Grouper, Inc. had the following equity investment portfolio at January 1, 2020.
| Evers Company | 1,050 shares @ $16 each | $16,800 | |||
| Rogers Company | 860 shares @ $21 each | 18,060 | |||
| Chance Company | 510 shares @ $9 each | 4,590 | |||
| Equity investments @ cost | 39,450 | ||||
| Fair value adjustment | (7,290 | ) | |||
| Equity investments @ fair value | $32,160 |
During 2020, the following transactions took place.
| 1. | On March 1, Rogers Company paid a $2 per share dividend. | |
| 2. | On April 30, Grouper, Inc. sold 310 shares of Chance Company for $11 per share. | |
| 3. | On May 15, Grouper, Inc. purchased 100 more shares of Evers Company stock at $17 per share. | |
| 4. | At December 31, 2020, the stocks had the following price per share values: Evers $18, Rogers $20, and Chance $8. |
During 2021, the following transactions took place.
| 5. | On February 1, Grouper, Inc. sold the remaining Chance shares for $8 per share. | |
| 6. | On March 1, Rogers Company paid a $2 per share dividend. | |
| 7. | On December 21, Evers Company declared a cash dividend of $3 per share to be paid in the next month. | |
| 8. | At December 31, 2021, the stocks had the following price per share values: Evers $20 and Rogers $22. |
Prepare journal entries for each of the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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No. |
Account Titles and Explanation |
Debit |
Credit |
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(1) |
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(2) |
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(3) |
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(4) |
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(5) |
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(6) |
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(7) |
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(8) |
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eTextbook and Media
List of Accounts
Prepare a partial balance sheet showing the investment-related amounts to be reported at December 31, 2020 and 2021.
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Grouper, Inc. |
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December 31, 2020 |
December 31, 2021 |
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Accumulated Other Comprehensive IncomeAccumulated Other Comprehensive LossCurrent AssetsCurrent LiabilitiesDividend ReceivableEquity InvestmentsIntangible AssetsInvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity |
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$ |
$ |
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Accumulated Other Comprehensive IncomeAccumulated Other Comprehensive LossCurrent AssetsCurrent LiabilitiesDividend ReceivableEquity InvestmentsIntangible AssetsInvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity |
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In: Accounting
Banks are financing acquisition projects, i.e. for Venture
Capital funds. An exemplary project shows the following data:
A
VC fund purchased the target company on 1.1.2020 for a price of
€300k at a Price/EBIT-multiple of 7.5x. 40% of the purchase price
is funded by equity of the VC, remaining amount by bank loan at an
interest of 10% p.a., collateralized by the shares of the target
company. The loan will be repaid on 31.12.2023, accrual for loan
repayment is planned pro rata annually. All cash flows related to
the purchase will be pushed down into the target company’s
P&L.
The
target company runs operationally at annual revenues of €150k in
2020, growing each upcoming year at 4%, while operational costs in
2020 are at €-110k at a future growth rate of 2% year-on-year. In
2020, EBIT is €40k. Operational interest is at €-6.0k (and will be
stable for the upcoming years). Tax rate is 30%. There are no other
operational P/L impacts.
The
VC plans to sell the company on 31.12.2025 (= after 6 years) at a
Price/EBIT-multiple of 7.5x which was the same at purchase.
Please complete the financial model of the transaction based on the
xls-table below. In case of lack of data, please take a reasonable
assumption for your subsequent calculation. Please calculate the
planned annual profitability of the VC fund and the overall
internal rate of return. As the financing bank, what is your
recommendation in respect to the transaction and its risks and
benefits?
Transaction data
Purchase price 300€
Equity 120€
Debt capital 180€
Term dept 4 years bullet repayment
Annual debt accrual 45.0€
Interest rate 10.0%
Tax rate 30%
Target company 2020 2021 2022 2023 2024 2025
Revenues 150,0
Cost operational -110,0
EBIT 40,0
Interest operational -6.0
Taxes -10,2
PBT 23,8
In: Finance
In: Finance
The before-tax income for Whispering Co. for 2020 was $97,000 and $72,300 for 2021. However, the accountant noted that the following errors had been made:
| 1. | Sales for 2020 included amounts of $38,500 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. | |
| 2. | The inventory on December 31, 2020, was understated by $7,800. | |
| 3. | The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. |
|
Interest Expense |
16,200 |
|
|
Cash |
16,200 |
| The bonds have a face value of $270,000 and pay a stated interest rate of 6%. They were issued at a discount of $17,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) |
| 4. | Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,100 in 2020 and $8,700 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges. |
Prepare a schedule showing the determination of corrected income
before taxes for 2020 and 2021. (Enter negative amounts
using either a negative sign preceding the number e.g. -15,000 or
parentheses e.g. (15,000). Round answers to 0 decimal places, e.g.
125.)
|
2020 |
2021 |
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|---|---|---|---|---|
|
Income Before Tax |
$Enter a dollar amount |
$Enter a dollar amount |
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Corrections: |
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Select an itemAdjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory |
Enter a dollar amount |
Enter a dollar amount |
||
|
Select an itemAdjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory |
Enter a dollar amount |
Enter a dollar amount |
||
|
Select an itemAdjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory |
Enter a dollar amount |
Enter a dollar amount |
||
|
Select an itemAdjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory |
Enter a dollar amount |
Enter a dollar amount |
||
|
Select an itemAdjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2020 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2020 IncomeSales Erroneously Included in 2020 IncomeUnderstatement of 2020 Ending Inventory |
Enter a dollar amount |
Enter a dollar amount |
||
|
Corrected Income Before Tax |
$Enter a total amount for year 2020 |
$Enter a total amount for year 2021 |
In: Accounting
Jen and Larry’s Frozen Yogurt Company
In 2019, Jennifer (Jen) Liu and Larry Mestas founded Jean and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2019 and were estimated to be $1.2 million in 2020.
Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry’s salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2020. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2020.
An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) occurred at the beginning of 2019. Additional equipment needed to make the amount of yogurt forecasted to be sold in 2020 was purchased at the beginning of 2020. As a result, depreciation expenses were expected to be $50,000 in 2020. Interest expenses were estimated at $15,000 in 2020. The average tax rate was expected to be 25% of taxable income.
Show what would happen to the EBDAT breakeven point in terms of survival sales if an additional $30,000 was spent on advertising in 2020 while the other fixed costs remained the same, production costs remained at $1.50 per cup, and the selling price remained at $3.00 per cup.
Now assume that, due to competition, Jen and Larry must sell their frozen yogurt for $2.80 per cup in 2020. The cost of producing the yogurt is expected to remain t $1.50 per cup and cash fixed costs are forecasted to be $395,000 ($180,000 in administrative, $200,000 in marketing, and $15,000 in interest expenses). Depreciation expenses and the tax rate are also expected to remain the same as projected in the initial discussion of Jen and Larry’s venture. Calculate the EBDAT breakeven point in terms of survival breakeven revenues.
In: Finance
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Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 38,000 Rets per year. Costs associated with this level of production and sales are given below:
| Unit | Total | ||||||
| Direct materials | $ | 20 | $ | 760,000 | |||
| Direct labor | 10 | 380,000 | |||||
| Variable manufacturing overhead | 3 | 114,000 | |||||
| Fixed manufacturing overhead | 7 | 266,000 | |||||
| Variable selling expense | 4 | 152,000 | |||||
| Fixed selling expense | 6 | 228,000 | |||||
| Total cost | $ | 50 | $ | 1,900,000 | |||
The Rets normally sell for $55 each. Fixed manufacturing overhead is $266,000 per year within the range of 29,000 through 38,000 Rets per year.
2. Refer to the original data. Assume again that Polaski Company expects to sell only 29,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 9,000 Rets. The Army would pay a fixed fee of $1.40 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
3. Assume the same situation as described in (2) above, except that the company expects to sell 38,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 9,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?
In: Accounting
International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,650 and a cash inflow the following year of $3,350. IMC estimates that its risk-adjusted cost of capital is 14%. Currently, 1 U.S. dollar will buy 7.1 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 6%, while similar securities in Sweden are yielding 5%.
a. If the interest parity holds, what is the forward exchange rate of Swedish krona per U.S. dollar? Do not round intermediate calculations. Round your answer to two decimal places.
Swedish krona per U.S. dollar
b. If IMC undertakes the project, what is the net present value and rate of return of the project for IMC in home currency? Do not round intermediate calculations. Round your answers to two decimal places.
NPV: Swedish kronas
Rate of return: %
In: Finance
With a number of new orchards coming into production, Australia is expecting a bumper crop, with volumes up 9% from last year’s, says Avocados Australia CEO John Tyas. Based on the industry’s latest quarterly forecasting, the nation is set to produce 95,000 metric tons (MT) for the April 2019 – March 2020 period. Australia’s avocado supply for January, February and March of 2019 increased by 20%, compared to the same three-month period last year.
Source : Australia expects bumper avocado crop, plans export growth
(a) Explain any two possible (2) factors/scenarios which could possibly result in an increase in demand (NOT quantity demanded) for avocados.
(b) Besides a bumper crop, explain any two possible (2) factors/scenarios which affect the supply of avocados.
(c) Describe how a market equilibrium “clears” the market of avocados.
(d) Describe how a government intervention such as price controls (price ceilings or price floors) may not always lead to a desirable market outcome.
In: Economics
Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2019. In payment for the machine Wilkins issued a three-year installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 10%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2021. The error had caused Wilkins to understate interest expense by $45,000 in 2019 and $40,000 in 2020.
Required:
1. Determine which accounts are incorrect as a result of these errors at January 1, 2021, before any adjustments. Explain your answer. (Ignore income taxes.)
2. Prepare a journal entry to correct the error.
3. What other step(s) would be taken in connection with the error?
In: Accounting
In: Accounting