Grouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on December 31, 2016. The purchase price was $904,000 for 45,200 shares, and is equal to 10% of Gregson’s carrying amount. Gregson declared and paid a $0.80 per share cash dividend on June 15 and again on December 15, 2017. Gregson reported net income of $516,000 for 2017. The fair value of Gregson’s shares was $24 per share at December 31, 2017. Grouper is a public company and applies IFRS.
Required: a) Prepare the journal entries for Grouper for 2016 and 2017, assuming that Grouper cannot exercise significant influence over Gregson. The investment is accounted for using the FV-OCI model.
b) Prepare the journal entries for Grouper for 2016 and 2017, assuming that Grouper can exercise significant influence over Gregson.
In: Accounting
Warren Corporation acquires a used machine (five-year property) on December 28, 2017, at a cost of $250,000. Henry Corporation also acquires another used machine (seven-year property) on January 19, 2017, at a cost of $75,000. The company does not make the § 179 elections.
a. Determine the depreciation deduction for these assets in 2017.
b. Determine the depreciation deduction under H.R. 1 assuming these assets were placed in service on the same dates in 2018.
c. Warren Corporation also purchases Microsoft Office from Microsoft for use in its business as of January 1 of the current year at a cost of $30,000. No hardware was acquired. How much of the cost can Warren Corporation deduct this year?
d. Complete Form 4562 for Warren Corporation to report the depreciation and amortization for questions a. and c above.
In: Accounting
Ethical Dilemma: For generations, the policy of Sears Roebuck and Company, the granddaddy of retailers, was not to purchase more than 50% of any of its suppliers' output. The rationale of this policy was that it allowed Sears to move to other suppliers, as the market dictated, without destroying the suppliers' ability to stay in business. In contrast, Walmart purchases more and more of a supplier's output. Eventually, Walmart can be expected to sit down with that supplier and explain why the supplier no longer needs a sales force and that the supplier should eliminate the sales force, passing the cost savings onto Walmart. Sears is losing market share, has been acquired by K-Mart, and is eliminating jobs; Walmart is gaining market share and hiring. What are the ethical issues involved, and which firm has a more ethical position?
In: Operations Management
Amazon, originally, was an online book seller, started in a garage in a Seattle suburb. Then they entered strategic alliances to expand products offered. Amazon now sells 50 times the number of items sold by Walmart and they even established country-specific sites such as UK, China, France, India, Japan, and Germany. Amazon is a widely diversified technology company, having products and services in the areas of music, movies, and TV shows. They also acquired Whole Foods Market in 2017, allowing them to compete with Walmart and other grocery stores. Also, Amazon is the largest cloud computing service provider globally. Amazon now continues to grow and be innovative.”
Based on what we learned, what is Amazon’s core business? What is their main corporate strategy? Please based your answer on the concepts we learned and justify why that is.
In: Operations Management
In our textbook, we learn that Disney has acquired several companies throughout the years including Marvel for $4 billion in 2009. One main advantage that this acquisition allowed Disney to do is increase the differentiation in their product offerings. They were able to add and entire line of superheroes to the Disney character family, which also allowed to add Marvel character theme park rides, toys, and other merchandise. Not only did this benefit Disney, but the acquisition also added value to Marvel. "Because of economies of scope and economies of scale, Marvel is becoming more valuable inside Disney than as a standalone enterprise" (Rothaermel).
Our question for you is, besides being able to increase their product offerings, what other benefits do you think this acquisition brought to Disney as a company?
In: Operations Management
On June 30, 2020, Crane Limited issued $6 million of 20-year, 14% bonds for $6,902,766, which provides a yield of 12%. The company uses the effective interest method to amortize any bond premium or discount. The bonds pay semi-annual interest on June 30 and December 31.
Prepare the journal entries to record the following transactions: (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
| 1. | The issuance of the bonds on June 30, 2020 | |
| 2. | The payment of interest and the amortization of the premium on December 31, 2020 | |
| 3. | The payment of interest and the amortization of the premium on June 30, 2021 | |
| 4. | The payment of interest and the amortization of the premium on December 31, 2021 |
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|---|
|
June 30, 2020 |
enter an account title for the journal entry on June 30 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on June 30 |
enter a debit amount |
enter a credit amount |
|
|
Dec. 31, 2020 |
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
|
|
June 30, 2021 |
enter an account title for the journal entry on June 30 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on June 30 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on June 30 |
enter a debit amount |
enter a credit amount |
|
|
Dec. 31, 2021 |
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 |
enter a debit amount |
enter a credit amount |
eTextbook and Media
List of Accounts
Show the proper presentation for the liability for bonds payable on the December 31, 2020 SFP. (Round answer to 0 decimal places, e.g. 5,275.)
|
Crane Limited Statement of Financial Position (Partial) choose the accounting period For the Quarter Ended December 31, 2020December 31, 2020For the Year Ended December 31, 2020 |
||
|---|---|---|
|
select an opening section name Current AssetsTotal Intangible AssetsTotal Long-term LiabilitiesLong-term debt InvestmentsTotal Property, Plant and EquipmentCurrent LiabilitiesTotal Partners' EquityTotal Non-current LiabilitiesTotal Current LiabilitiesTotal AssetsIntangible AssetsLong-term LiabilitiesPartners' EquityTotal Long-term InvestmentsProperty, Plant, and EquipmentTotal Current AssetsTotal Liabilities and Partners' EquityTotal Liabilities |
||
|
enter a balance sheet item |
$enter a dollar amount | |
In: Accounting
ToysRGreat ($-based, located in Las Vegas) is completing a new assembly plant outside of Berlin, Germany. ToysRGreat expects to pay the final construction payment of amount of € 1,000,000 in three months. The current bid-ask quotes for the spot exchange rate are €0.5682-0.5714/$. The quotes for the three-month forward are € 0.5495-0.5525/$. Three-month Germany and U.S. interest rates are respectively 2.1-2.0% and 3.0-2.9% per annum, compounded quarterly. Note that the borrowing and lending rates (in that order) are presented for each currency. Three months later the $ is quoted at € 0.5236-0.5263 /$.
Using the above information to answer Problems # 1, # 2 and #3 ( PLEASE SHOW ALL WORK)
1 . If ToysRGreat uses forward hedge, how much has the forward market hedge costed (benefited) the company?
2 . If ToysRGreat uses money market hedge, how much has the MMH costed (benefited) the company?
3 . Which hedge is a better choice for the company today and why?
PLEASE SHOW ALL WORK
In: Finance
Mini Case Ch. 11
Shrieves Casting Company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by Sidney Johnson, a recently graduated MBA. The production line would be set up in unused space in Shrieves’s main plant. The machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. The machinery has an economic life of 4 years, and Shrieves has obtained a special tax ruling that places the equipment in the MACRS 3-year class. The machinery is expected to have a salvage value of $25,000 after 4 years of use.
The new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. Each unit can be sold for $200 in the first year. The sales price and cost are both expected to increase by 3 percent per year due to inflation.
Further, to handle the new line, the firm’s net operating working capital would have to increase by an amount equal to 12 percent of sales revenues. The firm’s tax rate is 25 percent, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project r, is 10%.
D. calculate annual net operating profit after sales (NOPAT). Then calculate the operating cash flow.
In: Finance
Assume you have just been hired as business manager of PizzaPalace, a pizza restaurant located adjacent to campus. The company's EBIT was $500,000 last year, and since the university's enrollment is capped, EBIT is expected to remain constant over time. Since no expansion capital will be required, PizzaPalace plans to pay out all earnings as dividends. The management group owns about 50% of the stock, and the stock is traded in the OTC market. The firm is currently financed with all equity; it has 100,000 shares outstanding; and P0 = $25 per share. When you took your MBA Financial Analysis course, your instructor stated that most firms' owners would be financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm's investment banker the following estimated costs of debt for the firm at different capital structures: % Debt Ratio rd 0% --- 20 8.0% 30 8.5 40 9.0 50 9.5 If the company were to recapitalize, debt would be issued, and the funds received would be used to repurchase stock. PizzaPalace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0 when debt ratio is 0%, the risk-free rate is 6%, and the market risk premium is 6%.
a. For each capital structure under consideration, calculate the WACC.
b. Now calculate the corporate value, the value of the debt that will be issued, and the resulting market value of equity.
In: Finance
Adams, Incorporated would like to add a new line of business to
its existing retail business. The new line of business will be the
manufacturing and distribution of animal feeds. This is a major
capital project. Adams, Incorporated is aware you an in an MBA
program and would like you to help analysis the viability of this
major business venture based on the following information:
• The production line would be set up in an empty lot the company
owns.
• The machinery’s invoice price would be approximately $200,000,
another $10,000 in shipping charges would be required, and it would
cost an additional $30,000 to install the equipment.
• The machinery has useful life of 4 years, and it is a MACRS
3-year asset.
• The machinery is expected to have a salvage value of $25,000
after 4 years of use.
• This new line of business will generate incremental sales of
1,250 units per year for 4 years at an incremental cost of $100 per
unit in the first year, excluding depreciation. Each unit can be
sold for $200 in the first year. The sales price and cost are
expected to increase by 3% per year due to inflation.
• Net working capital would have to increase by an amount equal to
12% of sales revenues. The firm’s tax rate is 40%, and its overall
weighted average cost of capital is 10%. Required:
8. Can you use the Payback method to decide whether this is a good
project or
not? Why or why not?
9. Interpret what NPV, IRR, and Profitability Index (PI) mean.
Based on your
interpretation, do these indicators suggest the new business line
should be
undertaken?
In: Finance