1. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•A: Journalize all related year 2 transactions.

•B: What is the net realizable value (NRV) of A/R at the start of year 2?

•C: What is the NRV of A/R at the end of year 2, before any adjusting entries?

•D: What is the NRV of A/R at the end of year 2, after adjusting entries?

2. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $200,000 in sales, and collects $185,000 from customers

•Lucero writes-off $22,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•At year end, Lucero estimates that 4% of their A/R balance will prove uncollectible.

•Questions:

•E: What was the necessary adjusting entry at the end of year 2?

•F: What is the NRV of A/R at the end of year 2, after adjusting entries?

3. Lucero, Inc. starts their 2nd year of operations with $15,000 in their allowance for doubtful accounts and $175,000 in their A/R account

• During the year:

•Lucero makes $202,000 in sales, and collects $185,000 from customers

•Lucero writes-off $12,000 in specific accounts receivable

•Additionally, a previously written-off customer pays an old bill of $2,000

•After adjusting entries, Lucero shows $19,800 in their allowance for doubtful accounts.

•Questions:

•G: What adjusting entry was made at the end of year 2?

•H: What was Lucero’s estimate % of uncollectible A/R?

4. Lucero, Inc. starts their 2nd year of operations with $175,000 in their R/E account, and $75,000 in A/R. They use the direct write-off method for bad debts

• During year 2:

•Lucero writes-off $20,000 in specific accounts receivable relating to year 1.

•Questions:

•I: Journalize the year 2 entry.

•J: What is the theoretical weakness to this method? (what is meant by it being a “bad match”?)

You and your significant other are going to have a baby one year from now.

Of course your little pride-and-joy is going to be cute AND smart. After much consultation, your significant other and you have decided that you want the little one to go to a private four-year college in the United States. However, private colleges are very expensive. The average current cost is estimated to be around $43,921 per year, including tuition, fees, room, and board. You expect these costs to increase by 3% per year beyond the current annual rate of inflation of 2%.

Your child will most likely begin college eighteen (18) years after birth. Colleges tend to demand payment of the annual cost at the beginning of each year. You expect to invest your money in a manner that returns 7.50% per year over the foreseeable future. You want to start saving soon. In fact, you plan to invest money every year. To be precise, you will put away money once a year, starting when the baby is born, and ending one year prior to the beginning of your child’s first year in college.

A. Suppose you want to save the same (constant) amount each year in nominal dollars. How much will you have to save each year so that there is enough money to send your child to college?

B. (13 points) Now suppose that you want to save a constant percentage of your salary every year. Assume that your current household income is $100,000 per year, and assume that it will grow at the rate of inflation over the foreseeable future. What (constant) percentage of your salary will you have to save each year so that there is enough money to send your child to college? What is the constant amount you will save every year in real dollars, and what are the corresponding (increasing) amounts saved in nominal dollars each year?

Hint 1: For part A, verify your work by calculating the value of the savings account each year and make sure it starts at $0 and ends at $0.

Hint 2: Your answers to parts A and B must be the same in present value terms.

1 I.e., college costs will increase by (1+0.02)*(1+0.03)-1 per year for the foreseeable future.

Bramble Consulting started the year with total assets of $60500 and total liabilities of $15600. During the year, the business recorded $47900 in consulting revenues and $29300 in expenses. Bramble made an additional investment of $8900 and withdrew cash of $14900 during the year. Owner’s equity changed by what amount from the beginning of the year to the end of the year?

a. 2500

b. 12,600

c. 15,100

d. 44,900

Current one-year rates are 3% in Switzerland and 5% in USA. The current spot rate is 1.12 Sf/$.

1. What is the expected (in one year) future FX rate according to Interest Rate Parity? Use exact equation.
2. What is the synthetic one-year forward rate?
3. What is the market one-year forward rate?
4. How much is the one-year forward premium on the Swiss Franc?

Using an excel document and formula: Cannonier, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future value at a discount rate of 11 percent? At 24 percent?

Year Cash Flow 1 $1,225

Year 2 1,345

Year 3 1,460

Year 4 1,590

On January 1, Year 1, Beatie Co. borrowed $240,000 cash from Central Bank by issuing a five-year, 6 percent note. The principal and interest are to be paid by making annual payments in the amount of $56,975. Payments are to be made December 31 of each year, beginning December 31, Year 1.

a) Required Prepare an amortization schedule for the interest and principal payments for the five-year period.

Due to a recession, expected inflation this year is only 2.75%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.75%. Assume that the expectations theory holds and the real risk-free rate (r*) is 1.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 1.5%, what inflation rate is expected after Year 1?