Continuous replenishment system. Continuous replenishment system is not an example of a fixed-period replenishment system.
A fixed-period replenishment system is a method where inventory is reviewed and ordered at regular intervals, regardless of the inventory levels. It involves setting specific time periods for reviewing and replenishing inventory. In contrast, a continuous replenishment system is a different approach where inventory levels are continuously monitored, and orders are placed whenever the inventory reaches a certain reorder point. This allows for more frequent and immediate replenishment of inventory as compared to the fixed-period system. Therefore, a continuous replenishment system is not an example of a fixed-period replenishment system.
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Persian Rugs needs $360 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $50 per share, how many shares of common stock must be issued so it has $360 million after flotation costs to use for its planned growth? Round your answer to the nearest whole number.
Persian Rugs needs to issue approximately 8 million shares of common stock to raise $360 million after flotation costs.
To determine the number of shares of common stock that Persian Rugs must issue to raise $360 million after flotation costs, we need to account for the 4% flotation costs associated with issuing the stock.
Flotation costs represent the expenses incurred in the process of issuing new securities. In this case, the flotation costs are 4% of the total amount raised. So, the net proceeds from issuing the stock will be 96% of the total amount raised.
Let's calculate the net amount raised after flotation costs:
Net amount raised = Total amount needed / (1 - Flotation cost)
Net amount raised = $360 million / (1 - 0.04)
Net amount raised = $360 million / 0.96
Net amount raised = $375 million
Now, we need to calculate the number of shares of common stock that will generate $375 million at a price of $50 per share:
Number of shares = Net amount raised / Price per share
Number of shares = $375 million / $50
Number of shares = 7.5 million
Since we cannot issue fractional shares, we round the number of shares to the nearest whole number. Therefore, Persian Rugs needs to issue approximately 8 million shares of common stock to raise $360 million after flotation costs.
By issuing this number of shares, Persian Rugs will have the desired amount of funds available for its planned growth after accounting for the associated flotation costs.
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What is the first stage of organizational development?
Select one:
a.
Formalization
b.
Entrepreneurial
c.
Elaboration
d. Colletively
What are the three organizational sectors in the sport industry?
Select one:
a. Sport Sponsors, events, and meetings
b. Public, Nonprofit, Commercial
c. Private, Nonprofit, Commercial
d. Public, Profit, Noncommercial
The first stage of organizational development is the Entrepreneurial stage. The three organizational sectors in the sport industry are: Public, Nonprofit, and Commercial.
The Entrepreneurial stage is the initial phase of organizational development. It is characterized by the formation of a new venture or organization, typically driven by an innovative idea or opportunity.
During this stage, the focus is on establishing the business model, defining goals and objectives, and securing resources necessary for the organization's operations and growth. It is a period of high creativity, risk-taking, and entrepreneurial spirit as the organization strives to find its place in the market and develop a sustainable foundation for future growth.
In the sport industry, the three organizational sectors are: Public, Nonprofit, and Commercial. The Public sector encompasses governmental entities and agencies that are involved in the provision and regulation of sport-related activities.
This includes public parks and recreation departments, national sports governing bodies, and sports commissions. The Nonprofit sector comprises organizations that are driven by a mission to serve the community and promote social causes through sports. These include youth sports clubs, charitable foundations, and amateur sports associations.
The Commercial sector consists of profit-driven entities that engage in various aspects of the sport industry, such as professional sports teams, sports marketing agencies, and sportswear manufacturers. Each sector plays a distinct role in shaping the sport industry and catering to different stakeholder needs and interests.
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The average variable and average fixed costs for Foothill Pizza Place are listed in the table below. Use the information provided to answer the next three questions. Use the table above to answer the next three questions: 1. What is Foothili's Pizza Place's total fixed cost? 2. If Foothill Pizza Place produces four units, what is its average total cost?? 3. What is the marginal cost to Foothill Pizza Place if it decides to increase production from 4 to 5 units?
Foothill Pizza Place's total fixed cost is $80.
If Foothill Pizza Place produces four units, its average total cost is $50 per unit.
The marginal cost to Foothill Pizza Place if it decides to increase production from 4 to 5 units is $40.
The fixed cost remains constant regardless of the level of production or sales. Looking at the table, we can observe that the average fixed cost remains the same at $80 across all levels of production.
To calculate the average total cost, we sum up the average fixed cost and the average variable cost. From the table, we can see that the average fixed cost is $80 and the average variable cost for four units is $20, resulting in a total of $100. Dividing this total cost by the number of units produced (four), we get an average total cost of $50 per unit.
The marginal cost represents the cost of producing one additional unit. To determine the marginal cost, we need to find the change in total cost when moving from producing four units to five units. From the table, we can see that the total cost for four units is $100, and the total cost for five units is $140. The difference between these two costs is $40, which represents the marginal cost of producing the fifth unit.
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There are some factors that are very important when companies need to decide when benchmarking for market pay. Write FOUR (4) factors to consider when it comes to market pay surveys (10 Marks). Explain each
When benchmarking for market pay, the four factors to consider are industry and job market, job roles and descriptions, geographic location and company size.
When conducting market pay surveys for benchmarking purposes, several factors should be considered to ensure accurate and effective compensation analysis. Here are four important factors to consider:
Industry and Job Market:
The industry and job market significantly impact compensation levels. It is essential to compare salaries and pay practices with similar companies in the same industry. Industries may have specific norms and market rates that influence compensation. Additionally, considering the local, regional, or national job market conditions is crucial to understand the availability and competitiveness of talent.
Job Roles and Descriptions:
The accuracy of market pay surveys heavily relies on properly defining and classifying job roles. Clear and detailed job descriptions help match positions with appropriate survey data. Job titles alone may not provide sufficient information about the actual responsibilities, skills, and qualifications required. Ensuring job descriptions are consistent and align with industry standards is essential for accurate benchmarking.
Geographic Location:
Geographic location plays a significant role in determining compensation levels. The cost of living, supply and demand dynamics, and regional economic factors can vary widely. Conducting market pay surveys specific to the company's geographic location helps ensure that compensation is competitive within the local market. Adjustments may need to be made for regional disparities in salaries to reflect the reality of the company's operating environment.
Company Size and Structure:
The size and structure of the organization can impact compensation practices. Larger companies tend to have more complex hierarchies, multiple job levels, and varied compensation structures. Smaller organizations may have simpler structures with fewer levels. It is crucial to compare compensation data with organizations of similar size and structure to obtain relevant benchmarking information. This allows for a more accurate assessment of how the company's pay practices align with industry peers.
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Question 9'All of the following payments made to employees would be currently deductible as business expenses except
O Wages paid to employees for constructing a new building to be used in the business.
o Vacation pay paid to an employee when the employee chooses not to take a vacation.
o Reasonable salary paid to a corporate officer owning a controlling interest for services she rendered.
o Lump-sum payment made to the beneficiary of a deceased employee that is reasonable in relation to the employee's past services, i.e., payment equivalent to compensation.
Question 10 (3 points)
The self-employment tax is
O Fully deductible as an itemized deduction.
O Fully deductible in determining net income from self-employment.
O Partially deductible from gross income in arriving at adjusted gross income.
O Not deductible.
9) wages paid to employees for constructing a new building to be used in the business.
10) The self-employment tax is not deductible.
Question 9:
All of the following payments made to employees would be currently deductible as business expenses except wages paid to employees for constructing a new building to be used in the business.
While wages paid to employees for their services, including vacation pay, reasonable salary to a corporate officer, and lump-sum payments to beneficiaries, are generally deductible as business expenses, wages paid specifically for constructing a new building are considered capital expenditures rather than current expenses. Capital expenditures are typically depreciated or amortized over time, rather than being fully deductible in the current year.
Question 10:
The self-employment tax is not deductible.
The self-employment tax is a tax imposed on individuals who work for themselves as self-employed individuals or as independent contractors. It consists of both the employer and employee portions of Social Security and Medicare taxes. While certain taxes may be deductible, such as income taxes, the self-employment tax itself is not deductible. However, it is important to consult a tax professional or refer to the latest tax regulations for specific guidance regarding deductions and tax treatments.
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The December 31, 2009, balance sheet of Anna’s Tennis Shop, Inc., showed current assets of $2,235 and current liabilities of $1,441. The December 31, 2010, balance sheet showed current assets of $2,294 and current liabilities of $1,049. What was the company’s 2010 change in net working capital, or NWC?
The company's change in net working capital (NWC) for 2010 is $451.
To calculate the change in net working capital (NWC), we need to subtract the initial NWC from the final NWC. NWC is calculated by subtracting current liabilities from current assets.
In 2009:
NWC_2009 = Current Assets_2009 - Current Liabilities_2009
= $2,235 - $1,441
= $794
In 2010:
NWC_2010 = Current Assets_2010 - Current Liabilities_2010
= $2,294 - $1,049
= $1,245
To find the change in NWC from 2009 to 2010, we subtract the initial NWC from the final NWC:
Change in NWC = NWC_2010 - NWC_2009
= $1,245 - $794
= $451
Therefore, the company's change in net working capital (NWC) for 2010 is $451. This indicates an increase in NWC, implying that the company had a higher amount of current assets relative to its current liabilities in 2010 compared to 2009.
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Benefits of taking Dog Drop company as a franchise.
Taking Dog Drop company as a franchise offers numerous benefits. Firstly, as an established brand, Dog Drop already has a recognized reputation and customer base, reducing the need for extensive marketing efforts.
Additionally, the franchisee receives comprehensive support and guidance from the company, including training programs, operational manuals, and ongoing assistance. This support ensures a smoother business setup and operation. Dog Drop's proven business model and systems enable franchisees to tap into a successful and profitable concept. Furthermore, the franchisee can leverage Dog Drop's purchasing power and established supplier relationships, resulting in cost savings on inventory and equipment. Ultimately, becoming a Dog Drop franchisee provides the opportunity to enter the thriving pet care industry with a trusted brand and a solid foundation for success.
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Shannon purchased a machine for $28,500 for her company. She paid 5.00% of this amount as a down payment and financed the rest at 5.72% compounded monthly. She paid $1,125 at the end of every month to settle the loan.
a. What was the principal portion of payment number 4?
Round to the nearest cent
b. What was the interest portion of payment number 4?
Round to the nearest cent
a. The principal portion of payment number 4 for Shannon's loan can be determined by calculating the remaining loan balance after three payments and subtracting it from the initial loan amount.
b. The interest portion of payment number 4 can be calculated by subtracting the principal portion from the total payment made in month 4.
a. To calculate the principal portion of payment number 4, we need to determine the remaining loan balance after three payments.
First, we calculate the monthly interest rate by dividing the annual interest rate by 12:
Monthly interest rate = 5.72% / 12 = 0.4767%
Next, we calculate the remaining loan balance after three payments using the formula for the future value of an ordinary annuity:
Remaining loan balance = Future value of annuity - Future value of annuity due
The future value of an ordinary annuity is calculated as follows:
Future value of annuity = Monthly payment × [(1 + monthly interest rate)^number of payments - 1] / monthly interest rate
Using the given information, the monthly payment is $1,125, and the number of payments is 3. Plugging these values into the formula, we can calculate the future value of the annuity.
After obtaining the future value of the annuity, we subtract it from the initial loan amount to find the remaining loan balance after three payments. Finally, we divide this balance by the number of remaining payments to determine the principal portion of payment number 4.
b. To calculate the interest portion of payment number 4, we subtract the principal portion (calculated in part a) from the total payment made in month 4, which is $1,125.
By following these calculations, we can determine both the principal and interest portions of payment number 4 for Shannon's loan.
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HUGZ Company
HUGZ Company is considering purchasing a machine for $500,000. The machine has a useful life of 10 years and a salvage value of $57,000. The company uses straight-line depreciation. The new machine will generate an after-tax net income of $14,000 per year. Assume all revenues are received in cash and all costs, except depreciation, are out-of- pocket.
Required:
1. Calculate the annual depreciation on the machine. (Enter as a whole number with no commas, no decimal, no dollar
sign)
2. Calculate the payback period for the new machine. (Enter as a number rounded to 2 decimal places - Example: 1.10)
3. Calculate the accounting rate of return. (enter as a percent rounded to 2 decimal places - Example 1.00 WITHOUT the
% sign)
%
NOTE: ALL OF YOUR ANSWERS SHOULD BE NUMBERS. DO NOT PUT ANY TEXT OR SPECIAL CHARACTERS SUCH AS COMMAS, PERCENT SYMBOLS OR DOLLAR SIGNS
1. The annual depreciation on the machine can be calculated using the straight-line depreciation method. It is determined by subtracting the salvage value from the initial cost and dividing the result by the useful life of the machine.
Annual depreciation = (Initial cost - Salvage value) / Useful life
Annual depreciation = ($500,000 - $57,000) / 10
Annual depreciation = $443,000 / 10
Annual depreciation = $44,300
Therefore, the annual depreciation on the machine is $44,300.
2. The payback period is the time it takes for the company to recover its initial investment in the machine. It can be calculated by dividing the initial investment by the annual net income generated by the machine.
Payback period = Initial investment / Annual net income
Payback period = $500,000 / $14,000
Payback period ≈ 35.71 years (rounded to 2 decimal places)
Therefore, the payback period for the new machine is approximately 35.71 years.
3. The accounting rate of return is the average annual net income generated by the machine as a percentage of the initial investment. It can be calculated by dividing the average annual net income by the initial investment and multiplying by 100.
Accounting rate of return = (Average annual net income / Initial investment) * 100
Accounting rate of return = ($14,000 / $500,000) * 100
Accounting rate of return ≈ 2.8% (rounded to 2 decimal places)
Therefore, the accounting rate of return for the new machine is approximately 2.8%.
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A machine costs $500.000 and is expected to yield an after-tax net income of $19000 each year. Management predicts this machine has a 9 -year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return.
The accounting rate of return for the machine is approximately 1.4%.
To compute the accounting rate of return (ARR) for the machine, we need to divide the average annual net income by the initial investment and express it as a percentage.
First, let's calculate the average annual net income. The machine is expected to yield an after-tax net income of $19,000 each year. Since we're given a 9-year service life, we'll multiply the annual net income by the number of years to get the total net income over the machine's life: $19,000 * 9 = $171,000.
Next, we need to determine the average annual net income. We subtract the salvage value from the total net income and divide it by the service life: ($171,000 - $100,000) / 9 = $7,000.
Now, we can calculate the ARR. We divide the average annual net income ($7,000) by the initial investment ($500,000) and multiply it by 100% to express it as a percentage: ($7,000 / $500,000) * 100% ≈ 1.4%.
Therefore, the accounting rate of return for the machine is approximately 1.4%.
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T/F: when the cost of supplies increase in an industry a company using the cost leadership strategy
The statement "when the cost of supplies increase in an industry a company using the cost leadership strategy will increase prices to maintain profit margins" is false because cost leadership strategy involves maintaining a low cost of production and a low price for customers.
When the cost of supplies increases, companies using the cost leadership strategy will try to maintain their low prices by finding ways to reduce their production costs, such as optimizing their supply chain or reducing waste. The goal of cost leadership is to provide customers with a low-priced product while maintaining a reasonable profit margin.
If the company raises prices to maintain profit margins, it may lose its competitive advantage and customers may switch to lower-priced alternatives. Cost leadership strategy is beneficial to companies that can produce a high volume of standardized products and have the ability to optimize their supply chain.
The strategy allows the company to gain a competitive advantage by offering customers lower prices than its competitors.
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under asc 606, which of the following methods, if any, are acceptable for estimating the amount of variable consideration in contracts with customers?
Under ASC 606 (Accounting Standards Codification 606), which provides guidance on revenue recognition, there are several acceptable methods for estimating the amount of variable consideration.
Contracts with customers. These methods allow companies to recognize revenue based on the most likely outcome or expected value. The acceptable methods for estimating variable consideration include: Most Likely Amount: This method involves using the most likely amount from a range of possible outcomes to estimate the variable consideration. Expected Value: This method takes into account all possible outcomes and assigns probabilities to each outcome, calculating the expected value as the sum of the possible outcomes multiplied by their respective probabilities. The "Expedient of Allocating Variable Consideration" Method: This method involves allocating the variable consideration to specific performance obligations in the contract based on relative standalone selling prices or using other reasonable methods. These methods provide companies with flexibility in estimating and recognizing variable consideration in contracts, allowing them to reflect the most likely or expected value of such consideration while complying with ASC 606's principles of revenue recognition.
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Assuming that Ama now wants to calculate her break-even point in dollars. The formula she will use will be Fixed Costs/Profit as percentage of sales. If her fixed cost is $100,000 and her profit as a percentage of sales is 20%, what will be her break even point in dollars?
$100,000
$500,000
$5,000
To calculate the break-even point in dollars, we can use the formula:
Break-even Point = Fixed Costs / (Profit as a percentage of sales). Ama's break-even point in dollars is $500,000
Given that Ama's fixed costs are $100,000 and her profit as a percentage of sales is 20%, we can substitute these values into the formula:
Break-even Point = $100,000 / 0.20
Calculating the division, we get:
Break-even Point = $500,000
Therefore, Ama's break-even point in dollars is $500,000.
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1) What are the differences between the behavior and marketing objectives in the hierarchy of effects model? Provide an example of an e-commerce tool or tactic that could be used to accomplish the objective at each of the 6 stages.
The hierarchy of effects model is a marketing communication model that describes the process of how customers move from being unaware of a product to becoming loyal customers.The six stages of the hierarchy of effects model are:Awareness,Knowledge,Liking,Preference,Conviction and Purchase.
1. Awareness: At this stage, the consumer becomes aware of the existence of a product or service. The objective is to create brand awareness. A marketing tool that could be used to accomplish this objective is Search Engine Optimization (SEO). SEO will help the product to rank higher in search engine results pages (SERPs).
2. Knowledge: At this stage, the consumer begins to seek information about the product. The objective is to provide the consumer with information about the product. A marketing tool that could be used to accomplish this objective is an informational video.
3. Liking: At this stage, the consumer begins to like the product. The objective is to create a positive image of the product in the mind of the consumer. A marketing tool that could be used to accomplish this objective is social media. Social media will help create a positive image of the product in the mind of the consumer.
4. Preference: At this stage, the consumer prefers the product over other products. The objective is to create a preference for the product. A marketing tool that could be used to accomplish this objective is customer reviews. Customer reviews will help to create a preference for the product.
5. Conviction: At this stage, the consumer becomes convinced that the product is the right one. The objective is to convince the consumer that the product is the right one. A marketing tool that could be used to accomplish this objective is retargeting ads. Retargeting ads will help to convince the consumer that the product is the right one.
6. Purchase: At this stage, the consumer purchases the product. The objective is to make the sale. A marketing tool that could be used to accomplish this objective is a shopping cart. A shopping cart will make the purchase process easier and more convenient.
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You are using a standard lease chargeback system. How should you categorize the fees for special conference room setups and catering service provided by facility management (FM)? a) Ancillary services provided by the Facilities Department. b) Other facility-related one-time costs c) Operating costs associated with the space. d) Ongoing services rendered.
It's worth noting that the exact categorization may vary depending on the specific lease chargeback system and the organization's accounting practices. It's recommended to consult with the organization's financial or accounting department for accurate categorization based on their specific guidelines.
The categorization of fees for special conference room setups and catering services provided by facility management (FM) would depend on the specific nature and context of the chargeback system being used. However, based on the options, the most suitable categorization would likely be:
b) Other facility-related one-time costs
The special conference room setups and catering services are typically considered as one-time or occasional expenses rather than ongoing or operating costs associated with the space. These services are often provided on an as-needed basis for specific events or occasions, and they are not typically considered as part of the regular operating costs or ongoing services rendered for the space.
It's worth noting that the exact categorization may vary depending on the specific lease chargeback system and the organization's accounting practices. It's recommended to consult with the organization's financial or accounting department for accurate categorization based on their specific guidelines.
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How would you position the Xcooter? Develop a competitive position statement for Xcooter.
The Xcooter can be positioned as a premium electric scooter for adults and teens, targeting urban commuters who are looking for an eco-friendly, fun, and convenient mode of transportation. The product could also be positioned as a solution for individuals who are looking for an alternative to walking, cycling, or using public transportation.
Position the Xcooter:
It is designed to be lightweight and foldable, making it easy to carry and store in small spaces such as apartments, offices, and public transportation vehicles. It also has a long-lasting battery life and a top speed of up to 15 miles per hour, making it a reliable and efficient mode of transportation.
Competitive Position Statement for Xcooter:
The Xcooter is a premium electric scooter that offers an innovative and eco-friendly solution for urban commuters who are looking for a fun and convenient mode of transportation. With its lightweight and foldable design, the Xcooter is perfect for individuals who are looking for an alternative to walking, cycling, or using public transportation. The product boasts a long-lasting battery life and a top speed of up to 15 miles per hour, making it a reliable and efficient mode of transportation.
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1: In regards to able-minded and able-bodied individuals, those who are jobless and out of the labour force
A: are deemed to be insufficiently productive to be hired at the going wage
B: have chosen not to supply labour at the going wage
C: have a reservation wage that is higher than the going wage.
D: are involuntarily unemployed
E: are voluntarily unemployed
E: are voluntarily unemployed due to personal choices or other factors that lead them to not seek employment, despite being able-bodied and able-minded.
When able-minded and able-bodied individuals are jobless and out of the labor force, it implies that they have chosen not to supply labor at the going wage. This could be due to various reasons such as personal preferences, alternative sources of income, lack of available jobs matching their skills or qualifications, or other factors that lead them to voluntarily refrain from seeking employment. In contrast to involuntary unemployment (option D), where individuals are actively seeking work but unable to find employment, voluntary unemployment occurs when individuals make a deliberate decision not to participate in the labor market despite being capable of doing so.
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Tiger Thriftway currently processes all of its credit sales at its Clemson, SC, headquarters. The firm is considering establishing a lockbox arrangement with Arizona bank to process payments from customers in 12 southwestern states. Average mailing time for customers from this region is currently 5.5 days. It is expected that the system will reduce this to 4.5 days. Check processing and clearing time would be reduced from 5.5 days to 3 days with the lockbox arrangement. Annual collections from this region are $400 million, The lockbox arrangement would reduce the compensating balance requirement at the firm's Clemson bank by $300,000 and reduce annual payment processing costs at the Clemson office by $30,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 10 percent before taxes. Assume that there are 365 days per year. The Arizona bank has agreed to process Tiger's customer payments for an annual fee of $130,000. Determine the annual net pretax benefits to Tiger of establishing a lockbox system with the Arizona bank. Your answer should have four decimal places. For example, for $10,000,000, enter 10,000,000.0000
The annual net pretax benefits to Tiger Thriftway of establishing a lockbox system with the Arizona bank amount to $1,399,840,000.0000.
To determine the annual net pretax benefits of establishing a lockbox system with the Arizona bank, we need to calculate the various components involved:
Reduction in mailing time: The average mailing time for customers in the southwestern states is expected to decrease from 5.5 days to 4.5 days. This reduction of 1 day in the mailing time allows Tiger Thriftway to receive payments faster.
Reduction in check processing and clearing time: With the lockbox arrangement, the check processing and clearing time would be reduced from 5.5 days to 3 days, resulting in faster availability of funds.
Compensating balance requirement reduction: The lockbox arrangement would reduce the compensating balance requirement at the Clemson Bank by $300,000. This means that Tiger Thriftway can free up $300,000 that would have otherwise been held as a compensating balance.
Annual payment processing cost reduction: The lockbox system eliminates the need for Tiger Thriftway to process payments at its Clemson office, resulting in a cost reduction of $30,000 per year.
The annual fee for lockbox service: The Arizona bank will charge an annual fee of $130,000 to process Tiger Thriftway's customer payments.
Now, let's calculate the annual net pretax benefits:
Reduction in collection float:
Reduction in mailing time = 5.5 days - 4.5 days = 1 day
Reduction in collection float = Reduction in mailing time * Average collections
Reduction in collection float = 1 day * $400 million = $400 million
Reduction in disbursement float:
Reduction in check processing time = 5.5 days - 3 days = 2.5 days
Reduction in disbursement float = Reduction in check processing time * Average disbursements
Reduction in disbursement float = 2.5 days * $400 million = $1 billion
Annual interest earned on released funds:
Funds released by the lockbox arrangement = Compensating balance requirement reduction = $300,000
Annual interest earned = Funds released * Interest rate
Annual interest earned = $300,000 * 10% = $30,000
Annual net benefits:
Annual net benefits = Reduction in collection float + Reduction in disbursement float + Annual interest earned - Annual lockbox service fee - Annual payment processing cost
Annual net benefits = $400 million + $1 billion + $30,000 - $130,000 - $30,000
Annual net benefits = $1,400,000,000 - $160,000
Annual net benefits = $1,399,840,000
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Consider the portfolio choice problem of a risk-averse individual with a strictly increasing utility function. There is a single risky asset and a risk-free asset. Formulate an investor's choice problem and comment on the first-order conditions. What is the minimum risk premium required to induce the individual to invest all his wealth in the risky asset? (Find your answer in terms of his initial wealth, absolute risk-aversion coefficient, and other relevant parameters.) Hint: Take a Taylor series expansion of the utility of next period's random wealth.
The investor's portfolio choice problem involves selecting the optimal allocation between a risky asset and a risk-free asset to maximize their utility, given their risk aversion and initial wealth. The first-order conditions provide insights into the optimal allocation, and the minimum risk premium required to invest all wealth in the risky asset can be determined by considering the Taylor series expansion of utility.
The investor's portfolio choice problem involves maximizing utility while allocating wealth between a risky and risk-free asset. The first-order condition states that the marginal utility of wealth in terms of the risky asset's return should equal the marginal utility of wealth in general.
To find the minimum risk premium needed for full investment in the risky asset, we consider the Taylor series expansion of utility and derive the expression
rp = U''(W₀)σ² / [U'(W₀)],
where rp is the minimum risk premium required,
U''(W₀) represents the absolute risk aversion coefficient,
σ is the standard deviation of the risky asset, and
U'(W₀) is the marginal utility of wealth.
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1.What is ‘Libor’ and why is it so important to international finance? (2 mark)
2. In regard to the ‘Liborgate’ misconduct:
a. Identify the main stakeholders affected by the rate-rigging scandal and why (2 mark)
b. Discuss the prevailing system and how it created conflicts of interest (3 marks)
c. Determine the different types of conflicts of interest that led to unethical behaviour
(3 marks)
3. Identify 3 (three) specific CFAI standards that were likely breached by the bank practitioners
in this case. Justify your response and provide examples. (4 marks)
4. In regard to the fallout from the ‘Liborgate’ case study:
a. Discuss the impact the scandal has likely had on the global banking industry. (3
marks)
b. What measures have been put in place to minimize the risk of such future
misconduct? Do you think regulators and the industry have sufficiently dealt with
the issue?
Libor, or the London Interbank Offered Rate, is a benchmark interest rate used as a reference for various financial instruments globally. It is important to international finance because it influences borrowing costs, impacts investment decisions, and serves as a measure of market confidence.
1. Libor, short for the London Interbank Offered Rate, is a benchmark interest rate that represents the average interest rate at which banks lend to each other in the London money market. It is widely used as a reference rate for determining interest rates on various financial products such as loans, mortgages, derivatives, and bonds. Its importance to international finance stems from its widespread usage as a key reference point for pricing and valuing financial instruments.
2a. The main stakeholders affected by the rate-rigging scandal, commonly known as "Liborgate," include financial institutions, individual investors, and the general public. Financial institutions were impacted as they relied on Libor for pricing their products, and the manipulation of the rate affected the accuracy and fairness of these pricing mechanisms. Individual investors were also affected as their investments tied to Libor-based instruments were impacted. The general public was affected because Libor influences interest rates on loans, mortgages, and other financial products, which directly affects borrowing costs for individuals and businesses.
2b. The prevailing system for Libor determination created conflicts of interest. The rate was calculated based on submissions from a panel of banks, relying on their reported borrowing costs. However, some banks had vested interests in manipulating Libor to benefit their trading positions or to create a perception of financial stability. This conflict arose because the same banks submitting the rates also had proprietary trading desks that stood to gain from favorable Libor rates. Additionally, during the financial crisis, banks had concerns about negative market perceptions, leading to a motivation to manipulate rates.
2c. The different types of conflicts of interest that led to unethical behavior in the Libor scandal included conflicts between banks' proprietary trading desks and their role in submitting Libor rates, conflicts between banks and their clients who relied on accurate Libor rates for pricing financial products, and conflicts between individual traders within banks who sought personal gains through rate manipulation.
3. Three specific CFA Institute Standards that were likely breached in the Libor scandal include:
a. Standard I: Professionalism - The banks and individuals involved in the rate-rigging scandal violated the principles of integrity, diligence, and ethical behavior expected of finance professionals.
b. Standard III: Duties to Clients - The manipulation of Libor rates resulted in unfair pricing and disadvantaged clients who relied on accurate rates for their financial transactions.
c. Standard IV: Duties to Employers - Individuals within the banks breached their duty of loyalty and engaged in activities that harmed their employer's reputation and financial well-being.
For example, traders colluded to submit false rates to benefit their trading positions, which violated the duty of loyalty to their employers and compromised the integrity of the financial markets.
4a. The Libor scandal has had a significant impact on the global banking industry. It eroded trust and confidence in financial markets, leading to regulatory reforms, increased scrutiny, and hefty fines for the banks involved. It highlighted weaknesses in the financial system and exposed the risks of benchmark rate manipulation. The reputation of banks and their ability to operate efficiently and ethically were severely damaged, affecting their relationships with clients and investors.
4b. Measures have been put in place to minimize the risk of future misconduct. Regulatory bodies have imposed stricter regulations, enhanced surveillance mechanisms, and increased penalties for rate manipulation. Efforts have been made to transition from Libor to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR), to reduce dependency on a single benchmark. Regulators and industry participants have also focused on improving governance, transparency, and the integrity of benchmark rate-setting processes.
However, the question of whether regulators and the industry have sufficiently dealt with the issue is subjective and open to debate. While significant progress has been made, ongoing vigilance, effective enforcement, and continued reforms are essential to maintain market integrity and prevent future misconduct.
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1.If the tax rate is 21 percent in 2020. What is the average tax rate for a firm with taxable income of $125,013?
2.Evil Pop Company began the year with net fixed assets of $17,393 and had $18,680 in the account at the end of the year. During the year, the company paid $4,270 in interest and expensed $3,765 in depreciation. The company purchased $8,610 in fixed assets during the year. How much in fixed assets did the company sell during the year?
3. Simon's Hot Chicken purchased its building seven years ago at a price of $139,215. The building could be sold for $179,175 today. The company spent $66,095 on other fixed assets that could be sold for $58,145. The company has accumulated depreciation of $79,275 on its fixed assets. The company has current liabilities of $36,710 and net working capital of $18,485. What is the ending book value of net fixed assets?
4. A company has $1,287 in inventory, $4,710 in net fixed assets, $586 in accounts receivable, $246 in cash, $522 in accounts payable, $874 in long-term debt, and $5,305 in equity. What are the company's total assets?
5.Adison Winery had beginning long-term debt of $40,456 and ending long-term debt of $45,879. The beginning and ending total debt balances were $50,059 and $55,184, respectively. The company paid interest of $4,399 during the year. What was the company's cash flow to creditors?
Average tax rate for a firm with $125,013 taxable income at a 21% tax rate is 21%. Evil Pop Company sold $13,558 in fixed assets during the year. Ending book value of net fixed assets is $126,035. Total assets of the company amount to $6,829. Cash flow to creditors is -$833.
The average tax rate for a firm is calculated by dividing the total tax paid by the taxable income. In this case, with a tax rate of 21% and taxable income of $125,013, the average tax rate would be 21% of $125,013.
To determine the amount of fixed assets sold during the year, we need to subtract the change in net fixed assets from the total purchases. The change in net fixed assets is the ending net fixed assets minus the beginning net fixed assets. In this case, the company sold $13,558 in fixed assets.
The ending book value of net fixed assets is calculated by subtracting the accumulated depreciation from the original cost of the fixed assets. In this case, it would be $139,215 + $58,145 - $79,275 = $118,085.
The total assets of the company can be calculated by summing up the inventory, net fixed assets, accounts receivable, and cash. In this case, the total assets would be $1,287 + $4,710 + $586 + $246 = $6,829.
The cash flow to creditors is calculated by subtracting the change in long-term debt from the interest paid. In this case, it would be $4,399 - ($45,879 - $40,456) = -$833, indicating a negative cash flow to creditors.
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Conduct a critical analysis of adopting Lean management in any
industry and compare to other alternative approaches companies can
operate particularly in respect to inventory management
Lean management offers benefits in inventory management, including waste reduction, improved flow, quality enhancement, and employee empowerment. However, alternative approaches like traditional inventory management, agile methods, demand-driven approaches, and technology-driven solutions should be considered based on industry and operational context to optimize inventory practices. Each approach has its advantages, such as EOQ/FOQ for stable demand, agility for high demand volatility, demand-driven for customer-centricity, and technology for real-time visibility and data-driven decision-making. Assessing these options enables companies to select the most suitable approach for efficient inventory management.
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When a manufacturing company uses indirect materials, it accumulates the cost by debiting.
A. Work-in-Process Inventory.
B. Indirect Materials
C. Raw Materials Inventory.
D. Manufacturing Overhead.
When a manufacturing company uses indirect materials, the cost is accumulated by debiting: D. Manufacturing Overhead. Indirect materials refer to materials.
That are not directly incorporated into the final product but are necessary for the production process. These materials are typically used in maintenance, repairs, or other indirect activities related to manufacturing. Since these materials do not become part of the final product, their costs are not directly added to the Raw Materials Inventory (option C) or Work-in-Process Inventory (option A). Instead, the cost of indirect materials is allocated to the Manufacturing Overhead (option D) account. Manufacturing Overhead is a general company account that accumulates all indirect costs incurred during the manufacturing process, including indirect materials, indirect labor, and other indirect expenses. By debiting the Manufacturing Overhead account, the company records and tracks the cost of indirect materials as part of the overall manufacturing overhead expenses.
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UNIVERSITY OF ZAMBIA GRADUATE SCHOOL OF BUSINESS FINANCIAL REPORTING: BAF3010 FINANCIAL REPORTING ASSIGNMENT 2 Due date July 22, 2022 Time 24:00hrs QUESTION ONE ANSWER ALL QUESTIONS The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying amount of the asset to its recoverable amount, and recognise an impairment loss. IAS 36 also applies to groups of assets that do not generate cash flows individually (known as cash-generating units). a) Identify and discuss both the Internal and External indicators Impairment
Internal indicators of impairment include obsolescence or physical damage, significant changes in asset use, and internal performance measures. External indicators of impairment include market conditions, technological advancements, legal or regulatory changes, and economic factors.
Internal indicators of impairment:Obsolescence or physical damage: If an asset becomes obsolete or suffers physical damage that affects its ability to generate cash flows, it may indicate impairment. For example, technological advancements can render certain equipment or software obsolete, reducing their recoverable amount.
Significant changes in the asset's use: If there are significant changes in how an asset is used or its operating conditions, it may impact its future cash flows. For instance, a building that was originally used for manufacturing purposes but is now repurposed for office space may experience a decrease in its recoverable amount.
Internal performance measures: A decline in the asset's performance metrics, such as a decrease in sales, market share, or profitability, can suggest impairment. These indicators may vary depending on the nature of the asset and the industry it operates in.
External indicators of impairment:Market conditions: Changes in market conditions, such as a decline in demand for a product or service, can impact an asset's recoverable amount. For instance, if there is a significant decrease in the market value of a property due to unfavorable economic conditions, it may indicate impairment.
Technological advancements: Rapid technological advancements can render certain assets obsolete or less valuable. For example, the emergence of new software or machinery may make existing assets less efficient or outdated, reducing their recoverable amount.
Legal or regulatory changes: Changes in laws or regulations can affect an asset's value or its ability to generate cash flows. For instance, the imposition of stricter environmental regulations may require costly upgrades to a manufacturing facility, impacting its recoverable amount.
Economic factors: Economic factors such as inflation, interest rates, or exchange rates can impact the recoverable amount of an asset. For example, high inflation rates can erode the value of fixed assets over time.
It is important to note that these indicators are not exhaustive, and the specific circumstances of each entity and its assets should be considered when assessing impairment. Regular monitoring and evaluation of assets are necessary to identify any indicators of impairment and determine the appropriate accounting treatment under IAS 36.
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Suppose GDP is S550 billion, government purchase is $130 billion, private saving is $70 billion, and investment is $35 billion. Assuming that this conomy is closed. Calculate consumption, taxes, and national savings
In this closed economy :
- consumption is $385 billion
- taxes are $95 billion
- national savings are $35 billion.
to calculate consumption, taxes, and national savings in a closed economy, we can use the following identity:
gdp = consumption + government purchases + investment + net exports
in a closed economy, net exports are zero, so the equation becomes:
gdp = consumption + government purchases + investment
given the following information:
gdp = $550 billion
government purchases = $130 billion
investment = $35 billion
we can rearrange the equation to solve for consumption:
consumption = gdp - government purchases - investment
consumption = $550 billion - $130 billion - $35 billion
consumption = $385 billion
to calculate taxes, we need to consider that in a closed economy, national savings (s) equals private savings (sp) plus government savings (sg). since private savings are given as $70 billion, we can rearrange the equation to solve for government savings:
national savings (s) = private savings (sp) + government savings (sg)
national savings (s) = private savings (sp) + (taxes - government purchases)
since net taxes (taxes - transfers) equal government purchases (g):
national savings (s) = private savings (sp) + (taxes - g)
national savings (s) = $70 billion + (taxes - $130 billion)
since we know that national savings (s) equals investment ($35 billion):
$35 billion = $70 billion + (taxes - $130 billion)
simplifying the equation, we find:
$35 billion - $70 billion = taxes - $130 billion
-$35 billion = taxes - $130 billion
taxes = $130 billion - $35 billion
taxes = $95 billion
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What things need to be done to make change possible? What
happens when companies want to make change and don’t integrate HR into those processes?
To make change possible, several key factors need to be considered. These include establishing a clear vision, communicating effectively, involving stakeholders, providing adequate resources.
To make change possible, organizations need to take several steps. First, they must establish a clear vision and communicate it effectively to all stakeholders. This helps create a shared understanding of the change and its purpose.
Involving employees and other stakeholders in the change process fosters ownership and commitment, as their perspectives and ideas are valued. Providing adequate resources, such as training and support, is crucial to enable employees to adapt to the change successfully.
When companies do not integrate HR into change processes, they may face various challenges. HR plays a vital role in managing the impact of change on employees, including addressing their concerns, providing support, and ensuring alignment between the change and human capital strategies.
Without HR involvement, companies may experience increased employee resistance and decreased engagement, as employees may perceive the change as disconnected from their needs and interests.
Additionally, HR can assist in managing talent, identifying skill gaps, and implementing strategies for workforce planning and development, which are critical elements for successful change implementation. Thus, integrating HR into change processes is essential for effectively managing the human side of change and maximizing the chances of success.
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Please answer the three discussion questions at the end of the following case study study.
Case: Quincy Snodgrass Enterprises--Forecasting Quincy
Quincy Snodgrass ís an entrepreneur and a lover of the outdoors. He has worked for various companies since he graduated college with his business administration degree in management. Over the years, he has saved every extra penny and now has the starting capital he needs; consequently, he plans to open his own business. Quincy plans to open a landscaping business. The primary services he'll offer are grass cutting, edging, and bush trimming. Obviously, this will only provide income in the spring, summer, and early fall.Therefore, he plans to offer snow removal in the winter. His goal is to continue to provide those baseline services and expand into actual landscaping work.
Quincy's initial challenge is to develop a forecast of how many customers he'll have each month. This is essential to determine if he needs to hire any additional labor throughout the season. Unfortunately, none of the jobs Quincy has had involved forecasting. Quincy is digging deep into his memory to recall his supply chain management course and the chapter on forecasting. He knows he has two methods to choose from, qualitative and quantitative.
Quincy is a numbers guy and is partial to using a quantitative method if possible, but, he doesn't rule out the option of using the qualitative methods. He had worked many summers for other yardwork companies. Knowing he wanted to own his own houses someday, Quincy took notes on how things went. Since his customer base would be a series of small towns, Quincy knows he cannot charge as much as the companies that serve larger communities. Consequently, volume is necessary to earn the revenue he will need.
Quincy focused on three small towns, Smithburg with a population of 700, Emeryville with 1800, and Golf Creek with 2,500. He believes he can get 10 percent of the homes in each town to hire him. Quincy used information from the county files to estimate that on average, the number of homes is equal to about 25% of the population, meaning in Smithburg (700) the potential number of homes is about 15. Quincy believes his calculations are reasonable and could be the foundation for using a qualitative method to kick off his forecasting.
Discussion Questions:
1. Since Quincy doesn't have any historical data (only an estimate of the number of customers he'll serve each month), which specific type of qualitative method is he using? What would be the total number of customers based on his assumptions? Is it a realistic number to allow the business to survive? He estimates his average fee will be $25.
2. Because of the type of communities, overtime Smithburg will provide 20 percent of the houses as customers, Emeryville still 10 percent, and Golf Creek only 7 percent. Assuming he was charging $25 per home, what effect does this change in monthly forecast have on his monthly revenue? Should he change his price either up or down? Explain.
3. Quincy has been gathering data for over five years now. He has a record of how many customers he has each month. He also has information on the weather, for example, which month has the most rain. Quincy wants to use these data to improve his forecasting. He has a choice of cause-and-effect models. Based on what data he has and what he wants to do, what would be the best method from the choices he has? Explain the elements of the forecasting equation.
Quincy Snodgrass is using a specific qualitative method based on his assumptions and estimates. The total number of customers he anticipates can be calculated using the population of each town and assuming he can secure 10% of the homes as customers.
The realism of this number's sufficiency for business survival depends on various factors, such as operational costs, pricing strategy, and market demand. The effect on revenue should be evaluated, and price adjustments could be considered accordingly.
Lastly, Quincy can utilize cause-and-effect models to improve his forecasting, taking into account customer data, weather information, and other relevant factors. Selecting the best method among the available choices should consider the elements of the forecasting equation and their alignment with Quincy's data and objectives.
In the absence of historical data, Quincy is using a qualitative method known as "expert opinion" or "subjective judgment." He estimates the number of customers based on his assumptions about securing 10% of the homes in each town as his clientele. The total number of customers can be calculated by multiplying the population of each town by the assumed customer percentage.
Determining if this number is realistic enough for the business to survive depends on various factors. Quincy needs to consider his operational costs, including labor, equipment, marketing, and other overhead expenses. Additionally, he should evaluate the market demand for landscaping services in these small towns and analyze the pricing strategies of competitors.
Regarding changes in the monthly forecast based on varying customer percentages in each town, Quincy should assess the impact on his monthly revenue. If Smithburg is expected to provide 20% of the houses as customers, Emeryville 10%, and Golf Creek only 7%, Quincy needs to recalculate the total number of customers accordingly.
The effect on monthly revenue can then be calculated by multiplying the new customer estimates by the average fee of $25 per home. Based on this analysis, Quincy can assess whether he needs to adjust his pricing strategy. If the revenue projection is significantly affected, he may consider either raising or lowering the price per home to achieve a balance between profitability and competitiveness.
For utilizing cause-and-effect models to improve forecasting, Quincy can consider a regression analysis based on the data he has gathered over the past five years. By examining the relationship between the number of customers and various factors such as weather conditions, he can identify patterns and determine the impact of specific variables on customer demand.
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A firm has an account receivable of €30 million in 90 days. The firm can handle its open position using the following methods:
Method 1: Forward contracts on € with a 90-day forward rate of CAD1.4623 per €.
Method 2: Options on € with an exercise price of CAD1.4624 per € in 90 days and a premium of CAD 0.0004 per €.
Method 3: Leave the position open.
Note: Show your work and keep you answers to 4 decimal points if necessary.
a) If the spot exchange rate 90 days from now were CAD1.4622 per €, which method should the firm use? What will be the total amount paid or total amount received from hedging? (15 points)
Note: Be sure to explain what kind of forward and options on € the firm would use.
b) Find the range of the CAD/€ spot rate 90 days from now that will make the firm leave its position open. Explain. (5 points)
The range of the CAD/€ spot rate 90 days from now that will make the firm leave its position open is when the spot exchange rate is between CAD1.4623 and CAD1.4624 per €.
Method 1 involves using forward contracts. Given the forward rate of CAD1.4623 per €, if the spot rate 90 days from now is CAD1.4622 per €, the firm would have been better off not using the forward contract. Using the forward contract would result in a loss, so the firm should choose Method 3 and leave the position open. The total amount paid or received from hedging would be zero because the firm is not engaging in any hedging activity.
The range of the CAD/€ spot rate that would make the firm leave its position open can be determined by comparing it with the exercise price and the forward rate. In this case, the exercise price for options is CAD1.4624 per €, and the forward rate is CAD1.4623 per €. If the spot rate 90 days from now falls between these two rates, the firm would not have a clear advantage in using either Method 1 or Method 2. As a result, the firm may choose to leave the position open and not hedge, as the outcome is uncertain and potentially more favorable than using the other methods.
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THIS IS THE CORRECTED PROBLEM The comparative financial statements of Fantastic Corporation were submitted for your examination. The company has never been audited since it started its operations in January 2020. LIABILITES AND SHAREHOLDERS' EQUTTY Fantastic Corporation Comparative Income Statemente For the Years Ended December 31, 2021 and 2020 Your staff submitted the following audit findings for you to prepare the necessary adjusting entries. Assume no other issues, except those given below and on the next page. Ignore income tax. (1) The cash and cash equivalents account on December 31,2021 is composed of petty cash fund and cash in bank (with Banco Pinoy). The petty cash fund was established at an imprest balance of P10,000 only on December 15,2021 . The fund was replenished on January 8,2022 and submitted expense vouchers for replenishment totaled P8,900 of which only P1,200 were dated January 2022. (2) The cash in bank includes money market funds and commercial papers with original terms ranging from 33 to 75 days. Maturity dates range from January 15 to February 15, 2022. These items totaled P150,000. Total accrued income on these items as of December 31 is considered not material. (3) The accounts receivable includes selling price of unsold goods shipped to Royal Sales Company, a consignee. The goods costing P90,000 were marked to sell allowing a profit of 20% of the selling price. Such goods have not been included in the ending inventory on December 31, 2021 . (4) During March 2022, before the issuance of these financial statements, Fantastic received a letter announcing that Distressed Corporation, a customer, was declared bankrupt and that creditors of the company would recover PO.20 for every peso due. Distressed owes Fantastic P20,000. The condition of Distressed Corporation was already known to the business community as of December 31,2021 . Your verification revealed that Fantastic has already provided an allowance for bad debts amounting to P12,000 for this account, but has not yet written off the account. (5) An analysis of the remaining individual customer accounts has been made and accounts totaling P36,000 are estimated to be uncollectible. (6) An invoice for freight charges totaling P12,000, relating to shipments from suppliers (all of which are still unsold as of December 31, 2021) for the last week of 2021 was received on January 15,2022 - Freight is considered an inventoriable cost. The same has not yet been recorded as of December 31,2021 and has not been included in the cost of inventory. (7) The inventory account, maintained on a periodic basis has been in error for the last two years. 2020 ending inventory was overstated by P36,000 because some items of merchandise were counted twice at the end of 2020 . 2021 ending inventory excludes goods out on consignment (see finding #3) and includes customer's materials listed at P28,000 which are being processed for a specific customer. (8) The investment balance represents the cost of 2,000 shares of Fantastic's ordinary shares acquired in 2021. Total market on December 31, 2021, P254,000. (9) A two-year insurance premium for P36,000 was paid on October 1, 2020 covering the company's building. The full amount was charged to expense at the time of payment and no adjustment was taken up at December 31,2020. (10) The prepaid expense account represents unused supplies at the end of 2020 . Actual supplies on hand on December 31,2021 were P12,000. (11) An equipment costing P80,000 was sold on July 1, 2021 for P50,000, the proceeds being credited to Sales. All fixed assets were contributed by shareholders on January 2,2020 and were recorded properly at their fair market values. Depreciation on fixed assets has been provided using the straight-line method, salvage value being ignored. Depreciation is rounded to the nearest month. (12) The mortgage payable bears an annual interest rate of 12% and was taken out on March 1,2020. The principal is payable in four equal annual installments which started on March 1, 2021. Interest is payable annually on March 1 . No accrual of interest has yet been made at yearend. Interest previously recorded on this debt was charged to Other Losses and Expenses. (13) Recorded expenses for 2021 include P16,000 of expenses relating to 2020 , which had not been accrued at the end of 2020 . (14) Other accrued expenses as of December 31,2021 amounted to P15,000. (15) Fantastic customarily receives advances from customers, crediting Sales upon receipt. Total advances for which no shipment have been made yet as of December 31,2021 amounted to P80,000. 1. PRFPARF ADJUSTING ENTRIES 2. PREPARE A 2021-2020 COMPARATIVE ADJUSTED STATEMENTS OF A. INCOMIE B. FINANCIAL POSITION C. CHANGES IN SHAREHOLDERS' EQUITY D. STATEMENT OF CASH FLOW
The provided problem presents a series of audit findings that require the preparation of adjusting entries and the creation of comparative adjusted financial statements for Fantastic Corporation for the years 2021 and 2020. These adjustments include items such as cash and cash equivalents, accounts receivable, inventory, investments, prepaid expenses, fixed assets, mortgage payable, accrued expenses, and customer advances.
To address the audit findings and prepare the necessary adjusting entries, a comprehensive analysis of each item mentioned is required. The adjustments involve recognizing income, expenses, assets, and liabilities that were not properly recorded or included in the financial statements. Some key adjustments include:
1. Adjusting the cash and cash equivalents account to include the petty cash fund established in December 2021 and replenished in January 2022.
2. Recognizing the money market funds and commercial papers in the cash in bank as assets, considering their maturity dates and accrued income.
3. Including the selling price of unsold goods shipped to Royal Sales Company in accounts receivable and adjusting the inventory to reflect the goods not included.
4. Recognizing the potential loss from the bankrupt customer, Distressed Corporation, and adjusting the allowance for bad debts accordingly.
5. Estimating the uncollectible amounts from other customer accounts and adjusting the accounts receivable.
6. Recording the freight charges received in January 2022 as an inventory cost for the shipments from suppliers in 2021.
7. Correcting the errors in the inventory account for 2020 and adjusting the 2021 ending inventory for consigned goods and customer materials.
8. Adjusting the investment balance to reflect the market value of the 2,000 shares of Fantastic's ordinary shares acquired in 2021.
9. Recognizing the prepaid insurance expense for the building premium paid in 2020.
10. Adjusting the prepaid expense account to reflect the actual supplies on hand at the end of 2021.
11. Accounting for the sale of equipment on July 1, 2021, by removing it from the fixed assets and crediting the proceeds to sales.
12. Accruing interest expense on the mortgage payable, which was not recorded at year-end.
13. Adjusting the recorded expenses for 2021 to include expenses related to 2020 that were not accrued at the end of 2020.
14. Recognizing the accrued expenses as of December 31, 2021.
15. Adjusting the customer advances, which are received but not yet shipped, to be excluded from sales.
After making these adjusting entries, the comparative adjusted financial statements for Fantastic Corporation can be prepared. This includes the comparative adjusted income statement, comparative adjusted statement of financial position (balance sheet), comparative statement of changes in shareholders' equity, and comparative statement of cash flows for the years 2021 and 2020. These statements will accurately reflect the financial position, performance, and cash flows of Fantastic Corporation after accounting for the necessary adjustments based on the audit findings.
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In the Keynesian-cross analysis, if the consumption function is given by C=200+0.8(Y−T), and planned investment is 200,G is 200 , and T is 100 , then equilibrium Y is:
a. 1,500
b. 2,100.
c. 3.000.
d. 2,600 .
The equilibrium level of output (Y) is 2,600.
The equilibrium level of output (Y) can be determined by equating aggregate expenditure (AE) to output. In this case, the consumption function is given by C=200+0.8(Y−T), planned investment is 200, government spending (G) is 200, and taxes (T) are 100. By substituting these values into the equation for AE, we can find the equilibrium level of output.
Calculating AE: AE = C + I + G
AE = (200 + 0.8(Y - 100)) + 200 + 200
AE = 600 + 0.8Y - 80
AE = 520 + 0.8Y
At equilibrium, AE is equal to Y. Therefore, we have:
Y = 520 + 0.8Y
Simplifying the equation, we get:
0.2Y = 520
Y = 520 / 0.2
Y = 2,600
Therefore, the equilibrium level of output (Y) is 2,600. So, the correct answer is d. 2,600.
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