Answer:
After tax cost of debt = 0.049 or 4.9%
Explanation:
The after tax cost of debt is the rate of debt after deducting the benefit from tax savings due to interest payments required by the debt which are deductible before calculating tax. The after tax cost of debt is somewhat an effective cost of debt. It is calculated using the following formula,
After tax cost of debt = Cost of debt * (1 - tax rate)
After tax cost of debt = 0.07 * (1 - 0.3)
After tax cost of debt = 0.049 or 4.9%
Rinaldo wants to know how you recorded the part cash and part credit purchase that occurred during the beginning of May in Sage 50. Rinaldo asks which of the following shows the correct series of actions to open a Sage 50 window that must be used to record the above transaction:
Inventory & Services → Enter Bills → New Bill
Inventory & Services → Purchase Invoice → New Invoice
Vendors & Purchases → Enter Bills → New Bill
Vendors & Purchases → Purchase Invoice → New Invoice
Answer:
Vendors & Purchases → Enter Bills → New Bill
Explanation:
To record the part cash and part credit entry in Sage 50, we will use the following series.
Vendors & Purchases → Enter Bills → New Bill
To record the purchase transaction we need to enter the transaction in the vendors and purchase option and then we need to create separate bills for our part cash payment and part credit payment separately.
Bell Hill Mfg. is considering a rights offer. The company has determined that the ex-rights price would be $78. The current price is $100 per share, and there are 25 million shares outstanding. The rights offer would raise a total of $50 million. What is the subscription price?
Answer:
6.5
Explanation:
We can calculate Ex-Rights using following formula:
Ex-Rights = (Current Shares * Shares outstanding + Amount Raised) / (Current Shares + Amount Raised / Subscription Price)
Here
Market Value is $100
Shares Outstanding are 25 million
Amount Raised is $50 million
Ex-Rights price is $78
By putting values, we have:
$78 = (($100 * 25m) + $50m) / (25m + (50m/Subscription price))
$78 = ($2550) / (25m + ($50m/Subscription Price))
$78 / ($2550m) = 1 / (25m + ($50m/Subscription Price))
0.0000030588 = 1 / (25m + ($50m/Subscription Price))
Taking reciprocal, we have:
1 / 0.0000030588 = (25m + ($50m/Subscription Price))
$32.6923m = $25m + $50m / Subscription Price
$32.6923m - $25m = $50m / Subscription Price
$7.6923m = $50m / Subscription Price
$7.6923m / $50m = 1 / Subscription Price
0.153846 = 1 / Subscription Price
Taking Reciprocal, we have:
Subscription Price = 6.5
It is not possible to create a per unit MCS if you are given total revenue and selling price. True False
Answer:
True
Explanation:
A per unit MCS cannot be created if you are given total revenue and selling price because per unit MCS is created by dividing the given total revenue by the total units of products ( for revenue per unit of product )
And also dividing the total cost by the total units of products ( for cost per unit of product ) hence the absence of the number of products will make it impossible to create a per unit MCS.
The whole cost of sales of welfare's and commodities is called total revenue while the trading price is the price the purchaser spends on acquiring the goods and commodities.
Yes, the given statement is true.
To generate per unit MCS total income and sale price cannot serve as determinants.MCS is estimated by dividing the total income by the generation of total assemblies.Also, MCS is determined by dividing total cost by the total assemblies of products so that the cost per unit can be determined.Therefore without the quantity of production MCS cannot be determined.
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Hampton Company reports the following information for its recent calendar year.
Income Statement Data Selected Year-End Balance Sheet Data
Sales $ 160,000 Accounts receivable increase 10,000
Expenses Inventory decrease 16,000
Cost of goods sold 100,000 Salaries payable increase 1,000
Salaries expense 24,000
Depreciation expense 12,000
Net income $ 24,000
Required:
Prepare the operating activities section of the statement of cash flows for Hampton Company using the indirect method.
Answer:
Cash Flow from Operating Activities
Net Income $24,000
Adjustments for Non-Cash items :
Depreciation expense $12,000
Adjustments for Changes in Working Capital :
Increase in Accounts receivable ($10,000)
Decrease in Inventory $16,000
Increase in Salaries payable $1,000
Net Cash from Operating Activities $43,000
Explanation:
The Indirect method reconciles the Operating Profit to Operating Cash Flow by adjusting the Operating Cash flow with the following items :
Non-cash items previously deducted or added to Operating Profit.Changes in Working Capital.Cash Flow from Operating Activities
Net Income $24,000
Adjustments for Non-Cash items :
Depreciation expense $12,000
Adjustments for Changes in Working Capital :
Increase in Accounts receivable ($10,000)
Decrease in Inventory $16,000
Increase in Salaries payable $1,000
Net Cash from Operating Activities $43,000
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A one-month summary of manufacturing costs for Rapid Routers Company follows.
Direct materials $40,000
Direct labour 20,000
Material handling costs 1,500
Product inspection and rework 2,000
Materials purchasing and inspection 500
Routine maintenance and equipment servicing 1,200
Repair of equipment 300
Required:
Classify each cost as value-added or non-value-added
Answer:
Cost Classification
Direct materials Value added
Direct labor Value added
Material handling costs Non-value added
Product inspection and rework Non-value added
Materials purchasing and inspection Value added
Routine maintenance and equipment Non-value added
servicing
Repair of equipment Non-value added
What is the expected return if a firm has a payout ratio of 0.4, a return on equity of 25%, and a dividend yield of 15%
Answer:
The expected return on stock is 30%
Explanation:
Growth rate = Return on Equity * Retention ratio
Growth rate = Return on Equity * (1- Payout ratio)
Growth rate = 25% * (1 - 0.40)
Growth rate = 0.25 * 0.60
Growth rate = 0.15
Growth rate = 15%
Hence, Expected return = Dividend return + Growth rate
Expected return = 15% + 15%
Expected return = 30%
Therefore, the expected return on stock is 30%
For the following transaction, answer the questions that follow in accordance with the rules of journalizing and the double-entry accounting system:
Transaction:
Drawing by owner amounted to $1,500.
Required:
a. Which two accounts are affected ?
b. What kind of accounts are they?
c. Do the account balances increase or decrease?
d. Do we debit or credit the accounts?
Answer and Explanation:
Given that
Drawings by owner for $1,500
The journal entry is
Drawing Dr $1,500
To cash $1,500
(being the amount withdrawn is recorded)
a. Here the two accounts are affected one is drawings account and the second one is the cash account
b. The drawing is the equity account while the cash is the asset account
c. The drawing account is increased and the cash account is decreased
d. The drawing account is debited and cash account is credited
Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,100 pounds of oysters in August. The company’s flexible budget for August appears below: Quilcene Oysteria Flexible Budget For the Month Ended August 31 Actual pounds (q) 7,100 Revenue ($4.10q) $ 29,110 Expenses: Packing supplies ($0.25q) 1,775 Oyster bed maintenance ($3,500) 3,500 Wages and salaries ($2,600 + $0.45q) 5,795 Shipping ($0.55q) 3,905 Utilities ($1,270) 1,270 Other ($450 + $0.01q) 521 Total expense 16,766 Net operating income $ 12,344 The actual results for August appear below: Quilcene Oysteria Income Statement For the Month Ended August 31 Actual pounds 7,100 Revenue $ 27,500 Expenses: Packing supplies 1,945 Oyster bed maintenance 3,360 Wages and salaries 6,205 Shipping 3,635 Utilities 1,080 Other 1,141 Total expense 17,366 Net operating income $ 10,134 Required: Calculate the company’s revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
Answer:
revenue variance = (standard quantity x standard price) - (actual quantity x actual price) = (7,100 x $4.10) - (7,100 x $3.8732) = $29,110 - $27,500 = $1,610 unfavorable (actual revenue was lower than budgeted revenue due to a decrease in sales price).
spending variances:
oyster bed maintenance variance = $3,360 - $3,500 = -$140 favorable
packing supplies variance = $1,945 - $1,775 = $170 unfavorable
wages and salaries variance = $6,205 - $5,795 = $410 unfavorable
shipping costs variance = $3,635 - $3,905 = -$270 favorable
utilities cost variance = $1,080 - $1,270 = -$190 favorable
other expenses variance = $1,141 - $521 = $620 unfavorable
total spending variance = $17,366 - $16,766 = $600 unfavorable (actual expenses were higher than budgeted)
When marginal revenue equals marginal cost, the firm a. should increase the level of production to maximize its profit. b. may be minimizing its losses rather than maximizing its profit. c. must be generating positive economic profits. d. must be generating positive accounting profits.
When marginal revenue is equal to the marginal cost, then the firm should increase the level of production to maximize its profit.
Marginal revenue simply means the increase in revenue that a company makes as a result of selling an additional output of good. Marginal cost is the cost that a company incurs for production of one extra unit of good.
It should be noted that when the marginal cost if a firm is more than the marginal revenue, it means that the firm is producing too much.
When the marginal revenue of the firm equals the marginal cost, then the firm should maximize its profit.
The correct option is A.
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The gap between the actual quantity produced by a monopolistically competitive firm and the optimal quantity in a competitive market is known as
Answer:
The correct answer is Excess Capacity.
Explanation:
A monopolistically competitive firm is one that produces and or offers products or services in a market with similar, but not exact or perfect substitutes. A real-world example of a monopolistic competitive firm is Burger King. It competes with McDonald. Both companies sell burger and other types of fast food. However, are not perfect substitutes as there are slight differences, especially in shape and in taste, in the foods they offer.
When there is a gap between the quantity produced and the scale of output that a business or firm has been designed for, Excess Capacity is said to exist. In other words, the actual quantity produced is below what is optimal for the economy.
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According to the kinked demand curve theory, if Kit-N-Sit cuts prices, Kittysitters will ________; if Kit-N-Sit raises prices, Kittysitters will ________.
Answer:
respond aggressively by cutting prices ; will do nothing and leave prices unchanged.
Explanation:
The kinked demand curve was developed by an economist, Sweezy to addressing price inflexibility associated with an oligopolist market. In an oligopolist market, prices tends to remain unchanged over a long period of time even when costs are declining. The kinked demand curve hypothesis states that a firm faces a demand curve with a kink at the prevailing price level. This means that the curve is more elastic above the kink and less elastic below it. Here, there is less response to a price increase compared to much response to a price decrease.
According to the assumption under kinked demand curve, each firm in an oligopoly believes that if a firm cut price below the prevailing level, then competitors will follow suit. This is because competitors feels that if they do not cut their prices too, then their customers will leave them and buy from the competitor that is selling at lower price.
It is also assumed that, if a firm increases the price of his goods and services above the prevailing level, then competitors will not follow suit. This means that if a firm increases the price of his goods and services, there will be reduction in sales hence competitors will not increase their price. This because customers will patronize firms with the same or similar products hence increase competitors sales.
Crazy Delicious Inc. produces chocolate bars. The primary materials used in producing chocolate bars are cocoa, sugar, and milk. The standard costs for a batch of chocolate (5,000 bars) are as follows: Ingredient Quantity Price Cocoa 500 lbs. $1.40 per lb. Sugar 100 lbs. $0.50 per lb. Milk 250 gal. $1.60 per gal.Required:Determine the standard direct materials cost per bar of chocolate.
Answer:
Unitary cost= $0.23 per unit
Explanation:
Giving the following information:
Standard costs (5,000 bars):
Cocoa 500 lbs. $1.40 per lb.
Sugar 100 lbs. $0.50 per lb.
Milk 250 gal. $1.60 per gal.
First, we need to calculate the total cost:
Total cost= 500*1.4 + 100*0.5 + 250*1.6
Total cost= $1,150
Now, the unitary cost:
Unitary cost= 1,150/5,000
Unitary cost= $0.23 per unit
The standard direct materials cost per bar of chocolate is $0.23 per bar.
First step is to calculate the total direct material cost for production of 5,000 bar of chocolate
Ingredient Quantity Price Cost
Cocoa 500× $1.40 =$700
Sugar 100 ×$0.50 =$50
Milk 250 ×$1.60 =$400
Total $1,150
Second step is to calculate the standard material cost per bar of chocolate
Standard material cost per=$1,150/5,000
Standard material cost per=$0.23 per bar
Inconclusion the standard direct materials cost per bar of chocolate is $0.23 per bar.
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Patterson Co.’s Depreciation Expense is $20,200 and the beginning and ending accumulated depreciation balances are $150,100 and $155,100, respectively. What is the cash paid for depreciation?
Answer: $0
Explanation:
Fron the question, we are informed that Patterson Co.’s Depreciation Expense is $20,200 and the beginning and ending accumulated depreciation balances are $150,100 and $155,100, respectively.
The cash paid for depreciation will be $0. It should be noted that depreciation has to do with the ear and tear of an asset because its usage therefore no cash will be paid for depreciation.
Brian purchased two automobiles for personal use. Automobile 1 had an adjusted basis of $20,000, and automobile 2 had an adjusted basis of $10,000. In the current year, Brian sold automobile 1 for $15,000 and automobile 2 for $15,000. What gain or loss should Brian recognize on the sales of the automobiles g
Answer:
Automobile 1, Loss of $5,000
Automobile 2, Gain of $5,000
Explanation:
Calculation of gain or losses on sale of Automobile 1
Sale value of Automobile 1 $15,000
Less: Adjusted Basis of Automobile 1 $20,000
Loss on sale of Automobile 1 $5,000
Calculation of gain or losses on sale of Automobile 2
Sale value of Automobile 2 $15,000
Less: Adjusted Basis of Automobile 2 $10,000
Gain on sale of Automobile 2 $5,000
A promotion related to the movie Pacific Rim Uprising was seen in Target stores throughout the United States. The sales promotion was designed to maximize the consumer's attention to a DVD release and provide storage for the products. This type of sales promotion is referred to as a
Answer:
This type of sales promotion is referred to as a Dealer Sales Promotion (Trade Promotion).
Explanation:
The Dealer Sales Promotion, otherwise known as Trade Promotion, is aimed at Dealers, designed to maximize the attention of consumers, and provide storage for the products in Target stores throughout the United States. The promoters want Pacific Rim Uprising to be seen by consumers, so that their attention is galvanized, and to get Target stores to create the space for the DVD upon the film's release, through cooperative advertising. It is not aimed directly at consumers or salespersons, but dealers.
Suppose the demand curve for a monopolistic competitor becomes steeper, but its average total costs do not change. What is likely to be an effect?
Answer:
The demand curve is less elastic.
Explanation:
The steeper demand curve shows that the demand had become less elastic because the steeper demand curve represents the less elastic demand while the flatter demand curve shows the more elastic demand. therefore, if the demand curve for a monopolistic competitor becomes steeper that means people are less responsive towards the quantity. So if the price increases or decreases, then people will not change their quantity more than the change in price.
Kate decides to issue cash dividends on both the common stock and the preferred stock. Currently there are 50 outstanding preferred shares and 500 common shares outstanding. The dividends that Kate paid were $6 per share on the preferred shares and $2 per share on the common shares. Provide the journal entry for the payment of the cash dividends.
Answer:
Journal Entry for both type of shares is given below
Explanation:
DATA
Preference shares = 50
Common shares = 500
Dividend for preference shareholders = $6/share
Dividend for Common shareholders = $2/share
Entry DEBIT CREDIT
Dividend (for preference shares) $300
Dividend (for common shares) $1000
Cash $1,300
Working
Preference shares dividend = 50 x $6/share = $300
Common shares dividend = 500 x $2/share = $1000
Discuss the negative consequences that arise when auditors fail to identify and report going-concern problems.
Answer:
Consequences arising when auditors fail to identify and report on going-concern problems:
1. The purpose of the audit is defeated.
2. Credibility in the audit process and opinion is eroded.
3. Confidence in the efficiency of market information is shattered.
4. Investors and the general public are misinformed and misled.
5. More governmental oversight and regulations will be required.
6. The auditors involved may have their licenses withdrawn and the audit firm could be closed like Arthur Andersen.
Explanation:
For instance, Company A's auditors are always expected to identify and report on going-concern issues of the company. Failure to identify and report on problems affecting going-concern means that Company A could be at the risk of liquidation and auditors still report it as if it were continuing in business for the next foreseeable future. That means that Company A's assets and liabilities are reported in the Balance Sheet as if the business could continue indefinitely, whereas the assets and liabilities should have been reported on a sale-out basis.
The auditors involved in making the wrong conclusion about Company A will be sued with huge damages and their license may be withdrawn, assuming that Company A is unable to survive the next 12 months after being reported on by the auditors.
Calgary Industries is preparing a budgeted income statement for 2018 and has accumulated the following information. Predicted sales for the year are $695,000 and cost of goods sold is 40% of sales. The expected selling expenses are $77,500 and the expected general and administrative expenses are $86,500, which includes $19,500 of depreciation. The company's income tax rate is 30%. The budgeted net income for 2018 is:
Answer:
Calgary Industries
Budgeted Net Income for 2018:
Sales Revenue $695,000
Cost of goods sold $278,000
Gross profit $417,000
Selling expenses $77,500
General and Administrative expenses $67,000
Depreciation $19,500
Budgeted Pre-tax Income $253,000
Income tax rate (30%) 75,900
Budgeted Net Income $177,100
Explanation:
a) Data and Calculations:
Estimates:
Sales = $695,000
Cost of goods sold = 40% of sales = $695,000 * 40% = $278,000
Selling expenses = $77,500
General and Administrative expenses = $86,500 - $19,500 = $67,000
Depreciation = $19,500
Income tax rate = 30%
b) Calgary Industries' budgeted net income of $177,100 is the result of deducting the operating expenses and income tax from the gross profit. The gross profit of $417,000 is obtained by deducting the cost of goods sold from the Sales Revenue. These profit points explain the economic returns created by the Calgary Industries. They reflect its financial performance during the budgeted period.
HighLife Corporation has the following information: Average demand = 30 units per day Average lead time = 40 days Item unit cost = $45 for orders of less than 400 units Item unit cost = $40 for orders of 400 units or more Ordering cost = $50 Inventory carrying cost = 15 percent The business year is 300 days. Standard deviation of demand during lead time = 90 Desired service level = 95 percent What is the EOQ if HighLife pays $45/unit? Due to possible differences in rounding, choose the closest answer.\
Answer:
365.15 units
Explanation:
The computation of the economic order quantity is shown below:
[tex]= \sqrt{\frac{2\times \text{Annual demand}\times \text{Ordering cost}}{\text{Carrying cost}}}[/tex]
where,
Annual demand is
= 30 units × 300 days
= 90,000 units
ordering cost is $50
Carrying cost is
= $45 × 15%
= $6.75
Now placing these values to the above formula
So, the economic order quantity is
[tex]= \sqrt{\frac{2\times \text{90,000}\times \text{\$50}}{\text{\$6.75}}}[/tex]
= 365.15 units
We simply applied the above formula so that the EOQ could come
Abigail (Abby) Boxer, age 38, is a single mother (birthdate April 28, 1982) working as a civilian accountant for the U.S. Army. Her Social Security number is 676-73-3311 and she lives at 3456 S Career Avenue, Sioux Falls, SD 57107. Helen, Abby's 18-year-old daughter (Social Security number 676-73-3312 and birthdate April 16, 2002), is a dependent child living with her mother, and she does not qualify for the child tax credit due to her age but does qualify for the other dependent credit of $500. Abby received a Form W-2 from the U.S. Department of Defense.
Answer:
Step 1 of 4
Aby is a single mother with a dependent child. She files Form 1040A. The form is attached herewith.Some of the highlights are given below:
• Gross Income is calculated as follows.
• Adjusted gross income is same as gross income as there are no deductions for AGI. So, adjusted gross income is $42,730 (line 21).
• Standard deduction under Head of Households is $8,700 (line 24).
• She claims one personal and one dependent exemption. So, her total exemptions are (line 26).
Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE
Answer:
8.94%
Explanation:
Firstly, we will need to find total equity and total debt of Harrington Inc inorder to apply the Dupont equation for getting ROE
Harrington's total debt = 15.00 % × $250,000
= $37,500
Harrington's total equity will be; applying accounting equation
Asset = Liabilities + Owner's equity
Owner's equity = Assets - Liabilities
= $250,000 - $37,500
= $212,500
Therefore, using the Dupont equation, we can calculate the ROE as;
(NI/Sales) × (Sales/Total assets) × (Total assets/Total common equity)
= 19,000/325,000 × 325,000 /250,000 × 250,000/212,500
= 8.94%
George Bailey purchased equipment from M. Potter for $450,000, paying $35,000 cash as a down payment and financing the remainder. The correct journal entry to record this event is:
Answer:
Equipment $450,000 (debit)
Cash $35,000 (credit)
Suppliers Loan $415,000 (credit)
Explanation:
George Bailey must recognize the Asset of Equipment, de-recognize the Assets of Cash and recognize the Suppliers Loan as above.
Jessie and Paul have worked in the same office at DEF Insurance LLC for 6 years. Jessie has always taken extra care to follow the office norms and ensure that everyone has a happy and harmonious working experience. Paul has been very driven during his years at DEF Insurance, and though he started as an insurance agent, he has since been promoted to the agency manager and proudly displays all of his awards on the wall of his new office. According to Learned Needs Theory, Jessie most likely has a high: Group of answer choices
Answer:
Need for affiliation
Explanation:
from the learned needs theory, Jessie most likely has a high need for affiliation.
This describes her need to feel a sense of involvement and belonging within her work environment.
By following office norms and trying to ensure everyone is happy, she is expressing her need for open and good relationships at work. People like Jessie are usually friendly, outgoing and cooperative
Assume Division 1 of the XYZ Company had the following results last year. Sales $5,000,000 Operating income 1,000,000 Total assets (average) 10,000,000 Current liabilities 500,000 Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%. What is the division's economic value added?
Answer:
Economic Value was $130,000
Explanation:
As we know that:
Economic Value Added = Net Operating Income after tax - (WACC * Capital Employed)
Here
Operating Income After Tax is $700,000 (Step1)
WACC is 6%
Capital Employed is $9,500,000 (Step2)
By putting values, we have:
EVA = $700,000 - 9,500,000 * 6%
EVA = $700,000 - $570,000
EVA = $130,000
Step1: Operating Income After Tax
Simply deduct the 30% tax share from the operating income to arise at Net Operating Income After Tax.
Mathematically,
Net Operating Income After Taxes = Operating Income *(1 - Tax Rate)
Here
Operating Income is $1,000,000
Tax Rate is 30%
By putting values, we have:
Net Operating Income After Taxes = $1,000,000 * (1 - 30%)
Net Operating Income After Taxes = $700,000
Step2: Capital Employed
Capital Employed = Total Assets - Current Liabilities
Capital Employed = $10,000,000 - $500,000
Capital Employed = $9,500,000
The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called:
Answer:
Accelerated depreciation
Explanation:
The term that is being described in the question is known as an Accelerated depreciation. In other words, this is a depreciation method where an asset loses its book value at a much more rapid pace than more traditional methods. This method is mostly used in accounting or for income tax purposes because it allows for a greater deduction in the first couple of years of the asset's life cycle.
Answer:
The units-of-production depreciation method
Explanation:
The units-of-production depreciation method assigns an equal amount of expense to each unit produced or service rendered by the asset.
Labor productivity growth can be attributed to: a. improvement in technology. b. a decline in university attendance. c. an increase in population growth. d. a decline in the physical capital per worker.
Answer:
The answer is A. improvement in technology
Explanation:
Labor productivity growth is not relevant to a decline in university attendance.
Applying the Malthusianism theory, an increase in population growth can't lead to labor productivity growth because while that population growth is potentially exponential, the growth of resources is linear.
Finally, the physical capital per worker is the quantity of equipment and input resources that are used to produce output goods and services. It has no direct influence to the labor productivity growth.
The following data has been collected about Keller Company's stockholders' equity accounts: Common stock $10 par value 21,000 shares authorized and 10,500 shares issued, 1,100 shares outstanding $105,000 Paid-in capital in excess of par value, common stock 51,000 Retained earnings 26,000 Treasury stock 12,760 Assuming the treasury shares were all purchased at the same price, the number of shares of treasury stock is:
Answer:
9,400 shares
Explanation:
Treasury stock is the difference between issued shares and outstanding shares.
Number of treasure shares = Number of issued shares - Number of outstanding shares
Number of treasure shares = 10,500 - 1,100
Number of treasure shares = 9,400 shares
Therefore, number of treasury shares is 9,400
Troy Enterprises uses a continuous review inventory control system. The firm operates 50 weeks per year, with an annual demand of 50,000 units, an ordering cost of $35 per order, a holding cost of $1 per unit per year, a lead time of 3 weeks, and a standard deviation of demand during lead time equal to 216.51 units. what is safety stock for the firm if a 94% service level is desired?
Answer:
Safety Stock is 336.62 units
Explanation:
As per given data
Demand = D = 50,000
Ordering Cost = S = $35
Holding Cost = H = $1 per unit per year
Weekly Demand = Demand / 50 weeks = 50,000 / 50 = 1,000 units per week
Weekly Demand during Lead time of 3 weeks = 1000 x 3 = 3,000 units
Standard Deviation = 216.51 units
Desired Service level = 94%
The Z score at 94% service level is 1.55477
Safety Stock = Zscore x standard deviation = 1.55477 x 216.51
Safety Stock = 336.62
The Safety Stock for the firm if a 94% service level is desired is 336.62 units
Calculation of the safety stock:Since
Demand = D = 50,000
Ordering Cost = S = $35
Holding Cost = H = $1 per unit per year
Now
Weekly Demand = Demand / 50 weeks
= 50,000 / 50
= 1,000 units per week
Now
Weekly Demand during Lead time of 3 weeks
= 1000 x 3
= 3,000 units
Standard Deviation = 216.51 units
Desired Service level = 94%
Also, The Z score at 94% service level is 1.55477
So,
Safety Stock = Zscore x standard deviation
= 1.55477 x 216.51
= 336.62
hence, The Safety Stock for the firm if a 94% service level is desired is 336.62 units
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The Extra Surplus Company's Balance Sheet for December 31, 2017 and the Income Statement for 2018 are shown below.
Extra Surplus Company
Balance Sheet
December 31, 2017
Assets
Cash $14,000
Accounts Receivable 7,000
Inventory 16,800
Property and Equipment, Net 28,000
$65,800
Liabilities and Stockholders' Equity
Accounts Payable $14,000
Notes Payable, Long-Term 7,000
Common Stock 28,000
Retained Earnings 16,800
$65,800
Extra Surplus Company
Income Statement
For the Year Ended December 31, 2018
Sales $23,400
Cost of Goods Sold 5,400
Salaries and Wage Expense 5,400
Interest Expense 1,800
Other Expenses 900
Net Income $9,900
Additional data:
A- Sales were $23,400; $14,400 in cash was received from customers.
B- Bought new land for cash, $18,000.
C- Sold other land for its book value of $9,000.
D- Paid $1,800 principal on the long-term note payable and $1,800 in interest.
E- Issued new shares of stock for $18,000 cash.
F- Cash dividends of $3,800 were declared and paid to stockholders.
G- Paid $10,300 on accounts payable.
H- No inventory purchases were made: other expenses were incurred on account.
I- All wages were paid in cash.
J- Other expenses were on account.
Required:
a. Prepare a balance sheet as of December 31, 2020.
b. Prepare the statement of cash flows using the direct method.
Answer:
The Extra Surplus Company
Balance Sheet
December 31, 2020
Assets
Cash $14,300
Accounts Receivable 16,000
Inventory 11,400
Property and Equipment, Net 37,000
$78,700
Liabilities and Stockholders' Equity
Accounts Payable $3,700
Other Expenses Payable 900
Notes Payable, Long-Term 5,200
Common Stock 46,000
Retained Earnings 22,900
$78,700
b. The Extra Surplus Company
Statement of Cash Flows, using the direct method:
December 31, 2020
Operating activities:
Cash from customers $14,400
Payment to suppliers (10,300)
Payment to labor (5,400)
Net cash from operating (1,300)
Investing activities:
Land sales 9,000
Land (18,000)
Net cash from investing (9,000)
Financing activities:
Issue of shares 18,000
Note Payable Repayment (1,800)
Interest paid (1,800)
Dividends (3,800)
Net cash from financing 10,600 10,600
Net Cash Inflow $300
Explanation:
a) Data and Calculations:
Extra Surplus Company
Balance Sheet
December 31, 2017
Assets Adjustment Balance
Cash $14,000 300 $14,300
Accounts Receivable 7,000 + 23,400 - 14,400 16,000
Inventory 16,800 - 5,400 11,000
Property and Equipment, Net 28,000 - 9,000 + 18,000 37,000
$65,800
Liabilities and Stockholders' Equity
Accounts Payable $14,000 -10,300 3,700
Notes Payable, Long-Term 7,000 -1,800 5,200
Common Stock 28,000 + 18,000 46,000
Retained Earnings 16,800 22,900
$65,800
ii) Extra Surplus Company
Income Statement
For the Year Ended December 31, 2018
Sales $23,400
Cost of Goods Sold 5,400
Salaries and Wage Expense 5,400
Interest Expense 1,800
Other Expenses 900
Net Income $9,900
Cash balance (beginning) $14,000
iii) Cash Receipts:
Cash from customers $14,400
Land sales 9,000
Issue of shares 18,000
Total receipts $41,400
iv) Cash Payments:
Land $18,000
Note Payable Repayment 1,800
Interest paid 1,800
Dividends 3,800
Accounts Payable 10,300
Salaries & Wages 5,400
Total payments $41,100
Cash Balance (Ending) $14,300
v) Retained Earnings:
Net Income $9,900
Beginning Retained Earnings 16,800
Dividends 3,800
Ending Retained Earnings $22,900
v) The Extra Surplus Company's Statement of Cash Flows can also be prepared using the indirect method. This method starts with the net income and adjusts working capital changes after adding back non-cash flow expenses in order to arrive at the net cash from operating activities. Other steps are similar to the direct method, which considers only the actual cash inflows and outflows.