1. Research Questions:
   1. Mortgage-backed securities may have negative convexity which cushions the increase in price when interest rates decline. Explain the reason.
   2. Callable bonds may have negative convexity. Explain the reason.
   3. Positive convexity is said to be working in the investor’s favor. Explain the reason.
   4. What features of a bond affects its convexity? Explain clearly.
   5. What does “bond ladder” mean in the context of fixed-income portfolio management? What is the purpose of “bond laddering”?
   6. The practitioners also call duration as the “first derivative”. Why?

The following trial balance was prepared for Tile, Etc., Inc. on December 31, 2017, after the closing entries were posted:

Tile, Etc. had the following transactions in 2018:

1. Purchased merchandise on account for $580,000.
2. Sold merchandise that cost $420,000 for $890,000 on account.
3. Sold for $245,000 cash merchandise that had cost $160,000.
4. Sold merchandise for $190,000 to credit card customers. The merchandise had cost $96,000. The credit card company charges a 4 percent fee.
5. Collected $620,000 cash from accounts receivable.
6. Paid $610,000 cash on accounts payable.
7. Paid $145,000 cash for selling and administrative expenses.
8. Collected cash for the full amount due from the credit card company (see item 4).
9. Loaned $60,000 to J. Parks. The note had an 8 percent interest rate and a one-year term to maturity.
10. Wrote off $7,500 of accounts as uncollectible.
11. Made the following adjusting entries:
    (a) Recorded uncollectible accounts expense estimated at 1 percent of sales on account.
    (b) Recorded seven months of accrued interest on the note at December 31, 2018 (see item 9).

Required

1. Organize the transaction data in accounts under an accounting equation.
2. Prepare an income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for 2018.

(Show Work and Calculations)

On January 2, 2011 N&M Company issued $1 Million of 5-year, 3% bonds for $940,000, their interest payable semiannually every June 30, and Deember 31. N&M uses stright line amortization, having judged the difference under the effective interest method to be immaterial.

On February 28, 2015, N&M retired $100,000 of the bonds at 98.

Prepare the journal entries N&M should have made on each of the following dates:

1. February 28, 2015. 2. June 30, 2015.

 Chicken FishSelling price per taco$3.40 $5.50 Variable cost per taco 1.70  2.75 Expected sales (tacos) 195,000  291,000 

A company is considering a capital investment proposal where two alternatives involving differing degrees of mechanisation, are being considered. Both investments would have a five-year life. In Option 1 new machinery would cost £278,000, and in Option 2 £805,000. Anticipated scrap values after 5 years are £28,000 and £150,000 respectively. Depreciation is provided on a straight line basis. Option 1 would generate annual cash inflows of £100,000, and Option 2, £250,000. The cost of capital is 15%. Required:

Calculate for each option:

(i) the payback period

(ii) the accounting rate of return, based on average book value

(iii) the net present value

(iv) the internal rate of return.

Using the financial data for the sample of Healthcare companies in the table below, calculate the average Financial Leverage. AND TELL ME HOW TO DO THIS . THANKS

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: c. If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31?

Net revenues at an older manufacturing plant will be $2 million this year. The net revenue will decrease by 15% per year for 5 years, when the assembly plant will be closed (at the end of year 6). If the firm's interest rate is 10%, calculate the PW of the revenue stream. Use excel functions and a table.

The

Shell Hunter

is a​ take-out food store at a popular beach resort.

Samantha Jones​,

owner of the

Shell Hunter​,

is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as​ follows:

Natural

Cola

Lemonade

Punch

Orange Juice

Selling price per case

$18.50

$20.75

$28.10

$39.30

Variable cost per case

$14.75

$16.30

$20.50

$30.40

Cases sold per foot of shelf space per day

7

12

13

14

has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.

1.

Calculate the contribution margin per case of each type of drink.

2.

A coworker of

Jones​'s

recommends that she maximize the shelf space devoted to those drinks with the highest contribution margin per case. Do you agree with this​ recommendation? Explain briefly.

3.

What​ shelf-space allocation for the four drinks would you recommend for the

Shell Hunter​?

Show your calculations.

Suppose you owe $900 on your credit card and you decide to make no new purchases and to make the minimum monthly payment on the account. Assuming that the interest rate on your card is 2​% per month on the unpaid balance and that the minimum payment is 3​% of the total​ (balance plus​ interest), your balance after t months is given by ​B(t)=900​(0.9894t​).Find your balance at each of the given times. Complete parts​ (a) through​ (e) below.

​(a) six months

After six​ months, the balance is $

​(Round to the nearest cent as​ needed.)

​(b) one year​ (remember that t is in​ months)

After one​ year, the balance is $

​(Round to the nearest cent as​ needed.)

​(c) seven years

After seven years, the balance is $

​(Round to the nearest cent as​ needed.)

​(d) nine years

After nine ​years, the balance is $

​(Round to the nearest cent as​ needed.)

​(e) On the basis of your answers to parts ​(a)–​(d),

what advice would you give to your friends about minimum​ payments?

A.

The minimum payment maximizes the​ short-term cost and minimizes the​ long-term cost. It would be advisable to pay only the minimum monthly payment to decrease the​ short-term cost.

B.

The minimum payment minimizes the​ short-term cost and maximizes the​ long-term cost. It would be advisable to pay only the minimum monthly payment to decrease the​ short-term cost.

C.

The minimum payment minimizes the​ short-term cost and maximizes the​ long-term cost. It would be advisable to pay more than the minimum monthly payment when possible to decrease the overall cost.

D.

The minimum payment maximizes the​ short-term cost and minimizes the​ long-term cost. It would be advisable to pay more than the minimum monthly payment when possible to decrease the overall cost.

On January 1, 20X8, Liv Ltd. (LL), a Canadian company, acquired 90% of Marcus Co. (MC), a foreign company for FC 623,200. At the acquisition date, the carrying value of MC’s net assets equaled their fair value except for the equipment, which had a carrying value of FC 800,000 and a fair value of FC 880,000. At the acquisition date, MC’s equipment had a remaining useful life of 10 years. There was an FC 4,000 impairment of the goodwill which occurred evenly throughout 20X8.

Selected financial statements for LL and MC are presented below.

Liv Ltd.

Statement of Financial Position
As of December 31, 20X8

(in $ CDN)

Assets:
Noncurrent assets:
Plant and equipment, net 2,752,000
Investment in Marcus Co. 1,371,040
4,123,040

Current assets:

Inventory 1,376,000
Accounts receivable 700,000
Cash and cash equivalents 562,080

2,638,080
Total assets 6,761,120

Shareholders’ Equity:

Share capital 1,376,000
Retained earnings 2,601,520
3,977,520
Liabilities:
Noncurrent liabilities:

Notes payable 1,860,000

Current liabilities:

Accounts payable and accrued liabilities 923,600
Total liabilities 2,783,600
Total shareholders’ equity and liabilities 6,761,120

Liv Ltd.

Statement of Income

For the year ended December 31, 20X8

(in $ CDN)

Sales 16,472,000

Dividend income 180,080

16,652,080

Cost of sales 8,256,000
Other expenses* 7,124,000 15,380,000

Net income 1,272,080

*includes depreciation

LL declared and paid dividends of $928,000 CDN on December 31, 20X8.

Marcus Co.

Statement of Financial Position

(in FC)

Dec. 31, Jan. 1
20X8 20X8

Assets:

Noncurrent assets:

Equipment, net 720,000 800,000

Current assets:

Inventory 484,000 364,000

Accounts receivable 408,000 280,000

Cash 360,000 164,000

1,252,000 808,000

Total assets 1,972,000 1,608,000

Shareholders’ equity:

Share capital 400,000 400,000
Retained earnings 390,000 146,000

790,000 546,000

Liabilities:

Noncurrent liabilities:

Notes payable 640,000 640,000

Current liabilities:

Accounts payable 542,000 422,000

Total liabilities 1,182,000 1,062,000

Total shareholders’ equity and liabilities 1,972,000 1,608,000

Marcus Co.

Statement of Income

For the year ended December 31, 20X8

(in FC)

Sales 8,400,000
Cost of sales 5,304,000
Other expenses* 2,688,000 7,992,000

408,000

*includes depreciation

Marcus Co.

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 20X8

(in FC)

Retained earnings, January 1, 20X8 146,000
Net income 408,000

Dividends declared (164,000)

Retained earnings, December 31, 20X8 390,000

MC declared and paid FC164,000 in dividends on December 31, 20X8.

Selected Exchange Rates

January 1, 20X8 FC1 = $2.20 CDN
December 31, 20X8 FC1 = $2.44 CDN

Date when ending inventory was purchased FC1 = $2.38 CDN

Average rate for 20X8 FC1 = $2.32 CDN

1. Assume that LL is a private company and reports under ASPE. LL uses the equity method to report its investment in MC. LL’s functional currency is $CAD. Calculate LL’s Investment in Marcus Co.’s account at December 31, 20X8. There is no need to prepare financial statements.

The account balances appearing on the trial balance were taken from the general ledger of Ahmed's Copy Shop at October 31. Additional information for the month of October which has not yet been recorded in the accounts is as follows:

(a) A physical count of supplies indicates $300 on hand at October 31.

(b) The amount of insurance that expired in the month of October was $200.

(c) Depreciation on equipment for October was $400.

(d) Rent owed on the copy shop for the month of October was $600 but will not be paid until November.

Required:

(a) Prepare the adjusting entries required at October 31 for the transactions above.

(b) Prepare the adjusted trial balance for the month ended October 31.

The account balances appearing on the trial balance were taken from the general ledger of Ahmed's Copy Shop at October 31. Additional information for the month of October which has not yet been recorded in the accounts is as follows:

(a) A physical count of supplies indicates $300 on hand at October 31.

(b) The amount of insurance that expired in the month of October was $200.

(c) Depreciation on equipment for October was $400.

(d) Rent owed on the copy shop for the month of October was $600 but will not be paid until November.

Required:

(a) Prepare the adjusting entries required at October 31 for the transactions above.

(b) Prepare the adjusted trial balance for the month ended October 31.

Exercise: 2 The adjusted trial balance of Ahmed Company on December 31, 2017 includes the following accounts: Accumulated Depreciation, $6,000; Depreciation Expense, $2,000; Note Payable $7,500; Interest Expense $150; Utilities Expense, $300; Rent Expense, $500; Service Revenue, $19,600; Salaries Expense, $4,000; Supplies, $200; Supplies Expense, $1,200; Wages Payable, $600. Required: Prepare an income statement for the month of December.

Prepare journal entries to record the following transactions of Weatherford Teen Foundation, Inc. (WTFI), a nonprofit entity that provides counseling, training, and other programs for young people. WTFI accounts for all transactions in a single fund, recording them so as to distinguish between net assets with donor restrictions and net assets without donor restrictions as required for financial reporting purposes.

1. WTFI receives pledges of $150,000 to help finance its activities for the year. WTFI expects that it will ultimately receive 90% of these pledges in cash.
2. During the year, WTFI receives cash of $130,000 against the pledges and writes off $10,000 of the pledges as uncollectible.
3. WTFI incurs the following program expenses, financed by its unrestricted revenues:
   • Counseling programs, $40,000
   • Training programs, $50,000
4. WTFI has a contract with the county in which it is located to administer a youth recreation program. It incurs $20,000 of expenses under the program, and sends an invoice to the county for that amount.
5. Carole Burgess donates $5,000, stipulating that WTFI must use her gift to obtain the services of a well-known country singer for a special concert.
6. WTFI gives the concert referred to in e. WTFI pays $5,000 to the country singer, and charges the expense to Recreation programs.
7. David Bean, a local attorney, donates 10 hours of his time to WTFI drawing up legal contracts. Mr. Bean also donates 20 hours coaching softball for the youths. He normally charges $200 an hour for his legal services. WTFI would have hired an attorney and a coach to do this work if Mr. Bean had not volunteered his time.
8. Mary Catlett donates common stock to WTFI, stipulating that the stock must be used during WTFI’s next fiscal year for any programs WTFI wishes to undertake. At the time of the gift, the stock has a fair value of $10,000.
9. When WTFI closes its books at year-end, the stock gift from Ms. Catlett has a fair value of $11,000.

Miller Company’s contribution format income statement for the most recent month is shown below:

Miller Company’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (37,000 units) $ 185,000 $ 5.00 Variable expenses 74,000 2.00 Contribution margin 111,000 $ 3.00 Fixed expenses 44,000 Net operating income $ 67,000 Required: (Consider each case independently):

1. What is the revised net operating income if unit sales increase by 13%?

2. What is the revised net operating income if the selling price decreases by $1.20 per unit and the number of units sold increases by 18%?

3. What is the revised net operating income if the selling price increases by $1.20 per unit, fixed expenses increase by $7,000, and the number of units sold decreases by 4%?

4. What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 5%?