The graph below illustrates two demand curves for a firm operating in a differentiated product oligopoly. Initially, the firm charges a price of $60 and produces 10 units of output. One of the demand curves is relevant when rivals match the firm’s price changes; the other demand curve is relevant when rivals do not match price changes.
Answers
Answer:
D2 is relevant when rivals match the firm’s price changes
D1 is relevant when rivals do not match the firm’s price changes
Explanation:
Given
See attachment for graph
Solving (a): Which is relevant to price changes
Calculate the slope of D1 and D2 using:
[tex]m = \frac{y_2 - y_1}{x_2 - x_1}[/tex]
For D1
[tex](x_1,y_1) = (0,70)\\ (x_2,y_2) = (21,50)[/tex]
So:
[tex]m = \frac{50- 70}{21- 0}[/tex]
[tex]m = \frac{- 20}{21}[/tex]
[tex]m_{D_1} = -0.9524[/tex]
For D2
[tex](x_1,y_1) = (0,100)\\ (x_2,y_2) = (20,20)[/tex]
So:
[tex]m = \frac{20 - 100}{20 - 0}[/tex]
[tex]m = \frac{-80}{20}[/tex]
[tex]m_{D_2} = -4[/tex]
By comparison:
[tex]|m_{D_2}| > |m_{D_1}|[/tex]
i.e.
[tex]|-4| > |-0.9524|[/tex]
[tex]4 > 0.9524[/tex]
This means that D2 is steeper than D1. Hence, D2 is relevant to price changes
Solving (b): Which is not relevant to price changes
In (a), we concluded that D2 is relevant to price change.
Hence, D1 is relevant when price does not change.
Related Questions
On January 2, 20X1, Ziegler Company issues a four-year note in exchange for a license agreement requiring four annual payments of $27,956. The market value of the four-year agreement is $100,000. The first payment is due on the day the agreement is signed. The effective interest rate is 8%. The second payment includes interest of:
Answers
Answer:
$5,763.52
Explanation:
1st payment is due on the day the agreement is signed.
The 2nd payment interest is computed as bellow:
=> ($100,000 - First payment) * 8%
=> ($100,000 - $27,956) * 8%
=> $72,044 * 8%
=> $5,763.52
So, the second payment includes interest of $5,763.52.
Billy Bob Company manufactures fine furniture and grandfather clocks. Billy Bob has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department?
a) Salary of the clock production supervisor
b) Depreciation on the company's factory building
c) Depreciation on clock-making equipment.
d) All of the answers are correct
Answers
Answer:
Billy Bob Company
Indirect Costs are:
d) All of the answers are correct
Explanation:
The indirect costs cannot be directly identified with a single grandfather clock. They are not direct costs but are allocated to the Clock Department. For example, Billy Bob Company incurs these indirect costs for producing grandfather clocks: the Clock Department's supervisor's salary expenses, Depreciation on factory building and clock-making equipment, and other indirect materials and labor.
Total Cost Logistics Model takes into consideration ______. A. all of the transportation cost B. all of the handling cost C. all of fixed assets D. all of the inventory carrying cost
Answers
Answer:
Total Cost Logistics Model takes into consideration:
A. all of the transportation cost
B. all of the handling cost
D. all of the inventory carrying cost
Explanation:
The total cost logistics model includes all the logistics factors (transportation costs, inventory carrying costs, and administration costs). Logistics can be divided into procurement logistics, production logistics, sales logistics, recovery logistics, and recycling logistics.
A manufacturing company has the following budgeted overhead costs: Indirect materials: $0.50 per unit; Utilities: $0.25 per unit; Supervisory salaries: $60,000; Building rent: $80,000. If the company expects to produce 200,000 units using 100,000 hours of direct labor, the standard overhead rate will be $
Answers
Answer:
Predetermined manufacturing overhead rate= $1.45 per unit
Explanation:
First, we will calculate the variable overhead per unit:
Unitary variable overhead= Indirect materials + Utilities
Unitary variable overhead= 0.5 + 0.25
Unitary variable overhead= $0.75 per unit
Now, the total fixed overhead, and fixed overhead rate:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Total fixed overhead= Supervisory salaries + Building rent
Total fixed overhead= 60,000 + 80,000
Total fixed overhead= $140,000
Predetermined manufacturing overhead rate= 140,000 / 200,000
Predetermined manufacturing overhead rate= $0.7 per unit
Finally, the total predetermined overhead rate:
Predetermined manufacturing overhead rate= 0.75 + 0.7
Predetermined manufacturing overhead rate= $1.45 per unit
Security X has expected return of 9% and standard deviation of 18%. Security Y has expected return of 12% and standard deviation of 21%. If the two securities have a correlation coefficient of -0.4, what is their covariance
Answers
Answer:
the covariance is -0.0151
Explanation:
The computation of the covariance is given below:
= correlation coefficient × standard deviation of x × standard deviation of y
= -0.4 × 18% × 21%
= -0.0151
Hence, the covariance is -0.0151
We simply applied the above formula so that the correct value could come
How is a monopolistically competitive market similar to a perfectly competitive market? A. Producers with market power set their own prices. B. Both have differentiated products with close substitutes. C. There are no restrictions on the entry of new firms. D. Both have homogeneous products with no close substitutes. Which of the following common features do monopolistically competitive markets and monopolies share? A. Barriers restrict new firms from entering. B. Consumers with market power set prices. C. Firms face downward-sloping demand curves. D. Producers with no market power set their own prices.
Answers
Answer:
c
c
Explanation:
A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.
In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.
Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.
A monopolistic competition is when there are many firms selling differentiated products in an industry. A monopolistic competition has characteristics of both a monopoly and a perfect competition. the demand curve is downward sloping. it sets the price for its goods and services.
An example of monopolistic competition are restaurants
When firms are earning positive economic profit, in the long run, firms enter into the industry. This drives economic profit to zero
If firms are earning negative economic profit, in the long run, firms leave the industry. This drives economic profit to zero
in the long run, only normal profit is earned
A monopoly is when there is only one firm operating in an industry. there are usually high barriers to entry of firms. the demand curve is downward sloping. it sets the price for its goods and services.
An example of a monopoly is a utility company
and Associates, a law firm, paid $30000 for 12 months' rent in advance on October 1 of the current year. The company's fiscal year-end is December 31. Prepare the journal entries for the rent payment on October 1 and the necessary adjusting journal entry on December 31. Omit explanations
Answers
Answer and Explanation:
The journal entries are shown below:
On Oct 1
Rent expense Dr $30,000
to cash $30,000
(being cash paid)
Here rent expense is debited as it increased the expense and credited the cash as it decreased the assets
On Dec 31
Rent expense Dr ($30,000 × 9 ÷ 12) $22,500
To prepaid rent $22,500
(being rent expense is recorded)
Here ent expense is debited as it increased the expense and credited the prepaid rent as it decreased the assets
Blue expects to begin selling the product next year. If Blue elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.
a. $0
b. $118,000
c. $143,000
d. $152,000
Answers
Part of the question
Blue Corporation incurred the following expenses in connection with the development of a new product:
Salaries $100,000
Utilities 18,000
Materials 25,000
Advertising 5,000
Market survey 3,000
Depreciation on machine 9,000
Answer:
a. $0
Explanation:
From the question, we have the qualified research expenditures to be
=> $100,000 + $18,000 + $25,000 + $9,000 = $152,000
Also, given that under the election to amortize, the monthly amortization is
=> $152,000 ÷ 60 months = $2,533
Hence, given that, sales will not start until next year, there is no deduction for the current year, which implies that the right answer is $0
Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?
a.Cash
Unearned Consulting Revenue
b.Cash
Unearned Consulting Revenue
Earned Consulting Revenue
c. Prepaid Consulting Revenue
Earned Consulting Revenue
d. No entry is required when the engagement is concluded.
Answers
Answer:
b. Cash, Unearned Consulting Revenue; Earned Consulting Revenue
Explanation:
Lambert account for the cash received at the end of the engagement as stated below
Date Account titles Debit Credit
Cash XXX
Unearned Consulting Revenue XXX
Earned Consulting Revenue XXX
4. Problems and Applications Q4 Many observers believe that the levels of pollution in our society are too high. True or False: If society wishes to reduce overall pollution by a certain amount, it is efficient to have firms with lower costs reduce greater amounts of pollution than those with higher costs.
Answers
Answer: True
Explanation:
Firms with lower costs would also incur a lower cost when they try to reduce pollution so they should reduce more pollution because of this reduced cost that they will incur.
Firms with higher costs would then reduce less pollution because this would ensure that they do not spend too much on pollution reduction and incur even more costs.
Another term for "food poisoning" is?
Answers
Answer:
botulism. salmonella.
Explanation:
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $72,000 and a fair value of $96,000. The asset given up by Armstrong Co. has a book value of $120,000 and a fair value of $114,000. Boot of $24,000 is received by Armstrong Co.What amount should Armstrong Co. record for the asset received
Answers
Answer:
the amount that should be recorded as the asset is $96,000
Explanation:
The computation of the amount that should be recorded as the asset is given below:
Book value of assets given up = $72,000
Add : cash paid in exchange. $24,000
Amount recorded as an asset should be $96,000
We simply added the book value and the cash paid amount for an exchange
Therefore the amount that should be recorded as the asset is $96,000
Could I Industries just paid a dividend of $1.15 per share. The dividends are expected to grow at a rate of 18 percent for the next six years and then level off to a growth rate of 7 percent indefinitely. If the required return is 15 percent, what is the value of the stock today
Answers
Answer: $26.56
Explanation:
Present value of stock = Dividend in year 1 / (1 + required rate of return) + Dividend in year 2 / (1 + required rate of return)² + Dividend in year 3 / (1 + required rate of return)³ + Dividend in year 4 / (1 + required rate of return)⁴ + Dividend in year 5 / (1 + required rate of return)⁵ + Dividend in year 6 / (1 + required rate of return)⁶ + Terminal value / (1 + required rate of return)⁶
Terminal value = ( Dividend in year 6 * (1 + growth rate) / ( required rate of return - growth rate)
= (1.15 * (1 + 18%)⁶ * (1 + 7%) ) / (15% - 7%)
= $41.5225
Present value of stock:
= (1.15 * 1.18) / (1 + 15%) + (1.15 * 1.18²) / (1 + 15%)² + (1.15 * 1.18³) / (1 + 15%)³ + (1.15 * 1.18⁴) / (1 + 15%)⁴ + (1.15 * 1.18⁵) / (1 + 15%)⁵ + (1.15 * 1.18⁶) / (1 + 15%)⁶ + (41.5225) / (1 + 15%)⁶
= $26.55585976
= $26.56
Beagle Corporation has 26,000 shares of $10 par common stock outstanding and 16,000 shares of $100 par, 5.50% cumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $420,000 dividend will be paid. What are the dividends per share payable to preferred and common, respectively
Answers
Answer:
$16.5 per share; $6 per share
Explanation:
Calculation to determine the dividends per share payable to preferred and common, respectively
DIVIDENDS PER SHARE PAYABLE TO PREFERRED
First step
Total dividend paid to Preferred Stockholders
= Outstanding preferred stock × Par value of preferred stock × 5.50% × Number of years
Total dividend paid to Preferred Stockholders= 16000 × 100 × 5.50% × 3
Total dividend paid to Preferred Stockholders= $264,000
Second step
Total dividend per share paid to Preferred Stockholders= Total dividend paid to preferred ÷ No. of outstanding shares
Total dividend per share paid to Preferred Stockholders= $264,000 ÷ 16,000 shares
Total dividend per share paid to Preferred Stockholders= $16.5 per share
DIVIDENDS PER SHARE PAYABLE TO COMMON STOCKHOLDERS
First step
Total dividend paid to Preferred Stockholders
= Outstanding preferred stock × Par value of preferred stock × 5.50% × Number of years
Total dividend paid to Preferred Stockholders= 16000 × 100 × 5.50% × 3
Total dividend paid to Preferred Stockholders= $264,000
Second step
Total dividend per share paid to common Stockholders= (Dividend paid in the current year - Total dividend paid to preferred) ÷ Common stock outstanding shares
Total dividend per share paid to common Stockholders= ($420,000 - $264,000) ÷ 26,000
Total dividend per share paid to common Stockholders= $156,000 ÷ 26,000 shares
Total dividend per share paid to common Stockholders= 6 per share
Therefore the dividends per share payable to preferred and common, respectively is:
$16.5 per share; $6 per share
An entrepreneur purchased an existing bicycle shop that had between 13000
Answers
Answer:
Write the full question a so I can answer?
Stealth Company's December 31, 2021 and 2020, financial statements are presented below: 2021 2020 Accounts receivable $ 29,500 $ 42,000 Inventory 30,000 39,000 Net sales (all credit) 196,000 197,000 Cost of goods sold 124,000 110,000 Total assets 429,000 409,000 Total stockholders' equity 250,000 227,000 Net income 39,500 33,000 Stealth Company's 2021 receivables turnover ratio is:_______.
Answers
Answer:
5.48 times
Explanation:
Calculation to determine what Stealth Company's 2021 receivables turnover ratio is
Using this formula
Receivables turnover ratio= 2021 Net sales/(2021 Accounts receivable+2021 Accounts receivable)/2
Let plug in the formula
Receivables turnover ratio= $196,000($29,500 +$42,000)/2
Receivables turnover ratio= $196,000/($71,500/2)
Receivables turnover ratio= $196,000/$35,750
Receivables turnover ratio= 5.48 times
Therefore Stealth Company's 2021 receivables turnover ratio is 5.48 times
Entries for Discounted Note Payable A business issued a 90-day note for $57,000 to a creditor on account. The note was discounted at 8%. Assume a 360-day year.
a. Journalize the entry to record the issuance of the note. For a compound transaction, if an amount box does not require an entry, leave it blank. If necessary, round to one decimal place. Accounting numeric field
b. Journalize the entry to record the payment of the note at maturity.
Answers
Answer:
A. Dr Accounts payable 55,830
Dr Interest expense 1170
Cr Notes payable 57,000
B. Dr Notes payable 57,000
Cr Cash 57,000
Explanation:
A. Preparation of the journal entry to record the issuance of the note.
Dr Accounts payable 55,830
(57,000-1170)
Dr Interest expense (57,000*8%*90/360) 1170
Cr Notes payable 57,000
(To record the issuance of the note)
B. Preparation of the journal entry to record the payment of the note at maturity.
Dr Notes payable 57,000
Cr Cash 57,000
(to record the payment of the note at maturity)
A friend wants to borrow money from you. He states that he will pay you $4,700 every 6 months for 9 years with the first payment exactly 2 years and six months from today. The interest rate is an APR of 5.8 percent with semiannual compounding. What is the value of the payments today
Answers
Answer:
PV= $56,508.47
Explanation:
Giving the following information:
Semmiannual payment= $4,700
Number of periods (n)= 9*2= 18 semesters
Interest rate= 0.058/2= 0.029
First, we need to calculate the value of the payments at the moment of the first payment:
PV= A*{(1/i) - 1/[i*(1 + i)^n]}
A= Semmiannual payment
PV= 4,700*{(1/0.029) - 1/[0.029*(1.029^18)]}
PV= $65,191.42
Now, the present value using the following formula:
PV= FV / (1 +i)^n
n= 2.5*2= 5 semesters
PV= 65,191.42 / (1.029^5)
PV= $56,508.47
Over the last ten years productivity grew faster in Oceania than in Freedonia and the population and total hours worked remained the same in both countries. It follows that:
a. real GDP per person must be higher in Oceania than in Freedonia.
b. real GDP per person grew faster in Oceania than in Freedonia.
c. the standard of living must be higher in Oceania than in Freedonia.
d. All of the above are correct.
Answers
Answer:
it's d. All are correctamundo
Botosan Factory has budgeted factory overhead for the year at $468,602, and budgeted direct labor hours for the year are 280,600. If the actual direct labor hours for the month of May are 255,300, the overhead allocated for May is
Answers
Answer:
$426,351
Explanation:
Calculation to determine what the overhead allocated for May is
Using this formula
Overhead allocated for May=(Estimated overhead/Estimated total DLHs)*Overhead rate per DLHs
Let plug in the formula
Overhead allocated for May=($468,602/ 280,600)*255,300
Overhead allocated for May=$1.67*255,300
Overhead allocated for May=$426,351
Therefore the overhead allocated for May is $426,351
A property title search firm is contemplating using online software to increase the productivity of the researcher performing the search. Currently, an average of 64 minutes is needed to do a title search. The researcher cost is $1.70 per minute. Clients are charged a fee of $410. Company A’s software would reduce the average search time by 20 minutes, at a cost of $3.50 per search. Company B’s software would reduce the average search time by 21 minutes at a cost of $5.50 per search.
a. Calculate the productivity in terms of revenue per dollar of input.
b. Which option would have the highest productivity in terms of revenue per dollar of input?
a) Company A
b) Company B
c) Current
Answers
Answer:
a. Productivity in terms of revenue per dollar input:
Cost = Average time taken * Cost per minute + additional cost per search
Current cost = 64 * 1.70 = $108.80
Company A cost = (64 - 20 mins) * 1.70 + 3.50 = $78.30
Company B cost = (64 - 21) * 1.70 + 5.50 = $78.60
Productivity = Client fee / Cost
Current productivity
= 410 / 108.80
= $3.77
Company A
= 410 / 78.30
= $5.24
Company B
= 410 / 78.60
= $5.22
b. Company A is best.
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2022 Ethics and Compliance Test
2022 Ethics and Compliance Test
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Janine, currently enrolled in a 3-star plan,
discovers there is 5-star plan available where
she lives. She asks her agent, Josh, to enroll
her in the 5-star plan. Josh can advise Janine
of each of the following except:
Josh should tell Janine that she can only change her current plan to a 5-
star plan during the Annual Election Period.
Josh should tell Janine that she can only use the 5-Star SEP once per
calendar year.
Josh should tell Janine that she can change her current plan to a 5-star
Answers
Answer:
Janine and Josh
Josh can advise Janine of each of the following except:
Josh should tell Janine that she can only change her current plan to a 5-
star plan during the Annual Election Period.
Explanation:
The Special Election Period (SEP) for the 5-star Medicare Plan lasts one week, that is, between Nov. 30 and Dec. 8. However, there is an Annual Enrollment Period (AEP) that lasts from October 15th to December 7th. During the annual enrollment period, any plan holder can change her Medicare plan, depending on its availability in her area.
Your grandfather has offered you a choice of one of the three following alternatives: $11,500 now; $5,700 a year for five years; or $71,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
Required:
a. Assuming you could earn 9 percent annually, compute the present value of each alternative.
b. Which alternative should you choose?
Answers
Answer:
1. $11,500
2. $22,171.01
3. $46,145.13
option 3. This is because it has the highest present value
Explanation:
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
option 2
Cash flow each year from year 1 to 5 = $5,700
I = 9
PV = 22,171,01
OPTION 3
Cash flow in year 5 = 71,000
I = 9
PV = 46,145.13
To determine PV using a financial calculator take the following steps:
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 NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
A company issues 1 million shares of common stock with a par value of $0.02 for $15 a share. The entry to record this transaction includes a debit to Cash for: A. $15,000,000 and a credit to Common Stock for $15,000,000. B. $20,000, a debit to Capital Receivable for $14,980,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000. C. $15,000,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000. D. $20,000 and a credit to Common Stock for $20,000.
Answers
The entry to record this transaction includes a debit to Cash for C. $15,000,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000.
For the cash received, the entry to record the transaction, Cash account is debited with $15,000,000 (1,000,000 x $15).
The Common Stock account is credited with $20,000 (1,000,000 x $0.02) to record the common stock value of the transaction.
And the Additional Paid-in Capital is credited with $14,980,000 (1,000,000 x $14.98) to record the additional capital contributed above the par value.
The $14.98 is the difference between the issue price ($15) per share and the par value ($0.02) per share.
The par value is the nominal amount that each share is issued.
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Monetary stimulus is only helpful to an economy: __________
a. experiencing significant negative externalities.
b. that's in recession.
c. with few public goods.
Answers
9 Given figures showing: Sales £8,200, Opening inventory £1,300, Closing inventory £900, Purchases £6,400, Carriage inwards £200, the cost of goods sold figure is (A) £6,800 (B) £6,200 (C) £7,000 (D) Another figure
Answers
Explanation:
the correct answer is
B)£6,200
Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues. At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle?
a. 5 percent.
b. 6 percent.
c. 7 percent.
d. 8 percent.
Answers
Answer:
D
Explanation:
We are to determine the IRR of the purchase
The internal rate of return is a capital budgeting method that is used to determine the profitability of a project.
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
Cash flow in Y0 = -249.66
Cash flow in Y1 = 140
Cash flow in Y2 = 140
IRR = 8
To determine 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
Which of the following statements about transportation costs are correct?
A. When transportation costs rise, markets tend to substitute goods that are from closer locations.
B. Transportation costs have declined due to technological improvements for transporting goods.
C. International transportation costs are increasing everywhere in the world except in the United States.
D. Since the 1960s, transportation costs, as a percentage of the value of all U.S. imports, increased twofold.
E. The decline in the U.S. relative cost of international transportation has contributed to a higher volume of trade.
Answers
Answer:
A. When transportation costs rise, markets tend to substitute goods that are from closer locations. B. Transportation costs have declined due to technological improvements for transporting goods. E. The decline in the U.S. relative cost of international transportation has contributed to a higher volume of trade.Explanation:
When transportation costs increase, people will try to save on these costs by buying goods from nearby locations instead as these would require less transport.
In general, transportation costs have declined as technological improvements in transport have improved with better rail lines and air shipping routes. In the U.S. this has led to an increase in trade volume because people are able to buy from markets far away from them knowing that they will not have to pay exorbitant prices.
If an investor has a choice of investing money at 6% compounded daily or 6.025% compounded quarterly which one is best
Answers
General Rule: Daily compounding gives a higher yield
Compounding works like this:
6.025% per quarter
Quarter 1: $100 x 6.025% = $6.025
Quarter 2: $106.025 x 6.025% = $6.388
Quarter 3: $112.413 x 6.025% = $6.7729
Quarter 4: $119.186 x 6.025% = $7.4491
Etc…
6% per day
Day 1: $100 x 6% = $6
Day 2: $106 x 6% = $6.36
...
Day 365: $193.47 x 6% = $11.96
At December 31, Hawke Company reports the following results for its calendar year.
Cash sales $1,432,910
Credit sales $3,376,000
In addition, its unadjusted trial balance includes the following items.
Accounts receivable $1,022,928 debit
Allowance for doubtful accounts $11,560 debit
Required:
Prepare the adjusting entry for this company to recognize bad debts
Answers
The adjusting entries for acknowledging the bad debts would be:
a). Bad Debts Expense $50 640
Allowance for Doubtful Accounts $50 640
b). Bad Debts Expense $48089.1
Allowance for Doubtful Accounts $48089.1
Bad debts:
Bad debts are described as debts that are unable to be recovered from their respective debtors.The key reasons for this could be:
The debtor is bankrupt and cannot pay the amount.The debtor flees away and thus, can't be compelled to pay.The given amounts are obtained as follows:
a). Given that,
Bad debts is 1.5% of credit sales.
Credit Sales = $3,376,000
Bad debts = 1.5% of $3,376,000
∵ Bad debts = 1.5/100 * $3,376,000
= $50 640
b). Given that,
Bad debts = 1 % of total sales.
Total Sales = Credit sale + Cash sale
= $3,376,000 + $1,432,910
= $4808910
Bad debts = 1% of 4808910
∵ Bad debts = 1/100 * $4808910
= $48089.1
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