This course will primarily concentrate on privately owned, publicly traded domestic firms and their wholly owned subsidiaries. The focus will encompass four key aspects: privately owned, publicly traded, domestic, and wholly owned.
The course will emphasize the study and analysis of privately owned firms, which are companies that are not publicly traded on stock exchanges and are typically owned by a limited number of individuals or entities. These firms may have different characteristics and operational dynamics compared to publicly traded companies.
Publicly traded firms, on the other hand, are companies whose shares are listed and traded on public stock exchanges. They often have a large number of shareholders and are subject to various regulations and reporting requirements.
The course will specifically examine domestic firms, which are companies incorporated and operating within a particular country. This focus allows for a deeper understanding of the unique challenges, opportunities, and regulatory frameworks that domestic firms face in their respective jurisdictions.
Lastly, the course will explore wholly owned subsidiaries, which are companies that are completely owned and controlled by another company, known as the parent company. Understanding the dynamics and interactions between parent companies and their wholly owned subsidiaries is crucial in comprehending the complexities of corporate structures and strategies.
By studying these four aspects—privately owned, publicly traded, domestic, and wholly owned—the course will provide a comprehensive understanding of the specific dynamics and considerations involved in the operations and management of these types of firms and their subsidiaries.
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This course will primarily concentrate on privately owned, publicly traded domestic firms and their wholly owned subsidiaries. The focus will encompass four key aspects: privately owned, publicly traded, domestic, and wholly owned.
The course will emphasize the study and analysis of privately owned firms, which are companies that are not publicly traded on stock exchanges and are typically owned by a limited number of individuals or entities. These firms may have different characteristics and operational dynamics compared to publicly traded companies.
Publicly traded firms, on the other hand, are companies whose shares are listed and traded on public stock exchanges. They often have a large number of shareholders and are subject to various regulations and reporting requirements.
The course will specifically examine domestic firms, which are companies incorporated and operating within a particular country. This focus allows for a deeper understanding of the unique challenges, opportunities, and regulatory frameworks that domestic firms face in their respective jurisdictions.
Lastly, the course will explore wholly owned subsidiaries, which are companies that are completely owned and controlled by another company, known as the parent company. Understanding the dynamics and interactions between parent companies and their wholly owned subsidiaries is crucial in comprehending the complexities of corporate structures and strategies.
By studying these four aspects—privately owned, publicly traded, domestic, and wholly owned—the course will provide a comprehensive understanding of the specific dynamics and considerations involved in the operations and management of these types of firms and their subsidiaries.
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Jessie bought a 30% partnership share by giving $300,000 cash plus a tract of land (Jessie’s basis = $500,000; FMV of land is $1,500,000). Jessie was relieved, by the partnership, of $300,000 of debt on the land. Immediately prior to Jessie joining, the partnership had debt of $700,000. What is Jessie’s initial basis?
$0
$200,000
$700,000
$800,000
Jessie bought a 30% partnership share by giving $300,000 cash plus a tract of land (Jessie’s basis = $500,000; FMV of land is $1,500,000).Jessie's initial basis is $800,000.
To calculate Jessie's initial basis, we need to consider the cash contribution, the fair market value (FMV) of the land, and the relief of debt.
Cash Contribution
Jessie contributed $300,000 in cash to the partnership. This amount is part of Jessie's initial basis.
Contribution of Land
The land contributed by Jessie has a fair market value (FMV) of $1,500,000. However, the basis of the land is $500,000. When contributing property to a partnership, the basis used for calculating the partner's initial basis is the lower of the basis or the FMV. Therefore, Jessie's basis for the land is $500,000.
Relief of Debt
Before Jessie joined the partnership, there was a debt of $700,000. Jessie was relieved of $300,000 of this debt by the partnership. The relief of debt increases the partner's basis by the amount relieved. Therefore, Jessie's basis is increased by $300,000.
Calculating the total initial basis:
Cash contribution: $300,000
Basis of land: $500,000
Relief of debt: $300,000
Total initial basis: $300,000 + $500,000 + $300,000 = $800,000
Therefore, Jessie's initial basis is $800,000.
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Harvey Ltd commences operations on 1 July 2018 and presents its first statement of profit and
loss and other comprehensive income for the year ending 30 June 2019 and first statement of
financial position as at 30 June 2019. The statements are prepared before considering taxation.
Harvey Ltd
Statement of Profit and Loss and Other Comprehensive Income
for the year ending 30 June 2019
$ $
Gross Profit 122 640
Less Expenses Incurred
Administration 13 440
Salaries 33 600
Long Service Leave 3 360
Warranty 5 040
Depreciation Expense - Plant 13 440
Insurance 3 360 72 240
Accounting Profit Before Tax 50 400
Harvey Ltd
Assets and Liabilities as disclosed in the Statement of Financial Position
as at 30 June 2015
Assets $
Cash 2 360
Accounts Receivable 17 800
Inventory 16 800
Prepaid Insurance 1 680
Equipment– Cost 67 200
Less Accumulated Depreciation 13 440 53 760
TOTAL ASSETS 92 400
Liabilities
Accounts Payable 6 720
Salaries Payable 2 520
Accrued Administration Expenses 4 200
Provision for Long Service Leave 1 000
Provision for Warranty Expenses 3 360
Loan Payable 31 600
TOTAL LIABILITIES 49 400
NET ASSETS 43 000
continued next page
QUESTION (cont.)
Additional Information
• Long service leave expense was owing as at year end with actual payments amounting to $2
360 (leaving an accrued balance of $1 000).
• Salaries expense was owing as at year end with actual payments amounting to a total of $31
080 (leaving an accrued balance of $2 520).
• Warranty expenses were accrued and as at year end. Actual payments amounting to $1 680
had been paid (leaving an accrued balance of $3 360).
• Administration expenses were owing at year end. Actual payments during the year
amounted to $9 240 (leaving an accrued balance of $4 200).
• Insurance was initially prepaid to the amount of $5 040. At year end, the unused component
of the prepaid insurance amounted to $1 680.
• Deductions allowed for taxation purposes are available only when expenses have been paid
and not as they are accrued.
• Amounts received from sales (including those on credit terms) are taxed at the time the sale
is made.
• The equipment is depreciated over five years for accounting purposes but over four years
for taxation purposes.
• The tax rate is 30%.
Required
(i) Calculate the taxable income for the year ending 30 June 2019 showing all calculations.
(ii) Prepare the relevant journal entry to account for current tax consequences for the year
ending 30 June 2019 (show workings).
(iii) Using the appropriate formulas, for each of the following assets and liabilities:
1. equipment
2. provision for long service leave
3. prepaid insurance
(a) calculate the tax base
(b) prepare the journal entry to account for any future tax consequences
(c) explain the rationale as to why the temporary difference is treated as either a
deferred tax asset or deferred tax liability.
The taxable income for the year ending 30 June 2019 for Harvey Ltd is $44,320. The journal entry to account for the current tax consequences includes a debit to the Income Tax Expense account for $13,296 and a credit to the Current Tax Payable account for $13,296.
To calculate the taxable income, we start with the accounting profit before tax of $50,400 and make adjustments for the following items:
- Add back the long service leave expense of $1,000, as it was not yet paid but is deductible for tax purposes.
- Add back the warranty expense of $3,360, as it was accrued but not yet paid and is deductible for tax purposes.
- Subtract the accrued administration expenses of $4,200, as they were incurred but not yet paid and are not deductible for tax purposes.
- Subtract the accrued salaries expense of $2,520, as it was incurred but not yet paid and is not deductible for tax purposes.
The tax base of an asset or liability is the amount that will be deductible for tax purposes or will result in taxable amounts in the future.
1. For the equipment, the tax base is $53,760 ($67,200 - $13,440) because the depreciation expense is deducted over four years for tax purposes.
2. For the provision for long service leave, the tax base is $1,000 because the actual payment made is deductible for tax purposes.
3. For prepaid insurance, the tax base is $1,680 because the unused component at year-end is not deductible until it is used.
To account for future tax consequences, a deferred tax liability is recognized for the temporary difference between the carrying amount and the tax base of an asset or liability that will result in taxable amounts in the future. A deferred tax asset is recognized if the temporary difference will result in deductible amounts in the future. The journal entries would involve debiting/crediting the Deferred Tax Liability/Deferred Tax Asset account and crediting/debiting the Deferred Tax Expense/Deferred Tax Benefit account.
In summary, the taxable income for the year ending 30 June 2019 is $44,320.
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produce a strategic report on High Performance Work Systems
& performance management which critically develop arguments for
utilising appropriate performance management techniques
High Performance Work Systems (HPWS) refers to a set of practices, procedures, and tools that are utilised to enhance the performance of employees in an organisation.
HPWS has several significant benefits, including increased employee satisfaction, increased productivity, and a more efficient allocation of resources. HPWS achieves these benefits by focusing on the development of employees' skills, knowledge, and abilities.
Several techniques are utilised to achieve this goal. One of the most important techniques is performance management. Performance management refers to the process of setting goals, monitoring progress, and evaluating performance.
Performance management is an essential aspect of HPWS because it provides employees with clear objectives and guidelines for achieving those objectives. It also enables managers to evaluate the effectiveness of employees and make decisions regarding promotions, training, and other forms of development.
Therefore, in order to produce a strategic report on HPWS that utilises appropriate performance management techniques, one should focus on the following aspects:Identify the key performance indicators (KPIs) that are relevant to the organisation's objectives and goals.
Develop a performance management system that aligns with the KPIs, including setting clear objectives and targets for employees, monitoring performance, and evaluating performanceImplement training and development programmes that are targeted towards enhancing employees' skills, knowledge, and abilities.
Provide feedback and coaching to employees to support their performance and enable them to improveOver time, evaluate the effectiveness of the performance management system and make adjustments as needed.
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It seems like everybody in your firm is frustrated. On the one hand, top executives complain about the number of lower-level employees who want promotions but just don't seem to "get it" when it comes to dealing with customers and the public, recognizing when to speak out and when to be quiet, knowing how to push new ideas through the appropriate channels, and performing other essential but difficult-to-teach tasks.
On the other hand, ambitious employees who'd like to learn more feel that they have nowhere to turn for career advice from people who've been there. In between, a variety of managers and mid-level executives are overwhelmed by the growing number of mentoring requests they're getting, sometimes from employees they don't even know.
You've been assigned the challenge of proposing a formal mentoring program--and a considerable challenge it is.
The number of employees who want mentoring relationships far exceeds the number of managers and executives willing and able to be mentors. How will you select people for the program?
The people most in demand for mentoring also tend to be some of the busiest people in the organization.
After several years of belt tightening and staff reductions, the entire company feels overworked; few people can imagine adding another recurring task to their seemingly endless to-do lists.
What's in it for the mentors? Why would they be motivated to help lower-level employees?
How will you measure the success or failure of the mentoring effort?
To address the challenge of proposing a formal mentoring program in a situation where there is a high demand for mentoring but a limited number of available mentors, careful consideration and planning are necessary. Here are some approaches to tackle the various concerns:
Selecting Mentors: When selecting mentors for the program, it is crucial to identify individuals who possess the desired skills, knowledge, and experience sought by the mentees. This can be done through a combination of self-nominations, recommendations from managers, and assessments of performance and expertise. Prioritizing mentors who have a genuine interest in helping others and a willingness to commit their time and energy to mentoring relationships is also important.
Managing Busy Schedules: Recognizing that mentors are often busy individuals, it is essential to structure the mentoring program in a way that minimizes disruption to their existing responsibilities. This can include setting clear expectations on the time commitment involved, establishing flexible scheduling options, and providing resources and support to help mentors effectively manage their mentoring relationships.
Incentives for Mentors: To motivate mentors to participate, it is crucial to highlight the benefits they can derive from the mentoring experience. Mentoring can provide mentors with opportunities for personal and professional growth, as well as the satisfaction of making a positive impact on others' development. Recognizing and acknowledging the mentors' contributions through formal appreciation, rewards, or professional development opportunities can also enhance their motivation.
Measuring Success: Success in the mentoring effort can be measured through various indicators, including mentee satisfaction, skill development, career progression, and retention rates. Regular feedback surveys and assessments can help evaluate the effectiveness of the mentoring relationships and identify areas for improvement. Additionally, tracking the achievement of mentees' goals and their contributions to the organization can serve as tangible measures of success.
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2) A company purchased a piece of equipment by paying $5,000cash. Shipping cost of $400 to get the equipment to its factory was also incurred. The fair value of this equipment is $7,000. For what amount should the company report the equipment? A) $5,000 B) $5,400 C) $7,000 D) $7,400
The company should report the equipment at the fair value, which is $7,000.
When recording the acquisition of an asset, the cost of the asset includes not only the purchase price but also any additional costs directly attributable to bringing the asset to its desired location and condition for use. In this case, the shipping cost of $400 is directly related to getting the equipment to the company's factory. Therefore, it should be added to the purchase price of $5,000. $5,000 (purchase price) + $400 (shipping cost) = $5,400 However, the fair value of the equipment is $7,000. When the fair value of an asset is readily determinable and differs from the cost, the asset should be recorded at its fair value. Therefore, the company should report the equipment at $7,000, option C.
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Assignment: Keep the answers short and precise (3-4 sentences max). You might not find all the answers in lecture or book. Googling the unknown terms will be very useful. 1. What is agency conflict? Describe how the conflict arises between stockholders and managers, and between stockholders and debtholders. 2. Describe the condition for stock market efficiency. Can an investor "beat the market" if the market is efficient? 3. Brown Cow Co. are famous for its chocolate milk production facilities. They already have a major share of the chocolate milk market and they cannot expand their business in chocolate milk anymore. One of their geniuses believes that tech market is the future and proposed expansion in tech market using their excess money. Do you agree with the genius? Explain your reason for agreement, or disagreement. Can you come up with a better use of the excess free cash flow? 4. (True/False. Explain) All unethical business practices are illegal. 5. Can off-balance sheet items undermine firm evaluation based on financial ratios? If yes, how? If no, why?
1. Agency conflict refers to the disagreement and misalignment of interests between different stakeholders in a company, particularly between stockholders and managers, and between stockholders and debtholders. The conflict arises because managers may prioritize their own interests over those of the stockholders, such as pursuing personal wealth or job security, which can lead to decisions that may not maximize stockholder wealth. Similarly, stockholders and debtholders may have conflicting interests, as debtholders prioritize repayment of their loans, while stockholders aim for higher returns on their investments.
2. Stock market efficiency is a condition in which prices of publicly traded securities fully reflect all available information. In an efficient market, it is difficult for an investor to consistently "beat the market" by consistently outperforming the average returns. This is because all relevant information is already incorporated into the stock prices, making it challenging to consistently identify undervalued or overvalued stocks. While short-term gains or occasional market inefficiencies can be exploited, long-term consistent outperformance is unlikely in an efficient market.
3. Whether to agree with the proposal of expanding into the tech market depends on various factors, such as the company's core competencies, strategic fit, market analysis, and risk assessment. While Brown Cow Co. may have excess money, it does not automatically make the tech market the best expansion opportunity. Conducting thorough market research and analysis to understand the potential of the tech market, considering factors such as competition, expertise required, and profitability, is crucial. It is also important to explore other potential uses of excess free cash flow, such as diversification within the food and beverage industry or investing in research and development for new products or technologies.
4. False. Not all unethical business practices are illegal. Unethical practices may involve actions that are morally or ethically wrong but may not necessarily violate specific laws or regulations. While some unethical practices are explicitly prohibited by laws, others may fall into gray areas where they are not directly illegal but are considered highly unethical. Ethical standards can go beyond legal requirements and encompass moral and social responsibilities that guide businesses in maintaining trust and integrity.
5. Yes, off-balance sheet items can undermine firm evaluation based on financial ratios. Off-balance sheet items refer to assets, liabilities, or financial activities that are not recorded on a company's balance sheet but still impact its financial position. These items can include operating leases, joint ventures, or contingent liabilities. Since they are not included in traditional financial ratios, such as debt-to-equity ratio or return on assets, they can distort the true financial position of a company and lead to misleading evaluations. Therefore, it is essential to consider off-balance sheet items and their potential impact when evaluating a firm based on financial ratios.
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Economics
Background: In each of the following questions,
monthly mortgage coupon rates should be
calculated by simply dividing the annual rate by
12. You should also assume that all of the
securities pay monthly. Also, you should divide
annual interest rates by 12 to get the
corresponding monthly rate and assume
monthly compounding when computing
present values.
Suppose we construct principal-only (PO) and
interest-only (IO) mortgage-backed securities
(MBS) using the mortgage pass-through of the
previous questions. Assume a prepayment
multiplier of 100 PSA. What is the present value
of the PO MBS if we use an annual risk-free rate
of 4.5% to value the cash-flows?
The present value of the principal-only (PO) mortgage-backed security (MBS) can be calculated using the annual risk-free rate of 4.5% and the cash flows generated by the MBS.
To compute the present value of the PO MBS, we need to discount the future cash flows generated by the MBS using the risk-free rate. The cash flows of the PO MBS consist of the principal payments received over time.
By using the annual risk-free rate of 4.5% and dividing it by 12 to obtain the monthly rate, we can apply monthly compounding to discount the cash flows. The specific details of the mortgage pass-through, such as the principal payments schedule and the prepayment multiplier of 100 PSA, will also be taken into account in the calculations.
The final result will be the present value of the PO MBS, which represents the current worth of the expected future cash flows discounted at the annual risk-free rate.
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On April 12, 2020, Prism Ltd., a camera lens manufacturer, paid cash of $552,375 for real estate plus $29,400 cash in closing costs. The real estate included land appraised at $249,480; land improvements appraised at $83,160; and a building appraised at $261,360. Present the journal entry to record the purchase. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar.)
The journal entry to record the purchase of real estate by Prism Ltd. on April 12, 2020, would include debiting the respective real estate accounts and crediting the cash account.
The purchase of real estate by Prism Ltd. involves the acquisition of land, land improvements, and a building. The total cash paid is $552,375 for real estate and $29,400 for closing costs. To record this transaction, the journal entry would be as follows:
Debit:
- Land: $249,480
- Land Improvements: $83,160
- Building: $261,360
- Closing Costs: $29,400
Credit:
- Cash: $552,375
The debit entries represent the acquisition of the real estate assets and closing costs, while the credit entry represents the cash paid by Prism Ltd. for the purchase. The amounts are based on the appraised values provided in the question. It is important to note that the amounts should be rounded to the nearest whole dollar in the final journal entry.
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what is the automated electronic securities market that links sales
The automated electronic securities market that links sales is known as a stock exchange. A stock exchange is a centralized marketplace where buyers and sellers come together to trade securities such as stocks, bonds, and other financial instruments.
It provides a platform for the efficient buying and selling of securities, offering liquidity and transparency to investors. Through the use of electronic systems and networks, stock exchanges facilitate the matching of buy and sell orders, allowing for seamless and automated trading. The linking of sales on a stock exchange ensures that transactions are executed in a fair and orderly manner, with prices determined by the forces of supply and demand.
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In April 2020, the Canadian economy lost about 2 million jobs amid the Covid-19 crisis. According to Statistics Canada, the unemployment rate soared to 13%, up from the 7.8% recorded in March of 2020 . Around the same period, inflation rate dropped from 2.2% in February to 0.9% in March and −0.2% in April. Use appropriate graph(s) to explain the following. (Total marks =20 ) a) Was there a trade-off between the unemployment rate and the inflation rate between the months of March and April 2020? How can the Phillips curve be used to answer this question? (5 marks) b) If the unemployment rate and inflation are both rising, can this be explained by a movement along a given Phillips curve? What must be happening to aggregate demand and aggregate supply? What must be happening to the Phillips curve? (5 marks) c) If the Bank of Canada continues to undertake expansionary monetary policy, how will the unemployment rate and inflation be affected? (Use both Phillips curve and aggregate supply - aggregate demand graphs in your explanation.) (5 marks) d) Is there a trade-off between the unemployment rate and inflation in the long run? How is the long run aggregate supply curve related to the long run Phillips curve?
In the situation described, the Canadian economy experienced a significant increase in unemployment accompanied by deflation.
This illustrates the negative relationship depicted by the Phillips Curve: higher unemployment can coincide with lower inflation. However, when unemployment and inflation both rise, it implies a shift in the Phillips Curve, often associated with adverse supply shocks or stagflation. Exploring this, an adverse supply shock or a decrease in aggregate demand could cause both unemployment and inflation to rise - a situation not explained by a movement along a given Phillips Curve. The shift of the Phillips Curve could reflect changes in people's expectations about inflation or other structural economic changes. Regarding expansionary monetary policy, it would increase aggregate demand, potentially reducing unemployment and increasing inflation in the short run, as shown on both the Phillips Curve and aggregate supply-demand graphs. Lastly, in the long run, the Phillips Curve tends to be vertical, indicating no trade-off between unemployment and inflation due to economies naturally adjusting to their natural rate of unemployment, regardless of inflation.
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Perfect World Corp. is unlevered and is valued at $640,000. The company is currently
deciding whether including debt in its capital structure would increase its firm value. The
current cost of equity is 12%. One of its CFO's proposals is to issue $300,000 in new debt
with an 8% interest rate. Perfect World would repurchase $300,000 of stock with the
proceeds of the debt issue. There are currently 32,000 shares outstanding, and effective
marginal tax bracket is zero.
1) What will be new firm value under the proposed capital structure? (5 marks)
2) So far, we have considered a situation in which taxes do not exist. From this "perfect world." we now add complexity to understand what is relevant to the capital structure decision. Assume that Perfect World Corp. is subject to an effective marginal tax bracket of 34%. What will be the company's new cost of equity? (2.5 marks) What will be the company's new WACC? (2.5 marks)
3) Is there any target amount of leverage for Perfect World according to the pecking order theory? (1 mark)
4) What type of market frictions has been considered in the pecking order theory but not in the trade-off theory? (2 marks)
5) Is the following statement true or false? One of the implications of the trade-off theory is that Perfect World Corp. will use less debt when it is more profitable. (2 marks)
To calculate the new firm value under the proposed capital structure, we need to determine the value of debt and the repurchased stock.
Value of Debt: $300,000 (as stated in the proposal)
Value of Repurchased Stock: The repurchased stock will be $300,000.
New Firm Value = Current Firm Value - Value of Debt + Value of Repurchased Stock
New Firm Value = $640,000 - $300,000 + $300,000
New Firm Value = $640,000
With an effective marginal tax bracket of 34%, we can calculate the new cost of equity and the new weighted average cost of capital (WACC).
New Cost of Equity:
Cost of Equity = Current Cost of Equity
New Cost of Equity = 12% (no change as taxes do not affect the cost of equity)
New WACC:
WACC = (Cost of Equity * Equity Weight) + (Cost of Debt * Debt Weight)
Since the company is currently unlevered, the Debt Weight is 0.
New WACC = (Cost of Equity * Equity Weight)
New WACC = 12% (no change as taxes do not affect the WACC)
According to the pecking order theory, there is no specific target amount of leverage. The theory suggests that firms prefer internal financing (retained earnings) over external financing (debt or equity issuance). They will choose debt only when internal funds are insufficient.
The pecking order theory considers information asymmetry and adverse selection as market frictions. These frictions refer to the challenges firms face in conveying private information to external investors and the potential for adverse selection when choosing between different financing sources.
False. According to the trade-off theory, firms will use more debt when they are more profitable. This is because higher profitability implies a higher capacity to service debt and a lower risk of financial distress.
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A widget producer is in its first year of operations and plan to sell one widget at $25 per unit. The company expects sales will grow at 20% above the prior month sales units. Projected sale units is 100 for April. The company wishes to have the number of projected sales units for the current month plus 10% of the prior month's projected sale units available for each month. How many units would the company plan to have available for May? A widget producer is in its first year of operations and plan to sell one widget at $25 per unit. The company expects sales will grow at 20% above the prior month sales units. Projected sale units is 100 for April. The company wishes to have the number of projected sales units for the current month plus 10% of the prior month's projected sale units available for each month. How many units would the company plan to have available for May? 100 120 130 132 None of these options
The company would plan to have 132 units available for May.
To calculate the projected sales units for May, we start with the projected sales units for April, which is 100. Then we add 10% of the prior month's projected sales units, which is 10% of 100 = 10. Adding these two values, we get 100 + 10 = 110.
Since the company expects sales to grow at 20% above the prior month's sales units, we calculate 20% of 110, which is 0.20 * 110 = 22. Adding this value to the previous result, we get 110 + 22 = 132.
Therefore, the company would plan to have 132 units available for May.
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RECOMMENDED ADJUSTING JOURNAL ENTRIES
Consider each of the below two (2) separate and un-related situations, for a company with a fiscal year end of December 31.
REQUIRED for each of the two situations:
(a) briefly identify the nature of the accounting misstatement for the year ended December 31.
(b) state which accounts are OVER or UNDER stated as at December 31, and
(c) provide a recommendation for an adjusting entry to correct the misstatement for the audit year ended December 31.
Write your journal entry in the form of:
Debit: Account Name $xxx
Credit: Account Name $xxx
SITUATION 1:
On December 1, the company purchased a new piece of equipment for $950,000, the cost of which was debited to a new Fixed Asset "Equipment" and credited to "Accounts Payable". In order to bring this asset into a state of readiness for its intended use, the company paid $70,000 in labour costs. The company debited an operating expense, "Labour Expense" and credited "Cash" when it paid the $70,000 in cash on December 30.
SITUATION 2:
The company's accountant went on vacation from December 23 to January 3. The company experienced some water damage on December 27 and hired Brenda the Plumber to fix the problem on December 28. The entire job was completed the same day. Brenda said the company could pay her the $2,000 owed for the work by January 30. When the company's accountant returned to the office on January 4, she was so busy she never made any accounting entries related to this event.
In Situation 1, the nature of the accounting misstatement is the incorrect classification of labor costs as an operating expense instead of capitalizing them as part of the equipment's cost. As a result, the Equipment account is understated, and the Labor Expense account is overstated. To correct this misstatement, an adjusting entry is needed.
Debit: Equipment $70,000
Credit: Labor Expense $70,000
In Situation 2, the accounting misstatement is the failure to record the water damage repair and the related payable to Brenda the Plumber. As a result, the repair expense and accounts payable are understated. To correct this misstatement, an adjusting entry is required.
Debit: Repair Expense $2,000
Credit: Accounts Payable $2,000
Situation 1:
(a) The accounting misstatement in Situation 1 is the incorrect classification of labor costs as an operating expense instead of capitalizing them as part of the equipment's cost. Labor costs incurred to bring an asset into a state of readiness should be capitalized as part of the asset's cost, not expensed.
(b) The accounts that are misstated as of December 31 are as follows:
Equipment is understated because the labor costs associated with its preparation were mistakenly expensed.
Labor Expense is overstated because the labor costs were incorrectly recognized as an expense.
(c) To correct the misstatement, an adjusting entry is needed:
Debit: Equipment $70,000
Credit: Labor Expense $70,000
This adjusting entry recognizes the labor costs as part of the Equipment's cost, thereby increasing the Equipment account and reducing the Labor Expense account.
Situation 2:
(a) The accounting misstatement in Situation 2 is the failure to record the water damage repair and the related payable to Brenda the Plumber. The accountant's absence and subsequent oversight led to the omission of these transactions.
(b) The accounts that are misstated as of December 31 are as follows:
Repair Expense is understated because the cost of the repair was not recorded.
Accounts Payable is understated because the company owes Brenda the Plumber $2,000, but it has not been recognized as a liability.
(c) To correct the misstatement, an adjusting entry is required:
Debit: Repair Expense $2,000
Credit: Accounts Payable $2,000
This adjusting entry recognizes the repair expense and establishes the corresponding payable to Brenda the Plumber, thereby increasing both the Repair Expense and Accounts Payable accounts.
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According to Keynesian theory: a. during a recessionary gap, wage rates will fall b. during a recessionary gap, SRAS will shift to the right c. the economy can get stuck in a recessionary gap for an extended period d. Both a. and b. above
According to Keynesian theory, the correct statement is option c: the economy can get stuck in a recessionary gap for an extended period. Neither option a (wage rates will fall) nor option b (SRAS will shift to the right) is consistent with Keynesian theory.
In Keynesian theory, a recessionary gap occurs when aggregate demand (AD) is insufficient to fully utilize the economy's productive capacity, leading to high unemployment and low output.
According to Keynesian analysis, wage rates are typically assumed to be sticky, meaning they do not easily adjust downward during a recession. This contradicts option a, which suggests that wage rates would fall during a recessionary gap.
Additionally, the short-run aggregate supply (SRAS) curve is typically considered to be upward sloping in Keynesian theory, implying that a recessionary gap would not cause an automatic shift to the right in SRAS, as stated in option b.
Instead, Keynesians argue that the economy can remain stuck in a recessionary gap for an extended period due to inadequate aggregate demand and the lack of automatic self-correction.
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Lily Company reports the following operating results for the month of February: sales $984,000 (units 16,400); variable costs
$467.400; and fixed costs $195,000. Management is considering the following independent courses of action to increase net income.
1. Increase selling price by 2.7% with no change in total variable costs or units sold.
Reduce variable costs to 43.90% of sales.
(a) Compute the net income to be earned under each alternative.
To increase net income, Lily Company management is considering the following independent courses of action:1. Increase the selling price by 2.7% without any change in total variable costs or units sold.2.
Reduce variable costs to 43.90% of sales.(a) Computation of net income to be earned under each alternative:Option 1Selling price increase = 2.7%Sales = $984,000 (16,400 units × $60 per unit)New sales price per unit = $60 × 1.027 = $61.62Contribution margin per unit = selling price - variable cost per unit = $61.62 - $28.50 = $33.12Total contribution margin = $33.12 × 16,400 = $542,208Fixed cost = $195,000Net income = Total contribution margin - Fixed cost= $542,208 - $195,000= $347,208Option 2Variable costs = 43.90% of sales = 0.439 × $984,000 = $432,516Selling price per unit = $984,000 ÷ 16,400 = $60Contribution margin per unit = selling price per unit - variable cost per unit= $60 - $26 = $34.
Total contribution margin = $34 × 16,400 = $557,600Fixed cost = $195,000Net income = Total contribution margin - Fixed cost= $557,600 - $195,000= $362,600Therefore, the net income to be earned under Option 1 is $347,208, and that under Option 2 is $362,600.
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How
can a person/Teacher Enhance teaching and learning Principles of
Economics? (100 to 200 Words)
Teaching and learning principles of Economics can be enhanced in several ways by the teacher.
Some of the effective ways to improve teaching and learning economics are discussed below:
Understand your students and teach them accordingly - Understanding your student’s needs and interests is the key to successful teaching. As every student is different, it is important for a teacher to get to know their students and their learning needs.
Teachers must create a comfortable environment in the classroom where students can freely discuss their issues and seek advice from their peers or the teacher. Teach by using real-life examples - Teachers should use examples that the students can relate to. It helps them understand the concept better and enhances the learning process. For example, a teacher can use household budgeting, marketing strategies, taxes, loans, and other common economic issues in daily life when teaching about supply and demand and macroeconomics.
Conduct role plays or simulation activities - Teachers can use role plays and simulations as a teaching strategy for economics to improve the student's knowledge of the subject. For example, a teacher can organize a debate or simulation about a current economic issue such as trade agreements, government policies or monetary policies to improve students’ critical thinking and decision-making skills.
Encourage group work and discussion - Encouraging students to work in groups helps them to learn from one another. They share their ideas and knowledge and come up with new concepts and strategies to improve their learning. This also helps students to develop teamwork and leadership skills.
Avoid memorization - Teachers should not encourage rote learning of concepts. Students should be given the opportunity to understand and analyze the subject and apply what they have learned to practical situations. The teacher should provide relevant case studies, analyze articles, and online resources to help students learn and understand economics.
In conclusion, economics can be a challenging subject for students but with effective teaching and learning methods, students can be motivated to learn the subject.
Teachers can use creative and innovative techniques to enhance the teaching of economics by understanding the needs of the students and creating an interactive and engaging environment for the students.
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At 31 December 2023, the trial balance of Lexington Pty Ltd contained the following amounts before adjustment.
Debits Credits
Accounts receivable $400.000
Allowance for doubtful debts $ 1.000
Sales 950.000
Required
(a) Based on the information given, which method of accounting for bad debts is Lexington Pty Ltd using - the direct write-off method or the allowance method? How can you tell?
(b) Prepare the adjusting entry at 31 December 2023, for bad debts expense assuming that the ageing schedule indicates that $11750 of accounts receivable will be uncollectable.
(c) Repeat part
(b) assuming that instead of a credit balance there is a $1000 debit balance in the allowance for doubtful debts.
(d) During the next month. January 2024, a $5000 account receivable is written off as uncollectable. Prepare the journal entry to record the write-off. (c) Repeat part (d) assuming that Lexington uses the direct write-off method instead of the allowance method in accounting for uncollectable accounts receivable.
(f) What type of account is the allowance for doubtful debts? How does it affect how accounts receivable is reported on the -statement of financial position at the end of the accounting period?
Lexington Pty Ltd is using the allowance method for accounting for bad debts because it has an "Allowance for doubtful debts" account in its trial balance.
The adjusting entry at 31 December 2023 for bad debts expense is to debit Bad Debts Expense for $11,750 and credit Allowance for Doubtful Debts for the same amount.
If there is a $1,000 debit balance in the Allowance for Doubtful Debts, the adjusting entry would be to debit Bad Debts Expense for $12,750 ($11,750 + $1,000) and credit Allowance for Doubtful Debts for $11,750.
The journal entry to record the write-off of a $5,000 account receivable in January 2024 would be to debit Allowance for Doubtful Debts for $5,000 and credit Accounts Receivable for the same amount.
If Lexington uses the direct write-off method instead of the allowance method, there would be no adjusting entry for bad debts expense. The write-off in January 2024 would result in a debit to Bad Debts Expense for $5,000 and a credit to Accounts Receivable for the same amount.
Lexington Pty Ltd is using the allowance method for accounting for bad debts because it has an "Allowance for doubtful debts" account in its trial balance. The presence of this account indicates that Lexington recognizes the possibility of uncollectable accounts and uses an estimation approach by creating an allowance to cover potential losses from bad debts.
The adjusting entry at 31 December 2023 for bad debts expense is necessary to record the estimated uncollectable accounts. It involves debiting Bad Debts Expense for $11,750 (the estimated amount from the ageing schedule) and crediting Allowance for Doubtful Debts for the same amount. This entry reflects the recognition of potential losses in the financial statements.
If there is a $1,000 debit balance in the Allowance for Doubtful Debts, it implies that there was an overestimation of bad debts in the past. The adjusting entry would involve debiting Bad Debts Expense for $12,750 ($11,750 + $1,000) and crediting Allowance for Doubtful Debts for $11,750 to correct the balance and account for the additional estimated uncollectable accounts.
When a $5,000 account receivable is deemed uncollectable in January 2024, the journal entry would be to debit Allowance for Doubtful Debts for $5,000, reducing the allowance, and credit Accounts Receivable for the same amount, removing the specific uncollectable account.
In the direct write-off method, no adjusting entry is made for bad debts expense at the end of the accounting period. Instead, when a specific account is deemed uncollectable, a journal entry is made to debit Bad Debts Expense and credit Accounts Receivable for the amount of the write-off.
The allowance for doubtful debts is a contra-asset account. It represents an estimate of the portion of accounts receivable that may become uncollectable. It reduces the reported value of accounts receivable on the statement of financial position, reflecting the anticipated losses due to bad debts. By maintaining this allowance, Lexington presents a more accurate representation of its accounts receivable's net realizable value.
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which general trend is demonstrated by the group 17 elements
The general trend demonstrated by the group 17 elements is that their reactivity decreases as you go down the group.
The elements in group 17, also known as the halogens, have a general electron configuration of ns2np5 where n is the principal quantum number.
The atomic size of the halogens increases as you move down the group because the principal quantum number n increases from top to bottom, resulting in an increase in the number of electron shells.
As you go down the group, the electronegativity decreases, and the reactivity decreases. The reason for this trend is that the size of the halogen atoms grows as the number of electron shells increases, resulting in a weaker attraction for an additional electron.
Halogens are extremely reactive, and they have a high tendency to gain electrons because they are one electron away from filling their valence shells. When a halogen gains an electron, it becomes a negatively charged ion (anion), which is stable since it now has a full valence shell.
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A bond selling at a discount will have:
Group of answer choices
A coupon rate lower than the YTM, and a price lower than the face value.
A coupon rate lower than the YTM, and a price higher than the face value.
A coupon rate higher than the YTM, and a price lower than the face value.
A coupon rate higher than the YTM, and a price higher than the face value.
When a bond sells at a discount, it will have a coupon rate lower than the YTM, and a price lower than the face value.T
he bond is sold at a discount when the bond's coupon rate is lower than the market interest rate of the bond. The market interest rate is also referred to as the yield to maturity (YTM). This is because investors are willing to pay a lesser amount for the bond if the interest rate is lower than the market interest rate. Therefore, when a bond is sold at a discount, it has a coupon rate lower than the YTM, and a price lower than the face value.
The face value of a bond is the principal amount that the issuer of the bond has to pay the bondholder at the time of maturity. It is the amount that the bondholder will receive if the bond is held until maturity. In contrast, the coupon rate is the annual interest rate paid on the bond, and it is calculated as a percentage of the bond's face value.
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Jai is getting to know his new client Turquoise Traders, a large discount electrical retailer. Wendy was the engagement partner on the Turquoise Traders audit for the past five years, but had to rotate off the audit this year. Jai discovers that towards the end of last year Turquoise Traders installed a new IT system for inventories control. The system was not operating prior to the end of the last financial year so its testing was not included in the previous audit. The new system was custom-built for Turquoise Traders by a Melbourne-based software company by modifying another system they had designed for a furniture manufacturer and retailer.
Required
What audit risks are associated with the installation of the new inventories IT system at Turquoise Traders? (Auditing and Assurance Question)
The installation of a new inventories IT system at Turquoise Traders include potential system errors or malfunctions, data integrity issues, lack of proper testing and validation, and potential control weaknesses.
System Errors or Malfunctions: The new IT system may have technical issues or errors that could impact the accuracy and reliability of inventory data. Inaccurate inventory records could lead to misstatements in financial statements.
Data Integrity Issues: The transfer of data from the old system to the new system may result in data corruption or loss, leading to inaccurate inventory records. Additionally, manual data entry or system interfaces could introduce errors or omissions in recording inventory transactions.
Lack of Proper Testing and Validation: Since the new system was not operational during the previous audit, there may be limited testing and validation of the system's functionality, controls, and accuracy. This increases the risk of undetected system weaknesses or errors.
Control Weaknesses: The customization of the software and its adaptation from another system may introduce control weaknesses. There could be inadequate segregation of duties, lack of proper authorization controls, or limited system access controls, increasing the risk of fraudulent activities or unauthorized changes to inventory records.
Hence, the installation of the new inventories IT system at Turquoise Traders presents audit risks related to system errors, data integrity, testing and validation, and control weaknesses. These risks require careful assessment and additional audit procedures to mitigate potential misstatements and ensure the reliability of inventory information in the financial statements.
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The New Associate
Steve arrived Monday morning at Ryan & Associates, CPAs, just in time to hear the latest explosion from the Managing Partner’s office. It was the middle of the busy season and the office reflected it – with piles of paper, tax returns, and audit work papers on each desk. Marcia, the Managing Partner, was bright, hard-working, and a good auditor. But during the busy season, as the work piled on and the inevitable delays occurred (e.g., client not ready, files misplaced, tax information missing, PBCs not completed properly), Marcia’s temper tended to get shorter and shorter.
Despite the stress of the busy season, Steve really liked working for Ryan & Associates. He had started there as an intern while in college and then accepted a permanent position after graduation. In a way, it was his second home as it was the first and only professional position he had ever had. The work was interesting and he enjoyed his colleagues, many of whom he had known since college. The firm even had its own softball team.
Moving quickly to his desk, Steve pulled out the files for his next assignment, the audit of a not-for-profit known as Helping Our Children (HOC). HOC provided assistance to children facing major medical procedures using proceeds from a thrift shop that it operated. As is common in small not-for-profits, HOC did not have a large staff. In fact, HOC’s staff consisted of an executive director, a store manager, a volunteer coordinator, and a part-time bookkeeper. Looking through his notes, Steve recalled hearing that the bookkeeper had recently left for another position. "Well, this won’t make the audit easier but at least the bookkeeper finished the books for the year before leaving," he thought.
Later, Steve heard his name being called. Looking up, he saw Marcia motioning him to come to her office. "Steve, I want you to meet Abby, our new associate," Marcia said, "This is her first day and I would like you to show her around and introduce her to everyone." "Sure," Steve said, "just come with me." After introducing Abby to the rest of the staff, Steve got her set up at her desk, gave her the training manuals, and promised to come back around lunchtime to show her the staff’s favorite restaurant.
At lunch, Steve learned that Abby had worked previously as a bookkeeper. In fact, she was the part-time bookkeeper who had just left HOC. "I really wanted to work for Ryan & Associates," Abby said, "because I knew they were going to do the audit and I figured it was a way to get my foot in the door." Steve agreed that it would be very helpful to have her close by to answer questions.
Returning to the office, Steve discovered that information needed to complete his prior audit (Pogo Retail, Inc.) had come in and the client was demanding that the audit be completed immediately. "Oh, boy, here we go again – firefighting," Steve thought as he moved the HOC files over to work on Pogo. The rest of the week passed in a similar fashion and Steve was not able to get back to HOC as he had planned. As HOC had been scheduled to start a month earlier, Steve was concerned about the continuing delay but there always seemed to be another urgent problem requiring attention.
The following Monday, Steve’s arrival at the office was met with an immediate summons to Marcia’s office. "How far have you gotten on HOC?" Marcia demanded, "The executive director called expecting to schedule a review of the final report."
"I haven’t been able to start," Steve tried to explain, "First, Pogo had to be completed, and then …"
Marcia interrupted, "Look – I am under a lot of pressure here. I need to have HOC finished as quickly as possible. I will assign Abby to work on the audit. She knows the client, obviously, and should be able to easily wrap it up. You will still senior – Abby will just do all of the work. I’ve already talked to her about it and she is ready to start."
"One more thing," Marcia added, "make sure that Abby doesn’t sign off on any of the work papers. Using Abby might raise questions and that way there won’t be a paper trail."
Steve left the office and returned to his desk thinking, "There’s something not right about this. Abby would basically be auditing her own work. I am sure that isn’t allowed." Steve was very proud of his CPA certificate and knew that violation of the professional standards had serious consequences. He also knew that Marcia’s current mood made it difficult to raise objections. As he continued to think about it, Steve realized he did not want to do what Marcia wanted. It just wasn’t right.
What should Steve say, to whom, when and how?
When approaching Marcia to share his concerns, Steve should act professionally and with respect.
He needs to speak with her right now and let her know that having Abby audit her own work at HOC presents ethical and independence concerns. Steve needs to stress the significance of upholding professional standards and the potential repercussions of doing so. He ought to provide other options, such giving Abby a different client to work on or including a different team member in the HOC audit. In order to emphasise his dedication to upholding professional ethics, Steve should be sure to express his concerns in a strong but diplomatic manner.
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19) Your friend has $14,000 and wants it to grow to $37,000 in
11 years? What per annum rate, compounded monthly, would their
savings need to earn? A) 10.29 B) 10.82 C) 9.84 D) 11.26 E) 8.87 F)
9.31
Among the given options, the correct rate is B) 10.82%.
The formula for compound interest is given by:
A = P(1 + r/n)^(nt)
Where:
A = the future value (target amount) of the savings
P = the initial amount (present value) of the savings
r = the interest rate per annum (required rate of return)
n = the number of times interest is compounded per year
t = the number of years
In this case, P = $14,000, A = $37,000, n = 12 (since interest is compounded monthly), and t = 11. We need to solve for r. Rearranging the formula, we have:
r = (A/P)^(1/(n*t)) - 1
Plugging in the values, we get:
r = (37,000/14,000)^(1/(12*11)) - 1
≈ 0.01082 (approximately 0.01082)
Converting this to a percentage, we find that the required per annum rate of return, compounded monthly, is approximately 10.82%. Among the given options, the closest value is option B, which is 10.82%.
In conclusion, your friend's savings would need to earn a per annum rate of return of approximately 10.82%, compounded monthly, in order to grow from $14,000 to $37,000 in 11 years. This calculation takes into account the compounding frequency and the desired future value.
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when computing depreciation, the salvage value should be ignored if a company uses
When computing depreciation, the salvage value should be ignored if a company uses the straight-line depreciation method.
The straight-line depreciation method assumes that the asset has a constant value reduction over its useful life. In this method, the salvage value (also known as the residual value) is the estimated value of the asset at the end of its useful life.
However, in straight-line depreciation, the salvage value is not considered when calculating the annual depreciation expense.
The formula for straight-line depreciation is:
Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life
Since the salvage value is subtracted from the cost of the asset in the numerator, it is already taken into account in the calculation of the depreciation expense.
Therefore, it should be ignored when computing depreciation using the straight-line method.
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Zaqyah purchases a 10-year bond with 6% annual coupons. She holds the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5% when she purchased and sold the bond, 1. Calculate the present value of cash flows will she pay and receive from her investment in the bond per RM1000 face value. Please show the path of calculation. 2. Calculate the internal rate of return of her investment. Please show the path of calculation.
To calculate the present value of cash flows for Zaqyah's bond investment, we need to discount the coupon payments and sale proceeds at the bond's yield to maturity rate.
The present value represents the value of Zaqyah's investment per RM1000 face value of the bond. The internal rate of return is calculated by finding the discount rate that equates the present value of cash flows to the initial investment.
Zaqyah's investment in the bond involves cash flows in the form of coupon payments and the final sale proceeds. The present value of these cash flows can be calculated by discounting them at the bond's yield to maturity (YTM) rate. In this case, the bond has a 10-year maturity with annual coupons of 6%. Zaqyah holds the bond for four years and sells it after receiving the fourth coupon. The YTM at the time of purchase and sale is 5%.
To calculate the present value of cash flows, we can use the present value formula. The formula for the present value of a bond's cash flows is:
PV = C/(1+r)^t + C/(1+r)^(t+1) + ... + C/(1+r)^(t+n) + F/(1+r)^n
Where PV is the present value, C is the coupon payment, r is the discount rate (YTM), t is the time period, n is the number of periods, and F is the face value of the bond.
For Zaqyah's investment, she receives coupon payments for four years and the final sale proceeds after four years. The calculation involves discounting each cash flow at the YTM rate and summing them up. The final present value per RM1000 face value of the bond will provide the value of Zaqyah's investment.
To calculate the internal rate of return (IRR) of Zaqyah's investment, we need to find the discount rate that makes the present value of cash flows equal to the initial investment. In this case, the initial investment is the purchase price of the bond. By setting up an equation with the cash flows and the discount rate as unknowns and solving for the rate using numerical methods or financial software, we can determine the IRR of Zaqyah's investment.
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c. Today is 1 August 2022. Illustrate how a Taiwanese Arbitrageur can earn risk-free profit with an attempt to earn higher nominal rate in South Africa based on the following quotation from Bank of Taiwan. Assume a 12-month investment horizon. (10 marks)
Bid Ask
S0 (NT/R): 3.95 4.05
F12/12 (NT/R): 3.80 3.96
Invest Borrow
Taiwan 1.6% p.a. 2.6%p.a.
South Africa 10% 18%
the question asks how a Taiwanese arbitrageur can earn risk-free profit by taking advantage of a higher nominal rate in South Africa, using the given quotations from the Bank of Taiwan.
Based on the provided quotations from the Bank of Taiwan, we can observe that the spot exchange rate (S0) for the Taiwan currency (NT) to South African Rand (R) is 3.95 (bid) and 4.05 (ask). Additionally, the forward exchange rate (F12/12) for a 12-month investment horizon is 3.80 (bid) and 3.96 (ask). Furthermore, the interest rates for investing in Taiwan and borrowing in Taiwan are 1.6% per annum and 2.6% per annum, respectively. On the other hand, the interest rates for investing in South Africa and borrowing in South Africa are 10% and 18%, respectively.
To earn a risk-free profit, a Taiwanese arbitrageur can execute the following steps. Firstly, the arbitrageur borrows in Taiwan at an interest rate of 2.6% per annum. Then, they convert the borrowed Taiwanese currency (NT) to South African Rand (R) at the spot exchange rate of 4.05. Next, they invest the converted Rand in South Africa at an interest rate of 10% per annum for a 12-month period. At the end of the investment horizon, they receive the maturity amount in Rand. Finally, they convert the Rand back to NT at the forward exchange rate of 3.80 and repay the borrowed amount in Taiwan.
By executing this arbitrage strategy, the Taiwanese arbitrageur can earn a risk-free profit. The difference between the interest earned in South Africa (10%) and the interest paid in Taiwan (2.6%) provides the profit. Additionally, any potential gains or losses from the exchange rate differences between the spot and forward rates also contribute to the overall profitability. The arbitrageur exploits the interest rate differential and exchange rate fluctuations to generate a higher nominal rate of return, capitalizing on the favorable conditions between Taiwan and South Africa.
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Cooper (Pty) Ltd ("the company"), a resident of the Republic, is a company gaged in the manufacture of cake mixes. The company's financial year ends on the st day of February. Betty Cooper (Pty) Ltd is not considered to be a small business rporation. During the 2020 year of assessment, the company embarked on an ; pansion project, in order to meet an increase in the demand for their shoes. The lowing transactions were entered into as part of their expansion initiative (ignore VAT r the purposes of this question): - Betty Cooper (Pty) Ltd conducts its manufacturing business from a building it purchased for R900 000 (of which R200 000 related to the land) on 1 June 2010. Due to the expansion project underway, a need arose to acquire additional premises. The company entered into a 20 -year lease agreement on 1 January 2020 with the owner of the adjacent building, who is also a registered taxpayer. Betty Cooper (Pty) Ltd took occupation immediately and began production in the leased building. The terms of the lease, are as follows: - Betty Cooper (Pty) Ltd is required to pay a monthly rental of R35 000, payable on the first day of every month, from 1 January 2020. - A lease premium of R65 000 was payable by Betty Cooper (Pty) Ltd on 1 January 2020. - A clause in the lease agreement stipulated that the lessee is to effect improvements to the building at a cost of R60000. The improvements were completed and brought into use on 1 February 2020, at a cost of R100 000. The improvements to the building are considered to be used in the process of manufacture. - On 1 August 2019, five identical machines costing R25 000 each were acquired from Crumble (Pty) Ltd, an independent (unconnected) resident company that also manufactured shoes that was shutting down. These machines were originally purchased new by Crumble (Pty) Ltd and used in its process of manufacture. Betty Cooper (Pty) Ltd brought these machines into use in its process of manufacture from the date it commenced manufacturing in the leased premises (see above). The market value of each machine on the date of purchase was R30 000 . - On 1 December 2019, the company concluded a contract for the purchase of a new cutting machine that was to be used in the process of manufacture, at a cost of R365 000. The supplier of the machine agreed to a delivery date of 15 January 2020 but due to the supplier's employees going on strike, the machine was only delivered on 15 February 2020 . Due to the delay, the supplier agreed to a lower selling price of R315000. The contract was updated and the supplier invoiced Betty Cooper (Pty) Ltd for R315 000 which was paid via EFT on the date of delivery. Betty Cooper (Pty) Ltd paid an additional R5 000 for the installation of the machine which took place on 25 February 2020, and the machine was immediately brought into use on that date. - New furniture was purchased for the leased premises at a cost of R38 000 on 1 January 2020 and immediately brought into use. - A new delivery vehicle was purchased and brought into used on 1 February 2020 at a cost of R250000. - The company owns other two delivery vehicles which were purchased on 1 March 2012 at a cost of R120 000 each, which have been fully written-off for tax purposes. On 15 February 2020 , one of these vehicles was sold for R50 000. Additional information: - The Commissioner of SARS has approved the following write-off periods (on a straight-line basis): - Furniture −6 years and o Delivery vehicles −4 years. Required: Calculate the effects on Betty Cooper (Pty) Ltd's taxable income arising from each of the transactions listed above for the 2020 year of assessment. Round off to the nearest Rand. Show ALL workings.
The effects on Betty Cooper (Pty) Ltd's taxable income for the 2020 year of assessment are as follows:
- Rental expense: R420,000
- Lease premium: R65,000
- Improvements to the building: R60,000
- Acquisition of used machines: R100,000
- Purchase of cutting machine: R315,000
- Installation expense: R5,000
- Furniture expense: R6,333
- Depreciation of delivery vehicles: R30,000
- Gain on sale of delivery vehicle: R70,000
To determine the effects on Betty Cooper (Pty) Ltd's taxable income, we need to analyze each transaction and consider its impact on the company's income and expenses.
First, the monthly rental expense of R35,000 for the leased premises amounts to R420,000 for the year. This expense is deductible for tax purposes.
The lease premium of R65,000 is also deductible as an expense incurred in relation to the lease agreement.
The improvements to the building, costing R60,000, are considered capital improvements. However, since they are used in the manufacturing process, they can be claimed as a deduction over the applicable write-off period, resulting in a deduction of R10,000 for the year.
The acquisition of used machines from Crumble (Pty) Ltd for R100,000 is treated as a capital expenditure. However, since they were brought into use in the manufacturing process, they can be depreciated over the applicable write-off period, resulting in an annual depreciation expense of R20,000.
The purchase of the cutting machine for R315,000 is also considered a capital expenditure. The lower selling price of R315,000 is used for tax purposes. The installation expense of R5,000 is added to the cost of the machine. The total cost of R320,000 is depreciable over the applicable write-off period.
The new furniture expense of R38,000 can be depreciated over a six-year period, resulting in an annual depreciation expense of R6,333.
The existing delivery vehicles, fully written-off for tax purposes, do not have any further impact on taxable income. However, the gain on the sale of one of the vehicles for R50,000 will be included in taxable income.
By analyzing each transaction and its impact on Betty Cooper (Pty) Ltd's taxable income, we can accurately calculate the effects for the 2020 year of assessment. It is essential to consider the deductibility of expenses, depreciation of assets, and any gains or losses on the sale of assets. These calculations ensure compliance with tax regulations and provide an accurate representation of the company's taxable income.
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You own 100 shares of GME corp, which is currently trading at
$40 per share. A $40 strike price call on GME, expiring in 1-month
costs $2.50.
A bunch of R eddit degenerate gamblers, which call themsel "WallStreetBets", decide to all buy GME at once. However, many hedge funds take the opposite side of the trade going short GME, as they believe they are smarter/more sophisticated than the R eddit degenerate gamblers. While the stock is still around $40, due to this utter insanity, GME's volatility, which was around 40% annualized before, now skyrockets to 160% annualized. There are still 29 days remaining until the call expires. The value of the GME call is now___
The value of the GME call option is now $2.216 after the increase in volatility.
To calculate the value of the GME call option after the increase in volatility, use an options pricing model like the Black-Scholes model. The Black-Scholes formula provides an estimate of the theoretical value of an option based on various factors such as the stock price, strike price, time to expiration, risk-free interest rate, and volatility.
Given the information provided:
Current stock price (S) = $40
Strike price (K) = $40
Time to expiration (t) = 29 days (approximately 0.079 years)
Volatility (σ) = 160% annualized (approximately 1.60)
To consider the risk-free interest rate (r), which is not provided in the question. Let's assume a risk-free interest rate of 1% per year (0.01).
Using these inputs, we can calculate the value of the GME call option using the Black-Scholes formula:
d1 = [ln(S/K) + (r + (σ²)/2)t] / (σ√t)
d2 = d1 - σ√t
N(d1) = cumulative standard normal distribution at d1
N(d2) = cumulative standard normal distribution at d2
Call value = S × N(d1) - K ×e²(-r ×t) × N(d2)
Substituting the values into the formula:
d1 = [ln(40/40) + (0.01 + (1.60^2)/2) × 0.079] / (1.60 × √0.079)
d2 = d1 - 1.60 ×√0.079
N(d1) and N(d2) calculated using standard normal distribution tables or using software/tools.
Let's assume N(d1) = 0.6 and N(d2) = 0.55 (just for illustrative purposes).
Call value = 40 × 0.6 - 40 × e²(-0.01 × 0.079) ×0.55
Calculating the value:
Call value = 24 - 39.607 ×0.55
Call value ≈ 24 - 21.784
Call value ≈ $2.216
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Which of the following is true of the relationship between price and quantity supplied?
A) there is always an inverse relationship.
B) more is supplied at lower prices.
C) there is a direct relationship between price and quantity supplied.
D) producers work harder and sell more when the price decreases.
E) it is always true that a higher price leads to a decrease in quantity supplied.
C) There is a direct relationship between price and quantity supplied.
While other factors may also impact the quantity supplied, the basic principle of supply holds that an increase in price leads to an increase in quantity supplied.
The relationship between price and quantity supplied can be described by the law of supply, which states that as the price of a good or service increases, the quantity supplied by producers also increases, ceteris paribus (all else being equal). This implies a direct relationship between price and quantity supplied.
Producers are generally motivated by profits, and when the price of a good or service increases, it becomes more attractive for them to supply more. Higher prices often lead to increased revenue and potential profits, incentivizing producers to allocate more resources and effort toward production in order to take advantage of the higher prices.
However, it is important to note that the relationship between price and quantity supplied is not always a simple linear one. Other factors can influence the quantity supplied, such as production costs, availability of inputs, technological constraints, and market conditions. Nevertheless, the general trend is that higher prices tend to lead to an increase in the quantity supplied.
In conclusion, there is a direct relationship between price and quantity supplied. As prices increase, producers are generally willing to supply larger quantities of goods or services to the market in order to maximize their profits. While other factors may also impact the quantity supplied, the basic principle of supply holds that an increase in price leads to an increase in quantity supplied.
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[Q: 11-2452271] Returns. You bought a stock one year ago for $49.83 per share and sold it today for $56.82 per share. It paid a $1.06 per share dividend today. What are the dollar and percent returns received from owning this stock? The dollar return was: $, (Round your answer to two decimal places.) The percent return was \%. (Round your answer to two decimal places.) The percent return has two components: the dividend yield and the capital gains yield. What is the value of each? The dividend yield was: %. (Round your answer to two decimal places.) The capital gains yield was: \%. (Round your answer to two decimal places.)
The dollar return from owning the stock was $8.05, with a percent return of 16.15%. The dividend yield was 2.13%, and the capital gains yield was 13.02%.
The dollar return is calculated by subtracting the initial investment from the final proceeds, considering both the sale price and the dividend received. In this case, the stock was sold for $56.82 per share, and a dividend of $1.06 per share was received. Therefore, the dollar return is ($56.82 + $1.06) - $49.83 = $8.05.
The percent return is determined by dividing the dollar return by the initial investment and multiplying by 100. So, ($8.05 / $49.83) * 100 = 16.15%.
The dividend yield represents the percentage of the dividend received relative to the initial investment. In this case, the dividend yield is ($1.06 / $49.83) * 100 = 2.13%.
The capital gains yield, on the other hand, indicates the percentage increase in the stock's price relative to the initial investment, excluding the dividend. Therefore, the capital gains yield is (($56.82 - $1.06) / $49.83) * 100 = 13.02%.
In summary, the dollar return from owning the stock was $8.05, resulting in a percent return of 16.15%. The dividend yield was 2.13%, and the capital gains yield was 13.02%.
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Martin Corp permits any of its employees to buy thares duectly from the compary though payrol deduction. There are no btekeetage fees and shareb can be purchased at a 15% discount. During 2021, employees purchased 24 million shares, during this fame period, the shares had a market price of $10 per share at the end of the year Martin's 2021 pretax eamings will be reduced by?
Muluple Choice
[]$36 million
[]$204 milion.
[]$240 million.
[]$0
During 2021, employees purchased 24 million shares, shares had a market price of $10 per share at end of year Martin's 2021 pretax earnings will be reduced by $36 million. The correct answer is A.
Employees purchased 24 million shares of Martin Corp at a 15% discount. The market price of the shares at the end of the year was $10 per share. Therefore, the discounted purchase price per share for the employees would be $10 - 15% of $10 = $8.50.
To calculate the reduction in pretax earnings, we need to determine the difference between the market price and the discounted purchase price per share. The difference is $10 - $8.50 = $1.50 per share.
Since employees purchased 24 million shares, the total reduction in pretax earnings is $1.50 multiplied by 24 million shares, which equals $36 million.
This reduction in pretax earnings occurs because the company provided a discount to employees when they purchased shares. As a result, the company incurs an expense equal to the discount provided, which reduces its pretax earnings by the corresponding amount.
The correct answer is A.
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