In: Finance
At the end of the current year, the accounts receivable account has a debit balance of $777,000 and sales for the year total $8,810,000. The allowance account before adjustment has a debit balance of $10,500. Bad debt expense is estimated at 3/4 of 1% of sales. The allowance account before adjustment has a debit balance of $10,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $33,600. The allowance account before adjustment has a credit balance of $9,300. Bad debt expense is estimated at 1/4 of 1% of sales. The allowance account before adjustment has a credit balance of $9,300. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $77,200.
Determine the amount of the adjusting entry to provide for doubtful accounts under each of the assumptions (a through d) listed above.
In: Accounting
Suppose there are three stocks with the same expected returns of
10% per year and the same risk (standard deviation) of 100%. The
correlation between any two of them is 50%.
a. What is the risk of the equal-weighted portfolio of two
stocks?
b. What is the risk of the equal-weighted portfolio of three stocks?
c. What is the minimum possible risk of the portfolio of the
three stocks?
d. If the third stock has a correlation of -50% instead of 50% with
the rest, what is the risk of the equal-weighted portfolio of three
stocks, and what is the minimum possible risk?
In: Finance
On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000. The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident. Sam has taken $20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sam's history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Sam's current marginal tax rate is 35%.
a. Complete the letter to Sam that contains your advice with respect to the tax and cash-flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car.
Hoffman, Young, Raabe, Maloney, & Nellen, CPAs
5191 Natorp Boulevard
Mason, OH 45040
January 26, 2018
Mr. Sam Smith
450 Colonel's Way
Warrensburg, MO 64093
Dear Mr. Smith:
This letter is to inform you of the tax and cash-flow consequences of filing a claim versus not filing a claim with your insurance company for reimbursement for damages to your business-use car.
If an insurance claim is filed, you will have a of $.
This is determine by computing the difference between the and the of the adjusted basis or . The result will produce a net cash flow of $.
If no insurance claim is filed, you will have a of $, which will your tax liability by $.
The net cash resulting from filing an insurance reimbursement claim would be $.
Should you need more information or need to clarify anything, please contact me.
Sincerely,
John J. Jones, CPA
Partner
b. Complete a memo for the tax files.
TAX FILE MEMORANDUM
DATE: January 26, 2018
FROM: John J. Jones
SUBJECT: Tax consequences for Sam Smith if he does not file an
insurance claim for reimbursement for damages to his business use
car.
If an insurance claim is filed, Sam will have a of $. This will produce a net cash flow of $.
If no insurance claim is filed, Sam will have a of $, which will his tax liability by $.
In my correspondence with Sam, I pointed out that the net cash from filing an insurance reimbursement claim would be $.
In: Accounting
deposit $10,000 per year into an account at the end of each of the next 4 years, and $15,000 into the account each year for the following 6 years. How much money will you have in the account at the end of the 10th year? Assume that we earn 10 percent nominal interest compounded annually on our investments.
In: Finance
A) A certain area is hit by 6 Heat Waves a year on average. Find the probability that in a given year that area will be hit by fewer than 5 Heat Waves (5 is not included).
a) 0.2851
b) 0.4457
c) 0.1339
d) 0.1606
B) The probability of a successful rocket launch is 0.9. Test
launches are conducted until three successful launches are
achieved. Let X be the total number of launches needed. What kind
of distribution does X follow?
C) What are the properties of a Bernoulli process?
In: Statistics and Probability
The price of a stock is $40. The price of a one-year put with strike price $30 is $0.70 and a call with the same time to maturity and a strike of $50 costs $0.50. Both options are European.
(a) An investor buys one share, shorts one call and buys one put. Draw and comment upon the payoff of this portfolio at maturity as a function of the underlying price.
(b) How would your answer to (a) change if the investor buys one share, shorts two calls and buys two puts instead.
In: Finance
In: Statistics and Probability
If $60,000 is paid at the end of each year for 13 years, calculate the equivalent single payment now (P) if interest is 9% pa effective. Give your answer in dollars and cents to the nearest cent.
In: Finance
As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:
| Cash | $104,100 | ||
| Accounts Receivable | 177,000 | ||
| Finished Goods | 37,200 | ||
| Work in Process | 24,800 | ||
| Materials | 40,700 | ||
| Prepaid Expenses | 3,000 | ||
| Plant and Equipment | 510,100 | ||
| Accumulated Depreciation—Plant and Equipment | $219,300 | ||
| Accounts Payable | 127,800 | ||
| Common Stock, $10 par | 350,000 | ||
| Retained Earnings | 199,800 | ||
| $896,900 | $896,900 |
Factory output and sales for 20Y9 are expected to total 24,000 units of product, which are to be sold at $110 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.
Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:
| Estimated Costs and Expenses | ||||
| Fixed (Total for Year) |
Variable (Per Unit Sold) |
|||
| Cost of goods manufactured and sold: | ||||
| Direct materials | _ | $28 | ||
| Direct labor | _ | 8.5 | ||
| Factory overhead: | ||||
| Depreciation of plant and equipment | $24,000 | _ | ||
| Other factory overhead | 7,400 | 5 | ||
| Selling expenses: | ||||
| Sales salaries and commissions | 86,200 | 14 | ||
| Advertising | 72,000 | _ | ||
| Miscellaneous selling expense | 6,200 | 2 | ||
| Administrative expenses: | ||||
| Office and officers salaries | 56,600 | 7 | ||
| Supplies | 2,900 | 1 | ||
| Miscellaneous administrative expense | 1,500 | 1.5 | ||
Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $232,600 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 35,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $138,000 cash in May.
Required:
1. Prepare a budgeted income statement for 20Y9.
| Regina Soap Co. | |||
| Budgeted Income Statement | |||
| For the Year Ending December 31, 20Y9 | |||
| $ | |||
| Cost of goods sold: | |||
| $ | |||
| Cost of goods sold | |||
| Gross profit | $ | ||
| Operating expenses: | |||
| Selling expenses: | |||
| $ | |||
| Total selling expenses | $ | ||
| Administrative expenses: | |||
| $ | |||
| Total administrative expenses | |||
| Total operating expenses | |||
| Income before income tax | $ | ||
| $ | |||
2. Prepare a budgeted balance sheet as of December 31, 20Y9.
| Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9 |
|||
|---|---|---|---|
| Assets | |||
| Current assets: | |||
| $ | |||
| Inventories: | |||
| $ | |||
| Total current assets | $ | ||
| Property, plant, and equipment: | |||
| $ | |||
| Total property, plant, and equipment | |||
| Total assets | $ | ||
| Liabilities | |||
| Current liabilities: | |||
| $ | |||
| Stockholders' Equity | |||
| $ | |||
| Total stockholders’ equity | |||
| Total liabilities and stockholders’ equity | $ | ||
In: Accounting