Answer: True
Explanation:
The Weighted Average Cost of Capital (WACC) calculates the cost of capital to a company for the means of capital it uses to finance operations. It is based on the cost and the weight of the various capital types.
Formula is;
= Cost of Equity * %Equity + Cost of debt * %Debt * ( 1 - Tax rate) + Cost of Preferred Stock * %Preferred stock
The required rate of return on preferred stock is the same as the Cost of Preferred Stock. From the formula it is shown that if this rate increases, holding all else equal, total WACC will increase.
On November 19, Nicholson Company receives a $25,800, 60-day, 10% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end
Answer:
adjusting entry should be :
Note Receivable $1,806 (debit)
Interest Income $1,806 (credit)
Explanation:
On Issuance of the note the entries recorded are :
Note Receivable $25,800 (debit)
Sales Revenue $25,800 (credit)
At year end, December 31, 42 days would have expired, thus the interest of 42 days accrues on the Note Receivable. Entries are as follows :
Note Receivable $1,806 (debit)
Interest Income $1,806 (credit)
Interest Calculation = $25,800 × 10% × 42/60
= $1,806
At the beginning of the year, Custom Mfg. established its predetermined overhead rate by using the following cost predictions: overhead costs, $840,000, and direct materials costs, $400,000. At year-end, the company’s records show that actual overhead costs for the year are $1,041,000. Actual direct materials cost had been assigned to jobs as follows.Jobs completed and sold $390,000 Jobs in finished goods inventory 83,000 Jobs in work in process inventory 55,000 Total actual direct materials cost $528,000Required:a. Determine the predetermined overhead rate.b. Write the overhead costs incurred and the amounts applied to jobs during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
Answer:
a. Determine the predetermined overhead rate.
the predetermined overhead rate = total budgeted overheard costs / total budgeted direct materials used = $840,000 / $400,000 = 2.1 = 210%
b. Write the overhead costs incurred and the amounts applied to jobs during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.
applied overhead costs = actual direct materials x overhead rate = $528,000 x 210% = $1,108,800
over applied overhead = actual overhead - standard overhead = $1,041,000 - $1,108,800 = -$67,800 favorable variance
c. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
Dr Manufacturing overhead 67,800
Cr Cost of goods sold 67,800
Explanation:
budget:
overhead costs, $840,000
direct materials costs, $400,000
actual:
overhead costs, $1,041,000
direct materials costs, $528,000
The manager of Synergy Company's Stock Division projects the following for next year: Sales $195,000 Operating income 70,000 Operating assets 385,000 The manager can invest in an additional project that would require $50,000 investment in additional assets and would generate $9,000 of additional income. The company's minimum rate of return is 15%. What is the residual income for the Stock Division with the additional project
Answer:
13,750
Explanation:
Residual income can be calculated by deducting required return from the Net Operating income
DATA
Operating income = 70,000
Operating assets = 385000
Additional income = 9000
Additional investment = 50,000
Residual income =?
Solution
Residual income = Net Operating income - Required return
Residual income = (70,000+9,000) - ((385,000+50,000)x15%)
Residual income = 79,000 - 65250
Residual income = 13,750
"A registered representative is a 15% participant in an investment club formed by members of the local Elks Club. The Elks Club investment club has opened a securities account at ABC Brokerage. The account wishes to buy an IPO being offered by an underwriter. Which statement is TRUE?"
Answer: D. The account is prohibited from buying the new issue
Explanation:
The options to the question are:
A. The account can buy the issue without restriction
B. The account can buy the issue if the branch manager approves
C. The account can buy the issue if the registered representative agrees not to share in the profit on the position
D. The account is prohibited from buying the new issue.
From the question, we are informed that a registered representative is a 15% participant in an investment club formed by members of the local Elks Club and that the Elks Club investment club has opened a securities account at ABC Brokerage.
We are further told that the account wishes to buy an IPO being offered by an underwriter, out of the options that were given, the correct option is that account is prohibited from buying the new issue.
Widgeon Co. manufactures three products: Bales, Tales, and Wales. The selling prices are $55, $78, and $32, respectively. The variable costs for each product are $20, $50, and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process; Tales, 7 hours; and Wales 1 hour. Assuming that Widgeon Co. can sell all of the products it can make, what is the maximum contribution margin it can earn per month
Answer:
$3,400
Explanation:
Particulars Bales Tales Wales
Selling price 55 78 32
- Variable costs 20 50 15
Contribution margin 35 28 17
Required hours to process 5 hrs 7 hrs 1 hrs
Contribution margin per hours 7 4 17
Therefore, Widgeon Co. will earn maximum contribution only if it uses all its machine hours for production of wales
Maximum contribution margin = Contribution margin per hour * Number of machine hours
Maximum contribution margin = 17 * 2,000 hours
Maximum contribution margin = $3,400
Assuming that Widgeon Co. can sell all of the products it can make, the maximum contribution margin it can earn per month is $3,400. The difference between the sales price and the variable cost is the contribution margin.
A contribution margin calculates a product's profitability during production. The contribution margin of a business indicates how much income is left over after variable expenditures like raw materials and transportation are subtracted.
A product must have a higher leftover income after variable costs than the business' fixed expenses, such as salaries and insurance, in order to be profitable.
Particulars Bales Tales Wales
Selling price 55 78 32
Less: Variable costs 20 50 15
Contribution margin 35 28 17
Required hours to process 5 hours 7 hours 1 hours
Contribution margin per hours 7 4 17
Widgeon Company will earn maximum contribution only if it uses all its machine hours for production of wales
Maximum contribution margin will be
= Contribution margin per hour × Number of machine hours
= $17× 2,000 hours
= $3,400
Therefore, $3400 is the maximum contribution margin for Widgeon Company.
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In material requirement planning calculations, gross requirements for finished products are taken from ________________________.
Answer:
Forecasted sales
Explanation:
In the production process amount of inventory purchased for producing goods must be carefully calculated.
This avoids waste incurred from buying excess of materials needed for operation. Also when there is shortage of materials time and resources are wasted getting more materials.
So when calculating material requirements for finished products it is important that we consider sales forecasts.
Materials purchased based on this will just adequately meet the demand for product.
This reduce cost of storage of excess materials.
During August, Boxer Company sells $348,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $11,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $7,600 in parts for repairs. The entry to record the estimated warranty expense for the month is:
Answer:
Dr Estimated Warranty Liability $8,600
Cr Spare Parts Inventory $8,600
Explanation:
The estimated warranty claim is worth $7,600 which means that the warranty claim must be debited by this amount as it was previously forecasted to be at $11,000 and in this month, the claim was worth $7,600. So decrease in warranty liability is necessary. Furthermore, the Spare Parts Inventory would be credited as the Spare parts would be used to fix the inventory which must be of $7,600 in value.
The double entry to record Warranty Repairs would be as under:
Dr Estimated Warranty Liability $8,600
Cr Spare Parts Inventory $8,600
The Fime Corporation uses a standard costing system. The following data have been assembled for December: Actual direct labor-hours worked 6,200 hours Standard direct labor rate $7 per hour Labor efficiency variance $2,100 Unfavorable The standard hours allowed for December’s production is:
Answer:
5,900= standard quantity
Explanation:
Giving the following information:
Actual direct labor-hours worked 6,200 hours
Standard direct labor rate $7 per hour
Labor efficiency variance $2,100 Unfavorable
To calculate the standard hour, we need to use the following formula:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
-2,100 = (standard quantity - 6,200)*7
-2,100= 7standard quantity - 43,400
41,300/7 = standard quantity
5,900= standard quantity
Answer:
The standard hour allowed for December production is 5,900 hours
Explanation:
We will use labor efficiency variance to solve the above.
Labor efficiency variance = Standard rate (Standard hours - Actual hours)
Substituting the values given in the question,
-$2,100 = $7(Standard hour - 6,200)
-$2,100 = 7std hr - 43,400
7 Std hr = - $2,100 + $43,400
7 std hr = $41,300
std hr = 5,900 hours
A manufacturing division has an average of $1,800,000 invested in assets and earned income of $720,000. The division's return on investment is
Answer:
ROI = 0.4
Explanation:
To find the answer, we use the following formula:
Return on Investment = Profit / Investment
Now, we simply plug the amounts into the formula:
Return on Investment = $720,000 / $1,800,000
= 0.4
Answer:
40%
Explanation:
Technology helps managers to monitor and control business activities and includes each of the following except:
a. Reduced processing errors
b. Less extensive testing of records
c. New evidence of processing
d. Separation of duties
Answer:
Correct Answer:
b. Less extensive testing of records
Explanation:
Technology which is the use of machines or electronical devices to make work easier is applied in most organizations by organizational managers. Unfortunately, less extensive testing of records is not one of its uses but rather detailed and extensive testing in order to check if there is any error in the records.
In the liquidation of a partnership, any gain or loss on the realization of non-cash assets should be allocated:_____.
a. first to creditors and the remainder to partners.
b. to the partners on the basis of their capital balances.
c. only after all creditors have been paid.
d. to the partners on the basis of their income-sharing ratio.
Answer:
D. To the partners on the basis of their income-sharing ratio.
Explanation:
Partnership liquidation can be easily seen to come into existence indefinitely through periodic changes within the ownership, they are seen to occur by circumstances which are totally uncommon occurrence.
The form of the dissolution is irrelevant, whether by absenting by personal decision of individual member or wholesale departure and formal liquidation. The end result will be the same. The primary dream of these harmonious and synchronical growth of the firm will be seen to come to an end.
This is why it is best shared to the partners on the basis of their income sharing ratio.
Three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that the equilibrium price will ________ and the equilibrium quantity will ________.
Answer: higher; lower
Explanation:
From the question, we are informed that three firms are currently producing and selling in a market. When one of the three firms exits the market, economists expect that there will be a rise in the equilibrium price while there will be a reduction in the equilibrium quantity.
This is because when one producer leaves, there will be less supply of the good that is sold, this will eventually lead to a rise in price.
The owner of a leased property conveys possession of the property to the tenant providing them with uninterrupted us of the property without interference from the owner. This is known as
Answer:
Quiet enjoyment
Explanation:
Quiet enjoyment is a clause in lease agreement that provides a guarantee that the tenant will occupy the property in peace without interference from any other claimants or the landlord.
For example this clause protects a tenant from being removed from a property by someone of higher rank or authority like an agent.
The law recognises quiet enjoyment even when it is not stated explicitly in a lease agreement. It is assumed that every tenant has a right to quiet enjoyment
Mason Corporation had $1,150,000 in invested assets, sales of $1,228,000, income from operations amounting to $226,000, and a desired minimum rate of return of 12%. Round your answer to two decimal places. The investment turnover for Mason Corporation is a.0.85 b.1.07 c.1.28 d.1.60
Answer:
b.1.07
Explanation:
Investment turnover ratio determines the times when the portfolio of investment is sold during a particular period of time e.g Monthly, Annually, etc. The higher turnover results in more commission earned by the broker who is selling the portfolio.
Investment Turnover = Sales / Invested Assets
Investment Turnover = $1,228,000, / $1,150,000
Investment Turnover = 1.067826
Investment Turnover = 1.07 ( Rounded off to 2 decimals places )
A company purchased $3,500 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $700 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:
Answer and Explanation:
The Journal entry is shown below:-
Accounts payable Dr, $2,800 ($3,500 - $700)
To Merchandise inventory $84 ($2,800 × 0.03)
To Cash $2,716 ($2,800 × (1 - 0.03)
(being the payment is recorded)
Here we debited the accounts payable as it decreased the liabilities and we credited the merchandise inventory and cash as it also decline the assets
The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit
sales 12,200 13,200 15,200 14,200
The selling price of the company’s product is $21 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $72,600.
The company expects to start the first quarter with 2,440 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 2,640 units.
Required
1-A. Complete the company's sales budget.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Budgeted Units Sales
Selling Price Per Unit
Total Sales
1-B. Complete the schedule of expected cash collections.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Beginning Accts Receivable
1st Quarter Sales
2nd Quarter Sales
3rd Quarter Sales
4th Quarter Sales
Total Cash Collections
2. Prepare the company’s production budget for the upcoming fiscal year.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Budgeted Unit Sales
Total Needs
Required Production in Units
Answer:
1-A. Sales budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Sales units 12,200 13,200 15,200 14,200 54,800
Price per unit $21 $21 $21 $21 $21
Total sales $256,200 $277,200 $319,200 $298,200 $1,150,800
1-B. Cash collections budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Collections from $72,600 $76,860 $83,160 $95,760 $72,600
previous quarter
Collections from $166,530 $180,180 $207,480 $193,830 $1,003,900
current quarter
Total $239,130 $257,040 $290,640 $289,690 $1,076,500
2. Productions budget
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Sales units 12,200 13,200 15,200 14,200 54,800
Planned ending 2,640 3,040 2,840 2,640 2,640
inventory
Total production 14,840 16,240 18,040 16,840 65,960
required
- Beginning 2,440 2,640 3,040 2,840 2,440
inventory
Units to be 12,400 13,600 15,000 14,000 63,520
produced
Answer:
sells budget
Explanation:
Jeff has the opportunity to receive lump-sum payments either now or in the future. Which of the following opportunities is the best, given that the interest rate is 4% per year?
a. one that pays $ 900 now
b. one that pays $ 1080 in two years
c. one that pays $ 1350 in five years
d. one that pays $ 1620 in ten years
Answer:
c. one that pays $ 1350 in five years
Explanation:
we have to calculate the present value of each option:
option a, $900 (that is the present value)option b, $1,080 in 2 years. PV = $1,080 / (1 + 4%)² = $998.52option c, $1,350 in 5 years. PV = $1,350 / (1 + 4%)⁵ = $1,109.60option d, $1,620 in 10 years. PV = $1,620 / (1 + 4%)¹⁰ = $1,094.41Option c yields the highest present value = $1,109.60
g On July 1, Shady Creek Resort borrowed $320,000 cash by signing a 10-year, 11.5% installment note requiring equal payments each June 30 of $55,480. What amount of interest expense will be included in the first annual payment
Answer:
Interest portion for one year = $320,000 * 11.5% = $36,800
Total installment paid = $55,480
So, principal portion repaid = $55,480 - $36,800 = $18,680
Journal entry
Date General journal Debit Credit
Interest expense $36,800
Notes payable $18,680
To Cash $55,480
A proposed cost-saving device has an installed cost of $790,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $77,000, the tax rate is 21 percent, and the project discount rate is 10 percent. The device has an estimated Year 5 salvage value of $118,000. What level of pretax cost savings do we require for this project to be profitable?
Answer:
The pretax cost savings for project to be profitable will be more than $2,059,794 for the 5 years of life.
Explanation:
Installed cost = $790,000
Initial working capital = $77,000
Tax rate = 21%
Project discount rate = 10%
Estimated salvage value = $118,000
Depreciable amount :
Installed cost $790,000
Salvage value 118,000
Net $672,000
Annual depreciation = $134,400 ($672,000/5)
Working capital = $77,000
Pretax cost savings = $211,400 x 1.61051 x 1.21
= $2,059,794
Pauley Company needs to determine a markup for a new product. Pauley expects to sell 15,000 units and wants a target profit of $22 per unit. Additional information is as follows:
Variable product cost per unit $19
Variable administrative cost per unit 11
Total fixed overhead 13,500
Total fixed administrative 21,000
Using the variable cost method, what markup percentage to variable cost should be used?
Answer:
81%
Explanation:
Calculation for the markup percentage to variable cost that should be used
Using this formula
Markup percentage=[(Target profit + Fixed overhead costs + Fixed administrative costs) / Total variable costs
Let plug in the formula
Markup percentage=[($22*15,000 units)+$13,500+$21,000]/$30×15,000)
Markup percentage=($330,000+$13,500+$21,000)/$450,000
Markup percentage=$364,500/$450,000
Markup percentage=0.81*100
Markup percentage=81%
Calculation for Total variable costs
Variable product cost per unit $19
Variable administrative cost per unit $11
Total variable costs =$30
Therefore the markup percentage to variable cost that should be used will be 81%
Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $3.00 per share, and the current price of its common stock is $60 per share. The expected growth rate is 8 percent.
a. Compute the cost of retained earnings (Ke). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Cost of retained earnings___%
b. If a $5 flotation cost is involved, compute the cost of new common stock (Kn). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Cost of new common stock ____%
Answer:
a. Compute the cost of retained earnings (Ke)
$60 = $3 / (Ke - 8%)
Ke - 8% = $3 / $60 = 5%
Ke = 13%
b. If a $5 flotation cost is involved, compute the cost of new common stock (Kn).
$60 (1 - $5/$60) = $3 / (Kn - 8%)
$55 = $3 / (Kn - 8%)
Kn - 8% = $3 / $55 = 5.45%
Kn = 13.45%
Flotation costs reduce the amount of money that the company receives for every new stock that it issues, therefore, it increases the cost of new stocks.
Strategic management is about formulating strategies that align an organizations internal capabilities with external opportunities while avoiding or minimizing threats. How effective has Mark Parker been as a strategic so far
Answer:
Mark Parker has been very effective as a strategist for the following reasons:
Explanation:
He has been able to keep Nike's brand equity. His policies on HR has generated an effect which translated to increased motivation for his employees to commit to the attainment of the company's objectivesA strategist must be able to make plans and execute them. Nike's strategy is a customer-centric one. Mark was able to, regardless of the economy, ensure that Nike's products were consumer-centric and that the business units in charge of each aspect of Nike's operations were able to deliver their best.
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An annuity provides for 30 annual payments. The first payment of 100 is made immediately and the remaining payments increase by 8 percent per annum. Interest is calculated at 13.4 percent per annum. Calculate the present value of this annuity.
Answer:
$1423.38
Explanation:
number of payments ( number of years )(n) = 30
first payment = $100
interest calculated at : 13.4 % = 0.134
increment rate : 8 percent = 0.08
we can calculate the present value using this Equation
= (p / (r-g)) * [1 - [(1+g)/(1+r)]^n ]
where :
p / (r-g) = 100 / (0.134 - 0.08 ) = $1852
[1 - ((1+g)/(1+r)]^n ) = (1 - ((1.08/1.134)^30 ) = 0.7686
hence the present value of this annuity = $1852 * 0.7686 = $1423.38
Note :
p ( first principal payment ) = $100
r ( calculated interest ) = 13.4% = 0.134
g ( increment interest ) = 8 % = 0.08
Easton Co. deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on June 30, its Cash account shows a debit balance of $61,709. Easton's June bank statement shows $59,549 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit $ 4,250 Outstanding checks $ 2,075 Check printing fee, not yet recorded by company $ 18 Interest earned on account, not yet recorded by the company $ 33
Answer:
ADJUSTED BOOK BALANCE
Bank balance $59,549 Book balance $61,709
+ Deposit in transit $4,250 Interest earned $33
- Outstanding checks $2,075 Bank service fees $18
Adjusted book $61,724 $61,724
balance
examine the difference leadership and management
Answer: LEADERSHIP is about getting to comprehend and believe in the vision you on achieving your goals, while MANAGEMENT is more about administering and making sure the day to day activpities are happening as they should.
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Explanation:
Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $43,000 of accounts payable and no other debt. The current fair market value of Winterhaven’s capital is $270,000. (Leave no answer blank. Enter zero if applicable.)
a. If Connie receives a 5 percent capital interest only, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
b. If Connie receives a 5 percent profits interest only, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
c. If Connie receives a 5 percent capital and profits interest, how much income must she report and what is her tax basis in the LLC interest?
Income ______
Tax Basis ______
Answer and Explanation:
a. Connie registers $13,500 of ordinary revenue or 5% of the LLC's $270,000 property. Her LLC investment base is $13,500 as well.
b. Connie does not disclose any profits but will have an interest rate equal to her share of the LLC 's debt in the LLC. Since debt from the LLC is a non-recourse loan, it needs to be distributed to her through interest on earnings from Connie. Therefore her investment in the LLC is equivalent to $2,150 or 5% of the $43,000 accounts payable by the LLC.
c. Connie reports $13,500 of ordinary revenue or 5 percent of the $270,000 capital of the LLC. Her LLC interest base is $13,500, too. Her base in the LLC is $15,650 consists of the $13,500 benefit she accepts for earning her capital gain and her $2,150 non-recourse tax payable from the LLC.
Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget: Rumble Thunder Estimated inventory (units), June 1 750 300 Desired inventory (units), June 30 500 250 Expected sales volume (units): Midwest Region 12,000 3,500 South Region 14,000 4,000 Unit sales price $60 $90 a. Prepare a sales budget.
Answer: please see explanation column
Explanation:
Rumble Thunder
Estimated inventory (units), June 1 750 300
Desired inventory (units), June 30 500 250
Expected sales volume (units):
Midwest Region 12,000 3,500
South Region 14,000 4,000
Unit sales price $60 $90
a) Sonic Inc. Sales Budget for June
Unit Sales Vol Unit Selling price Total Sales
Model Rumble:
Midwest Region 12000 60 $720,000
South Region 14000 60 $840,000
Total 1,560,000
Model Thunder:
Midwest Region 3500 $90 $315,000
South Region 4000 $90 $360,000
Total $675,000
Total revenue from sales 1,560,000 + $675,000 =$2,235,000
B) Sonic Inc. Production budget for June
Units Model Rumble Units Model Thunder
Expected units to be sold 26000 7500
Add: Desired ending inventory + 500 + 250
Total units required 26500 7750
Less: Beginning inventory - 750 - 300
Total units to be produced $25750 $ 7450
Calculation :
Expected units to be sold =12,000 + 14,000 = $26,000
3,500 + 4,000 = $7,500
Total units required=Expected units to be sold+ Desired ending inventory
26000 +500 =$26,500
7,500 +250= $7,750
Joe-Bob wants to buy a car and will need to take out a loan in order to make the purchase. His current monthly income is $3,500 per month. His mortgage payment is $900 per month, and his student loan payment is $350 per month. Note: You do not need to take taxes into consideration for this journal.
a. According to the affordability formulas given, can he afford to take out another loan?
b. When should he follow the affordability formulas?
c. In what cases should he not?
d. How could taking out the car loan impact his other priorities?
Answer:
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
Explanation:
using the affordability formula
The debt to income ratio = [tex]\frac{total debt}{gross income}[/tex]
total debt = mortgage payment + loan repayment = $900 + $350
= $1250
gross income = $3500
hence debt to income ratio = 1250 / 3500 = 0.3571 = 35.7%
A) according to the affordability formula Joe-Bob can take out another loan because his DTI is 36%
B) He should follow the affordability formula when he wants to take out loans
C) He should not follow DTI if he isn't taking out loans
D) Taking out a loan will negatively impact his other priorities if his DTI is very high or greater than 100%
a. According to the affordability formulas, Joe-Bob cannot afford to take out a car loan. His current DTI without the auto loan is almost 36%.
b. Joe-Bob should follow the affordability formulas to guide his decisions in taking a new loan.
c. Joe-Bob does not need to follow the affordability formulas when his debt to income ratio (DTI) is far below 36%. He can also avoid the affordability formulas when he has the prospect of increasing his monthly income.
d. If Joe-Bob takes out the car loan despite his poor rating on the affordability formulas, he may not afford to pay his bills for necessities.
Thus, Joe-Bob should not take on more loans now until he improves his income. An automobile will require routine maintenance and some repairs, including fuelling.
Data and Calculations:
Current monthly income = $3,500
Monthly mortgage payment = $900
Monthly student loan payment = $350
Total current debts = $1,250 ($900 + $350)
The Affordability Formula (Current Debt Payment to Income Ratio) =
35.7% ($1,250/$3,500 x 100)
The Affordability Rule states that Joe-Bob should not spend more than 36% of his monthly income repaying loans.
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PureFruit Inc. prices its products higher than most of its competing brands in the packaged fruit juice industry. However, it still enjoys higher returns than its competitors because it is the only brand that can rightfully claim the use of fresh fruits and no added sugar. What kind of organizational strategy based on competitive advantage does PureFruit most likely use?
Answer:
Strategy based on differentiation
Explanation:
Please find the options to this question in the attached image
In pursing a competitive advantage by differentiation, the firm strives to make its product different from that of its competition.
The differences between the product and that of competitors are identified and communicated to consumers so they find the product more attractive.
PureFruit Inc. products are different from that of its competitors because it uses fresh fruits and no added sugar
Smiley Corporation sold equipment costing with of accumulated depreciation for cash. Which of the following journal entries should be prepared?
a. debit Cash for $10, 000, credit Equipment for $6000 and credit Gain on Sale of Equipment for $4000
b. debit Cash for $10, 000, debit Accumulated Depreciation - Equipment for $66, 000, credit Equipment for $72000 and credit Gain on Sale of Equipment for $4000
c. debit Cash for $10, 000 and credit Gain on Sale of Equipment for $10, 000
d. debit Accumulated Depreciation - Equipment for $66, 000 and credit Equipment for $66, 000
The question is incomplete as the figures are missing. The complete question is,
Smiley Corporation sold equipment costing $72, 000 with $66, 000 of accumulated depreciation for $10, 000 cash. Which of the following journal entries should be prepared?
A. debit Cash for $10, 000, credit Equipment for $6000 and credit Gain on Sale of Equipment for $4000
B. debit Cash for $10, 000, debit Accumulated Depreciation - Equipment for $66, 000, credit Equipment for $72000 and credit Gain on Sale of Equipment for $4000
C. debit Cash for $10, 000 and credit Gain on Sale of Equipment for $10, 000
D. debit Accumulated Depreciation - Equipment for $66, 000 and credit Equipment for $66, 000
Answer:
Option B is the correct answer.
Explanation:
To calculate the gain or loss on disposal of the equipment, we first need to determine the book value of the equipment on the date of sale.
Net Book Value = Cost - Accumulated depreciation
Net Book value = 72000 - 66000 = $6000
The gain/(loss) on disposal = Sales Proceeds - Net Book value
The gain/(loss) on disposal = 10000 - 6000 = $4000 Gain
The entry to record this transaction will be,
Cash $10000 Dr
Accumulated depreciation - Equipment $66000 Dr
Equipment $72000 Cr
Gain on sale-Equipment $4000 Cr
