Honey Ltd, a New Zealand company, has sold US$150,000 of products to the US, to receive cash exactly one month later. At the time of sale, the spot rate of exchange is US$0.55, that is, NZ$1 buys US$0.55. Honey Ltd wishes to hedge the currency risk associated with this transaction, so on the day of the sale, the company buys a put option – that is, it buys the right to sell US$150,000 at an exercise price of US$0.57 one month later. The option costs $3,000 in cash. The relevant information is shown in the table below:
| spot rate | Option value | |
| At the date of sale | 0.55 | $3,000 |
| One month late (i.e., at settlement) | 0.62 |
Required:
(i) In accordance with NZ IFRS 9, show the journal entry to record the sale and any additional journal entries that are required through to (and including) settlement.
(ii) What is the most that Honey Ltd can lose overall in this hedging activity (regardless of what the exchange rate is at settlement date)? Show all workings.
In: Accounting
Dividends Per Share Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000 shares of cumulative preferred 1% stock, $120 par, and 50,000 shares of $15 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $12,000; second year, $34,000; third year, $46,200; fourth year, $76,500. Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0". 1st Year 2nd Year 3rd Year 4th Year Preferred stock (dividend per share) $ $ $ $ Common stock (dividend per share) $ $ $ $
In: Accounting
Suppose that the 2017 actual and 2018 projected financial statements for Cramner Corp. are initially as shown in the following tables. In these tables, sales are projected to rise 35 percent in the coming year, and the components of the income statement and balance sheet that are expected to increase at the same 35 percent rate as sales are indicated with an italics font. Assuming that Cramner Corp. wants to cover the AFN with 45 percent equity, 25 percent long-term debt, and the remainder from notes payable, what amount of additional funds will they need to raise if debt carries an 8 percent interest rate?
| Income Statement | ||||||
| 2017 Actual |
2018 Forecast | |||||
| Sales | $ | 3,000,000 | $ | 4,050,000 | ||
| Costs except depreciation | 1,000,000 | 1,350,000 | ||||
| Depreciation | 1,500,000 | 2,025,000 | ||||
| EBIT | $ | 500,000 | $ | 675,000 | ||
| Less Interest | 80,000 | 126,772 | ||||
| EBT | $ | 420,000 | $ | 548,228 | ||
| Taxes (40%) | 168,000 | 219,291 | ||||
| Net income | $ | 252,000 | $ | 328,937 | ||
| Common Dividends | $ | 180,000 | $ | 180,000 | ||
| Addition to Retained Earnings | $ | 72,000 | $ | 148,937 | ||
| Balance Sheet | ||||||
| 2017 Actual |
2018 Forecast |
|||||
| Assets | ||||||
| Cash | $ | 100,000 | $ | 135,000 | ||
| Accounts Receivable | 200,000 | 270,000 | ||||
| Inventories | 300,000 | 405,000 | ||||
| Total Current Assets | $ | 600,000 | $ | 810,000 | ||
| Net Plant and Equipment | 4,000,000 | 5,400,000 | ||||
| Total Assets | $ | 4,600,000 | $ | 6,210,000 | ||
| Liabilities and Equity | ||||||
| Accounts Payable | $ | 100,000 | $ | 135,000 | ||
| Notes Payable | 500,000 | 675,000 | ||||
| Accruals | 100,000 | 135,000 | ||||
| Total Current Liabilities | $ | 700,000 | $ | 945,000 | ||
| Long-term bonds | 500,000 | 675,000 | ||||
| Total Debt | $ | 1,200,000 | $ | 1,620,000 | ||
| Common Stock | $ | 3,000,000 | $ | 4,050,000 | ||
| Retained Earnings | 400,000 | 540,000 | ||||
| Total Common Equity | $ | 3,400,000 | $ | 4,590,000 | ||
| Total Liabilities and Equity | $ | 4,600,000 | $ | 6,210,000 | ||
In: Accounting
On December 31, 2019, the Income Statement section of the
worksheet is shown below. The balance of Ally Logan’s drawing
account is $32,000.
| INCOME STATEMENT COLUMNS | ||||||
| ACCOUNT NAME | DEBIT | CREDIT | ||||
| Income Summary | $ | 63,000 | $ | 69,000 | ||
| Sales | 250,000 | |||||
| Sales Returns and Allowances | 6,100 | |||||
| Interest Income | 760 | |||||
| Purchases | 87,000 | |||||
| Freight In | 3,900 | |||||
| Purchases Returns and Allowances | 2,900 | |||||
| Purchases Discounts | 3,500 | |||||
| Sales Salaries Expense | 53,000 | |||||
| Office Salaries Expense | 20,100 | |||||
| Office Supplies Expense | 860 | |||||
| Utilities Expense | 5,100 | |||||
| Payroll Taxes Expense | 2,700 | |||||
| Uncollectible Accounts Expense | 2,800 | |||||
| Depr. Expense - Office Equipment | 900 | |||||
| Totals | 245,460 | 326,160 | ||||
| Net Income | 80,700 | |||||
| $ | 326,160 | $ | 326,160 | |||
Prepare the closing entries that should be made in the general
journal.
Journal entry worksheet
Record entry to transfer sales, interest, purchases return and
allowances and purchase discounts to income summary.
Note: Enter debits before credits.
Date General Journal Debit
Credit
Dec 31, 2019
In: Accounting
Cost of new machine needed $150,000
Annual net cash inflows $40,000
Salvage value of the machine in 10 years .$20,000
Useful life of the machine 10 years
Required rate of return 10%
The company uses straight-line depreciation on all equipment.
a. What is the payback period for this machine? Ignore the impact of income taxes.
b. How is the payback period used in evaluating potential investments?
In: Accounting
Aztec Company sells its product for $160 per unit. Its actual
and budgeted sales follow.
| Units | Dollars | ||
| April (actual) | 4,000 | $ | 640,000 |
| May (actual) | 2,000 | 320,000 | |
| June (budgeted) | 4,500 | 720,000 | |
| July (budgeted) | 3,500 | 719,000 | |
| August (budgeted) | 4,100 | 656,000 | |
All sales are on credit. Recent experience shows that 26% of credit
sales is collected in the month of the sale, 44% in the month after
the sale, 29% in the second month after the sale, and 1% proves to
be uncollectible. The product’s purchase price is $110 per unit.
60% of purchases made in a month is paid in that month and the
other 40% is paid in the next month. The company has a policy to
maintain an ending monthly inventory of 23% of the next month’s
unit sales plus a safety stock of 100 units. The April 30 and May
31 actual inventory levels are consistent with this policy. Selling
and administrative expenses for the year are $1,728,000 and are
paid evenly throughout the year in cash. The company’s minimum cash
balance at month-end is $110,000. This minimum is maintained, if
necessary, by borrowing cash from the bank. If the balance exceeds
$110,000, the company repays as much of the loan as it can without
going below the minimum. This type of loan carries an annual 14%
interest rate. On May 31, the loan balance is $47,000, and the
company’s cash balance is $110,000.
Required:
1. Prepare a schedule that shows the computation
of cash collections of its credit sales (accounts receivable) in
each of the months of June and July.
2. Prepare a schedule that shows the computation
of budgeted ending inventories (in units) for April, May, June, and
July.
3. Prepare the merchandise purchases budget for
May, June, and July. Report calculations in units and then show the
dollar amount of purchases for each month.
4. Prepare a schedule showing the computation of
cash payments for product purchases for June and July.
5. Prepare a cash budget for June and July,
including any loan activity and interest expense. Compute the loan
balance at the end of each month.
In: Accounting
In: Accounting
Three years ago, Karen Suez and her brother-in-law Reece Jones opened Gigasales Department Store. For the first 2 years, business was good, but the following condensed income statement results for 2017 were disappointing.
GIGASALES DEPARTMENT STORE
Income Statement
For the Year Ended December 31, 2017
Net sales
$518,000
Cost of goods sold
414,400
Gross profit
103,600
Operating expenses
Selling expenses
$74,000
Administrative expenses
14,800
88,800
Net income
$14,800
Karen believes the problem lies in the relatively low gross profit rate of 20%. Reece believes the problem is that operating expenses are too high. Karen thinks the gross profit rate can be improved by making two changes. (1) Increase average selling prices by 15%; this increase is expected to lower sales volume so that total sales dollars will increase only 4%. (2) Buy merchandise in larger quantities and take all purchase discounts. These changes to purchasing practices are expected to increase the gross profit rate from its current rate of 20% to a new rate of 25%. Karen does not anticipate that these changes will have any effect on operating expenses.
Reece thinks expenses can be cut by making these two changes. (1) Cut 2018 sales salaries of $44,400 in half and give sales personnel a commission of 2% of net sales. (2) Reduce store deliveries to one day per week rather than twice a week; this change will reduce 2018 delivery expenses of $29,600 by 40%. Reece feels that these changes will not have any effect on net sales.
Karen and Reece come to you for help in deciding the best way to improve net income.
Answer the following.
In: Accounting
Cost Flow Relationships
The following information is available for the first year of operations of Creston Inc., a manufacturer of fabricating equipment:
| Sales | $909,300 |
| Gross profit | 245,500 |
| Indirect labor | 81,800 |
| Indirect materials | 33,600 |
| Other factory overhead | 15,500 |
| Materials purchased | 463,700 |
| Total manufacturing costs for the period | 1,003,900 |
| Materials inventory, end of period | 33,600 |
Using the above information, determine the following amounts:
| c. Direct labor cost | $ |
In: Accounting
|
Explain the compliance aspects of consolidated returns. |
In: Accounting
1) What is a quantity standard? What is a price standard?
2) Why are separate price and quantity variances computed?
3) Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency?
5) If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
7) "Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero." Discuss.
8) What effect, if any, would you expect poor-quality materials to have on direct labor variances?
In: Accounting
Tamarisk Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $1,100 per year for the first 5 years, $2,100 per year for the next 10 years, and $3,100 per year for the last 5 years. Following is each vendor’s sales package. Vendor A: $60,060 cash at time of delivery and 10 year-end payments of $18,850 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $9,500. Vendor B: Forty semiannual payments of $10,280 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge. Vendor C: Full cash price of $159,600 will be due upon delivery. Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Tamarisk’s cost of funds is 10%, and the machine will be purchased on January 1, compute the following:
In: Accounting
Vertical Analysis of Income Statement
Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:
| Current Year | Previous Year | |||
| Sales | $500,000 | $440,000 | ||
| Cost of goods sold | 340,000 | 277,200 | ||
| Selling expenses | 65,000 | 66,000 | ||
| Administrative expenses | 70,000 | 57,200 | ||
| Income tax expense | 10,000 | 17,600 | ||
a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.
| Innovation Quarter Inc. | ||||
| Comparative Income Statement | ||||
| For the Years Ended December 31 | ||||
| Current year Amount | Current year Percent | Previous year Amount | Previous year Percent | |
| Sales | $500,000 | % | $440,000 | % |
| Cost of goods sold | 340,000 | % | 277,200 | % |
| $ | % | $ | % | |
| Selling expenses | 65,000 | % | 66,000 | % |
| Administrative expenses | 70,000 | % | 57,200 | % |
| $ | % | $ | % | |
| % | % | |||
| Income tax expense | 10,000 | % | 17,600 | % |
| $ | % | $ | % | |
b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 2 percentage points.
In: Accounting
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.
Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:
The couple’s marginal tax rate is 24 percent.
Regardless of whether they buy or rent, the couple will itemize their deductions.
If they buy, the Jacobys would purchase and move into the home on January 1, 2018.
If they buy the home, the property taxes for the year are $3,800.
Disregard loan-related fees not mentioned above.
If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.
Assume that all unstated costs are equal between the buy and rent option.
Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)
a If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.
Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:
The couple’s marginal tax rate is 24 percent.
Regardless of whether they buy or rent, the couple will itemize their deductions.
If they buy, the Jacobys would purchase and move into the home on January 1, 2018.
If they buy the home, the property taxes for the year are $3,800.
Disregard loan-related fees not mentioned above.
If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.
Assume that all unstated costs are equal between the buy and rent option.
Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)
rev: 12_18_2018_QC_CS-151658
a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.
Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:
The couple’s marginal tax rate is 24 percent.
Regardless of whether they buy or rent, the couple will itemize their deductions.
If they buy, the Jacobys would purchase and move into the home on January 1, 2018.
If they buy the home, the property taxes for the year are $3,800.
Disregard loan-related fees not mentioned above.
If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.
Assume that all unstated costs are equal between the buy and rent option.
Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)
rev: 12_18_2018_QC_CS-151658
a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)
Derek and Meagan Jacoby recently graduated from State University and Derek accepted a job in business consulting while Meagan accepted a job in computer programming. Meagan inherited $36,000 from her grandfather who recently passed away. The couple is debating whether they should buy or rent a home. They located a rental home that meets their needs. The monthly rent is $2,450. They also found a three-bedroom home that would cost $136,000 to purchase. The Jacobys could use Meagan’s inheritance for a down payment on the home. Thus, they would need to borrow $100,000 to acquire the home. They have the option of paying two discount points to receive a fixed interest rate of 4.50 percent on the loan or paying no points and receiving a fixed interest rate of 5.70 percent for a 30-year fixed loan.
Though anything could happen, the couple expects to live in the home for no more than five years before relocating to a different region of the country. Derek and Meagan don’t have any school-related debt, so they will save the $36,000 if they don’t purchase a home. Also, consider the following information:
The couple’s marginal tax rate is 24 percent.
Regardless of whether they buy or rent, the couple will itemize their deductions.
If they buy, the Jacobys would purchase and move into the home on January 1, 2018.
If they buy the home, the property taxes for the year are $3,800.
Disregard loan-related fees not mentioned above.
If the couple does not buy a home, they will put their money into their savings account where they earn 5 percent annual interest.
Assume that all unstated costs are equal between the buy and rent option.
Required: Help the Jacobys with their decisions by answering the following questions: (Leave no answer blank. Enter zero if applicable.)
a. If the Jacobys decide to rent the home, what is their after-tax cost of the rental for the first year (include income from the savings account in your analysis)? (Round your intermediate calculations to the nearest whole dollar amount.)
b. What is the approximate break-even point in
years for paying the points to receive a reduced interest rate? (To
simplify this computation, assume the Jacobys will make
interest-only payments, and ignore the time value of money.)
(Do not round intermediate calculations. Round your final
answer to 1 decimal place.)
c. What is the after-tax cost (in interest and
property taxes) of living in the home for 2018? Assume that the
Jacobys' interest rate is 5.70 percent, they do not pay discount
points, they make interest-only payments for the first year, and
the value of the home does not change during the year.
(Round your intermediate calculations to the nearest whole
dollar amount.)
d. Assume that on March 1, 2018, the Jacobys sold their home for $159,000, so that Derek and Meagan could accept job opportunities in a different state. The Jacobys used the sale proceeds to (1) pay off the $100,000 principal of the mortgage, (2) pay a $10,000 commission to their real estate broker, and (3) make a down payment on a new home in the different state. However, the new home cost only $75,000. Assume they make interest-only payments on the loan.
Required:
d1. What gain or loss do the Jacobys realize and recognize on the sale of their home?
d2. What amount of taxes must they pay on the gain, if any?
e. Assume the same facts as in part (d), except that the Jacobys sell their home for $124,500 and they pay a $7,500 commission. What effect does the sale have on their 2018 income tax liability? Recall that the Jacobys are subject to an ordinary marginal tax rate of 24 percent and assume that they do not have any other transactions involving capital assets in 2018.
In: Accounting
Trina’s Trinkets Inc. (Trina’s) is a corporation incorporated and headquartered in Orem, Utah. Trina’s sells more than 3,600 different types of small trinkets and gifts, primarily to the end consumer, but also to wholesalers.
Trina’s has operated in Utah for the past 15 years. The company made a strategic decision to target expansion of its sales into specific geographic regions outside of Utah as well. This helps encourage word-of-mouth advertising, which reduces the costs of general advertising expenses. To that end, Trina’s is now selling in several nearby states, including Arizona, Idaho, Montana, Washington and Wyoming. Trina’s plans to expand further throughout the western United States in the coming years.
The founder, Trina, comes from rural Utah and has worked to increase opportunities in rural areas by building her manufacturing and warehousing facilities in the city of Ephraim in Sanpete County, Utah. Since Trina’s established its operations in Ephraim, both the city and county have grown significantly and the area is now considered urban.
Trina’s uses catalogs, phone calls and sales calls to make sales, but does not yet sell online. Trina’s ships all goods from Ephraim, Utah, using a third-party carrier (e.g., UPS, FedEx).[1]Trina’s only sells non-food items and does not offer services.
To handle customer inquiries, Trina’s opened a small call center in rural Riverton, Wyoming, three years ago. The call center employs eight people who help take orders, solve customer issues and take care of phone solicitations from small businesses. Trina chose Wyoming for the call center because she has extended family in the area and wanted to provide work opportunities for them.
In 2017, Trina’s began a pilot program in which salespeople are sent to several states to try and increase sales at larger businesses that buy Trina’s products and then resell them. To date, Trina’s has sent salespeople to Utah, Montana and Washington. This pilot program appears to be successful. In the coming years, Trina’s hopes to expand the program to all of the states in which she currently sells products and then she plans to reach several new markets.
Margins are slim for this business, ranging from 5% to 15% of sales before state sales taxes are determined. The industry is extremely competitive and Trina’s faces competition from many online companies that are not required to pay state sales tax. Because of the high competition (which is different than most companies), Trina’s does not feel that it can increase prices to collect sales tax, and instead sales taxes come out of the margins.
Given the tight margins and relatively high costs to manufacture in the United States, Trina is considering moving some of her manufacturing to Mexico and then purchasing warehouse space in Arizona. She has also considered trying to sell her products through Amazon.com. She continues to consider how her operations can positively impact rural areas.
Trina’s has struggled to compute sales taxes correctly for each jurisdiction. Trina’s hired you, a tax advisor, to answer a variety of sales-tax-related questions and create a system (or tool) to compute sales taxes for the business. Additionally, Trina is interested to know how the potential operational changes she is considering would affect her sales tax collection obligations.
For purposes of this case, you can ignore sales tax issues related to the shipping costs.
In: Accounting