Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hands. The following information for the two warehouses is available:
Denver Bristol
Cost $80,000 $31,500
Accumulated depreciation 60,000 25,000
Fair value 17,000 17,000
Required:
1. Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange.
2. Assuming the exchange does not have commercial substance, prepare journal entries for Denver and Bristol to record the exchange.
Answer and Explanation:
The journal entries are shown below
1.
On Denver books
Equipment Dr $17,000
Accumulated depreciation $60,000
Loss on sale of equipment $3,000
To Equipment $80,000
(Being equipment recorded)
On Bristol books
Equipment Dr $17,000
Accumulated depreciation $25,000
To Gain on sale of equipment $10,500
To Equipment $31,500
(Being equipment recorded)
2.
On Denver books
Equipment Dr $20,000
Accumulated depreciation $60,000
To Equipment $80,000
(Being equipment recorded)
On Bristol books
Equipment Dr $6,500
Accumulated depreciation $25,000
To Equipment $31,500
(Being equipment recorded)
As you sit at your desk on your first day back after a rejuvenating vacation to the Caribbean, you bring your mind back to your work as the head of a beverage bottling plant. You have a lot of work to catch up on, and need to prioritize what is most important to address today. Because recent environmental changes have led to new competitors entering your industry you analyze the new environment and identify new strategies and goals to present to your boss. Which of the following basic management functions did you just engage in?
a. Leading
b. Planning
c. Organizing
d. Controlling
Answer:
d. Controlling
Explanation:
Analyzing the information above, it is correct to say that the manager is exercising the management function of controlling, which is the step of coordinating the activities of an organization and adapting them to the current business environment so that the objectives and goals set in the planning are achieved. Controlling is analyzing, defining, comparing, correcting errors, monitoring all the processes of the integrated system that makes up the organization so that the organizational flow and strategies are carried out in a way that is aligned with the organizational and effective purpose.
Bill and Fred bake cakes and pies. Bill's opportunity cost of baking 1 pie is 5 cakes. Fred's opportunity cost of baking 1 pie is 7 cakes. If both parties are to benefit from trade then we can expect 1 pie to sell for: Group of answer choices
Explanation:
Bill will benefit from trade If 1P > 3C and Fred will benefit from trade If 1P < 5C
Thus, both will benefit from exchange if 3C < 1P < 5C.
That means that both of them would benefit from trading if 1 pie are to be traded for more than 3 cakes and less than 5 cakes like 1 pie is exchanged for 4 cakes. (As a result, since both sides are to profit from exchange, we should expect 1 pie to be exchanged for 4 cakes)
As a company manager for Claimstat corporation, there is a 0.40 probability that you will be promoted this year. There is a 0.72 probability that you will get a promotion, a raise, or both. The probability of getting a promotion and a raise is 0.25.
(1) If you get a promotion, what is the probability that you will also get a raise?
(2) Are getting a raise and being promoted independent events? Explain using probabilities.
(3) Are these two events mutually exclusive? Explain using probabilities.
Answer:
(1) If you get a promotion, what is the probability that you will also get a raise?
25% or 0.25
(2) Are getting a raise and being promoted independent events? Explain using probabilities.
yes, they are independent events because you a given one probability for getting a raise (40%) and another one for getting both a raise and a promotion (25%). If they were dependent events, the probability would be the same but they are not.
(3) Are these two events mutually exclusive? Explain using probabilities.
No they are not, again the probability of getting both a raise and a promotion is 25%.
As a graduating senior, Chun Kumora of Manhattan, Kansas, is eager to enter the job market at an anticipated annual salary of $54,000. c. To beat inflation, (note that inflation is usually about 3%), what is the minimum raise (in dollars) that Chun would need to receive next year
Answer: See explanation
Explanation:
Inflation is when the price level of goods and services increase in an economy.
Since Kansas, is eager to enter the job market at an anticipated annual salary of $54,000 while inflation is 3%, the minimum raise that Chun would need to receive next year would be:
= 3% × $54000
= 3/100 × $54000
= 0.03 × $54000
= $1620
The minimum raise will be $1620, therefore he'll be expecting a salary of $54000 + $1620 = $55620
A share trades at a price-to-book ratio of 0.7. An analyst who forecasts an ROCE of 12 percent each year in the future, and sets the required equity return at 10 percent, recommends a hold position. Does his recommendation agree with his forecast
Answer:
It does not agree.
Explanation:
The company expects to earn ROCE higher than the required rate of return. If this is to be achieved, the company must trade at a premium value in the share market. But as the current price-to-book ratio indicated that the market value is lower than the book value, this indicate that it is a Buy position as the share is undervalued. Therefore, it does not agree with the company's recommendation.
Scott wants to accumulate $3,800 over a period of 11 years so that a cash payment can be made for roof maintenance on his summer cottage. To have this amount when it is needed, he will make annual deposits at the end of each year into a savings account that earns 7.0% annual interest per year. How much must each annual deposit be
Answer:
$240.76
Explanation:
The formula to determine the annual deposit is :
p = FV / annuity factor
Annuity factor = {[(1+r)^n] - 1} / r
FV = Future value
P = Present value
R = interest rate
N = number of years
Annuity factor = (1.07^11 - 1) / 0.07 = 15.783599
p = $3800 / 15.783599 = $240.76
Process analysis can be used for ______ deciding on how to service customers and interact with its supplier. examining how suppliers ship products and firms receives them. mapping activities, improving process and executing processes. mapping activities, improving process and designing new processes.
Answer:
mapping activities, improving process and executing processes.
Explanation:
Process analysis is a method used by management of a business to evaluate various processes in the entire organisation or in a department.
The main focus of process analysis is increased efficiency of the process under consideration.
Process analysis considers the process itself, parties that interact in the process, and information exchange structure.
Also improvements to current practice is identified for future implementation
Data for Sunland Company, interior decorating, are presented as follows.
Jan. 2 Stockholders invested $18,337 cash in the business in exchange for common stock.
3 Purchased used car for $10,024 cash for use in the business.
9 Purchased supplies on account for $611.
11 Billed customers $2,200 for services performed.
16 Paid $244 cash for advertising.
20 Received $954 cash from customers billed on January 11.
23 Paid creditor $367 cash on balance owed.
28 Declared and paid a $611 cash dividend.
Required:
Journalize the transactions.
Answer:
Jan. 2 Stockholders invested $18,337 cash in the business in exchange for common stock.
Account Debit Credit
Cash $18,337
Common Stock $18,337
3 Purchased used car for $10,024 cash for use in the business.
Account Debit Credit
Vehicle $10,024
Cash $10,024
9 Purchased supplies on account for $611.
Account Debit Credit
Supplies Expense $611
Accounts Payable $611
11 Billed customers $2,200 for services performed.
Account Debit Credit
Accounts Receivable $2,200
Service Revenue $2,200
16 Paid $244 cash for advertising.
Account Debit Credit
Advertising Expense $244
Cash $244
20 Received $954 cash from customers billed on January 11.
Account Debit Credit
Cash $954
Accounts Receivable $954
23 Paid creditor $367 cash on balance owed.
Account Debit Credit
Accounts Payable $367
Cash $367
28 Declared and paid a $611 cash dividend.
Account Debit Credit
Dividends $611
Cash $611
An Argentinian economist pointed out that the inflation rate based on the PCE(personal consumption expenditures) deflator was higher than the inflation rate you calculated in part (b) based on the GDP deflator. Provide two possible explanations for this difference between the inflation rates calculated from the PCE deflatorversus the GDP deflator.
Answer:
Note: The complete question is attached as picture below
Year Nominal GDP Real GDP
2019 100 100
2020 105 99
a) %change in nominal GDP = [(105 - 100) / 100] * 100 = 5%
%change in real GDP = [(99 - 100) / 100] * 100 = -1%
b) GDP deflator is = [Nominal GDP / Real GDP]. %change in GDP deflator = [(106.06 - 100) / 100] * 100 = 6.06%
c) Inflation calculated from GDP deflator and PCE is different because
- GDP deflator does not includes price increase of imported goods while PCE does.
- PCE measures change in price of goods which are generally consumed by consumers while GDP deflator includes all goods produced in an economy.
The Morrit Corporation has $900,000 of debt outstanding, and it pays an interest rate of 9% annually. Morrit's annual sales are $6 million, its average tax rate is 25%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 6 to 1, then its bank will refuse to renew the loan, and bankruptcy will result. What is Morrit's TIE ratio
Answer:
TIE ratio = 3.962
Explanation:
given data
debt outstanding = $900000
rate = 9 %
annual sales = $6 million
average tax rate = 25%
net profit margin = 3%
TIE ratio = 6 to 1
solution
first we get here interest amount that is here express as
interest amount = 900000 × 0.09
interest amount = 81000
and
net profit will be 3 % of 6 million
net profit = 180000
so here net profit + tax will be
net profit + tax = profit before tax
net profit + tax = 180000 ÷ (1-0.25)
net profit + tax = 240000
and
profit before tax + interest = earning before interest and tax
profit before tax + interest = 81000+240000
profit before tax + interest = 321000
and
TIE ratio will be
TIE ratio = EBIT ÷ Interest
TIE ratio = 321000 ÷ 81000
TIE ratio = 3.962
Deliberate Speed Corporation (DSC) was incorporated as a private company. The company's accounts included the following at June 30:
Accounts Payable $25,900
Buildings 118,000
Cash 46,500
Common Stock 200,000
Equipment 123,000
Land 203,000
Notes Payable (long—term) 3,700
Retained Earnings 274,700
Supplies 13,800
During the month of July, the company had the following activities:
a. Issued 6,100 shares of common stock for $610,000 cash.
b. Borrowed $114,000 cash from a local bank, payable in two years.
c Bought a building for $272,250; paid $84,250 in cash and signed a three-year note for the balance.
d. Paid cash for equipment that cost $238,000.
e. Purchased supplies for $31,250 on account.
Required:
Analyze transactions (a)-(e) to determine their effects on the accounting equation.
Answer:
I recorded the transactions on an Excel spreadsheet (see attached file)
Explanation:
Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States?
a. The costs of overfishing and other overly intensive uses of resources
b. Federal government paychecks to soldiers
c. The value Of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government
d. The variety of goods available to consumers
When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the ________ component of GDP while also ____________ net exports by the same amount. Therefore, the purchase of wood from Brazil causes_________ in US GDP.
Answer:
a, c , d
investment
decreasing
no effect
Explanation:
Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year
GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export
Net export = exports – imports
When exports exceed import there is a trade deficit and when import exceeds import, there is a trade surplus.
Items not included in the calculation off GDP includes:
1. services not rendered to oneself
2. Activities not reported to the government
3. illegal activities
4. sale or purchase of used products
5. sale or purchase of intermediate products
6. Externalities
Investment spending by businesses includes purchases made by businesses. So, investment spending increases. Net export decreases because import is a negative function of GDP. The increase and decrease cancel each other out and there would be no change in GDP
Hours of labor or number of workers are
Answer:
Hours of labor or number of workers are common ways of measuring a company's productivity.
Explanation:
Productivity refers to output per unit of input. It means efficient usage of labor, capital, land, materials, resources, energy and so on in the production of goods and provision of services. In other words, it is the efficiency of the production process or measurement of efficiency.
Joan has a choice of purchasing a car for $20,000 with 9.7 percent interest cost to borrow and a three-year repayment period for leasing the vehicle. Leasing the auto would cost $300 a month for a three-year term. The sales tax is 6 percent. The car is expected to have a value of $14,000 at the end of the leasing period. Joan can obtain 7 percent after tax on similar marketable investments. Should she lease or buy the car
Answer:
Joan should buy the car instead of leasing it.
Explanation:
Residual value of the car at year3 is $14,000
The sales tax of the car is 6% * $20,000 = $1200
Annual payment of the money borrowed for car:
PV = $20,000, I/Y = 9.7/12, FV = 0, PMT = $642.53
Annual payment : $642.53 * 12 = $7,710
Cost of owning the car:
$1,200 + $7,710 + $7,710 + $7,710 - $14,000 = $10,330
Lease Rentals :
$3,600 + 3,600 + 3,600 = $10,800
The cost of owning a car is lower than rentals so Joan should go with the buying choice.
Indicate whether a debit or credit decreases the normal balance of each of the following accounts.
a. Postage Expense
b. Utilities Payable
c. Prepaid Insurance
d. Janitorial Expense
e. Advertising Expense
f. Rent Payable
g. Prepaid Parking
h. Fuel Expense
i. Accounts Receivable
j. Service Revenue
k. Unearned Revenue
l. Warehouse
Answer:
__________________Increase ___Decrease ___ Normal balance
a. Postage Expense__ Debit ______ Credit ______ Debit
b. Utilities Payable___ Credit ______Debit _______Credit
c. Prepaid Insurance__Debit ______ Credit ______ Debit
d. Janitorial Expense __Debit ______Credit ______ Debit
e. Advertising Expense Debit ______Credit ______ Debit
f. Rent Payable______ Credit ______Debit _______Credit
g. Prepaid Parking ____Debit ______ Credit ______ Debit
h. Fuel Expense ______Debit ______Credit ______ Debit
i. Accounts Receivable _Debit ______Credit ______ Debit
j. Service Revenue____Credit ______ Debit _______Credit
k. Unearned Revenue_ Credit ______ Debit _______Credit
l. Warehouse________ Debit ______ Credit _______ Debit
Explanation:
Debit Balance
All the Assets and Expense has the Normal debit balance that is increased by the debit entry and decreased by the credit entry.
The followings are the account with debit balances.
Expenses
a. Postage Expense
d. Janitorial Expense
e. Advertising Expense
h. Fuel Expense
Assets
c. Prepaid Insurance
g. Prepaid Parking
i. Accounts Receivable
l. Warehouse
Credit Balance
All the Revenue, Liabilities, and Equity accounts have the Normal credit balance that is increased by the credit entry and decreased by the debit entry.
The followings are the account with credit balances.
Liabilities
b. Utilities Payable
f. Rent Payable
k. Unearned Revenue
Revenue
j. Service Revenue
One year ago, you purchased 200 shares of Southern Foods common stock for $7900. Today, you sold your shares for $35.40 a share. During this past year, the stock paid $1.25 in dividends per share. What is your percent return on this investment
Answer:
Return on investment = -0.07215 or -7.215%
Explanation:
The rate of return or percent return on the investment can be calculated by deducting the initial cost of the investment from the current value of the investment and dividing it by the initial cost.
The return provided by the investment can be calculated by adding the returns provided in form of dividend and capital gains both. Thus, the return can be calculated as follows,
Total dividend = 1.25 * 200 = $250
Total selling value = 35.4 * 200 = $7080
Total value = 250 + 7080 = $7330
Return on investment = (7330 - 7900) / 7900 = -0.07215 or -7.215%
Time-tested practices for developing successful teams are Multiple Choice showing enthusiasm, making timely decisions, practicing innovation. admitting mistakes, being flexible, having persistence. giving credit to others, keeping people informed, keeping promises. putting others first and self last. all of these.
Answer:
all of these.
Explanation:
Time-tested practices can be regarded as methods , ways that has been usings for long period of time that has produced a successful teams and can be trusted any time. It should be noted that Time-tested practices for developing successful teams are the followings;
✓showing enthusiasm
✓making timely decisions
✓ practicing innovation
✓admitting mistakes
✓ being flexible,
ISO 9000 is a certification program attesting that a factory, laboratory, or office has met the rigorous requirements set by the International Organization for Standardization.
Answer:
True.
Explanation:
ISO 9000 is a certification program attesting that a factory, laboratory, or office has met the rigorous requirements set by the International Organization for Standardization.
Basically, the ISO 9000 is a tripartite continuous process that involves planning, controlling and documentation of quality in a business firm or organization.
This ultimately implies that, the ISO 9000 is a set of standards that typically guides an organization in ensuring that they meet both the stakeholders and consumer requirements or needs with respect to their products and services under statutory and regulatory requirements at a specific period of time.
he accounts in the ledger of Monroe Entertainment Co. are listed below. All accounts have normal balances. Accounts Payable $418 Fees Earned $2,221 Accounts Receivable 765 Insurance Expense 411 Prepaid Insurance 4,395 Land 1,763 Cash 1,386 Wages Expense 735 Drawing 301 Capital 7,117 Total assets are
Answer:
See below
Explanation:
With regards to the above,
Total assets = $765 + $4,395 + $1,763 + $1,386
Indiana Co. began a construction project in 2018 with a contract price of $161 million to be received when the project is completed in 2020. During 2018, Indiana incurred $33 million of costs and estimates an additional $89 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Suppose that, in 2019, Indiana incurred additional costs of $66 million and estimated an additional $53 million in costs to complete the project. Indiana:________
a. Recognized $3.75 million loss on the project in 2022.
b. Recognized $5.25 million gross profit on the project in 2022.
c. Recognized $7.5 million gross profit on the project in 2022.
d. Recognized $1.5 million loss on the project in 2022.
Answer:
Recognized $3.75 million loss on the project in 2017.
Explanation:
Calculation for what Indiana Co. Recognized
First step is to calculate the Percentage of contract is completed in 2019
Percentage of contract is completed in 2019=($33 million+$66 million )/($33 million+$66 million + $53 million)
Percentage of contract is completed in 2019=$96 million/$149 million
Percentage of contract is completed in 2019=0.64429*100
Percentage of contract is completed in 2019=64.43%
Second step is to calculate The estimated gross profit
Estimated gross profit=$161 million-$149 million
Estimated gross profit=$12 million
Fourth step is to calculate gross profit to date
Gross profit to date=64.43%*161=103.7
gross profit to date=33 million / (33 + 89 million) * 161 million
gross profit to date=33 million/122 million* 161 million
gross profit to date=43.54
= $44.01 million in revenue in 2021 (4)
Now let calculate the amount recognized
Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000.
One year later, the following selected figures were reported by the two companies.Additionally, no dividends have been paid.
Rovce Co. Park Co.
Book Value Book Value Fair Value
Current assets 868,000 420,000 448,000
Equipment 364,000 280,000 400,000
Buildings 574,000 210,000 210,000
Liabilities (546,000) (168,000) (168,000)
Revenues (1,260,000) (560,000)
Expenses 700,000 420,000
Investment income Not Given
1. What is consolidated net income for 2011 atributable to Royce's controlling interest?
2. What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31 2011 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2011?
Answer:
1. Parent Income = Revenue - Expenses
Parent Income = $1260000 - $700000
Parent Income = $560000
Sub-Income = Revenue - Expenses
Sub-Income = 560000 - 420000
Sub-Income = 140000 * 60% ownership
Sub-Income = $84000
Excess Amortization = (140000 / 10) * (60%)
Excess Amortization = $8400
Consolidated Net Income = $560,000 + $84,000 - $8,400
Consolidated Net Income = $635,600
2. Sub-Income = Revenue - Expenses
Sub-Income = 560000 - 420000
Sub-Income = 140000 * 40% ownership
Sub-Income = $56000
Excess Amortization = (140000 / 10) * (40%)
Excess Amortization = $5600
Non Controlling Interest share = 56000 - 5600
Non Controlling Interest share = $50400
Non Controlling Interest at acquisition date = 700000 * 40%
Non Controlling Interest at acquisition date = $280000
Non Controlling Interest during 2015 = $56000
Excess Amortization = $5600
Balance of Interest = $280,000 + $56,000 - $5,600
Balance of Interest = $330,400
Match each term with how related transactions affect the accounting equation. Dividends Expenses Revenues Assets Liabilities Match each of the options above to the items below. Transactions that affect the left side of the accounting equation.Transactions that affect the left side of the accounting equation. Open choices for matching No answer Transactions that increase stockholders' equity.Transactions that increase stockholders' equity. Open choices for matching 1 Transactions that affect the right side of the accounting equation not related to stockholders' equity.Transactions that affect the right side of the accounting equation not related to stockholders' equity. Open choices for matching No answer Transactions that decrease stockholders' equity related to distributions to stockholders.Transactions that decrease stockholders' equity related to distributions to stockholders. Open choices for matching No answer Transactions that decrease stockholders' equity related to cost of generating revenues.
Answer:
1. Dividends
Correct match: Transactions that decrease stockholders' equity related to distributions to stockholders.
2. Expenses
Correct match: Transaction that decrease stockholders' equity related to cost of generating of generating revenues.
3. Revenues
Correct match: Transactions that increase stockholders' equity.
4. Assets
Correct match: Transactions that affect the left side of the accounting equation.
5. Liabilities
Correct match: Transactions that affect the right side of the accounting equation not related to stockholders' equity.
Company A is a manufacturer with sales of $6,000,000 and a 60% contribution margin. Its fixed costs equal $2,600,000. Company B is a consulting firm with service revenues of $4,500,000 and a 25% contribution margin. Its fixed costs equal $375,000. Compute the degree of operating leverage (DOL) for each company. Which company benefits more from a 20% increase in sales
Answer:
See below
Explanation:
Company A
Degree of operating leverage is computed as
= Contribution margin / Net income
Net income = Contribution margin - Fixed costs
= 60% × $6,000,000 - $2,600,000
= $3,600,000 - $2,600,000
= $1,000,000
Degree of operating leverage = $3,600,000 /$1,000,000
= 3.6
Company B
Degree of operating leverage is computed as
= Contribution margin / Net income
Net income = Contribution margin - Fixed costs
= 25% × $4,500,000 - $375,000
= $1,125,000 - $375,000
= $750,000
Degree of operating leverage = $4,500,000 / $750,000
= 6
• 20% increase in sales company A
Sales = 20% × $6,000,000 + $6,000,000 = $7,200,000
Net income = 60% × $7,200,000 - $2,600,000 = $1,720,000
Degree of operating leverage = $4,320,000 / $1,720,000 = 2.5
• 20% increase in sales company B
Sales = 20% × $4,500,000 + $4,500,000 = $5,400,000
Net income = 25% × $5,400,000 - $375,000 = $975,000
Degree of operating leverage = $1,350,000 /$975,000 = 1.38
With regards to the above, company A tends to gain more from the sales increase because its operating leverage of 2.5 is more than that of company B, whose operating leverage is 1.38
Select the term in the blank space beside the definition that it most closely matches.
1. A type of business that earns income by buying and selling merchandise.
2. Inventory is updated for purchases and sales of inventory only at the end of a period.
3. Inventory is updated for each purchase and each sale of inventory.
4. The expense of purchasing and preparing the merchandise sold during a period.
5. Seller's description of a cash discount granted to buyers in return for early payment.
6. The amount of time allowed by a seller before payment is due from the buyer.
7. Time period in which a cash discount is available.
8. Refers to credit terms where goods in transit are owned by the seller.
Answer:
1. Merchandiser
2. Periodic inventory system
3. Perpetual inventory system
4. Cost of goods sold
5. Sales discount
6. Credit period
7. Discount period
8. FOB destination
Explanation:
1. Merchandiser: A type of business that earns income by buying and selling merchandise.
2. Periodic inventory system: Inventory is updated for purchases and sales of inventory only at the end of a period.
3. Perpetual inventory system: Inventory is updated for each purchase and each sale of inventory.
4. Cost of goods sold: The expense of purchasing and preparing the merchandise sold during a period.
5. Sales discount: Seller's description of a cash discount granted to buyers in return for early payment.
6. Credit period: The amount of time allowed by a seller before payment is due from the buyer.
7. Discount period: Time period in which a cash discount is available.
8. FOB destination: Refers to credit terms where goods in transit are owned by the seller.
The production function for fish harvesting is Cobb-Douglas. Currently, the Marginal Rate of Technical Substitution (MRTS) between Labor (L) and Capital (K) is higher than the wage to rent ratio (MRTS > w/r). This means that, a. More labor and less capital should be used to lower costs b. More capital and less labor should be used to lower costs c. Labor and Capital being used are already minimizing costs d. We need to know the fixed costs of production to determine if costs are minimized or not
Answer:
a. More labor and less capital should be used to reduce cost.
Explanation:
Condition for profit maximization is where the Marginal rate of technical substitution = Ratio of factor-input prices. This condition is known as a Producer Optimum in Long Run. MRTS itself is the ratio of Marginal Productivity of Labor to Capital. Thus, MRTS > w/r implies that Relative marginal productivity of labor is greater than relative cost of labor. This means that labor comes cheaper than capital when both their productivities are compared. So it is profitable to employ more labor than capital. This will continue till wages increase up to the point where MRTS = w/r.
3. You are considering investing in a startup company called Minions Technologies. After careful analysis, you determine that Minions will be able to generate $100,000 in cash flow at the end of each year for the first 5 years. Then, Minions will generate cash flow of $400,000 at the end of the 6th year, after which it will grow at 11% per year forever. Using a discount rate of 18%, what is the amount you would be willing to invest
Answer:
$2,810,467
Explanation:
we need to determine the enterprise value of Minions Technologies
first, the terminal value at year 5 = $400,000 / (18% - 11%) = $5,714,286
then we must find the present value of all future cash flows, including the terminal value
PV of 5 five cash flows = $100,000 x 3.127 (PV annuity factor, 18%, 5 periods) = $312,700
PV of terminal value = $5,714,286 / 1.18⁵ = $2,497,767
total enterprise value = $2,810,467
Freight-in $7,500 Inventory 40,000 Purchases 585,000 Purchase Discounts 6,300 Purchase Returns and Allowances 2,700 Sales Revenue 1,000,000 Sales Returns and Allowances 20,000 Additional facts: 1. Merchandise inventory on November 30, 2017, is $52,600. 2. Dayton Department Store uses a periodic system. Prepare an income statement through gross profit for the year ended November 30, 2017.
Answer:
Dayton Department Store
Income statement for the year ended November 30, 2017
Sales Revenue 1,000,000
Less Sales Returns and Allowances (20,000)
Net Sales Revenue 980,000
Less Cost of Goods Sold :
Beginning Inventory 40,000
Add Purchases 585,000
Add Freight-in 7,500
Less Purchase Returns and Allowances (2,700) (629,800)
Gross Profit 350,200
Explanation:
Periodic System calculates the value of inventory and cost of goods sold at the end of the reporting period, in this case November 30,2017.
Gross Profit is simply Sales less Cost of Goods Sold as calculated above
Joshua loans his son, Seth, $100,000 interest free for five years. Seth uses the money for a down payment on his home. Assume that the applicable federal interest rate is 4 percent. What are the tax consequences of this loan to Joshua and to Seth? How would your answer change if Seth uses the money to invest in corporate bonds paying 8 percent annual interest? [LO
Answer:
What are the tax consequences of this loan to Joshua and to Seth?
The IRS requires that any loans must charge a minimum interest rate, and in this case, since Joshua is not charging any interest to his son, the IRS will consider the minimum interest rate as a gift and will tax it that way. Since Joshua can make gifts for $15,000 per year, if the threshold is already passed, the IRS will consider $100,000 x 4% = $4,000 as taxable gifts.
How would your answer change if Seth uses the money to invest in corporate bonds paying 8 percent annual interest?
The answer shouldn't change since Joshua is the one that can be taxed here. Seth cannot deduct any interest expense or gift tax expense either.
At the beginning of the year, Cann Co. started construction on a new $2 million addition to its plant. Total construction expenditures made during the year were $200,000 on January 2, $600,000 on May 1, and $300,000 on December 1. On January 2, the company borrowed $500,000 for the construction at 12%. The only other outstanding debt the company had was a 10% interest rate, long-term mortgage of $800,000, which had been outstanding the entire year. What amount of interest should Cann capitalize as part of the cost of the plant addition
Answer:
$72,500
Explanation:
The computation of the amount of interest capitalized is as follows:
= ($500,000 × 12%) + ($625,000 - $500,000) × 10%
= $60,000 + $12,500
= $72,500
The Average expenditure for the year is
= ($200,000 × 12 ÷ 12) + ($600,000 × 8 ÷ 12) + ($300,000 × 1 ÷ 12)
= $200,000 + $400,000 + $25,000
= $625,000