Answer:
Excess of investment center income over the minimum return set by the management.
Explanation:
Residual income can be defined as the continuous flow of cash after a particular work/task has been completed. This means an individual continuous to get payment after a work is done. This includes the amount of money that is acquired from business investments, royalties gotten from a published article or book, renting of an apartment, creating an application, working with different affiliates.
Residual income enables an individual to work on other business opportunities while still earning money from the previous efforts.
On January 1, 2021, White Water issues $450,000 of 6% bonds, due in 20 years, with interest payable annually on December 31 each year. Required: Assuming the market interest rate on the issue date is 6%, the bonds will issue at $450,000. Record the bond issue on January 1, 2021, and the first two interest payments on December 31, 2021, and December 31, 2022. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
If the market interest rate rises to 9% from the bond's coupon rate of 6%, the bond would be worth less than its face value. The present value of the final interest payment and principal at the new rate would total $9,724.77. Therefore, one would expect to pay less than $10,000 for this bond.
Explanation:When considering the purchase of a bond, the market interest rate at the time of purchase relative to the bond's coupon rate will determine whether the bond is bought at a premium, discount, or at par value. For a $10,000 ten-year bond with a 6% interest rate, if interest rates increase to 9% one year before the bond matures, the bond's price will fall because newer issues in the market offer a higher return.
Assuming that the bond has been paying $600 annually (6% of $10,000), and there is one more payment to be received before the bond matures, the present value of the final interest payment and the principal at a discount rate of 9% can be calculated as:
Final Interest Payment PV = $600 / (1 + 0.09) = $550.46 Principal PV = $10,000 / (1 + 0.09) = $9,174.31 Adding these two amounts together gives us the present value of the bond's future cash flows one year before maturity at the higher discount rate of 9%. Therefore, the total value is: $550.46 (interest) + $9,174.31 (principal) = $9,724.77 Thus, an investor would be willing to pay $9,724.77 for the bond under these circumstances, which is less than its face value of $10,000 due to the increase in market interest rates.Learn more about Bond Valuation here:https://brainly.com/question/34548471
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Brandon Ramirez wants to set up a scholarship at his alma mater. He is willing to invest $320,000 in an account earning 11 percent. What will be the annual scholarship that can be given from this investment
Answer:
$35,200
Explanation:
Given that
Invested amount = $320,000
Rate of interest = 11%
So by considering the above information, the amount of annual scholarship that can be given from this investment is
= Invested amount × Rate of interest
= $110,000 × 11%
= $35,200
By multiplying the invested amount with the rate of interest we can find out the annual scholarship amount
the annual scholarship that can be given from this investment:
$35,200
Considering that $320,000 is the amount invested.
Interest rate: 11%
Thus, taking into account the data above, the yearly scholarship amount that can be awarded from this investment is
= Amount invested × Interest rate
$110,000 × 11%
$35,200
The annual scholarship amount can be calculated by multiplying the invested amount by the interest rate.
Sustainable competitive advantage is influenced by a: (Check all that apply) Group of answer choices Product or service with better features or functions Committment to converting competitors' customers Higher price for the customer based on the value created for them Rareness factor, meaning that competitors cannot offer the same set of values to this customer
Answer: a. Product or service with better features or functions.
d. Rareness factor, meaning that competitors cannot offer the same set of values to this customer
Explanation:
Sustainable Competitive Advantage refers to the quality that a company has of being able to stay ahead of it's competitors in the long term.
The main way to do this is Value creation. The company has to give to the consumer, something that the consumer will value and keep coming back for.
One of those ways is to give consumers a better product with better features and functions. This will enable consumers to associate high quality products with a company leading to them having a better market share.
Another way is the RARENESS FACTOR. Offering a product or something in that product that consumers consider rare will create value for the company because rare things are often sought after.
If a Company's products are considered rare, consumers will value them more.
Final answer:
Sustainable competitive advantage largely depends on differentiated products, rareness factors, and constant innovation to maintain a unique market position and attract customers.
Explanation:
Sustainable competitive advantage is influenced by several factors, key among these being the ability to offer differentiated products or services. When a firm's offerings are distinct in terms of physical aspects, location, intangible attributes, or customer perceptions, they achieve differentiation. This distinctiveness can manifest through better features, functions, or the high value created for customers that justifies a higher price. Moreover, exclusivity or a rareness factor is critical since it ensures competitors cannot readily duplicate the value offered, thus solidifying the firm's market position. A commitment to innovation and converting competitors' customers also plays a significant role in sustaining competitive advantage as it demonstrates a proactive approach to market dominance.
If the break-even exchange rate for the Currency Options Contract is 1.46 $/BP, and you believe the exchange rate at the time of the payment would be 1.43 $/BP, should you sign the contract?
Answer:
Yes, I will sign the contract.
Explanation:
The break-even exchange rate for the currency options contract is $1.46/BP and the exchange rate at the time of the payment will be $1.43/BP which means a reduction of $0.03 as future value. Since the contract was not signed with the inflationary rate, the receiver is at advantage while the lender is at a loss.
Answer:
Complete question
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$.
Information for Forward Contract:
Forward exchange rate (one yr): 1.54 $/BP
Information for Money Market Instruments (MMI):
Current exchange rate: 1.50 $/BP
Investment return at Aerion Fund Management (in UK): 4% annual
Interest rate of borrowing from Bank of America (in USA): 2% annual
Information you need for Currency Options Contract:
Options premium: 0.015 $/BP
Interest rate of borrowing from Bank of America (USA): 2% annual
Allowed to exercise options at 1.54 $/BP
If the break-even exchange rate for the Currency Options Contract is 1.46 $/BP, and you believe the exchange rate at the time of the payment would be 1.43 $/BP, should you sign the contract?
Explanation:
No, I will not sign the contract because the break-even exchange rate itself is 1.46 $/BP and it would mean that exchange rate below this price will give gains to the company and above this price would be a losing proposition. Since on the due date, exchange rate in the market will be lower than the options break-even price, company will buy the BP from the market and pay its obligation instead of exercising option at higher rate.
Iggies Ice Cream Company has taken a position in its tax return to claim a tax credit of $80 million (direct reduction in taxes payable) and has determined that its sustainability is "more likely than not," based on its technical merits. The tax credit would be a direct reduction in current taxes payable. Iggies believes the likelihood that a $80 million, $48 million, or $16 million tax benefit will be sustained is 25%, 35%, and 40%, respectively. Iggies' taxable income is $550 million for the year. Its effective tax rate is 40%. What is Iggies' income tax expense for the year
Answer:
Total income tax expense = $172
Explanation:
solution
we get here first tax Currently Payable that is
tax Currently Payable = $550 million × 40%
tax Currently Payable = $220 million
and Tax credit available = $80 million
so here Net Tax currently payable will be
Net Tax currently payable = $220 - $80
Net Tax currently payable = $140 million
and
Additional projected liability is = $80 - $48
Additional projected liability is = $32 million
so here Total income tax expense will be
Total income tax expense = $140 million + $32
Total income tax expense = $172
William and Irene each contributed $20,000 cash to the WI Partnership on January 1 of last year. William and Irene share profits and losses equally. Last year, the partnership reported taxminus−exempt interest income of $4,000. This year, each partner receives $1,000 of the taxminus−exempt interest income in a cash distribution. There are no partnership liabilities and no other income, loss, contributions, or distributions during both years. William's basis in the partnership interest following these transactions is
Answer:
$21,000
Explanation:
Capital Account:
Particular Williams Irene Particular Williams Irene
$ $ $ $
Balance c/d 21,000 21,000 Cash 20,000 20,000
Cash distributn. 1,000 1,000
21,000 21,000 21,000 21,000
William's basis in the partnership business, is equal basis, because, the profit sharing ratio is on equal basis. The answer is $21,000.
One component of the pension liability under both U.S. GAAP and IFRS is prior service cost (or past service cost under IFRS). ABC Company is trying to calculate the effect of PSC on their financial statements under both standards. Which of the following statements is true related to this analysis?
Answer:
Option A is correct which states that".There is no such thing, in IASB standards, as a "contingent asset"
Eduardo goes to his mentor, Mateo, to get tips for improving his performance. Administrative While reviewing his goals for the year, Tyrell and his manager discuss what training Tyrell might require to accomplish next year’s goals. Developmental While reviewing performance evaluation reports, you notice that all of the employees have been rated "average." There are no outstanding performers and no poor performers. This is an example of a error. training will help the manager to evaluate performance more accurately.
Below is the correct outline of the question:
Eduardo goes to his mentor, Mateo, to get tips for improving his performance.
Type of training:________
While reviewing his goals for the year, Tyrell and his manager discuss what training Tyrell might require to accomplish next year's goals.
Type of training:________
Adriaan and Arie got off on the wrong foot. Arie messed up his first project for Adriaan, and now Adriaan gives him low performance ratings in every category of performance. This is an example of a ________ error. _______ training will help the manager to evaluate performance more accurately.
Answer:
1. Type of training: Developmental
2. Type of training: Developmental
3. Halo error
4. Frame of Reference (FOR) training
Explanation:
Eduardo goes to his mentor, Mateo, to get tips for improving his performance.
Type of training: Developmental
While reviewing his goals for the year, Tyrell and his manager discuss what training Tyrell might require to accomplish next year's goals.
Type of training: Developmental
Suzy is known for her highly rated employees. Everyone gets a performance rating of "outstanding," regardless of the work they have actually done. This is an example of a leniency error. Frame of Reference training will help the manager to evaluate performance more accurately.
Further Explanation:
For (1) and (2) A development training involves identifying areas employees need to improve on and organizing training programs to strengthen those skills that each employee needs to improve.
For (3), Leniency error is a rater's bias where the individual who does the rating has the tendency to rate people too positively.
For (4), Frame of Reference (FOR) training is a form of training that teaches how to produce accurate and reliable workplace-based ratings when assessing a performance It's aim is to improve the accuracy of the ratings of the individual responsible for the evaluation of employees.
Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence, as slowly) as possible. Central Perk uses 80 filters a day with a standard deviation of 5 filters per day. It would be disastrous if they ran out of these filters, years ago customers caught them using paper towels from the men's room and business suffered. They have set their service level at 99% in hopes of avoiding a similar situation. It takes a fortnight to receive a shipment and the standard deviation of the shipping time is two days. What is safety stock they need to carry to meet the 99% service level?
The safety stock they need to carry to meet the 99% service level is 395.
Safety stockFirst step is to find dL
dL = √ ( Lσ d2 + d 2σ L2 )
dL= √( 350 + 25600)
dL=√25,950
dL= 161
z-score at 99% SL=2.33
Second step
Safety stock = 2.33× 161
Safety stoc= 375
Inconclusion the safety stock they need to carry to meet the 99% service level is 395.
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Central Perk should keep approximately 285 filters in safety stock to maintain their 99% service level. This computation considers the average demand, the standard deviation of demand, and the lead time of the shipments.
Explanation:The number of coffee filters Central Perk requires each day is subject to variation, so safety stock is needed to ensure a 99% service level. Safety stock can be calculated using the formula Safety Stock = Z * SQRT(Avg. Lead Time * StdDev^2(Demand) + Avg. Demand^2 * StdDev^2(Lead Time)), where Z is the number of standard deviations corresponding to the desired service level.
In this case, assuming 'fortnight' means 14 days and using Z=2.33 for 99% service level, we plug the figures into the formula: Safety Stock = 2.33 * SQRT(14 * (5^2) + (80^2 * 2^2)), which equates to approximately 285 filters. Therefore, Central Perk should keep approximately 285 filters in safety stock to maintain their 99% service level.
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Tariffs can be thought of as indirect: Multiple Choice subsidies to foreign producers. special taxes on domestic producers. subsidies to domestic consumers. subsidies to domestic producers.
Answer:
The correct answer is letter "D": subsidies to domestic producers.
Explanation:
Tariffs are levies imposed on imports to promote domestic production and discourage the purchase of goods abroad. Imposing tariffs and quotas usually cause a trade war in which the country affected counterattacks by imposing taxes on the company that started passing tariffs.
Under such a scenario, tariffs could represent indirect subsidies to domestic producers because, at a certain level, the decrease in imports promotes domestic goods consumption.
Answer:
subsidies to domestic consumers
The following data relate to the direct materials cost for the production of 10,000 automobile tires: Actual: 145,000 lbs. at $2.80 per lb. Standard: 150,000 lbs. at $2.75 per lb. a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Answer and Explanation :
The computation is shown below:
Direct materials price variance is
= (actual price - standard price) × actual quantity
= ($2.80 - $2.75) × 145,000
= $7,250 unfavorable
Because actual price is higher than standard price so this is unfavorable
Direct materials quantity variance is
= (actual quantity - standard quantity) × standard price
= (145,000 - 150,000) × $2.75
= -$13,750 favorable
Sum of direct material cost variance = $7,250 - $13,750
= -$6,500 favorable
We simply applied the above formulas
Iron Works, Inc. purchased a metal casting machine on January 1, 2014. The cost of the machine was $32,000. Its estimated residual value was $7,000 at the end of an estimated 10-year life. The company expects to produce a total of 20,000 units. a. Calculate depreciation expense for 2014 and 2015 using the straight-line method. b. Calculate depreciation expense for 2014 and 2015 using the double-declining balance method. c. Calculate the depreciation expense for 2014 and 2015 using the units-of-production method. The company produced 1,200 units in 2014 and 1,650 units in 2015. (Round your final answer to nearest dollar value.)
Answer:
a. Depreciation expenses in 2014 and 2015 using straight-line method is the same for each year at $2,500
b. Depreciation expenses using double-declining balance method:
+ 2014: $6,400
+ 2015: $5,120
c. Depreciation expenses using units-of-production method:
+ 2014: $1,500
+ 2015: $2,062.5
Explanation:
a. Using straight-line method, the depreciation expenses will be the same for the 10 useful life of the asset which is calculated as: (Historical asset cost - estimated residual value) / useful life = (32,000 - 7,000) /10 = $2,500
b. Using declining balance method:
Depreciation in a year = 2 * Depreciation rate x Asset carrying value = 2 * (1/useful life) x Asset carrying value.
So, depreciation in 2014 = 2 x 1/10 x 32,000 = $6,400
depreciation in 2015 = 2 x 1/10 x ( 32,000-6,400) = $5,120
c. Using the units-of-production method:
Depreciation expenses for a year will be equal [ (Historical cost - estimated residual value)/ Expected production capacity] x Production level during a year
So, depreciation in 2014 = (32,000-7,000)/20,000 x 1,200 = $1,500
depreciation in 2015 = (32,000-7,000)/20,000 x 1,650 = $2,062.5
When price = $16, quantity demanded = 200. When price = $14, quantity demanded = 225. When the firm lowered price from $16 to $14, it discovered that demand is __________ and total revenue __________ by ____________, Group of answer choices
inelastic; decreased; $50
elastic; decreased; $3,150
inelastic; increased; $50
elastic; increased; $3,200
inelastic; decreased; $3,150
Answer: Inelastic; decreased; $50
Explanation:
Demand is considered Inelastic when a change in price does not correspond to a substantial change in quantity demanded as was the situation in the scenario.
The total Revenue decreased because originally it was,
= 16 * 200
= $3,200
After the price dropped it became,
= 14* 225
= $3,150
It DECREASED by $50.
You expect KT industries (KTI) will have earnings per share of $ 6 this year and expect that they will pay out $ 2.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13% and their equity cost of capital is 15%. The value of a share of KTI's stock is closest to:
Answer:
Value of a share = $15
Explanation:
According to the dividend valuation model, the value of a share is the present value of expected dividend discounted at the required rate of return.
This model is expressed in the formula below;
Value of a share = D/Ke
D- dividend payable in year one
Ke- cost of equity
Value of a share = 2.25/0.15
Value of a share = $15
Value of a share = $15
Crystal's Performance Pizza is a small restaurant in Detroit that sells gluten-free pizzas. Crystal's very tiny kitchen has barely enough room for the four ovens in which her workers bake the pizzas. Crystal signed a lease obligating her to pay the rent for the four ovens for the next year. Because of this, and because Crystal's kitchen cannot fit more than four ovens, Crystal cannot change the number of ovens she uses in her production of pizzas in the short run.However, Crystal's decision regarding how many workers to use can vary from week to week because her workers tend to be students. Each Monday, Crystal lets them know how many workers she needs for each day of the week.In the short run, these workers are _______ inputs, and the ovens are _______ inputs.
Crystal lets them know how many workers she needs for each day of the week.In the short run, these workers are Variable inputs, and the ovens are Fixed inputs.
Explanation:
Production function of a product defines the relationship between the quantity of inputs required to produce a good and the quantity of output produced by the given inputs.
The Commonly used inputs in production are land, labor, and capital.
Fixed Input: Fixed input are those inputs whose quantity does not change with the quantity of the output produced
Variable Input: Variable input are those type of input whose quantity varies with the quantity of the output produced.
In the above question we can see that
Crystal's decision regarding how many workers to use can vary from week to week because her workers tend to be students.The workers are the variable inputs.
Crystal's kitchen cannot fit more than four ovens, Crystal cannot change the number of ovens -The ovens are the fixed Input
An income statement for Sam's Bookstore for the first quarter of the year is presented below: Sam's Bookstore Income Statement For Quarter Ended March 31 Sales $ 880,000 Cost of goods sold 550,000 Gross margin 330,000 Selling and administrative expenses Selling $ 117,000 Administration 138,000 255,000 Net operating income $ 75,000 On average, a book sells for $55. Variable selling expenses are $5 per book with the remaining selling expenses being fixed. The variable administrative expenses are 4% of sales with the remainder being fixed. The contribution margin for Sam's Bookstore for the first quarter is: Multiple Choice $665,200 $214,800 $250,000 $764,800
Answer:
Contribution= $214,800
Explanation:
Contribution margin ratio is the proportion of sales revenue that is earned as contribution.
Unit sold = revenue / selling price = 880,000/55 = 16,000 units
Contribution = Sales revenue - variable cost
Variable admin = 4% × 880,000= 35200
Variable selling = 5× 16,000 = 80,000
Contribution = Sales revenue - cost of goods sold - admin - selling
= 880,000 - 550,000- 35200 - 80,000=214,800
Contribution= $214,800
The contribution margin for Sam's Bookstore for the first quarter is $0.
Explanation:The contribution margin for Sam's Bookstore for the first quarter can be calculated by subtracting the total variable expenses from the sales revenue. The variable selling expenses are given as $5 per book, so for the 880,000 books sold in the quarter, the variable selling expenses would be 880,000 x $5 = $4,400,000. The variable administrative expenses are given as 4% of sales, so for the $880,000 sales revenue, the variable administrative expenses would be $880,000 x 0.04 = $35,200. Therefore, the total variable expenses for the quarter would be $4,400,000 + $35,200 = $4,435,200. Finally, the contribution margin can be calculated as the sales revenue minus the total variable expenses: $880,000 - $4,435,200 = -$3,555,200. However, since a contribution margin cannot be negative, the answer is $0.
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Sally's Gift Baskets sells gift baskets, on average, for $125; each gift basket costs, on average, $60. Debby pays salaries each month of $1, 300 and her store rent is $1,000 per month. She also pays sales commissions of 5% of the sales price. In May, 140 gift baskets were sold.
a. Prepare a traditional income statement for the month of May.
b. Prepare a contribution margin income statement for the month of May.
Answer:
a. Traditional Income Statement
Sales ($125 x 140) $17,500
Cost of Sales ($60 x 140) ($8,400)
Gross Profit $9,100
Salaries ($1,300)
Rent ($1,000)
Sales Commission ($17,500 x 5%) ($875)
Net income $5,925
b. Contribution Margin Income Statement
Sales ($125 x 140) $17,500
Less: variable Costs
Cost of Sales ($60 x 140) ($8,400)
Sales Commission ($17,500 x 5%) ($875)
Contribution Margin $8,225
Less: Fixed Costs
Salaries ($1,300)
Rent ($1,000)
Net income $5,925
Explanation:
a.
Traditional Income statement calculates the gross profit after deducting the cost of goods sold from the revenue. After that it deduct all the operating expenses to calculate the Net Income.
b.
Contribution margin income statement consider all the variable expenses as cost of product cost and calculates the contribution margin, after that the fixed costs are deducted calculate the net income.
01) A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. The marginal product of labor for this firm is given by MPN = E (100 - N)/9. How many workers will the firm employ? A) 96 B) 92 C) 88 D) 80
Answer:
A. 96
Explanation:
I just had that question i got it right
The optimal number of workers a firm will employ is determined when the value of the marginal product of labor equals the market wage. Without the market price of the product, we cannot calculate the value of the marginal product to determine the profit-maximizing level of employment with the given marginal product of labor formula.
Explanation:The subject matter in question involves determining the optimal number of workers a firm should employ based on the relationship between the real wage, worker effort, and the marginal product of labor. A firm will continue to hire workers until the value of the marginal product of labor (VMPL), which is the product of the marginal product of labor and the market price of the output, equals the going market wage.
To find the profit-maximizing level of employment when the market wage is $12, we set the VMPL equal to $12 and solve for the number of workers (N). However, the student's question mentions neither the market price of the product nor any specifics that would allow us to calculate the VMPL. Therefore, based on the given information alone, we cannot determine how many workers the firm will employ.
Assuming the VMPL is available, you would calculate the marginal product of labor for various levels of employment (N), then determine the VMPL (MPN × P) for each level. The firm's profit-maximizing level of employment is reached when the VMPL equals the market wage, which in the supplied reference is $12.
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Extracts from cost information of Hebar Corp.:Simple L3 Pack Complex L7 Pack TotalSetup cost allocated using direct labor-hours $19,250 $5,750 $25,000Setup cost allocated using setup-hours $13,400 $11,600 $25,000Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours.
1. Which of the following statements is true of Hebar's setup costs under traditional costing?A. L7 pack is undercosted by $5,750B. L3 pack is overcosted by $5,850C. L3 pack is undercosted by $5,850D. L7 pack is overcosted by $5,850
Answer:
The correct answer is option (B).
Explanation:
According to the scenario, computation of the given data are as follows:
First we calculate for L3 pack.
Setup cost = cost allocated using direct labor-hours - Setup cost allocated using setup-hours
By putting the value in the formula, we get
Setup cost = $19,250 - $13,400
= $5,850 ( Positive shows over costed)
So, L3 pack is overcosted by $5,850
The L3 pack is overcosted by $5,850 under traditional costing using direct labor-hours compared to setup-hours, which is a more effective cost driver.
Regarding the question on whether the L3 pack is overcosted or undercosted and by how much in Hebar Corp's setup costs under traditional costing, we will analyze the difference in allocated costs when using direct labor-hours versus setup-hours. The allocated setup cost for L3 using direct labor-hours is $19,250 and using setup-hours is $13,400, leading to a difference of $19,250 - $13,400 = $5,850. Since setup-hours is considered a more effective cost driver, and the cost allocated using setup-hours is lower, we can deduce that the L3 pack is overcosted by $5,850 when using direct labor-hours. This corresponds to option B, making it the correct answer.
-Question was incomplete the complete question is
"Extracts from cost information of Hebar Corp.:
Simple L3 Pack Complex L7 Pack Total
Setup cost allocated using direct labor-hour$19,250 $5,750 $25,000
Setup cost allocated using setup-hours $13,400 $11,600 $25,000
Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of Hebar's setup costs under traditional costing?
A. L7 pack is undercosted by $5,750
B. L3 pack is overcosted by $5,850
C. L3 pack is undercosted by $5,850
D. L7 pack is overcosted by $5,850
at the end of the year dahir incorporated's balance of allowance for uncollectible accounts is $2700 (credit) before adjustment. the company estimates future uncollectible accounts to be $13500. what adjustment would dahir record for allowance for uncollectible accounts?
Answer:
Given that,
Credit balance of allowance for uncollectible accounts = $2,700
Future uncollectible = $13,500
We need to deduct the credit balance from the amount of future uncollectible.
Bad debt expense:
= Future uncollectible - Credit balance of allowance for uncollectible accounts
= $13,500 - $2,700
= $10,800
Therefore, the journal entry is as follows:
Bad debt expense A/c Dr. $10,800
To allowance for doubtful debts $10,800
(To record the allowance for uncollectible accounts)
As indicated in the chapter, return on investment (ROI) is well entrenched in business practice. However, its use can have negative incentive effects on managerial behavior. For example, assume you are the manager of an investment center and that your annual bonus is a function of achieved ROI for your division. You have the opportunity to invest in a project that would cost $550,000 and that would increase annual operating income of your division by $50,000. (This level of return is considered acceptable from top management’s standpoint.) Currently, your division generates annual operating profits of approximately $625,000, on an asset base (i.e., level of investment) of $4,150,000.
Required:
1. What is the current return on investment (ROI) being realized by your division (i.e., before considering the new investment)?
2. What would happen to the near-term ROI of your division after adding the effect of the new investment?
3. As manager of this division, given your incentive compensation plan, would you be motivated to make the new investment?
Answer:
ROI = net profit / total investment
1. What is the current return on investment (ROI) being realized by your division
ROI = $625,000 / $4,150,000 = 15.06%2. What would happen to the near-term ROI of your division after adding the effect of the new investment?
ROI = ($625,000 + $50,000) / ($4,150,000 + $550,000) = 14.36%If you carry out the new project the ROI of your division will decrease.
3. As manager of this division, given your incentive compensation plan, would you be motivated to make the new investment?
Even though the new project's return (9.1%) is considered acceptable by upper management, you will probably reject it since it will decrease your division's total ROI. When managers are assigned bonuses based on certain achievements, reducing your profitability ratio will probably result in no bonus.Final answer:
The current ROI of the division is 15.06%. After considering the new investment, the near-term ROI would decrease to 14.36%. The manager's motivation to invest might be reduced due to the impact on their annual bonus linked to the ROI, despite the investment's acceptability to top management.
Explanation:
To calculate the current return on investment (ROI) for the division before considering the new investment, we use the formula:
ROI = (Operating Income / Asset Base) × 100
So, the current ROI = ($625,000 / $4,150,000) × 100 = 15.06%
Considering the new investment of $550,000 that increases operating income by $50,000, the new operating profit would be $675,000, and the new asset base would be $4,700,000. The new ROI would be ($675,000 / $4,700,000) × 100 = 14.36%. This indicates that the near-term ROI would decrease after making the investment.
Considering the incentive compensation based on ROI, as a manager, you would be less motivated to make the new investment as it would decrease the near-term ROI and potentially your annual bonus, even though the project's return is acceptable to top management.
When the ABC Corporation first opened their doors for business, they had no idea how much to allocate to promotional expenditures. They decided that if they wanted to be as successful as their leading competitors, they needed to invest in the brand to the same level. After tracking the marketing tactics of the competition, they were able to estimate the costs and develop a realistic budget that the marketing director was able to spend throughout the year to achieve their communications goals. This is an example of a(n) _____________, fill in the blank, approach to budgeting.
Answer:
Competitive parity
Explanation:
James Corporation is planning to issue bonds with a face value of $500,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.)
Required:
Compute the issue (sale) price on January 1 of this year for each of the following independent cases:
a. Case A: Market interest rate (annual): 4 percent.
b. Case B: Market interest rate (annual): 6 percent.
c. Case C: Market interest rate (annual): 8.5 percent.
Answer:
Bonds are the financial instruments used for the purpose of investing funds for safer returns in the future, along with the fixed rate of return earned each year.
Explanation:
The issue or sale price of the bonds as of January 1 for each of the independent cases is computed with the help of the following formula:
[tex]\begin{aligned}\text{Present Value}&=\text{Future Value}\times\frac{1}{(1+r)^n}\end{aligned}[/tex]
The issue price is computed below as given in the tables.
It can be calculated either by using the calculator or the excel sheet formula.
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The issue price of bonds is calculated based on the market interest rate. If the market interest rate is lower than the coupon rate, the bonds will be sold at a premium, if it matches with the coupon rate, the bonds will be at face value and if it's higher, the bonds will be sold at a discount.
Explanation:The question is about calculating the issue price of bonds for James Corporation under various market interest rates. The main formula to compute the bond price is the present value (PV) of its future cash flows which consists of semi-annual coupon payments and the face value (principal) repayable at the end of bond term (maturity).
(1) Case A: Market interest rate (annual): 4 percent
: The market interest rate is lower than the coupon rate so the bond will be sold at a premium. The issue price will be calculated as the present value of $15,000 semi-annual interest payments for 10 years plus the present value of the $500,000 face value repaid at the end of 10 years.
(2) Case B: Market interest rate (annual): 6 percent
: The market interest rate matches the coupon rate so the bonds will be sold at par, i.e., face value, which is $500,000. (3) Case C: Market interest rate (annual): 8.5 percent
: The market interest rate is higher than the coupon rate, so the bonds will be sold at a discount. The issue price is the present value of $15,000 interest payment for 10 years plus the present value of the $500,000 face value repaid at the end of 10 years.
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March 1, 2017, Alpha Company's beginning work in process inventory had 8,000 units. This is its only production department. Beginning WIP units were 50% complete as to conversion costs. Alpha introduces direct materials at the beginning of the production process. During March, a total of 15,000 units were started and a total of 20,000 units were completed. Alpha's ending WIP inventory had 3,000 units which were 70% complete as to conversion costs. Alpha uses the weighted average method. Use this information to determine for March 2017 the equivalent units of production for conversion costs. (Round & enter final answers to: the nearest whole dollar for total dollar answers, nearest penny for unit costs or nearest whole number for units)
Answer:see attached file
Explanation:
Answer:
Beginning units 8000 Transferred out 20,000
Started intro production 15000 Ending units 3,000
23000 23000
Equivalent units Material Conversion
Units transferred A 20000 20000
Ending Units 3,000 3,000
Completion 100% 70%
B 3000 2100
Total units 23000 22100
Say a pill existed that made people selfless. After taking it they were only interested in others, not themselves. Under the coordination definition of economics: Multiple Choice there would be a social problem but not an economic problem. no economic problem would exist. there still would be an economic problem. there would be a political problem but not an economic problem.
Answer:
The correct answer is letter "C": there still would be an economic problem.
Explanation:
Coordination, in Economics, refers to the set of actions different individuals take to satisfy their needs mutually. Problems arise in case there is not enough coordination of the individuals in an economy bringing lower benefits for them. For coordination to take place there must be a leader driving people's activities the most efficient way possible.
In the case of the example, after taking a pill that made people selfless, those individuals would still lack coordination because it would be difficult to determine which sector of individuals will be the priority for the satisfaction of needs. Therefore, even after the introduction of the pill, that society would give an economic problem.
The coordination definition of economics states that there would be no economic problem if a pill existed that made people selfless and interested in others. This is because people would coordinate their actions to prioritize the well-being of others, leading to positive social results.
Explanation:According to the coordination definition of economics, if a pill existed that made people selfless and only interested in others, there would be no economic problem. The coordination definition of economics focuses on how individuals and firms coordinate their economic activities to achieve their goals. In this scenario, if people were selfless and interested in others, they would likely coordinate their actions to prioritize the well-being of others, leading to positive social results. This aligns with the idea that self-interested behavior can lead to positive social outcomes in economics.
If a pill existed that made people selfless and only interested in the wellbeing of others, classical economic theory implies there still would be an economic problem. The coordination definition of economics largely assumes that individuals act in their own self-interest, which in turn benefits society through the invisible hand as described by Adam Smith. However, selflessness does not equate to the absence of economic problems; rather, it may create new challenges in terms of resource allocation and incentives, as the market relies on individual self-interest to signal needs and allocate resources efficiently.
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International Imports (I2) pays an annual dividend rate of 10.20% on its preferred stock that currently returns 13.67% and has a par value of $100.00 per share. What is the value of I2’s preferred stock?
Answer:
The market price/value of the share of preferred stock is $74.62
Explanation:
The preferred stock pay 10.2% return on $100 per share which comes out to be 100 * 10.2% = $10.2. This dividend will remain constant no matter what the price in the market is. The price in the market is calculated by dividing the ineterest payment by the current price of the share. The formula for the current return of the preferred stock is:
0.1367 = 10.2 / P
P = 10.2 / 0.1367
P = $74.615 rounded off to $74.62
Finance is: a plan of action or policy designed to achieve a major or overall aim of a firm. the study of accumulating and reporting on financial information about the performance, financial position, and cash flows of a business. the detailed coordination of a complex operation involving many people, facilities, or supplies. the science of money management methods of raising funds and managing money. the process of interesting potential customers and clients in your products/services.
Answer: The science of money management methods of raising funds and managing money.
Explanation:
Finance is the art and science of money. It refers to everything that has to do with the process of generating and managing money.
Finance involves various activities such as banking, credit, capital solicitation, investing etc.
Those Aforementioned activities help players in the field of finance to ensure the efficient working of money for example, banking helps in money management whilst investing leads to the generation of money.
The study of Finance is therefore immensely helpful in the Economy because it shows how money flows and how to use it to meet economic objectives.
Adams Company makes fine jewelry that it sells to department stores throughout the United States. Adams is trying to decide which of the two bracelets to manufacture. Cost data pertaining to the two choices follow. Bracelet A Bracelet B Cost of materials per unit $ 29 $ 41 Cost of labor per unit 36 36 Advertising cost per year 8,800 6,900 Annual depreciation on existing equipment 6,200 5,500 Required Identify the fixed costs and determine the amount of fixed cost for each product. Identify the variable costs and determine the amount of variable cost per unit for each product. Identify the avoidable costs and determine the amount of avoidable cost for each product.
Answer:
Bracelet A, Bracelet B
Total fixed cost = $15,000 $12,400
Total variable cost = $65 $77
Total Avoidable cost = $8,829 $6,941
Explanation:
According to the scenario, the given data are as follows:
For Bracelet A
Cost of material = $29
Cost of labor = 36
Advertising cost = 8,800
Annual depreciation = 6,200
For Bracelet B
Cost of material = $41
Cost of labor = 36
Advertising cost = 6,900
Annual depreciation = 5,500
So, Fixed cost for each products = Advertising cost + Annual depreciation
For Bracelet A,
Fixed Cost = 8,800 + 6,200 = 15,000
For bracelet B,
Fixed cost = 6,900 + 5,500 = 12,400
Now, Variable cost = Cost of material + Cost of labor
For Bracelet A
Variable cost = 29 + 36 = 65
For Bracelet B
Variable cost = 41 + 36 = 77
And Avoidable cost = Cost of material + Advertising cost
For Bracelet A,
Avoidable cost = 29 + 8,800 = 8,829
For Bracelet B
Avoidable cost = 41 + 6,900 = 6,941
Rita placed an order for 300 shares of each of four separate IPOs (Orders A, B, C, and D) with an offer price of $16 each. She received 100 shares of Order B, 200 shares of Order D, and 300 shares of the other orders. At the end of the first day, Order A was overpriced by $2 a share, Order B was underpriced by $4 a share, Order C was correctly priced, and Order D was overpriced by $1 a share. What was combined total profit or loss for the first day on these four orders
Complete question:
Rita placed an order for 300 shares of each of four separate IPOs (Orders A, B, C, and D) with an offer price of $16 each. She received 100 shares of Order B, 200 shares of Order D, and 300 shares of the other orders. At the end of the first day, Order A was overpriced by $2 a share, Order B was underpriced by $4 a share, Order C was correctly priced, and Order D was overpriced by $1 a share. What was combined total profit or loss for the first day on these four orders
Multiple Choice
−$400 $400 $100 −$100 −$300
Answer:
$400 was combined total profit or loss for the first day on these four orders
Solution:
Given,
Rita placed an order for 300 shares of each of four separate
Offer price of $16 each
She received 100 shares of Order B, 200 shares of Order D, and 300 shares of the other orders.
Now ,
Order No. of shares Profit/ (loss) per share Net profit/ (loss)
A 300 $ (2) $ (600)
B 100 $ 4 $ 400
C 300 $ - $ -
D 200 $ (1) $ (200)
Net profit/ (loss) $ (400)
Net loss for first day is $400.
An insurance company wants to sell you an annuity which will pay you $750 per quarter for 30 years. You want to earn a minimum rate of return of 6.0 percent. What is the most you are willing to pay as a lump sum today to buy this annuity
Answer:
$41,623.84
Explanation:
[tex]\text{Present Lump\: Sum}, \:A_0=\dfrac{P[1-(1+i)^{-kt}]}{\frac{r}{k} }[/tex]
C=Payment Per Period
Yearly Interest Rate, =6%=0.06
Therefore, Periodic(Quaterly) Interest Rate, i= 0.06/4=0.015
Total number of Periods, n =4 X 30 =120 Quarters
Therefore, the maximum lump sum that the client will be willing to pay is:
[tex]=\dfrac{750[1-(1+0.015)^{-4X30}]}{0.015}=\$41,623.84[/tex]