Answer:
c. $15,000 worth of buyer surplus and $25,000 of seller surplus
Explanation:
Consumer surplus is the different between the value a consumer places on a product and the price of the product.
Consumer surplus = value of the product - price of the product
$525,000 - $510,000 = $15,000
Producer surplus is the difference between the price and the least price the seller is willing to sell his product.
Producer surplus = price - least price the seller is willing to sell his product
$510,000 - $485,000 = $25,000
I hope my answer helps you
On January 1, 2021, Legion Company sold $250,000 of 6% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $163,976, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2021, in the amount of: (Round your answer to the nearest dollar amount.)
Answer:
The bond interest expense to be shown in profit or loss as t 30 June 2021
$9,838.56
Explanation:
The bond interest expense is the actual finance cost of using the funds made available by bondholders while the coupon payment is the portion of the finance cost paid to them periodically.
Interest expense=bonds cash proceeds*yield to maturity*6/12
bonds cash proceeds is $163,976
yield to maturity is 12%
interest expense=$163,976*12%*6/12=$9,838.56
Answer:
$9,838.56
Explanation:
Interest Expense using effective interest rate method can determined by multiplying the carrying value of the bond and yield rate of the bond because the bonds issued on the discount has different interest expense than the interest payment made to bond holder.
As the interest is paid semiannually the interest expense will be calculated for only 6 months.
Interest expense=Cash proceeds on issuance of bond x YTM x 6/12
As per given data
Cash proceeds are $163,976
YTM is 12%
Interest expense=$163,976 x 12% x 6/12=$9,838.56
Check all true statements regarding CMBS:
a.CMBS have less exposure to prepayment risk than RMBS
b.Loans in a CMBS deal are recourse loans The multifamily/apartment CRE sector never uses CMBS for financing as it relies on RMBS
c.CMBS are the main source of financing for commercial real estate loans
d.The number of commercial mortgages in a CMBS deal are usually lower than the number of residential mortgage in a RMBS deal
Answer: A and D only
Explanation:
CMBS Loan are also referred to as a Conduit Loan, this is a type of real estate loan usually commercial, which is secured by a first-position mortgage on a commercial property. These loans are usually packaged, and sold by a Conduit Lender, commercial banks, investment banks, and syndicates of banks.
Loans in a CMBS are always bigger so they are less in a CMBS deal. Sometimes it’s onlyone loan in a Single Asset (SA) CMBS deal
Prepayments are discouraged in CMBS through defeasance,prepayment penalties or yield maintenance fees.
Answer:
a.CMBS have less exposure to prepayment risk than RMBS
d. The number of commercial mortgages in a CMBS deal are usually lower than the number of residential mortgage in a RMBS deal
Explanation:
Commercial Mortgage-Backed Securities (CMBS) as the name implies are mortgage backed securities that are secured with commercial mortgages while Residential Mortgage-Backed Securities (RMBS) are mortgage backed securities secured by residential property.
a) CMBS are based on mortgages which usually have a fixed term contract in place meaning that prepayment is less of a thing with CMBS than with RMBS so the former does indeed have a less exposure to prepayment risk than the latter.
d) This is indeed true because both packages have to look appealing to investors but can only use different amounts to reach the minimum threshold. This is because Commercial Mortgages pay more than Residential Mortgages so more RMBS have to be pulled together to form an attractive investment as opposed to CMBS. This is why the number in CMBS are usually less than that of RMBS.
A division is considering the acquisition of a new asset that will cost $2,950,000 and have a cash flow of $740,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. Required: a. & b. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation? What is the residual income each year if the cost of capital is 8 percent?
Answer and Explanation:
The computation of ROI for each year of the asset's life and residual income each year is shown below:-
Year Investment base ROI Residual income
1 $2,950,000 8% -$233,500
2 $2,212,500 11% -$233,500
3 $1,475,000 17% -$115,500
4 $737,500 34% -$56,500
ROI = Net income ÷ Total investment × 100
Net Income = Cash flow - Depreciation
Residual income = Net income - (Investment × Cost of capital)
Depreciation = Investment base ÷ 4 years
The return on investment and the residual income can be find out by using the excel spreadsheet. Kindly find it in the attachment
The classical dichotomy and the neutrality of money
The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction.
Maria spends all of her money on paperback novels and beignets. In 2011 she earned $27.00 per hour, the price of a paperback novel was $9.00, and the price of a beignet was $3.00.
Which of the following give the nominal value of a variable?
1-The price of a beignet is $3.00 in 2011.
2-Maria's wage is $27.00 per hour in 2011.
3-The price of a beignet is 0.33 paperback novels in 2011.
Which of the following give the real value of a variable?
1-The price of a paperback novel is 3 beignets in 2011.
2-Maria's wage is 9 beignets per hour in 2011.
3-The price of a paperback novel is $9.00 in 2011.
Suppose that the Fed sharply increases the money supply between 2011 and 2016. In 2016, Maria's wage has risen to $54.00 per hour. The price of a paperback novel is $18.00 and the price of a beignet is $6.00.
In 2016, the relative price of a paperback novel is _________
Between 2011 and 2016, the nominal value of Maria's wage (increases/decreases/remains the same) and the real value of her wage ____________
Monetary neutrality is the proposition that a change in the money supply ________ nominal variables and ______ real variables.
Answer:
1. Relative price = $3
2. Increases
3. affects , not affect
Explanation:
As per the data given in the question,
1) The relative price of a paperback novel in 2016 = Maria,s wage ÷ Price of a paperback novel
= $54÷$18
= $3
2) Between 2011 and 2016, the nominal value increases and the real value of Maria's wage remains the same.
3)Monetary neutrality is proposition that the change in the money supply affects the nominal variables but it does not affect the real variables.
Which one of the following is not true when the economy is in macroeconomic equilibrium? A. When the economy is at long-run equilibrium, actual GDPequalspotential GDP. B. When the economy is at long-run equilibrium, firms will have excess capacity. C. When the economy is at long-run equilibrium, total unemploymentequalsfrictional unemploymentplusstructural unemployment. D. When the economy is at long-run equilibrium, SRASequalsADequalsLRAS.
Answer:
The correct answer to the following question will be Option C.
Explanation:
Throughout the macroeconomic equilibrium, the aggregate supply curve becomes equivalent to something like the supply curve, the real GDP seems to be comparable to potential Output (GDP), however, if frictional as well as systemic unemployment seems to be the maximum total poverty throughout the longer term.Consequently, whenever the economy seems to be in macroeconomic equilibrium, the argument which is not accurate would be that the businesses would have excess power.So that Option C is the right answer.
Which of the following statements about public speaking skills is most accurate?
a. Effective speaking skills are important for all employees.
b. Individuals are born with the ability to speak effectively in public.
c. The fear of public speaking cannot be conquered.
d. Recruiters rank effective public speaking skills low on their list of most sought-after skills desired in employees.
Answer:
a
Explanation:
For the employees to be successful in their respective fields ,one of the most essential skill required to succeed is public speaking. Public speaking is about communicating your idea or thoughts in public in an effective ways. It is all about being able to make the other people understand our thoughts.
All other options are absurd as far public speaking skills are concerned.
Suppose the interest rate is 4.3 %. a. Having $ 400 today is equivalent to having what amount in one year? b. Having $ 400 in one year is equivalent to having what amount today? c. Which would you prefer, $ 400 today or $ 400 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $ 400 today is equivalent to having what amount in one year?
Answer: a. $417.2. b. $383.51. c. $400 today.
Explanation:
a. Present value = $400
Interest rate = 4.3%
Future value= PV(1+r)^n
= 400(1+0.043)^1
= 400(1.043)
= $417.2
b. FV = $400
PV = Unknown
Interest = 4.3%
Future value= PV(1+r)^n
400 = PV(1+0.043)^1
400 = PV(1.043)
PV = 400/1.043
PV = $383.51
c. I'll prefer $400 today.
My answer does not depend on me needing money presently, I can actually invest the $400 today and get more value when it's a year. I'll have made more than $400.
A company sells goods to a customer who will pay the full amount in 30 days.How should the company record the sale
Answer:
Credit sales
Debit receivables
Explanation:
This is a sales on account transaction which affect the sales and receivables account.
When this transaction occurs , the company has definitely made a sale which will lead to an inflow of cash in 30 days time, even though the income is recognized immediately according to the accrual method of accounting
To record this , the sales account is credited with the value of the goods sold and the account receivable is debited for with the same amount.
The receivable is a record of payment being owed to the company by its customers.
Exercise 4-20 (Algo) Statement of cash flows; indirect method [LO4-8] Presented below is the 2021 income statement and comparative balance sheet information for Tiger Enterprises. TIGER ENTERPRISES Income Statement For the Year Ended December 31, 2021 ($ in thousands) Sales revenue $ 15,500 Operating expenses: Cost of goods sold $ 5,100 Depreciation expense 410 Insurance expense 950 General and administrative expense 3,500 Total operating expenses 9,960 Income before income taxes 5,540 Income tax expense (2,216 ) Net income $ 3,324 Balance Sheet Information ($ in thousands) Dec. 31,2021 Dec. 31, 2020 Assets: Cash $ 640 $ 370 Accounts receivable 835 1,000 Inventory 825 770 Prepaid insurance 140 40 Equipment 3,300 2,650 Less: Accumulated depreciation (1,180 ) (770 ) Total assets $ 4,560 $ 4,060 Liabilities and Shareholders' Equity: Accounts payable $ 385 $ 530 Accrued liabilities (for general & administrative expense) 385 570 Income taxes payable 365 320 Notes payable (due 12/31/2022) 1,100 800 Common stock 1,120 970 Retained earnings 1,205 870 Total liabilities and shareholders' equity $ 4,560 $ 4,060 Required: Prepare Tiger’s statement of cash flows, using the indirect method to present cash flows from operating activities. (Hint: You will have to calculate dividend payments). (Enter your answers in thousands. Amounts to be deducted should be indicated with a minus sign.)
Answer and Explanation:
The preparation of the cash flow statement is presented below:
TIGER ENTERPRISES
Cash flow statement
Cash flow from operating activities
Net income $3,324
Adjustment made
Add: Depreciation expenses $410
Add: Decrease in account receivable $165 ($835 - $1,000)
Less: Increase in inventory -$55($825 - $770)
Less: Increase in prepaid insurance -$100 ($140 - $40)
Less: Decrease in account payable -$145 ($385 - $530)
Less: Decrease in accrued liabilities -$185 ($385 - $570)
Add: Increase in income taxes payable $45 ($365 - $320)
Net cash provided by operating activities $3,459
Cash flow from investing activities
Purchase of equipment -$650 ($3,300 - $2,650)
Net cash used by investing activities -$650
Cash flow from financing activities
Issuance of the note payable $300 ($1,100 - $800)
Issuance of the common stock $150 ($1,120 - $970)
Dividend paid -$2,989 ($870 + $3,324 - $1,205)
Net cash used by financing activities -$2,539
Increase in cash $270
Add: Beginning cash balance $370
Ending cash balance $670
The items which shown in a positive sign reflects the cash inflow and the items which shown in a negative sign reflects the cash outflow ,
How long do foodbourne illnesses last
Answer:
5-7 days
Explanation:
Immune-comprised individuals may experience a more serious illness. Severe diarrhea (often bloody diarrhea), abdominal cramps, and vomiting. Usually little or no fever. Can begin 2 to 8 days, but usually 3-4 days after consumption of contaminated food or water and last about 5 to 7 days depending on severity.
Answer:
about a week
Explanation:
Can begin 2 to 8 days, but usually 3-4 days after consumption of contaminated food or water and last about 5 to 7 days depending on severity.
Oklahoma enacts a law requiring all businesses in the state to donate 10 percent of their profits to Protestant churches that provide services to indigent persons. Price-Lo Mart files a law suit to block the enforcement of the law. The court will probably decide that this law violates: a. the Free Exercise clause. b. the Supremacy clause. c. the Equal Protection clause. d. the Establishment clause.
Answer: d. the Establishment clause.
Explanation:
The Establishment Clause was put in place as a limitation by the United States Congress to prevent excesses or stop it from passing legislation forcing an establishment, religion, which broadly made it illegal for the government to promote theocracy or promote a specific religion with taxes. As this is the case with the state asking business to donate 10% of their profit to Protestant.
Answer:
The establishment clause.
Explanation:
Establishment clause, also called establishment-of-religion clause, clause in the First Amendment to the U.S. Constitution forbidding Congress from establishing a state religion. It prevents the passage of any law that gives preference to or forces belief in any one religion. It is paired with a clause that prohibits limiting the free expression of religion.
As the citizenry became more diverse, however, challenges arose to existing laws and practices, and eventually, the Supreme Court was called upon to determine the meaning of the establishment clause.
Though not explicitly stated in the First Amendment, the clause is often interpreted to mean that the Constitution requires the separation of church and state.
Andrews Corporation has income from operations of $253,000. In addition, it received interest income of $25,300 and received dividend income of $28,900 from another corporation. Finally, it paid $13,000 of interest income to its bondholders and paid $47,400 of dividends to its common stockholders. Using the 2013 corporate tax schedule, what is the firm’s federal income tax? Round your intermediated and final answers to the nearest cent. $
Answer:
$107,122
Explanation:
corporate tax rate during 2013 = 39.1%
Andrews Corporation net taxable income:
from operations $253,000from interests $25,300from dividends $28,900 - dividends received deductions $20,230 = $8,670Deductions on net taxable income*:
interest paid to bondholders = $13,000Net taxable income = $286,970 - $13,000 = $273,970
federal income tax = $273,970 x 39.1% = $107,122
*Dividends are paid with retained earnings which include after tax net income. They are not tax deductible.
A company produces a single product. Last year, fixed manufacturing overhead was $30,000, variable production costs were $48,000, fixed selling and administration costs were $20,000, and variable selling administrative expenses were $9,600. There was no beginning inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable costing, net operating income would be
Answer:
Net operating income= (2,000)
Explanation:
Giving the following information:
fixed manufacturing overhead was $30,000
variable production costs were $48,000
fixed selling and administration costs were $20,000
variable selling administrative expenses were $9,600.
During the year, 3,000 units were produced and 2,400 units were sold for $40 per unit.
First, we need to calculate the unitary product variable cost:
Unitary product cost= 48,000/3,000= $16
Income statement:
Sales= 2,400*40= 96,000
Total variable cost= (2,400*16) + 9,600= (48,000)
Contribution margin= 48,000
fixed manufacturing overhead= (30,000)
fixed selling and administration costs were= (20,000)
Net operating income= (2,000)
Elgin Battery Manufacturers had sales of $1,000,000 in 2009 and their cost of goods sold represented 70 percent of sales. Selling and administrative expenses were 10 percent of sales. Depreciation expense was $100,000 and interest expense for the year was $10,000. The firm's tax rate is 30 percent. What is the dollar amount of taxes paid
Answer:
$27,000
Explanation:
The dollar amount of taxes paid is the earnings before tax multiplied by the tax rate.
The earnings before tax=sales-costs of sale-selling and administrative expenses-depreciation expense-interest expense
sales is $1,000,000
costs of sales=$1000,000*70%=$700,000
selling and administrative expenses=10%*$1,000,000=$100,000
depreciation expense=$100,000
interest expense=$10,000
earnings before tax=$1,000,000-$700,000-$100,000-$100,000-$10,000=$90,000
taxes paid=$90000 *30%=$27,000
Frederick Company has two service departments (Cafeteria Services & Maintenance). Frederick has two production departments (Assembly Department & Packaging Department.) Frederick uses a step allocation method where Cafeteria Services is allocated to all departments and Maintenance Services is allocated to the production departments. All allocations are based on total employees. Cafeteria Services has costs of $255,000 and Maintenance has costs of $175,000 before any allocations. What amount of Maintenance total cost is allocated to the Packaging Department? (round to closest whole dollar) Employees are: Cafeteria Services 4 Maintenance 5 Assembly Department 10 Packaging Department 10
Answer:
The Total allocation of maintenance cost of packaging department is $87,500
Explanation:
According to the given data we have the following:
The Total Maintenance cost is $175,000 before allocation.
Total employees of in Production Department is= 10 Assembly + 10 Packaging= 20
Hence, Total maintenance cost per employee = $175,000 / 20
Total maintenance cost per employee =$8,750
Therefore, the Total allocation of maintenance cost of packaging department= Total maintenance cost per employee× Employees Packaging Department
Total allocation of maintenance cost of packaging department=$ 8,750 X 10 employees= $87,500
Select a publicly traded firm of your choice that enjoys a large shareholder base. What challenges may this firm have encountered (or is likely to encounter) in terms of (a) incorporating ethics into financial management practices, and (b) maintaining/sustaining ethical practices in the face of internal or external (market) pressures? Frame your response relative to the financial manager's fiduciary duty to maximize shareholder's wealth.
Answer: The answer is provided below
Explanation:
The publicly traded firm of my choice is Amazon.
a. Amazon would in its initial phase have encountered challenges as a result of the inculcating of financial management practises. At the beginning, the founders and the employees may not be willing to disclose all the profits on their books of accounts.
Also, the use of debt might not be taken as a healthy sign at the beginning. The preparation of statement of position might not be taken seriously and the internal control mechanisms will have been challenging to put up and also keep accountability.
b. It would have been really difficult for managers to sustain best practises during pressures. Also, stakeholders due to their personal goals might not allow finance manager to independently work. The pressure to exhibit certain level of sales or profit may also be there.
Furthermore, the lagging or leading of expenses might be done to show
lesser or higher profit. A materially price sensitive information might not be disclosed or reported. Finally, the extent of any loss might also not be reported as a result of internal pressures.
All of the following are correct statements about transfers between divisions located in countries with different tax rates except that
A. differences in tax rates across countries complicate the determination of the appro-priate transfer price
B. a decreasing number of transfers are between divisions located in different countries
C. companies must pay income tax in the country where income is generated
D. many companies prefer to report more income in countries with low tax rates.
All of the following are correct statements about transfers between divisions located in countries with different tax rates except that the companies must pay income tax in the country where income is generated. Thus option (C) is correct.
What is tax?Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional, or national.
Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare.
In economics, taxes fall on whoever pays the burden of the tax, whether this is the entity being taxed, such as a business, or the end consumers of the business’s goods.
From an accounting perspective, there are various taxes to consider, including payroll taxes, federal and state income taxes, and sales taxes.
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Joe Jenkins, the owner of Jenkins Manufacturing, is considering whether to produce a new product. Joe will be selling the product for a price of $70 per unit. If he uses the current equipment, Joe estimates the fixed costs per year to be $40,000 and variable costs for each unit produced to be $50. However, Joe is considering the purchase of new equipment that would produce the product more efficiently. Joe’s fixed cost would be raised to $60,000 per year, but the variable cost would be reduced to $25 per unit. If Joe's demand forecast is 900 units, should Joe produce the product using the existing or the new equipment? Produce using the existing equipment. Produce using the new equipment. Does not matter, which equipment is used. The product should not be produced at all.
Answer:
Jenkins Manufacturing
Joe should produce using the new equipment.
Explanation:
a) Costs incurred using the old equipment:
Variable costs = $45,000 ($50 x 900)
Fixed costs = $40,000
Total costs = $85,000
Operating Loss = $22,000 ($63,000 - 85,000)
b) Costs incurred using the new equipment:
Variable costs = $22,500 ($25 x 900)
Fixed costs = $60,000
Total costs = $82,500
Operating Loss = $19,500 ($63,000 - 82,500)
Production using the new equipment would reduce the operating loss by $2,500.
The company should produce by using the new equipment.
Based on thw information given, the cost that's incurred using the old equipment will be
Variable costs = ($50 x 900) = $45,000
Fixed costs = $40,000
Total costs = Fixed cost + Variable cost
= $40000 + $45,000
= $85,000
Operating Loss will be:
= ($63,000 - 85,000) = -$22000
The costs incurred using the new equipment will be:
Variable costs = ($25 x 900) = $22,500
Fixed costs = $60,000
Total costs = $60000 + $22500 = $82,500
Operating Loss = ($63,000 - 82,500) = -$19,500
Based on the calculation, the company should produce by using the new equipment.
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A bakery buys sugar from a big distributor to use in baking cakes. Typically, they use 3663 bags of sugar in a year. The price of sugar is typically $14 per bag. The cost to the bakery for placing an order is $26, and the annual carrying cost is $17 per bag. The distributor has offered the bakery the following volume discount schedule: Order Size Discount rate on the original price 1--449 0 percent 450--799 5 percent more than 800 10 percent We are trying to find how many bags of sugar should the store order, whenever they place a new order of sugar.Assume 364 days a year and 52 weeks a year. IMPORTANT: Note, the discounts off of original price are reported. You need to calculate the actual prices. Keep two decimal places in your calculations.If we ignore the discounts, how many bags of sugar should we order
A bidding firm, A, is worth $27,000 as a stand-alone entity. A target firm, B, is worth $12,000 as a stand-alone entity, but $18,000 if it is acquired and integrated with Firm A. Several other firms are interested in acquiring Firm B, and Firm B is also worth $18,000 if it is acquired by these other firms. If A acquired B, would this acquisition create value? If yes, how much? How much of this value would the equity holders of A receive? How much would the equity holders of B receive?
Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Firm A’s worth as a stand-alone entity = $27,000
Firm B’s worth as a stand-alone entity = $12,000
But if Firm A acquired Firm B it’s increase worth of Firm B at $18000.
Firm A is acquired Firm B, this acquisition create value of
= $18,000 - $12000
= $6000.
With this acquisition equity holders of Firms received $18,000 which is $6,000 more than Firm B stand alone.
Riegel Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2014, consists of products D, E, F, G, H, and I. Relevant per unit data for these products appear below.
Item D Item E Item F Item G Item H Item I
Estimated selling price $120 $110 $95 $90 $110 $90
Cost 75 80 80 80 50 36
Cost to complete 30 30 25 35 30 30
Selling costs 10 18 10 20 10 20
Using the LCNRV rule, determine the proper unit value for statement of financial position reporting purposes at December 31, 2014, for each of the inventory items above.
Answer:
The answer is 75 that is what i put and got it correct
As of December 31, 2019, Sheridan Company had $3500 of raw materials inventory. At the beginning of 2019, there was $3000 of materials on hand. During the year, the company purchased $315000 of materials; however, it paid for only $252500. How much inventory was requisitioned for use on jobs during 2019
Answer: $314,500
Explanation:
When calculating how much of a material of any sort was used, the following formula should be used,
= Beginning inventory + Purchases - Ending inventory
This is the same formula largely used to calculate Cost of Goods sold.
Here, the figure to be concerned about is the actual materials used not the ones paid for.
Plugging in figures into the formula then,
= 3,000 + 315,000 - 3,500
= $314,500
Thus $314,500 was the inventory requisitioned for use on jobs during 2019.
Haylock Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 7,800 direct labor-hours will be required in August. The variable overhead rate is $1.20 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,560 per month, which includes depreciation of $8,790. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be:
Answer:
Total cash= $101,130
Explanation:
Giving the following information:
Estimated direct labor hours= 7,800
The variable overhead rate is $1.20 per direct labor-hour.
The company's budgeted fixed manufacturing overhead is $100,560 per month, which includes depreciation of $8,790.
We need to deduct the depreciation expense because it is not a cash disbursement.
Cash disbursement:
Variable overhead= 7,800*1.2= $9,360
Fixed overhead= (100,560 - 8,790)= $91,770
Total cash= $101,130
Suppose that the standard deviation of monthly changes in the price of commodity A is $2. The standard deviation of monthly changes in a futures price for a contract on commodity B (which is similar to commodity A) is $3. The correlation between the futures price and the commodity price is 0.9. What hedge ratio should be used when hedging a one month exposure to the price of commodity A
Answer:
0.6
Explanation:
Correlation r = 0.9,
Standard deviation of monthly change in price of commodity A, σA = 2,
Standard deviation of monthly change in price of commodity B, σB = 3
The hedge ratio will be calculated using the formula
Hedge ratio=r×σA÷σB
Hedge ratio=0.9×2÷3
Hedge ratio = 0.6
Therefore, the hedge ratio used when hedging a one month exposure to the price of commodity A is 0.6.
Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent? A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated.
Answer:
A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
Explanation:
Since the accounting method is being changed from FIFO to LIFO, any adjusting of prior year balances would be impractical. If the change is from LIFO to FIFO, then it makes more sense to adjust prior year balances. By impractical, it means that any changes would be too difficult and expensive to determine, and the value of the change is insignificant (materiality principle).
Generally US GAAP rules require that changes from FIFO to LIFO be disclosed in the footnotes only.
Johnson Enterprises uses a computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
Current Machine New Machine
Original purchase cost $15,300 $25,100
Accumulated depreciation $6,200 ------
Estimated annual operating costs $24,800 $19,800
Remaining useful life 5 years 5 years
If sold now, the current machine would have a salvage value of $10,800. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.
Should the current machine be replaced?
Answer:
The current machine should be replaced. It costs more plus the overhead costs to maintain the current machine than it would cost to maintain the new machine.
The analysis is as follows:
Explanation:
1. Cost Analysis of Current Machine:
Book value of equipment = $9,100 ($15,300 - $6,200)
Annual Operating Costs for 5 years = $124,000 ($24,800 x 5)
Total cost = $133,100 ($9,100 + $124,000)
2. Cost Analysis for New Machine:
Purchase cost = $25,100
Annual operating costs for 5 years = $99,000 ($19,800 x 5)
Total cost for 5 years = $124,100 ($25,100 + $99,000)
Since both machines have no salvage value at the end of 5 years, it makes sense to purchase the new machine with a cost saving of $9,000 ($133,100 - $124,100) plus the overtime cost that will be eliminated.
The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2014, $147,000; 2015, $185,000. Early in 2016, the following errors were discovered.
1. Depreciation of equipment for 2014 was overstated $17,000.
2. Depreciation of equipment for 2015 was understated $38,500.
3. December 31, 2014, inventory was understated $50,000.
4. December 31, 2015, inventory was overstated $16,200.
Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)
Answer:
Debit 2016 Beginning retained earning for $37,700;
Credit Accumulated depreciation for $21,500, and
Credit Inventory for $16,200.
Explanation:
The entries will affect the 2016 beginning Retained earning except for the December 31, 2014 inventory which was understated by $50,000 which was a self correcting error at the end of 2015.
Accumulated depreciation = Understatement of 2015 depreciation - Overstatement of 2014 depreciation = $38,500 - 17,000 = $21,500
The entries will affect the 2016 beginning retained earning as follows:
Details Dr ($) Cr ($)
Beginning retained earning 37,700
Accumulated depreciation 21,500
Inventory - 2015 Overstatement 16,200
To correct the error discovered in the accounts. .
Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 units of cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $150 Factory overhead $350,000 Direct labor 25 Selling and administrative expenses 140,000 Factory overhead 40 Selling and administrative expenses 25 Total variable cost per unit $240 Smart Stream desires a profit equal to a 30% return on invested assets of $1,200,000. a. Determine the total costs and the total cost amount per unit for the production and sale of 10,000 cellular phones.
Answer:
Smart Stream Inc.
a) Total costs:
Variable costs:
Direct materials = $1,500,000 ($150 x 10,000)
Direct labor = $250,000 ($25 x 10,000)
Factory overhead = $400,000 ($40 x 10,000)
Selling and Administrative = $250,000( $25 x 10,000)
Total variable costs = $2,400,000 ($240 x 10,000)
Fixed Costs:
Factory overhead = $350,000
Selling and admin = $140,000
Total fixed costs = $490,000
I) Total costs = variable plus fixed costs = $2,890,000 ($2,400,000 + 490,000)
II) Total cost per unit = $289 ($2,890,000/10,000)
Explanation:
The total cost method includes all the costs in arriving at the unit cost before adding the desired profit to arrive at the selling price of a product.
Total costs include the cost of goods sold and the expenses incurred in running the business for the period.
It is unlike the product cost-plus and variable cost-plus approaches to product pricing. For the product cost-plus approach, only the costs of production is taken into consideration for arriving at the selling price. In that case, the costs of direct materials and labor, and factory overheads would be considered, while variable and fixed selling and administrative costs are excluded. The unit cost would have been $250.
The variable cost-plus approach considers only the variable elements of costs to arrive at the selling price. These include the direct materials and labor costs, and variable element of the factory overhead and selling and administrative expenses. The unit cost would have been $240 as stated in the question.
These different cost-plus pricing approaches are more suitable for some industries than others. No matter the choice made, it must be noted that they result in different selling prices and can affect the competitiveness of a company.
ImpressMe Products embosses notebooks with school and corporate logos. Last year, the company’s direct labor payroll totaled $352,100 for 50,300 direct labor hours. The standard wage rate is $6.75 per direct labor hour. Calculate ImpressMe’s direct labor rate variance. (Round answer to 0 decimal places, e.g. 125. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
Answer:
Direct labor rate variance= $12,575 unfavorable
Explanation:
Giving the following information:
Last year, the company’s direct labor payroll totaled $352,100 for 50,300 direct labor hours. The standard wage rate is $6.75 per direct labor hour.
To calculate the direct labor rate variance, we need to use the following formula:
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Actual rate= 352,100/50,300= $7 per hour
Direct labor rate variance= (6.75 - 7)*50,300
Direct labor rate variance= $12,575 unfavorable
In conducting the audit procedures for the search for unrecorded liabilities, the materiality/scope for this area was accessed by the auditors at $5,000. Adjustments are only recorded for individual items equal to or exceeding materiality. The company fiscal year end is December 31, 2019 and the last day of fieldwork is estimated to be February 1, 2020. Below is an item from the check/cash disbursement register, which is not recorded in the accounts payable subsidiary ledger at December 31, 2019. Daniel Breen, Esquire Check Number 1334 Check Date 1/6/2020 Amount $6,000 Nature of the Expenses: Corporate legal services for December 2019 Required: Determine if this check/cash disbursement is recorded in the proper accounting period. This transaction requires an accounting adjustment to the financial statements for the fiscal year ending 12/31/2019 - If you believe that statement is correct - answer "Yes" This transaction does NOT require an accounting adjustment to the financial statements for the fiscal year ending 12/31/2019 - If you believe that statement is correct - answer "No."
Answer:
"No."
This transaction does NOT require an accounting adjustment to the financial statements for the fiscal year ending 12/31/2019 - If you believe that statement is correct - answer "No."
Explanation:
The check disbursement does not require an adjustment to the financial statements for the fiscal year ending 12/31/2019, because the check is dated 1/6/2020.
Adjusting entries are changes to the journal entries which tries to match transactions to their correct accounting periods. A check dated January 6, 2020 does not belong to the fiscal year ending December, 2019.
Adjusting entries are usually for Accrued Revenue, Accrued Expenses, Deferred Revenue, Prepaid Expenses, and Depreciation Expenses.
