Answer:
b. The stock market exhibits informational efficiency.
Explanation:
According to the efficient market hypothesis, it is believed that share prices reflect all information and consistent alpha generation is impossible. So, if Eleanor buys shares from an index fund, she believes shares are efficiently priced.
On the other hand, Darnell is buying under valued stocks with the hopes of earning a positive alpha
Assume that Firm ABC has revenues of $120,000 for both 2017 and 2018. It also has operating expenses of $40,000 for each of these years. In addition, Firm ABC accrues a loss and related liability of $10,000 for financial reporting purposes because of pending litigation. Firm ABC cannot deduct this amount for tax purposes until it pays the liability, expected in 2018. As a result, a deductible amount will occur in 2018 when Firm ABC settles the liability, causing taxable income to be lower than pretax financial information.
2017 2018
Revenues 120,000 120,000
Expenses 40,000 40,000
Litigation Loss 10,000
Pretax Financial Income 70,000 80,000
Income Tax Expense (40%) 28,000 32,000
2017 2018
Revenues 120,000 120,000
Expenses 40,000 40,000
Litigation Loss 10,000
Taxable Income 80,000 70,000
Income Tax Expense (40%) 32,000 28,000
Q1) Journalize the entry at 12/31/2017 to record income tax expense, deferred tax asset, and income taxes payable:
Q2) Journalize the entry at 12/31/2018 to record income tax expense, deferred tax asset, and income taxes payable:
Answer:
1) deferred tax asset = 4000
2) deffered tax Liability = 4000
Explanation:
1) Journalizing entry at 12/31/2017
deferred tax asset = tax ( per income tax) - tax ( per book tax )
= 32000 - 28000 = 4000
Journal Entry made for Income tax and deferred tax asset)
Account Debit Credit
Income Tax Expense 28000
Deffered Tax Asset 4000
Income Tax Payable 32000
2) Journalizing entry at 12/31/2018
Deffered tax Liability = Tax (per book) - Tax ( Income tax )
deffered tax Liability = 32000 - 28000 = 4000
Journal Entry made for Income tax and deffered tax liability
Account Debit Credit
Income Tax Expense 32000
To Deffered Tax Liability 4000
To Income Tax Payable 28000
SNC is considering an opportunity to add a large customer, Midwest Miracles, a recently launched weight-loss center that is in a precarious financial situation because its entrepreneurial founder took on a significant debt burden. Acquiring Midwest Miracles would allow SNC to increase sales by 30% in 2019. Some analysts have forecasted a 20% probability that Midwest Miracles will declare bankruptcy, and they estimate a recovery rate for suppliers of 50%. Midwest Miracles would be willing to pay significantly higher prices for SNC's products, which can increase the EBIT margin of the whole company by almost 1%. However, Midwest Miracles is likely to take a longer-than-average time to pay its invoices. Therefore, SNC's DSO is likely to increase significantly. What would you like to do about this opportunity?
2019 2020 2021
Incrementa Income ($ in thousands)
Summary Statement
Change in Sales $8,439 $8,439 $8,439
Change in Cost of Sales $7,523 $7,523 $7,523
Change in EBIT $916 $916 $916
Incremental Balance Sheet
($ in thousands)
Change in Accounts
Receivable $4,309 $4,309 $4,309
Change in Inventories $1,907 $1,907 $1,907
Change in Accounts Payable $817 $817 $817
Answer:
Even without calculating any extra costs related to the long collection time of Midwest Miracles's invoices, the expected value of selling products to them is negative. This means that if SNC sells products to Midwest, they should expect to lose money. That doesn't make any sense at all, therefore, SNC should not take this opportunity.
The reason why Midwest Miracles is willing to pay a higher price than other retailers is simple, they are desperate. They will do anything to try to save themselves, even if it means hurting other companies if they fail to do so.
The reason why a good credit score lowers interest rates, while a terrible credit score means that no bank will lend you any money is simply, businesses are risk averse. That is why no bank lends any money to Donald Trump. He has filed for bankruptcy so many times that no bank will risk lending money to him.
Angel investors take this type of risks, but if they are successful, a $200,000 investment may result in a $10 billion gain. In this case, you have to choose between losing a lot of money and earning a much smaller amount. Accepting this type of clients will soon make SNC file for bankruptcy itself.
Explanation:
If Midwest Miracles declares bankruptcy, then SNC will lose $8,439,000 x 50% (recovery rate for suppliers) = $4,219,500. If it doesn't declare bankruptcy, then SNC will make additional profits of $916,000 per year.
We must determine the expected value of MW's operation:
expected value = (-$4,219,500 x 20%) + ($916,000 x 80%) = -$843,900 + $732,800 = -$111,100
Life, Inc., experienced the following events in 2018, its first year of operation.
1. Performed counseling services for $22,000 cash.
2. On February 1, 2018, paid $18,000 cash to rent office space for the coming year
3. Adjusted the accounts to reflect the amount of rent used during the year.
Required:
Based on this information alone:
A. Record the events under an accounting equation.
B. Prepare an income statement, balance sheet, and statement of cash flows for the 2016 accounting period.
C. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2017?
Answer:
Life, Inc.
A. Recording the events under the accounting equation:
Debit Cash Account (Assets) $22,000
Credit Service Revenue (Equity) $22,000
To record the receipt of cash for counseling services performed.
Debit Prepaid Rent (Assets) $18,000
Credit Cash Account (Assets) $18,000
To record the payment of cash for office space.
Debit Rent Expense (Equity) $16,500
Credit Prepaid Rent (Assets) $16,500
To record the rent expense for the year.
B. Life, Inc. Income Statement for the year ended December 31, 2018:
Service Revenue $22,000
Rent expense 16,500
Net Income $5,500
C. The amount of rent expense to be recognized in 2019 is $18,000.
Explanation:
a) Data and Calculations:
Service Revenue = $22,000
Prepaid Rent = $18,000 (from February 1, 2018 to January 31, 2019)
Rent Expense for 2018 = $16,500 ($18,000 * 11/12)
b) The accounting equation is Assets = Liabilities + Equity. The equation shows that every business transaction affects the assets, liabilities, and equity. This is why it is always in balance with every given transaction.
Zander Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In July the company completed job F21X that consisted of 29,850 units of one of the company's standard products. No other jobs were in process during the month. The job cost sheet for job F21X shows the following costs: Beginning balance $80,595 Direct materials $937,290 Direct labor cost $316,410 Manufacturing overhead cost applied $543,270 During the month, the actual manufacturing overhead cost incurred was $537,300 and 19,900 completed units from job F21X were sold. No other products were sold during the month. The unadjusted cost of goods sold (in other words, the cost of goods sold BEFORE adjustment for any underapplied or overapplied overhead) for July is closest to:_______.
Answer:
The answer is "$ 1,251,710".
Explanation:
Formula:[tex]\text{Overall cost for Job F21X completed during the month = } \\\text{Beginning balance + Direct materials + Direct labor + Manufacturing overhead applied }[/tex]
[tex]= \$ 80,595 + \$ 937,290 +\$ 316,410 + \$ 543,270 \\\\= \$ 1,877,565[/tex]
Complete unit in Job = 29,850 units
Per unit cost units
[tex]= \$ 62.9[/tex] per unit
Sold units= 19,900 units
Sold goods cost [tex]= 19,900 \times \$ 62.9[/tex]
[tex]= \$ 1,251,710[/tex]
Yancey Productions is a film studio that uses a job-order costing system. The company’s direct materials consist of items such as costumes and props. Its direct labor includes each film’s actors, directors, and extras. The company’s overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates:
Direct labor-dollars to support all productions $8,000,000
Fixed overhead cost $4,800,000
Variable overhead cost per direct labor-dollar $0.05
Required:
1. Compute the pre-determined overhead rate.
2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs:
Direct materials $1,259,000
Direct labor cost $2,400,000
Compute the total job cost for this particular film.
Answer:
Yancey Productions
1. Predetermined overhead rate = $0.65
2. Computation of the total job cost for "You Can Say That Again:"
Direct materials $1,259,000
Direct labor cost $2,400,000
Overhead cost $1,560,000 ($0.65 * $2,400,000)
Total job cost = $5,219,000
Explanation:
a) Estimates:
Direct labor-dollars to support all productions $8,000,000
Fixed overhead cost $4,800,000
Variable overhead cost per direct labor-dollar $0.05
b) Computation of total estimated overhead costs:
Fixed overhead cost = $4,800,000
Variable overhead = 400,000 ($0.05 * $8,000,000 )
Total overhead cost = $5,200,000
c) Computation of predetermined overhead rate:
Predetermined overhead rate = Estimated overhead costs divided by direct labor-dollars
= $5,200,000/$8,000,000
= $0.65
Nike, Inc., with headquarters in Beaverton, Oregon, is one of the world's leading manufacturers of athletic shoes and sports apparel. The following activities occurred during a recent year. The amounts are rounded to millions a. Purchased additional buildings for $172 and equipment for $270; paid $432 in cash and signed a long-term note for the rest. b. Issued 100 shares of $2 par value common stock for $345 cash. c. Declared $145 in dividends to be paid in the following year. d. Purchased additional short-term investments for $7,616 cash. e. Several Nike investors sold their own stock to other investors on the stock exchange for $84 f. Sold $4,313 in short-term investments for $4,313 in cash. Required: For each of the events (a) through (), perform transaction analysis and indicate the account, amount, and direction of the effect +for increase and - for decrease) on the accounting equation. Check that the accounting equation remains in balance after each transaction. (If no impact on the accounting equation leave cells blank. Enter your answers in millions.)
Answer:
Nike, Inc.
Transaction Analysis and Indication of the account, amount, and direction of the effect on the accounting equation:
a. Purchased additional buildings for $172 and equipment for $270; paid $432 in cash and signed a long-term note for the rest.
Analysis:
Accounts affected: Building, Equipment, Cash, and Long-term Note Payable
Assets (Building +$172,000,000, Equipment + $270,000,000, Cash -$432,000,000) = Liabilities (Long-term Note Payable + $10,000,000) + Equity
Check: Assets +$10,000,000 = Liabilities + $10,000,000 + Equity
b. Issued 100 shares of $2 par value common stock for $345 cash.
Analysis:
Accounts Affected: Common Stock, Additional Paid-in Capital (APIC), and Cash
Assets (Cash +$345,000,000) = Liabilities + Equity (Common Stock +$200,000,000 and APIC +$145,000,000)
Check: Assets +$345,000,000 = Liabilities + Equity +$345,000,000
c. Declared $145,000,000 in dividends to be paid in the following year.
Analysis:
Accounts affected: Dividends Payable and Dividends (Retained Earnings)
Assets = Liabilities (Dividends Payable + $145,000,000) + Equity (Retained Earnings - $145,000,000
Check: Assets = Liabilities -$145,000,000 + Equity - $145,000,000
d. Purchased additional short-term investments for $7,616,000,000 cash.
Analysis:
Accounts Affected: Short-term Investments and Cash
Assets(Short-term Investments + $7,616,000,000, Cash -$7,616,000,000) = Liabilities + Equity
Check: Assets = Liabilities + Equity
e. Several Nike investors sold their own stock to other investors on the stock exchange for $84
No impact on the accounting equation.
f. Sold $4,313 in short-term investments for $4,313 in cash.
Analysis:
Accounts Affected: Short-term Investments and Cash
Assets(Short-term Investments - $4,313,000,000, Cash +$4,313,000,000) = Liabilities + Equity
Check: Assets = Liabilities + Equity
Explanation:
In Nike's financial records, the accounting equation is the basis for the double-entry system of accounting. It shows that the two sides of the financial position of Nike, Inc. are always in balance with the assets = liabilities + equity with the occurrence of each business transaction. This is because, two or more accounts are always involved and affect equally the two sides if proper accounting has been carried out.
Sultan Company uses an activity-based costing system. At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools:_____.
Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity Labor-related Direct labor-hours $ 269,100 29,900 DLHs Purchase orders Number of orders $ 11,000 220 orders Parts management Number of part types $ 78,440 106 part types Board etching Number of boards $ 85,050 1,890 boards General factory Machine-hours $ 242,400 20,200 MHs
Required:
1. Compute the activity rate for each of the activity cost pools.
2. The expected activity for the year was distributed among the company’s four products as follows:_________.
Expected Activity Activity Cost Pool Product A Product B Product C Product D Labor-related (DLHs) 7,500 13,400 3,800 5,200 Purchase orders (orders) 66 30 32 92 Parts management (part types) 29 19 47 11 Board etching (boards) 580 750 560 0 General factory (MHs) 2,600 7,300 3,700 6,600 Using the ABC data, determine the total amount of overhead cost assigned to each product.
Answer:
Activity Activity Expected Expected
cost pool measure overhead cost activity
Labor-related Direct labor-hours $269,100 29,900 DLHs
Purchase orders Number of orders $11,000 220 orders
Parts management # of part types $78,440 106 part types
Board etching # of boards $85,050 1,890 boards
General factory Machine-hours $242,400 20,200 MHs
1) cost per direct labor hour = $269,100 / 29,900 = $9
cost per order = $11,000 / 220 = $50
cost per number of parts = $78,440 / 106 = $740
cost per # of boards = $85,050 / 1,890 = $45
cost per machine hour = $242,400 / 20,200 = $12
Expected Activity
Activity Cost Pool Product A Product B Product C Product D
Labor-related (DLHs) 7,500 13,400 3,800 5,200
Purchase orders (orders) 66 30 32 92
Parts management 29 19 47 11
Board etching (boards) 580 750 560 0
General factory (MHs) 2,600 7,300 3,700 6,600
2) Using the ABC data, determine the total amount of overhead cost assigned to each product.
overhead cost assign to product A = ($9 x 7,500) + ($50 x 66) + ($740 x 29) + ($45 x 580) + ($12 x 2,600) = $149,560
overhead cost assign to product B = ($9 x 13,400) + ($50 x 30) + ($740 x 19) + ($45 x 750) + ($12 x 7,300) = $257,510
overhead cost assign to product C = ($9 x 3,800) + ($50 x 32) + ($740 x 47) + ($45 x 560) + ($12 x 3,700) = $140,180
overhead cost assign to product D = ($9 x 5,200) + ($50 x 92) + ($740 x 11) + ($45 x 0) + ($12 x 6,600) = $138,740
On January 1, Merry Walker and other stockholders established a catering service. Listed below are accounts to use for transactions (a) through (f), each identified by a number. Following this list are the transactions that occurred in Walker’s first month of operations. You are to indicate for each transaction the accounts that should be debited and credited by placing the account number(s) in the appropriate box.1. Cash2. Accounts Receivable3. Supplies4. Prepaid Insurance5. Equipment6. Truck7. Notes Payable8. Accounts Payable9. Common Stock10.Dividends11.Fees Earned12.Wages Expense13.Rent Expense14.Utilities Expense15.Truck Expense16.Miscellaneous Expense17.Insurance Expense TransactionsAccount(s) DebitedAccount(s) Crediteda. Recorded jobs completed on account and sent invoices to customers. b. Received an invoice for truck expenses to be paid in February. c. Paid utilities expense d. Received cash from customers on account. e. Paid employee wages. f. Paid dividends to stockholders. What will be an ideal response?
Answer with Explanation:
Part A. Recorded jobs completed on account and sent Invoices to customers
The entry would include the recognition of revenue earned and thus this would be increase in Fees Earned account which will be credited. The amount is yet not paid which means that the Accounts Receivable account will be debited with an equal amount.
Dr Accounts receivable a/c
Cr Fees Earned a/c
Part B. Received an invoice for truck expense to be paid in February
The truck expense would related to repair and maintenance of truck which is on credit. This would be recorded as increase in Truck expenses a/c which would be debited and increase in Accounts payables a/c which must be credited.
Dr Truck expense a/c
Cr Accounts payable a/c
Part C. Paid utilities expense.
The entry would be increase an increase in the utility expense account which would be debited and the cash paid would be credited because there is a decrease in cash due to payment.
Dr Utilities a/c
Cr Cash a/c
Part D. Received cash from customers on account.
The receipt of cash asset is increase in asset and must be debited and the accounts receivables must credited because the debt paid to the customer has be decreased.
Dr Cash a/c
Cr Accounts Receivable a/c
Part E. Paid employee wages.
The wages paid is an expense and thus wage expense account must be debited. The wages are paid in cash which means there is a decrease in cash asset which must be credited.
Dr Wages Expense a/c
Cr Cash a/c
Part F. Paid dividends to stockholders.
The dividends are paid out of retained earnings and are debit in nature so this means that it is an increase in dividends which must be debited. On the other hand, decrease in cash must be credited.
Dr Dividends a/c
Cr Cash a/c
Assume that you are a high-level manager for a shoe manufacturer. You know that your firm could increase its profit margin by producing shoes in Indonesia, where you could hire women for $100 a month to assemble them. You also know that human rights advocates recently accused a competing shoe manufacturer of engaging in exploitative labor practices because the manufacturer sold shoes made by Indonesian women for similarly low wages. You personally do not believe that paying $100 a month to Indonesian women is unethical because you know that in their country, $100 a month is a better-than-average wage rate.
Write 1-2 paragraphs explaining whether you would have the shoes manufactured in Indonesia and make higher profits for the company or avoid the risk of negative publicity and its potential adverse consequences for the firm's reputation. Are there other alternatives? Consider the impact of the route you choose and short-term vs. long-term profits, as well as the ethical decision making criteria.
Answer:
The issue here is that you need to balance your company's profits and possible negative due to bad press.
On one side (the good and righteous side), if you do not produce shoes in Asia, your long term survival economic is doubtful, but people view your company as a company that does the right thing no matter what. Will it increase sales? Theoretically it should, but in practice it doesn't. Are Nike sales hurt because each shoe is produced in an Asian country that pays $0.25 per day? No, they aren't. The same applies to Reebok, Adidas, Puma, New Balance and every single major shoe manufacturer in the world. Bad press hurt tuna back in the 80's, but some companies are not affected by it.
The alternative (the evil, dark side of the force side) results in your company being able to survive on the long term. It will not necessarily mean that your company will grow and become the world's largest shoe manufacturer, but you will be able to survive and continue to operate.
There is also a trick that you can use to avoid reputational damage and bad press, and that is to establish a foreign subsidiary in Indonesia using a different name. Then your foreign subsidiary sells you the manufactured goods, and the blame fall son the subsidiary. Believe it or not, that simple solution is used by most corporations including clothing manufacturers, electronics, toys, etc.
If you analyze this from an ethical point of view, the alternative is much simpler. Producing in Indonesia (or India, or Burma, or Pakistan, or Vietnam, etc.) and paying a $100 salary will allow a family to live a very decent life and probably even prosper. They will have a much better lifestyle than the rest of their neighborhood. Each Indonesian worker represents one less poor family in Indonesia. On the other hand, American families will probably get hurt, but it is also much easier for an American worker to get another job that pays a normal wage (in US standards) and allows them to live well.
Business ethics applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organization.
What is business ethics?Business ethics is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment.
If you analyze this from a business ethics point of view, something else is much simpler. Producing in Indonesia (or India, Burma, Pakistan, Vietnam, etc.) and paying a $ 100 salary will allow the family to live a dignified and possibly successful life.
They will have the best way of life possible. Each Indonesian worker represents one of the poorest families in Indonesia.
On the other hand, American families are more likely to be harmed, but it is also much easier for an American worker to find another job that pays the normal wage (according to US standards) and allows us to live a normal life.
Hence, this is the right approach to following ethics in business wherein the business focuses on the right path for its growth and survival in the market. Paying $100 to Indonesian workers and producing the shoes will give them a stable life to lead.
To learn more about business ethics, refer:
https://brainly.com/question/8594181
Ontario Resources, a natural energy supplier, borrowed $79.0 million cash on November 1, 2021, to fund a geological survey. The loan was made by Quebec Banque under a short-term financing arrangement. Ontario Resources issued a 6-month, 12% promissory note with interest payable at maturity. Ontario Resources' fiscal period is the calendar year. Required: 1. Prepare the journal entry for the issuance of the note by Ontario Resources. 2. Prepare the appropriate adjusting entry for the note by Ontario Resources on December 31, 2021 and journal entry for the payment of the note at maturity.
Answer:
1. Nov 1, 2021
Dr Cash 79,000,000
Cr Note payable 79,000,000
2. Dec 31, 2021
Dr Interest expense 1,580,000
Cr Interest payable 1,580,000
3. May 1, 2022
Dr Note payable 79,000,000
Dr Interest payable 1,580,000
Dr Interest expense 3,160,000
Cr Cash 83,740,000
Explanation:
1. Preparation of the journal entry for the issuance of the note
Nov 1, 2021
Dr Cash 79,000,000
Cr Note payable 79,000,000
(To record issue of note)
2. Preparation of the appropriate adjusting entry for the note
Dec 31, 2021
Dr Interest expense 1,580,000
Cr Interest payable 1,580,000
(79,000,000 x 12% x 2/12)
(To record interest expense at year end)
3. Preparation of journal entry for the payment of the note at maturity.
May 1, 2022
Dr Note payable 79,000,000
Dr Interest payable 1,580,000
(79,000,000 x 12% x 2/12)
Dr Interest expense 3,160,000
(79,000,000 x 12% x 4/12)
Cr Cash 83,740,000
(79,000,000+1,580,000+3,160,000)
(To record payment of note at maturity)
Complete the Year 2 income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.
Blue Hamster Manufacturing Inc Income Statement for Year Ending December 31
Year 1 Year 2
Net sales $15,000,000
Less: Operating costs, except depreciation and amortization 9,000,000
Less: Depreciation and amortization expenses 600,000 600,000
Operating income (or EBIT) $5,400,000
Less: Interest expense 540,000
Pre-tax income (or EBT) 4,860,000
Less: Taxes (25%) 1,215,000
Earnings after taxes $3,645,000
Less: Preferred stock dividends 100,000
Earnings available to common shareholders 3,545,000
Less: Common stock dividends 1,458,000
Contribution to retained earnings $2,087,000 $2,539,250
Consider the following scenario:
1. Blue Hamster Manufacturing 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, Blue Hamster 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 60% 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, Blue Hamster expects to pay $100,000 and $1,407,600 of preferred and common stock dividends, respectively.
Answer:
Year 2 Net = $18,750,000
Year 2 Operating costs, except depreciation and amortization = $11,250,000
Year 2 Operating Income/EBIT = $6,900,000
Year 2 Interest expense = $1,035,000
Year 2 Pre-tax income/EBT = $5,865,000
Year 2 Taxes = $2,346,000
Year 2 Earnings After taxes = $3,519,000
Year 2 Earnings available to common shareholders = $3,419,000
Year 2 Contribution to retained earnings = $2,011,400
Explanation:
Note: The data in this question are merged together and there are also some errors in the question. The complete correct question with sorted data are therefore provided before answering the question. See the attached pdf file for the complete correct question with the sorted data.
Also note: See the attached excel file for the complete Year 2 income statement data in bold red color.
Based on the information provided in the question, the following calculations are used in the attached excel file for year 2:
Year 2 Net Sales = Year 1 Net sales + (Year 1 Net Sales * Percentage increase in sales in year 2) = $15,000,000 + ($15,000,000 * 25%) = $15,000,000 + $3,750,000 = $18,750,000
Year 2 Operating costs, except depreciation and amortization = 60% * Year 2 net sales = 60% * $18,750,000 = $11,250,000
Year 2 Operating Income/EBIT = Net Sales - Year 2 Operating costs, except depreciation and amortization - Year 2 Depreciation and amortization expenses = $18,750,000 - $11,250,000 - $600,000 = $6,900,000
Year 2 Interest expense = 15% * Year 2 earnings before interest and taxes (EBIT) = 15% * $6,900,000 = $1,035,000
Year 2 Pre-tax income/EBT = Operating Income/EBIT - Interest expense = $6,900,000 - $1,035,000 = $5,865,000
Year 2 Taxes = 40% * Year 2 Pre-tax income/EBT = 40% * $5,865,000 = $2,346,000
Year 2 Earnings After taxes = Year 2 Pre-tax income/EBT - Year 2 Taxes = $5,865,000 - $2,346,000 = $3,519,000
Year 2 Earnings available to common shareholders = Year 2 Earnings After taxes – Year 2 Preferred Stock Dividends = $3,519,000 - 100,000 = $3,419,000
Year 2 Contribution to retained earnings = Year 2 Earnings available to common shareholders – Year 2 Common Stock dividends = $3,419,000 - $1,407,600 = $2,011,400
Pepper’s Pens uses the weighted average method of process costing for product costing. Pepper Potts, the owner, provides you the following information about the prior month’s production: August beginning WIP (40% complete with respect to conversion costs) 8,000 Units started in August 45,000 Units completed and transferred in August 52,000 Ending August WIP (70% complete with respect to conversion costs) 1,000 All direct materials are added at the beginning of the process. Conversion costs are added evenly throughout the process. Costs this period Beginning WIP Direct materials $463,500 $124,500 Conversion costs 247,500 24,200 Total manufacturing costs $ 711,000 $ 148,7001. How many units were started, completed and transferred out in August? How many were completed and transferred from beginning work-in-process in August? 2. Calculate the cost per equivalent unit for a. Direct materials b. Conversion costs 3. Calculate the direct materials and conversion costs assigned to units that were completed and transferred out in August, and those in ending WIP. 4. Tony Stark, a cost accountant in the company, has raised the concern that the FIFO method of process costing is not as informative about the changes in product costs as the weighted average method. Is Tony correct? Explain.
Answer:
1. How many units were started, completed and transferred out in August?
44,000 unitsHow many were completed and transferred from beginning work-in-process in August?
8,000 units2. Calculate the cost per equivalent unit for
a. Direct materials = $13.4151
b. Conversion costs = $2.8216
3. Calculate the direct materials and conversion costs assigned to units that were completed and transferred out in August, and those in ending WIP.
units completed = $844,309.77ending WIP = $15,390.234. Tony Stark, a cost accountant in the company, has raised the concern that the FIFO method of process costing is not as informative about the changes in product costs as the weighted average method. Is Tony correct? Explain.
Ironman is wrong, since FIFO costing method is more exact. Under FIFO, only costs incurred during the period are considered, while weighted average includes costs incurred in previous periods. Weighted average is simpler to calculate, and whether it's better or not depends on actual costs incurred. E.g. if your production schedule and costs are fairly stable, then any differences between both methods will be irrelevant. But if your production schedule or costs vary form month to month, then the differences between both methods will be significant.Explanation:
beginning WIP 8,000
100% complete for materials: $124,500
40% complete for conversion costs: $24,200
units started 45,000
units completed 52,000
ending WIP 1,000
100% complete for materials
70% complete for conversion costs
period costs:
Direct materials $463,500
Conversion costs $247,500
total manufacturing costs:
Direct materials $711,000
Conversion costs $148,700
EUP:
for materials 53,000
for conversion costs 52,700
cost per EUP:
Direct materials $711,000 / 53,000 = $13.4151
Conversion costs $148,700 / 52,700 = $2.8216
total cost assigned to finished units = [($711,000 / 53,000) x 52,000] + [($148,700 / 52,700) x 52,000] = $697,584.91 + $146,724.86 = $844,309.77
ending WIP = ($711,000 + $148,700) - $844,309.77 = $15,390.23
Walker & Co. (Walker) signed a written contract to lease a large neon advertising sign to Herbert Harrison, who is in the dry-cleaning business, for $148.50 a month. The contract stated that Walker, as the lessor of the sign, would "at its expense maintain and service the sign [and would perform] cleaning and repainting of sign in original color scheme as often as deemed necessary by lessor to keep sign in first-class advertising condition and make all necessary repairs to sign and equipment installed by lessor." A few weeks the sign was installed, someone hit the sign with a tomato and "little spider cobwebs" appeared in the sign's corners. Harrison repeatedly asked Walker to fix the sign, but Walker did not do so. As a result, Harrison made no further payments and Walker sued Harrison for remainder of the lease payments pursuant to the contract's terms. Did Walker make a material breach of the contract?
Answer:
I believe that Walter breached the contract because they failed to clean the sign, but I wouldn't consider it a material breach (this would be a non-material breach).
A material breach of a contract takes place when the breaching party does something (or fails to do something) that goes against the basic reason why the contract was signed. A material breach would be that Walter didn't provide the sign or that the sign never worked (didn't turn on). But in this case, the sign was a little bit dirty with little spider cobwebs appearing at its corners.
Walter broke the contract by failing to wipe the sign, but it wasn't a material breach in my opinion (this would be a non-material breach).
When a breaching party does anything (or fails to do something) that goes against the core reason for the contract's signing, it is called a substantial breach of contract.
About material breach:
A material breach would be if Walter failed to give the sign or if the sign was never turned on. However, the sign was a little dusty in this case, with small spider cobwebs emerging at its corners.
For example, if you hired a contractor to build a house, a substantial breach would be if the contractor failed to complete the project.
For more information about material breach refer to the link:
https://brainly.com/question/14318546
Selected data for Kris Corporation’s comparative balance sheets for Year 1 and Year 2 are as follows:
Year 1 Year 2
Assets
Cash $100,000 $(50,000 )
Accounts receivable (net) 50,000 100,000
Inventory 100,000 250,000
Equipment (net) 300,000 350,000
Total assets $550,000 $650,000
Liabilities and Equity Accounts payable $150,000 $100,000
Income taxes payable 80,000 30,000
Bonds payable 100,000 80,000
Common stock 100,000 200,000
Retained earnings 120,000 240,000
Total liabilities and Equity $550,000 $650,000
Using the indirect method to create the operating activities section of the statement of cash flows, the cash flow from accounts receivable would be recorded as:__________
a. a decrease of $50,000 under investing activities.
b. an increase of $50,000 under investing activities.
c. a decrease of $150,000 under investing activities.
d. an increase of $150,000 under operating activities.
Answer:
Correct option : c. a decrease of $150,000
Explanation:
Based on the information given in Year 1 inventory shows the amount of $100,000 while the inventory in Year 2 shows the amount of $250,000 which simply means that inventory that is purchased is higher than the inventory that is sold which will inturn lead to outflow of cash because cash is been paid , hence cash will decreased by the amount of $150,000($100,000-$250,000).
Therefore the cash flow from accounts receivable would be recorded as:a decrease of $150,000
What is the PV of an ordinary annuity with 7 annual payments of $10,000 each if the appropriate annual interest rate is 5%?
Answer:
PV= $57,8563.73
Explanation:
Giving the following information:
Number of periods= 7 years
Annual cash flow= $10,000
Interest rate= 5%
First, we need to calculate future value:
FV= {A*[(1+i)^n-1]}/i
A= annual cash flow
FV= {10,000*[(1.05^7) - 1]} / 0.05
FV= $81,420.08
Now, the present value:
PV= FV/(1+i)^n
PV= 81,420.08/1.05^7
PV= $57,8563.73
Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2019. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2019. a. The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $2,000. b. Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend. c. Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year. d. Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes. e. None of these choices are correct.
Answer:
Correct option :a. The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $2,000.
Explanation:
Based on the information given we were told Darryl gave 1,000 shares of stock to his daughter in the month of September 29, 2019 in which Darryl daughter also received the amount of $2,000 dividend on October 18 of the same year which means that Darryl daughter have to recognize the income reason been that the daughter owned the common stock when the dividend was been declared and she as well received the amount of $2,000.
An investment will pay you $80,000 in 10 years. If the appropriate discount rate is 9 percent compounded daily, what is the present value? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer:
PV= $32,125.20
Explanation:
Giving the following information:
Future Value= $80,000
Number of periods= 10*365= 3,650
Interest rate= 0.09/365= 0.00025
To calculate the present value, we need to use the following formula:
PV= FV/(1+i)^n
PV= 80,000 / (1.00025^3,650)
PV= $32,125.20
Countries with democratic regimes, market-based economic policies, and strong protection of property rights are more likely to attain high and sustained economic growth rates and are thus a more attractive location for international business. The benefits, costs, and risks are associated with the political, economic, and legal systems of the country. The overall attractiveness of a country depends on balancing the benefits, costs, and risks.
Roll over each item on the left for a detailed description. Then, drag each item to the appropriate category of evaluations a manager must make when examining a country's attractiveness.
1. Middle-class population growth potential
2. First-mover advantages
3. Unaxpestec political change
4. Infrastructure issuos
5. Resolving contract disputes
6. Bribe payments
7. Free market economy
8. Economio uncertainty
A. Evaluate Benefits
B. Evaluate Costs
C. Evaluate Risks
Answer:
Explanation:
There are different categories of evaluations a manager must make when examining a country's attractiveness such as Evaluation of Benefits, Evaluation of Costs and Evaluation of Risks. All these evaluation are necessary for high and sustained economic growth rates as well as means of attraction for location for international business for countries with market-based economic policies.
Cost evaluation provide insight on the total cost of the project.
Each of the given item are positioned below to the appropriate category of evaluations a manager must make when examining a country's attractiveness.
A. Evaluate Benefits
1. Middle-class population growth potential
2. First-mover advantages
7. Free market economy
B. Evaluate Costs
4. Infrastructure issues
5. Resolving contract disputes
6. Bribe payments
C. Evaluate Risks
3. Unaxpestec political change
8. economic uncertainty
Suppose that, in a competitive market without government regulations, the equilibrium price of donuts is $1.50 each. Complete the following by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.
a. The government has instituted a legal minimum price of $1.80 each for donuts.
b. Due to new regulations, donut shops that would like to pay better wages in order to hire more workers are prohibited from doing so.
c. The government prohibits donut shops from selling donuts for more than $1.10 each.
Answer:
Option A is a price floor, option B is binding and option C is price ceiling.
Explanation:
It is stated that the equilibrium price of a donut is $1.50.
If the government institutes a legal minimum price of $1.80 for a donut, that would be an example of price floor because the price cannot be lower than that. $1.80 is higher than $1.50 so it serves a purpose.
Option B is binding since any donut shop that wants to pay better wages is prohibited from hiring more workers.
The government prohibiting donut shops from selling a donut for more than $1.10 is an example of floor ceiling because the price can not go higher than $1.10.
I hope this answer helps.
Suppose that a firm has both fixed-rate and floating-rate debt outstanding. What effect will a decline in interest rates have on the firm's times-interest-earned ratio
Answer and Explanation:
The times interest earned ratio refers to the ration that shows a relationship between the earnings before interest and taxes and the interest payments. In the case when the rate of interest declines so the interest payment would also be reduced that result in an increment of the times earned ratio keeping the EBIT unchanged.
This represents that the company has the good capacity to coverup the interest payments
Accounting records for Corporation yield the following data for the year ended , (assume sales returns are non-existent):
Inventory, June 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
Purchases of inventory (on account) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57,000
Sales of inventory – 84% on account; 16% for cash (cost $43,000) . . . .92,000
Inventory at FIFO, June 30, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,000
Requirement:
Journalize inventory transactions for the year under the perpetual system.
Answer:
Follows are the Journalize inventory transactions to this question:
Explanation:
accounts names debit credit
The stock of Merchandise 57000
Accounts due 57000
Account purchase of stock
Goods for sale cost 43000
The stock of Merchandise 43000
Price of products sold during the year
Cash 14720
Receivable accounts 77280
Sales 92000
Goods Revenue
No inventory closing entry required
Suppose you’ll have an annual nominal income of $65,000 for each of the next three years, and the inflation rate is 5 percent per year.
Required:
a. Find the real value of your $65,000 salary for each of the next three years.
b. If you have a COLA in your contract, and the inflation rate is 5 percent per year, what is the real value of your salary of 70.000 for each year?
Answer:
a) real income in one year = $65,000/1.05 = $61,904.76
real income in two year = $65,000/1.05² = $58,956.92
real income in three year = $65,000/1.05³ = $56,149.44
b) if you have a COLA agreement, then your salary will adjust to inflation. This means that your real salary will remain the same during the 3 years = $70,000 per year.
In this case, your nominal salary will increase by 5% each year, but your salary will remain equal.
Hassan, an undocumented worker employed by Robco Warehouse, is routinely harassed because of his Middle Eastern ancestry. His supervisors and co-workers often refer to him as a terrorist and call him "Taliban." He complains to the management about the harassment and after a few days, his supervisor conducts an investigation and finds out that Hassan is an illegal alien. This information is relayed to the Immigration and Naturalization Service (INS). Which of the following is the Equal Employment Opportunity Commission (EEOC) most likely to conclude? a) Hassan does not have a claim of discrimination because the Fair Labor Standards Act does not protect undocumented workers from abuse. b) Hassan has a claim of discrimination because the Immigration Reform and Control Act does not allow discrimination in favor of U.S. citizens as against illegal aliens. c) Robco Warehouse will be liable if the company acquired information on Hassan's status through a retaliatory investigation. d) Robco Warehouse is not liable because the Immigration Reform and Control Act does not prohibit discrimination on the basis of citizenship under any circumstances.
Answer: c) Robco Warehouse will be liable if the company acquired information on Hassan's status through a retaliatory investigation.
Explanation:
Title VII of the Civil Rights Act of 1964 protects workers from being retaliated against if they report discrimination that they are going through and as this is a Federal law on discrimination, it covers undocumented immigrants as well.
Hassan complained to management about his supervisors and co-workers calling him a terrorist and his supervisors launched an investigation and when they found out he was undocumented, reported him to the INS.
If the EEOC finds out that they reported him in retaliation, Robco Warehouse would be liable under Title VII of the Civil Rights Act.
1. Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry expenses for the uniforms were $175 for this year, plus $65 for altering them. Brandy works as a drill press operator and wears jeans and a work shirt on the job, which cost $175 this year. Her laundry costs were $50 for the work clothes. Brandy is also required by state regulators to wear safety glasses and safety shoes when working, which cost a total of $115. How much is their total deduction on their Schedule Cs for special clothing and uniforms?
2. Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry expenses for the uniforms were $175 for this year, plus $65 for altering them. Brandy works as a drill press operator and wears jeans and a work shirt on the job, which cost $175 this year. Her laundry costs were $50 for the work clothes. Brandy is also required by state regulators to wear safety glasses and safety shoes when working, which cost a total of $115. How much is their total deduction on their Schedule Cs for special clothing and uniforms?
Answer:
the total deductions on their schedule Cs for special clothing and uniforms is $750
Explanation:
Now you have to know that Brandy's jeans and her laundry cannot be deductible. if her shirt is to be deductible,then it should have the id of the company on it. But we are told that they are just regular work wears.
the calculations are as follows:-
cooper's uniform through the year = $395
cooper's laundry = $175
cooper's altering allowances = $65
Brandy's safety glasses and shoes when working = $115
summing these up
395 + 175 + 65 + 115
= $750
the total deductions on schedule Cs is $750
note:
note:the second question you posted is the same as the first. so the answer is the same
Ian loaned his friend $25,000 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 9% 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 9% on his investment.
Required:
Calculate the annual payment.
Answer: $7,716.76
Explanation:
Ian's friend will have to pay a specific annual payment per year so this is an annuity.
The $25,000 is the present value of the payments.
25,000 = Annuity * Present Value interest factor of Annuity, 9%, 4 years
25,000 = Annuity * 3.2397
Annuity = 25,000/3.2397
= $7,716.76
The following is a condensed version of the comparative balance sheets for Sheffield Corporation for the last two years at December 31.
2020 2019
Cash $265,500 $117,000
Accounts receivable 270,000 277,500
Investments 78,0001 11,000
Equipment 447,000 360,000
Accumulated Depreciation-Equipment (159,000) (133,500)
Current liabilities 201,000 226,500
Common stock 240,000 240,000
Retained earnings 460,500 265,500
Additional information:
a. Net income for 2022 was $55,800.
b. Depreciation expense was $20,400.
c.Cash dividends of $23,400 were declared and paid.
d. Bonds payable amounting to $30,000 were redeemed for cash $30,000.
e. Common stock was issued for $25,200 cash.
f. No equipment was sold during 2022.
g. Land was sold for its book value.
Required:
Prepare a statement of cash flows for 2020 using the indirect method.
Answer:
Sheffield Corporation
Statement of Cash Flows
For the year ended December 31, 2020
Net Income $55,800
Non-cash expense:
Depreciation 20,400
Net Cash from operation $35,400
Working capital changes:
Accounts receivable 7,500
Current liabilities (25,500)
Net cash from operating activities $17,400
Investing activities:
Investments 33,000
Financing activities:
Common Stock 25,200
Bonds payable (30,000)
Dividends (23,400) (28,200)
Net cash flows $22,200
Explanation:
a) Data and Calculations:
Sheffield Corporation
Comparative Balance Sheet
For the two years at December 31:
2020 2019 Inflow / outflow
Cash $265,500 $117,000
Accounts receivable 270,000 277,500 $7,500
Investments 78,000 111,000 33,000
Equipment 447,000 360,000
Accumulated Depreciation
-Equipment (159,000) (133,500)
Current liabilities 201,000 226,500 25,500
Common stock 240,000 240,000
Retained earnings 460,500 265,500
Answer the following questions based on the tables below.
Buyer Willingness to Pay for One Unit
A $35
B 33
C 27
D 22
E 21
F 13
G 13
H 12
I 6
Seller Willingness to Sell One Unit
A $4
B 9
C 12
D 14
E 15
F 21
G 23
H 30
I 51
Required:
a. The quantity demanded at a price of $10 is:_____________
b. The quantity supplied at a price of $10 is: _____________
c. The quantity demanded at a price of $25 is:_______________.
d. The quantity supplied at a price of $25 is: 7 units:__________
Answer:
8
2
3
7
Explanation:
The willingness to pay of a buyer is the highest amount a buyer is willing to purchase a product.
As long as the willingness to pay is greater than the price of a good, the buyer would purchase the item
The willingness to sell of a seller is the least amount a seller is willing to sell a product.
The seller would sell an item as long as the price of the good is greater than the willingness to sell of a seller.
When price is $10, the quantity demanded is - A, B. C. D. E. F. G. H . That is eight units
When price is $10, the quantity supplied is A, B That is 2 units
When price is $25, the quantity demanded is A, B. C That is 3 units
When price is $25, the quantity supplied is A, B. C. D. E. F. G. That is 7 units
Manta Ray Company manufactures diving masks with a variable cost of $25. The masks sell for $34. Budgeted fixed manufacturing overhead for the most recent year was $792,000. Actual production was equal to planned production.
Required: Under each of the following conditions, state (a) whether operating income is higher under variable or absorption costing and (b) the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.
1. Production ............................................... 110,000 units
Sales ........................................................ 108,000 units
2. Production ............................................... 90,000 units
Sales ........................................................ 95,000 units
3. Production ............................................... 79,200 units
Sales ........................................................ 79,200 units
Answer:
(First Case) Absorption cost income is higher by 14,200 dollars
(Second Case) variable costing income is higher by 44,000 dollars
(Third Case) they are equal as produciton = sales
Explanation:
the difference arises when production differs with sales.
that's because variable will consider the entire amount of fixed cost as cost of the period while, absorption will capitalizethe fixed cost through inventory. If production matches sales then in both cases the fixed cost are entire expressed in the income statement. If they don't the difference is the difference times unit fixed cost.
(First Case)
fixed cost per unit $792,000 / 110,000 = $7.2
difference (110,000 - 108,000) x $7.2 = $14,200
(Second Case)
fixed cost per unit: 792,000 / 110,000 = $8.8
difference (90,000 - 95,000) x $8.8 = $44,000
(Third Case)
They match thus, no difference arises.
Cortina Company accumulates the following adjustment data at December 31.
Indicate (1) the type of adjustment (prepaid expense, accrued revenue, and so on) and (2) the status of the accounts before adjustment (overstated or understated). (Enter your answers in alphabetical order.)
Item (1)
Type of Adjustment (2)
Accounts Before Adjustment
(a) Supplies of $400 are on hand. Supplies account shows $1,600 balance.
Entry field with correct answer Prepaid ExpensesAccrued RevenuesAccrued ExpensesUnearned Revenues
Entry field with incorrect answer now contains modified data Expenses UnderstatedLiabilities UnderstatedExpenses OverstatedRevenues OverstatedAssets UnderstatedAssets OverstatedRevenues UnderstatedLiabilities Overstated
Entry field with incorrect answer now contains modified data Revenues UnderstatedAssets UnderstatedLiabilities UnderstatedLiabilities OverstatedExpenses UnderstatedExpenses OverstatedAssets OverstatedRevenues Overstated
(b) Services performed but unbilled total $700.
Entry field with correct answer Unearned RevenuesAccrued ExpensesPrepaid ExpensesAccrued Revenues
Entry field with incorrect answer now contains modified data Assets UnderstatedAssets OverstatedLiabilities OverstatedExpenses UnderstatedExpenses OverstatedRevenues UnderstatedRevenues OverstatedLiabilities Understated
Entry field with correct answer Assets OverstatedExpenses OverstatedRevenues UnderstatedLiabilities UnderstatedLiabilities OverstatedAssets UnderstatedExpenses UnderstatedRevenues Overstated
(c) Interest of $300 has accumulated on a note payable.
Entry field with correct answer Prepaid ExpensesAccrued ExpensesAccrued RevenuesUnearned Revenues
Entry field with incorrect answer now contains modified data Assets UnderstatedExpenses UnderstatedRevenues OverstatedExpenses OverstatedLiabilities UnderstatedAssets OverstatedRevenues UnderstatedLiabilities Overstated
Entry field with correct answer Assets UnderstatedAssets OverstatedLiabilities UnderstatedRevenues UnderstatedLiabilities OverstatedRevenues OverstatedExpenses UnderstatedExpenses Overstated
(d) Rent collected in advance totaling $1,100 has been earned.
Entry field with correct answer Unearned RevenuesPrepaid ExpensesAccrued ExpensesAccrued Revenues
Entry field with incorrect answer now contains modified data Liabilities OverstatedAssets UnderstatedRevenues UnderstatedLiabilities UnderstatedRevenues OverstatedExpenses OverstatedExpenses UnderstatedAssets Overstated
Entry field with incorrect answer now contains modified data Expenses UnderstatedRevenues OverstatedLiabilities UnderstatedAssets UnderstatedExpenses OverstatedRevenues UnderstatedLiabilities OverstatedAssets Overstated
Answer:
(a) Supplies of $400 are on hand. Supplies account shows $1,600 balance.
Supplies (asset account) are overstated and supplies expense (expense account) is understated. Adjusting journal entry:
Dr Supplies expense 1,200
Cr Supplies 1,200
(b) Services performed but unbilled total $700.
Both service revenue (revenue account) and accounts receivable (asset account) are understated. Adjusting journal entry:
Dr Accounts receivable 700
Cr Service revenue 700
(c) Interest of $300 has accumulated on a note payable.
Interest expense (expense account) and interest payable (liability account) are both understated. Adjusting journal entry:
Dr Interest expense 300
Cr Interest payable 300
(d) Rent collected in advance totaling $1,100 has been earned.
Unearned revenue (liability account) is overstated, while rental revenue (revenue account) is understated. Adjusting journal entry:
Dr Unearned revenue 1,100
Dr Rental revenue 1,100
The balance sheet and income statement shown below are for Koski Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
Sheet (Millions of $) Assets 2007
Cash and securities $2,475
Accounts receivable 12,650
Inventories 17,600
Total current assets $32,725
Net plant and equipment $22,275
Total assets $55,000
Liabilities and Equity:
Accounts payable $10,450
Notes payable 7,700
Accruals 6,050
Total current liabilities $24,200
Long-term bonds $18,700
Total debt $42,900
Common stock $0
Retained earnings 12,100
Total common equity $12,100
Total liabilities and equity $55,000
Income Statement (Millions of $) 2007
Net sales $99,000
Operating costs except depreciation 92,565
Depreciation 1,733
Earnings bef interest and taxes (EBIT) $4,703
Less interest 1,650
Earnings before taxes (EBT) $3,053
Taxes 1,068
Net income $1,984
Other data: Shares outstanding (millions) 500.00
Common dividends (millions of $) $694.44
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $43.39
Required:
a. What is the firm's ROE?
b. What is the firm's profit margin?
c. What is the firm's operating margin?
d. What is the firm's P/E ratio?
Answer:
See solutions below
Explanation:
a. ROE = Net income / Total equity
= $1,984 / $12,100
= 16.40%
b. Firm's profit margin = Net income / sales
= 1,984 / 99,000
= 2.00%
c. Firm's operating margin = Operating income / Net sales
Operating income = Net sales - Operating costs - depreciation
= 99,000 - 92,565 - 1,733
= 4,702
= 4,702 / 99,000
= 4.75%
d. Firm's P/E ratio = Market Price per share / Earnings per share
= 43.39 / [ 1,984 / 500 ]
= 43.39 / 3.968
= 10.93