The banking crisis of 2008 is quite interesting to analyze. The factors that led to this near banking collapse are intriguing to say the least. In this exercise you will be evaluating the factors that led up to the crisis and determining which ones could have created this scenario. There is no simple answer to what led to the banking crisis, as there were many factors that contributed over a long period of time. Understanding the factors that led to the crisis is very important, as such an understanding will help regulators prevent similar situations in the future.
Fore each item listed, select how much it contributed to the banking crisis.
1. The repeal of some provisions of the Glass-Steagall Act of 1933
a. Major contributor
b. Not a major contributor
2. Savvy individual investors
a. Major contributor
b. Not a major contributo
3. The Community Reinvestment Act (CRA)
a. Major contributor
b. Not a major contributor
4. Borrowersâ lack of financial knowledge
a. Major contributor
b. Not a major contributor
Answer:
1. The repeal of some provisions of the Glass-Steagall Act of 1933
a. Major contributor
The repeal of some of the provisions of the Glass-Steagall Act led to lesser restrictions on the banking industry which allowed for the kind of investments that banks made leading up to 2008 that led to the crisis.
2. Savvy individual investors
b. Not a major contributor
Savvy individual investors knew how to invest and what to invest in and mostly avoided the securities that caused the crisis.
3. The Community Reinvestment Act (CRA)
a. Major contributor
The CRA allowed for banks to be able to lend money to lower income households who were the major defaulters on the mortgages which was a major contributor to the crisis.
4. Borrowers lack of financial knowledge
a. Major contributor.
A lot of the borrowers did not understand what they were getting into and so when time came to pay back, they ended up being unable to. A fact which contributed in no small way to the banking crisis.
The Glass-Steagall Act, which has been adopted as part of the Banking Law of 1933 by the United States House of representatives, prohibited commercial banks from gengaing in financial services and vice versa. During in the Economic Crisis, an emergency mechanism was put in place to avoid over 5,000 banks from failing. Steagall's usefulness diminished over time, and it was substantially repealed in 1999.
2. Not a significant contributorDuring the economic meltdown of 2008–09, markets crashed, wiping out trillions of dollars of wealth around the world. Many companies' stock was on sale at deep prices, giving savvy investors a once-in-a-lifetime opportunity to buy.
3. Significant contributorThe CRA establishes an incentive structure that could entice banks to create or buy loans that otherwise would have been considered too risky. However, empirical evidence reveals that CRA-related loans constituted up a small percentage of the financial sector even during mortgage bubble.
4. Significant contributorThe company's economic knowledge is critical. The mix of financial, credit, and debt repayment information necessary to make fiscally responsible decisions in our daily lives is described as financial literacy.
Learn more:https://brainly.com/question/10565599?referrer=searchResults
Classify the following investments. Each case is independent of the other.
Investment Classifications
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. select an Investment Classification
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. select an Investment Classification
(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year. select an Investment Classification
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. select an Investment Classification
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. select an Investment Classification
(f) A bond that matures in 10 years was purchased. The company has committed the money for an expansion project planned 10 years from now.
Answer:
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. select an Investment Classification.
Explanation:
The before-trade domestic price of tomatoes in the United States is $500 per ton. The world price of tomatoes is $400 per ton. The U.S. is a price-taker in the tomatoes market. If trade in tomatoes is not allowed, the price of tomatoes in the United States:______
a. could increase or decrease or be unaffected; this cannot be determined.
b. will increase, and this will cause consumer surplus to decrease.
c. will be unaffected, and consumer surplus will be unaffected as well.
d. will decrease, and this will cause consumer surplus to increase.
Answer:
B
Explanation:
The US does not produce tomatoes efficiently. This is because the price of tomatoes in the US is higher when compared with the rest of the world.
The best option for US is to import tomatoes.
If trade is not allowed, the price of tomatoes would increase and consumer surplus would decrease
Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.
Consumer surplus = willingness to pay – price of the good
If trade is allowed price would decrease and consumer surplus would increase
On November 30, the end of the first month of operations, Weatherford Company prepared the following income statement, based on the absorption costing concept:
Weatherford Company Absorption Costing Income Statement For the Month Ended November 30
Sales (3,300 units) $125,400
Cost of goods sold:
Cost of goods manufactured (3,900 units) $105,300
Inventory, November 30 (500 units) (13,500)
Total cost of goods sold 102,500
Gross profit $44,500
Selling and administrative expenses 25,730
Income from operations $18,770
Assume the fixed manufacturing costs were $28,800 and the fixed selling and administrative expenses were $12,600.
Required:
Prepare an income statement according to the variable costing concept.
Answer:
See below
Explanation:
Income statement according to variable costing .
Sales
$125,400
Less:
Variable cost of goods sold
Beginning inventory
$0
Variable cost of goods manufactured
($50,000)
Ending inventory
($13,500)
Variable cost of goods sold
($63,500)
Manufacturing margin
$64,000
Less:
Variable selling and administrative expenses
($25,730)
Contribution margin
$35,270
Less:
Fixed costs
Fixed manufacturing cost
($28,800)
Selling and administrative expenses
($12,600)
Income from operations
$3,000
John, Lesa, and Trevor form a limited liability company. John contributes 60 percent of the capital, and Lesa and Trevor each contribute 20 percent. Nothing is decided about how profits will be divided. John assumes that he will be entitled to 60 percent of the profits in accordance with his contribution. Lesa and Trevor, however, assume that the profits will be divided equally. A dispute over the profits arises, and ultimately a court has to decide the issue. What law will the court apply
Answer: State Law.
Explanation:
This dispute falls under the jurisdiction of state law and so that is what the court will use. This is unless the company established a profit-sharing agreement as per the Uniform Limited Liability Company Act (ULLCA) and the state that they are in is one of the 19 states and District that enacted the UCCLA.
As the company never established a profit agreement principle, this falls under State law which normally calls for the division of profits equally amongst partners.
You have been working on some financial projections manually for two days now. It seems that each time you think you have them completed your boss shows up with a new assumption or another "what if" question. If you only had a copy of a spreadsheet software program for your personal computer, you could plug in the new assumptions and revise the estimates with ease. Then, a colleague offers to let you make a copy of some software that is copyrighted. What would you do?
Answer:
I would reject the copy and advise my colleague not to make a copy as this action violates the copyright law.
Explanation:
Copyright gives the originator the exclusive (or intellectual property) right to make copies of the software. To make a copy, one needs to obtain the permission of the originator. The law aims to protect the originator or creator of the intellectual property from illegal use and abuse.
Constable Co. reported the following information at December 31, Year 1:
Accounts Payable $4,540
Accounts Receivable 9,390
Cash 23,890
Common Stock 90,400
Equipment 49,900
Inventory 31,600
Notes Payable due December 31, Year 3 2,540
Retained Earnings, December 31, Year 1 14,130
Wages Payable 3,170
What is the amount of current liabilities on the classified balance sheet?
Answer:
The amount of Current liabilities is $7,710
Explanation:
The amount of current liabilities on the classified balance sheet is seen below;
Constable Corp.
Balance sheet as at December 31, year 1.
Current liabilities
Accounts payable $4,540
Wages payable $3,170
Total $7,710
Learning Objective 15-C2: Explain job cost sheets and how they are used in job order costing. Skip to question In a job order costing system, the costs of producing each job are accumulated on a separate job cost sheet. Costs of direct materials, direct labor, and overhead applied are accumulated separately on the job cost sheet and then added to determine the total cost of a job. Job cost sheets for jobs in process, finished jobs, and jobs sold make up subsidiary records controlled by general ledger accounts.
Answer:
Job Cost Sheets:
In a job order costing system, the costs of producing each job are accumulated on a separate job cost sheet.
Explanation:
A job cost sheet is used in a job order costing system to record all manufacturing costs related to each job. The costs that are recorded in the job cost sheet include direct material, direct labor, and manufacturing overhead costs. Since these job costs are traceable to their respective jobs, the actual direct material and labor costs are used.
On December 31, 2018 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2018 beginning inventory to increase by $960,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 40% tax rate, is Group of answer choices
Answer:
$576,000
Explanation:
Calculation for what The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 40% tax rate, is
Accounting change cumulative effect= ($960,000 × (1 - .40)
Accounting change cumulative effect= ($960,000×0.6)
Accounting change cumulative effect= $576,000
Therefore The cumulative effect of this accounting change to be reported for the year ended 12/31/18, assuming a 40% tax rate, is $576,000
Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (the amounts are rounded to thousands of dollars to simplify):
Account Titles Debit Credit
Cash $2
Accounts Receivable 6
Supplies 13
Land 0
Equipment 54
Accumulated Depreciation $5
Software 21
Accumulated Amortization 6
Accounts Payable 4
Notes Payable (short-term) 0
Salaries and Wages Payable 0
Interest Payable 0
Income Tax Payable 0
Common Stock 72
Retained Earnings 9
Service Revenue 0
Salaries and Wages Expense 0
Depreication Expense 0
Amortization Expense 0
Income Tax Expense 0
Interest Expense 0
Supplies Expense 0
Totals 85 85
Required
a. In the journal, record the entry to close revenue and expense accounts to retained earnings.
b. Post the closing statement.
Answer:
H & H Tool, Inc.
a. Journal (Closing Entries):
Debit Revenue $000
Credit Retained Earnings $000
To close the revenue accounts to the retained earnings.
Debit Retained Earnings $000
Credit Expenses $000
To close the expense accounts to the retained earnings.
b. General Ledger Accounts:
Cash
Date Account Titles Debit Credit
Jan. 1 Balance $2
Accounts Receivable
Date Account Titles Debit Credit
Jan. 1 Balance $6
Supplies
Date Account Titles Debit Credit
Jan. 1 Balance $13
Equipment
Date Account Titles Debit Credit
Jan. 1 Balance $54
Accumulated Depreciation
Date Account Titles Debit Credit
Jan. 1 Balance $5
Software
Date Account Titles Debit Credit
Jan. 1 Balance $21
Accumulated Amortization
Date Account Titles Debit Credit
Jan. 1 Balance $6
Accounts Payable
Date Account Titles Debit Credit
Jan. 1 Balance $4
Common Stock
Date Account Titles Debit Credit
Jan. 1 Balance $72
Retained Earnings
Date Account Titles Debit Credit
Jan. 1 Balance $9
Explanation:
a) Trial Balance as of January 1, 2018:
Account Titles Debit Credit
Cash $2
Accounts Receivable 6
Supplies 13
Equipment 54
Accumulated Depreciation $5
Software 21
Accumulated Amortization 6
Accounts Payable 4
Common Stock 72
Retained Earnings 9
Totals 96 96
b) The revenue and expenses have zero balances. This means that they had been closed to the retained earnings account (Income Summary) before now. There is no logical need to repeat the process. However, a dummy has been entered for demonstration purpose.
Tardis Intertemporal(TI) has 16,800,000 shares issued and outstanding and is trading at $83.20 per share. The company issues 2,400,000 new shares with a subscription price of $52.00. Under the terms of the offering, 7 rights are required to subscribe to one new share at the subscription price, and each shareholder is issued one right for each share owned.
If all the shares offered are taken up then Tardis Intertemporal(TI) will raise _____________
and, after the capital infusion, the market capitalization of the company will be ______________
After the new shares are issued the market price should be ______________
The fair market value of the right should thus be __________
Answer:
If all the shares offered are taken up then Tardis Intertemporal(TI) will raise = $52 x 2,400,000 = $124,800,000
and, after the capital infusion, the market capitalization of the company will be = ($83.20 x 16,800,000) + $124,800,000 = $1,397,760,000 + $124,800,000 = $ 1,522,560,000
After the new shares are issued the market price should be = $1,522,560,000 / (16,800,000 + 2,400,000) = $1,522,560,000 / 19,200,000 = $79.30
The fair market value of the right should thus be = ($83.20 - $52) / (7 + 1) = $31.20 / 8 = $3.90
The Business Cycle Dating Committee and the National Activity Index are two methods used to monitor the phases of the business cycle and determine when a recession occurs. Decide which method each of the six items describes and place it in the correct category. If the item does not describe either, then place it in the neither category.
Business Cycle Dating Committee National Activity Index neither
Answer:
Note: The full question is attached below as picture
Business Cycle Dating Committee and the National Activity Index are two methods used to monitor the phases of the business cycle established by the Federal Reserve Bank of Chicago.
National Activity Index: uses a weighted average of over 80 economic indicators to identity business cycle trends.
Business Cycle Dating: uses updated or revised information to determine phases of the business cycle .
Business Cycle Dating: identifies recessions with a considerable lag making it less useful for designing policy.
National Activity Index: does a good job in identifying recessions in the current time frame.
Neither Business Cycle Dating Committee nor the National Activity Index: compiles the financial statements of publicly traded companies.
National Activity Index uses a weighted average of over 80 economic indicators to identity business cycle trends. Business Cycle Dating: uses updated or the revised information is to determine phases in business cycle.
What is the national business and neither cycle index?The national index is the weighted average of the 85 existing indicators of economic activity. It considered having a value of zero and an SD of one.
The business cycle is an interval of expansion followed by the recession of the economic activity.
Neither Cycle is compiled the financial statements of publicly traded companies While the national activity index is doing a good job in identifying recessions in the current time frame.
The National Activity Index uses a weighted average of over 80 economic indicators to identity business cycle trends. The business Cycle is uses updated or revised information to determine phases of the business cycle.
Fund out more information about Cycle Dating.
brainly.com/question/3302065.
On January 15, Pinkney, Inc., issued 10,000 shares of $10 par value common stock in exchange for land and a building. Five years ago, the stockholder purchased the land for $40,000 and constructed the building at a cost of $90,000. At the time of the stock issuance, the land and the building had fair market values of $45,000 and $95,000, respectively. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.
Answer and Explanation:
The journal entry is shown below:
Land $45,000
Building $95,000
To Common Stock,$10 Par value $100,000 (10,000 shares × $10)
To Paid in capital excess of Par Value, Common Stock $40,000
(Being the shares are issued in exchange for land)
Here land and building is debited as it increased the assets and credited the common stock and paid in capital as it also increased the equity
Question 1: TimeValueOfMoneyPro110Alt1 An engineer in a developing country observes that his project bank account has grown from 1400000 to 1558869 (local currency units) in 15 days with no deposits or withdrawals being made. He knows that the account earns interest compounded daily. Question 1 What is the daily compound rate of interest earned on the account
Answer: 0.72%
Explanation:
Using the Present value formula:
Present value = Future value / (1 + r)^n
Making r the subject of the formula makes the equation:
r = (Future value / Present value ) ^ 1/n - 1
= (1,558,869/ 1,400,000)¹/¹⁵ - 1
= 0.72%
For each of the following accounts, indicate the effect of a debit or a credit on the account and the normal balance.
Debit Effect Credit Effect Normal Balance
a. Accounts Payable
b. Advertising Expense
c. Service Revenue
d. Accounts Receivable
e. Retained Earnings
f. Dividends
Answer:
a. Accounts Payable
Accounts payable have a credit balance and will increase under credit effect and decrease under debit effect.
b. Advertising Expense
Advertising expense has a debit balance and will increase in case of debit effect and decrease in case of credit effect.
c. Service Revenue
Service revenue will be credited and will increase in case of credit effect and decrease in case of debit effect.
d. Accounts Receivable
Accounts receivables will be debited and increase under debit effect and decrease under credit effect.
e. Retained Earnings
Retained earnings will be credited and will increase in case of credit effect and decrease in case of debit effect.
f. Dividends
Dividends will be debited which will lead to an increase in it under debit effect and decrease under credit effect.
Which of the following best illustrates Hofstede's definition of collectivism?
a. Managers at Honest Tea expect that all employees will have an interest and part in environmental sustainability
b. The founder of Honest Tea stresses the importance of equality and opportunity
c. An employee of Honest Tea prefers to work alone and puts him- or herself above others
d. The managers of Honest Tea prefer tradition over change
e. Employees in Honest Tea have high levels of anxiety about uncertainty
Answer:
a. Managers at Honest Tea expect that all employees will have an interest and part in environmental sustainability
Explanation:
Analyzing the information about Honest Tea, it is possible to understand that sustainability is an issue that has a lot of weight for the company, and all its processes are managed in an environmentally responsible manner. Therefore, it is correct to say that Honest Tea managers expect all employees to be interested and participate in environmental sustainability, as this is a value that identifies and positions the company in the market, and it is essential that this value is shared by all employees.
Environmental management is a form of management that provides significant advantages to an organization, as it standardizes procedures and policies to reduce environmental impacts, the company operates with a focus on continuous improvement that reduces costs, waste, makes work most satisfactory and sustainability as a shared value.
Celine Dion Company issued of 10% 20 -year bonds on January 1, 2014, at Interest is payable semiannually on July 1 and January 1. Dion Company uses the straight-line method of amortization for bond premium or discount.
Instructions:
Prepare the journal entries to record: The issuance of the bonds.
Answer:
Dr Cash $612,000
Cr bonds payable $600,000
Cr premium on bonds payable $12,000
Explanation:
The face value of $600,000 and price factor of 102% are missing from the question:
Proceeds from bond issuance=face value*price factor
Proceeds from bond issuance=$600,000*102%
Proceeds from bond issuance=$612,000
The cash received would be debited to cash account while bonds payable and premium on bonds payable are credited with $600,000 and $12000 respectively
X Company's degree of operating leverage (DOL) at the current sales volume level is calculated to be:
Answer:
4
Explanation:
Note: The complete question is attached as picture below
Degree of Operating Leverage = Contribution/Operating Income
Degree of Operating Leverage = $48000 / $12000
Degree of Operating Leverage = 4
So. X Company's degree of operating leverage (DOL) at the current sales volume level is calculated to be 4
In Los Angeles County, the median price rose 0.5% to $618,000 in June and sales fell 12.1%.
In Orange County, the median price slipped 0.3% to $738,000 and sales fell 9.4%.
In Riverside County, the median price climbed 5.3% to $399,000 and sales fell 4%.
In San Bernardino County, the median price rose 1.5% to $340,000 and sales fell 11.4%.
In Ventura County, the median price dropped 5.7% to $580,000 and sales rose 1.6%.
In San Diego County, the median price rose 2.6% to $590,000 and sales fell 7.4%.
1. The price elasticity of demand in San Bernardino County is ____. Give your answer in two decimals.
2. Holding the price elasticity of demand constant, sales in San Bernardino County would fall by __% if prices increased by 2%. Give your answer to two decimals.
3. Assume that no other factors influence the demand or supply of housing. In ___ County, the law of demand appears to be violated. Choices: San Diego, Riverside, Orange and Los Angeles
Answer:
Part 1 : -7.6
Part 2: 15.2%
Part 3: Orange County
Explanation:
Part 1. Price Elasticity:
The formula for Price Elasticity is:
Price Elasticity = Percentage Change in Quantity Demanded divided by the percentage change in price.
So,
We need percentage change in price and percentage change in quantity demanded in order to solve for price elasticity of demand in San Bernardino County.
So,
As we know that,
In San Bernardino County, the median price rose 1.5% to $340,000 and sales fell 11.4%.
Hence,
The Percentage Change in Price = 1.5
The Percentage Change in Quantity Demanded = -11.4
Just Plugging in these values in the Price Elasticity formula, we get:
Price Elasticity of Demand = -11.4 / 1.5
Price Elasticity of Demand = -7.6
Part 2: Condition Given: If Price increased by 2%
So,
In this we are asked to find the percentage change in quantity demanded.
Therefore, we will use the same formula of Plasticity of demand.
Price Elasticity of Demand = Percentage Change in Quantity Demanded divided by the percentage change in price.
Making Percentage Change in Quantity Demanded as subject:
Percentage Change in Quantity Demanded = Price Elasticity multiplied by the percentage change in price.
Here,
Percentage Change in price = 2%
Price Elasticity of Demand = -7.6
Just plugging in these values in to the formula:
Percentage Change in Quantity Demanded = -7.6 x 2
Percentage Change in Quantity Demanded = -15.2
Therefore, Holding the price elasticity of demand constant, sales in San Bernardino County would fall by _15.2_% if prices increased by 2%.
Part 3:
To solve this part, first we need to understand the law of demands:
Law of demands says that the relationship of change in price and change in quantity demanded is inversely proportional keeping all other factors constant. So, if price goes high, quantity demanded will go down and vice versa.
And here,
In _Orange__ County, the law of demand appears to be violated.
Question 3: Cost terminology in manufacturing firms a) Direct materials include all materials and components only raw materials such as steel and glass only major materials and components Correct: Your answer is correct. Direct labor includes all production labor including supervisors and maintenance staff only managers who directly supervise the production process only hourly production workers (aka assembly workers) Correct: Your answer is correct. Manufacturing overhead includes only big items that cannot be traced (e.g., factory rent) only non-manufacturing costs only small items that are not worth tracing (e.g., glue, grease) both big items that cannot be traced (e.g., factory rent) and small items that are not worth tracing (e.g., glue, grease) Correct: Your answer is correct. b) Classify the following items as direct materials (DM), direct labor (DL), or manufacturing overhead (OH) for a car assembly plant: Rent for the factory building DL DM OH Correct: Your answer is correct. Cost of engines used in production DL DM OH Correct: Your answer is correct. Depreciation on production equipment DL DM OH Correct: Your answer is correct. Cost of lubricant used in production DL DM OH Correct: Your answer is correct. Production supervisor's salary DL DM OH Correct: Your answer is correct. Assembly workers' wages DL DM OH Correct: Your answer is correct.
Answer:
1. a. Only major materials and components.
Only the major materials and components are include as direct materials because these are the materials that directly needed for production.
b. Only hourly production workers (aka assembly workers).
The direct labor has to be those people who are directly involved in production which in this case is the assembly workers. Managers and Supervisors are not integral so are not direct labor.
c. Both big items that cannot be traced (e.g., factory rent) and small items that are not worth tracing (e.g., glue, grease).
All other items involved in production should be included as manufacturing overheads including big items and small items that cannot be traced.
2.
Rent for the factory building ⇒ Manufacturing Overhead (OH).
Cost of engines used in production ⇒ Direct materials (DM).
Depreciation on production equipment ⇒ Manufacturing Overhead (OH).
Cost of lubricant used in production. ⇒ Manufacturing Overhead (OH).
Production supervisor's salary. ⇒ Manufacturing Overhead (OH).
Assembly workers' wages. ⇒ Direct Labor.
Cost flow relationships The following information is available for the first year of operations of Creston Inc., a manufacturer of fabricating equipment:
Sales $ 12,755,000
Gross profit 5,359,700
Indirect labor 422,600
Indirect materials 185,500
Other factory overhead 834,900
Materials purchased 4,251,600
Total manufacturing costs for the period 8,122,000
Materials inventory, end of period 298,900
This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Determine the following amounts. Round your answers to the nearest dollar. Cost of goods sold $fill in the blank 2 Direct materials cost $fill in the blank 3 Direct labor cost $fill in the ______
Answer:
a. Cost of goods sold = Sales - Gross profit
Cost of goods sold = $12,755,000 - $5,359,700
Cost of goods sold = $7,395,300
b. Direct Material Cost = Materials purchased - Indirect materials - Materials inventory
Direct Material Cost = $4,251,600 - $185,500 - $298,900
Direct Material Cost = $3,767,200
c. Direct labor cost = Total manufacturing costs for the period - Direct materials cost - Other factory overhead - Indirect labor
Direct labor cost = $8,122,000 - $3,767,200 - $834,900 - $422,600
Direct labor cost = $3,097,300
Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20, one share of $1 par common stock. At the time of sale, the market value of the common stock was $25 per share and the market value of each warrant was $5. Prepare the journal entry to record the issuance of the bonds.
Answer:
Date Account titles and Explanation Debit Credit
Cash (60,000*102%) $61,200,000
Discount on bonds payable $1,800,000
(63,000,000-61,200,000)
Bond payable (Face value) $60,000,000
Equity stock warrants outstanding $3,000,000
(60,000 bonds * 10 warrants * $5)
(To record the issue of shares and the share warrants)
Implied interest rate and period Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Joshua inherited an annuity worth $6,830.77 from his uncle. The annuity will pay him eight equal payments of $1,100 at the end of each year. The annuity fund is offering a return of ______.
Answer:
6.00%
Explanation:
Rate of return can be calculated using RATE function in excel or I/Y on calculator or using the formula for annuity
Annuity Rate = RATE(nper=8, pmt=1100, pv=-6,830.77, fv = 0, 0)
Annuity Rate = 0.06000118
Annuity Rate = 6.00%
Assume that the risk-free rate of interest is 3% and the expected rate of return on the market is 14%. I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I think the beta of the firm is 0.9, when in fact the beta is really 1.8, how much more will I offer for the firm than it is truly worth
Answer: $3,365.98
Explanation:
Value of firm with beta of 0.9.
First use CAPM to find the required return:
= Risk free rate + beta * (Market return - risk free rate)
= 3% + 0.9 * (14% - 3%)
= 12.9%
Firm Value = Perpertual cashflow / Required return
= 1,000 / 12.9%
= $7,751.94
Value of firm with beta of 1.8.
Required return = 3% + 1.8 * (14% - 3%)
= 22.8%
Value of firm = 1,000 / 22.8%
= $4,385.96
Difference = 7,751.94 - 4,385.96
= $3,365.98
You would be paying $3,365.98 than the firm is worth.
Determine the gross income of the beneficiaries in the following cases:
1. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would voluntarily retire.
2. Trina contracted a disease and was unable to work for six months. Because of her dire circumstances, her employer paid her one-half of her regular salary while she was away from work.
3. Coral Corporation collected $1,000,000 on a key person life insurance policy when its chief executive died. The corporation had paid the premiums on the policy of $77,000, which were not deductible by the corporation.
4. Juan collected $40,000 on a life insurance policy when his wife, Leona, died in 2020. The insurance policy was provided by Leona’s employer, and the premiums were excluded from Leona’s gross income as group term life insurance. In 2020, Juan also collected the $3,500 accrued salary owed to Leona at the time of her death.
Answer:
1. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would voluntarily retire.
the compensation is included in Justin's gross income.
2. Trina contracted a disease and was unable to work for six months. Because of her dire circumstances, her employer paid her one-half of her regular salary while she was away from work.
the compensation is included in Trina's gross income.
3. Coral Corporation collected $1,000,000 on a key person life insurance policy when its chief executive died. The corporation had paid the premiums on the policy of $77,000, which were not deductible by the corporation.
the benefits are included in the company's taxable income, but the premiums paid are deductible
4. Juan collected $40,000 on a life insurance policy when his wife, Leona, died in 2020. The insurance policy was provided by Leona’s employer, and the premiums were excluded from Leona’s gross income as group term life insurance. In 2020, Juan also collected the $3,500 accrued salary owed to Leona at the time of her death.
the life insurance policy proceeds are not taxable, but the accrued salaries are taxedWhich of these best describes the relationship
between business equity and profit?
A. The proportion of the
equity one owns is more than the
proportion of the profits received.
B. The proportion of the equity one owns is less than the
proportion of the profits received.
C. The proportion of the equity one owns is the same proportion
of the profits received.
On the last day of December 2021, Coaster Trucks entered into a transaction that resulted in a receipt of $300,000 cash in advance related to services that will be provided during January 2022. During December of 2021, the company also performed $165,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company’s trial balance showed service revenue of $1,425,790 at December 31, 2021. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected. If Coaster Trucks makes the appropriate adjusting entry, how much service revenue will be reflected on the December 31, 2021 income statement?
Answer:
the service revenue is $1,590,790
Explanation:
The computation of the service revenue is shown below:
= Service revenue in trial balance + Services that were neither billed nor paid
= $1,425,790 + $165,000
= $1,590,790
hence, the service revenue is $1,590,790
We simply added the above two amounts
On January 1, 2017, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $400,000 zero-interest-bearing note payable, promising 5 equal annual installments of $80,000, with the first payment due December 31, 2017. The prevailing rate of interest for a note of this type is 8%.
Required:
What is the carrying value of the notes payable at 12/31/14, after the first payment is made (assuming that the effective-interest method is used)?
Answer:
Leary Company
The carrying value of the notes payable at December 31, 2017, after the first payment is made (assuming that the effective-interest method is used) is:
= $320,000
Explanation:
a) Data and Calculations:
0% Note payable = $400,000
Payment period = 5
Annual installmental payments = $80,000
Prevailing rate of interest for similar note = 8%
Schedule
Period PV PMT Interest FV
1 $-591,650.08 $80,000.00 $-47,332.01 $558,982.09
2 $-558,982.09 $80,000.00 $-44,718.57 $523,700.66
3 $-523,700.66 $80,000.00 $-41,896.05 $485,596.71
4 $-485,596.71 $80,000.00 $-38,847.74 $444,444.44
5 $-444,444.44 $80,000.00 $-35,555.56 $400,000.00
Total $400,000.00 $-208,349.93
Carrying value
Ending value = $400,000
Interest expense -47,332.01
Cash repayment -32,667.99
Carrying value = $320,000
Magazine sells subscriptions for $60 for 30 issues. The company collects cash in advance and then mails out the magazines to subscribers each month. Apply the revenue recognition principle to determine a. when Seacoast Magazine should record revenue for this situation. b. the amount of revenue Seacoast Magazine should record for five issues.
Answer:
a. Revenue is earned when when service or product are delivered to client. Thus Seacoast Magazine should recognize the revenue when it mails the magazines to its subscribers.
b. Total amount received is $60 for 30 issues.
Amount for 1 issues = Total cost / Number of issues of magazines = $60/30 = $2 per issue
Amount of 5 issues = $2 * 5 = $10
Therefore, Seacoast Magazine should record revenue $10 for 5 issues.
Standard, Inc. reported EBIT of $35 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $7 million. Free cash flow is expected to grow at a rate of 6 percent for the foreseeable future. Stuart faces a 21 percent tax rate and has a .40 debt to equity ratio with $120 million (market value) in debt outstanding. Standard's equity beta is 1.25, the risk-free rate is currently 5 percent and the market risk premium is estimated to be 7.5 percent. What is the current value (in millions) of Standard's equity?
Answer:
$710.84 million
Explanation:
Net income = $35 million
Depreciation = $20 million
Capital expenditures = $7 million
Tax rate = 21%
D/E ratio = 0.4
Growth rate = 6%
Equity beta = 1.25
So, firm's asset beta = Equity beta/(1 + D/E*(1-T))
= 1.25/(1 + 0.4*(1-0.21))
= 0.94985
So, Free Cash Flow to the Firm= NI + Depreciation - Capital expenditures
= 35 + 20 - 7
= $48 million
Risk free rate Rf = 5%
Market risk premium = 7.5%
So, firm cost of capital using CAPM is Rf + Beta*(MRP)
Kc = 5 + 0.94985*7.5
Kc = 12.1239
So, Firms value using constant dividend growth model:
FV = FCF*(1+g)/(Kc-g)
FV = 48*1.06 / 0.121239-0.06
FV = 50.88 / 0.061239
FV = 830.8430901876255
FV = $830.84 million
Debt = $120 million
Market Value of equity = FV - Debt
Market Value of equity = $830.84 million - $120 million
Market Value of equity = $710.84 million