A European call option c with a strike price K of £50 is traded for £32. The current value of the underlying asset S0 is £31. The interest rate r is 10% pa, and the time-to-maturity T is equal to six months. The underlying asset pays no dividends.
a) Which of the arbitrage bounds does the option value violate?

b) How would you profit from the violation of the arbitrage bound? Show the payoffs of your arbitrage

strategy assuming that the value of the underlying asset is either equal to £25 or equal to £55 at maturity. c) Show the payoff to the arbitrage strategy in a graph (with the payoff at maturity on the y-axis and the stock value at maturity on the x-axis).
d) If the option were a put and not a call option, would its value still violate the equivalent arbitrage bound for put options?

Bravo traded a Ford truck for a Chevy truck. Bravo received a trade in allowance of $16,000 for the Ford truck. The Chevy truck has a fair market value of $70,000. The Ford truck was originally purchased for $50,000 and $40,000 of accumulated depreciation has been recorded for the truck.

Record the transaction above under the following independent circumstances:

a. The transaction has commercial substance.

b. The transaction lacks commercial substance

Please show all work and explanations

For the third discussion question of the quarter, we are going to examine a few Exchange-Traded Funds (ETFs) and determine which seems like the best investment for us. Information about ETF performance, industry, expense ratio, dividend yield, and various other elements will be given. Based on the description of the funds provided, I would like for you to discuss which investment was the most appealing to you from the perspective of a potential investor and why you felt that way.  

As it is likely that there will many different companies chosen by different members of the class, please feel free to discuss and debate with your colleagues about areas of agreement and disagreement with your selections for your required follow-up responses.  

Dr. Shikongo and Dr. Sauer were in a partnership and traded together for some time. On 01 July

2016 Dr. Sauer decided to withdraw from the partnership to start her own practice. Their

abridged statement of financial position as at 30 June 2016 was:

ASSETS N$ EQUITY & LIABILITIES N$

Property, Plant & Equipment (PPE) 152,500.00 Capital: Dr. Shikongo 76,200.00

Accumulated depreciation:PPE (20,000.00) Capital: Dr. Sauer 65,200.00

Vehicles 65,000.00 Current account: Dr. Shikongo 21,750.00

Accumulated depreciation:Vehicle (25,000.00) Current account: Dr. Sauer 27,250.00

Trade receivable 27,600.00 Loan: Deutche Bank 31,000.00

Allowance for bad debts (3,500.00) Trade payable 17,500.00

Cash 42,300.00

238,900.00 238,900.00

Transactions for July 2016:

1. Trade receivable who owed N$ 20, 050.00 settled their accounts in full.

2. The trades payable were settled in full.

3. A vehicle was sold for N$ 19, 500.00 with a carrying value of N$ 25, 000.00.

4. A vehicle was sold for N$ 15, 000.00 with a carrying value of N$ 6, 000.00.

5. The loan from Deutche Bank was repaid in full.

6. The equipment was disposed of for N$ 50, 000.00

7. Land and building was sold by public auction for N$ 70, 000.00

You are required to:

1. Do the journal entries to record Dr. Sauers’ withdrawal from the partnership. ( 12

Marks)

2. Prepare the following accounts to show the liquidation and dissolution of Dr. Shikongo

& Dr. Sauer Partnership:

a. Realisation account. ( 6 Marks)

b. Capital accounts of the partners (in a columnar form) in the general ledger. ( 8

Marks)

3. Mention and discuss three factors that may lead to the dissolution of a partnership. ( 6

Marks)

ASSETS N$ EQUITY & LIABILITIES N$

Property, Plant & Equipment (PPE) 152,500.00 Capital: Dr. Shikongo 76,200.00

Accumulated depreciation:PPE (20,000.00) Capital: Dr. Sauer 65,200.00

Vehicles 65,000.00 Current account: Dr. Shikongo 21,750.00

Accumulated depreciation:Vehicle (25,000.00) Current account: Dr. Sauer 27,250.00

Trade receivable 27,600.00 Loan: Deutche Bank 31,000.00

Allowance for bad debts (3,500.00) Trade payable 17,500.00

Cash 42,300.00

238,900.00 238,900.00

What are the Journal Entries for March thru December?

January

1. On January 1^st, The Board of Directors issued 250,000 additional shares (par of $.25) to raise capital for the New Year. Assume no change in price from Dec 31, 2018.

2. Purchased a truck for $240,000 cash on the 1^st of January. The truck will be depreciated over a 5 year period. You decide to use the 200% declining-balance depreciation method because it is determined that the truck will be more productive when it is newer. The truck has an estimated salvage value of $25,000.[Adjusting Entry Required]

3. Purchased new office equipment for $97,000 with cash from California Furniture on January 1, 2019. The new furniture will be depreciated over a ten-year period on a straight-line basis. The cabinet has an estimated salvage value of $5,000.[Adjusting Entry Required]

4. On January 1^st, a 5 year, $138,000 long-term note payable was taken from a local bank.

5. On January 5^th you receive payment from interest earned and accrued in 2018.

6. On January 22^nd you purchased 8,500 additional units of inventory at a cost of $76.50 per unit. You paid 45% in cash and purchased the remainder on account.

7. On January 25^th you pay $289,000 cash toward your accounts payable.

February

8. Paid cash for $52,300 worth of radio advertising on February 1^st. This gives you radio advertising space until January 31^st, 2020.[Adjusting Entry Required]

9. February 13^th you collect $356,000 of account payments from customers.

March

10. Purchased a parcel of land on March 1, 2019 for $990,000 by paying $480,000 in cash and signing a short-term note payable with the seller for $510,000. You must repay the $510,000 in exactly one year on March 1, 2020. You agree to pay the seller 5 percent interest (annual rate) on a quarterly basis (June 1, September 1, December 1, 2019, and March 1, 2020).[Adjusting Entry Required]

11. On March 19^th you purchased $29,000 of office supplies from Super Office Supplies with cash.

12. On March 20^th you received a payment of $41,000 for 200 hours of service to be performed in the future.

April

13. April 21^st, your customers bought 15,000 units of your product for $122 per unit (you decide what your company sells). The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 60% in cash and the remainder was on account.

14. On April 27^nd you purchased 9,250 units at a cost of $78.5 per unit. You paid 65% in cash and purchased the remainder on account.

15. On April 29^th you pay $546,000 cash toward your accounts payable.

May

16. On May 1^st you pay all dividends owed to your owners.

June

17. Leased additional warehouse space from Leasing Solutions for two years on June 1^st due to expiration of the previous rental contract. $105,000 cash was paid for the new contract on this date which covers the rental fee for two years. There is no value left in the previous contract. [Adjusting Entry Required]

18. Wage expenses from January 1 – June 30 are $506,000. Pay this in full including your beginning balance in wages payable.

19. On June 19^th, $134,000 of prepaid insurance was used.

20. On June 26^th a customer that previously bought your product on account has filed for bankruptcy. He owed you $47,500. You expect to collect $0.

July

21. Your company issued 1,000, 2.9% bonds (face value of each bond is $1,000) at 96.8229 on July 1^st, 2019. The bonds are due on July 1, 2024, with interest payable each January 1 and July 1. The market rate at the time of the bond issuance was 3.6 Percent. Use the effective-interest method to calculate both the interest expense and the amortization of the bond discount when each interest payment is made.[Adjusting Entry Required]

August

22. Purchased a Patent (Intangible Asset) for $97,000 on August 1^st. The patent will be amortized over a 10 year period on a straight-line basis.[Adjusting Entry Required]

23. On August 6^th, a piece of land that was originally purchased for $1,150,000 was sold for $2,000,000 cash.

24. August 15^th, your customers bought 9,000 units of your product at $128 per unit. The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 60% in cash and the remainder was on account.

25. Received on August 25^th a $164,000 cash payment from a customer paying on their account.

September

26. $49,000 cash was paid for an investment in Company X's marketable securities on September 3^rd.   

27. On September 12^th, a piece of equipment was sold for $760,000 cash. The equipment was originally purchased for $530,000. At the time of the sale, it had been depreciated by $75,000.

28. Purchased and used $11,900 worth of fuel for the delivery truck on September 18^th.

October

29. Your top sales officer met with a new customer to discuss a potential future contract. She informs you that the customer is considering signing the $280,000 deal, which would become effective February 2020.

30. On October 1^st, you purchased 11,250 units at the increased price of $80 per unit. The purchase was made on account.

31. On October 10^th you paid your supplier $95,000 cash for inventory purchased on account.

November

32. November 1^st, the CEO, in an effort to adjust ratios, ordered the repurchasing of the company’s own stock. The quantity of stock repurchased was 150,000 shares.

33. Purchased a two-year building insurance policy on November 1^st for $391,000 cash.[Adjusting Entry Required]

34. On November 17^th a customer pays you $736,000 for work that you will finish in January of 2020.

35. November 19^th, your customers bought 8,650 units of your product at $136 per unit. The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 45% in cash and the remainder was on account.

36. An employment contract is signed with a new regional manager. You have offered him $190,000 per year. He will not begin working for the company until March 2020.

December

37. Wages earned from July 1^st through December 31^st was $552,000. Wages earned between Dec. 15^thand Dec 31^st amounting to $34,000 was not paid this until Jan 7th.

38. At the end of the year, $54,000 cash was paid to the local bank for the long-term note payable taken out on January 1, 2019. $46,000 of this was applied to the loan principal. The remaining amount was the accumulated interest due for 2019.

39. On December 31^st, the marketable (trading) securities you purchased on September 3, 2019 transaction now has a fair market value of $35,000.

40. On December 31^st, $579,000 depreciation expense for the year was calculated for equipment purchased before January 1, 2019.

41. On December 31^st, you declare dividends of $.24 per share to be paid at a later date.

42. On December 31^st, the utility bill was paid for the year. The amount was $54,000 and you paid in cash.

43. On December 31^st, you pay in cash recurring interest on the long-term note acquired prior to the year 2017. HINT: See prior year financial statements.

44. On December 31^st, your company earned interest on the average 2019 cash balance which will be paid January 5^th, 2020. The average interest rate for the year was 4.0%. Note: Compute the average cash using only the beginning and ending balance.

45. By December 31^st, 147 of the prepaid service hours from March 20, 2019 were completed.

46. A count of office supplies indicated that $26,800 of office supplies had been used by December 31^st.

47. Since the inception of your company, you have been able to collect 89% of your ending accounts receivable balance from customers that bought your product on account. Based on this information, adjust your allowance for bad debt account. NOTE: Use your 2019 ending accounts receivable balance to make this calculation

Prepare Journal Entries for the following below

January

1. On January 1^st, The Board of Directors issued 250,000 additional shares (par of $.25) to raise capital for the New Year. Assume no change in price from Dec 31, 2018.

2. Purchased a truck for $240,000 cash on the 1^st of January. The truck will be depreciated over a 5 year period. You decide to use the 200% declining-balance depreciation method because it is determined that the truck will be more productive when it is newer. The truck has an estimated salvage value of $25,000.[Adjusting Entry Required]

3. Purchased new office equipment for $97,000 with cash from California Furniture on January 1, 2019. The new furniture will be depreciated over a ten-year period on a straight-line basis. The cabinet has an estimated salvage value of $5,000.[Adjusting Entry Required]

4. On January 1^st, a 5 year, $138,000 long-term note payable was taken from a local bank.

5. On January 5^th you receive payment from interest earned and accrued in 2018.

6. On January 22^nd you purchased 8,500 additional units of inventory at a cost of $76.50 per unit. You paid 45% in cash and purchased the remainder on account.

7. On January 25^th you pay $289,000 cash toward your accounts payable.

February

8. Paid cash for $52,300 worth of radio advertising on February 1^st. This gives you radio advertising space until January 31^st, 2020.[Adjusting Entry Required]

9. February 13^th you collect $356,000 of account payments from customers.

March

10. Purchased a parcel of land on March 1, 2019 for $990,000 by paying $480,000 in cash and signing a short-term note payable with the seller for $510,000. You must repay the $510,000 in exactly one year on March 1, 2020. You agree to pay the seller 5 percent interest (annual rate) on a quarterly basis (June 1, September 1, December 1, 2019, and March 1, 2020).[Adjusting Entry Required]

11. On March 19^th you purchased $29,000 of office supplies from Super Office Supplies with cash.

12. On March 20^th you received a payment of $41,000 for 200 hours of service to be performed in the future.

April

13. April 21^st, your customers bought 15,000 units of your product for $122 per unit (you decide what your company sells). The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 60% in cash and the remainder was on account.

14. On April 27^nd you purchased 9,250 units at a cost of $78.5 per unit. You paid 65% in cash and purchased the remainder on account.

15. On April 29^th you pay $546,000 cash toward your accounts payable.

May

16. On May 1^st you pay all dividends owed to your owners.

June

17. Leased additional warehouse space from Leasing Solutions for two years on June 1^st due to expiration of the previous rental contract. $105,000 cash was paid for the new contract on this date which covers the rental fee for two years. There is no value left in the previous contract. [Adjusting Entry Required]

18. Wage expenses from January 1 – June 30 are $506,000. Pay this in full including your beginning balance in wages payable.

19. On June 19^th, $134,000 of prepaid insurance was used.

20. On June 26^th a customer that previously bought your product on account has filed for bankruptcy. He owed you $47,500. You expect to collect $0.

July

21. Your company issued 1,000, 2.9% bonds (face value of each bond is $1,000) at 96.8229 on July 1^st, 2019. The bonds are due on July 1, 2024, with interest payable each January 1 and July 1. The market rate at the time of the bond issuance was 3.6 Percent. Use the effective-interest method to calculate both the interest expense and the amortization of the bond discount when each interest payment is made.[Adjusting Entry Required]

August

22. Purchased a Patent (Intangible Asset) for $97,000 on August 1^st. The patent will be amortized over a 10 year period on a straight-line basis.[Adjusting Entry Required]

23. On August 6^th, a piece of land that was originally purchased for $1,150,000 was sold for $2,000,000 cash.

24. August 15^th, your customers bought 9,000 units of your product at $128 per unit. The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 60% in cash and the remainder was on account.

25. Received on August 25^th a $164,000 cash payment from a customer paying on their account.

September

26. $49,000 cash was paid for an investment in Company X's marketable securities on September 3^rd.   

27. On September 12^th, a piece of equipment was sold for $760,000 cash. The equipment was originally purchased for $530,000. At the time of the sale, it had been depreciated by $75,000.

28. Purchased and used $11,900 worth of fuel for the delivery truck on September 18^th.

October

29. Your top sales officer met with a new customer to discuss a potential future contract. She informs you that the customer is considering signing the $280,000 deal, which would become effective February 2020.

30. On October 1^st, you purchased 11,250 units at the increased price of $80 per unit. The purchase was made on account.

31. On October 10^th you paid your supplier $95,000 cash for inventory purchased on account.

November

32. November 1^st, the CEO, in an effort to adjust ratios, ordered the repurchasing of the company’s own stock. The quantity of stock repurchased was 150,000 shares.

33. Purchased a two-year building insurance policy on November 1^st for $391,000 cash.[Adjusting Entry Required]

34. On November 17^th a customer pays you $736,000 for work that you will finish in January of 2020.

35. November 19^th, your customers bought 8,650 units of your product at $136 per unit. The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 45% in cash and the remainder was on account.

36. An employment contract is signed with a new regional manager. You have offered him $190,000 per year. He will not begin working for the company until March 2020.

December

37. Wages earned from July 1^st through December 31^st was $552,000. Wages earned between Dec. 15^th and Dec 31^st amounting to $34,000 was not paid this until Jan 7th.

38. At the end of the year, $54,000 cash was paid to the local bank for the long-term note payable taken out on January 1, 2019. $46,000 of this was applied to the loan principal. The remaining amount was the accumulated interest due for 2019.

39. On December 31^st, the marketable (trading) securities you purchased on September 3, 2019 transaction now has a fair market value of $35,000.

40. On December 31^st, $579,000 depreciation expense for the year was calculated for equipment purchased before January 1, 2019.

41. On December 31^st, you declare dividends of $.24 per share to be paid at a later date.

42. On December 31^st, the utility bill was paid for the year. The amount was $54,000 and you paid in cash.

43. On December 31^st, you pay in cash recurring interest on the long-term note acquired prior to the year 2017. HINT: See prior year financial statements.

44. On December 31^st, your company earned interest on the average 2019 cash balance which will be paid January 5^th, 2020. The average interest rate for the year was 4.0%. Note: Compute the average cash using only the beginning and ending balance.

45. By December 31^st, 147 of the prepaid service hours from March 20, 2019 were completed.

46. A count of office supplies indicated that $26,800 of office supplies had been used by December 31^st.

47. Since the inception of your company, you have been able to collect 89% of your ending accounts receivable balance from customers that bought your product on account. Based on this information, adjust your allowance for bad debt account. NOTE: Use your 2019 ending accounts receivable balance to make this calculation.

Only do Part 2 Please:

Part 2: Scheduling of Deferred Taxes

From the information below, prepare Excel schedules (similar the chapter notes) for 2015 and 2016 to calculate deferred income taxes. Remember, when preparing the 2015 schedule, you do not know about any changes that come about in 2016 (i.e., prepare the 2015 schedule with 2015 information only). Given the following information for Company Z for 2015 (in its first year of calculating deferred income taxes):

1)   Company Z has one depreciable asset purchased January 2, 2015. The cost of the asset was $50,000. For financial statement purposes, Company Z is depreciating this asset over 10 years with no salvage value. For tax purposes Company Z is using MACRS, and the asset qualifies as a 5 year asset. Company Z has scheduled out the annual depreciation difference as follows:

                                  Straight-line   MACRS

            Year                (for financial)   (for tax)                    Difference

            2015                   $5,000          $ 10,000                      (5,000)

            2016                     5,000             16,000                    (11,000)

            2017                     5,000               9,600                      (4,600)

            2018                     5,000               5,760                         (760)

            2019                     5,000              5,760                         (760)

            2020                     5,000               2,880                      2,120

            2021                     5,000                  -0-                       5,000

            2022                     5,000                  -0-                       5,000

            2023                     5,000                  -0-                       5,000

            2024                     5,000                  -0-                        5,000

2) The company recognized $18,000 for income from its equity method investment in 2015, but received only $12,000 in dividends from this investment (and recognized $12,000 in dividend income for tax purposes).

3)   During 2015, Company Z recorded $14,000 as unearned subscription revenue, and plans to deliver the subscriptions in 2016. The IRS rules require that this amount be recognized as revenue in 2015.

4) The company also recognized estimated warranty expense of $6,000 in 2015. The warranties are expected to be paid out in 2017.

5) Pretax financial income was $200,000 in 2015, and a tax rate of 30 percent was enacted for the current and future years.

For 2016 (suggestion: use the blank column to record 2015 information, to reconcile totals across each line):

1) Assume that the depreciable asset continues to be depreciated on the methods above.

2) During 2016, the equity investment earned $30,000 and paid dividends to Company Z totaling $18,000. (Use a separate line in the schedule to record this new deferral.)

3) During 2016, $8,000 of the subscriptions were delivered. The balance will be delivered in 2017.

4) During 2016, $2,000 of the warranties was paid out. The balance will be settled in 2017.

5) Pretax financial income was $250,000 in 2016, and a tax rate of 40 percent was enacted for current and future years.

Bruin Inc. will have earnings of $15 million next year and is projected to grow at a constant rate of 6 percent forever. All earnings are paid out as dividends to shareholders.

The company plans to launch a new project three years from now that will cost $10 million. The project will increase the firm's annual earnings by a constant $8.3 million every year forever starting one year later (i.e. 4 years from now).

What is the market value of the company stock? The discount rate is 16 percent.

Select one:

a. $192 million

b. $65 million

c. $121 million

d. $27 million

e. $177 million

A company sells Gizmos to consumers at a price of $117 per unit. The cost to produce Gizmos is $27 per unit. The company will sell 15,000 Gizmos to consumers each year. The fixed costs incurred each year will be $190,000. There is an initial investment to produce the goods of $3,400,000 which will be depreciated straight line over the 10 year life of the investment to a salvage value of $0. The opportunity cost of capital is 6% and the tax rate is 34%. What is operating cash flow each year? answer 881200

b) Using an operating cash flow of 881,200 each year, what is the NPV of this project? how do you do part b?