Hot Pockets Corporation is considering going public. Managers want to estimate common stock value. The standard deviation of returns for this firm is 20%. The firm’s beta is 0.8. 3-month T-Bills currently trade at a discount to par of 1% on an annualized basis. The expected return on the stock market is 10%. There are 10,000 shares of common stock outstanding. Assume the firm’s capital structure is 50% debt, 50% common equity, the cost of debt is 6%, and the marginal tax rate for the firm is 21%. a) What is the total risk of this firm, and what is its systematic risk? b) What is the expected return of this stock? What is the name of the model you use to estimate it? c) What is the Weighted Average Cost of Capital for the firm? d) If the firm’s estimated free cash flows over the next 3 years are: Year Estimated Free Cash Flow 2018 $100,000 2019 $200,000 2020 $300,000 and after 2020 to infinity, expected free cash flows will grow at a rate of 4% per year: (i) what is the value of its equity outstanding; and (ii) what would be the price per share?

On December 31, 2020, Tamarisk Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $2,200,000 note receivable by the following modifications:

Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $1,440,000 in cash to Tamarisk Bank.

Answer the following questions related to Tamarisk Bank (creditor).

1. Compute the loss Tamarisk Bank will suffer under this new term modification (Loss on restructuring of debt)

2. Prepare the journal entry to record the loss on Tamarisk’s books

3. Prepare the interest receipt schedule for Tamarisk Bank after the debt restructuring.

4. Prepare the interest receipt entry for Tamarisk Bank on December 31, 2021, 2022, and 2023.

5. What entry should Tamarisk Bank make on January 1, 2024?

In the 2013 third quarter, we issued $350 million aggregate principal amount of 3.4 percent Series M Notes due 2020 (the “Series M Notes”). We received net proceeds of approximately $345 million from the offering, after deducting the underwriting discount and estimated expenses. We pay interest on the Series M Notes on April 15 and October 15 of each year, commencing on April 15, 2014.

These Series M Notes are described as: Series M Notes, interest rate of 3.4%, face amount of $350, maturing October 15, 2020 (effective interest rate of 3.6%)

(a) What journal entry would have been recorded in the third quarter of 2013 to record the issuance of the Series M Notes?

(b) Record the interest payment and interest expense on April 15 and October 15, 2014. Assume the effective interest method, and record your responses to the nearest thousand dollars.

April 15:

October 15:

(c) Assume that, at the end of 2014, the prevailing market rate for interest obligations similar to these notes was 4.0%. What would be the approximate net carrying or book value of the notes at the year end? Explain.

. Alpha Ltd has appointed you as a manager in the budgeting department. The company has provided the following information to prepare a cash flow budget for the six months from the 1 January 2021 to 30 June 2021.

1. Alpha Ltd produces only one type of product and the projected selling price of the product is £2 for January and February and after that will be fixed at £3 for the foreseeable future.      
2. For the first three months of the year, 2,000 units will be sold per month. For the following three months, 2,500 units will be sold per month. Sales income is to be received in the month of sale.
3. Insurance costs are £200 every two months. The company will pay for insurance on 1 December 2020.
4. The company is paying 20% of sales of each month as bonus to the employees in the following month. The total sales during December 2020 will be £5,000.
5. Alpha Ltd will pay overhead costs of £2,000 each month.
6. The opening cash balance at 1 January 2021 will be £1,000.
7. The monthly cost of direct material and direct labour is estimated to be £500 and the company will pay them during each month.

viii Fixed costs of production are £100 per month, payable in the month

At the end of its fiscal year 2019, an analyst made the following forecast for ABC, Inc. (in millions of dollars):

ABC has a net debt of $823. Assume that free cash flow will grow at 4 percent per year after 2023. ABC had 300 million shares outstanding at the end of 2019, trading at $75 per share. Using a required return of 10 percent, calculate the following for ABC at the end of 2019 (You have to fill in the table below to show your working process):

1. The enterprise value                                                                          

[5 marks]

2. Equity value                                                                                       

[2 marks]

3. Equity value per share                                                                                   

[2 marks]

4. Based on your estimate, should investors buy the share of this company?

[1 mark]

Kelly Mills Ltd was wound up on 22^nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22^nd August 2020

The following information is relevant

1. The assets were sold and realised the following cash amounts:

                      Inventories                                          $624 000

                      Plant and machinery                            $728 000

2. The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

3. Liquidation costs were $98 800.

4. The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.

T accounts are NOT required.

Kelly Mills Ltd was wound up on 22^nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22^nd August 2020

The following information is relevant

1. The assets were sold and realised the following cash amounts:

Inventories $624 000

Plant and machinery $728 000

2. The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

3. Liquidation costs were $98 800.

4. The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.

T accounts are NOT required.

Miss Socks & Mr. Fore the owners of Jazz Dance Studio have prepared the unadjusted trial balance for Jazz Dance Studio Limited. They know that before they can prepare their financial statements that adjusting journal entries must be prepared but do not know how to make the adjustments. Knowing that you are taking an accounting course they have come to you for assistance. Miss Socks has provided you with the unadjusted trial balance and has gathered the following information for you:

- depreciation has been calculated for the year but hasn't been recorded Equipment

- $2,500 Furniture

- $600

- on August 1 the company paid $4,500 for the rent for August, September & October

- $625 of interestexpense has been incurred but not paid - the balance of office supplies on August 31, 2020 is $1,900.

-Jazz Dance Studio operates 7 days a week and pays it's employees on Saturday for the week then ended. As August 31 falls on a Friday the company owes its employees for 6 days. The total salary for the week ending September 1, 2020 is $5,250

- On August 1 the company received $1,200 from students for dance fees for August, September & October.

Jazz Dance Studio Limited Unadjusted Trial Balance

August 31, 2020

Debit Credit

Cash 75,700

Accounts receivable 1,850

Prepaid rent 4,500

Office supplies 3,600

Equipment 12,500

Accumulated depreciation - equipment 5,000

Furniture 3,600

Accumulated depreciation - furniture 1,800

Accounts payable 4,950

Salary payable -

Interest payable -

Unearned revenue 1,200

Note payable 25,000

Share capital 10,000

Retained earnings 18,600

Revenue 195,000

Advertising expense    9,750

Bank charges expense 1,080

Depreciation expense -

Interest expense -

Office supplies expense 4,900

Repairs expense 6,270

Rent expense 16,500

Salary expense 121,300

261,550 261,550

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

On July 1, 2021, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2021, for $64,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:

1. A fire caused $54,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $44,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $7,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2021, showing 2020 information in comparative format, including income taxes computed at 25% and EPS disclosures assuming 500,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

The management of Nash Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Nash changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2020. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method.

Prepare comparative statements for the 5 years, assuming that Nash changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Nash Instruments started business in 2015. Assume that the number of shares outsanding is 100.