On December 31, 2019, Little Corporation's Assets and Liabilities were $66,000 and $15,000 respectively. On December 31, 2020, the assets and liabilities were $94,000 and $28,000 respectively. During 2020, the company issued $7,000 of additional stock, and paid $3,000 of dividends. Determine the company’s net income for 2020.
In: Accounting
A CEO is considering buying an insurance policy to cover possible losses incurred by marketing a new product. If the product is a complete failure, a loss of $450,000 would be incurred; if it is a moderately failure, a loss of $150,000 would be incurred; if it is only minor failure, a loss of $50,000 would be incurred. Insurance actuaries have determined that the probabilities that the product will be a failure or only moderately successful are 0.005, 0.056 and 0.153, respectively.
In: Statistics and Probability
Consider Whirlybird, Inc. offers helicopter tours and transportation in major cities around the ... Consider Whirlybird, Inc. offers helicopter tours and transportation in major cities around the world. The company is considering a stock repurchase in the upcoming quarter. As the Chief Financial Officer (CFO), you understand there are several methods to reduce quarterly earnings, which could reduce stock price prior to the announcement of the proposed stock repurchase.
Discuss
What course of action do you recommend to the Chief Executive Officer (CEO) of Whirlybird?
If the CEO approached you recommending a reduction in current quarter earnings, how would you respond?
In: Finance
As a new senior accountant of Ferndale Rugs, Inc., an exotic rug manufacturer, you have taken on the new responsibility of variance analysis for the company. During your monthly analysis, the company’s current performance report reveals a relatively large and unusual sales volume. This is considering the past three quarters of operating in a deficit, the sales volume is favorable but the sales price variance is unfavorable. Now the CEO has asked for a recommendation on how the organization can become a lean organization and whether the theory of constraints can be implemented.
In: Accounting
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $888,000. The fair value of the noncontrolling interest at the acquisition date was $222,000. Young reported stockholders’ equity accounts on that date as follows:
| Common stock—$10 par value | $ | 300,000 | |
| Additional paid-in capital | 70,000 | ||
| Retained earnings | 630,000 | ||
In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $90,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 20 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:
| Year | Transfer Price | Inventory Remaining at Year-End (at transfer price) |
|||||||
| 2019 | $ | 30,000 | $ | 32,000 | |||||
| 2020 | 50,000 | 34,000 | |||||||
| 2021 | 60,000 | 40,000 | |||||||
In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2020, for $58,000. The equipment had originally cost Monica $94,000. Young plans to depreciate these assets over a 5-year period.
In 2021, Young earns a net income of $200,000 and declares and pays $65,000 in cash dividends. These figures increase the subsidiary's Retained Earnings to a $960,000 balance at the end of 2021.
Monica employs the equity method of accounting. Hence, it reports $154,640 investment income for 2021 with an Investment account balance of $1,062,800. Prepare the worksheet entries required for the consolidation of Monica Company and Young Company. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
In: Accounting
Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December 2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei Province, China. The illness was reported to the World Health Organization and there is heightened uncertainty around the Globe.
You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that Porsche’s management entertains three scenarios:
Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.
Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.
Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.
Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per vehicle.
The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€. The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team made the following forecasts about the exchange rates at the end of December 2020:
In: Finance
“WakeUP”, a Mississippi company that produces coffee products, sells their products throughout the United States and is considering expanding its business into Europe. If so, they will have income derived from sales to US Customers and income derived from sales within Europe. Assess the impacts that selling their products abroad will have to WakeUP and any tax incentives that will apply to their situation.
In: Accounting
Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December
2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei
Province, China. The illness was reported to the World Health Organization and there is heightened
uncertainty around the Globe.
You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it
expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that
Porsche’s management entertains three scenarios:
Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.
Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.
Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.
Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are
realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to
be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping
an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per
vehicle.
The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€.
The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team
made the following forecasts about the exchange rates at the end of December 2020:
• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe
haven currency during the pandemic.
• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a
safe haven currency during the pandemic
1. As the CFO, you decided to hedge using option contracts. Assuming expected final sales
volume is 35,000, what are your total revenue and the percentage revenue from hedging
(compared to no hedging) (do not use any variable costs to calculate in this question)
a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?
b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?
2. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven
currency during the pandemic. What are your euro cash flows if you did not hedge, hedged
using forward contracts, and hedged using option contracts?
In: Finance
Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December
2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei
Province, China. The illness was reported to the World Health Organization and there is heightened
uncertainty around the Globe.
You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it
expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that
Porsche’s management entertains three scenarios:
Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.
Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.
Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.
Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are
realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to
be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping
an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per
vehicle.
The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€.
The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team
made the following forecasts about the exchange rates at the end of December 2020:
• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe
haven currency during the pandemic.
• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a
safe haven currency during the pandemic
1. As the CFO, you decided to hedge using option contracts. Assuming expected final sales
volume is 35,000, what are your total revenue and the percentage revenue from hedging
(compared to no hedging) (do not use any variable costs to calculate in this question)
a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?
b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?
2. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven
currency during the pandemic. What are your euro cash flows if you did not hedge, hedged
using forward contracts, and hedged using option contracts?
In: Finance
Case Study – THE CROWN PRINCESS
Given Facts: Company: Matrix Systems, Inc., large conglomerate with over 35,000 employees Competitor Company: Trilinear Systems Inc., small and quite aggressive company outfit Alice Miller, MBA graduate from Stanford, graduating in the top one percent of her class, capable and hardnosed, ambitious and quite good in her interpersonal relations. She showed that she was a very high potential employees resulting from putting her to a fast track promotions. In her third year at Matrix, she was put in charge of a top secret, highly technical government contract After 3 months, Alice was put in charge of this project and her Boss started to receive 7 resignations from key technical people working on the contract. If they left, there was no way that matrix could fulfill and worst, all these 7 employees applied for the competitor company Trilinear and the company was seriously thinking of hiring them Mr. Baker figured out that they were mad not to Alice but to the crown princess problem Questions:
1. What should Mr. Baker do as HR Manager?
2. What should Alice do? Remember, it's hard to stay on the fast track when you are a loser, and she will end up a big loser in this situation.
3. Is it a good idea to have crown princess and fast tracks for minorities and females? Why or why not?
4. Matrix has 10 levels of management in its organization. If it hired talented people at the lowest level and they spent 5 years in that level learning the job, it would take 50 years to get on the top. What besides the track /crown princess option does Matrix have?
In: Operations Management