Company purchased equipment having an invoice price of $11,500. The terms of sale were 2/10, n/30, and Harvard paid within the discount period. In addition, Harvard paid a $160 delivery charge, $185 installation charge, and $931 sales tax.
Required:
a. The amount recorded as the cost of this equipment is ____________.
Answer:
$12,546
Explanation:
Invoice price $11,500 × 0.98 =$11,270
Add: Delivery charge $160
Installation charge $185
Sales tax $931
Cost of equipment $12,546
Therefore the amount recorded as the cost of this equipment is is $12,546
Wadhams Snow Removal's cost formula for its vehicle operating cost is $1,900 per month plus $430 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 21 snow-days. The actual vehicle operating cost for the month was $11,470.
Required:
1. The vehicle operating cost in the planning budget for December would be closest to _________.
Answer:
$8,780
Explanation:
According to the planning budget, the monthly operating cost for the vehicle is:
[tex]C=1,900+430d[/tex]
Where 'd' is the number of snow-days.
If the company has planned for 16 snow days, then the operating cost in the planning budget would be:
[tex]C=1,900+430*16\\C=\$8,780[/tex]
The planning budget for December would be $8,780
Bill deposits $100 at the end of each year for thirteen years into fund A. Seth deposits $100 at the end of each year for thirteen years into fund B. Fund A earns an annual effective rate of 15% for the first five years and an annual effective rate of 6% thereafter. Fund B earns an annual effective rate of i throughout the thirteen years. The two funds have equal accumulated values at the end of the thirteen years. Find i.
Answer:
The value of interest is 7,387%
Explanation:
We will first deal with fund A. First we will deal with the first 5 years earning interest at 15%.
Using a financial calculator we enter the following keystrokes
n = number of years i = interest pmt = annual payments FV = future value
n = 5 i = 15% pmt = 100 COMP FV
FV = 674,23
Now we wil use 674,23 as our Present Value (PV).
n = 8 PV = 674,23 i = 6% pmt = 100 comp FV
FV = 2064,36
Now we use this figure as the FV in Fund B to determine the interest rate.
n = 13 FV = 2065,36 pmt = 100 comp I *Note that either payments or FV needs to be entered as a negative otherwise the calculator will give you an error.
Interest = 7,387%
To find the effective annual interest rate Seth's fund needs to match the future value of Bill's fund, set the future values of the two funds equal to each other, and solve for i.
Explanation:To solve this problem, we need to calculate the future value of Bill's and Seth's annual deposits to their respective funds over the thirteen years.
For Bill's deposits in Fund A, we need to divide it into two parts due to the change in the interest rate. The first part has 5 years of deposits with an interest rate of 0.15, while the second part has 8 years of deposits with an interest rate of 0.06. So, the accumulated value of Bill's deposits at the end of thirteen years will be:
Future_value_Bill = $100 * [(1+0.15)^5 - 1] / 0.15 + $100 * [(1+0.06)^8 - 1] / 0.06.
For Seth's deposits in Fund B, it's simpler because the interest rate remains the same over the thirteen years. So, the accumulated value of Seth's deposits after thirteen years can be calculated as: Future_value_Seth = $100 * [(1+i)^13 - 1] / i.
Since it's given that the two funds have equal accumulated values at the end of the thirteen years, we can set the above two formulas equal to each other and solve for i:
$100 * [(1+0.15)^5 - 1] / 0.15 + $100 * [(1+0.06)^8 - 1] / 0.06 = $100 * [(1+i)^13 - 1] / i.
Solving this equation will yield the annual effective rate, i, for Seth's account Fund B.
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Charlotte's Crochet Shoppe has 14,300 shares of common stock outstanding at a price per share of $75 and a rate of return of 11.61 percent. The company also has 280 bonds outstanding, with a par value of $2,000 per bond. The pretax cost of debt is 6.13 percent and the bonds sell for 97.2 percent of par. What is the firm's WACC if the tax rate is 40 percent?
Charlotte's Crochet Shoppe's Weighted-Average Cost of Capital (WACC) is 8.9%.
Data and Calculations:
Outstanding common stock shares = 14,300
Price per share = $75
Value of common stock = $1,072,500 ($75 x 14,300)
Return of return of common stock = 11.61%
Price of Bonds = $1,944 ($2,000 x 97.2%)
Value of bonds outstanding = $544,320 ($1,944 x 280)
Selling rate of bonds = 97.2%
Pretax cost of debt = 6.13%
After-tax cost of debt = 3.678% (6.13% x (1 - 40%)
Total value of stock and debt = $1,616,820 ($1,072,500 + $544,320)
Weight of common stock = 66.3% ($1,072,500/$1,616,820 x 100)
Weight of bonds = 33.7% ($544,320/$1,616,820 x 100)
WACC = (66.3% x 11.61%) + (33.7% x 3.678%)
= 7.7% + 1.2%
= 8.9%
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The Morning Jolt Coffee Company has projected the following quarterly sales amounts for the coming year: Q1 Q2 Q3 Q4 Sales $ 830 $ 860 $ 940 $ 970 a. Accounts receivable at the beginning of the year are $420. The company has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following (A negative answer should be indicated by a minus sign. Round your answers to 2 decimal places, e.g., 32.16.):
Answer and Explanation:
a. Q1 Q2 Q3 Q4
Collection period is 45 days
cash collection of Current quarter sales (Total days in quarter- cash collection period)/total days in quarter (90-45)90=1/2
Beginning receivable (A) 420 415 430 470
Sales (B) 830 860 940 970
Cash collections © 835.00 845.00 900.00 955.00
420+(830*1/2) 415+(860*1/2) 430+(940*1/2) 470+(970*1/2)
Ending receivables (A+B-C) 415.00 430.00 470.00 485.00
b.
Collection period is 60 days
cash collection of Current quarter sales (Total days in quarter- cash collection period)/total days in quarter (90-60)90=1/3
Beginning receivable (A) 420 553.33 573.33 626.67
Sales (B) 830 860 940 970
Cash collections © 696.67 840.00 886.67 950.00
420+(830*1/3) 553.33+(860*1/3) 573.33+(940*1/3) 626.67+(970*1/3)
Ending receivables (A+B-C) 553.33 573.33 626.67 646.67
c .
Collection period is 30 days
cash collection of Current quarter sales (Total days in quarter- cash collection period)/total days in quarter (90-30)90=2/3
Beginning receivable (A) 420 276.67 286.67 313.33
Sales (B) 830 860 940 970
Cash collections © 973.33 850.00 913.33 960
420+(830*2/3) 276.67+(860*2/3) 286.67+(940*2/3) 313.33+(970*2/3)
Ending receivables (A+B-C) 276.67 286.67 313.33 323.33
The cash collections for each quarter are calculated based on the company's sales and its 45-day collection period. For Q1 it's $830, for Q2 it's $1275, for Q3 it's $1370, and for Q4 it's $1440.
Explanation:Overall, let's understand that the cash collections are the amounts the company is able to gather from customers based on the company's receivable accounts. The 45-day collection period means that it takes the company approximately one and a half month to collect cash from its sales. To calculate the cash collections, we have to consider this collection timeline in relation to company's quarterly sales.
For the Q1, cash collections will be equivalent to the sales of Q1 since the collection period is within the same quarter. So, the cash collection for Q1 will be $830. For Q2, it'll include 45 days of Q1 sales and rest of Q2 sales. Thus, for Q2 we consider half of Q1 sales ($415) and full Q2 sales ($860) making it total of $1275. Using the same logic, Q3 cash collections would be half of Q2 sales ($430) and full Q3 sales ($940) resulting in $1370. And for Q4, it'll be half of Q3 sales ($470) and full Q4 sales ($970) totalling to $1440.
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A hurricane (declared a federal disaster) damaged a personal auto owned by Mr. and Mrs. South on June 15, 2018. Fair market value before the flood $18,500 Fair market value after the flood 2,000 Cost basis 20,000 Insurance proceeds 13,000 Adjusted gross income for this year 25,000 Calculate the South's deductible casualty loss.
Answer:
$900
Explanation:
South's deductible casualty loss = $900
Fair market value before the flood 18500
Fair market value after the flood (2000)
Decline in FMV 16500
Cost basis 20000
Lesser of basis or decline in FMV 16500
Minus: Insurance proceeds (13000)
Net loss 3500
Minus: $100 Floor (100)
10% of AGI (2500)
Deductible Loss 900
Cala Manufacturing purchases a large lot on which an old building is located as part of its plans to build a new plant. The negotiated purchase price is $224,000 for the lot plus $119,000 for the old building. The company pays $37,000 to tear down the old building and $54,696 to fill and level the lot. It also pays a total of $1,829,209 in construction costs—this amount consists of $1,720,600 for the new building and $108,609 for lighting and paving a parking area next to the building. Prepare a single journal entry to record these costs incurred by Cala, all of which are paid in cash.
Answer:
Land $434,696
Land improvements $108,609
Building $1,720,600
To Cash $2,263,905
(Being the amount paid in cash is recorded)
Explanation:
The journal entry is shown below:
Land $434,696
Land improvements $108,609
Building $1,720,600
To Cash $2,263,905
(Being the amount paid in cash is recorded)
The land, land improvements and the building increases the assets so it is debited while the cash is credited as the cash is paid
The computation of the land is shown below:
= Purchase price of the land + purchase price for the old building + paid amount for tear down the old building + cost to fill and level the lot
= $224,000 + $119,000 + $37,000 + $54,696
= $434,696
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to___________.
Answer:
The firm earns revenues of $360,000 per year. To receive a normal profit, the firm described above would have to earn additional revenue of $90,000
Explanation:
As per the information provided in the question, the current profit/loss after deducting all expenditure from income is as follows:
Particular Amount ($)
Revenue 360,000
Less: Wages and Salaries (200,000)
Less: Materials (75,000)
Less: New Equipment (30,000)
Less: Rented Property (20,000)
Less: Interest Costs (35,000)
Profit/Loss 0
As confirmed from the calculation above currently no profit is being earned even after the owner/manager not receiving income from the firm. Therefore, the firm should generate additional revenue of $90,000 in order to earn normal profit.
1. Why have OpenTable competitors had a difficult time competing against OpenTable? 2. What characteristics of the restaurant market make it difficult for a reservation system to work? 3. How did OpenTable change its marketing strategy to succeed? 4. Why would restaurants find the SaaS model very attractive?
Answer:
The answer to the question are listed in the explanation section below
Explanation:
The following number of question is explained below:
A thousands of restaurants use open table to allow their online bookings capability which is a right choice as open table is a well respected and as well large international company in the industry. Restaurants have moved from open table to the competition, for the following reasons such as retain customers,first class technology., comparable online booking, save money.Open table now has a real competition in the form of Eveve, which allows line reservation system for restaurants. SAAS model: Software as a service (POS) system. restaurant owners find it attractive because of the loud based solution,Lower initial and maintenance costs,easy upgrades, and lower learning curve
Carson Lee, a staff accountant, is a working on some research for his partner, Joe Davis. Joe has asked Carson to find the proper citation providing guidance on when the acquisition of equipment is reported in the operating section of the statement of cash flows. Using the authoritative literature, locate the correct guidance.
The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 230-10-45-12 provides guidance on when the acquisition of equipment is reported in the operating section of the statement of cash flows. This is generally when the resources have been procured from revenue operations. An example is when a company buys machinery with money from its core business activities.
Explanation:The guidance for when the acquisition of equipment is reported in the operating section of the statement of cash flows can be traced to the Generally Accepted Accounting Principles (GAAP), specifically the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 230-10-45-12. This standard stipulates that generally, purchases of equipment are a part of investing activities. Nonetheless, if the resources have been acquired from revenue operations, it may be considered an operating activity.
For example, let's presume a company purchases a substantial machine using cash from its operating activities - the money that comes from the core business operations. According to the ASC 230-10-45-12, these expenditures should be revealed in the Statement of Cash Flows under the operating activities section.
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Thornton Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $13,770,000; it will enable the company to increase its annual cash inflow by $5,100,000 per year. The plane is expected to have a useful life of five years and no salvage value. The second plane costs $27,900,000; it will enable the company to increase annual cash flow by $9,300,000 per year. This plane has an eight-year useful life and a zero salvage value.
Required
Determine the payback period for each investment alternative and identify the alternative Thornton should accept if the decision is based on the payback approach. (Round your answers to 1 decimal place.)
Answer:
The correct answer for first plane is 2.7 years and for second plane is 3 years and first plane should be accepted.
Explanation:
According to the scenario, the computation of the given data are as follows:
Payback period = Cost of first airplane ÷ Annual cash inflow
First plane cost = $13,770,000
Cash flow = $5,100,000
So, Payback period for first plane = $13,770,000 ÷ $5,100,000
= 2.7 years
Second plane cost = $27,900,000
Cash flow = $9,300,000
So, Payback period for second plane = $27,900,000 ÷ $9,300,000
= 3 years
First plane should be accepted as it has less payback period.
At the beginning of 2014, Aristotle Company acquired a mine for $845,160. Of this amount, $96,400 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 11,890,000 units of the ore appear to be in the mine. Aristotle incurred $163,880 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $38,560. During 2014, 2,570,000 units of ore were extracted and 2,189,000 of these units were sold.
(a) Compute the total amount of depletion for 2014.
(b) Compute the amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.
Answer:
a. Total amount of depletion for 2014 - $ 29,168,862
b. Charged as expenses for minerals sold = $ 24,844,607
Explanation:
Computations
Depreciable cost
Total cost of acquisition $ 845,160
Add: Development costs of mine $ 163,880
Add: Land reusable costs $ 38,560
Total depletable costs of minerals $ 1,047,600
Estimated ore recovery 11,890,000 tons
Cost of ore per ton $ 11.35 per ton
Total amount of depletion for 2014
$ 11.35 per ton * 2,570,000 tons $ 29,168,862
Charged as expenses on ore sold
Mineral ore sold - 2,189,000
Charged as expenses
$ 11.35 per ton * 2,189,000 $ 24,844,607
Answer:
(a) Compute the total amount of depletion for 2014.
$205,600(b) Compute the amount that is charged as an expense for 2014 for the cost of the minerals sold during 2014.
COGS = $175,120Explanation:
mine's cost:
purchase price $845,160
- land value $96,400
+ development costs $163,880
+ reparation costs $38,560
total cost = $951,200
depletion cost per ton of ore = $951,200 / 11,890,000 = $0.08 per ton
During 2014, 2,570,000 tons were extracted = 2,570,000 x $0.08 = $205,600
2,189,000 tons were sold x $0.08 = COGS = $175,120
On October 15, 2021, a 6% stock dividend was declared and distributed. The fair value of the common stock on this date was $32.3 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 10.3 million shares of common stock outstanding. The par of the common shares was $5 per share.
Prepare any necessary journal entries to record the above events.
Answer:
The answer is given below;
Explanation:
For Dividend
Dividend Expense (10.3*5*6%) Dr. $3.090 Million
Bank Cr.$3.090 Million
For fractional Shares,
Capital 100,000*32.3 Dr.$ 3,230,000
Cash Cr.$ 3,230,000
Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original cost of $315,000 less accumulated depreciation of $140,000) for $180,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $200,000 for four years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $34,400. a. Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery.
Final answer:
Granite Construction Company should sell the excess machinery based on a differential analysis of the cash inflows and outflows for both alternatives.
Explanation:
To determine whether Granite Construction Company should lease or sell the excess machinery, a differential analysis needs to be prepared. First, let's calculate the cash inflows and outflows for both alternatives:
Alternative 1: Lease
Cash inflows: $200,000
Cash outflows: $34,400
Net Cash Flow: $200,000 - $34,400 = $165,600
Alternative 2: Sell
Cash inflows: $180,000 - 5% brokerage commission
Cash outflows: None
Net Cash Flow: $180,000 - (5% * $180,000) = $180,000 - $9,000 = $171,000
Next, compare the net cash flows to determine the more profitable alternative:
If Granite Construction Company leases the machinery:
Net Cash Flow: $165,600
If Granite Construction Company sells the machinery:
Net Cash Flow: $171,000
The alternative with the higher net cash flow is more profitable, so in this case, Granite Construction Company should sell the excess machinery.
On January 1, Year 1, the Mahoney Company borrowed $168,000 cash from Sun Bank by issuing a five-year 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan based on the present value of annuity factor would be $40,725.The amount of principal repayment included in the December 31, Year 1 payment is:Multiple Choice$13,440.$37,467.$40,725.$27,285.
Answer:
The correct option is $27,285.
Explanation:
Annual interest =$168,000*8%
annual interest =$13,440.00
Annual repayment=$40,725.00
Principal repayment=Annual repayment-interest repayment
principal repayment=$40,725.00-$13,440.00
principal repayment=$ 27,285.00
The correct option is last option.
The first option is wrong because it is the interest repayment,not principal repayment.
The third option is also wrong because it comprises both interest and principal repayments
The option is $37,467 does not feature in the computation in anyway
Answer:
Principal paid= $27,285
Explanation:
The loan repayment is structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan and the accrued interest. This is called amortization.
The amount of principal = Annual installment - interest due
Annual installment = $40,725
Interest due = interest rate × principal amount
= 8%× 168,000 = $13,440
The amount of principal = $40,725 - $13,440
= $27,285
SY manufacturer (SYM) is producing T-shirt in three colors: blue, red, and white. The monthly demand for each color is 3000 units. Each shirt requires 0.5 pound of raw cotton that is imported from LuftGeshfet-Textile (LGT) Company in Brazil. The purchasing price per pound is $2.5 (paid only when the cotton arrives at SYM’s facilities) and transportation cost by sea is $o.2 per pound. The traveling time from LGT’s facilty in Brazil to SYM facility in the United States is two weeks. The cost of placing a cotton order, by SYM, is $100 and the annual interst rate that SYM is facing is 20 percent. a. What is the optimal order quantity of cotton? b. How frequently should the company order cotton? c. What is the resulting annual holding cost? d. What is the resulting annual ordering cost?
Answer:
a) Optimal order Quantity =4,472.13 pounds
b) No of times order per year= 12 times in a years i.e once in a month
c) Annual Holding cost = $1207.47
d) Ordering cost per annum = $1207.47
Explanation:
Total annual demand = 3000 ×3 × 12 × 0.5 pounds= 54,000 pounds
Ordering cost per order = 100
Holding cost per order = 20%× (2.5+0.2) = 0.54
Optimal order Quantity = √(2× 100×54000)/0.54
=4,472.13 pounds
No of times order per year
= 54,000/4472.13 = 12 times in a years
that is, once per month.
Annual Holding cost
= Holding cost per unit annum × Average inventory
= 0.54 × 1/2 × 4,472.135 = $1207.47
Ordering cost per annum
=Annual demand/order quantity × ordering cost per order
= 54,000/4472.13 × 100 = $1207.47