Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the...

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Solutions

Expert Solution

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the...

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty. On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares....

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit...

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $20,000 and fixed selling and administrative expense is $29,500. Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income...

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit...

Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units...

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to...

Head-First Company now sells both bicycle helmets and motorcycle helmets. Next year, Head- First expects to produce total revenue of $585,000 and incur total variable cost of $372,000. Total fixed cost is expected to be $60,000. Required: 1. Calculate the break-even point in sales dollars for Head-First. Round the contribution margin ratio to four decimal places and sales to the nearest dollar. 2. Check your answer by preparing a contribution margin income statement. Required: 1. Calculate the break-even point in...

Python Programming Question Bicycle shop. A bicycle shop sells bikes and helmets. Some people already own...

Python Programming Question Bicycle shop. A bicycle shop sells bikes and helmets. Some people already own helmets, so on average the shop sells three helmets for every five bicycles. Helmets cost $50 and bikes cost $250. Write a program that prompts for the number of bikes that the shop expects to sell over the next month and outputs the total amount of expected revenue. You should not be using eval() at all; use int() or float() instead when called for.

Deshi Industries plans to manufacture gas stoves and the following information is applicable: Estimated sales for...

Deshi Industries plans to manufacture gas stoves and the following information is applicable: Estimated sales for the year 3 000 units at R 450 each Estimated costs for the year: Variable costs R320 per unit Factory overheads (all fixed) R80 000 Administrative expenses (all fixed) R30 000 1.1 Calculate the: > Total operating profit for the estimated figures. > Break-even quantity > Break-even value > Margin of safety in units. > Target sales...

The following are costs related to the marketing and manufacture of novelty football helmets, primarily used...

The following are costs related to the marketing and manufacture of novelty football helmets, primarily used to sell nachos at NFL games: Manufacturing costs: Direct Materials $.50 Direct Labour .40 Variable manufacturing overhead .30 Fixed manufacturing overhead .50 Marketing costs: Variable .50 Fixed .20 The above costs relate to the 100,000 helmet production level. Required: Assume each situation below is independent. 1. Assume that at the end of the year 15,000 units of the helmets are left in inventory. What...

Giro Inc. manufactures and sells bicycle safety helmets. Price and cost data for the product follows:...

Giro Inc. manufactures and sells bicycle safety helmets. Price and cost data for the product follows: Selling price per unit $25.00 Variable costs per unit: Direct Materials 10.50 Direct Labour 5.00 Manufacturing overhead 3.00 Selling expenses 1.30 Total variable cost per unit $19.80 Annual total fixed costs: Manufacturing overhead $192,000 Selling and administrative 276,000 Total fixed costs $468,000 Forecasted annual sales volume in units 120,000 Required: Calculate Giro’s margin of safety in...

Head-Gear Company produces helmets for bicycle racing. Currently, Head-Gear charges a price of $230 per helmet....

Head-Gear Company produces helmets for bicycle racing. Currently, Head-Gear charges a price of $230 per helmet. Variable costs are $92.00 per helmet, and fixed costs are $1,158,000. The tax rate is 25 percent. Last year, 14,000 helmets were sold. Required: 1. What is Head-Gear's net income for last year? $ 2. What is Head-Gear's break-even revenue? In your computations, round the contribution margin ratio to two decimal places. $ 3. Suppose Head-Gear wants to earn before-tax operating income of $843,000....

1. Blue Company specializes in manufacturing a unique model of bicycle helmet. The model is well...

1. Blue Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has enough orders to keep the factory production at 10,000 helmets per month (80% of its full capacity). Blue’s monthly manufacturing cost and other expense data are as follows. Rent on factory equipment $12,000 Insurance on factory building 1,650 Raw materials used (plastics, polystyrene, etc.) 84,900 Utility costs for factory 930 Supplies for general office 350 Wages for...

Subjects