1.a Sheridan Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,088,700 of 14% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 12%.
As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Selling price of the bonds = ?
1.b
Shamrock Corporation, having recently issued a $20,069,100,
15-year bond issue, is committed to make annual sinking fund
deposits of $616,800. The deposits are made on the last day of each
year and yield a return of 10%.
Future value of an ordinary annuity = ?
1. c Under the terms of his salary agreement, president Chris
Walters has an option of receiving either an immediate bonus of
$55,000, or a deferred bonus of $70,000 payable in 10 years.
Ignoring tax considerations and assuming a relevant interest rate
of 4%, which form of settlement should Walters accept?
Present value of deferred bonus = ?
In: Accounting
In 2022, Draper Company discovered errors made in 2019-2021, its first three years of operation.
|
2021 |
2020 |
2019 |
|
|
Items not recognized: |
|||
|
Prepaid expenses |
$1,300 |
$900 |
$550 |
|
Unearned Revenues |
950 |
700 |
800 |
|
Other information: |
|||
|
Reported net income |
$23,000 |
$25,000 |
$20,000 |
|
Dividends declared and paid |
4,100 |
2,600 |
5,000 |
|
Common stock and additional paid in capital at 12/31 |
22,000 |
17,000 |
15,000 |
Indicate the error in 12/31/21 Retained Earnings:
Select one:
a. $400 overstated
b. $350 overstated
c. $400 understated
d. $350 understated
e. $550 understated
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In 2022, Draper Company discovered errors made in 2019-2021, its first three years of operation.
|
2021 |
2020 |
2019 |
|
|
Items not recognized: |
|||
|
Prepaid expenses |
$1,300 |
$900 |
$550 |
|
Accrued expenses |
950 |
700 |
800 |
|
Other information: |
|||
|
Reported net income |
$23,000 |
$25,000 |
$20,000 |
|
Dividends declared and paid |
4,100 |
2,600 |
5,000 |
|
Common stock and additional paid in capital at 12/31 |
22,000 |
17,000 |
15,000 |
Corrected 12/31/21 Total Equity will be:
Select one:
a. $78,450
b. $110,300
c. $77,950
d. $110,650
e. $78,650
In: Accounting
In: Operations Management
PRODUCT SAFETY
As a brand manager at a large food manufacturer, you’re positioning a new product for entry into the highly competitive snack food market. This product is low in fat and calories, and it should be unusually successful, especially against the rapidly growing pretzel market. You know that one of your leading competitors is preparing to launch a similar product at about the same time. Since market research suggests that the two products will be perceived as identical, the first product to be released should gain significant market share.
A research report from a small, independent lab—Green Lab—indicates that your product causes dizziness in a small group of individuals. Green has an impressive reputation, and its research has always been reliable in the past. However, the research reports from two other independent labs don’t support Green’s conclusion.
Your director of research assures you that any claims of adverse effects are unfounded and that the indication of dizziness is either extremely rare or the result of faulty research by Green Lab. Since your division has been losing revenue because of its emphasis on potato chips and other high-fat snack food, it desperately needs a
low-fat moneymaker. You were brought in to turn the division around, so your career at the company could depend on the success of this product.
What are your alternatives? What is your obligation to consumers? Who are your other stakeholders, and what do you owe them? What is your obligation to your employer and to other employees at your company? What should your course of action be? How can you apply the due care theory to this case?
Learning Activity #2
Imagine that you’re the CEO of a large firm whose company faces an ethical dilemma, what concrete steps would you take to restore your company’s reputation?
In: Operations Management
Call options on a stock TKM are available with strike prices of $13, $15, $17.5, $18.5 and $20 and expiration dates in three months. Their prices are $5.5, $4, $2, $1.5 and $0.5 respectively. Put options on the same stock are available with strike prices of $24, $23.5, $22.5, $21 and $19 and expiration dates in three months. Their prices are $5, $4, $2, $1.5 and $0.5 respectively. TKM is currently trading at $19.40 and assuming the company is in the education industry with a turnover of $120 million per annum and 80 full time employees and the company is in the market for thirty years focusing on higher learning education and adult/executive learning programs. TKM has three main offices in the U.S. and is thinking to explore international business in the future to grow its portfolio.
In: Finance
Special Purpose Frameworks vs GAAP
X Company is seeking your advice about how to report the
year-end balances in its two bank accounts,
as determined by the following bank reconciliations it has prepared
for your review:
Account #1
Balance per
bank
$500
Outstanding vendor
check
(700)
Balance per
books
($200)
Account #2
Balance per
bank
($500)
Undeposited customer
check 700
Balance per
books
$200
Required—Briefly describe the advice you should
offer X Company under each of the independent
assumptions below, and then offer an equally brief response to the
question that follows them.
1. X Company’s financial reporting framework is the tax basis-cash
method.
2. X Company’s financial reporting framework is U.S. GAAP.
In: Accounting
Indiana Company expects to receive 5 million euros in one year from exports.
It can use any one of the following strategies to deal with the exchange rate risk. Estimate the dollar cash flows received as a result of using the following strategies:
unhedged strategy
money market hedge
option hedge
The spot rate of the euro as of today is $1.30. Interest rate parity exists. Indiana Company uses the forward rate as a predictor of the future spot rate. The annual interest rate in the U.S. is 6% versus an annual interest rate of 4% in the eurozone. Put options on euros are available with an exercise price of $1.25, an expiration date of one year from today, and a premium of $.04 per unit. Estimate the dollar cash flows it will receive as a result of using each strategy. Which hedge is optimal?
In: Finance
Ready to Go is a producer of fine deserts and pastries. The company has operations in the U.S. and Canada. The Company currently has 52 different product lines. The accounting departments consists of a controller and two accounting staff. You obtained the following information following your inquiry with the controller:
Required
Prepare an audit program of at least three tests of controls to verify the related key control objective.
In: Accounting
Suppose the following conditions exist between the U.S. and Canada. U.S. interest rate = 4.5%. Canadian interest rate = 3.4%. Spot rate: 1 CAD = .9537 USD. 6 month forward rate: 1 CAD = .9612 USD. Are the conditions of interest rate parity violated? If so, what would be our profit if we engaged in covered interest arbitrage with $2M?
| A. |
Interest rate parity is not violated- no opportunity |
|
| B. |
Yes, interest rate parity is violated. We can make a profit of $4,995.60 with our $2M. |
|
| C. |
Yes, interest rate parity is violated. We can make a profit of $5,655.90 with our $2M. |
|
| D. |
Yes, interest rate parity is violated. We can make a profit of $2,887.32 with our $2M. |
In: Finance
If real U.S. interest rate is higher than real European interest rate, the demand for U.S. Dollar would likely ____, and the supply of Euros to be exchanged for dollars would likely ____, other factors held constant.
1 point
a. increase; increase
b. increase; decrease
c. decrease; increase
d. decrease; decrease
In: Finance