Answer:
Simon Company
Common-size percents Balance Sheet as of the years ended December 31 2015 2014 2013:
2015 % 2014 % 2013 %
Assets
Cash $25,267 5.8% $30,131 8.1% $31,387 10%
Accounts receivable, net 75,450 17.4% 50,642 13.6% 41,435 13.2%
Merchandise inventory 92,074 21.3% 68,299 18.3% 44,128 14.1%
Prepaid expenses 8,301 1.9% 8,066 2.2% 3,418 1.1%
201,092 46.5% 157,138 42.1% 120,368 38.3%
Plant assets, net 231,487 53.5% 215,775 57.9% 193,532 61.7%
Total assets $432,579 100% 372,913 100% 313,900 100%
Liabilities and Equity
Accounts payable $106,635 24.7% $62,392 16.7% $41,849 13.3%
Long-term notes payable secured by mortgages
on plant assets 79,698 18.4% 84,912 22.8% 71,453 22.8%
Total Liabilities $186,333 43.1% $147,304 39.5 $113,302 36.1%
Common stock, $10
par value 163,500 37.8% 163,500 43.8% 163,500 52.1%
Retained earnings 82,746 19.1% 62,109 16.7% 37,098 11.8%
Total liabilities and
equity $432,579 100% $372,913 100% 313,900 100%
Explanation:
Simon Company's balance sheets in common-size percents shows the relative values of assets and liabilities and equity in numeric and percentage terms to enable comparison. The company's balance sheet line items are expressed as percentages of the total, usually the total assets in each period. From the analysis, the management, investors, and other parties of Simon Company can understand the changes in the line items from year to year, thus making it possible for Simon Company to undertake a trend analysis.
dazzle, inc. produces beads for jewelry making use the journal entry to record production activities for direct labor usage is
Answer:
Debit Work in Process Inventory $180,000; credit Factory Wages Payable $180,000.
Explanation:
The journal entry to record the direct labor usage is shown belwo:
Work in process inventory Dr
To factory wages payable
(Being the direct labor usage is recorded)
For recording this we debited the work in process as it increased the assets and credited the factory wages payable as it also increased the liabilities
Moreover, when the wages is applied in the production level so the respective account is debited and credited
Amos Manufacturing has two major departments. Management wants to compare their relative performance. Information related to the two departments is as follows:Division 1:Sales: $200,000Expenses: $150,000Asset investment: $950,000Division 2:Sales: $45,000Expenses: $35,000Asset investment: $200,000Based on ROI, which division is more profitable?a. Division 1b. Both divisions have the same ROI ratioc. Division 2
Answer:
Division A is doing better and his more profitable because it has a higher ROI than Division B
Explanation:
Return on Investment is the proportion of operating assets that an investment center earned as as net operating income.
ROI is measure of the returned earned by a division relative to the amount invested in the assets used to generate the return.
It is calculated as follows
ROI = operating income/operating assets
Division A
Net operating income = Sales - expenses
Net operating income = 200,000 - 150,000 = 50,000
Operating assets = 950,000
ROI = 50,000/950,000× 100 = 5.26 %
Division B
Net operating income = 45,000 - 35,000 = 10,000
Operating assets = 200,000
ROI = 10,000/ 200,000 × 100 = 5 %
Division A is doing better and his more profitable because it has a higher ROI than Division B
Bank's Balance Sheet Assets Liabilities and Owners' Equity $1,600 $250 Securities $1,000 Capital (owners' equity) $150 Reserves$200 Deposits Loans $800 Debt Suppose the owners of the bank borrow $100 to supplement their existing reserves.
This would increase the reserves account and ______ the ______ account.
This would also bring the leverage ratio from its initial value of __________ to a new value of_______
Which of the following is true of the capital requirement?
a. The higher the percentage of assets a bank holds as loans, the higher the capital requirement.
b. A minimum leverage ratio for all banks.
c. Its intended goal is to protect the interests of those who hold equity in the bank.
Answer:
1. This would increase the reserves account and increase the debt account.
Borrowing refers to debt and so it will increase the debt account.
2. This would also bring the leverage ratio from its initial value of 13.33 to a new value of 14.
The bank leverage ratio refers to its Assets divided by Capital (Owners equity).
Before the $100 was borrowed, the leverage ratio was;
= (Reserves + loans + securities)/Capital
= ( 200 + 800 + 1,000) / 150
= 13.33
After the $100 was borrowed
= ( 200 + 800 + 1,000 + 100) /150
= 14.
3. a. The higher the percentage of assets a bank holds as loans, the higher the capital requirement.
The capital requirement is meant to protect depositors in case the loans are defaulted on as the loans are created from the funds depositors bring in. Should the loans be defaulted on, they will be paid from the capital therefore if the bank holds more loans, it will have to hold more capital to ensure it can cover those loans.
While making organizational decisions, managers should take into consideration the needs and interests of the employees, suppliers, and customers, who are the organization's _____.
Answer:
Stakeholders.
Explanation:
Stakeholders are the group of people who may be interested in the processes of a particular company. They are formed by the group of employees, suppliers and customers, who are the stakeholders in the organization.
Therefore, it is necessary that strategic actions and business processes are aimed at satisfying the interests and needs of stakeholders, who are the company's public, that is, the reason for the existence of a company.
It is important for the company to identify who its stakeholders are and how they directly impact the business, so that it can shape a strategy that is aligned with its interests and what they expect from the company.
Satisfying stakeholders and adopting corporate governance, contributes to the company having a strong market position and achieving several competitive and strategic advantages in the market, increasing its results and profitability.
Tyler Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $127.20 per unit. Sales volume (units) 5,000 6,000 Cost of Sales $419,000 $502,800 Selling and Administrative costs $186,000 $202,200 The best estimate of the total contribution margin when 5,300 units are sold is: Group of answer choices $230,020 $51,410 $146,810 $32,330
Answer:
The correct answer is A.
Explanation:
Giving the following information:
The company sells the product for $127.20 per unit.
Sales volume (units) 5,000 6,000
Cost of Sales $419,000 $502,800
First, we need to determine the unitary variable cost:
unitary variable cost= 419,000/5,000= $83.8
unitary variable cost= 502,800/6,000= $83.8
Now, the unitary contribution margin:
Unitary contribution margin= 127.2 - 83.8= $43.4
Finally, the total contribution margin:
total contribution margin= 5,300*43.4= $230,020
The best estimate of the total contribution margin when 5,300 units are sold is option A $230,020.
Total Contribution Margin
To Calculate the Contribution Margin, we need to find the value of the unitary variable cost, and their margin. We are provided with these information:
Selling price $127.20 per unit.
Sales volume 5,000, & 6,000
Cost of Sales $419,000 & $502,800
To find the value of Total Contribution margin:
Step 1: Unitary Variable Cost= 419,000/5,000= $83.8
Step 2: Unitary Variable Cost= 502,800/6,000= $83.8
Step 3: Unitary Contribution Margin= 127.2 - 83.8= $43.4
Step 4: Total contribution margin when 5300 units are sold= 5,300×43.4= $230,020.
Hence, option A is correct.
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The credit terms 2/10, n/30 are interpreted as: Multiple Choice 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. 30% discount if paid within 2 days. 2% discount if paid within 30 days. 30% discount if paid within 10 days. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
Answer:
The credit terms 2/10, n/30 are interpreted as:
2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.Explanation:
I will explain using an example:
On January 2, the company sells $1,000 worth of goods with credit terms 2/10, n/30.
January 2
Dr Accounts receivable 1,000
Cr Sales revenue
If the client pays within the discount period:
January 11
Dr Cash 980
Dr Sales discounts 20
Cr Accounts receivable 1,000
If the client pays after the discount period but before 30 days:
January 31
Dr Cash 1,000
Cr Accounts receivable 1,000
The credit terms 2/10, and n/30 are interpreted as a 2% cash discount if the amount is paid within 10 days, or the balance is due in 30 days. Thus, option A is the correct option.
Trade credits like 2/10 net 30 are frequently provided by suppliers to purchasers. It stands for an agreement that if payment is made within 10 days, the buyer would get a 2% reduction on the net invoice amount. Otherwise, you have 30 days to pay the entire invoice amount.
It's a common way to express an early payment discount. In accounting, the discount amount and the window of availability are typically represented using a formula like 2/10, n/30. This implies that if the invoice is paid in full within ten days, a 2% reduction is applied; otherwise, the full amount is owed.
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Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market’s required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund’s assets are as follows:(hint: market beta =1.0) Stock Investment Beta A $ 200,000 1.50 B 300,000 −0.50 C 500,000 1.25 D $1,000,000 0.75
Answer:
11.77%
Explanation:
total investment = $200,000 + $300,000 + $500,000 + $1,000,000 = $2,000,000
stock weight beta total
A $200,000 / $2,000,000 1.5 0.15
B $300,000 / $2,000,000 -0.5 -0.075
C $500,000 / $2,000,000 1.25 0.3125
D $1,000,000 / $2,000,000 0.75 0.375
Portfolio 0.7625
required rate of return = Rf + beta(Rm - Rf) = 7% + 0.7625(13.25% - 7%) = 11.7656% = 11.77%
All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow:
Total Cat Food Dog Food
Sales revenue $435,000 $350,000 $85,000
Variable expenses $61,000 $21,000 $40,000
Contribution margin $374,000 $329,000 $45,000
Fixed expenses $101.000 $49,000 $52,000
Operating income (loss) $273,000 $280,000 $(7,000)
Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $26,000 per year, how will operating income be affected?
A. Increase $254,000
B. Decrease $19,000
C. Increase $527,000
D. Increase $19,000
Answer:
B. Decrease $19,000
Explanation:
The computation of the amount affect the operating income is shown below
But before that first we need to find the new operating income
Total operating income for Cat Food $280,000
Less: Fixed costs for Dog Food ($52000)
Add: rented per year $26000
New net operating income $254000
Now decrease in net operating income is
= operating income - new operating income
= $273,000 - $254,000
= $19,000
On February 20, services valued at $60,000 relating to the organization of a corporation were performed in exchange for 1,000 shares of its $25 par value common stock.
Make the necessary journal entry.
Answer: The solution has been attached
Explanation:
From the question, we are informed that on February 20, services valued at $60,000 relating to the organization of a corporation were performed in exchange for 1,000 shares of its $25 par value common stock.
The common stock was calculated as:
= 1000 × $25
= $25,000
The paid on capital in excess of the par common stock was calculated as:
= $60,000 - $25,000
= $35,000
The journal has been solved and attached.
Desktop Computer Company would like to calculate their cash conversion cycle. What factors are included in computing this metric?
Answer:
The answer is:
1. Days inventory outstanding i.e the number of days it takes to sell its inventories
2. Days sales outstanding i.e the number of days it takes to collect it receivables
3. Days payables outstanding i.e the number of days it takes to pay its payables.
Explanation:
Cash conversion cycle is the time(number of days) it takes a business to convert its money tied in inventory to cash through sales from customers.
In computing cash conversion cycle, the following are included:
1. Days inventory outstanding i.e the number of days it takes to sell its inventories
2. Days sales outstanding i.e the number of days it takes to collect it receivables
3. Days payables outstanding i.e the number of days it takes to pay its payables.
The formula for cash conversion cycle is Days inventory outstanding + Days sales outstanding - Days payables outstanding
The following data relate to the direct materials cost for the production of 50,000 automobile tires: Actual: 725,000 lbs. at $3.00 per lb. Standard: 730,000 lbs. at $2.95 per lb. a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Answer and Explanation:
a. The computation of the material price variance is shown below:
= Actual Quantity × (Standard Price - Actual Price)
= 725,000 × ($2.95- $3)
= 725,000 × $0.5
= $36,250 unfavorable
b. The computation of the material quantity variance is shown below:
= Standard Price × (Standard Quantity - Actual Quantity)
= $2.95 × (730,000 - 725,000)
= $2.95 × 5,000
= $14,750 favorable
And, the total direct material cost variance is
= Material price variance + material cost variance
= $36,250 unfavorable + 14,750 favorable
= $21,500 unfavorable
Joe must pay liabilities of 1,000 due 6 months from now and another 1,000 due one year from now. There are two available investments: \,1. Bond I: a 6-month bond with face amount of 1,000, a 8% nominal annual coupon rate convertible semiannually, and a 6% nominal annual yield rate convertible semiannually; and \,2. Bond II: a one year bond with face amount of 1,000, a 5% nominal annual coupon rate convertible semiannually, and a 7% nominal annual yield rate convertible semiannually Calculate the amount of each bond Joe should purchase in order to exactly match the liabilities.
Answer:
future liabilities:
$1,000 in 6 months
$1,000 in 1 year
Present value of bond I (due in 6 months):
PV = $1,000 / (1 + 3%) = $970.87
Present value of bond II (due in 1 year):
PV = $1,000 / (1 + 3.5%)² = $933.51
The price of the bonds is determined by the annual yield rate (YTM), not the coupon rate. Joe will pay $970.87 for bond I and $933.51 for bond II.
g A decrease in the basis will __________ a long hedge and __________ a short hedger. Group of answer choices hurt; hurt hurt; benefit benefit; have no effect upon benefit; benefit benefit; hurt
Answer:
1. hurt
2. benefit
Explanation:
Given that a contract and an asset are to be converted in cash early, this implies that, basis risk exists and futures price and spot price should not move in lockstep before delivery date. However, a reduction in the basis will then hurt the long hedger and benefit the short hedger.
Hence, considering the nature of the hypothetical situation, a decrease in the basis will HURT a long hedge and BENEFIT a short hedge.
A company sold equipment that originally cost $290,000 for $145,000 cash. The accumulated depreciation on the equipment was $145,000. The company should recognize a:
Answer:
$0 gain/loss
Explanation:
A company sold an equipment that originally cost $290,000 for $145,000
The accumulated depreciation on the equipment was $145,000
The first step is to calculate the book value of the equipment
Book value of the equipment= Cost of equipment-accumulated depreciation
= $290,000-$145,000
= $145,000
Therefore, the gain/loss on the equipment can be calculated as follows
= Selling price-book value
= $145,000-$145,000
= 0
Hence there is no recognized gain or loss on the equipment
Answer:
Company would recognize a no loss or gain on the disposal i.e Nil
Explanation:
The gain or loss on disposal is the difference between the carrying value of an assets at the point of disposal and the the disposal value.
Gains/(Loss)= Disposal value - carrying value
The carrying value is the difference between the historical cost and the accumulated depreciation till date.
Carrying value = Historical cost - Accumulated depreciation till date
Carrying value = 290,000 - 145,000 = 145 ,000
Gains/Loss= 145,000 - 145,000 = 0.
Company would recognize a no loss or gain on the disposal i.e Nil
What is the required monthly payment on a $350,000 mortgage? Assume a standard mortgage (360 months) with monthly payments. Use a nominal rate of 6.90%.
Answer:
EMI = $2,305
Explanation:
We can calculate Monthly payment on a $350,000 mortgage by using following formula of equated monthly installments. You just need to collect the data to input in the formula for further calculation.
Data
Principal amount = $350,000
Rate = 6.90% = 6.90%/12months = 0.00575
number pf periods = 360 months
Formula
EMI = [[tex]\frac{[P x R x (1+R)^{n} }{(1+R)^{n-1} }[/tex]]
P = Principal amount
R = Rate
n = number pf periods
Solution
EMI =[tex]\frac{[350,000 x0.00575 x ((1+0.00575)^{360-1}) ]}{1+0.00575)^{360-1}}[/tex]
EMI = $2,305
Fertile Acres Inc., Growers Farm Co-op, and Harvest Orchards agree to exchange information, conduct an advertising campaign, and set certain regulatory standards to govern their operations. This association is
Answer: a. subject to analysis under the rule of reason.
Explanation:
The Rule of Reason is used to interpret whether he Sherman Act which is an anti-trust law has been breached. This Rule was established so as not to unfairly close down all monopolies and Monopolies are not illegal, price fixing is.
If companies therefore come together as Fertile Acres Inc., Growers Farm Co-op, and Harvest Orchards have done, the Government under the Rule of Reason will check to see if the actions of these firms was done in order for them to go against free trade practices. If it was not then the agreement might be allowed to stand.
Which of the following stocks is less risky? Stock Average Return Standard Deviation Coefficient of Variation X 10% 40% 4 Y 20% 40% 2
Answer:
Stock X has a CV of 4 while Stock Y has a CV of 2. As stock Y has a lower CV than Stock X, it is less riskier.
Explanation:
The coefficient of variation is a statistical model which is also used to determine the volatility per unit of a factor. In terms of a stock, the coefficient of variation calculates the volatility of its return. It is calculated by dividing the stock's standard deviation, which is a measure of risk, by the stock's mean return or expected return.
CV = SD / r
Where,
CV is coefficient of variationSD is standard deviationr is expected returnThe CV of a stock tells us the risk per unit of return. The higher the CV, the riskier the stock and vice versa.
Stock X has a CV of 4 while Stock Y has a CV of 2. As stock Y has a lower CV than Stock X, it is less riskier.
Abica Roast Coffee Company produces Columbian coffee in batches of 6,000 pounds. The
standard quantity of materials required in the process is 6,000 pounds, which cost $5.00per pound. Columbian coffee can be sold without further processing for $8.40 per pound.
Columbian coffee can also be processed further to yield Decaf Columbian, which can
be sold for $10.00 per pound. The processing into Decaf Columbian requires additional
processing costs of $9,450 per batch. The additional processing will also cause a 5% loss
of product due to evaporation.
Columbian coffee can be sold without further processing for $8.40 per pound.
Columbian coffee can also be processed further to yield Decaf Columbian, which can
be sold for $10.00 per pound. The processing into Decaf Columbian requires additional
processing costs of $9,450 per batch. The additional processing will also cause a 5% loss
of product due to evaporation.
a. Prepare a differential analysis dated August 28, 2012, on whether to sell regular
Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).
b. Should Abica Roast sell Columbian coffee or process further and sell Decaf
Columbian?
c. Determine the price of Decaf Columbian that would cause neither an advantage or
disadvantage for processing further and selling Decaf Columbian.
Answer:
A)
no further further differential
processing processing amount
price per pound $8.40 $10.00 $1.60
materials $5 $5.25 ($0.25)
processing costs $0 = $9,450 / ($1.66)
5,700 = $1.66
operating profit per $3.40 $3.09 ($0.31)
pound
B)
The company should sell coffee without any further processing, just sell it as normal Colombian coffee.
C)
In order to eliminate the financial disadvantage of processing further the decaf coffee, the the price should be $10 + $0.31 = $10.31 per pound.
Handbags, Inc. had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $18 each using the last−in, first−out (LIFO) method. The current replacement cost is $16 per unit. The selling price charged by Handbags, Inc. for each finished product is $27. In order to record the adjusting entry needed under the lower−of−cost−or−market rule, the Cost of Goods Sold will be ________.
Answer:
debited by $400
Explanation:
Inventory on hand at the beginning × each inventory cost
= 200 units × $18
= $3,600
Inventory on hand at the beginning × Current replacement cost
= 200 units × $16 per unit
= $3,200
Therefore;
$3,600 - $3,200 = $400 increase of cost of goods sold which is debit.
What is the annual real estate tax on a property valued at $135,000 and assessed for tax purposes at $47,250, with an equalization factor of 125%, when the tax rate is 25 mills
Answer:
$1,477
Explanation:
The annual real estate tax = assessed tax × equalization factor × tax rate
= $47,250 × 125% × 25 mills
= $47,250 × 125% × 2.5%(25 mills)
= $47,250 × 1.25 × 0.025
= $1,477
Which of the following is true regarding warranties under common law? Select one: A. Express warranties, the implied warranty of assignability, and warranties of title arise automatically under common law. B. Only the implied warranty of merchantability arises automatically under common law. C. Only warranties of title arise automatically under common law. D. For a warranty to exist, it must first be requested by the buyer. E. Only the implied warranty of assignability arises automatically under common law.
Answer: E. Only the implied warranty of assignability arises automatically under common law
Explanation:
Implied warranty is a term that is used in common law to refer to assurance that are given to a a product that the said product is fit and in good condition for the purpose it'll be used for.
Of all the options that are given, the one that is true regarding warranties under common law is that only the implied warranty of assignability arises automatically under common law.
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of .5. Using the constant-growth DDM, the value of the stock is _________. A. $150 B. $50 C. $100 D. $200
The question is incomplete. Here is the complete question.
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of .5. Using the constant-growth DDM, the intrinsic value of the stock is _________. A. $150 B. $50 C. $100 D. $200
Answer:
$50
Explanation:
Caribou Gold mining corporation is expected to make a dividend payment of $6 next year
Dividend are expected to decline at a rate of 3%
= 3/100
= 0.03
The risk free rate of return is 5%
= 5/100
= 0.05
The expected return on the market portfolio is 13%
= 13/100
= 0.13
The beta is 0.5
The first step is to calculate the expected rate of return
= 0.05+0.5(0.13-0.05)
= 0.05+0.5(0.08)
= 0.05+0.04
= 0.09
Therefore, the intrinsic value of the stock using the constant growth DDM model can be calculated as follows
Vo= 6/(0.09+0.03)
Vo= 6/0.12
Vo= $50
Hence the intrinsic value of the stock is $50
I enjoy working with this team because we all trust each other and respect what each person brings to the team. Which characteristic of team excellence am I displaying
Answer: Collaborative climate
Explanation:
When an individual enjoys working with this team because they all trust each other and respect what each person brings to the team, the characteristic of team excellence displayed is referred to as collaborative climate.
Collaborative teams come together and work together in order to achieve the aims and objectives of the organization. A collaborative team bonds and trust each other.
A person who enters into a contract when he or she is intoxicated can void the contract if the terms are obviously favorable to the other party.
a. true
b. false
Answer:
False.
Explanation:
A contract can be defined as an agreement between two or more parties (group of people) which gives rise to a mutual legal obligation or enforceable by law.
A person who enters into a contract when he or she is intoxicated cannot void the contract even if the terms are obviously favorable to the other party.
By law, an individual can void a contract entered into while under the influence of alcohol or intoxicated, only if he or she doesn't understand or comprehend the legal consequences binding on the parties involved in the contract.
Hence, a contract is legally binding and enforceable even if one of the parties was intoxicated at the time of its formation.
A customer who has routinely traded securities through your firm has placed an order to buy a security that is only listed on the Malaysian Stock Exchange. To effect the transaction, your firm must use a correspondent broker-dealer located in Malaysia that charges large special handling fees to cover Malaysian securities transfer taxes. Which statement is TRUE
Answer:
the broker-dealer must notify the customer of the additional charges prior to executing the transaction
Explanation:
In such a scenario, the statement that would be completely true is that the broker-dealer must notify the customer of the additional charges prior to executing the transaction. Since the broker is acting on behalf of the customer, then the customer needs to be notified beforehand in order for him/her to be able to analyze and decide whether or not they still want to go ahead with the transaction.
A company is considering a project with a beta of 0.5 while the company’s beta is 2.0. How should the company adjust its WACC to reflect the riskiness of the project? g
Answer: decrease
Explanation:
The weighted average cost of capital is a vital calculation that is used in finance to know whether the return on an investment will meet or exceed exceed a project or an asset.
If a company is considering a project with a beta of 0.5 while the company’s beta is 2.0, to reflect the riskiness of the project, the WACC will be reduced.
Gross Corporation adopted the dollar-value LIFO method of inventory valuation on Dec 31, 2016. Its inventory at that date was $1,100,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows:
Date Inventory at Current Prices Current Price Index
December 31, 2017 $1,284,000 107
December 31, 2018 $1,450,000 125
Deceber 31, 2019 $1,625,500 130
1. What is the cost of ending inventory December 31, 2017 under Dollar-value LIFO method?
2. What is the cost of ending inventory December 31, 2018 under Dollar-value LIFO method?
3. What is the cost of ending inventory December 31, 2019 under Dollar-value LIFO method?
Answer:
1. $1,207,000
2. $1,164,200
3. $1,281,701
Explanation:
To calculate ending inventory under the dollar value LIFO method, the steps below shall be followed.
Step 1
Y = Current price at year end / Price index at that time
Step 2
Ending inventory = Opening inventory value + ( Y - Opening inventory value ) × Index value.
Gross corporation
Ending inventory
2016 1,100,000
1. Cost of ending inventory at 31, December 2017, under dollar value LIFO
= 1,284,000 / 1.07
= $1,200,000
Ending inventory
= $1,100,000 + ( $1,100,000 - $100,000 ) × 1.07
= $1,207,000
2. Cost of ending inventory at 31, December 2018, under dollar value LIFO
= $1,450,000/1.25
= $1,160,000
Ending inventory
= $1,100,000 + ( $1,160,000 - $1,100,000) × 1.07
= $1,164,200
3. Cost of ending inventory at 31, December 2019, under dollar value LIFO
= $1,625,500/1.30
= $1,250,385
Ending inventory
= $1,164,200 + $90,385 × 1.30
= $1,281,701
An all-equity firm is considering the following projects:
Project Beta IRR
W .85 8.9%
X .92 10.8
Y 1.09 12.8
Z 1.35 13.3
The T-bill rate is 4 percent, and the expected return on the market is 11 percent.
a. Which projects have a higher expected return than the firm's 11 percent cost of capital?
b. Which projects should be accepted?
c. Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?
Answer:
Projects Y and Z
b. Projects W and Z
c. Projects W and Y
Explanation:
CAPM equation : Expected return = Risk free rate + Beta x (Expected market return - Risk free rate)
W = 4% + [0.85 x (11% - 4%)] = 9.95%
X = 4% + (0.92 x 7%) = 10.44%
Y = 4% + (1.09 x 7%) = 11.63%
Z = 4% + (1.35 x 7%) = 13.45%
Projects Y and Z have an expected return greater than 11%
b. Projects W and Z should be accepted because its expected return is higher than the IRR
c. Project W would be incorrectly rejected because the expected rate of return is less than the overall cost of capital (i.e. 9.95 is less than 11). But its expected rate of return is greater than the IRR
Y would be incorrectly accepted because its expected rate of return is greater than the overall cost of capital but its expected rate of return is less than the IRR
Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information is available for the current year:
Cost Retail
Beginning inventory $ 30,000 $ 45,000
Purchases 190,000 260,000
Freight-in 2,500 —
Net markups — 8,500
Net markdowns — 10,000
Employee discounts — 1,000
Sales revenue — 205,000
If the ending inventory is to be valued at the lower-of-cost-or-market, what is the cost-to-retail ratio?
a) $220,000 ÷ $315,000
b) $222,500 ÷ $305,000
c) $222,500 ÷ $313,500
d) $222,500 ÷ $303,500
Answer:
C. $222,500 ÷ $313,500
Explanation:
Calculation for cost to retail ratio
COST
Beginning inventory $30,000
Add; Purchases $190,000
Add: Freight in $2,500
Cost $222,500
RETAIL
Beginning inventory $45,000
Add: Purchases $260,000
Add: Net mark ups $8,500
Retail $313,500
Therefore, the cost to retail ratio will be
$222,500 $313,500
Morganton Company makes one product and it provided the following information to help prepare the master budget:The budgeted selling price per unit is $70. Budgeted unit sales for June, July, August, and September are 8,500, 16,000, 18,000, and 19,000 units What is the accounts receivable balance at the end of July?
Answer:
$672,000
Explanation:
The computation of the account receivable balance at the end of July month is shown below:
Particular June July August September
Unit sales 8,500 16,000 18,000 19,000
Unit selling
price $70 $70 $70 $70
Sales $595,000 $1,120,000 $1,260,000 $1,330,000
Credit sales collection
40% in this
month sale $238,000 $448,000 $504,000 $532,000
60% in the
following month $357,000 $672,000 $756,000
Total collection $238,000 $805,000 $1,176,000 $1,288,000
For the account receivable at the end of July we considered the 60% oustanding amount i.e $672,000
