Examine yield curve shapes using daily yield curve rates provided by U.S. department of treasury .

a) Report treasure yield rates (1 month, 3 month, 6 month, 1 year, 2 year, 3 year, 5 year, 7 year, 10 year, 20 year, 30 year) on Jan. 02, 2014, Jan. 02, 2015, Jan. 04, 2016, Jan. 03, 2017, Jan. 02, 2018, Jan. 02, 2019, and Sep. 02, 2019.

b) Compute each term spreads for seven term structures.

c) Plot seven yield curves that show the relation between yields and maturities.

d) Provide your findings thoroughly from b) and c).

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

ONLY NEED PART E

PLEASE SHOW ALL WORK

Company X projects numbers of unit sales for a new project as follows:

81,000 (year 1), 89,000 (year 2), 97,000 (year 3), 92,000 (year 4), and 77,000 (year 5).

The project will require $1,500,000 in net working capital to start (year 0) and require net working capital investments each year equal to 15% of the projected sales for subsequent years (year 1 - 5). NWC is recovered at the end of the fifth year.

Fixed costs (operating expenses) are $1,850,000 per year.

Variable costs are $190/unit, and the units are priced at $345 each.

The equipment needed to begin production has a cost of $19,500,000.

The equipment is qualified for accounting as MACRS depreciation:

Year 1: 14.29%, Year 2: 24.49%, Year 3: 17.49%, Year 4: 12.49%, Year 5: 8.93%

In 5 years, this equipment can be sold for 35% of its acquisition cost (original cost)

The company is in the 35% marginal tax bracket and has a required rate of return of 18%.

(a) Estimate FCF for each year

(b) Calculate NPV, IRR based on the estimated FCF from part a

(c) Create a NPV profile corresponding to discount rates between (6%, 8%, ... 40%)

(d) Do a sensitivity analysis using 2-input data table analyzing NPV given Selling price ($300, $320,...$400) , and VC ($160, $170, ...$210)

(e) Do a scenario analysis (optimistic and pessimistic) and report the summary results for NPV and IRR:

Optimistic case: Variable cost= $160/unit, Fixed cost= $1,600,000, selling price= $400/unit

Pessimistic case: Variable cost= $210/unit, Fixed cost= $2,050,000, selling price= $300/unit

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 94,000 units and sold 76,000 units. During its second year of operations, it produced 80,000 units and sold 93,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $73 per unit.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $72,000.

The company expects to start the first quarter with 1,785 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,985 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

All of the current year's entries for Zimmerman Company have been made, except the following adjusting entries. The company's annual accounting year ends on December 31

On September 1 of the current year, Zimmerman collected six months' rent of $7,980 on storage space. At that date, Zimmerman debited Cash and credited Unearned Rent Revenue for $7,980.

On October 1 of the current year, the company borrowed $15,600 from a local bank and signed a one-year, 13 percent note for that amount. The principal and interest are payable on the maturity date.

Depreciation of $2,400 must be recognized on a service truck purchased in July of the current year at a cost of $23,000.

Cash of $4,200 was collected on November of the current year, for services to be rendered evenly over the next year beginning on November 1 of the current year. Unearned Service Revenue was credited when the cash was received.

On November 1 of the current year, Zimmerman paid a one-year premium for property insurance, $8,160, for coverage starting on that date. Cash was credited and Prepaid Insurance was debited for this amount.

The company earned service revenue of $4,200 on a special job that was completed December 29 of the current year. Collection will be made during January of the next year. No entry has been recorded.

At December 31 of the current year, wages earned by employees totaled $14,100. The employees will be paid on the next payroll date in January of the next year.

On December 31 of the current year, the company estimated it owed $490 for this year's property taxes on land. The tax will be paid when the bill is received in January of next year

2. Using the following headings, indicate the effect of each adjusting entry and the amount of the effect. Use + for increase, − for decrease. (Reminder: Assets = Liabilities + Stockholders’ Equity; Revenues – Expenses = Net Income; and Net Income accounts are closed to Retained Earnings, a part of Stockholders’ Equity.)

Dividends on Preferred and Common Stock

Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $30,000; Year 2, $37,500; Year 3, $60,000; Year 4, $165,000; Year 5, $210,000; and Year 6, $263,000. During the entire period, the outstanding stock of the company was composed of 25,000 shares of 3% preferred stock, $100 par, and 100,000 shares of common stock, $25 par.

Instructions:

1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. If required, round your answers to the nearest cent. If the amount is zero, please enter "0".

2. Calculate the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to the nearest cent.

3. Assuming a market price per share of $118 for the preferred stock and $31 for the common stock, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share for preferred stock and for common stock.

Round your answers to two decimal places.

Answer in Python: show all code

3) Modify your code to take as input from the user the starting balance, the starting and ending interest rates, and the number of years the money is in the account. In addition, change your code (from problem 2) so that the program only prints out the balance at the end of the last year the money is in the account. (That is, don’t print out the balance during the intervening years.)

Sample Interaction:

Enter starting balance: 1000

Enter starting interest rate: 3

Enter ending interest rate: 5

Enter number of years: 5

Interest rate of 3 %:

Balance after year 5 is $ 1159.27

Interest rate of 4 %:

Balance after year 5 is $ 1216.65

Interest rate of 5 %:

Balance after year 5 is $ 1276.28

problem 2 instruction: to reference for this question:

2) For the last assignment you had to write a program that calculated and displayed the end of year balances in a savings account if $1,000 is put in the account at 6% interest for five years.

The program output looked like this:

Balance after year 1 is $ 1060.0

Balance after year 2 is $ 1123.6

Balance after year 3 is $ 1191.02

Balance after year 4 is $ 1262.48

Balance after year 5 is $ 1338.23

Modify your code so that it displays the balances for interest rates from three to five percent inclusive, in one percent intervals. (Hint: Use an outer loop that iterates on the interest rate, and an inner one that iterates on the year.)

Output:

Interest rate of 3 %:

Balance after year 1 is $ 1030.0

Balance after year 2 is $ 1060.9

Balance after year 3 is $ 1092.73

Balance after year 4 is $ 1125.51

Balance after year 5 is $ 1159.27

Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100% of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply:

1. The equipment falls in the MACRS 3-year class.
2. Estimated maintenance expenses are $54,000 per year.
3. The firm's tax rate is 32%.
4. If the money is borrowed, the bank loan will be at a rate of 13%, amortized in six equal installments at the end of each year.
5. The tentative lease terms call for payments of $280,000 at the end of each year for 3 years. The lease is a guideline lease.
6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance.
7. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $160,000, but it could be much higher or lower under certain circumstances. If purchased at Year 3, the used equipment would fall into the MACRS 3-year class. Sadik would actually be able to make the purchase on the last day of the year (i.e., slightly before Year 3), so Sadik would get to take the first depreciation expense at Year 3 (the remaining depreciation expenses would be at Year 4 through Year 6). On the time line, Sadik would show the cost of the used equipment at Year 3 and its depreciation expenses starting at Year 3.

You are an auditor in Smit & Chandra, a mid-tier audit firm. Your firm is the incumbent auditor on Biotech Ltd, a pharmaceutical company. Since the previous audit, the company has listed on the Australian Securities Exchange which means the company has to meet additional reporting regulations. Due to rapid growth, Biotech Ltd is financially stretched and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Australian Financial Review, which stated that Biotech Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll.

Biotech Ltd is a pharmaceutical company, developing drugs to be licensed for use around the world. Products include medicines such as tablets, medical gels and creams. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. Drugs must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2020 financial year, Biotech Ltd lost several customer contracts to overseas competitors.

Biotech Ltd approached its bank during the year to extend its borrowing facilities. An extension of $20 million was sought to its existing loan to support the on-going development of new drugs. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3.5:1.

In addition, the company asked the bank to make cash of $5 million available if an existing court case against the company is successful. The court case is being brought by an individual who suffered severe side effects when participating in a clinical trial in 2016.

On 8 June 2020, the Company announced to the market it had been the victim of a cyber-security incident that resulted in supplier and customer details being disclosed on the dark web. The Company is assessing the costs of the incident and the subsequent reduction in revenue. The Company expects this to have a material impact on future earnings.

In December 2019, the internal audit department of Biotech Ltd performed a review of the operation of controls over processing of overtime payments in the Payroll department. It was found that the company’s specified internal control procedures in relation to the processing of overtime payments were not followed.

Below are some results of the analytical review procedures performed by the Senior Auditor (David) during the planning stage:

Sales                                                                                                            12.5% decrease since prior year

Net profit after tax                                                                                20% decrease since prior year

Accounts payable                                                                                   15% decrease since prior year

Cash at Bank                                                                                             16% increase since prior year

Accounts receivable                                                                              18% increase since prior year

Inventories                                                                                               6%   increase since prior year

Current ratio:                                                                                            3.6:1

Debt to Equity ratio:                                                                               0.6

Minutes from the Audit Planning meeting with Simon Jones (Finance Director of Biotech Ltd) held on 30^th April 2020:

Due to the current government restrictions, the planning meeting with Simon Jones was held via Zoom. In attendance at the meeting was the Audit Partner (Michael), the Audit Manager (Amanda) and the Audit Senior (David).

The following key items were discussed during the meeting:

• Mr Jones raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor in future.
• Michael reminded Mr Jones that fees relating to the audit engagement from the previous year were still outstanding.
• Both Michael and Mr Jones also discussed the range of non-audit services provided to Biotech Ltd, which includes payroll preparation, tax computation and advice.
• Mr Jones gave the audit team an update on the court case pertaining to the individual who suffered severe side effects from a company trial (refer above). According to legal advice provided to Mr Jones by the company’s legal counsel, it is more likely than not that Biotech will lose the court case, which would result in a significant amount of cash having to be paid as a settlement.
• Amanda asked Mr Jones if he considered the decline in profitability as an indicator of a material uncertainty surrounding the going concern assumption. Mr Jones responded by saying, “Look, everything might seem dire, but we have it under control. We will be here this time next year, so keep that in mind”. Michael then looked at Amanda and David and said, “Make sure that you mention the conversation that we have just had with Mr Jones about the appropriateness of the going concern assumption in the audit working papers. This should be sufficient enough audit evidence for us.”
• Mr Jones also mentioned the following: “As you know, Biotech Ltd has a Goodwill asset on the balance sheet. This is an indefinite useful life intangible asset. In accordance with the Accounting Standards (AASB 138), we are required to test the asset for impairment every year. We usually prepare a Value in Use calculation based on discounted future cash flows that we expect to generate in the next five years. I have completed this year’s calculation by rolling forward the prior year’s calculation and have just updated the dates. There was no need to update the future cash flow figures.”

The Audit Team

The audit team consists of 4 people. The partner is Michael. He has been the audit partner on the Biotech Ltd audit for 6 years. The audit manager is Amanda. This is Amanda’s first time on the Biotech Ltd audit. David is the audit senior and is responsible for the initial audit planning. David has recently completed the Graduate Diploma of Chartered Accounting. David has just been offered a well-paying accountant position at Biotech but he has not yet decided whether to accept the position. The graduate on the audit is Audrey. Audrey’s friend is the receptionist at Biotech Ltd. The receptionist has no accounting knowledge and has no involvement with the recording or processing of accounting transactions.

Accounts Receivable / Sales Accounting Cycle and Internal Control System

At the end of each month, the sales manager determines the amount of products required to meet sales demand for the following month based on sales orders received. He reviews the sales orders received from customers and then prepares the pre-numbered inventory requisition forms, which he then sends to the warehouse managers so that they can prepare the goods for delivery. One copy of the sales order and inventory requisition form is sent to the warehouse, one copy is sent to the accounts receivable department and one copy is filed in the sales department.

The warehouse prepares the goods for delivery to the customers and generates the delivery document. When the goods have been delivered, the signed delivery document, which includes the delivery details, is forwarded to the accounts receivable department. The other copy is filed in the warehouse. The accounts receivable clerk matches the signed delivery document with the sales order and inventory requisition form. Once satisfied that all of the details agree, the clerk generates the sales invoice. Once generated, the clerk does another check to ensure that all details per the sales invoice agrees to the delivery document and sales order. Once satisfied, she writes “checked” on the sales invoice and sends it to the customer. At the end of every week, a different clerk in the Accounts Receivable team reviews the bank statements for receipt of payments from customers and performs a reconciliation against the sales invoices. Once a customer has paid the sales invoice, the clerk stamps “received” on the sales invoice and files that along with all the other documents in date order.

The walk-through of the accounts receivable/sales cycle confirmed that the accounting and internal control system was working as documented above.

Test of control:

As part of the audit, Audrey tested the controls over the accounts receivable system. She selected a sample of twenty sales transactions and tested the control that all details had been checked. Out of the 20 sales transactions that were selected for testing, 5 sales invoices in the sample did not have the word “checked” written on them. When documenting the results of the test performed, Audrey concluded that the internal control did not operate effectively and consistently throughout the year but that no further audit work is required.

Substantive test

In order to test the occurrence of the sales transactions, Audrey selected a sample of sales invoices and traced them to the General Ledger to test that they were properly recorded.

Subsequent events not previously mentioned

• One of Biotech Ltd’s major customers went into liquidation in July 2020. The balance due from the customer at 30 June 2020 was $564,000. This is a material amount. There has been no provision/allowance for doubtful debts raised for this debtor in the financial statements for the year ended 30 June 2020. Biotech Ltd’s legal adviser stated in a telephone call that that the probability of any funds being received from the debtor is remote.

• On 2 July 2020, Biotech Ltd declared a one-for-five rights issue of 100,000 shares at $2.20. These shares were payable in full on 31 July 2020.

What are the strengths and weaknesses in the payroll cycle?

What misstatements this control should prevent? State the control test that one could undertake to the test the control is operating as expected?