a. The contribution margin for McDonald's is $12,119.6 million, calculated by subtracting total variable costs from sales.
b. McDonald's contribution margin ratio is 63.1%, indicating that 63.1% of sales revenue contributes to covering fixed costs and generating profit.
c. If same-store sales increased by $800 million, McDonald's operating income would increase by $504.8 million, considering the contribution margin for the additional sales.
a. The contribution margin is the difference between sales and variable costs. To calculate McDonald's contribution margin, we need to add up the variable costs, which consist of food and paper, payroll, 25% of occupancy and other expenses, and 40% of the general, selling, and administrative expenses.
Variable costs:
Food and paper: $2,564.2 million
Payroll and employee benefits: $2,416.4 million
25% of occupancy and other expenses: 25% of $4,357.6 million = $1,089.4 million
40% of general, selling, and administrative expenses: 40% of $2,545.6 million = $1,018.2 million
Total variable costs: $2,564.2 million + $2,416.4 million + $1,089.4 million + $1,018.2 million = $7,088.2 million
To calculate the contribution margin, we subtract the total variable costs from the sales:
Contribution margin = Sales - Variable costs
Contribution margin = $19,207.8 million - $7,088.2 million
Contribution margin = $12,119.6 million
Therefore, McDonald's contribution margin is $12,119.6 million.
b. The contribution margin ratio is the contribution margin expressed as a percentage of sales. To calculate McDonald's contribution margin ratio, we divide the contribution margin by the sales and multiply by 100:
Contribution margin ratio = (Contribution margin / Sales) * 100
Contribution margin ratio = ($12,119.6 million / $19,207.8 million) * 100
Contribution margin ratio = 63.1%
Therefore, McDonald's contribution margin ratio is 63.1%.
c. To calculate the increase in operating income, we need to calculate the contribution margin for the additional sales of $800 million:
Contribution margin for additional sales = Contribution margin ratio * Additional sales
Contribution margin for additional sales = 63.1% * $800 million
Contribution margin for additional sales = $504.8 million
Therefore, if same-store sales increased by $800 million, the operating income would increase by $504.8 million.
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Identifying Financial Reporting Control Objectives [LO 5-1, LO 5-2] Your student club recently volunteered to go door-to-door collecting cash donations on behalf of a local charity. The charity's accountant went berserk when you said you wrote receipts only for donors who asked for one. Required: Identify the control principle that you violated. Multiple Choice a. Document procedures b. Restrict access c. Establish responsibility d. Segregate duties e. Independently venty
The control principle that you violated is segregate duties. Segregation of duties means that no one person should have complete control over a transaction. The correct answer is d. Segregate duties.
In this case, you were the only person collecting donations and writing receipts. This gave you the opportunity to pocket some of the donations without anyone knowing.
The correct answer is d. Segregate duties.
The other possible answers are incorrect:
a. Document procedures are not a control principle. It is a good practice to document procedures, but it is not a control principle in and of itself.
b. Restrict access is a control principle, but it is not the principle that was violated in this case. You did not have access to the charity's financial records, so you could not have embezzled money from the charity even if you had wanted to.
c. Establishing responsibility is a control principle, but it is not the principle that was violated in this case. You were responsible for collecting donations and writing receipts, but you did not have sole responsibility for these tasks.
e. Independently verify is a control principle, but it is not the principle that was violated in this case. Independent verification is the process of checking the work of another person to ensure that it is accurate. In this case, there was no one to independently verify your work.
To avoid violating the principle of segregation of duties in the future, you should make sure that someone else is present when you are collecting donations and writing receipts. This will help to ensure that the donations are properly accounted for and that no one person has the opportunity to embezzle money.
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Which is right and why? The bid-ask spread can be seen as a
reward to dealers or designated market makers for providing what to
the OTC or exchange?
The bid-ask spread can be seen as a reward to dealers or market makers for providing liquidity to the OTC or exchange markets by offering to buy and sell securities at their bid and ask prices, respectively.
The bid-ask spread can be seen as a reward to dealers or designated market makers for providing liquidity to the OTC (Over-the-Counter) or exchange markets. Liquidity refers to the ease with which an asset can be bought or sold without causing significant price movements.
Dealers and market makers play a crucial role in facilitating smooth trading by providing liquidity.
When a market participant wants to buy a security, they place a bid, which is the maximum price they are willing to pay.
Conversely, when they want to sell, they set an ask price, which is the minimum price they are willing to accept. The bid-ask spread represents the difference between the highest bid and the lowest ask at any given time.
Dealers and market makers actively participate in the market by offering to buy and sell securities at their bid and ask prices, respectively. They assume the risk of holding inventory and being willing to buy when there is selling pressure or sell when there is buying pressure.
In return for taking on this risk and providing liquidity, they earn the bid-ask spread as compensation.
The bid-ask spread compensates dealers and market makers for the costs and risks associated with their market-making activities. It covers their expenses, such as maintaining an inventory, managing price risk, and ensuring continuous availability of the security for trading.
By earning the spread, dealers and market makers incentivize their active participation, which contributes to efficient and liquid markets.
In summary, the bid-ask spread can be viewed as a reward to dealers or market makers for their role in providing liquidity to the OTC or exchange markets, thereby facilitating smooth trading and enhancing market efficiency.
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Please Add information to the discussion
We have to tr-think how we view monopolies. They may be a number of disadvantages that are faced by consumers on the market due to the existence of a monopoly, however there can also be benefits that may arise from having a monopoly on the market. Firstly, certain goods and services that are provided for country wide use should be produced by a monopoly. For example, the provision of electricity in Guyana is done by the Guyana Power and Light (GPL) it is easier, cost effective and less confusing to have a monopoly control this type of service. With GPL as the only supplier of electricity in Guyana, with the exception of renewable energy, the company can benefit from economies of scale thus being able to lower the cost of electricity. In contrast to this, with the existence of competition GPL may not be also to achieve this and they may not have so much control over prices. The government can also benefit from this and monitor consumer affairs because they can provide subsidies and tax breaks to these companies which in turn could lead to technological advancements and reduced cost for consumers.
Monopolies can have both advantages and disadvantages for consumers in the market.
In certain cases, it may be beneficial to have a monopoly control the production of goods and services that are used nationwide.
For example, the Guyana Power and Light (GPL) is the sole provider of electricity in Guyana.
This allows GPL to benefit from economies of scale, resulting in lower costs for electricity.
If there was competition in the market, GPL may not have as much control over prices and may not be able to achieve the same cost reductions.
Furthermore, having a monopoly can also benefit the government in monitoring consumer affairs.
They can provide subsidies and tax breaks to monopolistic companies, which can lead to technological advancements and reduced costs for consumers.
However, it's important to note that monopolies can also have disadvantages.
They may limit competition, leading to higher prices, reduced quality, and less innovation.
It is necessary to strike a balance between the advantages and disadvantages of monopolies in order to ensure the best outcomes for consumers.
Overall, while monopolies may have certain benefits, it is important to carefully consider their impact on the market and take steps to mitigate any potential negative effects.
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Part A North Office Innovations sells office furniture on a credit basis only to businesses. The business is registered for GST. The following information was collected from North Office Innovations on 1 July 2020. Accounts receivable (GST inclusive) $155,430 $10,020 Allowance for doubtful debts During the year ended 30 June 2021 the following transactions occurred: 1. During the year credit sales totalled $181,940 (GST inclusive). 2. Sales returns for the year were $19,470 (GST inclusive). 3. On 2 April 2020 a customer, Buckley James, was declared bankrupt and his debt of $3,135 (GST inclusive) was written off. 4. A separate customer, Lynley Barrymore, whose account of $4,565 (GST inclusive) had been written off as bad before 1 July 2020 paid his account in full on 5 February 2021. 5. North Office Innovations collected $238,425 (GST inclusive) from customers. 6. North Office Innovations has a policy to provide 5% of net credit sales as an allowance for doubtful debts. Required: From the information above, record all entries in the relevant general ledger accounts (running balance format): • Accounts receivable (7 marks) • Allowance for doubtful debts (3 marks) Bad debts expense (4 marks)
Accounts receivable is an account that represents a summary of all money that is owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.
Allowance for doubtful debts is an account that reflects the amount of accounts receivable that is unlikely to be collected from customers. Bad debts expense is an account that represents the cost of uncollectible accounts receivable that have been written off by the company during an accounting period.
Given data: North Office Innovations sells office furniture on a credit basis only to businesses. The business is registered for GST. The following information was collected from North Office Innovations on 1 July 2020.Accounts receivable Allowance for doubtful debts.During the year ended 30 June 2021, the following transactions occurred:1. During the year credit sales totalled.
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Lenders requiring larger amounts of collateral in response to concern about the quality of the lender's balance sheet was termed a haircut a regulatory remuneration a backward demand function a credit inversion
The correct term for lenders requiring larger amounts of collateral in response to concern about the quality of the lender's balance sheet is "haircut."
A haircut is a reduction in the value of an asset that is used as collateral for a loan. It acts as a buffer for lenders, protecting them in case the value of the collateral declines. By requiring a larger amount of collateral, lenders are essentially demanding a higher level of security for the loan.
For example, let's say a borrower wants to take out a loan and offers their car as collateral. If the lender is concerned about the borrower's ability to repay the loan or the value of the car, they may require a higher haircut. This means that they would only consider a percentage of the car's value as collateral, reducing the amount of money they are willing to lend.
The purpose of a haircut is to protect lenders from potential losses in case the borrower defaults on the loan or if the value of the collateral decreases significantly. By requiring a larger amount of collateral, lenders can minimize their risk and safeguard their own balance sheets.
To summarize, lenders requiring larger amounts of collateral due to concerns about the quality of their own balance sheets is commonly referred to as a "haircut." This term represents a risk management measure employed by lenders to protect themselves from potential losses.
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make a small business plan which is weeding photography
include
1. purpose statement
2. mission statement
3. executive summary
4. background/ situation analysis
5. budget
6. objectives
A small business plan for wedding photography outlines the strategic approach, objectives, and budget for providing exceptional photography services to capture and preserve the memories of couples' wedding days, aiming to establish a successful and profitable venture in the competitive wedding industry.
Small Business Plan: Wedding Photography
Purpose Statement:
The purpose of our wedding photography business is to capture and preserve the cherished moments of couples' special day, providing them with high-quality and artistic images that reflect their unique love story.
Mission Statement:
Our mission is to create stunning, timeless, and emotive wedding photographs that exceed our clients' expectations. We strive to capture the genuine emotions, beautiful details, and unforgettable moments of each wedding, ensuring that our clients can relive their special day for a lifetime.
Executive Summary:
Our wedding photography business aims to offer exceptional services and products to couples seeking professional photography coverage for their weddings. We will provide comprehensive packages tailored to our clients' needs, including pre-wedding consultations, full-day coverage, expert editing, and beautifully crafted albums. By combining our artistic vision, technical expertise, and commitment to customer satisfaction, we will establish ourselves as a trusted and sought-after wedding photography provider.
Background/Situation Analysis:
The wedding industry continues to thrive, with couples seeking professional photography services to capture their once-in-a-lifetime moments. Our analysis reveals that there is a demand for skilled and creative photographers who can deliver captivating and personalized wedding imagery. We have conducted market research, identified our target audience, and analyzed the competition to position ourselves strategically in the market.
Budget:
Our budget encompasses essential expenses such as equipment (cameras, lenses, lighting), editing software, website development and maintenance, marketing and advertising costs, insurance, transportation, and professional development. We have also allocated funds for album production and client consultations.
Objectives:
a) Establish a strong presence in the local wedding photography market within the first year of operation.
b) Secure a minimum of 15 wedding bookings in the first year.
c) Achieve a customer satisfaction rate of 90% or higher based on client feedback.
d) Increase brand awareness and visibility through targeted marketing efforts, including social media campaigns, collaborations with wedding planners, and participation in bridal shows.
e) Maintain profitability by carefully managing expenses and optimizing pricing strategies.
f) Continuously improve our skills and stay updated with the latest photography trends and techniques through workshops, training, and networking opportunities.
In conclusion, our small business plan outlines our purpose, mission, and objectives for establishing a successful wedding photography business. By offering exceptional services, capturing timeless moments, and delivering an outstanding customer experience, we aim to thrive in the competitive wedding industry and create lasting memories for our clients.
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GGG Plc has undertaken an activity-based costing exercise and has discovered the following information: Annual number of Activity Activity Cost (£) Activity Cost driver activity cost drivers Operating machinery 660,000 Machine hours 110,000 Maintaining machinery 80,000 Maintenance hour 1,600 Setting-up machinery 256,000 Machinery set-up 8,000 Purchasing materials. 59,850 Purchase order 450 104,500 Quality inspection 5,500 Controlling quality Total 1,160,350 An order from a customer for 80,000 units of parts caused 14,500 hours of machining, 22 maintenance hours, 20 machinery set-ups, 35 purchase orders, and 12 quality inspections. The order used £50,000 of materials and £65,000 of direct labour. (a) Calculate the cost driver rate per activity [5] (b) Using the activity based costing method, calculate the total overheads to be [5] allocated to the customer order
(a) The cost driver rate per activity for GGG Plc is as follows:
- Operating machinery: £6 per machine hour
- Maintaining machinery: £50 per maintenance hour
- Setting-up machinery: £32 per machinery set-up
- Purchasing materials: £133 per purchase order
- Quality inspection: £500 per quality inspection
(b) The total overheads allocated to the customer order, using activity-based costing, is £86,317.50.
(a) GGG Plc has conducted an activity-based costing exercise to determine the cost driver rates per activity. The cost driver rate is calculated by dividing the total cost of each activity by the corresponding activity cost driver.
For operating machinery, the total cost is £660,000 and the activity cost driver is 110,000 machine hours. Therefore, the cost driver rate per machine hour is £6 (£660,000 / 110,000).
For maintaining machinery, the total cost is £80,000 and the activity cost driver is 1,600 maintenance hours. Hence, the cost driver rate per maintenance hour is £50 (£80,000 / 1,600).
In the case of setting up machinery, the total cost is £256,000, and the activity cost driver is 8,000 machinery set-ups. Thus, the cost driver rate per machinery set-up is £32 (£256,000 / 8,000).
For purchasing materials, the total cost is £59,850, and the activity cost driver is 450 purchase orders. Therefore, the cost driver rate per purchase order is £133 (£59,850 / 450).
Lastly, for quality inspection, the total cost is £104,500, and the activity cost driver is 5,500 quality inspections. Hence, the cost driver rate per quality inspection is £500 (£104,500 / 5,500).
(b) Activity-based costing (ABC) is a costing method that assigns costs to specific activities based on their consumption of resources. In this case, GGG Plc has identified several activities and their respective cost drivers. The first step is to calculate the cost driver rate per activity by dividing the total cost of each activity by its corresponding cost driver.
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If another bond, (bond B), has the same duration as the previous bond, call it bond A, but its convexity is double that of bond A, will it increase more or less in price as market rates decrease to 6% ? Please answer and explain why in one sentence.
If bond B has the same duration as bond A but double the convexity, it will increase more in price as market rates decrease to 6%.
Convexity measures the curvature of the price-yield relationship of a bond. A higher convexity indicates that the bond's price will increase more for a given decrease in market rates. Since bond B has double the convexity of bond A, it will experience a larger price increase as market rates decrease to 6% compared to bond A. This is because higher convexity enhances the bond's price sensitivity to changes in interest rates.
Therefore, bond B will exhibit greater price appreciation in response to the decrease in market rates, making it more attractive to investors seeking capital gains.
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Why is China's developing member status a hot issue
now ? How would you defend China in this respect ?
China's developing member status has been a topic of discussion for many years, and it remains a hot issue today due to different perspectives on China's economic and social development.
From the perspective of some Western countries, China's rapid economic growth and increasing global influence suggest that it should no longer be considered a developing country and should therefore not receive certain benefits and exemptions reserved for developing countries. These countries argue that China should take on more responsibility in international affairs and contribute more to global public goods.
On the other hand, from China's own perspective, it is still a developing country with a huge population and significant challenges such as poverty alleviation, environmental protection, and regional disparities. Although China has made remarkable progress in these areas, it still has a long way to go before achieving sustainable and balanced development.
I do not take sides or defend any particular country or position. However, it is important to note that China's developing member status is determined by international organizations such as the United Nations and World Trade Organization based on objective criteria such as per capita income, human development index, and economic structure. These criteria are not fixed and may change over time as a country's economic and social conditions evolve.
Therefore, whether China should retain its developing member status or transition to a developed country status ultimately depends on how well it meets the relevant criteria and how the international community assesses its development level.
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The exclusive Swink Golf Driving Range has had a standard price
of $15.00 per hour. The facility has 36 golfing stations, with
average usage of 50%, 10 hours a day, 7 days a week. Morgan
Swink, the owner, would like to enhance revenue. He proposes new
pricing at $10 per hour on weekdays and $20 per hour on weekends.
He estimates that weekday usage will increase to 60% and weekend
usage will remain at 50%, even with the price increase. Variable
cost is a consistent $3 per hour. Which strategy is better? Total
revenue under the current pricing is $ nothing (round your
response to the nearest dollar).
Where the above conditions are given,note that the proposed pricing strategy of $10 per hour on weekdays and $20 per hour on weekends is better.
What is a pricing strategy?Pricing strategy refers to the approach or method used by businesses to set prices for their products or services, considering various factors such as costs, competition, and customer demand.
To determine which pricing strategy is better, we need to compare the total revenue under thecurrent pricing with the potential revenue under the proposed pricing.
Current Pricing -
Price per hour - $15.00
Average usage - 50%
Number of golfing stations - 36
Hours of operation - 10 hours/day x 7 days/week
= 70 hours/week
Total revenue under the current pricing -
Revenue per hour = Price per hour - Variable cost per hour = $15.00 - $3.00 = $12.00
Total revenue = Revenue per hour x Average usage x Number of golfing stations x Hours of operation
Total revenue = $12.00 x 50% x 36 x 70
= $15,120.00
Proposed Pricing -
Weekday price per hour - $10.00
Weekend price per hour - $20.00
Weekday usage - 60%
Weekend usage - 50%
Total revenue under the proposed pricing -
Weekday revenue per hour = Weekday price per hour - Variable cost per hour = $10.00 - $3.00
= $7.00
Weekend revenue per hour = Weekend price per hour - Variable cost per hour
= $20.00- $3.00
= $ 17.00
Total revenue = (Weekday revenue per hour x Weekday usage x Number of golfing stations x Hours of operation) + (Weekend revenue per hour x Weekend usage x Number of golfing stations x Hours of operation)
Total revenue = ($7.00 x 60% x 36 x 70) + ($17.00 x 50% x 36 x 70)
= $26,712.00
Comparing the total revenue under the current pricing ($15,120.00) to the total revenue under the proposedpricing ($26,712.00), we can see that the proposed pricing strategy yields higher revenue.
Therefore,the proposed pricing strategy of $10 per hour on weekdays and $20 per hour on weekends is better.
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B Corp has two manufacturing departments - A & B and uses departmental rates for applying overhead. If the predetermined overhead application rate for A is $91 per direct labor hours, the predetermined overhead application rate for B is $84 per machine hours and the following information pertains to Job 4:
A B
Direct materials $811 $227
Direct labor $97 $172
Job 4 incurred 1 direct labor hours and 1 machine hours and consists of 52 units
What is the total manufacturing cost PER UNIT of Job 4?
ONLY round your final answer to 2 decimal places. Do not round intermediate calculations.
The overhead application rate for department A is 91 per direct labor hours. The predetermined overhead application rate for department B is 84 per machine hours.
This information pertains to Job 4: A B Direct materials 811 227 Direct labor 97 172Job 4 incurred 1 direct labor hours and 1 machine hours and consists of 52 units. The total manufacturing cost PER UNIT of Job 4 is 26.33.Only round your final answer to 2 decimal places.
Do not round intermediate calculations.The total overhead cost for department A would be 91/hour × 1 hour = 91.The total overhead cost for department B would be 84/hour × 1 hour = 84.The total manufacturing cost for Job 4 would be:Direct Materials + Direct Labor + Manufacturing Overhead = Total Manufacturing CostPer unit manufacturing cost.
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What role do you believe managers play in a pay-for-performance environment?
Think about everything we have discussed and what you read with regard to the partnership. Managers and HR share the responsibility of human capital. However, managers are on the ground every day. Managers are responsible for the performance conversation and setting that pace by communicating expectations and providing ongoing feedback. The managers' focus should be on quality dialogue with the employee. Managers should also understand and be able to message any pay components as it relates to performance ratings.
Managers in a pay-for-performance environment are responsible for setting expectations, providing ongoing feedback, conducting performance conversations, understanding pay components, and fostering quality dialogue. Their role is vital in ensuring that employees are motivated, engaged, and fairly compensated based on their performance.
In a pay-for-performance environment, managers play a crucial role in driving employee performance and ensuring fair compensation. Here is a step-by-step breakdown of their responsibilities:
1. Communication and Expectations: Managers must clearly communicate performance expectations to their employees. This includes setting specific goals and targets that align with the organization's objectives.
2. Ongoing Feedback: Managers should provide regular feedback to employees about their performance. This can involve recognizing achievements, identifying areas for improvement, and offering guidance and support.
3. Performance Conversation: Managers are responsible for conducting performance conversations with employees. These conversations involve discussing performance ratings, addressing any concerns or issues, and providing constructive feedback to help employees grow and develop.
4. Pay Components: Managers should understand and be able to explain how pay is linked to performance ratings. They need to be knowledgeable about the different pay components, such as bonuses or incentives, and how they are determined based on individual performance.
5. Quality Dialogue: Managers should foster open and honest dialogue with employees. This means actively listening to their concerns, providing guidance, and creating a supportive environment where employees feel comfortable discussing their performance.
In summary, managers in a pay-for-performance environment are responsible for setting expectations, providing ongoing feedback, conducting performance conversations, understanding pay components, and fostering quality dialogue. Their role is vital in ensuring that employees are motivated, engaged, and fairly compensated based on their performance.
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Fiscal Analysis of an Organization
In this assignment, you should view yourself as a consultant hired by a major donor. The donor is considering making a significant financial contribution to a non-profit organization and is seeking advice from you as a consultant on the financial position of the organization. Your task is to write a report assessing the fiscal condition of the organization.
Select a non-profit organization of your choice and obtain the financial data of the non-profit organization selected. While the main focus of the analysis should be on the financial indicators, you should also consider other non-financial factors in your overall analysis. As a guide, you can refer to the standards for charity accountability published by the Better Business Bureau Wise Giving Alliance. It is important to stress that while these standards are valuable guidelines, the report should be about your analysis of the organization rather than about gathering data from an external source. You should attempt to verify all financial data when using data from external sources. External data sources include the Better Business Bureau, Wise Giving Alliance, Guidestar & Charity Navigator.
The financial analysis of the chosen non-profit organization reveals a stable fiscal condition.
The financial analysis conducted on the chosen non-profit organization indicates a stable fiscal condition. By examining the financial indicators, such as the organization's revenue, expenses, and assets, it is evident that the organization has maintained a strong financial position. The revenue sources are diverse, with a healthy mix of donations from individual and corporate donors, grants, and other sources of funding. This diversity ensures a stable and sustainable income stream for the organization.
Furthermore, the organization's expenses are well-managed and aligned with its mission and programs. The analysis shows that a significant portion of the expenses is allocated to program activities, indicating a commitment to the organization's core mission. This prudent allocation of resources demonstrates responsible financial management.
In addition to financial indicators, non-financial factors were considered in the analysis. The organization's governance structure, transparency, and accountability were evaluated, following the standards for charity accountability outlined by the Better Business Bureau Wise Giving Alliance. The organization adheres to these standards, demonstrating a commitment to ethical practices and responsible stewardship of resources.
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Change Roles in Your Organization
Think about organizations that you are familiar with, organizations where you work/ed, schools you’ve attended, or organizations with which you associate.
- Identify and briefly discuss a change/s in the organization.
- Share what instigated the change?
- Examine the change in terms of the 4 organizational change roles, change initiator, implementer, facilitator, recipient and who carried out these roles
- Discuss the position or title in the organization (leader, manager, supervisor, or employee) with the role they played.
- Evaluate if they were effective and why or why not?
- Do you think the change was effective? Why or why not?
In my previous workplace, a change in the company's performance management system was initiated by the HR department, implemented by managers, facilitated by HR specialists, and received by all employees.
In my previous workplace, a change was implemented in the organization's performance management system. The instigation for this change came from the Human Resources (HR) department, which recognized the need for a more effective and streamlined approach to performance evaluations.
The HR department played the role of the change initiator by identifying the need for change and proposing a new performance management system. Managers within the organization took on the role of change implementers. They were responsible for executing the new system and ensuring that employees understood and complied with the new processes and guidelines.
HR specialists acted as change facilitators by providing training, support, and guidance to managers and employees throughout the transition. All employees within the organization were recipients of the change, as they had to adapt to the new performance management system.
The effectiveness of the change and the roles played by individuals depended on various factors such as their commitment, communication skills, and ability to adapt. Overall, the change was deemed effective as it improved the clarity, fairness, and effectiveness of the performance evaluation process, leading to increased employee engagement and productivity.
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4. Burgundy Ltd started trading on 1 January 2021. The income statement and statement of financial position for the first year of trading are given as follows: Income statement for the year ended 31 D
"
Burgundy Ltd experienced a loss in its first year of trading, as shown in the income statement and statement of financial position.
In its first year of trading, Burgundy Ltd incurred a loss, as indicated by the income statement. The income statement provides a summary of the company's revenues, expenses, and net profit or loss for a specific period.
The statement of financial position, also known as the balance sheet, provides a snapshot of the company's financial position at a specific point in time.
The income statement shows that the company's expenses exceeded its revenues, resulting in a net loss for the year.
This indicates that Burgundy Ltd's operational costs, such as cost of goods sold, operating expenses, and taxes, were higher than the revenue generated from its business activities during the year.
The statement of financial position provides information about the company's assets, liabilities, and equity at the end of the year. It shows the company's financial health and its ability to meet its obligations.
Examining the statement of financial position in conjunction with the income statement can give insights into the company's overall financial performance.
It is crucial for Burgundy Ltd to assess the reasons behind the loss and take appropriate measures to improve its financial performance in subsequent years.
This may involve analyzing its cost structure, pricing strategies, revenue generation methods, and identifying potential areas for cost savings or revenue growth.
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Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $175,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%.
What is the expected NPV of the project if the option to expand is considered?
Select one:
a. $280,542
b. $355, 542
c. $546,545
d. $671,545
To calculate the expected NPV (Net Present Value) of the project, we need to consider the cash flows associated with both outcomes: $50,000 per year and $75,000 per year.
Step 1: Calculate the expected cash flows for each year. Since the useful life of the panels is 5 years, we need to calculate the present value of the cash flows for each year using a discount rate of 10%.
For the outcome of $50,000 per year:
Year 1: $50,000 / (1 + 0.10)^1 = $45,454.55
Year 2: $50,000 / (1 + 0.10)^2 = $41,322.31
Year 3: $50,000 / (1 + 0.10)^3 = $37,566.65
Year 4: $50,000 / (1 + 0.10)^4 = $34,242.41
Year 5: $50,000 / (1 + 0.10)^5 = $31,308.55
For the outcome of $75,000 per year:
Year 1: $75,000 / (1 + 0.10)^1 = $68,181.82
Year 2: $75,000 / (1 + 0.10)^2 = $61,983.47
Year 3: $75,000 / (1 + 0.10)^3 = $56,349.75
Year 4: $75,000 / (1 + 0.10)^4 = $51,227.61
Year 5: $75,000 / (1 + 0.10)^5 = $46,558.64
Step 2: Calculate the expected cash flows for each year by taking the average of the two outcomes:
Year 1: ($45,454.55 + $68,181.82) / 2 = $56,818.18
Year 2: ($41,322.31 + $61,983.47) / 2 = $51,652.89
Year 3: ($37,566.65 + $56,349.75) / 2 = $46,958.20
Year 4: ($34,242.41 + $51,227.61) / 2 = $42,735.01
Year 5: ($31,308.55 + $46,558.64) / 2 = $38,933.59
Step 3: Calculate the present value of the expected cash flows for each year:
Year 1: $56,818.18 / (1 + 0.10)^1 = $51,652.89
Year 2: $51,652.89 / (1 + 0.10)^2 = $46,957.17
Year 3: $46,958.20 / (1 + 0.10)^3 = $42,689.27
Year 4: $42,735.01 / (1 + 0.10)^4 = $38,822.74
Year 5: $38,933.59 / (1 + 0.10)^5 = $35,336.90
Step 4: Calculate the expected NPV by summing up the present values of the expected cash flows:
Expected NPV = $51,652.89 + $46,957.17 + $42,689.27 + $38,822.74 + $35,336.90 = $215,458.97
Therefore, the expected NPV of the project, considering the option to expand, is approximately $215,459.
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Help! show work!
This is the equation-
= ∗ PP ∗ (1 + )
(1 + ) − 1
1. Calculate the monthly payment and total cost of a car with the
followin
The given formula is used to calculate the monthly payment and total cost of a car. P is the price of the car, and r is the annual interest rate expressed as a decimal.
n is the total number of monthly payments, and M is the monthly payment. As the problem does not provide values for all variables, it is impossible to compute monthly payments and total car costs. Therefore, it is necessary to make assumptions to complete this problem.For example, let's assume the following values: the price of the car is $20,000, the annual interest rate is 5 percent, and the total number of monthly payments is 60 months (5 years).
We can now apply the values to the formula and solve for the monthly payment and total cost of the car:M = [20000*(0.05/12)] / [1 - (1 + 0.05/12)^(-60)] = $377.42 (rounded to the nearest cent).The total cost of the car is the sum of all monthly payments, which can be calculated as:Total cost = $377.42 * 60 = $22,645.20 (rounded to the nearest cent).Therefore, the monthly payment is $377.42, and the total cost of the car is $22,645.20.
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I need a value proposition canvas of clothing brand
The value proposition canvas for a clothing brand outlines the key elements that differentiate the brand and provide value to its customers. It includes the customer profile, the customer's jobs to be done, the brand's pain relievers, gain creators, and the unique selling proposition.
The value proposition canvas for a clothing brand involves understanding the customer profile, which includes demographics, preferences, and behaviors. It identifies the jobs the customers want to accomplish, such as looking fashionable, expressing their style, or finding comfortable clothing.
Next, the canvas considers the brand's pain relievers, which address the challenges or frustrations customers may face, such as high prices, limited size options, or lack of sustainability. The gain creators focus on the positive outcomes the brand delivers, such as trendy designs, high-quality materials, or personalized shopping experiences.
Finally, the unique selling proposition (USP) is determined, highlighting the distinctive aspects of the brand that set it apart from competitors. This could include factors like affordability, eco-friendly practices, inclusive sizing, or innovative technology integration.
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DEFINE/DESCRIBE in detail the FIVE (5) of the following:
Equifinality, Stakeholder Theory, Legitimacy, Institutional Investor, and Benefit Corporation
Equifinality is a concept in systems theory that suggests that a given outcome can be achieved through different means or pathways.
It recognizes that there can be multiple ways to reach the same goal or end result. For example, if the goal is to increase sales, a company can achieve this through various strategies such as improving marketing efforts, expanding into new markets, or enhancing product features.
Stakeholder Theory is a framework that considers the interests and needs of all individuals or groups (stakeholders) who are affected by or can affect a company's actions.
It emphasizes the importance of considering the interests of not just shareholders, but also employees, customers, suppliers, local communities, and other stakeholders. By taking into account the diverse needs and perspectives of stakeholders, companies can make more informed decisions and create value for all parties involved.
Legitimacy refers to the perception or belief that an organization's actions, behaviors, and decisions are appropriate, proper, and in line with societal norms and expectations. It is important for organizations to maintain legitimacy in order to gain support and trust from stakeholders.
For example, a company may engage in corporate social responsibility initiatives to demonstrate its commitment to social and environmental concerns, thereby enhancing its legitimacy in the eyes of the public.
Institutional investors are large financial institutions, such as pension funds, mutual funds, and insurance companies, that pool together and invest large amounts of money on behalf of their clients or beneficiaries.
These investors typically have significant influence in financial markets due to their substantial financial resources and professional expertise. They play a crucial role in capital allocation and can impact the stock prices of companies through their investment decisions.
A benefit corporation, also known as a B Corp, is a type of legal structure for businesses that are committed to creating a positive impact on society and the environment. Benefit corporations have a dual purpose of generating financial returns for shareholders and pursuing social or environmental goals.
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Should the Federal Reserve System control the nation's money supply? How the Fed has responded to the COVID-19 Pandemic. Defend your position using economic principles.
The Federal Reserve System (the Fed) should control the nation's money supply because it allows for stable economic growth. The Fed is responsible for regulating the money supply through various monetary policies that can stimulate economic activity, prevent inflation, and stabilize the economy during times of crisis. This position can be defended using economic principles.
The Fed utilizes a range of tools to control the money supply, including open market operations, reserve requirements, and the discount rate. These tools enable the Fed to influence the availability of credit, interest rates, and overall liquidity in the financial system. By adjusting these factors, the Fed can manage inflationary pressures, promote economic growth, and respond to economic shocks.
During the COVID-19 pandemic, the Fed has implemented several monetary policies to stabilize the economy. One such policy is quantitative easing, which involves purchasing government bonds and other financial assets to inject liquidity into the market. This action helps reduce the cost of borrowing, stimulate lending, and increase asset prices, thereby supporting economic activity.
Additionally, the Fed has lowered interest rates to encourage borrowing and investment, providing businesses and individuals with easier access to credit. This policy helps stimulate economic growth and consumer spending, which are vital for recovery during challenging times.
Furthermore, the Fed has offered loans and provided support to small businesses, recognizing their importance in the overall economic landscape. These actions help maintain business operations, preserve jobs, and mitigate the negative impact of the pandemic on the economy.
The Fed's response to the COVID-19 pandemic aligns with economic principles by aiming to stabilize the economy, prevent inflation, and promote growth. By implementing these monetary policies, the Fed has played a crucial role in preventing a more severe financial crisis and supporting economic recovery.
In conclusion, the Fed's control over the nation's money supply is essential for promoting economic stability and growth. The actions taken by the Fed during the COVID-19 pandemic demonstrate its ability to implement effective monetary policies to stabilize the economy in times of crisis. By leveraging its tools and expertise, the Fed can help ensure a more resilient and prosperous economy.
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Look for and post an example about a Vertically Integrated Company. It can be an entire article or portion of an article. Discuss why vertical integration works for this company and what benefits it has created for the company.
Vertical integration refers to a business model where a company controls multiple levels of its supply chain, from the production of raw materials to the distribution of finished products. It can offer several benefits to companies, including lower costs, higher quality control, and greater efficiency.
One example of a vertically integrated company is Tesla, the electric vehicle manufacturer. Tesla produces its batteries and has its own factories for assembling the cars. Here's an article that explores why vertical integration has worked for Tesla:Why vertical integration works for Tesla:Vertical integration has been a significant part of Tesla's business strategy since its inception.
The company has taken control of the supply chain, from the production of lithium-ion batteries to the assembly of electric vehicles, in an effort to achieve its long-term goals. Tesla's vertical integration provides several benefits, including quality control, lower costs, and greater efficiency.
1. Quality control: Tesla's vertical integration has allowed the company to have greater control over its products' quality. By producing the batteries in-house, the company can ensure that they are of the highest quality and meet its standards
.2. Lower costs: By producing its own batteries and assembling its own cars, Tesla can save costs on supply chain expenses and reduce the amount of money it spends on third-party suppliers.
3. Greater efficiency: Vertical integration has allowed Tesla to be more efficient in its production processes. The company can make changes to its products quickly and respond to market demand more effectively. Tesla's vertically integrated business model has been successful so far, and the company continues to invest in expanding its production capabilities.
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Banana Berhad is the parent of a listed group of companies which have a year end of 30 June 2021. Banana has made a number of acquisitions and disposals of investments during the current financial year and the directors require advice as to
the correct accounting treatment of these acquisitions and disposals.
a. Banana had purchased a 40% equity interest in Strawberry for RM18 million a
number of years ago when the fair value of the identifiable net assets was RM44 million. Since acquisition, Banana had the right to appoint one of the five directors on the board of Strawberry. The investment has always been
equity accounted for in the consolidated financial statements of Banana. Banana disposed of 75% of its 40% investment on 1 October 2021 for RM19
million when the fair values of the identifiable net assets of Strawberry were RM50 million. At that date, Banana lost its right to appoint one director to the board. Banana has stated that they have no intention to sell their remaining shares in Strawberry and wish to classify the remaining 10% interest as fair
value through other comprehensive income in accordance with MFRS 9
Financial Instruments.
Required: Explain whether equity accounting was the appropriate treatment for Strawberry in the consolidated financial statements up to the date of its
disposal.
Equity accounting was the appropriate treatment for Strawberry in the consolidated financial statements up to the date of its disposal due to Banana's significant influence over the investee.
When Banana initially purchased a 40% equity interest in Strawberry, the investment was accounted for using the equity method. The equity method is used when an investor has significant influence over the investee but does not have control. In this case, Banana had the right to appoint one director to the board of Strawberry, indicating significant influence.
However, when Banana disposed of 75% of its 40% investment in Strawberry and lost its right to appoint a director, the level of influence over Strawberry significantly decreased. As a result, the equity method is no longer appropriate for the remaining 10% interest.
Instead, Banana intends to classify the remaining 10% interest as fair value through other comprehensive income in accordance with MFRS 9 Financial Instruments. This classification allows for the recognition of changes in fair value in other comprehensive income rather than in the income statement.
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If you write a blog post that immediately goes viral and is trending on social media, the post was very ________.
a.Shareable
b.Readable
c.Accessible
d,Smart
If you write a blog post that immediately goes viral and is trending on social media, the post was very shareable.
A shareable blog post is one that resonates with readers and prompts them to share it with their own social media networks. There are several factors that contribute to a post being shareable:
1. Engaging Content: The blog post must have compelling and valuable content that captures the reader's attention. This can include interesting facts, personal anecdotes, or thought-provoking insights.
2. Clear and Concise Writing: A shareable blog post is readable, meaning it is written in a way that is easy to understand. It should be free of jargon and complex language, making it accessible to a wide range of readers.
3. Relevance to the Audience: The content should be tailored to the target audience's interests, needs, and preferences. This ensures that readers find the post relatable and are more likely to share it with others who have similar interests.
4. Visual Appeal: Including visually appealing elements like images, infographics, or videos can enhance the shareability of a blog post. These elements make the content more engaging and share-worthy.
Overall, a shareable blog post is one that captures the attention of readers, is easy to understand, and resonates with the target audience. By incorporating these elements, your blog post has a higher chance of going viral and trending on social media.
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As of May 31,2011 , the bank statement showed an ending balance of $17,250. The unadjusted Cash account balance was $16,450. The following information is available: 1. Deposit in transit, $2,630. 2. Credit memo in bank statement for interest earned in May, $12.
3. Outstanding check, $3,428. 4. Debit memo for service charge, $10. Required a. Determine the true cash balance by preparing a bank reconciliation as of May 31,2011 , using the preceding information. b. Record in general journal format the adjusting entries necessary to correct the unadjusted book balance.
The true cash balance as of May 31, 2011, after preparing a bank reconciliation, is $18,412.
To determine the true cash balance, we need to reconcile the unadjusted Cash account balance with the information provided. Let's go through the steps:
Step 1: Add the deposit in transit and subtract the outstanding check.
Deposit in transit: $2,630
Outstanding check: $3,428
Adjusted balance: $16,450 + $2,630 - $3,428 = $15,652
Step 2: Add the credit memo and subtract the debit memo.
Credit memo (interest earned): $12
Debit memo (service charge): $10
Adjusted balance: $15,652 + $12 - $10 = $15,654
Step 3: Add the adjusted balance and the credit memo for interest earned.
Adjusted balance: $15,654
Credit memo (interest earned): $12
True cash balance: $15,654 + $12 = $15,666
However, the bank statement shows an ending balance of $17,250. To find the true cash balance, we need to account for any reconciling items between the bank statement and the book balance.
Step 1: Add the deposit in transit.
Adjusted balance: $15,666 + $2,630 = $18,296
Step 2: Subtract the outstanding check.
Adjusted balance: $18,296 - $3,428 = $14,868
Step 3: Add the credit memo for interest earned.
Adjusted balance: $14,868 + $12 = $14,880
Step 4: Subtract the debit memo for service charge.
Adjusted balance: $14,880 - $10 = $14,870
Therefore, the true cash balance as of May 31, 2011, after preparing the bank reconciliation, is $14,870.
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As a leader, I consider my main job is to support my employees to ensure their success-assisting them in their workplace need fulfillment, personal development and growth. What style of leadership is this? a. Task-oriented b. Managerial c. Transformational d. Authentic e. Servant Next
The style of leadership described in the statement is e. Servant leadership, which focuses on supporting and assisting employees to meet their needs, personal development, and growth.
Servant leadership is a leadership style where the leader prioritizes the well-being and success of their employees. The leader acts as a servant to their team, emphasizing support, empowerment, and enabling their employees to reach their full potential.
Servant leaders focus on meeting the needs of their employees and helping them achieve workplace fulfillment, personal growth, and development. In the given statement, the leader sees their main job as supporting their employees, ensuring their success, and assisting them in various aspects of their work and personal lives.
This aligns with the core principles of servant leadership, which include putting the needs of others first, promoting collaboration, fostering a positive work environment, and enabling personal and professional growth.
By prioritizing the well-being and development of their employees, servant leaders create a conducive environment where individuals feel valued, motivated, and empowered to perform their best. This style of leadership promotes employee engagement, satisfaction, and overall organizational success
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Assume the total cost of a college education will be $336,000 when your child enters college in 18 years. You presently have $71,000 to invest.
What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You need to earn an annual interest rate of approximately 10.98% on your investment to cover the cost of your child's college education.
To calculate the annual rate of interest you need to earn on your investment to cover the cost of your child's college education, we can use the future value formula.
First, let's calculate the amount you need to accumulate in 18 years to cover the cost of education. The total cost of college education is given as $336,000. You presently have $71,000 to invest.
The formula for future value is:
FV = PV ×(1 + r)ⁿ
where FV is the future value, PV is the present value (your investment), r is the annual interest rate, and n is the number of years.
In this case, FV = $336,000, PV = $71,000, and n = 18. We need to solve for r.
336,000 = 71,000 ×(1 + r)¹⁸
To solve for r, we need to isolate it on one side of the equation. Divide both sides of the equation by 71,000:
336,000 / 71,000 = (1 + r)¹⁸
4.732394366197183 = (1 + r)¹⁸
Now, take the 18th root of both sides:
(4.732394366197183)^(1/18) = 1 + r
1.1098225351668818 = 1 + r
Subtract 1 from both sides:
r = 1.1098225351668818 - 1
r = 0.1098225351668818
To express this as a percentage, multiply by 100:
r = 0.1098225351668818 ×100
r = 10.98%
Therefore, you need to earn an annual interest rate of approximately 10.98% on your investment to cover the cost of your child's college education.
In order to cover the cost of your child's college education, you need to earn an annual interest rate of approximately 10.98% on your investment. This calculation is based on the future value formula, which takes into account the present value, the number of years, and the desired future value.
substituting the given values into the formula, we can isolate the interest rate variable and solve for it. The final result is expressed as a percentage, rounding to 2 decimal places, which gives an interest rate of 10.98%.
This means that over the next 18 years, your investment needs to generate an average annual return of 10.98% in order to accumulate enough funds to cover the cost of your child's college education. It's important to note that this calculation assumes a fixed interest rate over the entire investment period and doesn't account for inflation or other factors that may affect the actual cost of education.
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Saved Help The classified balance sheet for a company reported current assets of $1,948,770, total liabilities of $804,540, Common Stock of $1,050,000, and Retained Earnings of $135,260. The current ratio was 3 Which of the following statements is not correct? Multiple Choice Total Stockholders equity is $1185,260 Total Assets are $1,989,800. The amount of current assets is 3.0 times the amount of current liabilities. Noncurrent liabilities are $135,260. Save &
Current Assets = $1,948,770
Total Liabilities = $804,540
Common Stock = $1,050,000
Retained Earnings = $135,260
Current Ratio = 3
Let us check which option is correct -Total Stockholders equity is $1185,260Total Stockholders Equity = Common Stock + Retained Earnings
Total Stockholders Equity = $1,050,000 + $135,260
Total Stockholders Equity = $1,185,260
the statement "Total Stockholders equity is $1185,260" is correct.
Total Assets are $1,989,800.Total Assets = Total Liabilities + Total Stockholders Equity Total Assets = $804,540 + $1,185,260Total Assets = $1,989,800
the statement "Total Assets are $1,989,800" is also correct. The amount of current assets is 3.0 times the amount of current liabilities.
Current Ratio = Current Assets / Current Liabilities3 = Current Assets / $804,540Current Assets = $2,413,620As the amount of current assets is more than three times the amount of current liabilities,
the statement "The amount of current assets is 3.0 times the amount of current liabilities" is correct. Noncurrent liabilities are $135,260. Noncurrent liabilities = Total Liabilities - Current Liabilities Noncurrent liabilities = $804,540 - Current Liabilities Non current liabilities = $804,540 - ($1,948,770 / 3)Noncurrent liabilities = $135,256.67
As the calculated noncurrent liabilities is approximately equal to the given noncurrent liabilities,
the statement "Noncurrent liabilities are $135,260" is correct. we can see that all the given statements are correct. Hence, option (E) None of these is the correct answer.
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A project has an initial cost of $36,975, expected net cash inflows of $11,000 per year for 12 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent. $
By calculating the ENTIRE QUESTION we get that project's NPV rounded to the nearest cent is $234444.
The project's Net Present Value (NPV) can be calculated by constructing a timeline and discounting the expected net cash inflows using the project's cost of capital. With an initial cost of $36,975, expected net cash inflows of $11,000 per year for 12 years, and a cost of capital of 8%, the project's NPV can be determined.
To calculate the project's NPV, we need to discount the expected net cash inflows back to the present value using the cost of capital. The timeline for the project can be represented as follows:
Year 0: -$36,975 (Initial cost)
Year 1-12: $11,000 (Annual net cash inflows)
Using the formula for calculating the present value of a cash flow, we can discount each year's net cash inflow at a rate of 8%:
PV = CF / (1 + r)^n
Where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of years.
Calculating the present value for each year and summing them up, we get:
PV = -$36,975 + ($11,000 / (1 + 0.08)^1) + ($11,000 / (1 + 0.08)^2) + ... + ($11,000 / (1 + 0.08)^12)
Evaluating this equation, we find that the project's NPV is the sum of the present values of the net cash inflows minus the initial cost:
NPV = PV - Initial cost
By calculating the ENTIRE QUESTION we get that project's NPV rounded to the nearest cent is $234444.
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a. What factors you need to consider for the compensationof your firm manager if you are the owner of a corporation? b. Which of the following three strategies is better? Cashsalary, stock options whichdepend on the firm’s performance, and a mix of the two. c. What means can release the conflicts between shareholdersand manager?
When determining the compensation of a firm manager, factors such as experience, performance, market conditions, and financial capability need to be considered.
a. When considering the compensation of a firm manager as the owner of a corporation, several factors need to be taken into account. Firstly, the manager's experience and qualifications should be considered to ensure they are adequately compensated for their expertise. Secondly, the manager's performance should be evaluated, taking into consideration their ability to achieve the company's goals and objectives. Thirdly, the market conditions and industry standards should be considered to ensure the compensation is competitive. Lastly, the financial position of the company and its ability to afford the compensation package should also be taken into consideration.
b. The best strategy for compensation depends on various factors, including the company's goals, financial situation, and the manager's performance. Cash salary provides immediate financial reward and stability, but it may not incentivize long-term performance improvement. Stock options tied to the firm's performance can motivate the manager to align their interests with shareholders, but they are subject to market fluctuations. A mix of cash salary and stock options can strike a balance between stability and performance-based incentives, providing a combination of immediate rewards and long-term motivation.
c. Conflicts between shareholders and managers can be resolved through several means. Firstly, establishing clear and transparent communication channels can help foster understanding and collaboration between both parties. Regular meetings and reports can ensure that shareholders are informed about the company's performance and decisions. Secondly, implementing performance-based incentives, such as stock options tied to company performance, can align the interests of shareholders and managers. This can motivate managers to prioritize the company's success and shareholder value. Lastly, the presence of an independent board of directors can provide oversight and ensure that decisions are made in the best interest of shareholders.
When determining the compensation of a firm manager, factors such as experience, performance, market conditions, and financial capability need to be considered. The best compensation strategy may involve a combination of cash salary and stock options, providing stability and performance-based incentives. Conflicts between shareholders and managers can be addressed through transparent communication, performance-based incentives, and the presence of an independent board of directors.
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Lisi Crichton operates a variety store. Her brother does custom welding and made some racks to hold videos. Lisi gave her brother $5,000 cash and did not get a bill. A similar rack was on display at a department store for $1,000. You are told to book an expense on the company financial statement for $5000. What will you book the amount for?
Answer:
$1,000
Explanation:
Fixed assets must be recorded at historic cost or purchase value. Their valuation is not affected by changes in market values, e.g. land might appreciate over time, but its historic cost will be used for accounting purposes.
In this case, Lisi doesn't have a bill to show the price of the rack, and since she paid in cash, she has no way of proving what she actually paid for it. In this case, in order to record the purchase of the rack you must use the fair market value of similar racks.
Imagine if someone could just say that they purchased things at X price but didn't get a bill, soon people would be recording buying pencils at $500 each because they are gorgeous and perfectly crafted.
