Problem 16-09
Cost of Trade Credit
Grunewald Industries sells on terms of 3/10, net 30. Gross sales last year were $4,247,000 and accounts receivable averaged $457,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.
| Nominal cost | % |
| Effective cost | % |
In: Finance
Fundamental analysis uses information in a firm’s financial statements and other sources of public
information to assess a firm’s expected future performance, and hence its likely value. Firms with
estimated values greater than their current prices are then recommended as buys and those with values
lower than the current price as sells.
Intergalactic Software Company went public three months ago. You are a sophisticated investor who
devotes time to fundamental analysis as a way of identifying mispriced stocks. Which of the following
characteristics would you focus on in deciding whether to follow this stock?
Market capitalization (will influence the extent of interest of institutional interests)
The average number of shares traded per day
The bid-ask spread for the stock
Whether the underwriter that brought the firm public is a top tier investment banking firm
Whether the firm’s audit company is a Big Four firm
Whether there are analysts from major brokerage firms following the company
Whether the stock is held mostly by retail or by institutional investors
Include in your response: What is a sophisticated investor and a comprehensive description of what is
included in a fundamental analysis of a company.
In: Accounting
The following is the balance sheet of Korver Supply Company at December 31, 2017. KORVER SUPPLY COMPANY Balance Sheet At December 31, 2017
Assets
Cash $ 120,000
Accounts receivable 300,000
Inventories 200,000
Furniture and fixtures, net 150,000
Total assets $ 770,000
Liabilities and Shareholders’ Equity
Accounts payable (for merchandise) $ 190,000
Note payable 200,000
Interest payable 6,000
Common stock 100,000
Retained earnings 274,000
Total liabilities and shareholders' equity$ 770,000
Transactions during 2018 were as follows:
1. Sales to customers on account $ 800,000
2. Cash collected from customers 780,000
3. Purchase of merchandise on account 550,000
4. Cash payment to suppliers 560,000
5. Cost of merchandise sold 500,000
6. Cash paid for operating expenses 160,000
7. Cash paid for interest on note 12,000
The note payable is dated June 30, 2017 and is due on June 30, 2019. Interest at 6% is payable annually on June 30. Depreciation on the furniture and fixtures for the year is $20,000. The furniture and fixtures originally cost $300,000.
Required: Prepare a classified balance sheet at December 31, 2018 (ignore income taxes).
In: Accounting
QUESTION 1
Which of the following is the correct reversing entry?
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Depreciation Expense 1550 |
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Interest Revenue 2350 |
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Salary Expense 1980 |
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Income Tax Expense 2500 |
QUESTION 2
Prior to preparing the organization's financial statements, the accountant prepares
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a balance sheet |
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a post-closing trial balance |
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an adjusted trial balance |
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a closed trial balance |
QUESTION 3
On April 1, 2014, Miller Company paid $6,280 for a two-year insurance policy. On that date, the company charged an asset account. The correct December 31, 2014, adjusting entry would be
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Prepaid Insurance 3,140 |
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Insurance Expense 2,355 |
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Prepaid Insurance 2,355 |
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Insurance Expense 3,925 |
QUESTION 4
Which of the following rules is incorrect?
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The accounting equation must always remain in balance. |
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Asset accounts are increased by debit entries and decreased by credit entries. |
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Expense accounts normally have debit balances. |
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Common stock accounts are increased by debit entries and decreased by credit entries. |
QUESTION 5
Which of the following is a permanent account?
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Dividend Revenue |
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Allowance for Doubtful Accounts |
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Interest Expense |
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Sales Revenue |
In: Accounting
3. (LESSOR ENTRIES FOR FINANCING LEASE WITH A GUARANTEED RESIDUAL)
The following facts pertain to a non-cancelable lease agreement between Ace Leasing Company and King Company, a lessee.
Commencement of Lease Date January 1, 2020
Annual lease payment due at the beginning of the year beginning with January 1, 2020 $137,171
Residual value of equipment at end of lease term, guaranteed by lessee $54,000
Book Value of Lease Equipment on LESSOR books $500,000
Lease term 6 years
Economic life of leased equipment 7 years
Fair Value of asset at January 1, 2020 $659,000
Lessor’s Implicit Rate 12% Lessee’s incremental borrowing rate 12%
The asset will revert to the lessor at the end of the lease term. You examined this lease from the Lessee prospective in problem #1. Based on the tests you found it was a financing lease. In this problem you will complete the LESSOR entries. You do not need to redo the tests – it is still a financing lease with a guaranteed residual
A. Prepare the entry on the Lessor’s book to record this Lease on 1/1/2020. You will need to compute the Lease Receivable debit, the CGS debit, the Equipment credit and the Sale Revenue credit to complete the entry.
B. Complete the entry to receive the first rental payment on 1/1/2020.
C. Prepare the interest revenue amortization schedule for the first two years and prepare the interest revenue entry for 12/31/2020.
In: Accounting
CVP Analysis of Multiple Products
Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 80,000 regular models and 16,000 deluxe models. A segmented income statement for the two products is as follows:
| Regular Model | Deluxe Model | Total | ||||
| Sales | $12,000,000 | $10,720,000 | $22,720,000 | |||
| Less: Variable costs | 7,200,000 | 6,432,000 | 13,632,000 | |||
| Contribution margin | $4,800,000 | $4,288,000 | $9,088,000 | |||
| Less: Direct fixed costs | 1,200,000 | 960,000 | 2,160,000 | |||
| Segment margin | $3,600,000 | $3,328,000 | $6,928,000 | |||
| Less: Common fixed costs | 1,475,200 | |||||
| Operating income | $5,452,800 |
Required:
1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.
| Regular models | fill in the blank 1 units |
| Deluxe models | fill in the blank 2 units |
2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.
| Contribution margin ratio | fill in the blank 3 |
| Revenue |
In: Accounting
Feng Disc Golf Course was opened on March 1.
The following selected events and transactions occurred during March (amounts in thousands).
Mar. 1 Lee Feng invested￥20,000 cash in the business in exchange for ordinary shares.
3 Purchased Rainbow Golf Land for￥15,000 cash. The price consists of land ￥12,000, building ￥2,000, and equipment ￥1,000. (Make one compound entry.)
5 Paid advertising expenses of ￥900
6 Paid cash ￥600 for a one-year insurance policy.
10 Purchased golf discs and other equipment for ￥1,050 from Wang Company payable in 30 days.
18 Received ￥1,100 in cash for golf fees (Feng records golf fees as service revenue).
19 Sold 150 coupon books for ￥10 each. Each book contains 4 coupons that enable the holder to play one round of disc golf.
25 Declared and paid a ￥800 cash dividend
30 Paid salaries of ￥250
30 Paid Wang Company in full
31 Received ￥2,700 cash for golf fees
Feng Disc Golf uses the following accounts: Cash, Prepaid Insurance, Land, Building, Equipment, Accounts payable, Unearned Service Revenue, Share Capital-Ordinary, Dividends, Service Revenue, Advertising Expense, and Salaries and Wages Expense.
Instructions
Journalize the March transactions
In: Accounting
Exercise 9-16 Flexible Budgets and Revenue and Spending Variances [LO9-1, LO9-3]
Via Gelato is a popular neighborhood gelato shop. The company has provided the following cost formulas and actual results for the month of June:
| Fixed Element per Month |
Variable Element per Liter |
Actual Total for June |
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| Revenue | $ | 12.00 | $ | 71,540 | |||||
| Raw materials | $ | 4.65 | $ | 29,230 | |||||
| Wages | $ | 5,600 | $ | 1.40 | $ | 13,860 | |||
| Utilities | $ | 1,630 | $ | 0.20 | $ | 3,270 | |||
| Rent | $ | 2,600 | $ | 2,600 | |||||
| Insurance | $ | 1,350 | $ | 1,350 | |||||
| Miscellaneous | $ | 650 | $ | 0.35 | $ | 2,590 | |||
While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $5,600 plus $1.40 per liter of gelato sold and the actual wages for June were $13,860. Via Gelato expected to sell 6,000 liters in June, but actually sold 6,200 liters.
Required:
Calculate Via Gelato revenue and spending variances for June. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
In: Accounting
Suppose a company's revenue function is given by
R(q)=−q^3+360q^2 and its cost function is given by C(q)=300+19q
where q is hundreds of units sold/produced, while R(q) and C(q) are
in total dollars of revenue and cost, respectively.
A) Find a simplified expression for the marginal profit function.
(Be sure to use the proper variable in your answer.)
MP(q)=
B) How many items (in hundreds) need to be sold to maximize
profits? (Round your answer to two decimal places.)
Answer: hundred units must be sold.
In: Math
| units of labor | marginal revenue proudct |
| 0 | |
| 1 | 30 |
| 2 | 24 |
| 3 | 18 |
| 4 | 15 |
| 5 | 12 |
| 6 | 10 |
Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid $9, the third $12, and so on). The marginal revenue product of labor is given in the table .
a. Draw the firm’s labor supply and marginal resource cost curves.
Are the labor supply and MRC curves the same or different? If they are different, which one is higher?
b. What is the competitive equilibrium wage rate?
What is the equilibrium level of employment?
c. What is the wage rate under monopsonistic conditions?
What is the equilibrium level of employment under monopsonistic conditions?
By how much does the monoposonist reduce wages below the competitive wage?
By how much does the monopsonist reduce employment below the competitive level?
In: Economics