1. You bought a $1,000 par GM callable bond in January 2020 that is callable in 2025 at par. It has a coupon rate of 3.2%/year. When is GM likely to call the bond?
2. You bought a $1,000 par Southern Company bond on April 1. The bond pays a coupon rate of 4%/year semiannually on December 1 and June 1. How much accrued interest did you pay?

North Company has completed all of its operating budgets. The sales budget for the year shows 50,640 units and total sales of $2,354,100. The total unit cost of making one unit of sales is $23. Selling and administrative expenses are expected to be $305,500. Interest is estimated to be $11,620. Income taxes are estimated to be $225,500.

Prepare a budgeted multiple-step income statement for the year ending December 31, 2020.

Mattel Toys.  Mattel is a​ U.S.-based company whose sales are roughly​ two-thirds in dollars​ (Asia and the​ Americas) and​ one-third in euros​ (Europe). In​ September, Mattel delivers a large shipment of toys​ (primarily Barbies and Hot​ Wheels) to a major distributor in Antwerp. The​ receivable, €32 ​million, is due in 90​ days, standard terms for the toy industry in Europe.​ Mattel's treasury team has collected the following currency and market quotes in the popup​ window: The​ company's foreign exchange advisors believe the euro will be at about ​$1.4219​/€ in 90 days.​ Mattel's management does not use currency options in currency risk management activities. Assume a​ 360-day financial year.

a. How much in U.S. dollars will Mattel receive in 90 days without a hedge if the expected spot rate in 90 days is the same as the current spot rate of $1.4145​/€​? The Credit Suisse forward rate of ​$1.4185​/€​? The Barclays forward rate of $1.4181/€​? The expected spot rate of ​$1.4219​/€​?

b. How much in U.S. dollars will Mattel receive in 90 days if the accounts receivable is covered by the Credit Suisse​ 90-day forward​ contract? The Barclays​ 90-day forward​ contract?

c. How much in U.S. dollars will Mattel receive in 90 days with a money market​ hedge?  

d. Advise Mattel on which hedging alternative is probably preferable.                                      

The traditional U.S. auto industry (the Big Three) has struggled for many years against competition from foreign-owned automobile companies. Their struggle was dramatically heightened in 2008 with the world-wide credit crunch and economic slowdown.

Automakers came to Washington in late 2008 asking for Federal financial aid to avoid bankruptcy and possible liquidation. Their reception was chilly, but after heated debate, General Motors and Chrysler were granted government loans and loan guarantees. Ford Motor Company decided to rescind its request for government aid in order to avoid the conditions placed upon the proffered loans. At present, Ford and General Motors are profitable again; Chrysler continues to struggle but is making some economic headway. As part of the conditions placed upon the economic assistance, Chrysler is now controlled by Fiat.

Should the U.S. Government (which means, the U.S. taxpayers) have aided the automobile industry? Why or why not? As part of your discussion, keep in mind that the U.S. already has another successful automobile manufacturing industry, but it is not centered in the north of the country. Toyota, Honda, Daimler-Benz, and others have manufacturing plants in the South that, although impacted by credit crunches and recessions, have done well while the Big Three struggled.

What policy towards the automakers should we pursue? Should government leaders have provided outright grants to struggling automakers; what about more loans or loan guarantees? Should we have stood back and let the market determine which companies stood or fell? Should we have encouraged mergers, and, if so, based on what criteria?

On November 1, 2017, Whispering Company adopted a stock-option plan that granted options to key executives to purchase 27,300 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $409,500.

All of the options were exercised during the year 2020: 18,200 on January 3 when the market price was $68, and 9,100 on May 1 when the market price was $78 a share.

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Question 4

K Manufacturers has the following marginal income statement for 2019:

Marginal income statement for the year ended December 31, 2019

Sales (300,000 units @ GH¢40)                                                                     GH¢12,000,000

Variable costs of goods sold (300,000 units @ GH¢24)                                       (7,200,000)

Manufacturing profit                                                                                              4,800,000

Variable selling and distribution cost (300,000 units @ GH¢2.4)                            720,000

Contribution                                                                                                            4,080,000

Fixed Cost                                                                                                              3,536,000

            Manufacturing cost                                                     GH¢2,160,000

            Selling and distribution cost                                                 500,000

            Administration costs                                                           876,000

Net profit                                                                                                                   544,000

Required

i. Calculate the company’s break-even quantity and the sales value for 2019.

ii. Calculate the number of units that have to be sold in 2019 if the company wishes to earn a net profit (after tax) of GH¢1,088,000 in 2020. Assume that the selling price, variable cost and total fixed costs are the same as those in 2019. Assume a tax rate of 25%.                                                                                                       

iii. Calculate the break-even quantity for 2020 if the fixed costs of the company increase by GH¢384,000 in order that the variable costs decrease by 40 pesewas per unit and a selling price increased to GH¢43.                                                             

Exercise 9-11 (Video)

Atlanta Company is preparing its manufacturing overhead budget for 2020. Relevant data consist of the following.

Prepare the manufacturing overhead budget for the year, showing quarterly data. (Round overhead rate to 2 decimal places, e.g. 1.25. List variable expenses before fixed expense.)

Timber Merchants Limited supplies fencing materials and landscaping products in Australia. The following transactions relate to a fencing machine that was purchased by the company on 1 July 2017. Timber Merchants Limited is registered for GST and the GST rate is 10%.

REQUIRED:

c) Prepare the journal entries to record the installation of the digging tool on 1 July 2018.

d) Prepare the journal entry to record the sale of the fencing machine on 1 July 2020.

On December 31, 2020, Heffner Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $100 par, cumulative preferred stock outstanding. On February 28, 2021, Heffner purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share. Heffner sold 6,000 of the treasury shares on September 30, 2021, for $47 per share. Net income for 2021 was $540,000. The income tax rate is 25%. Also outstanding at December 31, 2020, were fully vested incentive stock options giving key employees the option to buy 50,000 common shares at $40. The market price of the common shares averaged $50 during 2021. Five thousand 6% bonds were issued at par on January 1, 2021. Each $1,000 bond is convertible into 125 shares of common stock. None of the bonds had been converted by December 31, 2021, and no stock options were exercised during the year.

Compute basic and diluted earnings per share (rounded to 2 decimal places) for Heffner Company for 2021.

Timber Merchants Limited supplies fencing materials and landscaping products in Australia. The following transactions relate to a fencing machine that was purchased by the company on 1 July 2017. Timber Merchants Limited is registered for GST and the GST rate is 10%.

REQUIRED:

c) Prepare the journal entries to record the installation of the digging tool on 1 July 2018.

d) Prepare the journal entry to record the sale of the fencing machine on 1 July 2020.