Answer:
Window Dressing causes Adjusting and Closing entries.
Explanation:
Window Dressing the alteration of financial performance near the year-end to appear as if performance has improved. To make the window dressing entry, some temporary and permanent accounts will be adjusted, especially Sales Revenue and costs to generate paper profits. These adjusting entries are closed to the Income Summary. The permanent accounts which are temporarily closed to the Balance Sheet for the period will also require some adjusting entries.
Do you believe the cash flows from investing activities should include not only the return of investment, but also the return on investment, that is the interest and dividend revenue?
Answer:
Yes. Cash flows from investing activities should also include return on investment.
Explanation:
Dividend and Interest revenue arise as a result of the Investments that were made by the company and as such constitutes cash flow from investing activities of a Company.
Which one of the following statements is correct concerning the concept of materiality?
a. Materiality is determined by reference to guidelines established by the AICPA.
b. Materiality depends only on the dollar amount of an item relative to other items in the financial statements.
c. Materiality depends on the nature of an item rather than the dollar amount.
d. Materiality is a matter of professional judgement.
Answer:
D) Materiality is a matter of professional judgement
Explanation:
Problem 14-13 Calculating the WACC [LO3] Dinklage Corp. has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, a coupon rate of 7 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon rate of 6 percent, and sells for 107 percent of par. The first issue matures in 25 years, the second in 8 years. Suppose the most recent dividend was $4.30 and the dividend growth rate is 4.5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Answer:
WACC = 8.97%
Explanation:
total value of equity = $70 x 4,000,000 = $280,000,000
cost of equity:
$70 = $4.4935 / (Re - 4.5%)
Re - 4.5% = 6.42%
Re = 10.92%
total value of debt:
$75 million x 0.95 = $71,250,000
YTM = {70 + [(1,000 - 950)/25]} / [(1,000 + 950)/2] = 72 / 975 = 7.3846%
$60 million x 1.07 = $64,200,000
YTM = {60 + [(1,000 - 1,070)/8]} / [(1,000 + 1,070)/2] = 51.25 / 1,035 = 4.9517%
weighted cost of debt = ($71,250,000 / $135,450,000 x 7.3846%) + ($64,200,000 / $135,450,000 x 4.9517%) = 3.8845% + 2.347% = 6.2315%
total value of the firm = $280,000,000 + $135,450,000 = $415,450,000
equity weight = $280,000,000 / $415,450,000 = 0.674
debt weight = 1 - 0.674 = 0.326
WACC = (0.674 x 10.92%) + (0.326 x 6.2315% x 0.79) = 7.36% + 1.605% = 8.965% = 8.97%
Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 84,000 pounds. The subsidiary immediately borrowed 200,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 284,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2017, the subsidiary rented the building for three years to a group of local attorneys for 7,200 pounds per month. By year-end, rent payments totaling 72,000 pounds had been received, and 14,400 pounds was in accounts receivable. On October 1, 3,600 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 5,100 pounds back to Sullivan's Island Company on December 31, 2017. The functional currency for the subsidiary is the pound.
Currency exchange rates for 1 pound follow: January 1, 2017 $ 2.10 = 1 Pound
October 1, 2017 2.15 = 1
December 31, 2017 2.18 = 1
Average for 2017 2.14 = 1
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds and then translate these amounts into U.S. dollars.
Answer:
Sullivan's Island Company
a. Sullivan's Island Company Income Statement for the year ended December 31, 2017:
Pounds US $
Rent Revenue 86,400 184,896
Repairs to building 3,600 7,704
Depreciation - Building 28,400 60,776
Interest on Notes 20,000 42,800
Net Income 34,400 73,616
b. Sullivan's Island Company Statement of Retained Earnings for the year ended December 31, 2017:
Pounds US $
Net Income 34,400 73,616
Dividends 5,100 10,914
Retained Earnings 29,300 62,702
c. Sullivan's Island Company Balance Sheet as of December 31, 2017:
Pounds US $
Assets:
Cash 63,300 138,102
Rent Receivable 14,400 31,392
Building 284,000 596,400
Less Depreciation -28,400 -60,776
Total Assets 333,300 705,118
Liabilities:
Notes Interest Payable 20,000 42,800
Notes Payable 200,000 420,000
Common Stock 84,000 176,400
Retained Earnings 29,300 62,702
Foreign Exchange Translation Gain 3,216
Total Liabilities + Equity 333,300 705,118
Explanation:
a) Data and Calculations:
Currency exchange rates for 1 pound follow:
January 1, 2017 $ 2.10 = 1 Pound
October 1, 2017 2.15 = 1
December 31, 2017 2.18 = 1
Average for 2017 2.14 = 1
Cash Account:
Pounds US $
Jan. 1 Common Stock 84,000 176,400
Jan. 1 Notes Payable 200,000 420,000
Jan. 1 Building -284,000 -596,400
Oct. 1 Building Repairs -3600 -7,740
Dec. 31 Rent received 72,000 156,960
Dec. 31 Dividends -5,100 -11,118
Dec. 31 Balance 63,300 138,102
b) Sullivan recorded some unrealized foreign exchange translation gain of $3,216. This is due to translation differences.
The following data were reported by a corporation: Authorized shares 37,000 Issued shares 32,000 Treasury shares 12,000 The number of outstanding shares is: Multiple Choice 37,000. 32,000. 25,000.
Answer:
20,000
Explanation:
Outstanding shares = Issued shares - Treasury shares
32,000 - 12,000 = 20,000
Shares is a method through which firms raise capital.
Authorised shares are the maximum number of shares a company can issue to investors
Outstanding shares are the total number of shares sold to investors
Treasury shares are shares that have been issued and later repurchased by the company
Issued shares are the shares that a company issues
Suppose that Dunkin Donuts reduces the price of its regular coffee from $2 to $1 per cup, and as a result, the quantity sold per day increased from 10 to 40. Over this price range, the price elasticity of demand for Dunkin Donuts’ regular coffee is:
Answer:
PED = -6
Explanation:
The PED or price elasticity of demand for a product measures the responsiveness of a product's demand to the changes in the price of the product. The PED is calculated as follows,
PED = % change in Quantity demanded / % change in price
PED = [(40 - 10) / 10] / [(1 - 2) / 2]
PED = -6
A PED of -6 represents that quantity demanded is highly price elastic and a negative sign means that it is a normal good.
Occupational fraud comes in many shapes and sizes. The fraud at Rite Aid is one such case. On February 10, 2015, the U.S. Attorney's Office for the Middle District of Pennsylvania announced that a former Rite Aid vice president, Jay Findling, pleaded guilty to charges in connection with a $29.1 million dollar surplus inventory sales/kickback scheme. Another former vice president, Timothy P. Foster, pleaded guilty to the same charges and making false statements to the authorities. Both charges are punishable by up to five years' imprisonment and a $250,000 fine.
The charges relate to a nine-year conspiracy to defraud Rite Aid by lying to the company about the sale of surplus inventory to a company owned by Findling when it was sold to third parties for greater amounts. Findling would then kick back a portion of his profits to Foster.
Findling admitted he established a bank account under the name "Rite Aid Salvage Liquidation" and used it to collect the payments from the real buyers of the surplus Rite Aid inventory. After the payments were received, Findling would send lesser amounts dictated by Foster to Rite Aid for the goods, thus inducing Rite Aid to believe the inventory had been purchased by J. Finn Industries, not the real buyers. The government alleged Findling received at least $127.7 million from the real buyers of the surplus inventory but, with Foster's help, only provided $98.6 million of that amount to Rite Aid, leaving Findling approximately $29.1 million in profits from the scheme. The government also alleged that Findling kicked back approximately $5.7 million of the $29.1 million to Foster.
Foster admitted his role during the guilty plea stage of the trial. He voluntarily surrendered $2.9 million in cash he had received from Findling over the life of the conspiracy. Foster had stored the cash in three 5-gallon paint containers in his Phoenix, Arizona, garage.
Assume you are the director of internal auditing at Rite Aid and discover the surplus inventory scheme. You know that Rite Aid has a comprehensive corporate governance system that complies with the requirements of Sarbanes-Oxley and the company has a strong ethics foundation. Moreover, the internal controls are consistent with the COSO framework.
1. To encourage various groups to come forward and report fraud, Dodd-Frank extended whistle-blowing privileges and rewards to which of the following?
A. Internal auditors.
B. External auditors.
C. The CEO.
D. All of these are correct.
2. Whistleblowers who meet the criteria are eligible to receive an award based on what was collected as a result of the monetary sanctions. This can vary from_________.
a. 1 to 10 percent.
b. 10 to 30 percent.
c. 15 to 35 percent.
d. 1 to 50 percent, depending on the magnitude of the fraud.
Answer:
1. To encourage various groups to come forward and report fraud, Dodd-Frank extended whistle-blowing privileges and rewards to which of the following?
D. All of these are correct.
2. Whistleblowers who meet the criteria are eligible to receive an award based on what was collected as a result of the monetary sanctions. This can vary from_________.
a. 1 to 10 percent.
Explanation:
In whistleblowing against a fraud in a company or an organization, the maximum amount which the whistleblower can receive is 10% of the money recovered (or involved) while the least amount would be 1% of the said recovered money
On November 1, Orpheum Company accepted a $10,900, 90-day, 12% note from a customer to settle an account. What entry should be made on the November 1 to record the note acceptance
Answer:
Note Receivable $10,900 (debit)
Sales Revenue $10,900 (credit)
Explanation:
Recognize the Asset : Note Receivable and Sales Revenue to the amount of the value of the note of $10,900.
Subsequently, the Interest will accrue on the note capitalized at the rate of 12%.
_____ is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow.
Answer:
Cash flow analysis, is the right answer.
Explanation:
“Cash flow analysis” is the method that determined the actual cash that goes out of the business and the actual cash that comes in the business. Basically this method is used for financial purposes. This method exhibits the actual cost that the business has incurred and the actual benefit it has earned. Moreover, new investors that invest in the company primarily sees the financial report of the company and then take the decision to invest.
In its first year, a project is expected to generate earnings before interest and taxes of $237,884 and its depreciation expense is expected to be $87,882. If the company’s tax rate is 35%, what is the project’s expected net operating profit after taxes for the year?
Answer:
Net operating income= $242,506.6
Explanation:
Giving the following information:
Earnings before interest and taxes= $237,884
Depreciation expense= $87,882.
Tax rate= 35%
To calculate the net operating profit, we need to use the following structure:
EBIT= 237,884
Tax= (237,884*0.35)= (83,259.4)
Depreciation= 87,882
Net operating income= 242,506.6
Which of the following is most correct according to the CAPM: Group of answer choices A stock’s risk premium depends on its beta. Company specific risk is the most relevant risk. A stock’s risk premium depends on its firm-specific risk. There is a linear and positive relationship between a stock’s total risk and its required return.
Answer: A stock’s risk premium depends on its beta
Explanation:
The Capital Asset Pricing Model (CAPM) helps in knowing the relationship that exists between the systematic risk and return whihc an individual or a firm expects for an assets, such as stocks.
It should be noted that the beta influences the return. Therefore, stock’s risk premium depends on its beta.
The Baldwin Company currently has the following balances on their balance sheet: Total Assets $260,881 Total Liabilities $150,673 Retained Earnings $52,700 Suppose next year the Baldwin Company generates $44,200 in net profit, pays $12,000 in dividends, total assets increase by $55,000, and total liabilities remain unchanged. What will ending Baldwins balance in Common Stock be next year
Answer:
common stock = $80,308
Explanation:
assets = liabilities + equity
current balance:
$260,881 = $150,673 + $110,208
$110,208 = common stock + retained earnings = $57,508 + $52,700
next year:
net income = $44,200
dividends = $12,000
assets = $260,881 + $55,000 = $315,881
liabilities = $150,673
equity = $315,881 - $150,673 = $165,208
retained earnings = $52,700 + $44,200 - $12,000 = $84,900
common stock = $165,208 - $84,900 = $80,308
Preference decisions compare potential projects that meet screening decision criteria and will be ranked in their preference order to differentiate between alternatives with respect to all of the following characteristics except:________a. importanceb. desirabilityc. feasibilityd. political prominence
Answer:
D
Explanation:
Political prominence inst determined in any of the capital budgeting methods. Also, political prominence shouldn't be a deciding factor when making an investment. a project might be politically prominent but it is unprofitable or doesn't align to the goals of the company.
Companies collect a wide variety of information about their foreign markets to decide in which countries to conduct business and which market segments in these markets they should target. What are the three major markets that exist in all foreign markets
Answer:
Consumer MarketsIndustrial MarketsGovernment MarketExplanation:
Consumer markets are where trade happens with consumption as the final aim. This means that in such markets, the end users are households as well as individual consumers who buy goods and services for their own use. Example; selling cars to people.
The Industrial Market is where trade happens between producers and manufacturers who want to turn the goods bought into finished goods or further processable goods. This is why it is also called the Business market.
In the Government market, the consumers or end users is the Government through it's various arms and levels such as state agencies at the Federal, state or municipal level.
The revenue is $94,000, the cost of goods sold is $51,000, other expenses (from selling and administration) are $21,000, and depreciation is $12,000. What is the EBIT?
Answer:
$10,000
Explanation:
EBIT is earnings before interest and tax
EBIT = Revenue - cost of goods sold - other expenses - depreciation
$94,000 - $51,000 - $21,000 - $12,000 = $10,000
The _________ price is the price at which a dealer is willing to sell a security. A. bid B. ask C. clearing D. settlement
Answer: B. ask
Explanation:
The ask also known as the offer price is the price at which seller is willing to sell a security after which the buyer must have stated a bid price of how much he or she wants to pay for the security. The bid price is known to be always lower than the ask price , of which the difference between both prices is called a bid-ask spread.
For example, if an investor wants to buy a security, he or she will first determine how much the seller is willing to sell it for, which is the ask price--- least price the seller is willing to sell the security for. However on the other hand, the seller in order to sell his or her security will first determine the highest price at which a buyer would be willing to pay for the security.
Merchandise inventory: Multiple Choice Is a current asset. Is a long-term asset. Must be sold within one month. Is classified with investments on the balance sheet. Includes supplies the company will use in future periods.
Answer: is a current asset
Explanation:
Merchandise inventory is the product thqtbare owned by a company which the company wants to sell.
It should be noted that when preparing the balance, merchandise inventory sheet is reported as current asset.
Also, buying merchandise inventory is part of a business operating cycle.
David Ortiz Motors has a target capital structure of 45% debt and 55% equity. The yield to maturity on the company's outstanding bonds is 12%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 11.35%. What is the company's cost of equity capital
Answer:
the company's cost of equity capital is 14.75 %.
Explanation:
WACC = ke × (E/V) + kd × (D/V)
Where,
ke = cost of equity
= this is unknown
E/V = Weight of Equity
= 55%
kd = cost of debt
= Interest × ( 1 - tax rate)
= 12% × ( 1 - 0.40)
= 7.20 %
D/V = Weight of Debt
= 45%
Therefore,
WACC = ke × (E/V) + kd × (D/V)
11.35% = 55%ke + 7.20 % × 45%
11.35% = 55%ke + 3.24 %
55%ke = 8.11 %
ke = 14.75 %
When Marine Midland Bank sent market researchers with surveys door-to-door in the neighborhoods of their branch banks to ask people with savings accounts why they did not also have checking accounts and credit cards with Marine Midland, they were gathering __________ data.
Answer:
questionnaire
Explanation:
In the scenario being described, the researchers were gathering questionnaire data. A questionnaire is a research instrument that consists of a set of questions that are asked to the individual with hopes of collecting that respondent's information regarding the subject. Which in this scenario, the subject in question is why the individual does not have checking accounts and credit cards with the company. These answers are usually used by the company in order to better their services and provide a better customer experience.
Tyler Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $127.20 per unit. Sales volume (units) 5,000 6,000 Cost of Sales $419,000 $502,800 Selling and Administrative costs $186,000 $202,200 The best estimate of the total contribution margin when 5,300 units are sold is: Group of answer choices $230,020 $51,410 $146,810 $32,330
Answer:
The correct answer is A.
Explanation:
Giving the following information:
The company sells the product for $127.20 per unit.
Sales volume (units) 5,000 6,000
Cost of Sales $419,000 $502,800
First, we need to determine the unitary variable cost:
unitary variable cost= 419,000/5,000= $83.8
unitary variable cost= 502,800/6,000= $83.8
Now, the unitary contribution margin:
Unitary contribution margin= 127.2 - 83.8= $43.4
Finally, the total contribution margin:
total contribution margin= 5,300*43.4= $230,020
The best estimate of the total contribution margin when 5,300 units are sold is option A $230,020.
Total Contribution Margin
To Calculate the Contribution Margin, we need to find the value of the unitary variable cost, and their margin. We are provided with these information:
Selling price $127.20 per unit.
Sales volume 5,000, & 6,000
Cost of Sales $419,000 & $502,800
To find the value of Total Contribution margin:
Step 1: Unitary Variable Cost= 419,000/5,000= $83.8
Step 2: Unitary Variable Cost= 502,800/6,000= $83.8
Step 3: Unitary Contribution Margin= 127.2 - 83.8= $43.4
Step 4: Total contribution margin when 5300 units are sold= 5,300×43.4= $230,020.
Hence, option A is correct.
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The production department is proposing the purchase of an automatic insertion machine. They have identified 3 machines and have asked the accountant to analyze them to determine the best average rate of return.
Machine A Machine B Machine C
Estimated Average Income $45,192.56 $64,695.00 $60,929.70
Average Investment $322,804.00 $215,650.00 $406,198.00
Select the correct answer.
a) Machine B or C
b) Machine A
c) Machine C
d) Machine B
Answer:
Option D is correct
Machine B is the best investment
Explanation:
The accounting rate of return is the average annual income expressed as a percentage of the average investment.
The simple rate of return can be calculated using the two formula below:
Accounting rate of return =
Annual operating income/Average investment × 100
To determine the the machine with the best return,we would compute the average annual return of all of the machines and then choose the machine with the highest return
This is done as follows:
Machine Working s Average annul rate
A 45,192.56/322,804.00 × 100 = 14.0%
B 64,695.00/215,650.00 × 100= 30.0%
C 60,929.70/406,198.00× 100 = 15.0%
Machine B is the best investment
A company developed the following per-unit standards for its product: 2 gallons of direct materials at $8 per gallon. Last month, 2200 gallons of direct materials were purchased for $16720. The direct materials price variance for last month was
Answer:
$880 favorable
Explanation:
The computation of direct materials price variance for last month is shown below:-
Direct material price variance = Actual quantity × (Standard price - Actual price)
= 2,200 × ($8 - ($16,720 ÷ 2,200)
= 2,200 × ($8 - 7.6)
= 2,200 × $0.4
= $880 Favorable
Therefore for computing the direct materials price variance for last month we simply applied the above formula.
Gladiator USA, a tire manufacturer, guarantees its tires against defects for five years or 60,000 miles, whichever comes first. Suppose USA can expect warranty costs during the five-year period to add up to of sales. Assume that a USA dealer in Denver, Colorado, made sales of during 2018. Gladiator USA received cash for % of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled during 2018. Record the sales, warranty expense, and warranty payments for Gladiator USA.
Answer:
DR Cash............................................$96,450
DR Notes receivable........................$546,550
CR Sales revenue...................................................$643,000
(To record sales)
DR Warranty expense .............................$32,150
CR Warranty liability.................................................$32,150
(To record Warranty Expense)
DR Warranty liability.................................$20,000
CR Cash......................................................................$20,000
(To record Warranty Claim Payments)
Explanation:
Cash = 15% * $643,000
= $96,450
Notes Receivable = 643,000 - 96,450
= $546,550
Warranty Expense = 5% x $643,000
= $32,150
If an investor purchases a bond when its current yield is higher than the coupon rate, then the bond's price will be expected to
Answer:
The answer is: The bond price is expected to Increase over time, reaching par value at maturity
Explanation:
If an investor purchased a bond when the bond current yield-to-maturity is higher than the bond's price, the bond is said to be bought at discount (its price is less than the face value at maturity). With this, the bond price will be expected to Increase over time, reaching par value at maturity.
And when the opposite happens i.e coupon rate higher than the current yield-to-maturity, the bond is said to be bought at premium.
Item9 2 points Time Remaining 2 hours 55 minutes 49 seconds02:55:49 eBookItem 9Item 9 2 points Time Remaining 2 hours 55 minutes 49 seconds02:55:49 TB MC Qu. 6-143 Keyser Corporation, which has... Keyser Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 118 Units in beginning inventory 400 Units produced 2,100 Units sold 2,300 Units in ending inventory 200 Variable costs per unit: Direct materials $ 37 Direct labor $ 23 Variable manufacturing overhead $ 3 Variable selling and administrative expense $ 5 Fixed costs: Fixed manufacturing overhead $ 73,500 Fixed selling and administrative expense $ 29,900 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under variable costing?
Answer:
Results are below.
Explanation:
Giving the following information:
Selling price $118
Units sold 2,300
Variable costs per unit:
Direct materials $37
Direct labor $23
Variable manufacturing overhead $3
Variable selling and administrative expense $5
First, we need to determine the total unitary variable cost:
Unitary variable cost= 37 + 23 + 3 + 5=$68
Variable cost income statement:
Sales= 2,300*118= 271,400
Total variable cost= 68*2,300= (156,400)
Total contribution margin= 115,000
Fixed manufacturing overhead= (73,500)
Fixed selling and administrative expense= (29,900)
Net operating income= 11,600
When the operating activities section of the statement of cash flows is reported using the direct method: Multiple Choice Footnotes to the financial statements disclose the difference between net income and the cash provided or used by financing activities. Noncash investing and financing activities is included in the statement of cash flows. Operating cash receipts minus operating cash payments equals net cash provided (used by)operating activities. Net income is adjusted for changes in noncurrent assets and noncurrent liabilities. The income statement is prepared under the cash basis of accounting.
Answer:
Operating cash receipts minus operating cash payments equals net cash provided (used by) operating activities.
Explanation:
A statement of cash flows is also known as cash flow statement and it is a financial statement which is used to illustrate how changes in income and various account of the balance sheet affect cash and cash equivalents.
The statement of cash flows is also used by financial experts or accountants to breakdown the cash-flow analysis into;
1. Cash-flow from financing activities: it represents the cash flow from debt or equity. Typically, it's the costs used in a financing a business.
2. Cash-flow from investing activities: it represents the cash flow from investment such as proceeds from the sale of plant, equipments, etc.
3. Cash-flow from operating activities: it represents cash-flow and transactions from operational business activities such as employee salary, sales of goods, etc.
In Financial accounting, the direct method of reporting operating cash flows uses actual cash inflows and outflows from the operating activities of a company by generating data from the income statement (cash receipts and cash disbursements/payments).
Hence, when the operating activities section of the statement of cash flows is reported using the direct method; operating cash receipts minus operating cash payments (disbursements) equals net cash provided, that is typically used by operating activities.
Knowledge Check 02 On February 28, the Jewelry store remits $975 of sales tax collected from its customers to the government. Prepare the February 28 journal entry for the Jewelry store by selecting the account names and dollar amounts from the drop-down menus.
Answer:
Please refer to the below
Explanation:
Journal entry as seen below
Feb 28 Sales tax payable Dr $975
Cash Cr $975
Since Jewelry store collected the sales tax from its customers, sales tax account will be debited because it reduces the balance in the account while cash account will be credited because the balance therein increases due to the sales tax collected.
Denise contracts with Long Life Insurance Co., agreeing to pay premiums in return for which the company agrees to pay $500,000 to Denise's husband Barn when Denise dies. Barn is a(n):
Answer:
Donee Beneficiary
Explanation:
In the scenario being described, it can be said that Barn is a Donee Beneficiary. This is a third-party beneficiary that occurs when the second party in the contract does not owe anything to the third party but wants to provide them with the benefit of the performance of the first party. Which since in this scenario, Denise wants to provide Barn with all the benefits of the contract even though she does not owe him anything, then it technically makes Barn a Donee Beneficiary to the Long Life Insurance Contract.
Sager Industries is considering an investment in equipment that will replace direct labor. The equipment has a cost of $1,200,000 with a $300,000 residual value and a 10-year life. The equipment will replace three employees who has an average total wages of $180,000 per year. In addition, the equipment will have operating and energy costs of $7,500 per year.
Determine the average rate of return on the equipment, giving effect to straight-line depreciation on the investment.
Answer:
Average rate of return = 11%
Explanation:
Depreciation = (Cost of equipment - Residual value) / Useful years
Depreciation = (1,200,000-300,000) / 10
Depreciation = 90,000
Increase in net annual income = 180,000 - 90,000 - 7,500
Increase in net annual income = 82,500
Average investment = (1,200,000 + 300,000) / 2 = 750,000
Average rate of return = Increase in net annual income / Average investment
Average rate of return = 82,500/750,000
Average rate of return = 0.11
Average rate of return = 11%
You short-sell 100 shares of Tuckerton Trading Co., now selling for $44 per share. What is your maximum possible gain, ignoring transactions cost
Answer:
$4,400
Explanation:
Calculation for the maximum possible gain, ignoring transactions cost
Using this formula
Maximum possible gain = Sale proceeds - Cost of purchasing the share
Let plug in the formula
Maximum possible gain = (100 shares *$44 per shares)- (100 shares *0) = 14000
Maximum possible gain=$4,400-0
Maximum possible gain=$4,400
Therefore the maximum possible gain, ignoring transactions cost will be $4,400