CHAPTER 18
ALLIED TESTING COMPANY MANUFACTURES AND SELLS THERMOMETERS THAT DETECT BODY TEMPERATURE. IT IS EXPECTING AN INCREASE IN SALES DUE TO THE CORONAVIRUS PANDEMIC. ALLIED HAS APPLIED FOR A LOAN TO FUND EXPANSION AND THE BANK IS REQUIRING FINANCIAL INFORMATION.
2020 ACTIVITY
NET REVENUE FOR THE YEAR $2,700,000
SELLING EXPENSES $ 200,000
ADMINISTRATIVE EXPENSES $ 110,000
BEGINNING FINISHED GOODS INVENTORY $ 40,000
ENDING FINISHED GOODS INVENTORY $ 60,000
BEGINNING WORK IN PROCESS INVENTORY $ 20,000
ENDING WORK IN PROCESS INVENTORY $ 100,000
BEGINNING DIRECT MATERIALS $ 250,000
DIRECT MATERIALS PURCHASED DURING MONTH $ 740,000
ENDING DIRECT MATERIALS $ 80,000
DIRECT LABOR FOR THE MONTH $ 220,000
PLANT UTILITIES FOR THE MONTH $ 27,000
PLANT INSURANCE FOR THE MONTH $ 19,000
PLANT MAINTENANCE FOR THE MONTH $ 30,000
PLANT DEPRECIATION FOR THE MONTH $ 24,000
REQUIRED:
CHAPTER 18
ALLIED TESTING COMPANY MANUFACTURES AND SELLS THERMOMETERS THAT DETECT BODY TEMPERATURE. IT IS EXPECTING AN INCREASE IN SALES DUE TO THE CORONAVIRUS PANDEMIC. ALLIED HAS APPLIED FOR A LOAN TO FUND EXPANSION AND THE BANK IS REQUIRING FINANCIAL INFORMATION.
2020 ACTIVITY
NET REVENUE FOR THE YEAR $2,700,000
SELLING EXPENSES $ 200,000
ADMINISTRATIVE EXPENSES $ 110,000
BEGINNING FINISHED GOODS INVENTORY $ 40,000
ENDING FINISHED GOODS INVENTORY $ 60,000
BEGINNING WORK IN PROCESS INVENTORY $ 20,000
ENDING WORK IN PROCESS INVENTORY $ 100,000
BEGINNING DIRECT MATERIALS $ 250,000
DIRECT MATERIALS PURCHASED DURING MONTH $ 740,000
ENDING DIRECT MATERIALS $ 80,000
DIRECT LABOR FOR THE MONTH $ 220,000
PLANT UTILITIES FOR THE MONTH $ 27,000
PLANT INSURANCE FOR THE MONTH $ 19,000
PLANT MAINTENANCE FOR THE MONTH $ 30,000
PLANT DEPRECIATION FOR THE MONTH $ 24,000
REQUIRED:
In: Accounting
Answer for 8 and 9
On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $60. [We are assuming that the 2020 coupon has just been redeemed.]
1. What was the nominal yield on this bond on October 15, 2016? 6% [To 1 decimal place.]
2. What was the current yield on this bond on October 15, 2016?5.36% [To 2 decimal places.]
3. What was the yield to maturity for this bond on October 15, 2016? 5.679% [To 3 decimal places.]
4. What was the risk premium for this bond on October 15, 2016? 1.179% [To 3 decimal places.]
5. What was the nominal yield on this bond on October 15, 2020?6% [To 1 decimal place.]
6. What was the current yield on this bond on October 15, 2020?6.15% [To 2 decimal place.]
7. What was the yield to maturity for this bond on October 15, 2020?6.346% [To 3 decimal places.]
8. What was the risk premium for this bond on October 15, 2020? [To 3 decimal places.]
9. It is now October 15, 2020 and suddenly the Federal Reserve announces a massive program to reduce inflation. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond, falls from 4.0% to 2.5%. If there is no change in the risk premium expected for this Koala, Inc. bond, what will be this bond’s yield to maturity? [To 3 decimal places.]
In: Finance
Part C Question 3 Accounting for Income Taxes
Reed Ltd is a manufacturer of surfboards which commenced operations on 1 July 2019. The Statement of Comprehensive Income and the Statement of Financial Position were compiled on 30 June 2020. The following information was available:
Statement of Comprehensive Income for the year ended 30 June 2020
$ $
|
Sales |
430,000 |
||
|
Less |
|||
|
Cost of Goods Sold |
130,000 |
||
|
Administrative expense |
70,000 |
||
|
Warranty expense |
60,000 |
||
|
Depreciation- machine |
40,000 |
||
|
Insurance expense |
20,000 |
320,000 |
|
|
Profit before income tax |
110,000 |
||
Following information was extracted from the Statement of Financial Position at 30 June 2020:
|
2019 |
2020 |
|
|
Prepaid insurance |
24,000 |
36,000 |
|
Machine |
400,000 |
400,000 |
|
Less: Accumulated depreciation |
40,000 |
80,000 |
|
Provision for warranty |
34,000 |
28,000 |
Other information was available for the year ended 30 June 2020:
Required: (Narrations are not required in this question)
In: Accounting
Question 3 Accounting for Income Taxes
Reed Ltd is a manufacturer of surfboards which commenced operations on 1 July 2019. The Statement of Comprehensive Income and the Statement of Financial Position were compiled on 30 June 2020. The following information was available:
Statement of Comprehensive Income for the year ended 30 June 2020
$ $
|
Sales |
430,000 |
||
|
Less |
|||
|
Cost of Goods Sold |
130,000 |
||
|
Administrative expense |
70,000 |
||
|
Warranty expense |
60,000 |
||
|
Depreciation- machine |
40,000 |
||
|
Insurance expense |
20,000 |
320,000 |
|
|
Profit before income tax |
110,000 |
||
Following information was extracted from the Statement of Financial Position at 30 June 2020:
|
2019 |
2020 |
|
|
Prepaid insurance |
24,000 |
36,000 |
|
Machine |
400,000 |
400,000 |
|
Less: Accumulated depreciation |
40,000 |
80,000 |
|
Provision for warranty |
34,000 |
28,000 |
Other information was available for the year ended 30 June 2020:
Required: (Narrations are not required in this question)
In: Accounting
Part C Question 3 Accounting for Income Taxes
Reed Ltd is a manufacturer of surfboards which commenced operations on 1 July 2019. The Statement of Comprehensive Income and the Statement of Financial Position were compiled on 30 June 2020. The following information was available:
Statement of Comprehensive Income for the year ended 30 June 2020
$ $
|
Sales |
430,000 |
||
|
Less |
|||
|
Cost of Goods Sold |
130,000 |
||
|
Administrative expense |
70,000 |
||
|
Warranty expense |
60,000 |
||
|
Depreciation- machine |
40,000 |
||
|
Insurance expense |
20,000 |
320,000 |
|
|
Profit before income tax |
110,000 |
||
Following information was extracted from the Statement of Financial Position at 30 June 2020:
|
2019 |
2020 |
|
|
Prepaid insurance |
24,000 |
36,000 |
|
Machine |
400,000 |
400,000 |
|
Less: Accumulated depreciation |
40,000 |
80,000 |
|
Provision for warranty |
34,000 |
28,000 |
Other information was available for the year ended 30 June 2020:
Required: (Narrations are not required in this question)
In: Accounting
Fill in the blanks. In a pool of identical fixed rate, fully amortizing loans, as the mortgages become more seasoned, the WAM ____________; the WAL ____________; and the WAC ___________.
|
Goes up; Goes up; Goes down |
||
|
Goes up; Goes up; Stays the same |
||
|
Stays the same; Stays the same; Stays the same |
||
|
Goes down; Stays the same; Stays the same |
||
|
Goes down; Goes down; Stays the same |
In: Finance
Fill in the blanks. In a pool of identical fixed rate, fully amortizing loans, as the mortgages become more seasoned, the WAM ____________; the WAL ____________; and the WAC ___________.
|
Goes up; Goes up; Goes down |
||
|
Goes up; Goes up; Stays the same |
||
|
Stays the same; Stays the same; Stays the same |
||
|
Goes down; Stays the same; Stays the same |
||
|
Goes down; Goes down; Stays the same |
In: Finance
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
Q3 Foreign currency translation A: 20 marks
On January 1, 2020, in an effort to diversify, Bauman Corp. (a Canadian company that sells decorative cedar branches), purchased 80% of Noskova Inc, an American company that manufacturers nitrous oxide, for US$50,000.
Noskova’s book values approximated its fair values on that date except for plant and equipment, which had a fair value of US$30,000 with a remaining life expectancy of 5 years. A goodwill impairment loss of US$1,000 occurred during 2020. Noskova’s January 1, 2020, Balance Sheet is shown below (in U.S. dollars):
|
Current Monetary Assets |
$50,000 |
|
Inventory |
$40,000 |
|
Plant and Equipment |
$25,000 |
|
Total Assets |
$115,000 |
|
Current Liabilities |
$45,000 |
|
Bonds Payable (maturity: January 1, 2026) |
$20,000 |
|
Common Shares |
$30,000 |
|
Retained Earnings |
$20,000 |
|
Total Liabilities and Equity |
$115,000 |
The following exchange rates were in effect during 2020:
|
January 1, 2020: |
US $1 = CDN $1.3250 |
|
Average for 2020: |
US $1 = CDN $1.3350 |
|
Date when Ending Inventory Purchased: |
US $1 = CDN $1.34 |
|
December 31, 2020: |
US $1 = CDN $1.35 |
Sales, purchases and other expenses occurred evenly throughout
the year.
Dividends declared and paid December 31, 2020.
The financial statements of Bauman (in Canadian dollars) and
Noskova (in U.S. dollars) are shown below:
Balance Sheets
|
Bauman |
Noskova |
|
|
Current Monetary Assets |
$42,050 |
$65,000 |
|
Inventory |
$60,000 |
$50,000 |
|
Plant and Equipment |
$23,500 |
$20,000 |
|
Investment in Martin (at Cost) |
$66,250 |
|
|
Assets |
$191,800 |
$135,000 |
|
Current Liabilities |
$50,000 |
$48,000 |
|
Bonds Payable (maturity: January 1, 2026) |
$35,000 |
$20,000 |
|
Common Shares |
$60,000 |
$30,000 |
|
Retained Earnings |
$30,000 |
$20,000 |
|
Net Income |
$28,800 |
$27,000 |
|
Dividends |
($12,000) |
($10,000) |
|
Liabilities and Equity |
$191,800 |
$135,000 |
|
Income Statements |
Larmer |
Martin |
|
Sales |
$80,000 |
$50,000 |
|
Dividend Income |
$10,800 |
|
|
Cost of Sales |
($40,000) |
($15,000) |
|
Depreciation |
($10,000) |
($5,000) |
|
Other expenses |
($12,000) |
($3,000) |
|
Net Income |
$28,800 |
$27,000 |
Translate Noskova’s 2020 Income Statement into Canadian dollars if the functional currency is the Canadian dollar (i.e. the same functional currency as the parent).
In: Accounting
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In: Accounting