QUESTION ONE

You have been provided with the end of year, unadjusted trial balance for Tina’s Managerial Advice business and the balance day adjustments to be implemented. Tina commenced business on 1^st July 2018.

Required:

1.         Provide the General Journal entries for the:                               

i)         Balance day adjustments on the 31^st October 2018;

ii)        Reversing entries where required on 1^st November 2018.

(9 Marks)

            2.         Provide an Income Statement for the period ending 31^st October 2018.                                                                                                                                

3.         Provide a fully classified Balance Sheet showing.                     

4.         Explain the role of the Prepaid Contents Insurance and the Unearned Advice Commissions Revenue accounts in this business.        (2 Marks)

TINA’S MANAGERIAL ADVICE SERVICE

UNADJUSTED TRIAL BALANCE AS AT 31^st OCTOBER 2018

ACCOUNT                                                                           DEBIT $     CREDIT $

Cash at bank                                                                         25,440

Accounts Receivable                                                           91,000

Allowance for Doubtful Debts                                                                    2,000

Office Supplies Inventory                                                        300

Prepaid Contents Insurance                                               4,800

Prepaid Rent of offices                                                        12,000

Photocopier (Purchased 1^st July 2017)                              60,000

Accounts Payable                                                                                        32,000

Unearned Advice Services Revenue                                                          3,340

VAT Collected (20%)                                                                                   22,068

VAT Paid (20%)                                                                   2,287

Loan from WES Bank Ltd (due 30^th June 2025)                                      80,000

Capital – Tina Tobin                                                                                   36,219

Drawings – Tina Tobin                                                       10,000

Advice Service Revenue                                                                            134,000

Electricity – Office                                                                  3,100

Discount Expense                                                                      300           

Advice staff bonus                                                                  6,800           

Advice staff wages                                                              78,200

Office Staff wages                                                                15,400

TOTAL                                                                                $309,627          $309,627

QUESTION ONE CONTINUED

Additional Information

• The 12-month Content Insurance policy was paid on 1^st July 2018.

• An Accounts Receivable of $1,000 is uncollectible and is to be written off. The policy is to have the Allowance for Doubtful Debts equal to 1% of net Advice Service Revenue.

• The Photocopier is to be depreciated using a unit method; it is anticipated that the photocopier will be kept till it has produced 2,000,000 copies and then be traded in for $10,000. As at 30^th October 2018 it had produced 80,000 copies.

• $1,340 of the Unearned Advice Services Revenue had been earned, but not recorded on 29^th October 2018.

• Advice Staff Wages amounting to $2,600 had been incurred but not yet paid as at 31^st October 2018.

• Office Supplies on hand as at 31^st October were valued at $170.

• $4000 of the Prepaid Rent of Showroom figure relates to the month of November 2018.

A lapel pin manufacturer wants to maximize the profit for two types of lapel pins. A box of American flag lapel pins yields a profit of $2.50 per box, and a box of peace sign lapel pins yields a profit of $2.00 per box. Market tests and available resources have indicated the following constraints:

• The combined production level should not exceed 1200 boxes per month.
• The demand for a box of peace sign lapel pins is no more than half the demand for a box of American flag lapel pins.
• The production level for American flag lapel pins should be less than or equal to 600 boxes plus three times the production level for peace sign lapel pins.

Find the number of boxes of each type of lapel pin to maximize the profit.

Write your answer in a complete sentence.

Use algebra and graphical linear programming techniques to solve the problem.

Algebra must be used to find corner points.

The American diet isn't as healthy as it could be. As it has become easier to obtain and prepare food, the amount of food we eat has increased. American adults eat more calories than they did 50 years ago primarily due to larger portion sizes, especially from fast foods, and an increase in the frequency of snacking and calories consumed from those snacks. As a result, over two-thirds of American adults weigh more than they should.

Think About This:
Americans are replacing more and more home cooked meals with meals from fast food restaurants. What is the cost of this convenience?

In Your Topic Post: In your own words;

• Why do you think Americans today rely more on prepackaged and restaurant meals than our grandparents did?
• Share what you see as the nutritional impacts of this trend?
• Share 1-2 obstacles you face when it comes to healthy food choices.

IRISH CASE STUDY The O’Rourke family lives on a small farm in Iowa and comprises David, aged 30; his wife, Mary, aged 29; and two children: Bridget, aged 7, and Michael, aged 6. Both David and Mary are second-generation Irish. Before purchasing their farm 5 years ago, David sold farm equipment in Ohio. The O’Rourkes are Catholic; Mary converted to Catholicism when they married. 7.Describe the O’Rourke family’s communication patterns. 8.What are the predominant health conditions among Irish immigrants? 9.Explain the significance of the Great Potato Famine for Irish Americans. 10. Name two genetic diseases common among Irish Americans. 11. Identify accepted fertility practices for Irish American Catholics. 12.Identify three sources of strength for the Irish American in times of illness. 13. Identify traditional home remedies commonly used by Irish American

3. (a) Define the term ‘credit risk’ and describe the key inputs required in models of credit risk. (b) Suppose that you are working for a bank who has lent €5 million Euro to firm YZ. Your manager is concerned about its ability to meet its repayments. Advise your manager as to how you can hedge this credit risk? Provide a numerical example. (c) An American call option on a non-dividend paying stock, with a strike price of $100 and an expiry date in six months, currently sells for $5. The underlying asset currently trades for $95 per share and the risk-free rate of interest is 10%. What are the upper and lower price bounds for an American put option written on the same stock, with the same strike price and same time to maturity? Why is it not possible to derive a parity condition for American options on non-dividend paying stocks?

Ryan and Robin met at Rockhurst university and after graduation in 2020; they decided to form a business to market American flags, “buy American” bumper stickers, and other similar merchandise. The merchandise would be manufactured in China and sold initially only in Missouri. Ryan wants to operate the business as a partnership; while Robin wants to organize the business as a regular C corporation. Limit your answers for the first two question to these two business forms (3 points each)

a) Explain Ryan’s position. Be specific.

b) Explain Robin’s position

They have decided initially to do business only in Missouri. Their medium range plan (in the next 5 years) is to do business in 30 American states. Their long-term plan (in the next 20 years) is to be a multinational public firm with shareholders all over the world.

1. What business form do you recommend for the short term? Why?

2. What business form do you recommend for the medium term? Why?

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. In payment for the $5.0 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2018.
4. Prepare the journal entry for the third installment payment on December 31, 2020.

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2021. In payment for the $5.9 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 11%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2021.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2021.
4. Prepare the journal entry for the third installment payment on December 31, 2023.

American Steel has issued $50 million in long-term bonds, with a face value of $1,000 paying a 9% coupon. The bonds are now trading at a 15% premium to their face value providing a yield-to-maturity of 7%. The firm also has 1.5 million shares of common stock that were issued at $43/share at the company’s IPO and are currently trading at $56/share. American Steel is a mature firm that paid a $7 dividend last year, and dividends are expected to grow at 2% indefinitely. American Steel also has 500,000 preferred shares issued that are trading at $10/share with a dividend of $1. Treasury bills are currently yielding 5%, the firm has a Beta of 1.1, and its tax rate is 35%. Please show your answer to one decimal place.

i) What is the value of the firm?

ii)What is the market value of the firm’s debt and equity (common/pref)?

iii) What is the firm’s weighted average cost of capital?