Costs which can be eliminated in whole or in part if a particular business segment is discontinued are called:

Answers

Answer 1

Answer:

Avoidable costs

Explanation:

An avoidable cost is defined as one that an entity will not incur if a particular activity is not undertaken.

In business operations avoidable costs are usually variable costs. These are costs that vary or change in the cost of production. For example wages, cost of raw materials, and labour. These can be avoided depending on business needs.

Costs that are not avoidable are fixed cost. For example rent, insurance, and utilities.

These costs are paid wether production occurs or not.


Related Questions

Farmer Brown’s total cost curve is a. increasing at an increasing rate. b. increasing at a decreasing rate. c. increasing at a constant rate. d. decreasing.

Answers

The question is incomplete:

If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.

Farmer Brown's total-cost curve is

a. increasing at an increasing rate.

b. increasing at a decreasing rate.

c. increasing at a constant rate.

d. decreasing.

Answer:

a. increasing at an increasing rate.

Explanation:

To determine the answer, you can create a graph with the information given hich is attached.

You can see that the curve is increasing and because of that you can eliminate option d that is decreasing. Then, you have to consider that increasing at a constant rate would show an straight line which is not the case. Also, increasing at a decreasing rate would show a decreasing slope which is not what you see in the graph. Because of that, the answer is that Farmer Brown’s total cost curve is increasing at an increasing rate because the graphs shows an increasing slope.

According to research, effective leaders at all levels of organizations have high levels of Emotional Intelligence (EI). CEOs with high EI excel in all of the following exceptA) managing relationships.B) influencing people.C) forging alliances inside and outside the firm.D) ability to discourage outside stakeholders.

Answers

Answer:

D) ability to discourage outside stakeholders.

Explanation:

Emotional Intelligence (EI) is important for effective leaders at all levels or organizations including CEO, as it helps in several organizational functions such as managing employee relations, satisfying employees, influencing people and forging alliances inside and outside the firm.

But a CEO with high level of EI will never discourage outside stakeholders, rather they will encourage their employees to perform better.

Hence, the correct answer is "D".

Coastal Shores Inc. (CSI) was completely destroyed by Hurricane Fred on August 5, 2021. At January 1, CSI reported an inventory of $153,000. Sales from January 1, 2021, to August 5, 2021, totaled $432,000 and purchases totaled $175,500 during that time. CSI consistently marks up its products 60% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Fred would be:

Answers

Answer:

58,500

Explanation:

Given the information above, the formula for Inventory loss is

Inventory loss = Opening inventory + Purchases - Cost of sales

Where,

Cost of sales = $432,000 × 100 ÷ 160

=$270,000

Since opening inventory = $153,000

Purchases = $175,500

Therefore,

Inventory loss = $153,000 + $175,500 - $270,000

= $58,500

Which of the following statements about collateral contracts is true? Group of answer choices The guarantor promises to pay only if the principal debtor fails to do so. The principal debtor's debt is secondary. A collateral contract involves three parties and one promise to perform. The guarantor's debt is primary.

Answers

Answer:

The principal debtor's debt is secondary

Explanation:

The collateral contracts  involves three parties and one promise to perform.

What is a Collateral Contract?

A collateral contract is a separate contract which exists beside the main contract. Largely, where a written contract, the term of agreement base on the contract.

The collateral contracts are independent oral or written contracts that are made between two parties to a separate agreement or between one of the original parties and  a third party.

This type of contract is usually made before or simultaneously with the original contract.

A collateral contract is a secondary agreement added to the original contract that is meant to ensure that the pre-contract promise are met.

Collateral contracts contain terms that conflict with the terms of the primary agreement.

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Your Competitive Intelligence team is predicting that the Digby Company will invest in adding capacity to their Deal product this year. Assume Digby's product Deal invests in increasing its capacity by 10% this year. Because of this new information, your company anticipates all other products in the Core segment will increase their capacity by the same amount. How much can the industry produce in the Core segment the next year

Answers

Answer:

13,288

Explanation:

The computation of the amount that industry produced in the core segment is shown below:

It can be determined in two ways i.e.

= 6,444 + 6,444

= 13,288

And, the other method is

= 6,444 × 2

= 13,288

In both the methods, the answer would remain the same

Hence, the 13,288 should be produced by the industry for the next year production

According to the kinked demand curve theory, if Kit-N-Sit cuts prices, Kittysitters will ________; if Kit-N-Sit raises prices, Kittysitters will ________.

Answers

Answer:

respond aggressively by cutting prices ; will do nothing and leave prices unchanged.

Explanation:

The kinked demand curve was developed by an economist, Sweezy to addressing price inflexibility associated with an oligopolist market. In an oligopolist market, prices tends to remain unchanged over a long period of time even when costs are declining. The kinked demand curve hypothesis states that a firm faces a demand curve with a kink at the prevailing price level. This means that the curve is more elastic above the kink and less elastic below it. Here, there is less response to a price increase compared to much response to a price decrease.

According to the assumption under kinked demand curve, each firm in an oligopoly believes that if a firm cut price below the prevailing level, then competitors will follow suit. This is because competitors feels that if they do not cut their prices too, then their customers will leave them and buy from the competitor that is selling at lower price.

It is also assumed that, if a firm increases the price of his goods and services above the prevailing level, then competitors will not follow suit. This means that if a firm increases the price of his goods and services, there will be reduction in sales hence competitors will not increase their price. This because customers will patronize firms with the same or similar products hence increase competitors sales.

The unfavorable volume variance may be due to all of the following factors except:_______

a. failure to maintain an even flow of work
b. machine breakdowns
c. failure to obtain enough sales orders
d. unexpected increases in the cost of utilities

Answers

Answer:

d. unexpected increases in the cost of utilities

Explanation:

there are several volume variances:

direct materials volume variancedirect labor volume variancemanufacturing overhead volume variance sales volume variance

Utilities are part of manufacturing overhead, but volume variances using the standard rates, so an unexpected increase in the cost of utilities will not affect the overhead volume variance.

The unfavorable volume variance can not be due because of unexpected Increases in the cost of utilities

Unfavorable volume variance means that the amount of applied fixed manufacturing overhead costs is less than the budgeted fixed manufacturing overhead costs

The machine breakdowns will affect production levels, thus, resulting to unfavorable volume variance.

The failure to maintain even flow of work will impact the production quantities, thus, resulting to unfavorable volume variances

The failure to obtain enough sales order will limit production quantities, thus, resulting to unfavorable volume variances.

Thus, the Option D is correct because unfavorable volume variance can not be due because of unexpected Increases in the cost of utilities

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One Step, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 27 years to maturity that is quoted at 105 percent of face value. The issue makes semiannual payments and has a coupon rate of 4 percent.


Requried:

a. What is the company's pretax cost of debt?

b. If the tax rate is 23 percent, what is the aftertax cost of debt?

Answers

Answer:

Before tax cost of debt=3.72%

After-tax cost of debt =2.87 %

Explanation:

The yield to maturity to Maturity van be worked out using the formula below:

YM =( C + F-P/n) ÷ ( 1/2× (F+P))

C- annual coupon,  

F- face value ,

P- current price,  

n- number of years to maturity

YM - Yield to maturity

DATA

C- 4%× 100 = 4, P- 105, F- 100

AYM = 4 + (100-105)/27 ÷ 1/2× (100+105)

=0.0372 ×  100= 3.72%

Yield to maturity =3.72%

Before tax cost of debt = Yield to maturity

Before tax cost of debt=3.72%

After tax cost of debt =Before tax cost of debt × (1-T)

Before tax cost of debt = 3.72%

Tax rate = 23%

After-tax cost of debt = 3.72%× (1-0.23) =2.87 %

After-tax cost of debt =2.87 %

You take out a car loan for 13,381 dollars. If your loan has an annual interest rate of 8.86 percent, and you will make monthly payments for 5 years, how much of your first payment will go towards principal (go towards paying down the outstanding loan balance)?

Answers

Answer:

Principal paid in the first payment =$2,656.52

Explanation:

Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.  

We will use the following relationships:

Interest paid = Interest rate × loan balance

Principal paid = Monthly installment - Interest paid

Monthly installment  = Loan amount/Annuity factor

Annuity factor = (1- (1+r)^(-n))/r

r - annual interest rate

n- number of period = 12× 5 = 60

Monthly interest rate - 8.86/12 =0.738 %

Loan amount = 13,381

Annuity factor = (1 - (1.00738)^(-60) )/ 0.00738=48.336

Monthly interest payment = Loan amount/Annuity factor

                                         13,381/48.336=2,755.32

Interest due in the first month = interest rate × loan amount

                      =  0.738 %×  13,381 =98.796

Principal aid in the first year = Monthly installment - interest due 1st month

                      = 2,755.32 - 98.796 = 2,656.52

Principal paid in the first payment =$2,656.52

TB MC Qu. 6-75 Kuzio Corporation produces and ... Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100 % Variable expenses 75 50 % Contribution margin $ 75 50 % The company is currently selling 6,500 units per month. Fixed expenses are $184,000 per month. The marketing manager believes that a $7,800 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change

Answers

Answer:

Effect on income= $6,450 increase

Explanation:

Giving the following information:

Contribution margin= $75

The marketing manager believes that a $7,800 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales.

To calculate the effect on income, we need to use the following formula:

Effect on income= increase in contribution margin - increase in fixed costs

Effect on income= 190*75 - 7,800

Effect on income= $6,450 increase

2. At an oral auction for used car, half of all bidders have a value of $1,500 and half have a value of $1,900. What is the expected winning bid if there are three bidders

Answers

Answer:  $1,700

Explanation:

The expected winning bid is the weighted average of the 2 different bids.

Half of the bids are for $1,500 so weight of $1,500 is 0.5.

Half of the bids are for $1,900 so weight of $1,900 is 0.5.

Expected Winning bid = (1,500 * 0.5) + ( 1,900 * 0.5)

= 750 + 950

= $1,700

An officer of a company has acquired shares of that issuer in the open market. If the officer wishes to sell the shares:

Answers

Answer: C. II and III

Explanation:

As the shares were acquired by the officer on the open market, they are considered Control Stock. Sale of Control Stock falls under the purview of Rule 144 of the SEC that governs the sale of restricted, unregistered, and control securities so a Form 144 will need to be filed with the Sec making III correct.

Furthermore, control stock are not subject to a holding period requirement so option II is correct as well. Option C is therefore the best answer.

​Canyon Canoe Company's Amber Zack Wilson are continuing their analysis of the company's position and believe the company will need to borrow $15,000 in order to expand operations. They consult Rivers Nation Bank and secure a 66 %, one-year note on September 1, 2019, with interest due at maturity. Additionally, the company hires an employee, John Vance, on September 1. John will receive a salary of $3,000 per month. Payroll deductions include federal income tax at 25 %, OASDI at 6.2 %, Medicare at 1.45 %, and monthly health insurance premium of $250. The company will incur matching FICA taxes, FUTA tax at 0.6 %, and SUTA tax at 5.4 %. Round calculations to two decimals. Omit explanations on journal entries.Requirements:
1. Record the issuance of the $15,000 note payable on September 1, 2019.
2. Record the employee payroll and employer payroll tax entries on September 30, 2019.
3. Record all payments related to September's payroll. Payments are made on October 15, 2019.
4. Record the entry to accrue interest due on the note at December 31, 2019.
5. Record the entry Canyon Canoe Company would make to record the payment to the bank on September 1, 2020.

Answers

Answer and Explanation:

The Journal entry is shown below:-

1. Cash Dr, $15,000

          To Notes payable $15,000

(Being note payable is recorded)

2. Salaries expense Dr, $3,000

        To Federal income tax payable $750 (25% × $3,000)

        To Social security tax payable $186  (6.2% × $3000)

        To Medicare tax payable $43.50   (1.45% × $3,000)

         To Health insurance premium payable $250

         To Salaries payable $1770.50

(Being salaries expense is recorded)

Payroll tax expense Dr, 409.50

            To Social security tax payable $186 (6.2% × $3,000)

             To Medicare tax payable $43.5  (1.45% × $3,000)

             To FUTA tax payable $18 (0.6% × $3,000)

             To SUTA tax payable $162 (5.4% × $3,000)

(Being payroll tax expense is recorded)

3. Salaries payable Dr, $1,770.50

            To Cash $1,770.50

(Being cash paid is recorded)

Federal income tax payable Dr, $750

Social security tax payable Dr, $372

Medicare tax payable $87

Health insurance premium payable Dr, $250

FUTA tax payable Dr, $18

SUTA tax payable Dr, $162

                  To Cash $1,639

(Being cash paid is recorded)

4. Interest expense Dr, $300 ($15,000 × 6% × 4 ÷ 12)

              To Interest payable $300

(Being interest expense is recorded)

5. Note payable Dr, $15,000

    Interest payable Dr, $300

    Interest expense $600    ($15000 × 6% × 8 ÷ 12)

                    To Cash $15,900

(Being cash paid is recorded)

A food manufacturer reports the following for two of its divisions for a recent year.
($ millions) Beverage Division Cheese Division
Invested assets, beginning $2,680 $4,473
Invested assets, ending 2,602 4,409
Sales 2,690 3,934
Operating income 358 643
Required:
1. Compute return on investment.
2. Compute profit margin.
3. Compute investment turnover for the year.
Assume that each of the company's divisions has a required rate of return of 8%. Compute residual income for each division.

Answers

Answer:

a. Return on Investment

ROI= Operating income/Average invested assets

Beverage Division ROI = 358 / (2,680+2,602) /2

= 358 / 2,641

= 0.13555

= 13.56%

Cheese Division ROI = 643 / (4,473 + 4,409)/2

= 643 / 4,441

= 0.14478

= 14.48%

b.  Profit margin

Profit Margin= Operating income / Sales

Beverage Division = 358 / 2690

= 0.13309

=13.31%

Cheese Division = 643 / 3934

= 0.16345

= 16.35%

c. Investment turnover for the year

Investment turnover = Sales / Average invested assets

Beverage Division = 2690 / 2641 = 1.02

Cheese Division = 3934 / 4441 = 0.89

d.                            Beverage$'m        Cheese'million

Average Assets          2641                         4441

Targeted return           8%                             8%

Target income             211                            355

Residual Income      Beverage'm       Cheese'm

Operating income       358                       643

Less: Target income    211                        355

Residual Income         147                        288

A mother, aged 60, wishes to withdraw monies from her variable annuity to pay for her son's college education. Which statement is true regarding the taxation of the withdrawal?
A. The withdrawal is 100% taxable
B. Any amount withdrawn above the cost basis is taxable
C. Any amount withdrawn above the cost basis is taxable, and is subject to a 10% penalty tax
D. The withdrawal is not subject to tax

Answers

Answer:

Any amount withdrawn above the cost basis is taxable

Explanation:

This woman is above 59½ years at age 60. If she was least than 60, she would be owing a 10% penalty on the taxable amount of this withdrawal. But since she is above this age she has to pay income taxes on the whole taxable amount of the funds she withdrew. Variable annuities would never be taxed the money is withdrawn. Therefore option B is the best answer for This question.

Potential GDP of an economy is $12 billion. Real (Actual) GDP is $20 Billion. Marginal propensity to consume is 0.75. What level of Government spending is required to achieve Full employment

Answers

Answer:

Government spending required  = $2 billion

Explanation:

The required amount of GDP to achieve the full employment GDP =

Potential GDP - Actual

that is 20 - 12 = $8 billion.

But note that a government spending of less than $8 billion would be required to achieve an increase of 8 billion in real GDP. This is so because of   expenditure multiplier effect.

The expenditure multiplier is the amount by which the aggregate output would increase with an increase in any of the expenditure components.

It is calculated as follows;

Multiplier = 1/(1-MPC)

For this question ,

Expenditure multiplier = 1/(1-0.75) = 4

This implies that $1 change in any of the aggregate expenditure would lead a $4 worth of change in GDP.

Government spending required  is determined as

Desired change in real GDP/expenditure multiplier

= $8 billion/4 = $2 billion

Government spending required  = $2 billion

The project has been challenging to manage. Everyone has been on edge due to pressure to complete the project on time. Unfortunately, the tension has grown to the point where team meetings have become shouting matches and little work is accomplished during the meetings. One team member asks to be excused from future team meetings, as all the shouting upsets him. Meanwhile, the sponsor has asked to attend team meetings in order to better understand how the project is going and the issues involved in completing the project, and the customer has started discussions about adding scope to the project. In this situation, it would be BEST for the project manager to:

Answers

Answer: C. Involve the team in creating ground rules for the meetings.

Explanation:

The meetings have seemingly descended into anarchy and as such needs to be controlled in an orderly manner to make any sort of progress. One way this can be done is through the setting of ground rules. These rules need to be accepted and inclusive of people's qualms or else the arguments will continue.

When the rules are made therefore, the inputs of the entire team should be taken into consideration and this is what the Project manager needs to do. Setting all inclusive rules also helps the team understand each other better during the discussions are point of views will be seen and understood better.

NewTech purchases computer equipment for $154,000 to use in operating activities for the next four years. It estimates the equipment’s salvage value at $25,000.Required:Prepare a table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Answers

Answer:

Accumulated depreciation = $129,000

Net book value after years = Salvage value = $25,000

Explanation:

Note: See the attached excel file for the table showing depreciation and book value for each of the four years assuming double-declining-balance depreciation.

Double-declining-balance is a depreciation method in which an asset is depreciated at twice the rate of the straight line depreciation method.

For this question, the depreciation rate can be obtained as follows:

Straight line depreciation rate = 1 / Number of years of operating activities = 1 / 4 = 0.25, or 25%

This can be done as follows:

Double-declining depreciation rate = Straight line depreciation rate * 2 = 25% * 2 = 50%

The 50% double-declining depreciation rate is therefore used in the attached excel file table.

Note that there the depreciation expenses in Year 4 is zero because the asset has already been fully depreciated in year 3 since there is a salvage value of $25,000 that must be maintained at the end of Year 4.

Division A had ROI of 15% last year. The manager of Division A is considering an additional investment for the coming year. What step will the manager likely choose to take

Answers

Answer: c.Reject the investment if it returns less than 15% ROI.

Explanation:

Additional investments should yield incremental returns if they are to be accepted. In the previous year, Division A had an Return on Investment of 15%, when an additional investment is being considered, it must bring in more than that 15% if it is to be accepted.

Therefore, if an investment is to give a less than 15% ROI, it should be rejected as it is not bringing additional returns for the Division.

Best Deals, Inc. has 10 units in ending merchandise inventory on December 31. The units were purchased in November for $160 each. The price lists from suppliers indicate the current replacement cost of the item to be $162 each. What would be the amount reported as Merchandise Inventory on the balance sheet?

A. $1,600

B. $3,220

C. $322

D. $1,620

Answers

Answer:

$1,600

Explanation:

Best deals incorporation has a total of 10 units in the ending merchandise inventory on December 31

The units were bought in the month of November at a price of $160 for each unit

The replacement cost of the item is $162

Inventory is always recorded when the cost is low

Therefore, the amount that is to be reported as the merchandise inventory can be calculated as follows

=10 units × $160

= $1,600

Hence the amount reported as the merchandise inventory on the balance sheet is $1,600

A trader maintains a position in a small capitalization stock that has low trading volume. The trader has a high level of which of the following risks?
A) MarketB) LiquidityC) BusinessD) Inflation

Answers

Answer:

B) Liquidity

Explanation:

Liquidity is the ability of quickly buy or sell a stock without any price change.

Liquidity in a small-capitalization stock that has low trading volume is generally low that causes a problem for traders. It is so because in small capitalization, traders are unable to understand potential pitfalls and blindly invest in small-capitalization stocks which do not give profit as expected and the liquidity becomes low.

Hence, the correct answer is B) Liquidity.

In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
1. Refer to Instruction, how many euros will the U.S. investor acquire with his initial $500,000 investment?
A) €650,000B) €370,370C) €500,000D) €384,6152. Refer to Instruction, at an average price of €60/share, how many shares of stock will the investor be able to purchase?A) 8333 sharesB) 6410 sharesC) 6173 sharesD) 10,833 shares3. Refer to Instruction, at the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return before converting the stock back into dollars?A) 5.0%B) -3.0%C) -5.0%D) 3.0%
4. Refer to Instruction, at the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return after converting the stock back into dollars?A) -1.35%B) 5.0%C) -5.0%D) -7.24%

Answers

Answer:

1. Refer to Instruction, how many euros will the U.S. investor acquire with his initial $500,000 investment?

D) €384,615

$500,000 / $1.30 = €384,615.38

2. Refer to Instruction, at an average price of €60/share, how many shares of stock will the investor be able to purchase?

B) 6410 shares

€384,615 / €60 = 6,410.25

3. Refer to Instruction, at the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return before converting the stock back into dollars?

C) -5.0%

(€57 - €60) / €60 = -5%

4. Refer to Instruction, at the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return after converting the stock back into dollars?

A) -1.35%

[(6,410 x €57) + €15] x $1.35 = $493,269.75

($493,269.75 - $500,000) / $500,000 = -1.35%

Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 68,000 −$ 68,000 1 44,000 30,200 2 38,000 34,200 3 25,000 40,000 4 15,600 24,200 a-1. What is the IRR for each of these projects?

Answers

Answer:

IRR for A= 35.33%

IRR for B = 31.88%

Explanation:

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested

IRR can be calculated using a finacial calculator :

IRR for cash flow A

Cash flow in year 0 = −$ 68,000

Cash flow in year 1 = $44,000

Cash flow in year 2 = $38,000

Cash flow in year 3 = $25,000

Cash flow in year 4 = $15,600

IRR = 35.33%

IRR for cash flow A

Cash flow in year 0 = −$ 68,000

Cash flow in year 1 = $30,200

Cash flow in year 2 =  34,200

Cash flow in year 3 = $40,000

Cash flow in year 4 = $24,200

IRR = 31.88%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 84,000 pounds. The subsidiary immediately borrowed 200,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 284,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2017, the subsidiary rented the building for three years to a group of local attorneys for 7,200 pounds per month. By year-end, rent payments totaling 72,000 pounds had been received, and 14,400 pounds was in accounts receivable. On October 1, 3,600 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 5,100 pounds back to Sullivan's Island Company on December 31, 2017. The functional currency for the subsidiary is the pound.
Currency exchange rates for 1 pound follow: January 1, 2017 $ 2.10 = 1 Pound
October 1, 2017 2.15 = 1
December 31, 2017 2.18 = 1
Average for 2017 2.14 = 1
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds and then translate these amounts into U.S. dollars.

Answers

Answer:

Sullivan's Island Company

a. Sullivan's Island Company Income Statement for the year ended December 31, 2017:

                                             Pounds            US $

Rent Revenue                      86,400           184,896

Repairs to building                3,600               7,704

Depreciation - Building       28,400             60,776

Interest on Notes                20,000            42,800

Net Income                          34,400              73,616

   

b. Sullivan's Island Company Statement of Retained Earnings for the year ended December 31, 2017:

                                             Pounds            US $

Net Income                          34,400              73,616

Dividends                               5,100               10,914

Retained Earnings             29,300             62,702

c.  Sullivan's Island Company Balance Sheet as of December 31, 2017:

                                             Pounds            US $

Assets:

Cash                                     63,300           138,102

Rent Receivable                   14,400             31,392

Building                             284,000         596,400

Less Depreciation             -28,400           -60,776

Total Assets                     333,300            705,118

Liabilities:

Notes Interest Payable     20,000             42,800

Notes Payable                200,000           420,000

Common Stock                 84,000            176,400

Retained Earnings            29,300             62,702

Foreign Exchange Translation Gain            3,216

Total Liabilities + Equity 333,300             705,118

Explanation:

a) Data and Calculations:

Currency exchange rates for 1 pound follow:

January 1, 2017 $    2.10 = 1 Pound

October 1, 2017       2.15 = 1

December 31, 2017 2.18 = 1

Average for 2017    2.14 = 1

Cash Account:

                                             Pounds            US $

Jan. 1 Common Stock          84,000           176,400

Jan. 1 Notes Payable         200,000         420,000

Jan. 1 Building                   -284,000       -596,400

Oct. 1 Building Repairs          -3600             -7,740

Dec. 31 Rent received         72,000          156,960

Dec. 31 Dividends                 -5,100              -11,118

Dec. 31 Balance                 63,300           138,102

b) Sullivan recorded some unrealized foreign exchange translation gain of $3,216.  This is due to translation differences.

Which of the following is true regarding the value of an option? A) Unlike the Black-Scholes formula, the Put-Call Parity suggests that the volatility of underlying asset is not a factor that affects the value of an option. B) The option premium is greater or equal to its intrinsic value because of the time premium. C) The call and put premiums are unrelated since they depend on different set of variables. D) The writer of the call option pays the same premium as the buyer of the put option. E) When the call option is out-of-the-money and the put option is in-the-money, the call must be more valuable than the put.

Answers

Answer: B) The option premium is greater or equal to its intrinsic value because of the time premium.

Explanation:

The option premium can be calculated by adding the time premium and the intrinsic value. The time premium is the part of the option premium that accounts for the time remaining till the premium matures while the intrinsic value is the difference between the value of underlying asset and the strike price.

As the time premium can be zero but never negative, the option premium can either be greater than its intrinsic value or equal to it. It cannot be lower than it because of the time premium.

Northwest Fur Co. started 2021 with $105,000 of merchandise inventory on hand. During 2021, $510,000 in merchandise was purchased on account with credit terms of 3/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $8,900. Merchandise with an invoice amount of $3,700 was returned for credit. Cost of goods sold for the year was $362,000. Northwest uses a perpetual inventory system. What is ending inventory assuming Northwest uses the gross method to record purchases

Answers

Answer:

The ending inventory by using the gross method is $243,011

Explanation:

Purchases = Net purchases + Freight inwards

Purchases = 491,111 + 8,900

Purchases = 500,011

When Net purchase = Gross Purchase - Purchase return - Discount

Net purchase = 510,000 - 3,700- 15,189

Net purchase = 491,111

Working

Discount = (Purchases - Purchase return) × Discount rate

Discount = (510,000 - 3,700) * 3%

Discount = 15,189

Ending inventory = Beginning inventory + Purchases− Cost of good sold

Ending inventory = (105,000 + 500,011) - 362,000

Ending inventory = $243,011

Thus, the ending inventory by using the gross method is $243,011.

Southland Corporation has a present capital structure consisting of common stock (10 million shares) and debt ($150 million, 8% coupon rate). The company needs to raise $60 million and is undecided between two financing plans. Plan A: Equity financing. Under this plan, an additional common stock will be sold at $15 per share. Plan B: Debt financing. Under this plan, the firm will issue 10% coupon bonds. At what level of operating income (EBIT) will the firm be indifferent between the two plans? Assume a 40% marginal tax rate.

Answers

Answer:

The level of operating income (EBIT) where the firm will be indifferent between the two plans is $33 million.

Explanation:

Indifferent level of EBIT refers to the EBIT level where the he Earnings Per Share (EPS) two alternative financial plans are the same.

Indifferent level of EBIT can be calculated using the following formula:

[(EBIT - FB) * (1 - T)] / SA = [(EBIT - FB) * (1 - T)] / SB .................... (1)

Where:

EBIT = Indifference level of EBIT

FA = Fixed interest costs under plan B = Interest on existing debt = $150 * 8% = $12 million

FB = Fixed interest costs under plan A = Interest on existing debt + Interest on new debt = ($150 * 8%) + ($60 * 10%) = $18 million

T = Tax rate = 40%, or 0.40

SA = Number of equity shares outstanding under Plan B = Existing number of shares + New number of shares = 10 million + ($60 million / $15) = 10 million + 4 million = 14 million

SB = Number of equity shares outstanding under Plan A = Existing number of shares = 10 million

Substiuting the values into equation (1) and solve for EBIT, we have:

[(EBIT - 12) * (1 - 0.40)] / 14 = [(EBIT - 18) * (1 - 0.40)] / 10

[(EBIT - 12) * 0.60] / 14 = [(EBIT - 18) * 0.60] / 10

[EBIT0.60 - 7.20] / 14 = [(EBIT0.06 - 10.80] / 10

[EBIT0.60 - 7.20] * 10 = [(EBIT0.06 - 10.80] * 14

EBIT6 - 72 = EBIT8.40 - 151.20

-72 + 151.20 = EBIT8.40 - EBIT6

EBIT2.40 = 79.20

EBIT = 79.20 / 2.40

EBIT = $33 million

Therefore, the level of operating income (EBIT) where the firm will be indifferent between the two plans is $33 million.

Leslie works as customer service representative for Lighthouse Point Lanterns. Her job is to fulfill customer orders and answer any questions that the customer may have. In order to ensure the best service possible, Lighthouse Point Lanterns makes test phone calls to their customer service representatives and rates their ability to correctly answer customer calls. If Leslie properly handles 80% of the test calls, she will receive a 20% bonus in her next pay check. This is an example of:_________.

Answers

Answer:

a performance reward.

Explanation:

A performance reward is a type of employee reward system. Companies generally reward employees in an attempt to motivate them to work more, harder or more efficiently. E.g. a company may reward salespeople that close 100 sales per week, regardless of the type of sales made. This type of reward is based on the gross amount of work carried out by the employee.

In Leslie's case, she is being rewarded for being an efficient employee. The parameter for measuring her efficiency is that 80% of the test calls that she makes are handed properly. She is not rewarded on the number of test calls, but instead on how she handled them.

This is an example of a performance reward if Leslie is going to be rewarded with a 20% bonus for handling 80% of the test calls.

A performance reward is a reward that a customer receives in an organization which is based on how well they have performed in the business.

The reward system here has stated that if Leslie is able to meet up with the target that the business has placed for her to reach she would be rewarded with a bonus of 20% when she receives her next salary.

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Use your own language to explain that short run supply curve by a price-taking firm is the positively-sloped portion of the short-run marginal cost curve.

Answers

Answer:

See the answer and explanation below

Explanation:

A price-taking firm is a firm in a perfectly competitive market where all firms are price takers. That is, no firm in a perfectly competitive can influence the price as only the market determines the price.

The short run supply curve for a price-taking firm refers to the short marginal cost (SMC) curve at and above the shutdown point.

Note: See the attached graph for the shut run supply curve. Also note that point E in the attached graph is the shutdown point.

The shutdown point is the point where the short run marginal cost (SMC) is equal to the average variable cost (AVC) (i.e. where MC = AVC = Shutdown point).

This indicates that the short-run supply curve for a price-taking firm is the part of the SMC curve that lies above AVC curve.

The part of the SMC curve that lies below the AVC or the shutdown point is not part of the short run supply curve of a price-taking firm, because the firm is not engaging in any production at that point.

Therefore, the short run supply curve of a price-taking firm is the increasing portion of the short run MC curve above the shutdown point.

This follows the law of supply which states that more quantity of the product of a firm will be supplied when there is a rise in the market price.

In summary, the short run supply curve of a price-taking firm is the positively-sloped portion of the short-run marginal cost curve

The following is a partial trial balance for the Green Star Corporation as of December 31, 2018: Account Title Debits Credits Sales revenue 1,300,000 Interest revenue 30,000 Gain on sale of investments 50,000 Cost of goods sold 720,000 Selling expenses 160,000 General and administrative expenses 75,000 Interest expense 40,000 Income tax expense 130,000 Required: Prepare a multiple-step income statement for 2018.

Answers

Answer:

Multiple-step income statement for 2018.

Sales revenue                                                                  1,300,000

Cost of goods sold                                                           (720,000)

Gross Profit                                                                        580,000

Less Operating Expenses :

Gain on sale of investments                          50,000

Selling expenses                                          (160,000)

General and administrative expenses         (75,000)      (185,000)

Operating Profit                                                                  395,000

Less Non - Operating Expenses :

Interest revenue                                            30,000

Interest expense                                          (40,000)

Income tax expense                                   (130,000)      (140,000)

Net Income / (Loss)                                                           225,000

Explanation:

The Multi-step Income statement shows separately Profit derived from Primary Activities (Operating Profit) of the company against profit and the profit derived from the Secondary Activities (Net Profit) of the company.

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