The (zero coupon) U.S. Treasury strip maturing in one year and having a face value of $1000 is selling at an annualized yield to maturity of 2.40 percent, which is equivalent to a price of 97.65625 percent of par (face) value. The (zero coupon) U.S. Treasury strip (with a face value of $1000) maturing in two years is selling at an annualized yield to maturity of 2.8 percent, which is equivalent to a price of 95.083 percent of par value. A coupon-paying U.S. Treasury bond having a coupon rate of 2.5 percent, a face value of $1000 and three years to maturity is selling at 97.5247 percent of par (face) value. Assuming that interest payments for coupon-paying bonds are paid annually (once per year) and that bond yields are quoted as annualized interest rates (don't worry about semiannual compounding),

a. determine the price and annualized yield for a U.S. Treasury strip having a face value of $1000 and 3 years to maturity (5 points),

b. determine the forward rate of interest for the 2-year period that begins at the end of 1 year (5 points),

c. determine the price for a U.S. Treasury bond (making annual coupon payments) having a face value of $1000, a 5.5 percent coupon rate and 3 years to maturity.

If the Federal Reserve Bank monetary policy committee members implies  that in 2020 there may be less interest rate hikes than expected. How does that affect the currencies of the developing countries? How does that affect the Euro/Dollar parity for 2020?.

I need the answer for PART B and PART C of this question:

You have recently been appointed management accountant for Rugby Coffee Mugs Pty Ltd. The company commenced its operations on 1 July 2019 manufacturing one size coffee mugs with individual club names and club logos of rugby union clubs playing in the New South Wales, Queensland, Victoria and Western Australia local rugby union competition. The company currently does not have any management accounting controls and part of your appointment involves improving the company’s manufacturing internal control systems to facilitate the projection, monitoring and if need be the taking immediate action to ensure that the company’s internal manufacturing performance is efficient thereby ensuring that the company’s profitability is maximised. Given the urgency of the situation, you have decided to propose to the company’s chief financial officer that you establish a budget and standard costing system against which actual performance will be measured in quantitative and qualitative terms. Additionally, you will prepare a static budget for the month of March 2020, subsequent to which you will prepare a flexible budget for the month of March 2020 against which the actual performance in March 2020 will be measured, and an explanation of specific variations in performance against the static and flexible budget. A report to the chief financial officer will include the following:

1. Initial memorandum explaining the key issues relating to the establishment of budgets and a standard costing system.

2. A static budget for the month of March 2020.

3. Flexible budget responding to the actual performance in the month of March 2020.

4. A table showing the variance between the actual performance and the static and flexible budgets for the month of March 2020.

5. An explanation of specific variations in actual performance against the static and flexible budgets.

PART B You have developed the following standard costs and budget for the month of March 2020:

- Average selling price per coffee mug $8.20 Direct materials

- Direct materials cost per gram $0.036

- Number of grams per coffee mug 100 Direct manufacturing labour

- Direct manufacturing labour cost per hour $15.00

- Average labour productivity rate (coffee mugs per hour) 100

Sales commission cost per coffee mug $0.72

Fixed overhead $990,000

Budgeted sales for March in units 700,000

Budgeted hours - 700,000 units / 100 units per hour: 7,000

The following are the actual results for March 2020:

▪ Unit sales and production were 90% of budget.

▪ Actual average selling price per coffee mug was $8.30.

▪ Actual direct materials cost per gram was $0.039.

▪ Direct materials used amounted to 100 grams per coffee mug.

▪ Actual direct manufacturing labour cost was $15.20 per hour.

▪ Productivity dropped to 90 coffee mugs per hour.

▪ Actual sales commissions were $0.70 per coffee mug.

▪ Fixed overhead costs were $20 000 above budget.

Required Prepare a report to the company’s chief executive officer showing the following for March 2020:

1. Static-budget and actual operating profit.

2. Static-budget variance for operating profit. (1 mark)

3. Detailed flexible-budget operating profit and variance with actual results.

4. Net total flexible-budget variance for operating profit.

5. Net total sales-volume variance for operating profit.

6. Price and efficiency variances for direct materials.

7. Price and efficiency variances for direct manufacturing labour.

8. Net flexible-budget variance for direct manufacturing labour. (1 mark)

PART C

Required: Prepare a report to the company’s chief financial officer addressing the following:

1. Identification of three possible causes of the total direct materials variance.

2. Explanation of three possible reasons for the total direct labour variance.

3. Explanation of how your variance analysis will help in continuous improvement.

4. Explanation of why might an analyst examining variances in the production area look beyond that business function for explanations of those variances?

5. Commentary on the following statement made by a plant manager: ‘Meetings with my management accountant are frustrating. All he wants to do is pin the blame on someone for the various variances he reports.’

6. Explanation of why is it important that the managers do not evaluate variances in isolation? (3marks)

Oman International Marketing Company (OIMC) has decided to issue an IPO for OMR 4.980 Million in June 2020. The per share value is decided for 600 Baiza. Oman International Marketing has appointed your firm as an underwriter for this IPO. During the phase of ‘call for application’, your firm has received applications for 9.500 Million shares.

Required:

1. Whether OIMC’s IPO is undersubscribed or oversubscribed with current receipt of applications for shares i.e. 9.500 Million shares?
2. How many actual applications are needed for full subscription of OIMC’s IPO?
3. After receipt of applications for 9.500 Million shares, as an underwriter of this IPO, which treatment you would suggest to the management of Oman International Marketing Company to make this IPO up-to its ‘Full Subscription’ only?

On January 1, 2019, Arc Company issued a $10,000 face value bond that sold for 92.  The bond had an eight-year term and with a coupon (stated) rate of 4% annual interest.  The company uses the straight-line method of amortization.

1.    The carrying value of the bond liability on January 1, 2019, would be...

2.      The amount of interest expense reported on the 2019 income statement would be...

3.      Interest expense reported on the income statement over the life of the bond would

a.   increase by $100 each year.

b.   be the same each year.

c.   decrease by $100 each year.

d.   not be determinable on January 1, 2019.

4.      The carrying value of the bond liability on December 31, 2020 is expected to be..

a.   $10,000.

b.   $  9,200.

c.   $  9,300.

On January 1, 2017, Novak Company acquires $320,000 of Spiderman Products, Inc., 8% bonds at a price of $296,540. Interest is received on January 1 of each year, and the bonds mature on January 1, 2020. The investment will provide Novak Company a 11% yield. The bonds are classified as held-to-maturity.

Instructions

(a)  

Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.

(b)  

Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.

(c)  

Prepare the journal entry for the interest revenue and discount amortization under the straight-line method at December 31, 2018.

(d)  

Prepare the journal entry for the interest revenue and discount amortization under the effective-interest method at December 31, 2018.

On January 1, 2017, Grouper Company purchased 11% bonds, having a maturity value of $313,000, for $337,348.74. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Grouper Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2017 $335,100 2020 $322,600
2018 $321,600 2021 $313,000
2019 $320,500

(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2017.
(c) Prepare the journal entry to record the recognition of fair value for 2018.

*NEED DETAILED EMPHASIS on #3

On April 1, 2019, the KB Toy Company purchased equipment to be used in its manufacturing process. The equipment cost $52,200, has an ten-year useful life, and has no residual value. The company uses the straight-line depreciation method for all manufacturing equipment.

On January 4, 2021, $13,250 was spent to repair the equipment and to add a feature that increased its operating efficiency. Of the total expenditure, $2,400 represented ordinary repairs and annual maintenance, and $10,850 represented the cost of the new feature. In addition to increasing operating efficiency, the total useful life of the equipment was extended to 12 years.

Required:

1. Prepare journal entries for the depreciation for 2019 and 2020.
2. Prepare journal entries for the 2021 expenditure.
3. Prepare journal entries for the depreciation for 2021.

3. Pen Corporation owned equipment with an original cost of $90,000. On January 1, 2019, Pen sold the equipment to Sen Company (a 60%-owned subsidiary) for a price of $82,400. At the time of the intercompany sale, the equipment had been depreciated for $18,400. The equipment has a remaining useful life of 8 years and is straight-line depreciated. On January 1, 2021, Sen sold the equipment to an outside company for $63,200.

(i) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2019.

(ii) Prepare the working paper eliminating entry I-1 regarding the equipment for the year ended December 31, 2020.

(iii) Prepare the working paper eliminating entry regarding the equipment for the year ended December 31, 2021.