Answer:
a.385 stones
b.349 stones
c.168 stones
Explanation:
Order quantity that minimizes total annual cost is known as the Economic Order Quantity.
Economic Order Quantity = √(2 × Annual Demand × Ordering Cost per Order) / Holding Cost per unit
= √(2×28×110×$48) / $2
= 384.5 or 385 stones
Economic Order Quantity = √(2 × Annual Demand × Ordering Cost per Order) / Holding Cost per unit
= √(2×28×110×$48) / ($8.10 × 30%)
= 348.8 or 349 stones
Re-oder point is the point at which the order should be placed to obtain additional inventories
Reorder Point = Lead Time × Usage
= 6 days × 28 stones
= 168 stones
Suppose that, in an attempt to combat severe unemployment, the government decides to increase the amount of money in circulation in the economy.
This monetary policy ___________ the economy's demand for goods and services, leading to ____________ product prices. In the short run, the change in prices induces firms to produce __________ goods and services. This, in turn, leads to a _________ level of unemployment.
In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to ____________ unemployment.
Answer:
increases
higher
more
lower
lower
Explanation:
If the money supply is increased. individuals would have more money and consumption would increase. Increase in consumption would lead to a rise in demand.
when demand exceeds supply, prices rise,
When there is a rise in price, it encourages producers to increase production in order to increase their profit margin.
In order to expand production, more factors of production would be needed. So, more labour would be hired. thus, unemployment would fall.
it can be seen that higher inflation lowers unemployment
Meredith, the General Manager at Gladfle Inc., is planning to use certain new strategies to control and reduce the health care benefit costs to her company. What should she include in her list of strategies?
Answer:
Switching to consumer driven health plans
Explanation:
Meridith should include switching to consumer driven health plans in her list of strategies since she is trying to reduce health care benefits costs.
A consumer-driven health plan allows the workers in an organization, it could be both employers and their employees, to put aside amounts of money usually pre-tax money, which could be used to pay for qualified medical expenses not covered by their health plan.
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $90,800.
At the end of the year, Calvin reports the following in its financial statements:
Revenues 65,550 Machine 13,590 Common stock 10,000
Expenses 29,250 Other assets 27,710 Retained earnings 31,300
Net income 36,300 Total assets 41,300 Total equity 41,300
Dividends paid 5,000
Required:
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret.
Answer:
Beckman noncontrolling interest in subsidiary income $10,520
Calvin Machine (net of accumulated depreciation) $71,200
Explanation:
To calculate noncontrolling interest in subsidiary's income;
Revenue $65,550
Expenses $39,250 (29,250 + $6,800 + $3,200)
Net Income $26,300
Noncontrolling percentage = 40%
NonControlling Income = $10,520
Depreciation of Machine = [tex]\frac{Fair value of Machine - Book value}{estimated useful life}[/tex]
[tex]\frac{78,000 - 10,000}{10 years}[/tex] = 6,800 per annum
Amortization of trade secrets = [tex]\frac{Fair Value Total - Machine value}{Useful life}[/tex]
Amortization of trade secrets = [tex]\frac{90,800 - 78,000}{4 years}[/tex]
= 3,200
Messaging systems range from semi-public systems such as standard text messaging on mobile phones, to private systems that are closed to anyone outside of invited members.
A. True
B. False
Answer:
True.
Explanation:
Messaging systems range from semi-public systems such as standard text messaging on mobile phones, to private systems that are closed to anyone outside of invited members.
A messaging system can be defined as an electronic device which enables users to send text messages to one or more users depending on the configuration and it ranges from semi-public systems to private systems.
In a semi-public messaging system, messages can be sent between users with little or no restriction to who can send or receive these messages. An example is sending short standard text on mobile phones.
On the other hand, a private messaging system is a type of system that denies access to individuals outside of the group, only invited members are able to send and receive messages.
Mercury Company reports depreciation expense of $40,000 for Year 2. Also, equipment costing $150,000 was sold for its book value in Year 2. There were no other equipment purchases or sales during the year. The following selected information is available for Mercury Company from its comparative balance sheet. Compute the cash received from the sale of the equipment. At December 31 Year 2 Year 1 Equipment $ 600,000 $ 750,000 Accumulated Depreciation-Equipment 428,000 500,000
Answer:
Mercury Company
Sale of Equipment account:
Equipment $150,000
Acc. Depreciation 112,000
Book value $38,000
Cash received $38,000
Explanation:
a) Data and Calculations:
Equipment Account:
Beginning balance $750,000
Ending balance 600,000
Sale of equipment $150,000
Accumulated Depreciation - Equipment account:
Beginning balance $500,000
Depreciation expense 40,000
Ending balance 428,000
Sale of Equipment $112,000
b) The Cash received from the sale of Mercury Company's equipment is equal to the book value in Year 2 according to the question. Since the book value (value after accumulated depreciation) is $38,000, that means that the equipment was sold at $38,000 recording no profit or loss for the company on the sale.
Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $186,700 $517,500 Variable costs 74,900 310,500 Contribution margin $111,800 $207,000 Fixed costs 68,800 92,000 Income from operations $43,000 $115,000 a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. Beck Inc. Bryant Inc. b. How much would income from operations increase for each company if the sales of each increased by 20%
Answer:
a. Operating leverage = Contribution Margin / Income for operation
Beck Inc. = $111,800 / $43,000 = 2.6 times
Bryant Inc = $207,000 / $115,000 = 1.8 times
b. Increase on Income from operations for each company if the sales of each increased by 20%? will be:
Beck Inc = 2.6 * 10%
=0.52
=52%
Bryant Inc = 1.8 * 20
=0.36
=36%
Describe Reid Hoffman the founder and creator Linkedln?
Answer:
Reid Garrett Hoffman is an American internet businessman, tech entrepreneur, writer. Hoffman became co-founder and president of LinkedIn, an enterprise-oriented social media network mainly utilized for business networking. In 2016, Hoffman transferred LinkedIn for $26.2 billion in cash to Microsoft, then entered the board for Microsoft.
A parent company exchanges 5,000 shares of its $2 par value common stock, with a market value of $10/share, for all of the shares owned by the subsidiary's shareholders, resulting in a $50,000 total purchase price. On the acquisition date, the subsidiary reported a book value of Stockholders' Equity of $37,500, comprised of $15,000 of Common Stock and $22,500 of Retained Earnings. An examination of the subsidiary's balance sheet revealed that book values were equal to fair values for all assets except for PPE (net), which has a book value of $20,000 and a fair value of $32,500.
a. Prepare the entry that the parent makes to record the investment.
b. Prepare the [E] and [A] consolidation entries.
Answer:
a. The entry that the parent makes to record the investment
Investment in Subsidiary $50,000 (debit)
Common Stocks $50,000 (credit)
b. Consolidation Entries
Common Stock (Subsidiary) $15,000 (debit)
Retained Earnings (Subsidiary) $35,000 (debit)
Investment in Subsidiary $50,000 (credit)
Explanation:
The entry that the parent makes to record the investment
Investment in Subsidiary $50,000 (debit)
Common Stocks $50,000 (credit)
Recognize the Investment in Subsidiary and recognize the Equity element : Common Stocks
Consolidation Entries
Common Stock (Subsidiary) $15,000 (debit)
Retained Earnings (Subsidiary) $35,000 (debit)
Investment in Subsidiary $50,000 (credit)
Eliminate Common Items and recognize Goodwill or Gain on Bargain Purchase if any.
Following are selected account balances from Penske Company and Stanza Corporation as of December 31, 2018:
Penske Stanza
Revenues 700,000 400,000
Cost of goods sold 250,000 100,000
Depreciation expense 150,000 200,000
Investment income Not given __
Dividend declared 80,000 60,000
Retained earnings 600,000 200,000
Current assets 400,000 500,000
Copyrights 900,000 400,000
Royal agreements 600,000 1,00,0000
Investment in stanza ---- -------
Liabilities 500,000 13,80,000
Common stock 600,000 200,000
Additional paid capital 150,000 80,000
On January 1, 2018, Penske acquired all of Stanza's outstanding stock for $680,000 fair value in cash and common stock. Penske also paid $10,000 in stock issuance costs. At the date of acquisition, copyrights (with a six-year remaining life) have a $440,000 book value but a fair value of $560,000.
a. As of December 31, 2018, what is the consolidated copyrights balance?
b. For the year ending December 31, 2018, what is consolidated net income?
c. As of December 31, 2018, what is the consolidated retained earnings balance?
d. As of December 31, 2018, what is the consolidated balance to be reported for goodwill?
Answer:
a. Consolidated Copyright
Penske (Book value) $900,000
Stanza (Book value) $400,000
Allocation $120,000
Less: Excess Amortization ($20,000)
Total $1,400,000
b. Consolidated Net Income 2019
Revenues $1,100,000
Expenses:
Cost of goods sold $350,000
Depreciation Expenses $350,000
$700,000
Excess amortization $20,000 $720,000
Consolidated Net Income $380,000
Workings
Cost of goods sold = 250,000 + 100,000 = 350,000
Depreciation Expenses = 150,000 + 200,000 = 350,000
3. Consolidated Retainer earnings on December 31,2018
Retained Earnings 1/1/28 $600,000
Net Income 2018 $380,000
Less: Dividend Declared 2018 (Penske) ($80,000)
Total $900,000
d. Consolidated Balance to be reported for goodwill
Stanza acquisition fair value $680,000
(10,000 in stock issue costs reduced
additional paid in capital)
Book value of subsidiary $480,000
(1/1/18 Stockholder equity balance)
Fair value in excess of book value $200,000
Less: Excess fair value allocated $120,000
to copy right based on fair value
Goodwill $80,000
Workings
Stockholder equity balance 1/1/18
Common stock 200,000
Additional paid-in capital 80,000
Retained earnings 200,000
Stockholder equity 480,000
Excess fair value
Copyright fair value 560,000
Less Copyright book value 440,000
Excess fair value allocated 120,000
Copyright year 6 years
Annual Excess Amortization $20,000
Zeke Company sells a single product. The selling price per unit is $32 and unit variable cost is $24. Fixed costs for the year are $100,200. What if selling price goes up by 0.15%, variable costs go up by 0.15% and fixed costs go up by 0.16%? What is the new breakeven point in units?
Answer:
Break-even point in units= 12,562 units
Explanation:
Giving the following information:
Selling price= 32*1.0015= 32.048
Unitary variable cost= 24*1.0015= 24.036
Fixed costs= 100,200*1.0016= 100,360.32
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= 100,360.32/(32.048 - 24.036)
Break-even point in units= 12,562 units
Anthony Corporation reported the following amounts for the year: Net sales $296,000 Cost of goods sold 138,000 Average inventory 50,000 Anthony's average days in inventory is (round to the nearest whole day):
Answer:
132.25 days
Explanation:
average days in inventory is an activity ratio.
Activity ratios calculates the efficiency of performing daily tasks.
average days in inventory = number of days in a period / inventory turnover
inventory turnover = cost of goods sold / average inventory = 138,000 / 50,000 = 2.76
Assuming a 365 day period , 365 / 2.76 = 132.25
The burn down chart for a team showed a peculiar trend. It started dropping rapidly at the beginning of the Sprint and then seemed to plateau in the middle. A day before the Sprint, the line dipped rapidly and reached the horizontal axis. Whiat is the most likely reason for this trend?
Answer:
Explanation:
In the scenario being described, it is the most likely that the team encountered a major blocking issue in the middle of the Sprint which was resolved only toward the end. This can be deduced from the graph due to it plateauing in the middle, which usually happens when tasks are not finishing, which ultimately causes a blocking issue and since the chart went back to normal afterwards, they most likely resolved the blocking issue.
A recent trend has seen cities opt to leave the stadium management business and either allow the team or a third party (e.g., AEG or SMG) to manage the facility in exchange for a fee.
A. True
B. False
Answer: True
Explanation:
recent trend has seen cities opt to leave the stadium management business and either allow the team or a third party (e.g., AEG or SMG) to manage the facility in exchange for a fee.
This is true. Cities don't really go into Stadium management business and focus on other aspects of business or in certain cases, look out for a third party.
Answer:
true
Explanation:
A firm always has a competitive disadvantage when its return on invested capital is:_________
A. 2 percent or lower in a declining industry.
B. declining steadily over two or more years.
C. about the same as its closest competitor.
D. below the industry average.
Answer:
A firm always has a competitive disadvantage when its return on invested capital is:_________
D. below the industry average.
Explanation:
A firm's competitive disadvantage shows when the return on investment is below the industry average. For instance, let us assume that Niposte, Inc. operates in the paper milling industry and that its return on investment of 10% falls below the industry average of 15%, then one can conclude that Niposte, Inc. is not favored in this industry. The cause of such a situation for Niposte, Inc. may be that the ability of its management to turn revenue into profits for stockholders is hampered with excessive costs. This is because the return on investment is a profitability ratio that shows how Niposte, Inc. and its competitors are performing in terms of generating profit from revenue through efficient management of operating costs.
Exercise F The luggage department of Sampson Company has revenues of $1,000,000; variable expenses of $250,000; direct fixed costs of $500,000; and allocated, indirect fixed costs of $300,000 in an average year. If the company eliminates this department, what would be the effect on net income
Answer:
Decrease by $250,000
Explanation:
Calculation for what would be the effect on net income.
We would be using Differential Analysis method to find the effect on the net income
Differential Analysis
Continue with Luggage Department; Eliminate Luggage Department; Effect on Income
Sales
1,000,000 0 -1,000,000
Variable cost
-250,000 0 250,000
Direct fixed costs
-500,000 0 500,000
Indirect fixed costs
-300,000 -300,000 0
Net Income
-$50,000 -$300,000 -$250,000
Therefore in a situation where the luggage department is eliminated, the income would decrease by $250,000
The market price of a share of common stock at the time of issuance was $17.00, while the market price of a preferred share of stock at the time of issuance was $26.50. The company paid $11.50 per share for its treasury stock. Required: Determine the missing amount in the stockholders' equity section of the balance sheet set forth below. (Input all amounts as positive values.)
The correct answer is $55
Explanation:
A pension plan is obligated to make disbursements of $1.8 million, $2.8 million, and $1.8 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 9% annually.
Answer:
1.9516 years.
Explanation:
So, the best and fastest way to solve this question is to use excel. So the first step is to calculate the Present Value of Cash Flow for the three cash flows and sum them up.
(A).
(1). For cash flow = $1,800,000, time = 1.
Present Value of Cash Flow:
$1,800,000 / (1 + 9%)^1
= 1651376.14678899082.
(2). For cash flow = $2,800,000, time = 2.
= $2,800,00/ (1 + 9%)^2.
= 2356703.98114636815.
(3). For cash flow = $2,800,000, time = 3.
= $1,800,000 / (1 + 9%)^3.
= 1389930.26410991568.
Thus, 1651376.14678899082 + 2356703.98114636815 + 1389930.26410991568.
= 5398010.39204527465.
(B). Also, 1651376.14678899082 ×( time = 1) = 1651376.14678899082.
2356703.98114636815 × (time= 2 ) = 4,713,407.9622927363.
1389930.26410991568 × (time = 3) = 4169790.79232974704.
Thus, 4169790.79232974704 + 1651376.14678899082 + 4,713,407.9622927363.
= 10534574.90141147416.
Hence, duration = 10534574.90141147416/ 5398010.39204527465.
= 1.95156625058292731
Approximately 1.9516 years.
Assume that both labor and capital exhibit diminishing returns. Suppose you can hire an additional unit of labor for $10, and she can product 50 units. You could also buy an additional machine at the cost of $200, and that machine would allow you to produce 1000 units.
If your main concern is minimizing average cost, what should you do?
a) Buy the machine, because it will allow you to produce more
b) Nothing, because you are already minimizing cost
c) There is not enough information to make a legitimate response
d) Hire more labor, because it is cheaper
Answer:
b) Nothing, because you are already minimizing cost
Explanation:
cost of producing one additional unit by hiring more workers = $10 / 50 units = $0.20 per unit
cost of producing one additional unit by buying the machine = $200 / 1,000 units = $0.20 per unit
Since labor exhibits a diminishing return, the next unit of labor will produce less than 50 units. This means that if you want to increase production, you should buy the machine.
Using the same logic, the previous units of labor were able to produce more than 50 units, which means that the average total cost was lower using labor than the machine. So if the company's concern is to minimize costs, then they are already doing so.
Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard & Poor's Indexes have the ____________ and the ____________, respectively.
Answer:
This question is incomplete, the options are missing. The options are the following:
a) Highest price; highest total market value
b) Highest total market value; highest price
c) Highest price; lowest liquidity
d) Greatest number of shares outstanding; highest price
And the correct answer is the option B: Highest total market value; highest price.
Explanation:
To begin with, both terms the Dow Jones Averages and the Standard & Poor's are indexes for the respective american stock market in where the better companies of the country are in the list so that why that mostly of them will obviously have the highest total market value and its respectively highest price due to the fact that are the companies that produce more and work better than others and the public buy stocks from them and that makes them richer and richer.
Journalize the following transactions for the Scott company:
Nov 4. Received a $6,500, 90-day, 6% Note from Michael Tim's in payment of his account.
Dec 31. Accrued interest on the Tim's note.
Feb 2. Received the amount due from Tim's on his note.
Answer:
Journalize the following transactions for the Scott company:
Nov 4. Received a $6,500, 90-day, 6% Note from Michael Tim's in payment of his account.
Dr Notes receivable 6,500
Cr Accounts receivable 6,500
Dec 31. Accrued interest on the Tim's note.
Dr Interest receivable ($6,500 x 6% x 57/365) = 60.90
Cr Interest revenue 60.90
Feb 2. Received the amount due from Tim's on his note.
Dr Cash 6,596.16
Cr Notes receivable 6,500
Cr Interest receivable 60.90
Cr Interest revenue 35.26
I did all my calculation based on a 365 day calendar year. Generally banks calculate interest on a 360 day calendar year.
Mason Automotive is an automotive parts company that sells car parts and provides car service to customers. This is Mason's first year of operations and they have hired you as their CPA to prepare the income statement and balance sheet for their company. As such, January 1st , 2019 was the first day that Mason was in business.
Required:
For the month of January, record all the necessary journal entries for transactions that occurred during the month. In addition, please prepare all necessary adjusting journal entries as of the end of the month.
Answer:
Mason Automotive sells 10,000,000 shares at $5 par for $15 on January 1st, 2019.
Dr Cash 150,000,000
Cr Common stock 50,000,000
Cr Additional paid in capital 100,000,000
Ed Mason, the CEO, hires 4,000 employees, whom will receive a combined salary of $6.5 Million on a monthly basis. The employees started on January 1st and will be paid for the month of January on February 5th. Employee's withholdings are as follows: 10% for federal income taxes 5% for state income taxes and 7% for FICA. Record the necessary entry as of January 1st, 2019.
No journal entry required
Adjusting entry:
January 31, 2019, wages expense
Dr Wages expense 6,500,000
Dr FICA taxes expense 455,000
Cr Federal income taxes withheld payable 650,000
Cr State income taxes withheld payable 325,000
Cr FICA taxes withheld payable 455,000
Cr FICA taxes payable 455,000
Cr Wages payable 5,070,000
On January 1st, Mason Automotive receives $70 Million advance payment from a customer, Highland Inc., to manufacture 7,000 cars.
Dr Cash 70,000,000
Cr Deferred revenue 70,000,000
Adjusting entry:
January 31, 2019, 5,000 cars were finished and delivered
Dr Deferred revenue 35,000,000
Cr Sales revenue 35,000,000
Mason Automotive issues a bond payable on January 1st, 2019 with a face value of $500 Million at 98. The bond will have a useful life of 10 years with an interest payment of 8% (Annual Percentage Rate) due at the end of the month. Record the necessary journal entry as of January 1st, 2019.
Dr Cash 490,000,000
Dr Discount on bonds payable 10,000,000
Cr Bonds payable 10,000,000
(Note: When considering the amortization of the discount or premium, assume the straight line method is used).
Adjusting entry
January 31, 2019, interest expense
Dr interest expense 3,416,666
Cr Discount on bonds payable 83,333
Cr Interest payable 3,333,333
Mason Automotive purchased $6 Million dollars worth of supplies on account on January 2nd, 2019.
Dr Supplies 6,000,000
Cr Accounts payable 6,000,000
Adjusting entry
January 31, 2019, supplies expense
Dr Supplies expense 3,500,000
Cr Supplies 3,500,000
On January 2nd, Mason Automotive shipped an order to Panther Paws Corporation. The shipping terms were FOB shipping point and the value of the order was $95 Million and the inventory cost was $55 Million. Assume that this sale was made on account. Dr Accounts receivable 95,000,000
Cr Sales revenue 95,000,000
Dr Cost of goods sold 55,000,000
Cr Inventory 55,000,000
Adjusting entry:
January 31, 2019, allowance for doubtful accounts (3%)
Dr Bad debt expense 2,850,000
Cr Allowance for doubtful accounts 2,850,000
Mason Automotive purchased $150 Million dollars worth of inventory on January 2nd, 2019. $80 Million was paid with cash with the remaining balance on account. Mason notes that it will use a perpetual inventory system to track inventory.
Dr Inventory 150,000,000
Cr Cash 80,000,000
Cr Accounts payable 70,000,000
Mason Automotive buys a patent from Apple for $20 Million on January 3rd, 2019. The patent has a legal life of 20 years and the useful life was the same. Record the necessary entry as of January 3rd, 2019. Assume the patent was purchased using cash. Dr Patent 20,000,000
Cr Cash 20,000,000
Adjusting entry:
January 31, 2019, patent amortization expense
Dr Patent amortization expense 83,333
Cr Patent 83,333
Mason Automotive pre-pays for Rent Expense for the next year of $12 Million and Insurance Expense of $3.7 Million on January 3rd, 2019.
Dr Prepaid rent 12,000,000
Dr Prepaid insurance 3,700,000
Cr Cash 15,700,000
Adjusting entries:
January 31, 2019, rent expense
Dr Rent expense 1,000,000
Cr Prepaid rent 1,000,000
January 31, 2019, insurance expense
Dr Insurance expense 308,333
Cr Prepaid insurance 308,333
Mason Automotive purchases fixed assets of $100 Million that will have a useful life of 10 years and a salvage value of $20 million on January 4th, 2019. $20 million was paid with cash with the remaining balance on account. These assets are depreciated using the straight-line method.
Dr Fixed assets 100,000,000
Cr Cash 20,000,000
Cr Accounts payable 80,000,000
Adjusting entry:
January 31, 2019, depreciation expense
Dr Depreciation expense 666,667
Cr Accumulated depreciation - fixed assets 666,667
On January 20th, Mason Automotive decides to purchase 500,000 shares of Treasury stock at $35 per share.
Dr Treasury stock 17,500,000
Cr Cash 17,500,000
Statfeld Company's income statement for the current month shows that the company sold 300,000 units of its product and earned a net operating income of $450,000, Management is very pleased with the result and believes the company's financial position is strong because sales would have to go down by 40% from the current level before losses would occur. Management further believes that if the company runs a new TV commercial at a cost of $50,000 per month, sales volume next month could grow by 20% from the current sales level without the need to lower the sales price. If this action is taken, what will be the increase decrease in the next month's net operating income from the current month?
a. Increase of $175,000
b. Increase of $40,000
c. Increase of $225,000
d. Decrease by $50,000
e. None of the above.
Answer:
b. Increase of $40,000
Explanation:
Incremental Analysis of the Operating Profit arising from new TV commercial
Hint : Consider Incremental amounts Only
Operating Income ( $450,000 × 20 %) $90,000
Less Cost of new TV commercial ($50,000)
Incremental Income / (loss) $40,000
Conclusion :
There will be an increase in next month's net operating income from the current month of $40,000 .
Division A reported income from operations of $975,000 and total service department charges of $675,000. As a result, a.consolidated net income was $300,000 b.the gross profit margin was $300,000 c.income from operations before service department charges was $1,650,000 d.net income was $300,000
Answer:
c.income from operations before service department charges was $1,650,000
Explanation:
We can see from the information in the question, that income from operations and service department charges sum a total of $1,650,000
Gross income before service department charges = $975,000 + $675,000
= $1,650,000
Playa Inc. owns 85 percent of Seashore Inc. During 20X8, Playa sold goods with a 25 percent gross profit to Seashore. Seashore sold all of these goods in 20X8. How should 20X8 consolidated income statement items be adjusted g
Answer:
Debit the Cost of Sales and,
Credit the Revenue.
Explanation:
Transactions that occur within a group of companies must be eliminated. Playa is a Parent (85%) and Seashore Inc is a Subsidiary.
The effect of the Sale by Playa to Seashore is that Group Cost of Sales and Revenue would be over-valued by the price of intragroup sale.
Thus, the adjustment for this intragroup sale, is to Debit the Cost of Sales and Credit the Revenue.
Fortune Enterprises is an all-equity firm that is considering issuing $13.5 million of perpetual debt. The interest rate is 10%. The firm will use the proceeds of the bond sale to repurchase equity. Fortune distributes all earnings available to stockholders immediately as dividends. The firm will generate $3 million of earnings before interest and taxes (EBIT) every year into perpetuity. Fortune is subject to a corporate tax rate of 40%. Suppose the personal tax rate on interest income is 55%, and the personal tax rate on equity income is 20%.
What is the annual after-tax cash flow to debt holders under each plan?
a. Debt holders get $0 mil. under the unlevered plan vs. 1.2 mil. under the levered plan
b. Debt holders get $1.2 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
c. Debt holders get $0 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Answer:
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Explanation:
interests paid to debt holders = $13,500,000 x 10% = $1,350,000
generally, interest revenue is taxed as ordinary revenue = corporate income tax rate (if debt holder is a business) or personal income tax (if debt holder is an individual).
under the first plan, debt holders get nothing because there is no outstanding debt since the company is an all equity firm.
under the second plan, if the personal tax rate on interest income is 55%, which is really high, the debt holders will earn $1,350,000 x (1 - 55%) = $607,500
Assignment: Capital Budgeting Decisions Your company is considering undertaking a project to expand an existing product line. The required rate of return on the project is 8% and the maximum allowable payback period is 3 years.
time 0 1 2 3 4 5 6
Cash flow $ 10,000 2,400 4,800 3,200 3,200 2,800 2,400
Evaluate the project using each of the following methods. For each method, should the project be accepted or rejected? Justify your answer based on the method used to evaluate the project’s cash flows.
A. Payback period
B. Internal Rate of Return (IRR)
C. Simple Rate of Return
D. Net Present Value
Answer:
A. Payback period
payback period = 2.875 years, therefore, the project should be accepted because the payback period is less than 3 years.B. Internal Rate of Return (IRR)
IRR = 22.69%, therefore, the project should be accepted since the IRR is higher than the required rate of return (8%).C. Simple Rate of Return
simple rate of return = 18%, therefore, the project should be accepted because the simple rate of return is higher than the required rate of return.D. Net Present Value
NPV = $4,647.85 , therefore, the project should be accepted since the NPV is positive.Explanation:
year cash flow
0 -$10,000
1 $2,400
2 $4,800
3 $3,200
4 $3,200
5 $2,800
6 $2,400
discount rate 8%
I used a financial calculator to determine the NPV and IRR.
Payback period = $10,000 - $2,400 - $4,800 = $2,800 / $3,200 = 0.875
payback period = 2.875 years
simple rate of return:
average cash flow = ($2,400 + $4,800 + $3,200 + $3,200 + $2,800 + $2,400) / 6 = $3,467
depreciation expense per year = $10,000 / 6 = $1,667
simple rate of return = ($3,467 - $1,667) / $10,000 = 18%
On the first day of 2016, Holthausen COmpany acquired the assets of Leftwich Company including several intangible assests. These include a patent on Ledtwicj's primary product, a device called a plentiscope. Leftwich carried the patent on its book for $1,500, but Holthausen believes that the fair value is $200,000. The patent expires in seven years, but companies can be expected to develop competing patents within three years. Holthausen believes that, with expected technlogical improvements, the product is marketable for a t least 20 years.
The registration of the trademark for the Leftwich name is scheduled to expire in 15 years. However, the Leftwich brand name, which Holthausen believes is worth $500,000, could be applied to related products for many years beyond that.
As part of the acquisition, Leftwich's principal researcher left the company. As part of the acquisition, he signed a five-year noncompetition agreement that prevents him from developing competing products. Holthausen paid the scientist $300,000 to sign the agreement.
a. What amount should be capitalized for each of teh identifiable intangible assets?
b. What amount of amortization expense should Holthausen record in 2016 for each asset?
Answer:
Holthausen Company and Leftwich Company
Intangible Assets:
a) Amount to be capitalized:
1) Patent: $200,000
2) Trademark: $500,000
3) Non-competition Agreement: $300,000
b) Amount of Amortization Expense for 2016:
1) Patent: $200,000/7 years = $28,571.43
2) Trademark: $500,000/15 years = $33,333,33
3) Non-competition Agreement: $300,000/5 = $60,000
Explanation:
The fair values of the "plentiscope" patent and Leftwich's branded trademark should be capitalized as intangible assets, while the cost of the non-competition agreement with Leftwich's principal researcher should be capitalized.
For the amortization of the Leftwich-connected intangibles, we have adopted the straight-line method, in the absence of any prescribed method. The patent expiration in 7 years was used as the basis for its useful life, despite Holthausen belief that the product could be marketable for at least 20 years.
The trademark was amortized over its remaining useful life of 15 years as given, while the non-competition agreement was amortized for 5 years when the agreement remains effective.
The following errors were discovered by the Gerding Company: Failure to record Unearned Revenue in 2026: $6 Failure to record Depreciation in 2025: $8 Indicate the error in 2026 Net Income:
Answer:
Overstated $2
Explanation:
Calculation to Indicate the error in 2026 Net Income
2026 Failure to record Unearned Revenue $6
Less 2025 Failure to record Depreciation ($8)
2026 Net income $2
Therefore the error in 2026 Net Income will be overstated amount of $2
[The following information applies to the questions displayed below.] Hudson Co. reports the contribution margin income statement for 2017. HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017 Sales (11,300 units at $175 each) $ 1,977,500 Variable costs (11,300 units at $140 each) 1,582,000 Contribution margin $ 395,500 Fixed costs 315,000 Pretax income $ 80,500 Assume the company is considering investing in a new machine that will increase its fixed costs by $37,000 per year and decrease its variable costs by $8 per unit. Prepare a forecasted contribution margin income statement for 2018 assuming the company purchases this machine.
Answer:
Pretax income= $133,900
Explanation:
Giving the following information:
Selling price= $175
New unitary variable cost= $132
New fixed costs= 315,000 + 37,000= 352,000
Now, we can determine the new operating income:
Sales= 11,300*175= 1,977,500
Total variable cost= 11,300*132= (1,491,600)
Total contribution margin= 485,900
Fixed costs= (352,000)
Pretax income= 133,900
Piedmont Hotels is an all-equity company. Its stock has a beta of .82. The market risk premium is 6.9 percent and the risk-free rate is 4.5 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1.7 percent to the project's discount rate. What should the firm set as the required rate of return for the project?
Answer:
11.86%
Explanation:
Piedmont hotels can be described as an all-equity company
Its stock has a beta of 0.82
The market risk premium is 6.9%
The risk free rate is 4.5%
The adjustment is 1.7%
Therefore, the required rate of return can be calculated as follows
Required rate of return= Risk free rate of return + ( beta×market risk premium) + adjustment
= 4.5% + (0.82×6.9%) + 1.7%
= 4.5% + 5.658 + 1.7%
= 11.86%
Hence the required rate of return for the project is 11.86%