Answer and Explanation:
As per the data given in the question,
Entries on Paltrow Co.'s books :
Jan-10 Accounts receivable A/c Dr. $17,500
To Sales revenue A/c. $17,500
(Being sales on account is recorded)
Feb-12 Cash A/c Dr. $8,750
To Accounts receivable A/c. $8,750
(Being cash receipt on credit sales is recorded)
Mar-10 Accounts receivable A/c Dr. $350
To interest revenue A/c. $350
($17,500 - $8,750 = $8,750 × 4% = 350)
( Being due amount with interest is recorded)
Final answer:
On January 10, Paltrow Co. would record a debit to accounts receivable and a credit to Andrew Farley's accounts payable. On February 12, when Farley pays, the entry would be a debit to accounts receivable and a credit to cash. On March 10, when Farley is billed for the remaining balance due plus interest, the entry would be a debit to accounts receivable and interest expense, and a credit to interest revenue and accounts payable.
Explanation:
On January 10, the transaction would be recorded as a debit to Paltrow Co.'s accounts receivable and a credit to Andrew Farley's accounts payable. The journal entry would be:
Accounts Receivable $17,500
Accounts Payable $17,500
On February 12, when Farley pays $8,750, the entry would be a debit to accounts receivable and a credit to cash. The journal entry would be:
Cash $8,750
Accounts Receivable $8,750
On March 10, when Farley is billed for the remaining balance due plus interest, the entry would be a debit to accounts receivable and interest expense, and a credit to interest revenue and accounts payable. The journal entry would be:
Accounts Receivable $8,750
Interest Expense $350
Interest Revenue $350
Accounts Payable $8,750
Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as follows:Direct materials$ 53Direct labor40Variable overhead36Fixed overhead31Total costs$ 160Crayola Technologies Inc. has contacted Rubium with an offer to sell 7 comma 000 of the subassemblies for $ 145 each. Rubium will eliminate $ 85 comma 000 of fixed overhead if it accepts the proposal. Should Rubium make or buy the subassemblies? What is the difference between the two alternatives?
Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Total Unit Cost of Making Product = Direct Material + Direct Labor + Variable Overhead + Fixed Overhead
= $53 + $40 + $36 + $31
= $160
Total Unit Cost of Buying Product = Fixed Cost + Purchase Cost
= $31 + $145
= $176
Particular Make product($) Buy product($)
Direct material(7,000 × $53) 371,000 -
Direct labor(7,000 × $40) 280,000 -
Variable overhead(7,000 ×$36) 252,000 -
Fixed overhead(7,000 × $31) 217,000 132,000
(217,000 - 85,000)
Purchase cost 7,000 × $145 = 1,015,000
Total cost 1,120,000 1,147,000
Difference between two alternatives
= $1,147,000 - $1,120,000
= $27,000
According to the analysis, rubium make the product because buying product cost is more than making the product.
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In comparing the Cournot equilibrium with the competitive equilibrium,
a. both profit and output level are higher in Cournot.
b. both profit and output level are higher in the competitive equilibrium.
c. profit is higher, and output level is lower in the competitive equilibrium.
d. profit is higher, and output level is lower in Cournot.
Answer:
Profit is higher, and output level is lower in Cournot.
Explanation:
Cournot competition is a type of economic model which describes an industry setting whereby firms that produce the same product compete on the amount of product to manufacture.
This type of competition involves more than one firm in which each firm's output decision affects the price of the product in the market. In cournot equilibrum each firm decide on the quantity of products to produce inorder to maximise profit.
Classify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Teresa purchases stock in NanoSpeck, a biotech firm. Neha borrows money to build a new lab for her engineering firm. Sam takes out a loan and uses it to build a new cabin in Montana. Lorenzo purchases a corporate bond issued by a car company.
Teresa's and Lorenzo's purchases of stocks and bonds are classified as savings, while Neha's and Sam's borrowing for construction are considered investments according to macroeconomic definitions.
When analyzing economic activities like saving and investment, it is crucial to differentiate between the common usage of these terms and their macroeconomic definitions. In macroeconomics, saving typically refers to income that is not consumed immediately and is instead set aside for future use, which may be done through various financial instruments like bank deposits or the purchase of stocks and bonds. Investment, on the other hand, refers to the purchase of goods that will be used to produce more goods and services in the future, such as capital expenditures by businesses on equipment, factories, or new technology.
Given the examples provided in the question:
g The Sharpe Ratio measures: Select one: The risk of an investment The expected return of an investment The unexpected return; how much an investment over- or under-performed The extra return above the risk-free rate adjusted for systematic risk The extra return above the risk-free rate adjusted for total risk The extra return above the risk-free rate adjusted for unsystematic risk The raw return adjusted for the return on the market
Answer:
The extra return above the risk-free rate adjusted for total risk
Explanation:
The Sharpe Ratio was developed by William Sharpe, and it is used by investors to guage the return in an investment against risk.
To calculate it we find the excess return above risk free rate And divide it by the total risk.
This isolates the returns that are attributed to risk taking activity.
A risk free transaction for example is the yield on government treasury bills.
We use only returns associated with risk to get a better picture of risk adjusted return. The higher the ratio the better.
Cobe Company has already manufactured 28,000 units of Product A at a cost of $28 per unit. The 28,000 units can be sold at this stage for $700,000. Alternatively, the units can be further processed at a $420,000 total additional cost and be converted into 5,600 units of Product B and 11,200 units of Product C. Per unit selling price for Product B is $105 and for Product C is $70. 1. Prepare an analysis that shows whether the 28,000 units of Product A should be processed further or not.
Answer:
The company should process further
Explanation:
The preparation of The company should process further or not is as follows:-
Sell as Process further
Sales $700,000 $1,372,000
(5,600 × $105 + 11,200 × $70)
Relevant cost
Process Cost to
further 0 $420,000
Total relevant
cost 0 $420,000
Income $700,000 $952,000
($1,372,000 - $420,000)
Incremental
Income $252,000
So, the company should process further
he condensed product-line income statement for Dish N' Dat Company for the month of March is as follows: Dish N' Dat Company Product-Line Income Statement For the Month Ended March 31 Bowls Plates Cups Sales $71,000 $105,700 $31,300 Cost of goods sold 32,600 42,300 16,800 Gross profit $38,400 $63,400 $14,500 Selling and administrative expenses 27,400 42,800 16,700 Income from operations $11,000 $20,600 $(2,200) Fixed costs are 15% of the cost of goods sold and 40% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Answer and Explanation:
As per the data given in the question,
Differential analysis
Continue cup(Alt. 1) Discontinue cups(Alt 2)
Particulars Alt 1 Alt 2 Differential
Effect on income
Revenues $31,300 $0 $31,300
Costs:
Variable cost of goods sold $14,280 $0 $14,280
($16,800×(100%-15%)
Variable selling and admin expenses $10,020 $0 $10,020
($16,700(100%-40%)
Fixed cost $9,200 $9,200 $0
($16,800×15%+$16,700×40%)
Net income ($2,200) ( $9,200) ($7,000)
The following transactions for Wolfe Corporation relate to long-term bonds classified as available-for-sale: 2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000. July 1 Received interest on Lake bonds. Dec. 31 Accrued interest on Lake bonds. Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019 Jan. 1 Received interest on Lake bonds. Jan. 1 Sold $25,000 Lake bonds for $26,650. July 1 Received interest on Lake bonds. a) Journalize the transactions.
Answer:
2018 Jan. 1 Purchased $50,000 Lake Corporation 10% bonds for $50,000.
Dr 10% bonds available for sale 50,000 Cr Cash 50,000available for sale
July 1 Received interest on Lake bonds.
Dr Cash 2,500 Cr Interest revenue on 10% bonds available for sale 2,500Dec. 31 Accrued interest on Lake bonds.
Dr Interest receivable 10% bonds available for sale 2,500 Cr Interest revenue 10% bonds available for sale 2,500Dec. 31 Market value of the bonds $55,000, prepare the adjusting entry to record bonds at market value. 2019
Dr 10% bonds available for sale 5,000 Cr Unrealized gain - other comprehensive income 5,000Jan. 1 Received interest on Lake bonds.
Dr Cash 2,500 Cr Interest receivable on 10% bonds available for sale 2,500Jan. 1 Sold $25,000 Lake bonds for $26,650.
Dr Cash 26,650Dr Unrealized gain - other comprehensive income 2,500 Cr 10% bonds available for sale 27,500 Cr Realized gain on 10% bonds available for sale 1,650July 1 Received interest on Lake bonds.
Dr Cash 1,250 Cr Interest receivable on 10% bonds available for sale 1,250Corona Co. is expecting to receive 100,000 British pounds in one year. Corona expects the spot rate of British pound to be $1.49 in a year, so it decides to avoid exchange rate risk by hedging its receivables. The spot rate of the pound is quoted at $1.51. The strike price of put and call options are $1.54 and $1.53 respectively. The premium on both options is $.03. The one-year forward rate exhibits a 2.65% premium. Assume there are no transaction costs. What is the best possible hedging strategy and how many U.S. dollars Corona Co. will receive under this strategy
Answer:
Explanation:
1st strategy : Selling pound forward
The spot rate of the pound is quoted at $1.51.
The one-year forward rate exhibits a 2.65% premium.
The one-year forward rate = 1.51 ( 1+ 0.0265)
= $ 1.55
Dollars received = 100000 * 1.55 = $155000
2nd strategy : Buying put option
The strike price of put = $1.54
premium on option is $.03
Amount received per option = $ 1.54 - $ 0.03 =$1.51
Total Dollars received = 100000* 1.51 = $ 151000
the best possible hedging strategy is Selling pound forward and receiving $155000
*The primary benefit of using the indirect strategy to communicate bad news is that it a. ensures that your reasoning will be read while the receiver is still receptive. b. disguises the bad news. c. demonstrates your writing abilities. d. places the bad news before the explanation.
Answer: A.
ensures that your reasoning will be read while the receiver is still receptive.
Explanation: Indirect strategy can contain some positive news or a carefully worded cautionary statement. After a buffer statement, the message should contain valid reasons for the bad news. Next, the bad news should be delivered as nicely as possible. Finally, try and end with positive communication.
The main advantage of the indirect strategy in communicating bad news is that it ensures your reasoning is read while the receiver is still open-minded. This strategy starts by explaining the reasoning, softening the impact of the bad news.
Explanation:The primary benefit of using the indirect strategy to communicate bad news is option a: it ensures that your reasoning will be read while the receiver is still receptive. This method typically involves presenting the reasoning or explanation first, before delivering the bad news. It prepares the receiver for what is coming and they are likely in a more understanding and accepting state of mind. It doesn't aim to disguise the news or demonstrate your writing abilities (option b and c), nor does it place the bad news before the explanation (option d).
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The WCU maintenance department used 850 brackets during the course of a year. The brackets are purchased from a supplier in Asheville. These brackets cost $10 apiece to purchase. The inventory holding coat as a percentage of cost that WCU uses for their accountants is 13%. Based on the number of orders that are placed each year, the cost of placing an order is $21. The supplier can get the brackets to WCU 3 days after receiving the order. The maintenance department operates 250 days per year. Determine: 1) how many brackets should be ordered when WCU places an order with their supplier, and, 2) how many brackets do they have when they should place a new order with the supplier.
Answer:
a. 166 units should be ordererd of brackets
b. They have when they should place a new order with the supplier 10 brackets
Explanation:
According to the given data we have the following:
Annual Demand= 850 brackets
Buying cost=$10
carrying cost=13%×$10=$1.30
ordering cost per order=$21
a. To calculate how many brackets should be ordered when WCU places an order with their supplier we have to calculate the EOQ as follows:
EOQ=√2AO
C
EOQ=√2×850×21
1-30
EOQ=166 Units
166 units should be ordererd of brackets
b. To calculate how many brackets do they have when they should place a new order with the supplier we would habe to make the following calculation:
Reorder point=Annual Demand × lead time
working days in year
Reorder point=850 × 3
250
=10 brackets
They have when they should place a new order with the supplier 10 brackets
Problem 10-16 Comprehensive Variance Analysis [LO10-1, LO10-2, LO10-3] Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct materials ? $ 6.00 per yard $ ? Direct labor ? ? ? Variable manufacturing overhead ? $ 2 per direct labor-hour ? Total standard cost per unit $ ? Overhead is applied to production on the basis of direct labor-hours. During March, 400 backpacks were manufactured and sold. Selected information relating to the month’s production is given below: Materials Used Direct Labor Variable Manufacturing Overhead Total standard cost allowed* $ 9,120 $ 5,040 $ 960 Actual costs incurred $ 5,520 ? $ 2,620 Materials price variance ? Materials quantity variance $ 1,920 U Labor rate variance ? Labor efficiency variance ? Variable overhead rate variance ? Variable overhead efficiency variance
Answer and Explanation:
Particulars Amount
Standard variable manufacturing overhead cost for march $960
Standard variable manufacturing overhead rate per direct labor hour $2
Standard direct labor hours for march
=960/2
= $ 480
Standard direct labor rate per hour
=$ 5,040/$480
= $ 10.5
The labor efficiency variance
Actual Cost per unit of back pack production
=(9,120+5,040+960)/(400)
=15,120/400
=$ 37.8
Total Number of produced Back packs 400
Total Actual cost of production $ 15,120
Less: Actual cost of materials $5,520
Actual cost of manufacturing Overhead 2,620
Actual cost of Direct Labor 6,980
Labor efficiency varaince = 5040-6980 = -$ 1940
Variable overhead rate variance=(Actual Hour*Actual Rate)-(Actual Hour of input*Standard Rate)
=(2620*2)
= $ 5240
Variable overhead rate variance = $ 5240
The question pertains to variance analysis, a tool used in managerial accounting to reveal the differences between actual and planned costs in a business' operations. The specific focus here is on understanding variable costs, which include direct materials, direct labor and variable manufacturing overhead and their respective variances.
Explanation:To analyze this variance report, we need to understand several components of cost behavior, specifically understanding what variable costs are. Variable costs are those costs that change in total in direct proportion to changes in production volume or activity. This includes items like direct materials, direct labor, and variable manufacturing overhead.
Let's define each variance reported. The materials price variance is the difference between the actual price paid for the materials and the standard price, multiplied by the quantity purchased. The materials quantity variance indicates the additional costs incurred due to using more materials than planned.
The labor rate variance is the difference between the actual hourly labor rate and the standard rate, multiplied by the actual hours worked. The labor efficiency variance shows how efficiently the labor hours were used in production. The variable overhead rate variance shows the difference between actual variable overhead costs and standard variable overhead costs, while the variable overhead efficiency variance indicates the difference between actual hours worked and standard hours allowed, multiplied by the standard variable overhead rate.
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Layton Company purchased tool sharpening equipment on October 1 for $29,160. The equipment was expected to have a useful life of three years or 3,780 operating hours, and a residual value of $810. The equipment was used for 700 hours during Year 1, 1,300 hours in Year 2, 1,100 hours in Year 3, and 680 hours in Year 4.
Answer:
Straight-line method
December 31, 2012: $9,450 x 3/12 = $2,362.5
December 31, 2013: $9,450
December 31, 2014: $9,450
December 31, 2015: $9,450 x 9/12 = $7,087.5
Unit-of-production method:
December 31, 2012: 700 hours x 7.5* = $5,250
December 31, 2013: 1,300 hours x 7.5 = $9,750
December 31, 2014: 1,100 hours x 7.5 = $8,250
December 31, 2015: 680 hours x 7.5 = $5,100
7.5*: ($29,160 - $810) / 3,780 operating hours
Double declining method:
December 31, 2012: $29,160 x 2/3 x 3/12= $4,860
December 31, 2013: ($29,160 - $4,860) x 2/3 = $16,200
December 31, 2014: ($29,160 - $4,860 - $16,200) x 2/3 = $5,400
December 31, 2015: ($29,160 - $4,860 - $16,200 - $5,400) x 2/3 x 9/12 = $1,350
Explanation:
Requirement of the question: Determine the amount of depreciation expense for the years ended December 31, 2012, 2013, 2014, and 2015, by (a) the straight-line method, (b) the units-of-output method, and (c) the double-declining-balance method.
(a) Under straight-line method, depreciation expense is (cost - residual value) / No of years = ($29,160 - $810) / 3 years = $9,450 yearly depreciation expense.
(b)The unit-of-production method is used when the asset value closely relates to the units of output it is able to produce. It is expressed with the formula below:
(Original Cost - Salvage value) / Estimated production capacity x Units/year
(c) The double-declining method is otherwise known as the reducing balance method and is given by the formula below:
Double declining method = 2 X SLDP X BV
SLDP = straight-line depreciation percentage
BV = Book value
SLDP is 100%/3 years = 33.33%, then 33.33% multiplied by 2 to give 66.67% or simply 2/3
Dermody Snow Removal's cost formula for its vehicle operating cost is $3,000 per month plus $330 per snow-day. For the month of December, the company planned for activity of 24 snow-days, but the actual level of activity was 26 snow-days. The actual vehicle operating cost for the month was $11,190. The spending variance for vehicle operating cost in December would be closest to:
Answer:
390 F
Explanation:
Spending variance is defined as the difference between the actual expenses and planned expenses. It is favorable when the actual expenses is less than planned and vice versa.
Operating cost $3000
Maintenance per snow day - $330
Budgeted snow day - 24
Actual snow day - 26
Actual operating cost - $11,190
Variance
((330*26)+3000 =11580
Actual operating cost = 11,190
Variance = 11580-11190= 390 F
Answer: 390F
Explanation:
Given Data;
Vehicle operating cost = $11,190
Vehicle operating cost ( removal monthly) = $3,000
Actual days = 26
Snow per day = $330
Therefore:
Spending variance for vehicles operation = flexible budget - actual
= $ ( 330 * 26 + 3000 ) - $11,190
= $11,580 - $11,190
= 390F
The spending variance for vehicle operating cost would be closer to 390F in December.
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Rego Circuits supplies microcomputer circuitry for customers that build super computers. Their annual demand is 36,000 units, with a setup cost of $25 per batch and a holding cost of $0.45 per unit per year. Their manufacturing facility can produce circuits at a rate of 300 units per day, and they are able to operate 360 days a year. (Total 10 Points) a) What is Cesar Rego’s economic production quantity? What is the maximum inventory level, the time between orders, the total setup cost, and the total holding cost for this EPQ? (5 Points) b) Please draw one inventory cycle of the saw tooth model for this EPQ. Do not forget to label the x and y axis on your model! (5 Points)
Answer:
EOQ = 2,000
Time between order = 10 days
Setup and Ordering Cost $450
ATTACHED GRAPH
Explanation:
[tex]Q_{opt} = \sqrt{\frac{2DS}{H}}[/tex]
Where:
D = annual demand = 36,000
S= setup cost = ordering cost = 25
H= Holding Cost = 0.45
[tex]Q_{opt} = \sqrt{\frac{2(36,000)(25)}{0.45}}[/tex]
EOQ = 2,000
2,000 / 300 unit per day = 6.67
Setup cost:
36,000 units / 2,000 per batch x $25 cost per batch = $ 450
Holding cost:
2,000 units / 2 x $0.45 per unit = $ 450
36,000 units / 360 days = 100 units per day
2,000 units / 100 unit = 20 days
IMPORTANT DISCLAMER
As we are given with no safety stock we assume is zero
If there was any, then we should draw a line at this stock and move the graph upwards.
Change Corporation expects an EBIT of $57,000 every year forever. The company currently has no debt, and its cost of equity is 13 percent. The corporate tax rate is 23 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose the company can borrow at 10 percent. What will the value of the firm be if the company takes on debt equal to 30 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. Suppose the company can borrow at 10 percent. What will the value of the firm be if the company takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-1. What will the value of the firm be if the company takes on debt equal to 30 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c-2. What will the value of the firm be if the company takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
The value of the company is $438,461.54, regardless of its capital structure due to the Modigliani-Miller theorem. This holds true even if the company decides to take on debt equal to 30% or 100% of its levered or unlevered value.
Explanation:The subject of this question falls under the field of Business Finance. Here we deal with the valuation of a firm using the Modigliani-Miller theorem which states that a firm's value is not affected by its capital structure in perfect markets.
a. The current value of the company can be calculated as the expected EBIT divided by the cost of equity. So, the unlevered value (Vu) of the company is $57,000 / 0.13 = $438,461.54.
b-1. If the company takes on debt equal to 30% of its unlevered value, the levered value (Vl) will be the same as the unlevered value. This is because in perfect markets, the value doesn’t change with capital structure. So, Vl = Vu = $438,461.54.
b-2. Similarly, if the company takes on debt equal to 100% of its unlevered value, the levered value (Vl) remains the same, i.e., Vl = Vu = $438,461.54.
c-1 & c-2. Again following Modigliani-Miller theorem, even if the company takes on debt equal to 30%, or 100% of its levered value, the firm value would remain the same, i.e., at $438,461.54.
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The WACC is a weighted average of the cost of debt, preferred stock, and common equity. Would the WACC be different if the equity for the coming year came solely in the form of retained earnings versus some equity from the sale of new common stock? Would the calculated WACC depend in any way on the size of the capital budget? How might dividend policy affect the WACC?
Answer:
The answer is:
Question 1: WACC will be lower if the equity came solely from retained earnings.
Question 2: Yes, WACC depends on the size of the capital budget
Question 3: Dividend policy affects WACC. The The higher the firm’s dividend payout, the smaller the addition to retained earnings and this will make the WACC higher
Explanation:
Weighted Average Cost of Capital (WACC) is the rate at which a company will pay for raising finances. Company raises money issuance of new shares, issuance of note or bonds(debts). The WACC is also the same as Cost of Capital.
Question 1: WACC are going to be different if the equity for the approaching year came solely from retained earnings. WACC are going to be lower if equity comes solely from retained earnings because the price of retained earnings is zero or smaller than if new equity is issued.
Question 2: WACC does rely on the dimensions of the capital budget. If usage of retained earnings is above new equity, WACC will decrease and vice-versa.
Question 3. Dividend policy affects WACC. If a firm’s dividend payout is high, there will be smaller addition to retained earnings and this will make the WACC to increase and vice-versa
In its first month of operations, Multiplex Corporation purchased 40,000 pounds of material for $3.40 per pound. The company used 38,000 pounds of the material to produce 18,000 units of its only product. Multiplex uses a standard cost system and its standard quantity and price per unit are 2 pounds at $3.50 per pound. What was the material efficiency variance for the month
Answer:
$7,000 Unfavorable
Explanation:
data provided
Material in units = 18,000
Price per unit = 2
Actual hours = 38,000
Selling price = $3.50
The computation of material efficiency variance is shown below:-
Materials efficiency variance = (Standard hours - Actual hours) × Selling price
= (18,000 × 2 - 38,000) × $3.50
= $7,000 Unfavorable
Therefore for computing the material efficiency variance we simply applied the above formula.
The logistics/supply chain network transformation team _____________________________. a. must be aware of the firm's overall business and corporate strategies and the supply chain in which it participates. b. will not consider the potential involvement of third-party logistics suppliers as part of their responsibilities. c. includes workers from divisional levels only. d. should not include outside consultants.
Answer:
a. must be aware of the firm's overall business and corporate strategies and the supply chain in which it participates.
Explanation:
A logistics/supply chain network transformation team should not only be knowledgeable about the specifics of the supply chain of the firm, but also about the firm's overal business strategy, in order to devise its own logistics/supply chain network transormation strategy, that is coherent with the general corporate strategy, and that improves upon it at the same time.
For a recent 2-year period, the balance sheet of Blue Company showed the following stockholders’ equity data at December 31 (in millions). 2020 2019 Additional paid-in capital $ 970 $ 827 Common stock 560 555 Retained earnings 7,250 5,280 Treasury stock 1,620 868 Total stockholders’ equity $7,160 $5,794 Common stock shares issued 224 222 Common stock shares authorized 500 500 Treasury stock shares 36 28 (a) Answer the following questions. (1) What is the par value of the common stock? (Round par value to 2 decimal places, e.g. $3.15.) Par value of common stock $enter the par value of the common stock rounded to 2 decimal places
Final answer:
To find the par value of a common stock, subtract additional paid-in capital and common stock from total stockholders' equity, then divide the result by common stock shares issued.
Explanation:
The par value of the common stock is a nominal value per share set by the company. In this case, we can calculate it by subtracting the additional paid-in capital and the common stock from the total stockholders' equity and dividing the result by the common stock shares issued.
Calculate: $7,160 (Total stockholders' equity) - $970 (Additional paid-in capital) - $560 (Common stock) = $5,630Then, divide $5,630 by 224 (Common stock shares issued).The par value of the common stock is $25.09 rounded to 2 decimal places.Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state). a. What would be the call option hedge ratio for each of the following exercise prices: $120, $104, $93, $80, given the possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state)?
Answer:
Exercise prices (Hedge ratio): $120 (0.000), $104 (0.400), $93 (0.675), $80 (1.000).
Explanation:
Upper state (uS0) = 120
Down State (dS0) = 80
Difference = 40
Exercise Price($) Hedge Ratio
120 120-120/40 = 0/40 = 0.000
104 120-104/40 = 16/40 = 0.400
93 120-93 = 27/40 = 0.675
80 120-80/40 = 40/40 = 1.000
As the option becomes more in the money, the hedge ratio increases to a maximum of 1.0.
Final answer:
Hedge ratios for call options with exercise prices of $120, $104, $93, and $80 are 0, 0.4, 0.675, and 1, respectively, when the stock price can either go up to $120 or down to $80.
Explanation:
When determining the hedge ratio for call options, one can establish the number of shares to hold for hedging one call option. The hedge ratio can be calculated using the change in option payoff against the change in stock price in each state.
Calculating Hedge Ratios
For a call option with exercise prices of $120, $104, $93, and $80, the possible up state ($uS_0$) is $120, and the down state ($dS_0$) is $80.Exercise price at $120: The call option payoff is $0 in both up and down states (since the stock price is equal to the exercise price in the up state and lower in the down state), resulting in a hedge ratio of 0.Exercise price at $104: The call option payoffs are $16 in the up state (120 - 104) and $0 in the down state. The hedge ratio is therefore (16 - 0) / (120 - 80) = 0.4.Exercise price at $93: Payoffs are $27 in the up state and $0 in the down state. The hedge ratio is (27 - 0) / (120 - 80) = 0.675.Exercise price at $80: Payoffs are $40 in the up state and $0 in the down state, giving a hedge ratio of (40 - 0) / (120 - 80) = 1.The hedge ratio provides the proportion of shares needed to hedge against the price movement of one call option.
Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.Sales $ 3,500,000Cost of sales: Direct Material $ 500,000 Direct labor 250,000 Variable Overhead 275,000 Fixed Overhead 600,000 1,625,000Gross Profit $ 1,875,000Selling and General & Admin. Exp. Variable 750,000 Fixed 250,000 1,000,000Operating Income $ 875,000The contribution margin ratio for the current year is:____________.a.) 53.6%.b.) 49.3%.c.) 46.4%d.) 25%.
Answer:
b. 49.3%
Explanation:
The computation of contribution margin ratio is shown below:-
For computing the contribution margin ratio first we need to find out the total contribution which is here below:-
Total Contribution = Sales - Direct Material - Direct labor - Variable Overhead - Variable
= $3,500,000 - $500,000 - $250,000 - $275,000 - $750,000
= $1,725,000
Contribution margin Ratio = Contribution ÷ Sales
= $1,725,000 ÷ $3,500,000
= 49.3%
So, for calculating the contribution margin ratio we simply divide total contribution by sales.
Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2016, as a long-term investment. Management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 4% for bonds of similar risk and maturity. Lance Brothers paid $600,000 for the investment in bonds and will receive interest semiannually on June 30 and December 31. Prepare the journal entries (a) to record Lance Brothers’ investment in the bonds on July 1, 2016, and (b) to record interest on December 31, 2016, at the effective (market) rate.
Answer:
A) July 1, 2016, 3% bonds are acquired as long term investment.
Dr Investment in 3% bonds 720,000
Cr Cash 600,000
Cr Discount on investment in 3% bonds 120,000
B) December 31, 2016, interest earned from investment in 3% bonds.
Dr Cash 10,800
Dr Discount on investment in 3% bonds 1,200
Cr Interest revenue 12,000
Explanation:
the bonds' face value is $720,000 but since the company paid only $600,000 for them, it means that it bought them at a discount price. Therefore, the discount, $720,000 - $600,000 = $120,000, must be recorded, and later amortized.
To calculate the amount of interest revenue that will be amortized as discount on investment:
(bonds' market price x market interest rate x 1/2) - (bonds' face value x coupon rate x 1/2) = ($600,000 x 4% x 1/2) - ($720,000 x 3% x 1/2) = $12,000 - $10,800 = $1,200
Answer:
(a)
July 1, 2016
Dr. Investment in Bonds $720,000
Cr. Discount on Bonds $120,000
Cr. Cash $600,000
(b)
December 31, 2016
Dr. Cash $10,800
Dr. Discount on Bonds $1200
Cr. Interest Income $12,000
Explanation:
Investment in the bonds with intention to hold the bond until maturity is classified as the fixed investment and reported in the fixed assets section of the balance sheet.
When the bond is purchased below the face value of the bond, it is issued on discount by the issuer. This discount will be recorded and amortized over the bond life to maturity. Amortized discount will be added to the interest received amount to adjust this value in interest income.
Interest Received = Face value x Coupon rate x 6/12 = $720,000 x 3% x 6/12 = $10,800 semiannually
Interest income = Carrying Balance of Bond x market Rate x 6/12 = $600,000 x 4% x 6/12 = $12,000 semiannually
Now we will calculate the difference between the interest received and interest income to determine the value of discount amortized.
Amortized Discount = $12,000 - $10,800 = $1,200
The Conity Corporation has an Electric Mixer Division and an Electric Lamp Division. Of a $ 15 comma 000 comma 000 bond issuance, the Electric Mixer Division used $ 9 comma 300 comma 000 and the Electric Lamp Division used $ 5 comma 700 comma 000 for expansion. Interest costs on the bond totaled $ 1 comma 000 comma 000 for the year. What amount of interest costs should be allocated to the Electric Mixer Division? (Round any intermediary calculations two decimal places and your final answer to the nearest dollar.)
Answer:
Amount allocated = $620,000
Explanation:
As per the data given in the question,
Bond issuance = $15,000,000
Electric mixer division used = $9,300,000
Electric lamp division used = $5,700,000
Interest cost on the bond = $1,000,000
Electric mixer division = Electric mixer division used ÷ Bond issuance
= $9,300,000 ÷ $15,000,000
=0.62
So, Allocated interest expense = Interest cost on the bond × Electric mixer division
= $1,000,000 × 0.62
= $620,000
Opal Production Company uses a standard costing system. The following information pertains to the current year: Actual factory overhead costs ($15,000 is fixed) $50,000 Actual direct labor costs (10,000 hours) $130,000 Standard direct labor for 6,000 units: Standard hours allowed 9,500 hours Labor rate $10.00 The factory overhead rate is based on an activity level of 12,000 hours. Standard cost data on an activity level of 12,000 hours is as follows: Variable factory overhead $18,000 Fixed factory overhead 12,000 Total factory overhead $30,000 What is the variable overhead efficiency variance for Opal Production Company?
Answer:
$750 Unfavorable
Explanation:
The calculation of variable overhead efficiency variance is shown below:-
Variable overhead efficiency variance = (Actual direct labor hours - Standard hours allowed) × (Variable factory overhead ÷ Factory overhead rate)
= (10,000 hours - 9,500 hours) × ($18000 ÷ 12000)
= 500 hours × $1.5
= $750 Unfavorable
Therefore for computing the variable overhead efficiency variance we simply applied the above formula.
Common-Sized Income Statement Revenue and expense data for the current calendar year for Lyons Electronics Company and for the electronics industry are as follows. Lyons Electronics Company data are expressed in dollars. The electronics industry averages are expressed in percentages. Lyons Electronics Company Electronics Industry Average Sales $ 7,500,000 100 % Cost of goods sold (4,125,000) (61.0) Gross profit $3,375,000 39.0 % Selling expenses $(2,250,000) (23.0) % Administrative expenses (525,000) (10.0) Total operating expenses $(2,775,000) (33.0) % Operating income $600,000 6.0 % Other revenue and expense: Other revenue 30,000 3.0 Other expense $(7,500) (1.0) Income before income tax $ 622,500 8.0 % Income tax (187,500) (2.5) Net income $435,000 5.5 % a. Prepare a common-sized income statement comparing the results of operations for Lyons Electronics Company with the industry average. If required, round percentages to one decimal place.
Answer:
Explanation:
In common sized income statement , each line item is expressed as a percentage of sales turnover and compared to the percentage industry standard for analysis purpose.
Lyon % Industry %
Revenue 7,500,000 100 100
Cost of goods (4,125,000) 55 61
Gross profit 3,375,000 45 39
Selling expenses (2,250,000) 30 23
Admin Expenses (525,000) 7 10
Total Operating Exp (2,775,000) 37 33
Operating income 600,000 8 6
Other revenue 30,000 0.4 3
Other expenses (7500) 0.1 1
Income before tax 622,500 8.3 8
Income Tax 187,500 2.5 2.5
Net Income 435,000 5.8 5.5
2. The nominal interest rate in the U.S. is 6% and the nominal interest rate in Canada is 3%. The spot value of the U.S. dollar is 1.1 ($/Canadian dollar) and the forward rate is 1.3 ($/Canadian dollar). Calculate the forward discount or premium for the dollar. Does the interest parity condition hold? If not explain what is likely to occur in foreign exchange markets. Assume that interest rates cannot change.
Answer:
The forward discount is 1.0688679245. Interest parity does not hold. In foreign markets Dollar will not appreciate in spot because it is trading at forward discount
Explanation:
According to the given data we have the following:
1 USD = 1.1 Canadian dollar (Spot)
1 USD = 1.3 Canadian dollar (Forward)
In order to calculate forward discount we would have to use the following formula:
Forward= Spot rate * (1+ Interest rate of Canada) / (1+ Interest rate of US)
Forward = 1.1*(1+0.03) / (1+0.06) = 1.0688679245
1.0688679245 < 1.2 (Interest parity does not hold)
Here dollar is trading at forward discount
In foreign markets Dollar will not appreciate in spot because it is trading at forward discount
Sandhill Chemicals Company acquires a delivery truck at a cost of $30,800 on January 1, 2022. The truck is expected to have a salvage value of $3,700 at the end of its 4-year useful life. Compute annual depreciation for the first and second years using the straight-line method.
Final answer:
Using the straight-line method, the annual depreciation for the first and second years for Sandhill Chemicals Company's delivery truck, which costs $30,800 and has a salvage value of $3,700 after 4 years, is calculated to be $6,775 per year.
Explanation:
The Sandhill Chemicals Company's delivery truck, which has a cost of $30,800 and a salvage value of $3,700 at the end of its 4-year useful life, requires an annual depreciation calculation using the straight-line method. To compute this, we first find the total depreciable amount by subtracting the salvage value from the cost of the truck:
Total depreciable amount = Cost - Salvage ValueTotal depreciable amount = $30,800 - $3,700Total depreciable amount = $27,100Then we divide this total depreciable amount by the useful life of the truck to find the annual depreciation:
Annual Depreciation = Total depreciable amount / Useful LifeAnnual Depreciation = $27,100 / 4 yearsAnnual Depreciation = $6,775Therefore, the annual depreciation for the first and second years using the straight-line method is $6,775 per year.
Your answer is partially correct. Try again. Tabares Corporation had these transactions during 2019. Indicate whether each transaction is an operating activity, investing activity, financing activity, or noncash investing and financing activity. (a) Issued $50,000 par value common stock for cash. (b) Purchased a machine for $30,000, giving a long-term note in exchange. (c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. (d) Declared and paid a cash dividend of $18,000. (e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. (f) Collected $16,000 from sale of goods. (g) Paid $18,000 to suppliers. Click if you would like to Show Work for this question: Open Show Work
Answer:
(a) Issued $50,000 par value common stock for cash. - Financing activity
(b) Purchased a machine for $30,000, giving a long-term note in exchange. - noncash investing and financing activity
(c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. - Financing activity
(d) Declared and paid a cash dividend of $18,000. - Financing activity
(e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. - Investing activity
(f) Collected $16,000 from sale of goods. - Operating activity
(g) Paid $18,000 to suppliers - Operating activity
Explanation:
The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.
The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.
The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.