Recording sales, returns, and discounts taken LO P2 Prepare journal entries to record each of the following sales transactions of a merchandising company. The company uses a perpetual inventory system and the gross method.
Apr. 1 Sold merchandise for $6,600, with credit terms n/30; invoice dated April 1. The cost of the merchandise is $3,960.
Apr. 4 The customer in the April 1 sale returned $740 of merchandise for full credit. The merchandise, which had cost $444, is returned to inventory.
Apr. 8 Sold merchandise for $2,800, with credit terms of 1/10, n/30; invoice dated April 8. Cost of the merchandise is $1,960.
Apr. 11 Received payment for the amount due from the April 1 sale less the return on April 4.
Answers
Answer:
Apr. 1
J1
Trade Receivable $6,600 (debit)
Sales Revenue $6,600 (credit)
J2
Cost of Sales $3,960 (debit)
Merchandise $3,960 (credit)
Apr. 4
J1
Sales Revenue $740 (debit)
Trade Receivable $740 (credit)
J2
Merchandise $444 (debit)
Cost of Sales $444 (credit)
Apr. 8
J1
Trade Receivable $2,800 (debit)
Sales Revenue $2,800 (credit)
J2
Cost of Sales $1,960 (debit)
Merchandise $1,960 (credit)
Apr. 11
Cash $5,860 (debit)
Trade Receivable (credit)
Explanation:
Perpetual method of inventory keeps a record of cost of inventory after every sale.
Thus, for every sale transaction remember to recognize the Sales Revenue and the Cost of Sales that follow the sale.
For any returns, De-recognize the Sales Revenue - to the extend of the credit granted and also de-recognize the Cost of Sales to the extend of the value of Inventory returned.
Related Questions
Isabella and Antonio are auto mechanics. Isabella takes 6 hours to replace a clutch and 4 hours to replace a set of brakes. Antonio takes 8 hours to replace a clutch and 6 hours to replace a set of brakes. State whether anyone has an absolute advantage at either task and, for each task, identify who has a comparative advantage.
Answers
Isabella has an absolute advantage in both clutch replacement and brake replacement due to her ability to complete each task in less time.
- Isabella also has a comparative advantage in both clutch replacement and brake replacement, assuming similar skills and pay rates.
How to determine the whether anyone has an absolute advantage at either task and, for each taskTo determine absolute and comparative advantages in this scenario, we need to compare the productivity of Isabella and Antonio in replacing clutches and brakes.
Let's analyze the tasks:
1. Clutch Replacement:
- Isabella takes 6 hours.
- Antonio takes 8 hours.
Based on the time taken, Isabella has an absolute advantage in clutch replacement because she can complete the task in less time than Antonio.
2. Brake Replacement:
- Isabella takes 4 hours.
- Antonio takes 6 hours.
Again, based on the time taken, Isabella has an absolute advantage in brake replacement because she can complete the task in less time than Antonio.
Similar to clutch replacement, if we assume similar skills and pay rates, Isabella would also have a comparative advantage in brake replacement due to her ability to complete the task more quickly.
Comparative advantage is based on a comparison of opportunity costs, and without specific information about the trade-offs involved, we can infer that Isabella's ability to complete both tasks more quickly gives her a comparative advantage in both.
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A business owner will have to decide how selecting one thing over another will impact the business. This is an example of _____.
fixed costs
opportunity costs
variable costs
none of the above
Answers
Answer:
opportunity costs
Explanation:
Opportunity cost is the benefit sacrificed as a result of preferring one option over the other. Opportunity cost is an economic concept applied in decisions making. It entails considering the gains to be missed by not selecting a particular option. The advantage of the next best alternative to the preferred option is the opportunity cost.
For the businessman, deciding one thing over the other means sacrificing one of them. Analyzing the impact of the foregone benefits is considering the opportunity cost.
Answer:
Opportunity costs
Explanation:
EDGE 2021 Entreprenuership :D
Two products, product A and product B, have the same prices, costs and salvage values. The demands for both products are normally distributed with the same mean. However, the standard deviation of product A's demand is greater than the standard deviation of product B's demand. For which product, the value of a crystal ball (the perfect forecasting system) is higher?
Answers
Because the standard deviation of product A's demand is greater than the standard deviation of product B's demand, the value of product B is higher than product A.
What is a standard deviation?The standard deviation is the measure of the amount of variation or dispersion of a set of values. The standard deviation shows how spread out the values of a variable are, especially when compared with the values of another variable.
Thus, based on the greater standard deviation of product A's demand, the value of product B is higher than product A.
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Economics* IMPORTANT
What will most likely happen if Karla pays off her car loan early?
A. her credit score will increase
B. her interest rate will go up
C. her credit score will decrease
D. her credit score will stay the same
Answers
Answer:
It can actually hurt your credit score because open positive accounts can have a greater impact than closed ones.
What is motivation?
Answers
Answer:
The answer is A.
Explanation:
Motivation is the urge to perform a certain act.
Motivation can be caused by perervance, beliefs, ect.
Motivation is the energy and desire to act in a certain way. The mental components powering individuals' conduct with regards to work objectives could incorporate a longing for cash Option(A) is correct.
What does Motivation means?Motivation is the justification behind which people and different creatures start, proceed, or end a way of behaving at a given time.
Motivational states are normally perceived as powers acting inside the specialist that make a demeanor to participate in objective coordinated conduct It is much of the time held that different mental states rival one another and that hands down the most grounded state decides conduct. This implies that we can be spurred to accomplish something without really getting it done.
The paradigmatic mental state giving motivation is want. Be that as it may, different states, for example, convictions about what one should do or expectations, may likewise give motivation. Motivation is gotten from the word 'intention,' which signifies an individual's necessities, wants, needs, or inclinations.
Therefore Option(A) is correct.
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If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.) Show and label all computations using words and numbers to explain the steps please (final answer should be incremental profits)
Answers
If the Superior Company accepts the special order, monthly profits will increase by $2,500.
By how much will monthly profits increase or decrease if order is accepted?To determine the impact on monthly profits, we need to calculate the contribution margin per unit on the special order.
Contribution margin per unit = Selling price per unit - Variable costs per unit
= $15 - ($2.50 + $3.00 + $0.50 + $1.50)
= $7.50
The contribution margin ratio is 50% ($7.50 / $15).
The fixed costs are $4.25 + $2.00 = $6.25 per unit.
If the company accepts the special order, it will produce and sell an additional 2,000 units.
Total contribution margin from the special order:
= 2,000 units x $7.50 per unit
= $15,000
Since the order would not affect regular sales, the company's total fixed costs will remain the same. Therefore, the increase in monthly profits would be:
Increase in monthly profits = Total contribution margin from the special order - Incremental fixed costs
= $15,000 - ($6.25 x 2,000)
= $2,500.
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Why is it important to always use the same fiscal periods year after year
when creating financial documents?
A. It allows for the use of different forms.
B. It allows for accurate comparisons over time.
OC. You don't have to remember due dates.
D. It allows variation in the length of fiscal periods.
Answers
The consistent use of the same fiscal periods can provide a solid foundation for accurate and reliable financial reporting and decision-making. Option B
It is important to always use the same fiscal periods year after year when creating financial documents because it allows for accurate comparisons over time. By consistently using the same fiscal periods, financial statements such as income statements, balance sheets, and cash flow statements can be easily compared year after year. This helps to identify trends in revenue and expenses, as well as track progress towards financial goals.
Using the same fiscal periods also helps to ensure consistency and accuracy in financial reporting. It reduces the risk of errors and discrepancies that may arise if different fiscal periods are used from year to year. This is especially important for companies that are publicly traded and must adhere to strict financial reporting regulations.
Furthermore, using the same fiscal periods can simplify the process of budgeting and forecasting. It allows for historical data to be used as a basis for future projections, making it easier to anticipate future expenses and revenue.
While using the same fiscal periods does not necessarily eliminate the need to remember due dates for tax filings and other financial reporting requirements, it can help to streamline the overall process of financial management. Option B
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what is the meaning of building economics
Answers
Answer:chicken
Baby
Explanation:
Explanation:
building economics basically means ur building something in a good way whether its money or value in something it basically grows over time
If there were 40000 pounds of raw materials on hand on January 1, 130000 pounds are desired for inventory at January 31, and 310000 pounds are required for January production, how many pounds of raw materials should be purchased in January
Answers
Answer:Pound of raw materials needed to be purchased = 400000 pounds
Explanation:
Opening inventory at January 1 =40000 pounds
Closing inventory at January 31- =130000 pounds
Pounds required for production ==310000 Pounds
Pound of raw materials needed to be purchased= Pounds required for production + Closing inventory at January 31 --Opening inventory at January 1 =
=310, 000 pounds+130, 000 pounds -40000 pounds
=400000 pounds
If government regulations are enforced to reduce corruption, then: the demand for investment will fall. businesses would lower their investment . the demand for loanable funds will shift left. the demand for loanable funds will shift right.
Answers
If government regulations are enforced to reduce corruption, then: c. the demand for loanable funds will shift left.
What is government regulations?Government laws that are successfully put into practise to combat corruption enhance the business climate and boost economic confidence.
As a result, companies are likely to become more dependable and trustworthy, which will reduce the demand for loanable cash. Businesses might not need as much outside funding if there is less corruption to decrease the risks brought on by corrupt practises or to get around obstacles to doing business.
Therefore the correct option is C.
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The bank has a 10% reserve requirement. Record each transaction in the category it belongs in. Carry forward the information from the previous transaction. The categories you will use are those included below.
Eli has $5,000 in cash and decides that he needs to open a checking account at Main Street Bank.
Assets Liabilities
Required Reserves - 500
Excess Reserves -
Loans - 4500 Checkable Deposits - 5000
Answers
Answer:
ASSETS
Required Reserves $500
Excess Reserves $5,000
Loans $5,000
LIABILITIES
Checkable Deposits $4,500
Explanation:
Based on the information given in a situation where Eli has the amount of $5,000 in cash in which he decided that he will needs to open a checking account which means that the category to Record this transaction will be:
ASSETS
Required Reserves $500
(10% reserve requirement *$5,000 Cash)
Excess Reserves $5,000
Loans $5,000
LIABILITIES
Checkable Deposits $4,500
[$5,000-(10% reserve requirement *$5,000 Cash)]
($5,000-$500)
=$4,500
Trak Corporation incurred the following costs while manufacturing its bicycles.
Bicycle components $100,000 Advertising expense $45,000
Depreciation on plant 60,000 Property taxes on plant 14,000
Property taxes on store 7,500 Delivery expense 21,000
Labor costs of assembly-
line workers 110,000 Sales commissions 35,000
Factory supplies used 13,000 Salaries paid to sales clerks 50,000
Identify each of the above costs as direct materials, direct labor, manufacturing overhead, or period costs.
Bicycle components
Depreciation on plant
Property taxes on store
Labor costs of assembly-line workers
Factory supplies used
Advertising expense
Property taxes on plant
Delivery expense
Sales commissions
Salaries paid to sales clerks
Answers
Answer:
Required: Identify the costs as direct materials, direct labor, manufacturing overhead, or period costs.
They are classified below:
Bicycle components: DIRECT MATERIALS
Depreciation on plant: MANUFACTURING OVERHEAD
Property taxes on store: PERIOD COST
Labor costs of assembly-line workers: DIRECT LABOUR
Factory supplies used: MANUFACTURING OVERHEAD
Advertising expense: PERIOD COST
Property taxes on plant: MANUFACTURING OVERHEAD
Delivery expense: PERIOD COST
Sales commissions: PERIOD COST
Salaries paid to sales clerks: MANUFACTURING OVERHEAD
Definition of terms used:
Period cost is any cost incurred which was not directly involved during production.
Manufacturing overhead can be said to be indirect costs incurred during production.
Direct labour costs involves payment made to workers involved in production.
Direct materials cost are costs of raw materials used in production.
Therefore,
Bicycle components are classified as direct materials.
Depreciation on plant are classified as manufacturing overhead.
Property taxes on store are classified as period cost.
Labor costs of assembly-line workers are classified as direct labour.
Factory supplies used are classified as manufacturing overhead.
Advertising expense is classified as period cost
Property taxes on plant are classified as manufacturing overhead.
Delivery expenseis classified as period cost.
Sales commissions is classified as period cost.
Century Motors was awarded a bid to build an energy-efficient motor for a large government heating and cooling project. The requirements of the project included a timeline of one year to build and deliver the system. In order to provide a quality product and meet its deadline, Century Motors set up a __________ organization, whereby employees from various functions of the business would join a team to see this project through from start to finish. Upon completion, the team would disband and members would return to their respective functional units.
Answers
By employing such an organizational structure, Century Motors most likely set up a Matrix Organization.
A Matrix organization:
Incorporates people from multiple departments and functions Will see people answering to multiple managers of those various departments Usually disband after a project is doneThe actions of Century Motors are in line with a Matrix Organization in that people from multiple functions were incorporated into the team and the team will disband when the project is done.
We can therefore conclude that this is a matrix organization.
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Stereotypes are:
A.Oversimplifications that cause misunderstandings and misconceptions
B.Useful guidelines for intercultural communication
C.Accurate representations that facilitate communication
Answers
Answer:
yesss
Explanation:
(Just need some ideas and inspiration) What do you consider the most important challenge that will face people in the United States in the years ahead?
Answers
Food security, hunger, poverty, population growth, pollution, heatwaves, droughts, and climate change are all interconnected.
What is Food security?Food security refers to the availability of food in a nation and the capacity of its citizens to obtain, afford, and procure enough food.
The United Nations Committee on World Food Security defines food security as everyone having constant physical, social, and economic access to enough, safe, and nourishing food that satisfies their dietary needs and food preferences for an active and healthy life.
Another aspect of food security is the accessibility of food regardless of class, gender, or area.
Food security was a problem many thousands of years ago, as shown by the fact that central governments in ancient China and ancient Egypt were known to release food from storage during famines.
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which business function is concerned with delivering a product or service to customers?
Answers
Answer:
Production
Production departments or companies are the manufacturing branches of a business to produce products or delivery of services to customers
how useful is knowing the business impact of your project compared to that of your team mates' other work?
Answers
Your company uses an organized method called business analysis to identify and assess the possible effects of disruption to crucial business processes caused by crises, accidents, or catastrophes. A business impact study is a crucial component of a company's business continuity strategy.
If I came upon any of my teammates' evaluation data in a shared folder, I would preserve it before returning it to the teammate.
A project Manager provides a project life, but business impact analysis gives that life a path to success. Projects are helpful and straightforward to utilize, letting the effort you put into the study pay off. A business impact analysis is a fantastic tool for evaluating risk and establishing a recovery plan should it arise. That sounds project-like.
Evaluations frequently center on a person's performance. It relates to their line of business.Every colleague goes through a similar evaluation process once a year. It informs them of their shortcomings and growth.Saving this information is essential since it can aid someone in developing their talents.Learn more about business here https://brainly.com/question/26106218
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What elements should an ideal CRR plan include?
Answers
The following components belong in a perfect CRR plan. communication lines that are clear, empathy and understanding, activity that is swift and efficient, Feedback and follow-up Continual development
A CRR report: what is it?The Cyber Resilience Assessment (CRR) is an evaluation of an organisation s resilience or cybersecurity measures based on interviews. Your organization will get knowledge of how to handle cyber risk during both regular operations and during periods of stress levels and catastrophe through the CRR.
What is CRR's emergency response?Your department can use what you already know to reduce hazards in your operational area with the aid of a community reducing risk (CRR) program. CRR employs a wide range of instruments to create a strategy and integrated program aimed at minimizing the occurrence and effects of local risks.
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In the prepare phase of your analysis, you described the data sources you used. According to the Case Study Roadmap, this description should include where the data is located and how it is organized. It should also consider issues with bias or credibility, problems with the data, and how you verified its integrity. Finally, your description should explain how the data helped you answer your questions. Take a moment to review your description now. What steps could you take to make it even more descriptive? 1 point
Answers
To make the description of the data sources in the prepare phase more descriptive, you can consider the following steps:
Specify the location of the dataDetail the organization of the dataAddress bias and credibilitySome steps to make the data sources more descriptiveSpecify the location of the data: Provide specific information about the sources of the data, such as the name of the database, website, or organization where the data was obtained. If applicable, mention any specific datasets or files used.
Detail the organization of the data: Describe how the data is structured or organized, whether it is in a tabular format, spreadsheets, databases, or any other specific format. Mention the variables or fields present in the data and how they are arranged.
Address bias and credibility issues: Discuss any potential biases or credibility concerns associated with the data sources. Consider the source's reputation, the methodology used to collect the data, and any known limitations or biases in the data collection process.
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Ellyn Kole is the assistant chief accountant at Doman Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter. Ellyn is hurriedly trying to prepare a transaction analysis to assist her in preparing the financial statements. The total of the liabilities and owner's equity exceeds the total assets by $1,000. In order to meet the 4 pm deadline, Ellyn decides to force the transaction analysis into balance by adding the amount of the difference to the Equipment account. She chooses Equipment because it is one of the larger account balances; percentage-wise, it will be the least misstated. Ellyn "plugs" the difference! She believes that the difference will not affect anyone's decisions. She wishes that she had another few days to find the error but realizes that the final information is already late.
In your discussion posting address ALL questions but not limit to the following questions:
a. Who are the stakeholders in this situation?
b. What are the ethical issues involved in this case?
c. What are Ellyn's alternatives?
Answers
Answer and Explanation:
A. Stakeholders in the situation are:
1. Ellyn
2. The company
3. People using the financial statements
B. Ethical issues include:
1. Ellyn being dishonest by adding $1000 to the equipment asset and mistating the numerical value. This could cause loss as the $1000 could be from a liability account
C. Alternatives:
1. Creating a suspense account for the difference of $1000
2. Postponing finalisation and escalating the issue to a senior accountant to find out where the difference is from
a. The name of the stakeholders mentioned in the context are:
Ellyn The company People using the financial statements
b. Misstatement or the manipulation of the data records is the ethical issue that has been involved in the case mentioned over the context.
c. The final alternative that has been in the hand of Ellyn is to create the suspense account of the misstated amount and also extend the finalization date of the data.
a. The stakeholders are termed as the person who is also a member of the company and are included in the roles, operations, and functions of the company.
In this context, Ellyn, the company, and the People using the financial statements are the owners of the company and also the stakeholders of the company. these have purchased or invested in part of the company and have their part of share in the firm.
b. The ethical issues in the firm are termed as the issues that arose because of not following the laid norms of the firm.
In this context, Ellyn has misstated the amount of $1000 and decided to adjust it in the equipment account as it carries a high amount. This is the ethical issue of manipulation of the data.
c. The alternative that Ellyn has is she needs to adjust the difference amount in the suspense account that is created in order to adjust the unknown amount or the mistaken amount.
In order to get the time to correct the mistake of the data, she also has options to extend the date of the finalization of the data.
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Damon is using his weekly allowance to spend on video games and movies. This week, on top of his allowance, he gets a bonus from his mother
for taking out the trash. In response, he spends more on video games and movies. In this example, we can conclude that movies are what type
of good?
Substitute
Normal
Complement
Inferior
Submit
Answers
In this example, we can conclude that movies are Substitute goods. If weekly allowance will increase than only demon spend more on video games.
What is Substitute goods?
A product or service that customers perceive to be substantially the same as or sufficiently comparable to another product is referred to as a substitute, or substitutable good, in economics and consumer theory. A product that can be used in lieu of another is known as a substitute.
Production substitutes are items that need producing less of one in order to produce more of the other. Think about good A and good B, who can replace A in a production. The supply curve for good A must move to the left if the price of good B increases.
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What could it indicate if your startup has no competition performing similar businesses?
Answers
The use of slang creates which type of communication barrier?
A.
language barriers
B. wrong communication channel
C.
receiver inattention
D.
inadequate feedback
E.
unclear words
Answers
Answer:
letter A just my suggestion ☺️☺️
11. a. Suppose David spends his income M on goods x1 and x2, which are priced p1 and p2, respectively. David’s preference is given by the utility function
(1, 2) = √1 + √2.
(i) Derive the Marshallian (ordinary) demand functions for x1 and x2. (25 marks)
(ii) Show that the sum of all income and (own and cross) price elasticity of demand
for x1 is equal to zero. (25 marks) b. For Jimmy both current and future consumption are normal goods. He has strictly convex and strictly monotonic preferences. The initial real interest rate is positive. If the real interest rate falls, in each of the following cases, argue what will happen to his period 2 consumption level? Clearly illustrate your argument on a graph.
(i) He is initially a borrower. (25 marks)
(ii) He is initially a lender. (25 marks)
Answers
Answer:
Explanation:
D
PLEASE HELP WITH THIS
Answers
Answer:
1: B
2: A
3: D
4:C
5: C
6: C
7: D
8: Q
Explanation:
I'm leaning this rn
Problem-6; (chapter 3) SS Ltd. obtained significant influence over YY Ltd by buying 30% of Y's 100,000 outstanding ordinary shares at a cost of Br 18 per share on January 1, 2022. On May 15, YY declared and paid a cash dividend of Br 150,000. On December 31, YY reported net income of Br 270,000 for the year. (a) record acquisition of shares (a) record revenue and dividends
Answers
(a) Record acquisition of shares: Investment in YY Ltd. Dr. Br 540,000, Cash Cr. Br 540,000.
(a) Record revenue and dividends: Dividend Receivable Dr. Br 45,000, Revenue from Investment in YY Ltd. Cr. Br 45,000; Investment in YY Ltd. Dr. Br 81,000, Revenue from Investment in YY Ltd. Cr. Br 81,000.
(a) To record the acquisition of shares by SS Ltd. on January 1, 2022:
Investment in YY Ltd. (30% of 100,000 shares * Br 18) Dr. Br 540,000
Cash Cr. Br 540,000
This journal entry records the purchase of 30% of YY Ltd.'s outstanding shares for a total cost of Br 540,000.
(b) To record revenue and dividends for the year:
On May 15, YY Ltd. declared and paid a cash dividend of Br 150,000. This dividend represents the portion of the company's earnings that will be distributed to its shareholders.
Dividend Receivable Dr. Br 45,000 (30% of Br 150,000)
Revenue from Investment in YY Ltd. Cr. Br 45,000
This entry recognizes the dividend revenue earned by SS Ltd. from its investment in YY Ltd.
On December 31, YY Ltd. reported net income of Br 270,000 for the year. As SS Ltd. has significant influence over YY Ltd., it needs to adjust its investment account for its share of the net income.
Investment in YY Ltd. Dr. Br 81,000 (30% of Br 270,000)
Revenue from Investment in YY Ltd. Cr. Br 81,000
This entry records the revenue earned by SS Ltd. from its share of YY Ltd.'s net income.
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You (or your parents) purchase a used car for $15,867.00 plus 5.25% sales tax. The down payment is 10% of the total cost and you (or your parents) have an excellent credit rating. What is your principal balance at the start of the loan?
Answers
The principal balance at the start of the loan is $15,113.31.
What is a principal balance of a loan?A loan's principal balance is the original amount borrowed, whereas interest is what we pay for the privilege of borrowing money. Most loans divide your monthly payment into principal and interest.
The down payment is calculated as 10% of the cost.
Down payment = $15,867 × 10%
= $1,586.7
The principal amount of the loan is calculated using the formula:-
(Sale price)(1 + Sales tax rate) - (down payment)
= $15,867 ×1.0525 -1,586.7
= $15,113.31
Therefore, $15,113.31 will be our principal balance at the start of the loan.
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Calculate the Net Present Value Weather Co has recently taken over many smaller companies, which it now runs as separate divisions. One division, Thunder, has just developed a new product called Lightning and is now considering whether to put it into production. The following information is available:
(i) Costs incurred in the development of Lightning amount to $480,000.
(ii) Production of Lightning will require the purchase of new machinery at a cost of $2,400,000, payable on the first day of the new financial year. The machinery is specific to the production of Lightning and will be obsolete and valueless when production ceases. The machinery has a production life of four years and a production capacity of 30,000 units per annum.
(iii) Production costs of Lightning (at year 1 prices) are estimated as follows:
Direct material $8
Direct labour $12
Variable overheads $ 12
In addition, incremental fixed production costs (at year 1 prices), including straight-line depreciation on plant and machinery, will amount to $800,000 per annum.
(iv) The selling price of Lightning will be $80 per unit (at year 1 prices). Demand is expected to be 25,000 units per annum for the next four years.
(v) The consumer price index is expected to be at 5% per annum for the next four years and the selling price of Lightning is expected to increase at the same rate. Annual inflation rates for production costs are expected to be as follows:
Direct materials 4%
direct labour 10%
variable overheads 4%
Fixed costs 5%
(vi) The company's cost of capital in money terms is expected to be 15%. Direct materials Direct labour Variable overheads
(vii) Corporation tax is 30% and is payable one year in arrears. Tax-allowable depreciation of 25 per cent on a reducing balance is available on capital expenditure.
(viii) This investment will also require an investment in working capital of $500,000 payable at the start of the project.
This is not expected to change during the life of the investment. Unless otherwise specified, all costs and revenues should be assumed to arise at the end of each year.
The financial manager has recommended that a discounted cash flow method of project appraisal be used, but some members of the board are reluctant to do this.
Answers
Answer: Net Present Value (NPV) = -$2,400,000 + [25,000 x $80 x (1 - 0.30)]/1.15 - [$480,000 + ($800,000 x 4)]/1.15^4 + ($500,000/1.15^4)
NPV = -$2,400,000 + $1,946,739.13 - $2,719,565.22 + $385,217.39
NPV = -$1,077,608.70
Explanation:
Based on this analysis, the Lightning project has NPV of -$2,279,126.25 which is negative. Hence, the project is not economically viable and should not be pursued.
How to calculate the Net Present ValueTo calculate the net present value (NPV) of the Lightning project
Firstly, estimate the cash flows associated with the project and discount them to their present values using the company's cost of capital.
To calculate the annual cash inflows and outflows associated with the project.
The annual revenue from selling 25,000 units of Lightning at a price of $80 per unit is:
25,000 x $80 = $2,000,000
The annual production costs can be calculated as follows:
Direct material: 25,000 x $8 = $200,000
Direct labour: 25,000 x $12 = $300,000
Variable overheads: 25,000 x $12 = $300,000
Incremental fixed costs: $800,000
Total annual production costs: $1,600,000
To calculate the annual cash flow, subtract the annual production costs from the annual revenue:
Annual cash inflow: $2,000,000 - $1,600,000 = $400,000
In addition to the annual cash inflow, consider the initial investment in the project.
This includes the development costs of $480,000, the purchase of new machinery for $2,400,000, and the investment in working capital of $500,000. The total initial investment is:
$480,000 + $2,400,000 + $500,000 = $3,380,000
To calculate the tax-allowable depreciation on the capital expenditure, The value of the machinery after each year can be calculated as follows:
Year 1: $2,400,000 x (1 - 0.25) = $1,800,000
Year 2: $1,800,000 x (1 - 0.25) = $1,350,000
Year 3: $1,350,000 x (1 - 0.25) = $1,012,500
Year 4: $1,012,500 x (1 - 0.25) = $759,375
The tax-allowable depreciation for the first year is:
$2,400,000 - $1,800,000 = $600,000
The tax-allowable depreciation for the remaining years is calculated in the same way.
Using the information above, calculate the annual cash flows and the NPV of the project as follows:
Year 0:
Initial investment: -$3,380,000
Year 1:
Cash inflow: $400,000
Tax-allowable depreciation: $600,000 x 30% = $180,000
Tax savings: $180,000 x 30% = $54,000
Net cash flow: $400,000 - $54,000 = $346,000
Discounted cash flow: $346,000 / (1 + 15%\()^1\) = $300,870.13
Year 2:
Cash inflow: $400,000
Tax-allowable depreciation: $1,800,000 x 25% x 30% = $135,000
Tax savings: $135,000 x 30% = $40,500
Net cash flow: $400,000 - $40,500 = $359,500
Discounted cash flow: $359,500 / (1 + 15%\()^2\) = $281,880.18
Year 3:
Cash inflow: $400,000
Tax-allowable depreciation: $1,350,000 x 25% x 30% = $101,250
Tax savings: $101,250 x 30% = $30,375
Net cash flow: $400,000 - $30,375 = $369,625
Discounted cash flow: $369,625 / (1 + 15%\()^3\) = $260,775.85
Year 4:
Cash inflow: $400,000
Tax-allowable depreciation: $1,012,500 x 25% x 30% = $75,938
Tax savings: $75,938 x 30% = $22,781.40
Net cash flow: $400,000 - $22,781.40 = $377,218.60
Discounted cash flow: $377,218.60 / (1 + 15%\()^4\) = $257,347.59
Total discounted cash flow: $300,870.13 + $281,880.18 + $260,775.85 + $257,347.59 = $1,100,873.75
To calculate the NPV, subtract the initial investment from the total discounted cash flow:
NPV = $1,100,873.75 - $3,380,000 = -$2,279,126.25
Based on this analysis, the Lightning project has a negative NPV of -$2,279,126.25. Therefore, the project is not economically viable and should not be pursued.
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At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year. On the 189th day of the year, Ann sells her half of the Whitman stock to her son, Scott. Becky's stock basis is $41,300. How much of the Whitman loss belongs to Ann and Becky
Answers
Answer:
Becky's loss = $60,000
Ann's loss = $31,068
Explanation:
Assuming a 365 day year, the loss allocation should be as follows:
Ann (then Scott) 50% x $120,000 = $60,000Becky 50% x $120,000 = $60,000From the 50% that corresponds to Ann:
Ann = 189/365 x $60,000 = $31,068.49 = $31,068Scott = $60,000 - $31,068 = $28,932A group conducted a survey of 13,000 brides and grooms married in the United States and found that the average cost of a wedding is $26,858. Assume that the cost of a wedding is normally distributed with a mean of $26,858 and a standard deviation of $5,900.
(a) What is the probability that a wedding costs less than $20,000? (Round your answer to four decimal places.)
(b) What is the probability that a wedding costs between $20,000 and $32,000? (Round your answer to four decimal places.)
(c) What is the minimum cost (in dollars) for a wedding to be included among the most expensive 5% of weddings? (Round your answer to the nearest dollar.)
Answers
The measures, using the normal distribution, are given as follow:
a) Probability that a wedding costs less than $20,000: 0.1230 = 12.30%.
b) Probability that a wedding costs between $20,000 and $32,000: 0.6848 = 68.48%.
c) Minimum cost of the most expensive 5% of weddings: $36,564.
Normal Probability DistributionThe z-score of a measure X of a variable that has mean symbolized by \(\mu\) and standard deviation symbolized by \(\sigma\) is given by the rule presented as follows:
\(Z = \frac{X - \mu}{\sigma}\)
The z-score represents how many standard deviations the measure X is above or below the mean of the distribution, depending if the calculated z-score is positive or negative.Using the z-score table, the p-value associated with the calculated z-score is found, and it represents the percentile of the measure X in the distribution.The mean and the standard deviation for the wedding prices are given as follows:
\(\mu = 26858, \sigma = 5900\)
The probability that a wedding costs less than $20,000 is the p-value of Z when X = 20000, hence:
\(Z = \frac{X - \mu}{\sigma}\)
Z = (20000 - 26858)/5900
Z = -1.16
Z = -1.16 has a p-value of 0.1230.
The probability that it costs between $20,000 and $32,000 is the p-value of Z when X = 32000 subtracted by the p-value of Z when X = 20000, found above, hence:
\(Z = \frac{X - \mu}{\sigma}\)
Z = (32000 - 26858)/5900
Z = 0.87
Z = 0.87 has a p-value of 0.8078.
0.8078 - 0.1230 = 0.6848.
The minimum cost for a wedding to be in the most expensive 5% of the weddings is the 95th percentile, which is X when Z = 1.645, hence:
\(Z = \frac{X - \mu}{\sigma}\)
1.645 = (X - 26858)/5900
X - 26858 = 1.645 x 5900
X = $36,564.
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