Answer:
Marvel Company
a. Marvel's total long-term debt in 2018 = $1,250,000
a2. Marvel's total liabilities = $2,100,000 ($850,000 +$1,250,000)
b. New long-term debt financing needed in 2019 = $810,156
Explanation:
a) Data and Calculations:
Year-end 2018:
Total assets = $4.5 million
Accounts payable $850,000
Sales = $5.5 million
Common Stock = $2.25 million
Retained Earnings = $150,000
Long-term debt = Total assets Minus (Accounts payable + Equity)
= $4,500,000 - ($850,000 + 2,250,000 + 150,000)
= $1,250,000
Year 2019:
Sales = $6,875,000 ($5.5 million * 1.25)
Net profit margin on sales = $171,875 (2.5% * $6,875,000)
Dividends = 55% of earnings = $94,531 (55% * $171,875)
Retained earnings for the year = $77,344
Retained earnings for 2018: 150,000
Retained earnings, 2019: $227,344
Common Stock = $2,275,000 ($2,250,000 + $25,000)
Total equity = $2,502,344 ($2,250,000 + 227,344)
Total assets = $5,625,000 ($4.5 million * 1.25)
Accounts payable = $1,062,500 ($850,000 * 1.25)
Long-term debt = Total Assets - (Total equity + Accounts Payable)
= $5,625,000 - ($2,502,344 + 1,062,500)
= $2,060,156
Increase in long-term debt = $810,156 ($2,060,156 - $1,250,000)
The technique used to conclude about the population on the basis of a sample is called
Ian loaned his friend $20,000 to start a new business. He considers this loan to be an investment, and therefore requires his friend to pay him an interest rate of 7% on the loan. He also expects his friend to pay back the loan over the next four years by making annual payments at the end of each year. Ian texted and asked that you help him calculate the annual payments that he should expect to receive so that he can recover his initial investment and earn the agreed-upon 7% on his investment.
Required:
Calculate the annual payment and complete the following capital recovery schedule:
Year Beginning Amount Payment Interest Paid Principal Paid Ending Balance
Answer:
Ian and His Friend's Business Loan
a. Annual payment = $5,904.56
b. Capital Recovery Schedule:
Year Beginning Payment Interest Principal Ending
Amount Paid Paid Balance
1 $20,000 $-5,904.56 $1,400 $4,504.56 $15,495.44
2 $15,495.44 $-5,904.56 $1,084.68 $4,819.88 $10,675.56
3. $10,675.56 $-5,904.56 $747.29 $5,157.27 $5,518.29
4. $5,518.29 $-5,904.56 $386.27 $5,518.29 $0
Explanation:
Ian's loan to his friend = $20,000
Interest rate = 7%
Payback period = 4 years
Repayment = annual at the end of each year.
Ian can retrieve $5,904.56 at the end of each period to reach the future value of $20,000.00 and total interest of $3,618.25.
Using an online financial calculator:
N (Number of Periods) 4.000
I/Y (Interest Rate) 7.000%
PMT (Periodic Payment) $-5,904.56
Starting Investment $20,000.00
Total Interest $3,618.25
Del Gato Clinic's cash account shows a $11,589 debit balance and its bank statement shows $10,555 on deposit at the close of business on June 30. Outstanding checks as of June 30 total $1,829. The June 30 bank statement lists a $16 bank service charge. Check No. 919, listed with the canceled checks, was correctly drawn for $467 in payment of a utility bill on June 15. Del Gato Clinic mistakenly recorded it with a debit to Utilities Expense and a credit to Cash in the amount of $476. The June 30 cash receipts of $2,856 were placed in the bank's night depository after banking hours and were not recorded on the June 30 bank statement.
Prepare its bank reconciliation using the above information.
DEL GATO CLINIC
Bank Reconciliation
June 30
Book balance
Add: Bank statement balance
Add:
Deduct: Deduct:
Adjusted bank balance Adjusted book balance
Answer:
Bank Reconciliation
Bank Statement Balance 10,555
Add: June 30 Deposit 2,856
13,411
Less: Outstanding Checks (1,829)
Adjusted bank balance $11,582
Bank Reconciliation
Book Balance 11,589
Add: Error in Check 919 (479 - 467) 9
11,598
Less: Bank service charge ( 16)
Adjusted book balance 11,582
Wave Marine Products had sales revenue of $850,000 for the year-ended December 31, 2017.
a. December revenue totaled $120,000, and in addition, Big Wave collected sales tax of 5%. The tax amount will be sent to the state of Florida early in January.
b. On August 31, Big Wave signed a six-month, 4% note payable to purchase a boat costing $85,000. The note requires payment of principal and interest at maturity
c. On August 31 Big Wave received cash of S2,400 in advance for service revenue. This revenue will be earned evenly over six months.
d. Revenues of $850,000 were covered by Big Wave service warranty. At January 1, estimated warranty payable was $11,600. During the year, Big Wave recorded warranty expense of $34,000 and paid warranty claims of $34,800.
e. Big Wave owes $70,000 on a long-term note payable. At December 31, 12% interest for the year plus $35,000 of this principal are payable within one year.
Required:
For each item, indicate the account and the related amount to be reported as a current liability on the Big Wave Marine balance sheet at December 31.
Answer: Check explanation
Explanation:
a. Sales tax payable
Amount = $120,000 × 5%
= $120,000 × 0.05
= $6000
b. Notes payable, short term
Amount = $85000
Interest payable = $85000 × 4% × 4/12
= $1133.3
c. Unearned revenue
Amount: $2400 × 2/6
= $800
d. Accrued Warranty Payable
Amount = $11600 + $34000 - $34800
= $10800
e. Current portion of long term note payable
Amount = $35,000
Interest payable
Amount = $70000 × 12%
= $8400
Daily demand for a certain product is normally distributed with a mean of 138 and a standard deviation of 13. The supplier is reliable and maintains a constant lead time of 7 days. The cost of placing an order is $17 and the cost of holding inventory is $0.40 per unit per year. There are no stock-out costs, and unfilled orders are filled as soon as the order arrives. Assume sales occur over 358 days of the year.
Your goal here is to find the order quantity and reorder point to satisfy a 73 percent probability of not stocking out during the lead time.
a. To manage inventory, the company is using
Continuous review system
Periodic review system
b. Find the order quantity. (Round your answer to the nearest whole number.)
Order quantity books
c. Find the reorder point. (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)
Reorder point
Answer:
A. Continuous review system
B. Order quantity = 2,049 Books
C. Reorder point=987
Explanation:
a. In order To manage inventory, the company is using what is called Continuous review system
b. Calculation to find the order quality
Using this formula
Order quantity = √((2DS)/H)
Let plug in the morning
Order quantity=√ ((2 x 49,404 x 17)/0.40)
Order quantity = 2,049 Books
(138*358=49,404)
C. Calculation for reorder point
First step is to find the σL
73 % S.L. - z = 0.613
Using this formula to find the σL
σL = (Lσ^2)
Let plug in the formula
σL=√(7(13)^2)
σL= 34.39
Second step is to find the Reorder point using this formula
R = d bar(L) + zσL
Let plug in the formula
Reorder point = (138)(7) + 0.613(34.39)
Reorder point = 966+21
Reorder point=987
Use the information about Billy's Burgers to answer the following question(s):
Billy's Burgers
Figures in $ millions
Income Statement 2010 Balance Sheet 2010
Net Sales 246.0 Assets
Costs exc. Dep. 187.0 Cash 8.0
EBITDA 59.0 Accts. Rec. 21.0
Depreciation 17.2 Inventories 23.0
EBIT 41.8 Total Current Assets 52.0
Interest 12.0 Net PP&E 145.0
Pretax Income 29.8 Total Assets 197.0
Taxes 10.4
Net Income 19.4 Liabilities and Equity Accts.
Payable 18.0 LongTerm Debt 82.0
Total Liabilities 100.0 Total Stockholders' Equity 97.0
Total Liabilities and Equity 197.0
Required:
Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' Accounts Receivable for 2011.
a. $21.0 million
b. $18.0 million
c. $25.2 million
d. $21.6 million
Answer:
c. $25.2 million
Explanation:
Billy's Burgers' Accounts receivable 2011 = Accounts receivable 2010 *(1+Growth rate)
Billy's Burgers' Accounts receivable 2011 = $21,000,000 * (1+0.20)
Billy's Burgers' Accounts receivable 2011 = $21,000,000 * (1.20)
Billy's Burgers' Accounts receivable 2011 = $25,200,000.
On August 20th, one of your employees comes to you with a vacation request. The employee’s available vacation time expires on September 1st, however she wants to take her vacation between September 20th through the 25th.
She asks you to submit her vacation request to the corporate office for the week prior to September 1st, and wants you to not schedule her for the days between the 20th and 25th, and she wants her "vacation" pay for those days.
Would you do it? Why? or Why Not?
Answer:
No
Explanation:
Her vacation is expired and therefore invalid. Also she is requesting for a pay during this period which counters Amy form of sympathy for this employee. However, depending on the relationship the employee has with her employer, there might be a compromise especially if the employee really does need the vacation as she may be burned out or may have postponed vacation till expiration for the interest of the company
On September 1, Boylan Office Supply had an inventory of 30 calculators at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions occurred.
Sept. 6 Purchased with cash 80 calculators at $20 each from Guthrie Co.
Sept. 9 Paid freight of $80 on calculators purchased from Guthrie Co.
Sept. 10 Returned 3 calculators to Guthrie Co. for $63 cash (including freight) because they did not meet specifications.
Sept. 12 Sold 26 calculators costing $21 (including freight) for $31 each on account to Lee Book Store, terms n/30.
Sept. 14 Granted credit of $31 to Lee Book Store for the return of one calculator that was not ordered.
Sept. 20 Sold 30 calculators costing $21 for $32 each on account to Orr's Card Shop, terms n/30.
Journalize the September transactions.
Answer and Explanation:
The journal entries are shown below:
Inventory $1,600 (80 × $20)
To Accounts Payable $1,600
(Being inventory purchased on account)
Inventory $80
To Cash $80
(Being the freight charges is paid)
Accounts Payable $63
To Inventory $63
(being returned inventory is recorded
Accounts Receivable $806 (26 × $31)
To Sales Revenue $806
(Being sale of calculators on account is recorded)
Cost of Goods Sold $546 (26 × $21)
To Inventory $546
(being cost of calculators sold is recorded)
Sales Returns and Allowances $31
To Accounts Receivable $31
(Being return of calculator that is recorded)
Inventory $31
Cost of Goods Sold $31
(Being cost of calculators returned is recorded)
Accounts Receivable $960 (30 × $32)
To Sales Revenue $960
(Being sale of calculators on account is recorded)
Cost of Goods Sold $630 (30 × $21 )
To Inventory $630
(Being cost of calculators sold is recorded)
If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is:
Answer:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Explanation:
If overhead is applied using traditional costing based on direct labor hours, the overhead application rate is:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
For example:
Total estimated overhead= $150,000
Allocation base= direct labor hours
Estimated Total number of direct labor hours= 10,000
Predetermined manufacturing overhead rate= 150,000/10,000
Predetermined manufacturing overhead rate= $15 per direct labor hour
The adjusted trial balance of Norton Company contained the following information. Assume the tax rate is 25%:
Debit Credit
Sales revenue $390,000
Sales returns and allowances $10,000
Sales discounts 5,000
Cost of goods sold 200,000
Operating expenses 110,000
Interest revenue 8,000
Interest expense 3,000
Required:
Compute income from operations.
a. $175,000
b. $65,000
c. $50,000
d. $70,000
Answer:
b. $65,000
Explanation:
Particulars Amount
Revenues
Service Revenue $390,000
Less: Sales Return and allowance $10,000
Less: Sales Discount $5,000
Net Sales Revenue $375,000
Less: Cost of Goods Sold $200,000
Gross Profit $175,000
Less: Operating Expenses $110,000
Operating Income $65,000
Thus, income from operation is $65,000
In the late 1930s management at Atalanta Industries agreed to hire only those workers who were already members of the Electrical Union. Atlanta agreed to a type of arrangement known as a(n)
Answer: closed shop
Explanation:
From the question, we are informed that in the late 1930s management at Atalanta Industries agreed to hire only those workers who were already members of the Electrical Union.
It should be noted that here, Atlanta agreed to a type of arrangement known as closed shop. This occurs when the workers have to belong to a particular union before they'll be employed. This was legal in 1930 but it was later declared illegal by Taft Hartley Act.
If national income is $5,000 billion, compensation of employees is $1,105 billion, proprietors’ income is $1,520 billion, corporate profits are $490 billion, and net interest is $128 billion, then rental income is equal to
Answer:
Rental income = $1,757 billion
Explanation:
National income is defined as the value of goods and services that a nation produces within a financial year.
Therefore it is made up of all economic actives that the nation is involved in.
The gross domestic product is a measure of the national income.
The formula for national income is given below
National income = employees compensation + proprietors' income + corporate profits + rental income +net interest
5,000 billion = 1,105 billion + 1,520 billion + 490 billion + rental income + 128 billion
Rental income = 5,000 billion - 3,243 billion
Rental income = $1,757 billion
Selected Information from Balance Sheets (As of Year End for Years 0 and 1)
Year 0 Year 1
Cash 1,000 2,000
Accounts Receivables 1,000 5,000
Inventory 5,000 4,000
Property, Plant and Equipment (net) 12,000 11,000
Accounts Payable 5,000 4,000
Unearned Revenue 2,000 1,000
Bonds Payable 5,000 6,000
Common Stock 3,000 4,000
Retained Earnings 5,000 7,000
Income Statement (Year 1)
Sales 20,000
Costs of Goods Sold (8,000)
Wage Expense (4,000)
Depreciation Expense (2,000)
Loss from PP&E Sale (1,000)
Net Income Before Tax 5,000
Tax Expense (2.000)
Net Income 3.000
In the space provided, prepare the Operating section of the statement of cash flow for Year 1, using the indirect approach.
Answer:
The Operating Activities section of the Statement of Cash Flow for Year 1:
Net Income $3,000
Add non-cash expenses:
Depreciation Expense 2,000
Loss from PP&E Sale 1,000
Operating cash flow 6,000
Changes working capital -5,000
Net cash flow from operating activities 1,000
Explanation:
Changes in working capital items:
Year 0 Year 1 Changes
Accounts Receivables 1,000 5,000 -4,000
Inventory 5,000 4,000 1,000
Accounts Payable 5,000 4,000 -1,000
Unearned Revenue 2,000 1,000 -1000
Net changes in working capital -5,000
Your neighbor is asking you to invest in a venture that will double your money in 7 year(s). Compute the annual rate of return that he is promising you?
Answer: 10.3%
Explanation:
The Rule of 72 is useful here. The rule of 72 can be used to calculate the amount of time it would take to double an investment by dividing 72 by the interest rate.
As we already have the number of years the formula is;
7 = 72/i
i = 72/7
i = 10.3%
‘Buffer stock’ is the level of stock
Answer:
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Explanation:
Safety stock inventory, sometimes called buffer stock, is the level of extra stock that is maintained to mitigate risk of run-out for raw materials or finished goods due to uncertainties in supply or demand.
REAL NAME - SHRESTH DUBEY
Answer:
be safe
Explanation:
safety stock inventory, sometime called buffer stock,is the level of the extra stock that is maintained to mitigate risk of run out for raw material or finished goods due to uncertainty in supply or demand
I HOPE IT'S HELP U. ASKING QUESTIONS IS BEST THING IN READING.
Every year, management and labor renegotiate a new employment contract by sending their proposals to an arbitrator, who chooses the best proposal (effectively giving one side or the other $3 million). Each side can choose to hire, or not hire, an expensive labor lawyer (at a cost of $300,000) who is effective at preparing the proposal in the best light. If neither hires a lawyer or if both hire lawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to win nine tenths, or 0.9, of the time. Use the given information to fit in the expected payoff, in dollars, for each cell in the matrix.
Management (M)
No Lawyer Lawyer
No Lawyer L: M: S L: S M: S
Labor (L) Lawyer L: M: S L: S M: S
The Nash equilibrium for this game is for Management to_____a lawyer, and for Labor to_____a lawyer.
Answer: hire; hire
Explanation:
The Nash equilibrium for this game is for Management to hire a lawyer, and for Labor to hire a lawyer.
The Nash Equilibrium is the solution in a game where the parties are not cooperative with one another and refers to the strategy at which neither party would not want to move from as it would not benefit them to do so.
The Nash Equilibrium here is that they both hire a lawyer because if one side decides not to hire a lawyer, they could win only one tenths of the time. Both of them will therefore hire lawyers and neither would go without a lawyer on the chance that the other hires a lawyer.
How is a proceeding for violation of the regulations in Circular 230 instituted against a tax practitioner
Incomplete question. The options read;
A. An aggrieved taxpayer files a petition with the United States Tax Court stating a claim against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary
B. The IRS representative signs a complaint naming the tax practitioner and files the complaint with the Administrative Law Judge (ALJ)
C. The Secretary of the Treasury files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary in the United States District Court for the District of Columbia
D. The Commissioner of the IRS files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary with the United States Tax Court
Answer:
D. The Commissioner of the IRS files a complaint against the attorney, certified public accountant, registered tax return preparer, enrolled agent, enrolled retirement plan agent, or enrolled actuary with the United States Tax Court
Explanation:
According to the information on the thetaxadviser website, when there is a violation of the regulations in Circular 230 instituted by a tax practitioner a complaint would be filed, and if found guilty, he or she "may be censured, suspended, or disbarred from practice before the IRS."
Usually, the Office of Professional Responsibility would take up the case against the tax practitioner.
Tommy is from a small town and quit high school to get married. He and his wife have five kids, and his wife stays home with the children. Tommy is a hard worker and strives to provide for his family, although his skills are limited. Tommy has been a butcher for his entire career. He has been with his present company, a large retail grocer, for the past six years performing the same job. There are twelve people in the meat department, and each one specializes in cutting certain types of meat. Tommy's job is to cut ribeye steaks. Cutting ribeye steaks is very precise and requires holding and using a knife in the same way every day. This requirement has started to cause Tommy pain in his right hand. Although Tommy still likes his work, he is getting a little bored of the repetition and is bothered by the pain.
The quality of Tommy’s work has not suffered, but the store managers can tell that he is getting bored. What could they do to keep him better engaged?
a. Purchase special ergonomic mats to help with the pain associated with standing on the hard floor every day.
b. Motivate Tommy by giving him feedback about how skilled he is in cutting ribeye and explain that customers visit the store for his custom steaks.
c. Offer Tommy more money because he is so good at cutting meat.
d. Cross train the employees in the meat department, so beef cutters can learn how to cut pork and vice versa.
e. Administer a work personality quiz to Tommy to see if there is another area in the store where he could move to, such as the produce department.
Answer: d. Cross train the employees in the meat department, so beef cutters can learn how to cut pork and vice versa.
Explanation:
Since the quality of Tommy’s work has not suffered, but the store managers can tell that he is getting bored, the thing that could be done to keep him better engaged is to cross train the employees in the meat department, so beef cutters can learn how to cut pork and vice versa. Cross training helps the workers in the company appreciate the workers of others in other department and shows workers flexibility.
ogan Products computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it estimated that 40,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated $466,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $3.00 per direct labor-hour. Logan's actual manufacturing overhead for the year was $713,400 and its actual total direct labor was 41,000 hours.
Required:
Compute the company's pre-determined overhead rate for the year.
Answer:
Predetermined manufacturing overhead rate= $14.65 per direct labor hour
Explanation:
Giving the following information:
Estimated direct labor hour= 40,000
Estimated fixed overhead= $466,000
Variable manufacturing overhead of $3.00 per direct labor-hour.
To calculate the predetermined manufacturing overhead rate we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= (466,000/40,000) + 3
Predetermined manufacturing overhead rate= $14.65 per direct labor hour
Brief Exercise 14-08 Ziegler Corporation reports net income of $380,000 and a weighted-average of 200,000 shares of common stock outstanding for the year. Compute the earnings per share of common stock.
Answer:
$1.9
Explanation:
The computation of the earning per share is shown below:
Earning per share is
= Net income ÷ Weighted number of oustanding shares
= $380,000 ÷ 200,000 shares
= $1.9
By simply divide the net income from the Weighted number of oustanding shares, the earning per share could be determined
Hence, the earning per share is $1.9
Townsend Industries Inc. manufactures recreational vehicles. Townsend uses a job order cost system. The time tickets from November jobs are summarized as follows:
Job 201 $4,280
Job 202 2,140
Job 203 1,690
Job 204 3,140
Factory supervision 1,460 Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $22 per direct labor hour. The direct labor rate is $15 per hour. If required, round final answers to the nearest dollar.
Required:
a. Journalize the entry to record the factory labor costs.
b. Journalize the entry to apply factory overhead to production for November.
Answer:
Part a.
Work In Process : Job 201 $64,200 (debit)
Work In Process : Job 202 $32,100 (debit)
Work In Process : Job 203 $25,350 (debit)
Work In Process : Job 204 $47,100 (debit)
Salaries Payable $168,750 (credit)
Part b.
Work In Process : Job 201 $94,160 (debit)
Work In Process : Job 202 $47,080 (debit)
Work In Process : Job 203 $37,180 (debit)
Work In Process : Job 204 $69,080 (debit)
Overheads $168,750 (credit)
Explanation:
Calculation of Labor Cost :
Job 201 = 4,280 hours × $15 = $64,200
Job 202 = 2,140 hours × $15 = $32,100
Job 203 = 1,690 hours × $15 = $25,350
Job 204 = 3,140 hours × $15 = $47,100
Application of overhead to jobs :
Job 201 = 4,280 hours × $22 = $94,160
Job 202 = 2,140 hours × $22 = $47,080
Job 203 = 1,690 hours × $22 = $37,180
Job 204 = 3,140 hours × $22 = $69,080
On January 1, 2020, Meeks Corporation issued $5,000,000, 10-year, 4% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2020 is
a. Cash........................................................................................ 5,000,000
Bonds Payable............................................................... 5,000,000
b. Cash........................................................................................ 5,100,000
Bonds Payable............................................................... 5,100,000
c. Premium on Bonds Payable ................................................... 100,000
Cash........................................................................................ 5,000,000
Bonds Payable............................................................... 5,100,000
d. Cash........................................................................................ 5,100,000
Bonds Payable............................................................... 5,000,000
Premium on Bonds Payable .......................................... 100,000
Answer:
d. Cash........................................................................................ 5,100,000
Bonds Payable............................................................... 5,000,000
Premium on Bonds Payable .......................................... 100,000
Explanation:
The Journal entry is shown below:-
Cash Dr, $5,100,000 ($5,000,000 × 1.02)
To Bonds payable $5,000,000
To Premium on Bonds payable $100,000
(Being cash is recorded)
Here we debited the cash as it increases the assets and we credited the bonds payable and premium on bonds payable as it also increases the liabilities.
Consider the following scenario:
Cold Goose Metal Works Inc.’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year.
1. Cold Goose is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT).
2. The company’s operating costs (excluding depreciation and amortization) remain at 70.00% of net sales, and its depreciation and amortization expenses remain constant from year to year.
3. The company’s tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT).
4. In Year 2, Cold Goose expects to pay $300,000 and $2,306,475 of preferred and common stock dividends, respectively.
Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Round each dollar value to the nearest whole dollar.
Cold Goose Metal Works Inc.
Income Statement for Year Ending December 31
Year 1 $30,000,000 21,000,000 1,200,000 $7,800,000$
Year 2 (Forecasted)
Net sales Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings 1,200,000 780,000 $7,020,000 2,808,000 $4,212,000s 300,000 $3,912,000 1,895,400 $1,605,525 $2,519,025
Given the results of the previous income statement calculations, complete the following statements:
In Year 2, if Cold Goose has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive____________ ▼ in annual dividends
If Cold Goose has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from __________ in Year 1 to in ________ Year 2
Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from _______ in Year 1 to in ______ Year 2
It is __________▼ to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $1,605,525 and $2,519,025, respectively. This is because ▼ of the items reported in the income statement involve payments and receipts of cash
Answer:
Cold Goose Metal Works Inc.
1. Completion of the Year 2 Income Statement for Cold Goose:
Cold Goose Metal Works Inc.
Income Statement for Year Ending December 31
Year 1 Year 2
(Forecasted)
Net sales $30,000,000 $37,500,000
Less: Operating costs, except depreciation
and amortization 21,000,000 28,125,000
Less: Depreciation & amortization expenses 1,200,000 1,200,000
Operating income (or EBIT) $7,800,000 $8,175,000
Less: Interest expense 780,000 1,226,250
Pre-tax income (or EBT) $7,020,000 $6,948,750
Less: Taxes (40%) 2,808,000 2,779,500
Earnings after taxes $4,212,000 $4,169,250
Less: Preferred stock dividends 300,000 300,000
Earnings for common shareholders $3,912,000 $3,869,250
Less: Common stock dividends 1,895,400 2,306,475
Contribution to retained earnings $1,605,525 $1,562,775
2. Given the results of the previous income statement calculations, complete the following statements:
In Year 2, if Cold Goose has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive____$12________ ▼ in annual dividends .
If Cold Goose has 200,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from ____$19.56______ in Year 1 to in ___$19.35_____ Year 2 .
Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from _$21,000,000______ in Year 1 to in _$28,125,000_____ Year 2 .
It is __wrong________▼ to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $1,605,525 and $1,562,775 ($2,519,025), respectively. This is because not all ▼ of the items reported in the income statement involve payments and receipts of cash
Explanation:
a) Data and Calculations:
Cold Goose Metal Works Inc.
Income Statement for Year Ending December 31
Year 1 Year 2
(Forecasted)
Net sales $30,000,000 $37,500,000
Less: Operating costs, except depreciation
and amortization 21,000,000 28,125,000
Less: Depreciation & amortization expenses 1,200,000 1,200,000
Operating income (or EBIT) $7,800,000 $8,175,000
Less: Interest expense 780,000 1,226,250
Pre-tax income (or EBT) $7,020,000 $6,948,750
Less: Taxes (40%) 2,808,000 2,779,500
Earnings after taxes $4,212,000 $4,169,250
Less: Preferred stock dividends 300,000 300,000
Earnings for common shareholders $3,912,000 $3,869,250
Less: Common stock dividends 1,895,400 2,306,475
Contribution to retained earnings $1,605,525 $1,562,775
b) Forecasts:
1. Sales = $30 million * 1.25 = $37.5 million
2. Operating costs = 75% of sales = $28,125,000 (0.75 * $37.5 million)
3. Interest expense = 15% of EBIT = $1,226,250 (15% * $8,175,000)
4. Taxes = 40% of EBT = $2,779,500 (40% * $6,948,750)
5. Preferred dividend per share = $12 ($300,000/25,000)
6. Earnings per share = $19.56 ($3,912,000/200,000) Year 1 and $19.35 ($3,869,250/200,000) in Year 2
The lease agreement specified quarterly payments of $6,500 beginning September 30, 2021, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2024 (three-year lease term). The florist had the option to purchase the truck on September 29, 2023, for $13,000 when it was expected to have a residual value of $19,000. The estimated useful life of the truck is four years. Mid-South Auto Leasing’s quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $51,000 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows’ incremental interest rate is 12%.
Required:
a. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)
b. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2021.
c. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid- South Auto Leasing over the lease term.
d. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2021.
e. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2023, assuming the purchase option was exercised on that date.
Answer:
a) sales revenue 75,760
cost of good sold 51,000
gross profit: 24,760
b)
LESSOR ENTRIES:
lease receivable 69,260 debit
cash 6,500 debit
sales revenue 75,760 credit
--to record sale on lease--
cost of good sold 51,000 debit
Inventory 51,000 credit
--to record cost--
LESEE ENTRIES:
equipment 75,760 debit
lease liability 69,260 credit
cash 6,500 credit
Lease Schedule:
[tex]\left[\begin{array}{cccccc}Time&Beg&Cuota&Interest&Amort&Ending\\0&75760&6500&&6500&69260\\1&69260&6500&2078&4422&64838\\2&64838&6500&1945&4555&60283\\3&60283&6500&1808&4692&55591\\4&55591&6500&1668&4832&50759\\5&50759&6500&1523&4977&45782\\6&45782&6500&1373&5127&40655\\7&40655&6500&1220&5280&35375\\8&35375&6500&1061&5439&29936\\9&29936&6500&898&5602&24334\\10&24334&6500&730&5770&18564\\11&18564&6500&557&5943&12621\\12&12621&13000&379&12621&0\\\end{array}\right][/tex]
December 31st, 2021 (1st payment)
LESEE ENTRIES:
lease liability 4,422 debit
interest expense 2,078 debit
cash 6,500 credit
--to record payment--
depreciation expense 3,547.5 debit
acc depreciation 3,547.5 credit
--to record depreciation--
LESSOR ENTRIES:
cash 6,500 debit
lease receivables 4,422 credit
interest revenue 2,078 credit
e) option exercised:
LESEE ENTRIES:
lease liability 12,621 debit
interest expense 379 debit
cash 13,000 credit
--to record purchase option--
LESSOR ENTRIES:
cash 13,000 debit
lease receivables 12,621 credit
interest revenue 379 credit
--to record purchase option--
Explanation:
We solve for the present value of the lease:
Present Value of Annuity-due
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C $6,500
time 12
rate 0.03
[tex]6500 \times \frac{1-(1+0.03)^{-12} }{0.03} = PV\\[/tex]
PV $66,642.0567
+ 13,000 purchase option on June 2024:
PRESENT VALUE OF LUMP SUM
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 13,000.00
time 12.00
rate 0.03
[tex]\frac{13000}{(1 + 0.03)^{12} } = PV[/tex]
PV 9,117.94
Total lease receivables: 66,642.06 + 9,117.94 = 75,760
a) sales revenue 75,760
cost of good sold 51,000
gross profit: 24,760
d) depreciation on equipment:
(75,760 - 19,000) / 4 year = 14,190 per year
we divide by four as only a quarter of the year past:
14,190 / 4 quarter = 3,547.5
It is the lesee which does the depreicaiton as the Truck possesion belong to it.
In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:
Basic research to develop the technology $ 2,000,000
Engineering design work 680,000
Development of a prototype device 300,000
Acquisition of equipment 60,000
Testing and modification of the prototype 200,000
Legal and other fees for patent application on the new
communication system 40,000
Legal fees for successful defense of the new patent 20,000
Total $ 3,300,000
The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $10,000.
During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.
Required:
Prepare correcting entries that reflect the appropriate treatment of the expenditures.
1. Record the correcting entry to expense R&D costs incorrectly capitalized
2. Record the correcting entry to capitalize the cost of equipment incorrectly capitalized as a patent.
3. Record the correcting entry to record depreciation on equipment used in R&D projects.
Answer:
1. Dec 31
Dr Research and Development Expense $3,180,000
Cr 2013 Patent $3,180,000
2. Dec 31
Dr Equipment $60,000
Cr 2013 Patent $60,000
3. Dec 31
Dr Research and Development Expense $10,000
Cr 2013 Accumulated Depreciation - Equipment $10,000
Explanation:
1. Preparation of the Journal entry to Record the correcting entry to expense
Dec 31
Dr Research and Development Expense $3,180,000
Cr 2013 Patent $3,180,000
(Being To record research and development expense )
Calculation for the Total amount of theresearch and development expense
Basic research to develop the technology $2,000,000
Engineering design work $680,000
Development of a prototype device $300,000
Testing and modification of the prototype $200,000
TOTAL research and development expense $3,180,000
2. Preparation of the journal entry to Record the correcting entry to capitalize the cost of equipment
Dec 31
Dr Equipment $60,000
Cr 2013 Patent $60,000
(Being To correct cost of equipment capitalized to patent)
3. Preparation of the Journal entry to Record the correcting entry to record depreciation on equipment
Dec 31
Dr Research and Development Expense $10,000
Cr 2013 Accumulated Depreciation - Equipment $10,000
(Being To record research and development expens
Bank Reconciliation and Entries The cash account for Stone Systems at July 31, 20Y5, indicated a balance of $12,270. The bank statement indicated a balance of $15,440 on July 31, 20Y5. Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciling items: Checks outstanding totaled $5,560. A deposit of $5,790, representing receipts of July 31, had been made too late to appear on the bank statement. The bank had collected $3,010 on a note left for collection. The face of the note was $2,860. A check for $800 returned with the statement had been incorrectly recorded by Stone Systems as $880. The check was for the payment of an obligation to Holland Co. for the purchase of office supplies on account. A check drawn for $400 had been incorrectly charged by the bank as $40. Bank service charges for July amounted to $50.
Required:
Prepare a bank reconciliation.
Answer: Please see below for the reconciliation of bank and book balance for Stone systems as $15,310
Explanation:
Bank Reconciliation Statement for July 31 , 20Y5 for Stone Systems
Particulars Amount
Balance on bank statement $15,440
Additions:
Outstanding Deposits $5,790
Deductions:
Outstanding checks $5,560
Bank Error (400-40) $360
Adjusted bank balance $15,310
Balance in books $12,270.
Additions:
Note Collection plus interest $3,010
Incorrect recording of check
($880-$800) $80
Deductions
Bank Service charges $50
Adjusted book balance $15,310
Masterson, Inc., has 4.1 million shares of common stock outstanding. The current share price is $84, and the book value per share is $11. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, has a coupon rate of 5.1%, and sells for 98% of par. The second issue has a face value of $50 million, has a coupon rate of 5.60%, and sells for 108% of par. The first issue matures in 20 years, the second in 12 years. The most recent dividend was $3.95 and the dividend growth rate is 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?
Answer:
The answer is "8.37%".
Explanation:
[tex]\text{MV of equity} = \text{equity price} \times \text{number of outstanding shares}[/tex]
[tex]=84 \times 4100000\\\\=344400000[/tex]
[tex]\text{MV of Bond1}=\text{Par value} \times \text{bonds outstanding} \times \text{age of percentage}[/tex]
[tex]=1000 \times 70000 \times 0.98 \\\\=68600000[/tex]
[tex]\text{MV of Bond2}=\text{Par value} \times \text{bonds outstanding} \times \text{age of percentage}[/tex]
[tex]=1000 \times 50000 \times 1.08 \\\\=54000000[/tex]
[tex]\text{MV of firm} = \text{MV of Equity} + \text{MV of Bond1}+ \text{MV of Bond 2}[/tex]
[tex]=344400000+68600000+54000000\\\\=467000000[/tex]
[tex]\text{Weight of equity W(E)} = \frac{\text{MV of Equity}}{\text{MV of firm}}[/tex]
[tex]= \frac{344400000}{467000000}\\\\=0.7375[/tex]
[tex]\text{Weight of debt W(D)}= \frac{\text{MV of Bond}}{\text{MV of firm}}[/tex]
[tex]= \frac{122600000}{467000000}\\\\=0.2625[/tex]
Equity charges
By DDM.
[tex]\text{Price = new dividend} \times \frac{(1 + \text{rate of growth})}{( \text{Equity expense-rate of growth)}}[/tex]
[tex]84 = 3.95 \times \frac{(1+0.05)}{(\text{Cost of equity}- 0.05)}\\\\84 = 3.95 \times \frac{(1.05)}{(\text{Cost of equity} - 0.05)}\\\\84 = \frac{4.1475}{ (\text{Cost of equity} - 0.05)}\\\\\text{Cost of equity} -0.05 = \frac{4.1475}{84}\\\\\text{Cost of equity} -0.05 = 0.049375\\\\\text{Cost of equity} = 0.049375 + 0.05\\\\\text{Cost of equity} = 0.099375 \\\\\text{Cost of equity} \% = 9.9375 \% \ \ \ or \ \ \ 9.94 \% \\\\[/tex]
Debt expenses
Bond1
[tex]K = N \times 2 \\\\[/tex]
[tex]Bond \ Price = \sum [ \frac{\text{(Semi Annual Coupon)}}{(1 + \frac{YTM}{2})^k}] + \frac{Par\ value}{(1 + \frac{YTM}{2})^{N \times 2}}[/tex]
[tex]k=1\\\\K =20 \times 2\\\\980 = \sum [ \frac {(5.1 \times \frac{1000}{200})}{(1 + \frac{YTM}{200})^k}] + \frac{1000}{(1 + \frac{YTM}{200})}^{20 \times 2}\\\\k=1\\\\\ YTM1 = 5.2628923903\\\\Bond2\\[/tex]
[tex]K = N \times 2[/tex]
[tex]Bond \ Price = \sum [ \frac{\text{(Semi Annual Coupon)}}{(1 + \frac{YTM}{2})^k}] + \frac{Par\ value}{(1 + \frac{YTM}{2})^{N \times 2}}[/tex]
[tex]k=1\\\\K =12 \times 2\\\\[/tex]
[tex]1080 =\sum [\frac{(5.6 \times \frac{1000}{200})}{(1 + \frac{YTM}{200})^k}] +\frac{1000}{(1 +\frac{YTM}{200})^{12 \times 2}} \\\\k=1\\\\YTM2 = 4.72\\\\[/tex]
[tex]\text{Company debt costs} = YTM1 times \frac{(MV \ bond1)}{(MV \ bond1+MV \ bond2)}+YTM2 \times \frac{(MV \ bond2)}{(MV \ bond2)}\\\\[/tex]
The cost of the debt for the company:
[tex]= 5.2628923903 \times \frac{(68600000)}{(68600000+54000000)}+4.72 \times \frac{(68600000)}{(68600000+54000000)}\\\\[/tex]
Business debt cost=[tex]5.02 \% \\\\[/tex]
after taxation cost of debt:
[tex]= \text{cost of debt} \times (1- tax \ rate)\\\\= 5.02 \times (1-0.21)\\\\= 3.9658\\\\[/tex]
[tex]WACC= \text{after debt charges} \times W(D)+equity cost \times W(E) \\\\[/tex]
[tex]=3.97 \times 0.2625+9.94 \times 0.7375 \\\\ =8.37 \% \\\\[/tex]
Sheridan Company sells radios for $50 per unit. The fixed costs are $445000 and the variable costs are 60% of the selling price. As a result of new automated equipment, it is anticipated that fixed costs will increase by $65000 and variable costs will be 50% of the selling price. The new break-even point in units is:
Answer:
Break-even point in units= 2,600
Explanation:
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
Fixed costs= $65,000
Contribution margin per unit= 50*0.5= $25
Break-even point in units= 65,000/25
Break-even point in units= 2,600
Nanjones Company manufactures a line of products distributed nationally through wholesalers. Presented below are planned manufacturing data for the year and actual data for November of the current year. The company applies overhead based on planned machine hours using a predetermined annual rate.
Planning Data
Annual November
Fixed manufacturing overhead $1,200,000 $100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 20,000
Data for November
Direct labor hours (actual) 4,200
Direct labor hours (plan based on output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead $101,200
Variable manufacturing overhead $214,000
The fixed overhead volume variance for November was
a. $1,200 unfavorable.
b. $5,000 favorable.
c. $5,000 unfavorable.
d. $10,000 favorable.
Answer:
Manufacturing overhead volume variance= $1,200 unfavorable
Explanation:
First, we need to calculate the predetermined overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Fixed Predetermined manufacturing overhead rate= 1,200,000/240,000
Fixed Predetermined manufacturing overhead rate= $5 per machine hour
Now, to calculate the fixed manufacturing overhead volume variance, we need to use the following formula:
Manufacturing overhead volume variance = Actual Factory Overhead - Budgeted Allowance Based on Standard Hours
Manufacturing overhead volume variance= (101,200) - (5*20,000)
Manufacturing overhead volume variance= $1,200 unfavorable
Post the journal entries to the T-accounts, using transaction dates as posting references in the ledger accounts.
Jul.
1. Yardley contributed $68,000 cash to the business in exchange for common stock.
5. Paid monthly rent on medical equipment, $510.
9. Paid $16,000 cash to purchase land to be used in operations.
10. Purchased office supplies on account, $1 ,600.
19. Borrowed $26,000 from the bank for business use.
22. Paid $1 , 100 on account.
28. The business received a bill for advertising in the daily newspaper to be paid in August, $250.
31. Revenues earned during the month included $6,300 cash and $5,300 on account.
31. Paid employees' salaries $1 ,900, office rent $1 ,400, and utilities $600. Record as a compound entry.
31. The business received $1 ,340 for medical screening services to be performed next month.
31. Paid cash dividends of $6,900.
Answer:
July 1. Yardley contributed $68,000 cash to the business in exchange for common stock.
Dr cash 68,000
Cr common stock 68,000
July 5. Paid monthly rent on medical equipment, $510.
Dr rent expense 510
Cr cash 510
July 9. Paid $16,000 cash to purchase land to be used in operations.
Dr land 16,000
Cr cash 16,000
July 10. Purchased office supplies on account, $1 ,600.
Dr office supplies 1,600
Cr accounts payable 1,600
July 19. Borrowed $26,000 from the bank for business use.
Dr cash 26,000
Cr notes payable 26,000
July 22. Paid $1,100 on account.
Dr accounts payable 1,100
Cr cash 1,100
July 28. The business received a bill for advertising in the daily newspaper to be paid in August, $250.
Dr advertising expense 250
Cr accounts payable 250
July 31. Revenues earned during the month included $6,300 cash and $5,300 on account.
Dr cash 6,300
Dr accounts receivable 5,300
Cr service revenue 11,600
July 31. Paid employees' salaries $1 ,900, office rent $1 ,400, and utilities $600. Record as a compound entry.
Dr wages expense 1,900
Dr rent expense 1,400
Dr utilities expense 600
Cr cash 3,900
July 31. The business received $1 ,340 for medical screening services to be performed next month.
Dr cash 1,340
Cr unearned revenue 1,340
July 31. Paid cash dividends of $6,900.
Dr dividends 6,900
Cr cash 6,900
cash
debit credit
July 1 68,000
July 5 510
July 9 16,000
July 19 26,000
July 22 1,100
July 31 6,300
July 31 3,900
July 31 1,340
July 31 6,900
101,640
accounts receivable
debit credit
July 31 5,300
office supplies
debit credit
July 10 1,600
land
debit credit
July 9 16,000
accounts payable
debit credit
July 10 1,600
July 22 1,100
July 28 250
750
unearned revenue
debit credit
July 31 1,340
notes payable
debit credit
July 19 26,000
common stock
debit credit
July 1 68,000
service revenue
debit credit
July 31 11,600
rent expense
debit credit
July 5 510
July 31 1,400
advertising expense
debit credit
July 28 250
wages expense
debit credit
July 31 1,900
utilities expense
debit credit
July 31 600
dividends
debit credit
July 31 6,900