(i). You bought a call option on July 27, 2020 at the exercise price of $65. It expires on October 26, 2020. The stock currently sells for $66., while the call option sells for $6.
a) What is the intrinsic value of the call? What is the time premium paid for the call?
b) What will the value of this call be after expiration if the price of the stock is $99, $65, $99, and $80, respectively?
c) If the price of the stock rises to $80 at the expiration date of the call, what is the percentage increase in the value of the call? Does this example illustrate favorable leverage?
d) If an individual opens a covered call position on this stock, what is the net cost and what will the profit on the position be at the expiration of this position if the price of the stock is $49, $52, $59, $65, $66, $69, and $80, respectively?
e) If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $59, $66, and $80, respectively?
In: Finance
(i). You bought a call option on July 27, 2020 at the exercise price of $65. It expires on October 26, 2020. The stock currently sells for $66., while the call option sells for $6.
a) What is the intrinsic value of the call? What is the time premium paid for the call?
b) What will the value of this call be after expiration if the price of the stock is $99, $65, $99, and $80, respectively?
c) If the price of the stock rises to $80 at the expiration date of the call, what is the percentage increase in the value of the call? Does this example illustrate favorable leverage?
d) If an individual opens a covered call position on this stock, what is the net cost and what will the profit on the position be at the expiration of this position if the price of the stock is $49, $52, $59, $65, $66, $69, and $80, respectively?
e) If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $59, $66, and $80, respectively?
In: Finance
(20 pnts) On January 2, 2020, Pull Corp. paid $516,000 for 24%
(96,000 shares) of the outstanding common stock of Olivia Co. Pull
used the equity method to account for the investment. At the end of
2020, the balance in the investment account was $820,000. On
January 2, 2021, Pull sold 20,000 shares of Olivia stock for $12
per share. For 2021, Oliver reported income of $188,000 and paid
dividends of $30,000.
Required:
(A.) Prepare the journal entry to record the sale of the 20,000 shares.
(B.) After the sale has been recorded, what is the balance in the investment
account?
(C.) What percentage of Olivia Co. stock does Pull own after selling the 20,000 shares?
(D.) Because of the sale of stock, Pull can no longer exercise significant influence over the operations of Olivia. What effect will this have on Pull's accounting for the investment?
(E.) Prepare Pull's journal entries related to the investment for the rest of 2021.
In: Accounting
On January 2, 2020, Pull Corp. paid $516,000 for 24% (96,000 shares) of the outstanding common stock of Olivia Co. Pull used the equity method to account for the investment. At the end of 2020, the balance in the investment account was $820,000. On January 2, 2021, Pull sold 20,000 shares of Olivia stock for $12 per share. For 2021, Oliver reported income of $188,000 and paid dividends of $30,000. Required:
(A.) Prepare the journal entry to record the sale of the 20,000 shares.
(B.) After the sale has been recorded, what is the balance in the investment account?
(C.) What percentage of Olivia Co. stock does Pull own after selling the 20,000 shares?
(D.) Because of the sale of stock, Pull can no longer exercise significant influence over the operations of Olivia. What effect will this have on Pull's accounting for the investment?
(E.) Prepare Pull's journal entries related to the investment for the rest of 2021.
In: Accounting
You bought a call option on July 27, 2020 at the exercise price of $65. It expires on October 26, 2020. The stock currently sells for $66., while the call option sells for $6.
a) What is the intrinsic value of the call? What is the time premium paid for the call?
b) What will the value of this call be after expiration if the price of the stock is $99, $65, $99, and $80, respectively?
c) If the price of the stock rises to $80 at the expiration date of the call, what is the percentage increase in the value of the call? Does this example illustrate favorable leverage?
d) If an individual opens a covered call position on this stock, what is the net cost and what will the profit on the position be at the expiration of this position if the price of the stock is $49, $52, $59, $65, $66, $69, and $80, respectively?
e) If an individual sells this call naked, what will the profit or loss be on the position after six months if the price of the stock is $59, $66, and $80, respectively?
PLEASE SHOW WORK
In: Finance
Interpreting Accounts Receivable and Its Footnote
Disclosure
Following is the current asset section from the W.W. Grainger,
Inc., balance sheet.
| As of December 31 ($ 000s) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Cash and cash equivalents | $ 313,454 | $ 459,871 | $ 396,290 |
| Accounts receivable (less allowances for doubtful accounts of $24,552, $25,850 and $26,481, respectively |
762,895 | 624,910 | 589,416 |
| Inventories, net | 991,577 | 889,679 | 1,009,932 |
| Prepaid expenses and other assets | 87,125 | 88,364 | 73,359 |
| Deferred income taxes | 44,627 | 42,023 | 52,556 |
| Prepaid income taxes | 38,393 | 26,668 | 22,556 |
| Total current assets | $ 2,238,071 | $ 2,131,515 | $ 2,144,109 |
Grainger reports the following footnote relating to its
receivables.
Allowance for Doubtful Accounts: The following table shows the
activity in the allowance for doubtful accounts.
| For Years ended December 31 ($ 000s) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Allowance for doubtful accounts- accounts receivable | |||
| Balance at beginning of period | $ 25,850 | $ 26,481 | $ 25,830 |
| Provision for uncollectable accounts | 6,718 | 10,748 | 12,924 |
| Write-off of uncollectible accounts, less recoveries | (8,302) | (12,254) | (11,501) |
| Foreign currency exchange impact | 286 | 875 | (772) |
| Balance at end of period | $ 24,552 | $ 25,850 | $ 26,481 |
(a) What amount do customers owe Grainger at each of the year-ends
2008 through 2010?
| ($ 000s) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Gross accounts receivable | $Answer | $Answer | $Answer |
(c) What percentage of its total accounts receivable does Grainger
feel are uncollectible? Hint: Percentage of uncollectible accounts
= Allowance for uncollectible accounts/Gross accounts receivable.
Round your answers to two decimal places.
| ($ 000s) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Percentage of uncollectible accounts to gross accounts receivable | Answer % | Answer % | Answer % |
(d) What amount of bad debts expense did Grainger report in its income statement for each of the years 2008 through 2010?
| ($ 000s) | 2010 | 2009 | 2008 |
|---|---|---|---|
| Bad debts expense (titled Provision for Uncollectible Accounts) | $Answer | $Answer | $ Answer |
The allowance for uncollectible accounts remained relatively the same as a percentage of gross accounts receivable.
The allowance for uncollectible accounts has decreased as a percentage of gross accounts receivable.
The allowance for uncollectible accounts has increased as a percentage of gross accounts receivable.
(d) If Grainger had kept its 2010 allowance for uncollectible
accounts at the same percentage of gross accounts receivable as it
was in 2008, by what amount would its profit have changed (ignore
taxes)? HINT: Use rounded answer from part b. to calculate. Round
answer to the nearest thousands.
Profit would Answerincreasedecrease
by $Answer
($ 000s)
In: Accounting
On June 1, 2018, Metlock Company and Bonita Company merged to
form Windsor Inc. A total of 876,000 shares were issued to complete
the merger. The new corporation reports on a calendar-year
basis.
On April 1, 2020, the company issued an additional 637,000 shares
of stock for cash. All 1,513,000 shares were outstanding on
December 31, 2020.
Windsor Inc. also issued $600,000 of 20-year, 8% convertible bonds
at par on July 1, 2020. Each $1,000 bond converts to 44 shares of
common at any interest date. None of the bonds have been converted
to date.
Windsor Inc. is preparing its annual report for the fiscal year
ending December 31, 2020. The annual report will show earnings per
share figures based upon a reported after-tax net income of
$1,491,000. (The tax rate is 20%.)
Determine the following for 2020.
(a) The number of shares to be used for
calculating: (Round answers to 0 decimal places, e.g.
$2,500.)
| (1) |
Basic earnings per share |
|||||
|---|---|---|---|---|---|---|
| (2) |
Diluted earnings per share |
(b) The earnings figures to be used for
calculating: (Round answers to 0 decimal places, e.g.
$2,500.)
| (1) |
Basic earnings per share |
|||
|---|---|---|---|---|
| (2) |
Diluted earnings per share |
In: Accounting
Kailee’s Cookery Pty Ltd sells ovens and access to online cooking classes. On 1 May 2020, Kailee’s Cookery Pty Ltd signs an agreement with Chef School to provide 15 weekly online cooking classes and five ovens. The contract price amounted to $66,000 (GST inclusive), on credit terms n/30 for the ovens and n/60 for the cooking classes. This amount also includes one free service of the oven to be performed six months after the delivery of the ovens to Chef School.
The stand-alone price for the 15 weekly online cooking classes is $33,000 (GST inclusive). The cooking classes will start on 18 May 2020.
The stand-alone price of the ovens is $55,000 (GST inclusive). The six-month service fee for the ovens is usually $1,100 (GST inclusive).
The ovens were delivered on 18 May 2020.
Chef School paid the full amount on 20 May 2020 for the ovens.
By 30 June 2020, 7 online cooking classes were delivered. Chef School has yet to make any payment for the online cooking classes.
Required:
With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process for revenue recognition in regards to the contract with Chef School. List each of the five steps and show any calculations
In: Accounting
You are the auditor of Crane Inc., the Canadian subsidiary of a public multinational engineering company that offers a defined benefit pension plan to its eligible employees. Employees are permitted to join the plan after two years of employment, and benefits vest immediately. You have received the following information from the fund trustee for the year ended December 31, 2020:
| Discount rate | 5% | ||
| Rate of compensation increase | 4% |
| Defined Benefit Obligation | |||
| Defined benefit obligation at January 1, 2020 | $11,263,680 | ||
| Current service cost | 409,380 | ||
| Interest cost | 563,184 | ||
| Benefits paid | 749,461 | ||
| Actuarial loss, end of period | 572,990 | ||
| Plan Assets | |||
| Fair value of plan assets at January 1, 2020 | 9,160,080 | ||
| Actual return on plan assets, net of expenses | 1,074,040 | ||
| Employer contributions | 501,975 | ||
| Employee contributions | 79,172 | ||
| Benefits paid | 749,461 | ||
Other relevant information:
| 1. | The net defined benefit liability on January 1, 2020, is $2,103,600. | ||
| 2. | Employee contributions to the plan are withheld as payroll deductions, and are remitted to the pension trustee along with the employer contributions. |
Prepare a pension work sheet for the company. Assume IFRS is followed.
Prepare the employer’s journal entries to reflect the accounting for the pension plan for the year ended December 31, 2020.
In: Accounting
Mini-Case B
The Simpsons, owners of a spa on the island of Montreal, have been hard-hit by the pandemic. Before they were forced to close their spa, their take home income, after taxes but before living expenses, was $7,000 a month. The Simpsons spent all of their take-home cash flow and even more, by borrowing on a line of credit (LOC). The day their spa was closed the balance on their LOC was $8,520. Normally they use the LOC to clear the balance on their several credit cards each month. Terms of the LOC include a repayment of 3% of principal every month plus interest charged at a rate of 0.5% per month.
Three years ago the Simpsons took out a $532,000 mortgage to purchase a home in Beaconsfield. Payments are monthly at a rate of 3.6%, compounded semi-annually. The original amortization period was 20 years and they have made 34 payments to date.
The Simpson’s mortgagor has offered them the possibility of suspending payments for the next 4 months. Nevertheless, they will still owe the interest they would have paid on each payment. Furthermore, the future value of the unpaid interest after 4 months will mean that they will have to pay interest on the outstanding interest should they take up this offer.
Part 1 (1 mark)
Excluding the balance on their LOC, what minimum emergency fund should the Simpsons have held to meet unforeseen events? What type of investment would be suitable for such a fund?
|
Calculation of Minimum Emergency Fund Suitable Investment |
Part 2 (1 mark)
How much would the couple have to pay on the LOC for the month following closure of their spa? What impact would not making the payment have on their credit rating? Please explain.
|
LOC Payment Calculation Impact of Non-Payment |
Part 3 (1 mark)
What is the monthly payment on the Simpson’s mortgage? What is the balance after 34 months? Round to the nearest dollar.
|
Calculation of Mortgage Payment and Balance after 34 Months (rounded) |
Part 4
Draw up the Simpson’s mortgage amortization table for the next four months (i.e. for payments 35-38). Their monthly mortgage rate is 0.2978%. Round to the nearest dollar.
|
Month |
$ Beg. Bal. |
$ Pmt. |
$ Interest |
$ Principal |
$ End. Bal. |
|
35 |
|||||
|
36 |
|||||
|
37 |
|||||
|
38 |
Part 5 (1 mark)
How much interest will the Simpsons owe at the end of the 4-month period? (Mortgage payments are made at the end of the month.) Round to the nearest dollar. Remember, they will be obliged to pay interest on their interest.
If they are given the choice of adding this to their mortgage balance or paying it immediately in cash, what would you recommend, and why?
|
Calculation of Total Interest Owed at the end of 4 months Repay or add to the mortgage balance? |
In: Finance