Questions
Lobo, Inc., a construction contractor, has asked for your advice on the following: New City filed...
Lobo, Inc., a construction contractor, has asked for your advice on the following:
New City filed suit against Lobo at the end of 2018 seeking $10 million in civil penalties and injunctive relief based upon violation of the New City construction code pertaining to green building standards. New City alleged that Lobo had violated the code in various projects undertaken over the past two years. At the end of 2019, the parties had engaged in discovery and begun settlement negotiations. Lobo offered to settle for $500,000. New City rejected this amount and countered with $6 million. Lobo's attorney advised that the ultimate settlement would probably be $3.5 to $5 million based on the information learned in discovery, the settlement negotiations thus far, and the risk and expense of a lengthy trial. Lobo's attorney explained that no amount within that range was better estimate than any other amount. New City follows U.S. GAAP.
Required:
1. What amount (if any) did Lobo make at the end of 2019 (make the entry) to accrue a loss? Why (what conditions must be satisfied for such an accrual)? Was any disclosure required? If so, be specific as to any amounts that should be disclosed and feel free to draft the disclosure note. (You also must cite the applicable provisions of the ASC).
2. Now assume that Lobo properly made an accrual as a litigation loss of $4.3 million in 2019. In late-2020, Lobo entered into a full settlement with the City for a total of $2 million to cover the cost of the violation. What journal entry (if any) should Lobo make at the end of 2020? Why? Hint: What kind of change is this?
In: Accounting
Polaski Company
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and sales are given below:
The Rets normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 Rets per year.
Required:
1. Assume that due to a recession, Polaski Company expects to sell only 25,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 5,000 units. This machine would cost $10,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted.
2. Refer to the original data. Assume again that Polaski Company expects to sell only 25,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?
3. Assume the same situation as that described in (2) above, except that the company expects to sell 30,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 5,000 Rets. If the Army’s order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channels?
In: Accounting
Parole Co. has 77,910 bonds outstanding that are selling at par value. The bonds yield 8.5...
Parole Co. has 77,910 bonds outstanding that are selling at par value. The bonds yield 8.5 percent. The company also has 5.4 million shares of common stock outstanding. The stock has a beta of 1.2 and sells for $46.3 a share. The U.S. Treasury bill is yielding 3.5 percent and the market risk premium is 8.3 percent. Parole's tax rate is 32 percent. What is the firm's weighted average cost of capital? Enter answer in percents.
In: Finance
Identify and describe 2 observable impairments of a person with an acquired brain injury
Identify and describe 2 observable impairments of a person with an acquired brain injury
In: Nursing
On February 1, 2018, Cromley Motor Products issued 12% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 12% bonds, dated February 1, with a face amount of $65 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 14%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $65,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020.
In: Accounting
On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 6% bonds,
dated February 1, with a face amount of $40 million. The bonds
mature on January 31, 2022 (4 years). The market yield for bonds of
similar risk and maturity was 8%. Interest is paid semiannually on
July 31 and January 31. Barnwell Industries acquired $55,000 of the
bonds as a long-term investment. The fiscal years of both firms end
December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020.
In: Accounting
On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 8% bonds,
dated February 1, with a face amount of $75 million. The bonds
mature on January 31, 2022 (4 years). The market yield for bonds of
similar risk and maturity was 10%. Interest is paid semiannually on
July 31 and January 31. Barnwell Industries acquired $75,000 of the
bonds as a long-term investment. The fiscal years of both firms end
December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020
In: Accounting
On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 8% bonds,
dated February 1, with a face amount of $75 million. The bonds
mature on January 31, 2022 (4 years). The market yield for bonds of
similar risk and maturity was 10%. Interest is paid semiannually on
July 31 and January 31. Barnwell Industries acquired $75,000 of the
bonds as a long-term investment. The fiscal years of both firms end
December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020.
In: Accounting
On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face amount of $75 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $75,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds issued on February 1, 2018. 2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity. 2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity. 3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018. 4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020
In: Accounting
On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face...
On February 1, 2018, Cromley Motor Products issued 6% bonds,
dated February 1, with a face amount of $55 million. The bonds
mature on January 31, 2022 (4 years). The market yield for bonds of
similar risk and maturity was 8%. Interest is paid semiannually on
July 31 and January 31. Barnwell Industries acquired $55,000 of the
bonds as a long-term investment. The fiscal years of both firms end
December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1. Determine the price of the bonds issued on February 1,
2018.
2-a. Prepare amortization schedules that indicate
Cromley’s effective interest expense for each interest period
during the term to maturity.
2-b. Prepare amortization schedules that indicate
Barnwell’s effective interest revenue for each interest period
during the term to maturity.
3. Prepare the journal entries to record the
issuance of the bonds by Cromley and Barnwell’s investment on
February 1, 2018.
4. Prepare the journal entries by both firms to
record all subsequent events related to the bonds through January
31, 2020.
In: Accounting