Answer:
Break-event point
Product A 6,000 units
Product B 6,250 units
Explanation:
The break-even point is the level of activity that a business must operate to equate total revenue to total cost . At the break even point, the business makes no profit or loss., and the total contribution is equal to total fixed cost
The break-even point is calculated as follows:
Total general fixed cost/(selling price - variable cost)
Break-even point = 60,000/(22-12)=6000 units
Product B
Beak-even point = 75,000/(22-10)=6250 units
Break-event point
Product A 6,000 units
Product B 6,250 units
Lehi City has designated an internal service fund as the single fund to account for its self-insurance activities. Most of the insured activities such as the police department, fire department, and general government functions are accounted for in the General Fund. What is the maximum amount that can be charged to expenditure in the General Fund related to the self-insurance activities
Answer: c)The actuarially determined amount necessary to cover claims, expenditures, and catastrophic losses.
Explanation:
The Expenditure on the account related to self - insurance activities refers to the amounts that will be deducted from the fund for anything insurance related.
The insurance is meant to cover the claims and unlikely events of catastrophies. Therefore when those things do occur it will be deducted from the service fund to cover those things.
Those along with expenses incurred to maintain the fund will be considered expenses and that is the maximum amounts that can be deducted from the fund.
Wattan Company reports beginning inventory of 10 units at $60 each. Every week for four weeks it purchases an additional 10 units at respective costs of $61, $62, $65, and $70 per unit for weeks 1 through 4. Compute the cost of goods available for sale and the units available for sale for this four-week period. Assume that no sales occur during those four weeks.
Answer:
Activity Units Units cost Cost of Goods Available
Beginning Inventory 10 $60.00 $600
1st week purchase 10 $61.00 610
2nd week purchase 10 $62.00 620
3rd week purchase 10 $65.00 650
4th week purchase 10 $70.00 700
Units available for sale 50
Cost of goods available for sale $3,180
Explanation:
We can compute the cost of goods available for sale and the units available for sale for this four-week period by assuming that no sales occur during those four weeks
Activity Units Unit Cost Cost of Goods Available
Beginning Inventory 10 60 600
1st Week purchase 10 61 610
2nd Week purchase 10 62 620
3rd Week purchase 10 65 650
4th Week purchase 10 70 700
Units available for sale 50
Cost of goods available for sale 3180
Thus, in the above it is shown the computing of the cost of goods available for sale and the units available for sale for this four-week period by assuming that no sales occur during those four weeks.
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On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Required:1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1.2. Journalize the entries to record the following:*A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method.
B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method.
3. Determine the total interest expense for Year 1.4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?5. Compute the price of $37,282,062 received for the bonds by using the present value tables
Answer:
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1.
Dr Cash 37,282,062
Dr Discount on bonds payable 2,717,938
Cr Bonds payable 40,000,000
2. Journalize the entries to record the following:*A. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method.
Dr Interest expense 1,535,897
Cr Cash 1,400,000
Cr Discount on bonds payable 135,897
B. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method.
Dr Interest expense 1,535,897
Cr Cash 1,400,000
Cr Discount on bonds payable 135,897
3. Determine the total interest expense for Year 1.
Interest expense 1,535,897
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
Yes, when the bond's interest rate is lower than the market rate, the bonds will be sold at a discount (less than face value). The market rate applicable to this bond issuance is the one used for similar bonds, so the market rate can change depending on the bond.
5. Compute the price of $37,282,062 received for the bonds by using the present value tables
the value of the bonds = PV of face value + PV of coupons
PV of face value = $40,000,000 / (1 + 4%)²⁰ = $18,255,478PV of annuity = $1,400,000 x PV annuity 4% for 20 periods = $1,400,000 x 13.59033 = $19,026,462total value = $18,255,478 + $19,026,462 = $37,281,940
There is a small difference, $122, due to rounding errors from the annuity table. But the error is not significant, it represents only 0.0003% of the bonds' price.
Explanation:
issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062
coupon payment = $40,000,000 x 7% x 1/2 = $1,400,000
semiannual coupon paid December 31 and June 30
Discount on bonds payable $2,717,938 / 20 coupons = $135,896.90 ≈ $135,897 per coupon payment
CarsonWentz Company uses a job-order costing system. The company applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labor-hours. Last year, manufacturing overhead and direct labor-hours were estimated at $88,000 and 16,000 hours respectively, for the year. In June, job #315 was completed. Materials costs on the job totaled $1,590 and labor costs totaled $2,340 at $6.50 per hour. At the end of the year, it was determined that the company worked 15,300 direct labor-hours for the year, and incurred $86,750 in actual manufacturing overhead cos
Answer:
Instructions are below.
Explanation:
Giving the following information:
Estimated manufacturing overhead= $88,000
Estimated direct labor-hours= 16,000
Job 315:
Materials costs on the job totaled $1,590 and labor costs totaled $2,340 at $6.50 per hour.
At the end of the year, it was determined that the company worked 15,300 direct labor-hours for the year, and incurred $86,750 in actual manufacturing overhead costs.
With the information provided, we can calculate the total cost of Job 315 and the amount of under/over allocated overhead.
First, we need to determine the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= 88,000/16,000= $5.5 per direct labor hour
Job 315:
Direct labor hours= 2,340/6.5= 360 hours
Total cost= 1,590 + 2,340 + 5.5*360= $5,910
Now, to calculate the over/under allocation, first, we need to allocate overhead for the whole company.
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Allocated MOH= 5.5*15,300= $84,150
Under/over applied overhead= real overhead - allocated overhead
Under/over applied overhead= 86,750 - 84,150= $2,600 underallocated
Presented below is an aging schedule for Bryan Company. Number of Days Past Due Customer Total Not Yet Due 1-30 31-60 61-90 Over 90 Aneesh $ 24,000 $ 9,000 $15,000 Bird 30,000 $ 30,000 Cope 50,000 5,000 5,000 $40,000 DeSpears 38,000 $38,000 Others 120,000 72,000 35,000 13,000 $262,000 $107,000 $49,000 $28,000 $40,000 $38,000 Estimated percentage uncollectible 3% 7% 12% 24% 60% Total estimated bad debts $ 42,400 $ 3,210 $3,430 $3,360 $ 9,600 $22,800 At December 31, 2016, the unadjusted balance in Allowance for Doubtful Accounts is a credit of $8,000.Journalize the adjusting of bad debit at December 31 2016.
Answer and Explanation:
The adjusting journal entry is shown below:
On Dec 2016
Bad debt expense Dr ($42,400 - $8,000) $34,400
To Allowance for doubtful debts $34,400
(Being the bad debt expense is recorded)
For recording this we debited the bad debt expense as it increased the expenses and credited the allowance for doubtful debts as it reduced the assets
The following data have been recorded for recently completed Job 323 on its job cost sheet. Direct materials cost was $2,063. A total of 33 direct labor-hours and 234 machine-hours were worked on the job. The direct labor wage rate is $18 per labor-hour. The Corporation applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $24 per machine-hour. The total cost for the job on its job cost sheet would be:
Answer:
$8,723
Explanation:
Calculation for total cost for the job on its job cost sheet
Direct materials 2,063
Direct labor (33 hours × $18 per hour) 594
Manufacturing overhead (234 hours × $24 per hour) 5,616
Total manufacturing cost for job 8,273
An investor is deciding whether to build a retail store. If she invests in the store and it is successful, she expects a return of $100,000 in the first year. If the store is not successful, she will suffer a loss of $80,000. She guesses that the probability that the store will be a success is 0.6. To remove some of the uncertainty from this decision, the investor tries to establish more information, but this market research will cost $20,000. If she spends this money, she will have more confidence in her investment. There is a 0.6 probability that this information will be favorable; if it is, the likelihood that the store will be a success increases to 0.9. If the information is not favorable, the likelihood that the store will be a success reduces to only 0.2. Of course, she can elect to do nothing.
A) Draw the associated decision tree.
B) What do you recommend?
C) How much is the information worth?
Replace all the monetary values with the following utilities
Monetary Value Utility
$100,000 1.00
$80,000 0.40
$0 0.20
-$20,000 0.10
-$80,000 0.05
-$100,000 0.00
A) What do you recommend, based on expected utility?
B) Is the investor a risk soeker or a risk avoider?
Answer:
Explanation:
Given that,
expects a return of $100,000 in the first year
loss of $80,000
probability that the store will be a success is 0.6
research will cost $20,000
0.6 probability that this information will be favorable
store will be a success increases to 0.9
store will be a success reduces to only 0.2
a) Decision tree is attachedEMV= (payoff of first outcome) * (probability of first outcome) + (payoff of second outcome) * (probability of second outcome) + (payoff of third outcome) * (probability of third outcome)
EMV(node 1) = EMV(new store)
= ($100,000 * 0.6) + (-80,000 * 0.4)
=$28,000
EMV (node 2) = EMV (no store)
= $0
EMV (node 3) = EMV ( new store and favourable research)
= ($100,000 * 0.9) + (-80,000 * 0.1)
=$82,000
EMV (node 4) = EMV ( no store and favourable research)
= $0
EMV (node 5) = EMV ( new store and unfavourable research)
= ($100,000 * 0.2) + (-80,000 * 0.8)
= -$44,000
EMV (node 6) = EMV ( no new store and unfavourable research)
= $0
B) Here we compare EMV of not conducting the market research ans EMV of conducting the market research and the maximum EMV shall be taken for decision making
Here the EMV of conducting the market research is higher than not conductingHence, the investor can go to market research test. If result is positive, she can invest in the store, if negative she can stop the proposal.
Metro Services, Inc. reported the following information for the year 2019. Based on the following information, calculate the rate of return on total assets for Metro Services, Inc. (Round the percentage to two decimal places.)Total Assets, December 31, 2019$599,000Total Assets, December 31, 2018$505,000For Year Ended December 31, 2019: Interest Expense$27,900 Net Income$67,100A. 7.78%B. 7.10%C. 11.20%D. 17.21%
Answer:
Option D,17.21% is correct
Explanation:
The total assets deployed in generating profit for the year is the average of the beginning assets of $599,000 and the closing assets of $505,000 which translated into $552,000 i.e ($599,000+$502,000)/2
The total return on assets is the profit before interest, hence the interest of $27,900 is added to net income of $67,100 to give total return on assets in dollar terms i.e $95,000($27,900+$67,100)
The return on total assets=total return/average assets=$95,000/$552,000=17.21%
Suppose that Dmitri, an economist from an AM talk radio program, and Frances, an economist from a school of industrial relations, are arguing over saving incentives. The following dialogue shows an excerpt from their debate:
Caroline: The usefulness of government intervention in the economy is a long-standing issue that economists continue to debate.
Antonio: I feel that government involvement in the economy should be reduced because government programs cause more harm than good.
Caroline: While I do agree that government programs can be inefficient, I really think they are necessary to help the less fortunate.
1. The disagreement between these economists is most likely due to
a. differences in values
b. differences in scientific judgement
c.differences in perception verse reality.
2. Despite their differences, with which proposition are two economists chosen at random most likely to agree?
a. Lawyers make up an excessive percentage of elected officials.
b. Minimum wage laws do more to harm low-skilled workers than help them.
c. Tariffs and import quotas generally reduce economic welfare.
Answer:
1. The disagreement between these economists is most likely due to
a. differences in values
2. Despite their differences, with which proposition are two economists chosen at random most likely to agree?
a. Lawyers make up an excessive percentage of elected officials.
Explanation:
Economists chosen at random do not usually agree on economic events and realities, instead, they are more likely to agree on issues that are not economic. They offer differing opinions based on similar principles. Most of their disagreements stem from differences in what they place their values on. Some value market-oriented approaches while others value government interventions in market situations, with other variants in-between.
Trucks R' Us has a market capitalization of $142 million, $78 billion in BB rated debt, and $10 billion in cash. If Trucks R' Us' equity beta is 1.68, then their underlying asset beta is closest to:
Answer:
Their underlying asset beta is closest to is 1.08
Explanation:
According to the given data we have the following:
Debt is given as $78 billion
Equity is given as $142 billion
equity beta given as 1.68
Therefore, in order to calculate the underlying asset beta we would have to use the formula of the the equity beta for a levered firm as follows:
betaE =beta A [1 + (Debt / Equity)]
1.68 = \beta A [1 + ($78 B/ $142 B)]
1.68 = \beta A [1 + 0.5493]
betaA = 1.68 / 1.5493
betaA = 1.08
Their underlying asset beta is closest to is 1.08
Every year, the U.S. Census Bureau conducts an income survey of about 60,000 American families carefully selected to represent the whole population. The data collected help to measure income inequality in the economy. Which of the following causes the census data to inaccurately measure income inequality?
a) Very few people move from one income quintile to another over the years.
b) Higher-income families tend to have more persons to support.
c) In-kind transfers do not add to people's incomes but are counted as income.
Answer:
c) In-kind transfers do not add to people's incomes but are counted as income.
Explanation:
In the given scenario the aim of the census is to measure income inequality in the population selected.
If however the amount of income earned by individuals is not estimated accurately the results of the study will be inaccurate.
In kind transfers are usually goods and services that a person gets for free of at a reduced rate. They are not considered to be income.
When in kind transfers are counted as income and do not actually add up to income, we cannot get a true picture of income of participants of the income survey.
People who have low income but high in kind transfers will be considered high income earners which is not true.
The expected average rate of return for a proposed investment of $800,000 in a fixed asset with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $360,000 for the four years is
Answer:
22.5%
Explanation:
For computation of return on investment first we need to find out the average investment and average income per year which is shown below:-
Average investment = Proposed investment ÷ Average
= $800,000 ÷ 2
= $400,000
Now, the Average income per year = Expected total net income ÷ Number of year
= $360,000 ÷ 4
= $90,000
Return on investment = Average income per year ÷ Average investment
= $90,000 ÷ $400,000
= 0.225
or
= 22.5%
15) A market is defined as A) a physical place where people buy only goods. B) a physical place where people buy both goods and services. C) a store where people buy physical goods. D) any arrangement that brings buyers and sellers together. E) a place where one good is bartered for another.
Answer:
D) any arrangement that brings buyers and sellers together.
Explanation:
In earlier times before now a market has a specific way of defining it. But due to recent advancement in technology, it can be described or defined to be any arrangement that brings buyers and sellers together.
The power of online presence totally altered the initial marker definitions the world know as any physical place where these buyers and sellers meet to do their tradings or businesses or a place where goods are bartered for another. Therefore any arrangement, be it via mail, sms, codes, online stores, video meetings etc are all forms of market places.
Juanita is deciding whether to buy a skirt that she wants, as well as where to buy it. Three stores carry the same skirt, but it is more convenient for Juanita to get to some stores than others. For example, she can go to her local store, located 15 minutes away from where she works, and pay a marked-up price of $112 for the skirt:
Store Travel Time Each Way (Minutes) Price of a Skirt (Dollars per skirt)
Local Department Store 15 103
Across Town 30 89
Neighboring City 60 63
Juanita makes $16 an hour at work. She has to take time off work to purchase her skirt, so each hour away from work costs her $16 in lost income. Assume that returning to work takes Juanita the same amount of time as getting to a store and that it takes her 30 minutes to shop. As you answer the following questions, ignore the cost of gasoline and depreciation of her car when traveling.
Complete the following table by computing the opportunity cost of Juanita's time and the total cost of shopping at each location.
Store Opportunity Cost of Time (Dollars) Price of a Skirt (Dollars per skirt) Total Cost (Dollars)
Local Department Store 103
Across Town 89
Neighboring City 63
Assume that Juanita takes opportunity costs and the price of the skirt into consideration when she shops. Juanita will minimize the cost of the skirt if she buys it from the:_______
Answer:
Juanita should purchase the skirt at the neighboring city because the total economic cost will be lowest.
Explanation:
three options:
local store 15 minutes away and a price of $103across town 30 minutes away and a price of $89neighboring city 1 hour away and a price of $63Juanita makes $16 per hour at her work, and her purchase decision includes the opportunity cost of lost wages:
total economic cost:
local store = $103 + [1/4 hours x 2 (round trip) x $16] + (1/2 hour x $16) = $119across town = $89 + [1/2 hours x 2 (round trip) x $16] + (1/2 hour x $16) = $113neighboring city = $63 + [1 hour x 2 (round trip) x $16] + (1/2 hour x $16) = $103Juanita should purchase the skirt at the neighboring city because the total economic cost will be lowest ($103)
Opportunity costs are the benefits lost or extra costs incurred for choosing one activity or investment over another alternative. Economic costs include both accounting costs and opportunity costs.
Robinson Company purchased Franklin Company at a price of $2,500,000. The fair market value of the net assets purchased equals $1,800,000. 1. What is the amount of goodwill that Robinson records at the purchase date? 2. Does Robinson amortize goodwill at year-end? 3. Robinson believes that its employees provide superior customer service, and through their efforts, Robinson believes it has created $900,000 of goodwill. Should Robinson Company record this goodwill?
Answer:
Explanation:
Goodwill is defined as the excess in amount of the purchase price of a company over the fair value at acquisition.It is intangible in nature , meaning it can not be physically separated from the other assets. Example are patent , brand name , good employee relation.
1.
Goodwill calculation
Purchase price - $2,500,000
Fair value - $1,800,000
Goodwill - $700,000
2.
No
Under the IAS 36, impairment of assets , goodwill is not amortized but annually tested for impairment as amortization is applicable to intangible assets with a definite useful life while intangible assets with indefinite useful life are annually tested for impairment to evaluate a loss in value experienced.
3
No
Under IAS 38 , Internally generated goodwill are not recognized as no related cost is incurred towards achieving a future benefit
Bonds payable-record issuance and premium amortization. Kaye Co. issued $1 million face amount of 11% 20-year bonds on April 1,2004. The bonds pay interest on an annual basis on March 31 each year.
Required:
a. Assume that market interest rates were slightly lower than 11% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b. Independent of your answer to part a, assume that the proceeds were $1,080,000. Use the horizontal model (or write the journal entry) to show the effect of issuing the bonds.
c. Calculate the interest expense that Kaye Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2004, assuming that the premium of $80,000 is amortized on a straight-line basis.
Answer:
Cash proceeds would be higher than face amount.
Bond issuance:
Dr cash $1,080,000
Cr bonds payable $1,000,000
Cr premium on bonds payable($1,080,000-$1,000,000) $80,000
$57,400
Explanation:
If the market interest rate were slightly lower than 11% coupon rate,the cash proceeds from the bonds would be higher than face amount as a lower market rate is used as a discount rate in calculating the present value,in other words,the lower the discount rate,the higher the present value as further shown below.
Assume market rate is 10.5%
cash proceeds=-pv(rate,nper,pmt,fv)
rate is 10.5%
nper is 20 years
pmt =$1,000,000*11%=$110,000
fv is $1000,000
=-pv(10.5%,20,110000,1000000)=$1,041,154.54
amortization(annually)=$80,000/20=$4000
Amortization for six months=$4,000*6/12=$2,000
coupon=$1,080,000*11%*6/12=$ 59,400.00
Interest expense=coupon -premium amortization=$ 59,400.00-$2,000.00=$57,400
Southland Company is preparing a cash budget for August. The company has $17,000 cash at the beginning of August and anticipates $120,800 in cash receipts and $134,500 in cash payments during August. Southland Company wants to maintain a minimum cash balance of $10,000. To maintain the minimum cash balance of $10,000, the company must borrow:
Answer:
The Southland Company must borrow the amount of $6,700
Explanation:
To determine the amount the company must borrow, analysis of its net cash balance is paramount. Then, the Net cash balance will be deducted from the minimum cash balance of $10,000 to know the amount to be borrowed
Particulars Amount
Opening Cash Balance $17,000
Cash Receipts Expected $120,800
Cash Payment $134,500
Net Cash Balance $3,300
Minimum cash balance $10,000
Net Cash Balance $3,300
Amount to be borrowed $6,700
The Southland Company must borrow the amount of $6,700
Required Information
The following information applies to the questions displayed below) Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $13. At the start of January 2018, VGC's income statement accounts had zero balances and its balance sheet account balances were as follows:________.
Cash $1,600,000
Accounts Receivable 174,000
Supplies 15,100
Equipment 930,000
Buildings 510,000
Land 2,050,000
Accounts Payable 113,000
Deferred Revenue 74,800
Notes Payable (due 2025) 94,800
Common Stock 2,500,000
Retained Earnings 2,498,100
In addition to the above accounts, VGC's chart of accounts includes the following: Service Revenue, Salaries and Wages Expense, Advertising Expense, and Utilities Expense. The following transactions occurred during the January month:________.
A. Received $57,750 cash from customers on 1/1 for subscriptions that had already been earned in 2017.
B. Purchased 10 new computer servers for $41,500 on 1/2; paid $11,500 cash and signed a three-year note for the remainder owed.
C. Paid $14,300 for an Internet advertisement run on 1/3.
D. On January 4, purchased and received $5,300 of supplies on account.
E. Received $150,000 cash on 1/5 from customers for service revenue earned in January.
F. Paid $5,300 cash to a supplier on January 6.
G. On January 7, sold 19,900 subscriptions at $13 each for services provided during January. Half was collected in cash and half was sold on account.
H. Paid $380,000 in wages to employees on 1/30 for work done in January.
I. On January 31, received an electric and gas utility bill for $6,260 for January utility services. The bill will be paid in February.
Answer:
Cash 57,750 debit
Account receivables 57,750 credit
--------------------------------------------
Equipment 41,500 debit
cash 11,500 credit
note payable 30,000 credit
--------------------------------------------
Advertising Expense 14,300 debit
cash 14,300 credit
--------------------------------------------
supplies 5,300 debit
account payables 5,300 credit
------------------------------------------
cash 150,000 debit
service revenue 150,000 credit
-------------------------------------------
account payables 5,300 debit
cash 5,300 credit
---------------------------------------------
cash 129,350 debit
account receivables 129,350 debit
services revenue 258,700 credit
---------------------------------------------
wages expense 380,000 debit
cash 380,000 credit
--------------------------------------------
utilities expense 6,260 debit
account payable 6,260 credit
Explanation:
To make thge jounral entries we must follow the basic principles:
debit = credit
and one value per account
Is important to comment that A state the income has been earned so we deduct from account recievables
then. we again receive cash for service earned
In none ofthe case we are doing the recognition of hte deferred revenue so this, stays untouched.
G) 19,900 x $13 each = $258,700
half cash-half credit : 258,700 / 2 = 129,350
On December 31, a Company held the following short-term available-for-sale securities. The Company had no short-term investments prior to the current period. Prepare the December 31 year-end adjusting entry to record the fair value adjustment for these debt securities.
Answer:
1a. Unrealized amount 850
1b.Dr Unrealized holding loss-AFS 850
Cr Fair value adjustment 850
Explanation:
1a. Computation for fair value adjustment
Available for sale securities Cost -Fair value =Unrealized amount
Nintendo Co notes 44450-48900=4450
Atlantic Bonds 49000-47000=-2000
Kelogg Co notes25000-23200=-1800
Mcdonals Corp bonds46300-44800= -1500
Total 164750-163900= -850
1b. The Adjusting Journal entry
Dr Unrealized holding loss-AFS 850
Cr Fair value adjustment 850
(To record adjusting entry)
The Aberdeen Development Corporation (ADC) is considering an Aberdeen Resort Hotel project. It would be located on the picturesque banks of Grays Harbor and have its own championship-level golf course. The cost to purchase the land would be $1 million, payable now. Construction costs would be approximately $2 million, payable at the end of year 1. However, the construction costs are uncertain. These costs could be up to 20 percent higher or lower than the estimate of $2 million. Assume that the construction costs would follow a triangular distribution. ADC is very uncertain about the annual operating profits (or losses) that would be generated once the hotel is constructed. Its best estimate for the annual operating profit that would be generated in years 2, 3, 4, and 5 is $700,000. Due to the great uncertainty, the estimate of the standard deviation of the annual operating profit in each year also is $700,000. Assume that the yearly profits are statistically independent and follow the normal distribution. After year 5, ADC plans to sell the hotel. The selling price is likely to be somewhere between $4 and $8 million (assume a uniform distribution). ADC uses a 10 percent discount rate for calculating net present value. (For purposes of this calculation, assume that each year's profits are received at year-end.) Use Analytic Solver to perform 1,000 trials of a computer simulation of this project on a spreadsheet.
(a) What is the mean net present value (NPV) of the project?
(b) What is the estimated probability that the project will yield an NPV greater than $2 million?
(c) ADC also is concerned about cash flow in years 2, 3, 4, and 5. Generate a forecast of the distribution of the minimum annual operating profit (undiscounted) earned in any of the four years. What is the mean value of the minimum annual operating profit over the four years?
(d) What is the probability that the annual operating profit will be at least $0 in all four years of operation?
Novak Corporation is preparing its 2014 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2014 statement of cash flows.
Code Letter
Effect
A Added to net income in the operating section
D Deducted from net income in the operating section
R-I Cash receipt in investing section
P-I Cash payment in investing section
R-F Cash receipt in financing section
P-F Cash payment in financing section
N Noncash investing and financing activity
(a) Purchase of land and building.
AR-I and DR-IR-F and ADR-F and DP-FP-IR-FNR-I and A
(b) Decrease in accounts receivable.
R-F and AR-FNR-I and DR-I and ADR-F and DAP-FR-IP-I
(c) Issuance of stock.
R-FAR-IDP-FR-F and AP-IR-F and DNR-I and DR-I and A
(d) Depreciation expense.
R-IP-FP-IR-F and DR-FNR-F and AR-I and AR-I and DAD
(e) Sale of land at book value.
R-F and DP-IADR-FR-IP-FNR-I and DR-I and AR-F and A
(f) Sale of land at a gain.
DR-I and DNR-IR-FR-F and AR-I and AR-F and DP-IAP-F
(g) Payment of dividends.
R-I and AP-IP-FDNAR-I and DR-IR-FR-F and DR-F and A
(h) Increase in accounts receivable.
R-F and ANAP-FP-IR-FR-I and DR-IR-I and AR-F and DD
(i) Purchase of available-for-sale investment.
ADR-I and DR-I and AR-F and DR-F and AP-FR-FNR-IP-I
(j) Increase in accounts payable.
R-F and DDR-F and AAR-IP-IR-FNR-I and DP-FR-I and A
(k) Decrease in accounts payable.
R-I and DNP-FR-F and AR-IR-I and AR-F and DDAP-IR-F
(l) Loan from bank by signing note.
R-I and DR-I and ANP-IDP-FR-F and DR-F and AAR-IR-F
(m) Purchase of equipment using a note.
R-F and DP-IR-FR-I and ANR-F and AP-FR-IR-I and DAD
(n) Increase in inventory.
NR-IP-FR-FP-IDR-I and DR-I and AAR-F and AR-F and D
(o) Issuance of bonds.
AP-FR-F and DNR-I and DR-F and ADR-FR-IP-IR-I and A
(p) Redemption of bonds payable.
R-I and DR-I and AR-IR-F and DP-FR-F and ADP-IANR-F
(q) Sale of equipment at a loss.
R-F and DNR-F and AR-I and DADR-I and AR-FR-IP-IP-F
(r) Purchase of treasury stock.
Answer: The answers are provided below
Explanation:
a) Purchase of land and building = P-I
This will be a cash payment in investing section
b) Decrease in accounts receivable = A
This will be added to the net income in the operating section
c) Issuance of stock = R-F
This will be a cash receipt in financing section
d) Depreciation expense = A
This will be added to the net income in the operating section
e) Sale of land at book value = R-I
This will be a cash receipt in investing section.
f) Sale of land at a gain = R-I and D
This will be a cash receipt in investing section and deducted from the net income in the operating section
g) Payment of dividends = P-F
This will be a cash payment in financing section
h) Increase in accounts receivable = D
This will be deducted from net income in the operating section
i) Purchase of available-for-sale investment = P-I
This will be a cash payment in investing section
j) Increase in accounts payable = A
This will be added to the net income in the operating section
k) Decrease in accounts payable = D
This will be deducted from net income in the operating section
l) Loan from bank by signing note = R-F
This will be a cash receipt in financing section
m) Purchase of equipment using a note = N
This will be a noncash investing and financing activity
n) Increase in inventory = D
This will be deducted from net income in the operating section
o) Issuance of bonds = R-F
This will be a cash receipt in financing section
p) Retirement of bonds payable = P-F
This will be a cash payment in financing section
q) Sale of equipment at a loss = R-I and A
This will be a cash receipt in investing section and will be added to the net income in the operating section
r) Purchase of treasury stock = P-F
This will be a cash payment in financing section
"ART Company just paid a dividend of $2.00. The dividend is expected to grow by 10% this year, 9% in year two and 6% in year three. Then, beginning in year four, the dividend will begin growing at a constant rate of 4%. With a required return of 10%, what is the stock worth today
Answer:
The stock is worth $38.99 per share today
Explanation:
We can calculate the value of the stock using the dividend discount model approach (DDM). The DDM values the stock based on the present value of the expected future dividends from the stock. To calculate the price of the stock today, we simply discount back all the future expected dividends and terminal value (calculated when the growth rate in dividends become constant) to their present value using the required rate of return as the discount factor.
The value of ART company's stock today will be,
P0 or V0 = 2 * (1+0.1) / (1+0.1) + 2 * (1+0.1)*(1+0.09) / (1+0.1)^2 +
2 * (1+0.1)*(1+0.09)*(1+0.06) / (1+0.1)^3 +
[( 2 * (1+0.1)*(1+0.09)*(1+0.06)*(1+0.04)) / (0.1 - 0.04)] / (1+0.1)^3
P0 or V0 = $38.9939 rounded off to $38.99
At the beginning of the year, Bryers Incorporated reports inventory of $7,700. During the year, the company purchases additional inventory for $22,700. At the end of the year, the cost of inventory remaining is $9,700. Calculate cost of goods sold for the year.
Answer: $20,700
Explanation:
beginning inventory (X) = $7,700
purchased additional inventory (Y) = $22,700
ending inventory (Z) = $9,700
So first, we have to calculate Cost of goods available for sale (A), we add beginning inventory (X) and purchased additional inventory (Y)
A = X + Y
A = 7,700 + 22,700
Cost of goods available for sale (A) = 30,400
NOW to get our Cost of goods sold for the year (B), we subtract ending inventory (Z) from cost of goods available for sale (A)
B = A - Z
B = 30,400 - 9,700
B = 20,700
therefore the cost of goods sold for the year is $20,700
The owner of a small firm has just purchased a personal computer, which she expects will serve her for the next two years. The owner has been told that she "must" buy a surge suppressor to provide protection for her new hardware against possible surges or variations in the electrical current, which have the capacity to damage the computer. The amount of damage to the computer depends on the strength of the surge. It has been estimated that there is a 3% chance of incurring 350 dollar damage, 5% chance of incurring 250 dollar damage, and 12% chance of incurring 100 dollar damage from a surge within the next two years. An inexpensive suppressor, which would provide protection for only one surge, can be purchased. How much should the owner be willing to pay if she makes decisions on the basis of expected value
Answer:
$35
Explanation:
The computation of the expected value is shown below;
As we know that
= Estimated chance of damage percentage × dollar damage + Estimated chance of damage percentage × dollar damage + Estimated chance of damage percentage × dollar damage
= 3% × $350 + 5% × $250 + 12% × $100
= $10.5 + $12.5 + $12
= $35
We simply multiplied the estimated chance of damage percentage with the dollar damage and then added the other two so that the expected value could arrive
Barry is the branch manager of a large toy store. He has been given the responsibility to communicate with, coach, and motivate supervising managers. In this scenario, Barry most likely requires _____ to perform his role efficiently.
1. Human skills
2. Conceptual skills
3. Technical skills
4. Cognitive skills
Answer:
Human Skills
Explanation:
The table gives a number of daily sales of cars by a local dealership, from a 0 minimum to a 6 maximum, and the number of days each sale happened during a 100 - day survey. That is. 0 cars were sold 6 days, 1 car 8 days, etc.
Car sales per day, X 0 1 2 3 4 5 6
Number of days 6 8 22 20 15 16 13
A) Give the probability density function of X.
B) Compute the expected value of A". Explain its meaning.
C) Compute the variance and standard deviation of X.
D) Find the expected value and variance of a function Y = 5 + 12X.
Answer: The answer has been provided and attached.
Explanation:
Based on the attached diagram, there will be 3.3 sales per day.
The variance will be 2.95.
Since standard deviation is the square root of variance, the standard deviation will be:
= ✓2.95
= 1.72
The expected value and variance of a function Y = 5 + 12X will be:
Expected value = 44.6
Variance = 424.8
The separate components highlight several features of return on investment not revealed by a single calculation:a.The importance of investment turnover as a key to income is stressed.b.The importance of revenues is explicitly recognized.c.The important components are expressed as ratios or percentages instead of dollarfigures. This form of expression often enhances comparability of different divisions,businesses, and time periods.d.The breakdown stresses the possibility of trading off investment turnover for incomeas a percentage of revenues so as to increase the average ROI at a given level ofoutput
Answer:
The options (a) (b) and (c) is correct.
Explanation:
From the question stated the features that highlights the return of investment is listed as follows.
The significance of investment turnover as a key to income is stressedThe importance import of revenues is explicitly recognizedThe significant components are expressed as ratios or percentages instead of dollar figures.Hence, the last option is not correct.
Suppose the government is considering an increase in the toll on a certain stretch of highway from $.40 to $.50. At present, 50,000 cars per week use that highway stretch; after the toll is imposed, it is projected that only 45,000 cars per week will use the highway stretch. Assuming that the marginal cost of highway use is constant (i.e., the supply schedule is horizontal) and equal to $.40 per car, what is the change in social surplus attributable to the increase in the toll
Answer:
$250 is the change in social surplus attributable to the increase in the toll
Explanation:
Suppose the government increase in toll on a certain stretch of highways by this caused a dead-weight loss occur and then resulting full in the number of cars using the highway.
Dead-weight loss = (0.5) (0.50-0.40) (50,000-45,000)
Dead-weight loss = 0.5 * 0.10 * 5000
Dead-weight loss = $250
The increase paid by other remaining drivers (0.50-0.40)(40,000) can be viewed as transfer from drivers to the government.
NewTech Incorporated management plans on paying the company's first dividend of $2.00 three years from today (D3 = $2.00) on its' common stock. After year three the dividend is expected to grow at a constant rate of 5% thereafter. As an investor with a required rate of return of 15%, what would you pay for NewTech common stock today?
Answer:
Stock price today = $13.807
Explanation:
According to the dividend valuation model , the current price of a stock is the present value of the expected future dividends discounted at the required rate of return
This principle can be applied as follows:
The value of cash flow the stock today is the present value of the future cash flow discounted at the required rate of return
Step 1 : Compute the PV in year 3 of future dividend
PV = D× (1+g)/r-g
D- div in year 3, g- growth rate, r-required rate of return
PV in year 3 = 2× (1.05)/0.15-0.05
= 21
Step 2: PV in year in year 0
PV = PV in year 3 × (1+r)^(-n)
r-rate of return- 15%, n- number of years- 3
= 21 × 1.15^(-3)
=13.80784088
Stock price today = $13.807
Handy Home sells windows and doors in the ratio of 7:3 (windows:doors). The selling price of each window is $111 and of each door is $261. The variable cost of a window is $68.00 and of a door is $180.50. Fixed costs are $515,375.
Required:
1. Determine the selling price per composite unit.
2. Determine the variable cost per composite unit.
3. Determine the break-even point in composite units.
4. Determine the number of units of each product that will be sold at the breakeven point.
Answer:
Instructions are below.
Explanation:
Giving the following information:
Handy Home sells windows and doors in the ratio of 7:3 (windows:doors).
Window:
Selling price= $111
Unitary variable cost= $68
Door:
Selling price= $261
Unitary variable cost= $180.5
Fixed costs are $515,375.
1) Selling price per composite unit:
Selling price= 0.7*111 + 0.3*261= $156
2) Composite variable cost:
Variable cost per unit= 0.7*68 + 0.3*180.5= 101.75
3) To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 515,375/ ( 156 - 101.75)
Break-even point in units= 9,500 units
4) Units for each product:
Windows= 0.7*9,500= 6,650
Door= 0.3*9,500= 2,850
