The Du Pont System shows that a company's ROE is determined by its profitability (NPM), efficiency (TAT), and financial leverage (FL). Option C correctly identifies the series of relationships involved in this analysis.
The Du Pont System is a financial analysis tool that shows the relationship between a company's profitability, asset utilization, and financial leverage.
The system is often used to analyze the return on equity (ROE) of a company.
The correct answer to your question is option C: Net profit margin x total asset turnover = Return on investment and Return on investment x financial leverage = Return on equity.
To explain further, the Du Pont System is based on the idea that a company's ROE can be broken down into three components: net profit margin (NPM), total asset turnover (TAT), and financial leverage (FL).
NPM measures how much profit a company makes for every dollar of sales. TAT measures how efficiently a company uses its assets to generate sales.
FL measures how much debt a company uses to finance its operations.
The Du Pont System formula combines these three components to show the relationship between ROE, ROI, NPM, TAT, and FL.
Option C shows that ROI is calculated by multiplying NPM and TAT, while ROE is calculated by multiplying ROI and FL.
In summary, the Du Pont System shows that a company's ROE is determined by its profitability (NPM), efficiency (TAT), and financial leverage (FL). Option C correctly identifies the series of relationships involved in this analysis.
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explain what information is included in a director's report provide at least four points or examples
Answer:
General corporate information.
Operating and financial highlights.
Letter to the shareholders from the CEO.
Narrative text, graphics, and photos.
Management's discussion and analysis (MD&A)
Financial statements, including the balance sheet, income statement, and cash flow statement.
More items...•
Answer:
yah
Explanation:
explain what information is included in a director's report provide at least four points or examples
The accounts of Melissa Manufacturing showed the following balances at the beginning of December: Account Debit Raw Materials Inventory $59,000 Work-in-Process Inventory 75,000 Finished Goods Inventory 30,000 Manufacturing Overhead 24,000 The following transactions took place during the month: December 2: Issued direct materials $39,000 and indirect materials $6000 to production. December 15: Incurred $5000 and $4000 toward factory's direct labor cost and indirect labor cost, respectively. What should be the balance in the Work-in-Process Inventory following these transactions
Answer:
$120,000
Explanation:
Calculation to determine What should be the balance in the Work-in-Process Inventory following these transactions
Beginning balance in WIP $75,000
Add: Direct materials transferred $39,000
Direct factory labor cost $6,000
Ending balance $120,000
($75,000+$39,000+$6,000)
Therefore What should be the balance in the Work-in-Process Inventory following these transactions is $120,000
a plan pays 75 percent of the provider's usual charge and requires the copayment of $15 to be applied toward the provider's payment. calculate what the plan pays the provider when the usual charge is $380?
The provider's payment. calculate what the plan pays the provider when the usual charge is $270
What is provider's payment?
Provider Payment is any amount of money that our third-party service provider transports on your behalf to an before debiting your Payment Account to reimburse itself. Our third-party service provider makes each Provider Payment, not us (your bank), and your responsibility to reimburse only those Provider Payments is incurred and owed straight to the third-party provider (not to us). "Provider Payment" also includes any reimbursing checking account by the provider that could be reversed later. means paying providers inside a way that creates incentive schemes for efficiency in the delivery of high-quality, easily accessible health-care services through a standardised reimbursement strategy;
--The provider is paid $270 (380 x .75) - 15 = $270) by the plan
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arrow distributing corp. likes to track inventory by using weeks of supply as well as by inventory turnover.
Arrow distributing crop
Not revenue $15,980
Cost of sales $14,260
Inventory $1,000
Total assets $8,180
a. What is its weeks of supply? _____ weeks. round response to two decimal places.
b. What percent of Arrow's assets are committed to inventory? _____% enter answer as percentage round to 2 decimal place.
c. What is Arrow's inventory turnover? _____ times per year. Round response to two decimal places.
d. Suppose a manufacturer has an inventory turnover of 13.5 times per year. Arrow's supply chain performance relative to the manufacturer's, as measured by inventory turnover is _____
a. To calculate Arrow's weeks of supply, we divide its inventory by the cost of sales per week. The cost of sales per week can be obtained by dividing the annual cost of sales by 52 weeks. Thus, weeks of supply = (Inventory / (Cost of Sales / 52)) = (1,000 / (14,260 / 52)) ≈ 3.63 weeks.
b. To determine what percentage of Arrow's assets are committed to inventory, we divide its inventory by total assets and multiply by 100. Thus, inventory as a percentage of total assets = (Inventory / Total Assets) x 100 = (1,000 / 8,180) x 100 ≈ 12.20%.
c. To calculate Arrow's inventory turnover, we divide its cost of sales by its inventory. Thus, inventory turnover = Cost of Sales / Inventory = 14,260 / 1,000 ≈ 14.26 times per year.
d. Since Arrow's inventory turnover is lower than the manufacturer's, its supply chain performance is comparatively worse. The manufacturer is turning over its inventory 13.5 times a year, while Arrow is only turning it over 14.26 times per year. This suggests that the manufacturer is managing its inventory more efficiently.
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Which examples demonstrate common qualifications for Security and Protective Services careers? Check all that apply.
Brooke negotiates with the prison inmates she supervises.
Ami is comfortable working alone and making decisions in her work as a Private Detective.
Reed thinks of creative solutions for defending a client in court.
Vincenzo attends college for many years and earns a juris doctor degree.
Shameka watches for unusual activities and signs of danger as she guards a bank building.
Teddy is a Lifeguard who uses his strength to pull a person out of the water.
Answer:
2,5,6
Explanation:
Ami,shameka,teddy
Answer:
2,5,6
Explanation:
Mandy used to work as a costume designer at her local theatre until she left work 3
years ago to bring up her daughter Natalie, now 4 years old. Mandy now works from
her house in Slough where she provides, makes and sells hand made glove puppets.
At the moment she sells at local craft fairs and through word of mouth. She now
wants to expand her business to include an on line shop and also to provide puppet
shows for children's parties and puppet making workshops for slightly older
children's parties.
1. Identify 2 reasons why Mandy may need to raise finance.
(2 marks)
2. Explain 1 advantage and 1 disadvantage to Mandy of taking out a bank loan.
(4 marks)
3. Mandy is considering applying for an additional mortgage on her house to
finance the business expansion. Do you think this is a good idea? Justify your
(9 marks)
answer.
Answer:
1. Mandy may need to raise a finance because she wants to expand her business, so therefore she may need extra money.
2. 1 advantage of taking out a bank loan is that she could build up her business with the money she’s taking out and the disadvantage is that her business may not work out or she won’t be able to pay the bank back
3. It may be a good idea to finance the business expansion because she may or may not grow her business after expanding it. But after expanding it there is possible chances of her business working out and growing more.
Explanation:
Cream Company operates in three different industries, each of which is appropriately regarded as a reportable segment. Segment No. 1 contributed 60% of Cream Company's total sales. Sales for Segment No. 1 were $450,000 and traceable costs were $200,000. Total common costs for Cream were $300,000. Cream allocates common costs on the basis of the ratio of a segment's sales to total sales, an appropriate method of allocation. What should be the operating profit presented for Segment No. 1 for the year
The operating profit presented for Segment No. 1 for the year is $70,000.
The operating profit presented for Segment No. 1 for the year should be calculated by subtracting the traceable costs of $200,000 from the sales of $450,000 for a total of $250,000. This total, however, does not take into account any of the common costs for Cream Company which should be allocated to the reportable segment.
To determine the amount of common costs that should be allocated to Segment No. 1, the ratio of the segment's sales to total sales of the company should be calculated. In this case, since Segment No. 1 contributed 60% of Cream's total sales, 60% of the total common costs should be allocated to the segment.
In this case, that would be $180,000 (60% of the $300,000 total common costs). When this amount is subtracted from the $250,000 total, the operating profit presented for Segment No. 1 for the year is $70,000.
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long-term customer relationships the cost of information collection and make it easier to credit risks. a) reduce; screen b) increase; screen c) reduce; increase d) increase; increase
long-term customer relationships reduce the cost of information collection and make it easier to screen out credit risks
Credit risk:
The possibility of suffering a loss as a result of a borrower's failure to make loan payments or keep a contractual obligation is known as credit risk.
Usually, it alludes to the potential that the lender won't receive the principal and interest that is due, which would disrupt cash flows and increase collection costs. In order to offer extra protection against credit risk, excess cash flows could be written. When there is credit risk for a lender, it can be reduced by using a higher coupon rate, which produces larger cash flows.
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_____ are more concerned with the end results, whereas _____ are concerned with the means to get those results.
Goal-oriented individuals are more concerned with the end results, whereas process-oriented individuals are concerned with the means to get those results.
Goal-oriented individuals focus primarily on achieving specific outcomes or objectives. They are driven by the desire to attain a particular result and prioritize reaching the end goal. These individuals are often motivated by accomplishments, measurable achievements, and tangible outcomes.
On the other hand, process-oriented individuals place emphasis on the methods, procedures, and steps involved in achieving a goal. They are concerned with the quality of the process, attention to detail, and adherence to established protocols. These individuals tend to focus on the journey itself and find satisfaction in the systematic and efficient execution of tasks.
It's important to note that these orientations are not mutually exclusive, and individuals can possess both goal-oriented and process-oriented characteristics to varying degrees. The distinction lies in the relative emphasis placed on the end results versus the means of achieving them.
Goal-oriented individuals prioritize the end results and outcomes, while process-oriented individuals prioritize the means and methods to accomplish those results. Recognizing these orientations can help individuals and organizations align their focus and approach to achieve their desired objectives effectively.
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Discuss the likely impact on papua new guinea if its copper and gold mines become exhausted?
Answer:
miners might stop making income resulting in a shortage of money thus lowering income in new guinea. The mines will also be turned to landfills. which means more areas to fill with waste and dirty garbage.
Explanation:
19. Which medium has the advantage of moving images, sound, and portability in business?
*
(1 Point)
Newspapers
Transit Media
Internet
Radio
Answer:
Internet
Explanation:
Newspapers can be online, but they are originally on paper, transit media is on billboards or the sides of cars, and the radio is definitely not it.
If you were a salesperson, what would be the most challenging part of the sales process for you? Explain.
The most challenging part for me would be overcoming objections because there are so many possible objections a customer could have. Also if the customer doesn't know their needs this can be even harder to accomplish.
What strategy do companies use for their financial benefit
Answer:
Companies utilize outsourcing as a business strategy to minimize their manufacturing costs.
It is a business approach in which businesses recruit someone from outside the firm to undertake work or produce an item that would otherwise be more expensive if done within the organization.
Both commodities and services can be purchased from outside the organization through outsourcing.
Explanation:
Brainliest pls
The product of 59,736 and 600 is
A) 29,868,000
B) 34,761,600
C) 35,625,600
D) 35,841,600
Answer:
D) 35,841,600Explanation:
I Hope That's Correct ✓ :)
Marlon wants to save money over a long period of time. He does not need to have easy access to the money, and he is worried about losing his investment. He would like to know the
interest rate up front. Which of the following options would best suit his needs?
O Certificate of deposit
OIRA
O Traditional checking account
Traditional savings account
Answer:
A. Bonds.
Explanation:
I majored in Business
The option which fulfills the needs of Marlon is a Certificate of deposit. Thus the correct answer is A.
What is a Certificate of Deposit?A certificate of deposit is considered a kind of saving account which helps the account holder to carry a set amount for a fixed period of time. The duration can be of six months, a year, or five years. The bank will be the interest rate to the holder based on the duration.
Marlon wishes to acquire savings over time. He does not require easy access to the funds and is concerned with losing his investment. He wants to know the interest rate right away. In this situation Certificate of the deposit will be suitable as it holds money for a fixed duration of time.
This will be better as it provides a higher rate of interest and does not charge any maintenance fees from the account holder.
Therefore, option A Certificate of deposit.
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If a bank sells off all of its assets and pays all of its liabilities, the amount remaining would be its:
a. net profit.
b. reserves.
c. net worth.
d. excess reserves.
If a bank sells off all of its assets and pays all of its liabilities, the amount remaining would be its net worth. Thus, the correct answer is option C.
Net worth is the value of a person's or corporation's assets less the obligations they owe. It is a key indicator for assessing a company's health because it provides a valuable snapshot of the company's present financial state.
Net value is determined by deducting all liabilities from all assets. Net worth can be positive or negative, with the former indicating that assets outweigh obligations and the latter indicating that liabilities exceed assets. Positive net worth that is increasing implies healthy financial health. Declining net worth, on the other hand, is cause for concern because it may indicate a reduction in assets relative to liabilities.
Therefore, the ideal selection is option C.
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Making a home inventory (select all that apply)
Question 3 options:
A: will decrease your premium by 5%.
B: will help you get your claim settled faster.
C: will help you to determine how much liability coverage to purchase.
D: will help you to determine how much personal property coverage to purchase.
A : wil dercease your premium by 5% and if my answer is nice like and thanks!!!!!!!
PLEASE HELP QUICK!!!
Which of the following is an advantage of buying your home over renting?
(1 point)
O You do not have to worry about the housing market in your area.
O The amount you pay each month is set by the terms of your mortgage.
O If something breaks, you have to fix it or pay to have it fixed.
O Your mortgage payments will far exceed the value of your home.
Answer:
The amount you pay each month is set by the terms of your mortgage.
Explanation:
connexus
The
management of a sugar manufacturing company sets aside a sum of $50,000 in its budget for the purchase of new
machinery that would double the production. In the given scenario, the management is in the process of planning the
of the company
operating budget
Ofinancial budget
Omarketing budget
Ostatic budget
Answer: operating budget
Explanation:
In the given scenario in the question, we can deduce that the management is in the process of planning the operating budget of the company.
The operating budget simply refers to the money that's needed by the company for it to run efficiently. It is made up of the manufacturing costs, sales budget, selling expenses, and the administrative expenses.
what is a lower bound for the price of a four-month call option on a non-dividend-paying stock when the stock price is $28, the strike price is $26, and the risk-free interest rate is 8% per annum? note: enter the answer with two digits after the decimal point (e.g., 2.57)
A decision possibility is an associate degree possibility that provides the holder the correct, however not the duty to shop for an associate degree underlying quality at a later date at a preset value.
The decision will either be yank vogue or European vogue. The bound on an ECU decision value is either zero or the underlying value minus this price of the exercise value, whichever is larger. Tutorial the present worth of stock is over the future six months it's expected. The riskless rate is a pair each year with continuous change of integrity.
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QUESTION 13 of 20: You own a dance studio. You have assets of $512,667 and equity of $268,964. What is your liabilities total?
оооо
a) $243,703
b) $268,964
c) $512,667
d) $781,631
Answer:
243,703
Explanation:
The common stock of Flavorful Teas has an expected return of 12.00 percent. The return on the market is 8 percent and the risk-free rate of return is 3.0 percent. What is the beta of this stock?
Answer:
1.8
Explanation:
The beta of the stock can be calculated by rearranging the expected return formula. The expected return formula is given below
DATA
Risk free rate of return = 3%
Return on the market = 8%
Expected return = 12%
Beta =?
Expected return = Risk free rate of return x Beta( Return on market - Risk free rate of return)
12% = 3% x Beta(8% - 3%)
12% - 3% = Beta (5%)
9% / 5% = Beta
Beta = 1.8
What academic information do you have about sub-overseer?
Explanation:
Pre-Diploma in Civil Engineering (Civil Sub-Overseer) program is designed to prepare competent general civil sub-overseers equipped with knowledge, skills and attitude especially, in the area construction Engineering & Technology of building construction, water supply, irrigation and road and trail bridges sectors.
They can provide services in the growing infrastructure development industries (civil construction companies and consulting firms) government institutions (centre and local level), local as well as international non-governmental organizations or can start their own business in the country as well as abroad.
The Downtown Parking Authority of Tampa, Florida, reported the following information for a sample of 250 customers on the number of hours cars are parked.Number of HoursFrequency1202493754455406137583250a-1 Convert the information on the number of hours parked to a probability distribution. (Round your answers to 3 decimal places.)a-2. Is this a discrete or a continuous probability distribution?multiple choiceDiscreteContinuousb-1. Find the mean and the standard deviation of the number of hours parked. (Do not round the intermediate calculations. Round your final answers to 2 decimal places.)b-2. How long is a typical customer parked? (Do not round the intermediate calculations. Round your final answer to 2 decimal places.)c. What is the probability that a car would be parked for more than 6 hours? What is the probability that a car would be parked for 3 hours or less? (Round your answers to 3 decimal places.)
The activities of the Downtown Parking Authority can be represented on a probability distribution table
a-1 Convert the table to a probability distribution
This is calculated as:
\(\mathbf{Probability = \frac{f}{Total}}\)
So, we have:
\(\mathbf{P(1) = \frac{25}{234} = 0.108}\)
\(\mathbf{P(2) = \frac{38}{234} = 0.162}\)
\(\mathbf{P(3) = \frac{51}{234} = 0.218}\)
And so on.
So, the table is:
\(\mathbf{\left[\begin{array}{ccc}x&f&P(x)\\1&25&0.108\\2&38&0.162\\3 & 51 & 0.218 & 4 & 45 & 0.192 & 5 & 20 & 0.085 & 6 & 14 &0.06 & 7 & 5 & 0.021 & 8 & 36 & 0.154 \end{array}\right] }\)
a-2 The distribution type
The number of hours is from 1 to 8, and all are given in whole numbers.
Discrete probability distributions are represented by whole numbers.
Hence, the distribution is a discrete continuous probability distribution
b-1. The mean and the standard deviation of the number of hours parked.
The mean is calculated using:
\(\mathbf{\bar x = \frac{\sum fx}{\sum f}}\)
So, we have:
\(\mathbf{\bar x = \frac{25 \times 1 + 38 \times 2 + 51 \times 3 + 45 \times 4 + 20 \times 5 + 14 \times 6 + 5 \times 7 + 36 \times 8}{234}}\)
\(\mathbf{\bar x = \frac{941}{234}}\)
\(\mathbf{\bar x = 4.02}\)
The standard deviation is calculated as:
\(\mathbf{\sigma = \sqrt{\frac{\sum f(x - \bar x)^2}{\sum f}}}\)
So, we have:
\(\mathbf{\sigma = \sqrt{\frac{25 \times (1 -4.02)^2+ 38 \times (2 -4.02)^2 + 51 \times (3 -4.02)^2 +.............+ 36 \times (8 -4.02)^2}{234}}}\)
\(\mathbf{\sigma = \sqrt{\frac{1124.8936}{234}}}\)
\(\mathbf{\sigma = \sqrt{4.80723760684}}\)
\(\mathbf{\sigma = 2.19}\)
Hence, the mean is 4.02 and the standard deviation is 2.19
b-2. How long is a typical customer parked?
This is the mean of the distribution.
In (a), we have:
\(\mathbf{\bar x = 4.02}\)
Hence, a typical customer is parked for 4.02 hours
c-1. The probability that a car would be parked for more than 6 hours
This is calculated as:
\(\mathbf{P(x > 6) = P(7) + P(8)}\)
So, we have:
\(\mathbf{P(x > 6) = 0.021 + 0.154}\)
\(\mathbf{P(x > 6) = 0.175}\)
Hence, the probability that a car would be parked for more than 6 hours is 0.175
c -2. The probability that a car would be parked for 3 hours or less?
This is calculated as:
\(\mathbf{P(x \le 3) = P(1) + P(2) + P(3)}\)
So, we have:
\(\mathbf{P(x \le 3) = 0.108 + 0.162 + 0.218}\)
\(\mathbf{P(x \le 3) = 0.488}\)
Hence, the probability that a car would be parked for 3 hours or less is 0.488
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the weight of debt the weight of preferred stock the weight of common stock the cost of common stock Milner Sisters has 25,000 shares of common stock outstanding at a market price of $48 a share. The common stock just paid a $2.20 annual dividend and has a growth rate of 2.5 percent. There are 12,000 shares of 6 percent preferred stock outstanding at a market price of $62 a share. The outstanding bonds mature in 13 years, have a total face value of $750,000, a face value per bond of $1,000, and a market price of $1,011.92 each. The bonds pay 7 percent interest, semiannually. The tax rate is 34 percent. What is the firm's weighted average cost of capital
Answer:
Firm's weighted average cost of capital = 6.12%
Explanation:
CV = Common equity value = Number of shares of common stock outstanding * Common stock market price per share = 25,000 * $48 = $1,200,000
PV = Preference share value = Number of shares of preference stock outstanding * Preferred stock market price per share = 12,000 * $62 = $744,000
DV = Debt value = Outstanding bonds market value = (Total face value / Face value per bond) * Market price per bond = ($750,000 / $1,000) * $1,011.92 = $758,940
VF = Value of the firm = CV + PV + DV = $1,200,000 + $744,000 + $758,940 = $2,702,940
WC = Weight of common share = CV / VF = $1,200,000 / $2,702,940 = 0.4440
WP = Weight of preference share value = PV / VF = $744,000 / $2,702,940 = 0.2753
WD = Weight of debt = DV / VF = $758,940 / $2,702,940 = 0.2808
ND = Next dividend = Annual dividend * (100% + Growth rate) = $2.20 * (100% + 2.5%) = $2.255
CE = Cost of common stock = (ND + (Common stock market price per share * Growth rate)) / Common stock market price per share = (2.255 + (48 *2.5%)) / 48 = 0.0720
ATCD = After tax cost of debt = This is obtained by imputing this function in a cell in an excel sheet “=Rate(Number of years maturity * 2,((Bond interest rate/2)*Bond Par value),-Bond selling price,Bond par value)*2*(1 - Tax rate)”. That is, input “=RATE(13*2, ((7%/2)*1000),- 1,011.92,1000)*2*(1-34%)” in a cell in an excel sheet and press enter (as done in the attached excel file). This gives 4.53%.
CP = Cost of preference stock = Dividend rate = 6%
Firm's weighted average cost of capital = (WC * CE) + (WP * CP) + (WD * ATCD) = (0.4440 * 0.0720) + (0.2753 * 6%) + (0.2808 * 4.53%) = 0.0612, or 6.12%
January 1, 2021, Smith Co. purchased common stock of North Company for $500,000. North Company has common stock outstanding of $10 million. Smith owns 5% of the outstanding stock of North. On December 31, 2021, the investment in North Company has a fair value of $505,000. On January 1, 2022, Smith sells the investment in North Company for $505,000. What journal entry is required to record the sale
Answer:
Fair Value adjustment $5,000 Dr.
Unrealized holding gain-net income $5,000 Cr.
Explanation:
Common stock purchase price = $500,000
North company outstanding stock = $10,000,000
5% stock of outstanding stock purchased :
(5/100) * $10,000,000
0.05 * 10,000,000
= $500,000
Fair value of investment = $505,000
Adjustment in fair value = $505,000 - $500,000 = $5000 ( Debit)
Unrealized holding gain-net income = $505,000 - $500,000 ( Credit)
Which of the following can cause a run-time error?
A programmer anticipated a positive whole number, and the user input a negative decimal value.
A programmer anticipated text data, and the user input text data.
A programmer anticipated numeric data, and the user input numeric data.
A variable was not defined because of a typographical error in the definition of that variable.
Answer:
A programmer anticipated a positive whole number, and the user input a negative decimal value.
Explanation:
Edge : )
Answer:
A programmer anticipated text data, and the user input text data.
Sue, of Sue’s Sandwich Shoppe, sells sandwiches and soda from a side walk cart. She sets up her care in the summers to raise money for college. Last month she sold $1,000 worth of product(sandwiches and sodas) to 100 customers. Her unit is one sandwich (COGs $4) plus one soda (COGS$1) How much is her Total COGS=____________________
Answer:
$500
Explanation:
The Costs of goods sold is the expense incurred while producing goods for sale. Costs of goods sold or COGS is the total direct cost production for goods sold in a period.
COGS = Beginning Inventory + purchases - closing Inventory
In this case,
the COGS for one soda is $4, and the COGS is $1.
the combined COGS is $5 ( $4 + $1)
Sue sells to 100 customers,
the total COGS = $5 x 100
=$500
Which is the most important decision factor in transportation?
A.capacity
B. Cost
C.capability
D.reliability
Required: 1. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018 2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018 , at the effective ( market ) rate 3. Prepare any additional journal entry necessary for Tanner -UNF to report its investment in the December 31, 2018, balance sheet. 4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for S190 million. Prepare the journal entry to record the sale.
Answer:
the first part of the question is missing, so I looked for a similar one:
Tanner-UNF Corporation acquired as a long-term investment $200 million of 7% bonds, dated July 1, on July 1, 2018. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Tanner-UNF paid $160 million for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management is holding the bonds in its trading portfolio. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $170 million.
1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate.
July 1, investment in UNF bonds
Dr Investment in bonds HTM 200,000,000
Cr Cash 160,000,000
Cr Discount on bonds 40,000,000
December 31, interest revenue from investment in bonds
Dr Cash 7,000,000
Dr Discount on bonds 200,000
Cr Interest revenue 7,200,000
Discount on bonds = ($160,000,000 x 4.5%) - ($200,000,000 x 3.5%) = $7,200,000 - $7,000,000 = $200,000
2. Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the December 31, 2018, balance sheet.
Investment in bonds HTM = $200,000,000 (face value) - $39,800,000 (discount on bonds) = $160,200,000
Changes in the market value of bonds held to maturity are not considered by the company.
4. Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2019, for $310.0 million. Prepare the journal entry to record the sale.
Dr Cash 150,000,000
Dr Dr Discount on bonds 39,800,000
Dr Loss on investment in bonds HTM 10,200,000
Cr Investment in bonds HTM 200,000,000