The value of inventory is measured at base year cost and current year quantities. The value of base year inventory is increased using price index and the total value of inventory at current year price is deducted from the total value of inventory to get the value of inventory of the base year.
The calculation is performed as follows:((Ending inventory at current year prices ÷ Price index) × Current price index) = Ending inventory at base year prices The 2020 inventory balance using dollar-value LIFO can be calculated as follows: First, we need to calculate the ending inventory at base year prices for the year ended 2019 by dividing the inventory at the end of the year 2019 by the price index of the year 2019.$648,000 ÷ 1.02 = $635,294.12
The inventory at the end of the year 2020 at current prices was $1,262,000 and the price index for the year 2020 was 1.07.((1,262,000 ÷ 1.07) × 1.02) + $635,294.12 = $1,262,255.14
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The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:
output supplied.
money supply.
unemployment rate.
employment.
The aggregate supply curve shows the relationship between the aggregate price level and the aggregate output supplied.
The aggregate supply curve illustrates the relationship between the overall price level in the economy and the total amount of goods and services (aggregate output) supplied by firms. It represents the level of real production that firms are willing and able to provide at different price levels.
As the price level in the economy rises, firms are generally motivated to increase their production and supply more goods and services. This is because higher prices can lead to higher profits and provide an incentive for firms to expand their output. As a result, the aggregate supply curve slopes upward, indicating a positive relationship between the price level and the quantity of aggregate output supplied.
It is important to note that changes in the aggregate supply curve can also be influenced by factors such as changes in input prices, technological advancements, government regulations, and overall productivity. These factors can shift the entire aggregate supply curve to the left or right, indicating changes in the overall level of output supplied at each price level.
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In General People avoid paying tax all over the world! However, there are certain factors which help Govt. all over the world to acheive their tax collection target. A. Qadir Memon's Sb identified 3 of those factors. identify those factors and explain them?
Three factors that help governments achieve their tax collection targets are:
1. Tax Compliance and Enforcement: Governments strive to ensure tax compliance by implementing effective enforcement mechanisms. This includes conducting audits, imposing penalties for non-compliance, and leveraging technology for better monitoring and reporting of financial transactions. Strict enforcement encourages individuals and businesses to fulfill their tax obligations, thus increasing tax collection.
2. Simplified Tax Systems: Governments can enhance tax collection by simplifying the tax system. Complex tax regulations and procedures create confusion and can lead to tax evasion. By streamlining tax laws, reducing loopholes, and introducing user-friendly processes, governments can encourage voluntary compliance and reduce the scope for tax evasion.
3. Public Awareness and Education: Creating awareness about the importance of paying taxes and the benefits derived from tax revenues is crucial. Governments can educate the public about how taxes fund public services, infrastructure development, and social welfare programs. Increased public awareness fosters a sense of civic responsibility and encourages individuals to willingly contribute their fair share of taxes.
These factors work together to enhance tax collection by promoting compliance, reducing opportunities for tax evasion, and fostering a positive attitude towards tax payment. Governments that effectively address these factors are more likely to achieve their tax collection targets and sustain adequate revenue for public expenditure.
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a production department's output for the most recent month consisted of 18,000 units completed and transferred to the next stage of production and 18,000 units in ending work in process inventory. the units in ending work in process inventory were 80% complete with respect to both direct materials and conversion costs. there were 2,600 units in beginning work in process inventory, and they were 80% complete with respect to both direct materials and conversion costs. calculate the equivalent units of production for the month, assuming the company uses the weighted average method. multiple choice
a. 18,520 units.
b. 18,000 units.
c. 32,920 units.
d. 20,080 units.
e. 32,400 units.
The correct answer is not provided in the given options. "The equivalent units of production for the month using the weighted average method is 66,880 units." Equivalent units of production is a concept used in cost accounting to measure the number of units that have been partially completed and are equivalent to a certain number of fully completed units. It takes into account the degree of completion of units in the process.
For example, if a company has 10,000 units in a process that are 50% complete with respect to direct materials and conversion costs, the equivalent units of production would be 10,000 units * 50% = 5,000 equivalent units.
Equivalent units of production are used to determine the total number of units that should be used in calculating the cost per unit for a particular production period. It allows for a more accurate allocation of costs by considering partially completed units in the calculation.
In summary, the equivalent units of production represent the number of partially completed units that are combined with fully completed units to determine the total production for cost calculation purposes.
To calculate the equivalent units of production using the weighted average method, we need to consider both the units completed and transferred out, as well as the units in ending work in process inventory.
The equivalent units of production for direct materials and conversion costs are calculated separately and then summed up.
1. Equivalent units for direct materials:
Units completed and transferred out = 18,000 units
Ending work in process inventory (80% complete) = 18,000 units × 80% = 14,400 units
Total equivalent units for direct materials = Units completed and transferred out + Ending work in process inventory = 18,000 units + 14,400 units = 32,400 units
2. Equivalent units for conversion costs:
Units completed and transferred out = 18,000 units
Ending work in process inventory (80% complete) = 18,000 units × 80% = 14,400 units
Beginning work in process inventory (80% complete) = 2,600 units × 80% = 2,080 units
Total equivalent units for conversion costs = Units completed and transferred out + Ending work in process inventory + Beginning work in process inventory = 18,000 units + 14,400 units + 2,080 units = 34,480 units
Now, we can sum up the equivalent units for direct materials and conversion costs to get the total equivalent units of production for the month:
Total equivalent units of production = Total equivalent units for direct materials + Total equivalent units for conversion costs
Total equivalent units of production = 32,400 units + 34,480 units = 66,880 units
Therefore, the correct answer is not provided in the given options. The equivalent units of production for the month using the weighted average method is 66,880 units.
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A, B, C, and D are partners, sharing earnings in the ratio of 3:4:6:8. Capital balances are as follows A = 3,000 B = 75,000 C = 75,000 D = 27,000 The partners decided to liquidate, and they accordingly convert the non-cash assets into P69,000 cash. After paying the liabilities amounting to P9,000, they have P66,600 to divide. Assume all partners are insolvent. How much will C receive? 53,400 24,960 42,600 41,640
In order to calculate how much C will receive when non Cash Assets A, B, C, and D, partners sharing earnings in the ratio of 3:4:6:8, liquidate their business, we can follow the steps below. The correct answer is b. 24,960.
The partners decided to liquidate, and they accordingly convert the non-cash assets into P69,000 cash 1. Find the total capital
A+B+C+D = 3,000 + 75,000 + 75,000 + 27,000
= P180,0002. Find the total share ratio: 3+4+6+8=213. Calculate the shares for each partner: A's share
= (3/21) x P66,600
= P9,514.29B's share
= (4/21) x P66,600
= P12,571.43C's share
= (6/21) x P66,600
= P19,028.57D's share
= (8/21) x P66,600 = P25,485.714. Calculate how much C will receive: Since all the partners are insolvent, they will share the remaining money (P66,600 - P9,000) in their share ratio. C's share ratio is 6/21, therefore:C's share = (6/21) x P57,600 = P16,400Therefore, C will receive P16,400.Answer: C will receive P16,400.
Complete question:
A, B, C, and D are partners, sharing earnings in the ratio of 3:4:6:8. Capital balances are as follows A = 3,000 B = 75,000 C = 75,000 D = 27,000 The partners decided to liquidate, and they accordingly convert the non-cash assets into P69,000 cash. After paying the liabilities amounting to P9,000, they have P66,600 to divide. Assume all partners are insolvent. How much will C receive?
a. 53,400
b. 24,960
c. 42,600
d. 41,640
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Sabana Company had the following selected transactions. February 1: Signs a $50,000, 6-month, 9%-interest-bearing note payable to Citi Bank and receives $50,000 in cash. 10 Cash register sales total $32,400, which includes an 8% sales tax. 28 Wood Company retired $600,000 face value, 9% bonds on Feb 28, 2019 at 95. The carrying value of the bonds at the redemption date was $610,000. Instructions: Journalize the February transactions. (2) On January 1, 2020, Dana Company issued $2.000,000 face value, 7%, 10-year bonds at $2,150,000 This price resulted in a 6% effective-interest rate on the bonds. Dana uses the effective interest method to amortize bond premium or discount. The bonds pay annual interest on the beginning of each January. Instructions: (1) Prepare journal entries to record the following transactions: i. The issuance of bonds on January 1, 2020 ii. Accrual of interest and amortization of the premium on December 31, 2020. iii. The payment of interest on January 1, 2021. iv. Accrual of interest and amortization of the premium on December 31, 2021. (2) Show the proper non-current liabilities statement of financial position presentation for the bond liability at December 31, 2021. (3) Prepare a bond premium amortization schedule for the first three periods if Dana uses the straight-line method to amortize premium. (4) Assume the issued bonds were sold at $1,800,000 at 8% effective interest rate, prepare a bond discount schedule for the first four periods under the effective interest rate method.
Journal entries for the February transactions:
- Debit Notes Payable for $50,000
- Credit Cash for $50,000
- Debit Cash for $35,556 (32000/1.08)
- Credit Premium on Bonds Payable for $150,000 (2,150,000 - 2,000,000)
ii. Accrual of interest and amortization of the premium on December 31, 2020:
discount. The bonds pay annual interest on the beginning of each January. Instructions: (1) Prepare journal entries to record
- Debit Interest Expense for $140,000 [(2,000,000*7%*6/12)]
- Credit Cash for $140,000
iv. Accrual of interest and amortization of the premium on December 31, 2021:
- Debit Interest Expense for $140,000 [(2,150,000*6%) - 150,000 - 11,000]
- Debit Premium on Bonds Payable for $11,000 (150,000/10)
includes an 8% sales tax. 28 Wood Company retired $600,000 face value, 9% bonds on Feb 28, 2019 at 95. The carrying value of the
Signs a $50,000, 6-month, 9%-interest-bearing note payable to Citi Bank and receives $50,000 in cash. 10 Cash register sales total
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Calculate the Gross Debt Service (GDS) and the Total Debt Service (TDS) ratios for the following data. (5 marks) Monthly mortgage payment = $2,725 Property taxes = $325 Heating costs = $240 Other housing costs = $195 Personal loan payment = $275 Car loan payment = $325 Credit card payment = $275 Gross monthly household income = $14,050 3. Beverly and Kyle Nelson currently insure their cars with separate companies paying $450 and $375 a year. If they insured both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over ten years based on an annual interest rate of 6 percent?
To calculate the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios, we need to consider the housing costs and debt payments in relation to the gross monthly household income. Here's how we can calculate these ratios:
Gross Debt Service (GDS) Ratio:
GDS Ratio measures the percentage of gross monthly income that goes towards housing costs.
GDS Ratio = (Monthly Housing Costs / Gross Monthly Income) x 100
Monthly Housing Costs = Monthly Mortgage Payment + Property Taxes + Heating Costs + Other Housing Costs
Monthly Housing Costs = $2,725 + $325 + $240 + $195
Monthly Housing Costs = $3,485
Gross Debt Service (GDS) Ratio = ($3,485 / $14,050) x 100
Gross Debt Service (GDS) Ratio ≈ 24.79%
Total Debt Service (TDS) Ratio:
TDS Ratio measures the percentage of gross monthly income that goes towards all debt payments, including housing costs.
TDS Ratio = (Total Monthly Debt Payments / Gross Monthly Income) x 100
Total Monthly Debt Payments = Monthly Housing Costs + Personal Loan Payment + Car Loan Payment + Credit Card Payment
Total Monthly Debt Payments = $3,485 + $275 + $325 + $275
Total Monthly Debt Payments = $4,360
Total Debt Service (TDS) Ratio = ($4,360 / $14,050) x 100
Total Debt Service (TDS) Ratio ≈ 31.04%
Therefore, the Gross Debt Service (GDS) ratio is approximately 24.79%, and the Total Debt Service (TDS) ratio is approximately 31.04%.
Moving on to the second question regarding the future value of annual savings over ten years:
Future Value of annual savings over ten years can be calculated using the formula for compound interest:
Future Value = Present Value * (1 + Interest Rate)^Number of Periods
Present Value of annual savings = (Annual Savings without discount - Annual Savings with discount) = ($450 + $375) - 10% * ($450 + $375)
Future Value = (Present Value) * (1 + Interest Rate)^Number of Periods
Future Value = (Annual Savings without discount - Annual Savings with discount) * (1 + Interest Rate)^Number of Periods
Future Value = ($825) * (1 + 0.06)^10
Future Value = $825 * (1.06)^10
Future Value ≈ $1,473.20
Therefore, the future value of the annual savings over ten years, based on an annual interest rate of 6 percent, would be approximately $1,473.20.
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Please consider the following data:
Name of Company P/E EV/EBIT EV/EBITDA
Get Fit 22.5x 14.1x
Workout Co. 27.1x 19.9x
Health Fitness Center 18.0x 13.9x
Fit for Fun 23.2x 15.1x
The Crossfit Club 24.1x 15.8x
Average 23.0x 15.8x
P&L Items (in USD mln) Sports World Co.
EBIT 10.2
EBITDA 11.7
Net Earnings 3.5
Debt 100
What is your estimate of the enterprise value of Sports World Co. using the EBIT multiple? Please round your answer to one decimal place, use a period to indicate the decimal place and provide your answer without a dollar sign (e.g. 10.1 instead of $10.1). EV/EBIT 15.3x 21.3x 14.4x 16.0x 17.2x 16.8x
The estimated enterprise value of Sports World Co. using the EBIT multiple is approximately $156.06 million.
To estimate the enterprise value (EV) of Sports World Co. using the EBIT multiple, we can multiply the EBIT of Sports World Co. by the EBIT multiple.
Given:
EBIT of Sports World Co. = $10.2 million
EBIT multiple = 15.3x
Enterprise Value (EV) = EBIT of Sports World Co. * EBIT multiple
EV = $10.2 million * 15.3
EV ≈ $156.06 million
Therefore, the estimated enterprise value of Sports World Co. using the EBIT multiple is approximately $156.06 million.
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8. To consistently and aggressively combat inflation like Paul Volcker did in 1980, the Fed might: a. increase the reserve requirement and the discount rate and buy bonds on the open market b. increase the reserve requirement and the discount rate and sell bonds on the open market c. decrease the reserve requirement and the discount rate and buy bonds on the open market d. decrease the reserve requirement and the discount rate and sell bonds on the open market e. decrease the reserve requirement, increase the discount rate, and buy bonds on the open market 14. To fight a recession, the Fed might: a. increase the reserve requirement and the discount rate b. buy bonds in the open market and decrease the discount rate c. increase the reserve requirement and decrease the discount rate d. decrease the reserve requirement and increase the discount rate e. sell bonds on the open market 6. If a bank has $1.5 million in reserves and checking deposits of $4 million, what is the bank's reserve position if the required reserve ratio is 20 percent? a. the bank has $300,000 of required reserves and $1,200,000 of excess reserves b. the bank has $300,000 of required reserves and $3,700,000 of excess reserves c. the bank has $800,000 of required reserves and $700,000 of excess reserves d. the bank has $800,000 of required reserves and $3,200,000 of excess reserves
To consistently and aggressively combat inflation like Paul Volcker did in 1980, The bank's reserve position is $300,000 of required reserves and $1,200,000 of excess reserves if a bank has $1.5 million in reserves and checking deposits of $4 million, with a required reserve ratio of 20 percent.
Question 8. To consistently and aggressively combat inflation like Paul Volcker did in 1980, the Fed might increase the reserve requirement and the discount rate and sell bonds on the open market.Answer more than 100 words:The Federal Reserve System (the Fed) is the central bank of the United States. The Fed plays an important role in ensuring a sound and stable monetary and financial system. Among its primary goals are price stability, maximum employment, and moderate long-term interest rates. It has three main monetary policy tools: open market operations, the discount rate, and reserve requirements. The Fed can also use these tools to combat inflation and/or stimulate economic growth.The Fed can decrease the reserve requirement and the discount rate and buy bonds on the open market to boost the economy, such as during a recession. The Fed can increase the reserve requirement and the discount rate and sell bonds on the open market to combat inflation, like Paul Volcker did in 1980. When the Fed sells bonds, it removes money from the economy, decreasing the mone
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what are the tools available for the manager in financial planning
In financial planning, there are several tools available to managers. One tool is budgeting.
This is the process of creating a financial plan that outlines the organization's income and expenses for a specific period. Another tool is forecasting, which is the process of predicting future financial outcomes based on historical data and market trends. Additionally, financial analysis tools such as ratio analysis and trend analysis can be used to help managers assess the organization's financial health and identify areas for improvement.
Other financial planning tools available to managers include cash flow analysis, break-even analysis, cost-benefit analysis, and sensitivity analysis. These tools help managers make informed decisions about the allocation of financial resources and ensure that the organization is on track to achieve its financial goals.
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Read the statement below, and answer the question that follows:
"With the onset of modern technology, even perishable goods can now be stored for longer periods of time".
With the aid of suitable diagrams contained in the demand-supply model, assess how the above factor impacts the equilibrium price and quantity for consumers and suppliers.
The impact of modern technology allowing for longer storage of perishable goods on the equilibrium price and quantity for consumers and suppliers can be assessed using the demand-supply model.
Initial Equilibrium: Before the onset of modern technology, the equilibrium price (P1) and quantity (Q1) for perishable goods are determined by the intersection of the demand and supply curves.
Technological Advancement: The introduction of modern technology enables the storage of perishable goods for longer periods of time. This affects both the demand and supply curves:
Demand Curve: The demand curve shifts to the right due to increased availability of perishable goods over an extended time period.
Supply Curve: The supply curve also shifts to the right as suppliers can now store perishable goods for longer without spoilage.
New Equilibrium: As a result of the shifts in both the demand and supply curves, the new equilibrium price (P2) and quantity (Q2) will be different from the initial equilibrium.
Equilibrium Price: The new equilibrium price (P2) will depend on the magnitude of the shifts in the demand and supply curves. If the increase in demand exceeds the increase in supply, the price will increase.
Conversely, if the increase in supply surpasses the increase in demand, the price will decrease. The specific price change can only be determined by assessing the magnitudes of the shifts.
Equilibrium Quantity: The new equilibrium quantity (Q2) will increase compared to the initial equilibrium quantity (Q1) due to the combined effect of increased demand and supply. However, the specific quantity change can only be determined by evaluating the magnitudes of the shifts.
With the onset of modern technology allowing for longer storage of perishable goods, the equilibrium price and quantity will be influenced by the shifts in the demand and supply curves.
The price can either increase or decrease, depending on the relative magnitudes of the shifts, while the quantity will generally increase. The specific impact on consumers and suppliers will depend on their respective elasticities of demand and supply.
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If PSA decides to re-enter the U.S. market, how and when should
it re-enter? Is it enough to make a progressive U.S. re-entry or
should the company enter all the way to avoid past mistakes?
The decision of how and when PSA should re-enter the U.S. market depends on factors such as market conditions and the company's strategic goals.
A progressive or full-scale re-entry approach can be considered, depending on resources, risks, and the desired level of market presence.
The decision of how and when PSA should re-enter the U.S. market depends on various factors such as market conditions, competition, and the company's strategic goals. Making a progressive re-entry or entering fully will depend on the company's resources, capabilities, and risk appetite.
A progressive re-entry approach involves entering the market gradually, starting with specific regions or product segments. This approach allows PSA to test the market and assess customer demand while minimizing initial investment and risks. It provides an opportunity to gather market intelligence, learn from competitors, and refine their offerings based on customer feedback. This approach can be suitable if PSA wants to mitigate risks and gain insights before committing to a full-scale entry.
On the other hand, a full-scale entry involves entering the U.S. market with a comprehensive strategy, establishing a strong presence across multiple regions and product categories. This approach demonstrates a higher level of commitment and may allow PSA to leverage economies of scale, build brand awareness, and capture a larger market share from the beginning. However, it also entails higher investment and risks, including potential challenges in adapting to the market dynamics and competition.
Ultimately, the decision should be based on a thorough analysis of market conditions, competitor landscape, customer preferences, and the company's capabilities and resources. It is important for PSA to assess the potential risks and rewards associated with each approach and align them with their long-term objectives and market entry strategy.
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Builtrite preferred stock is currently selling at $64. The stock currently pays 4% dividend based on a par value of $60. If you purchase the stock, what is your expected return? 3.5% 4.25% 3.75% 4.0%
Option (c), the expected return for Builtrite preferred stock is 3.75%
Given,
The Builtrite preferred stock is currently selling at $64. The stock currently pays 4% dividend based on a par value of $60.We need to calculate the expected return.
The formula for calculating the expected return is:
Expected Return = (Dividend / Price) + Growth rate
Dividend = Par Value * Dividend Rate
Dividend = 60 * 4% = $2.40
Price = $64
Dividend / Price = $2.40 / $64 = 0.0375 or 3.75%
Since no growth rate is given, we assume it to be 0.
Using the formula above, we can calculate the expected return as follows:
Expected Return = (Dividend / Price) + Growth rate
Expected Return = 3.75% + 0Expected Return = 3.75%
Therefore, the expected return for Builtrite preferred stock is 3.75%.
Expected return = (Annual Dividend / Market Price) * 100
Expected return = ($60 × 4%) / $64 = $2.4/$64 = 0.0375 or 3.75%
Expected return = (0.0375) × 100 = 3.75%
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Under which method(s) of depreciation is the residual value of a depreciated asset may not Be taken into account to determine annual depreciation expense? a. Straight-line method b. Declining balance method c. Units-of-production method d. Straight-line and Units-of-production methods e. All of the above 12. Which of the following regarding the lower of cost or market rule for I inventory are true? (1) The lower of cost or market rule is an example of the historical cost principle. (2) When the market value (net realizable value) of inventory drops below the cost shown in the financial records, net income is not affected. (3) When the market value (net realizable value) of inventory drops below the cost shown in the financial records, total assets (total net book value) are reduced. a. (1) b. (2) c. (3) d. (1) and (3) e. All of the three
Option d: option d. (1) and (3) are correct, and the other two are incorrect, which is explained below about depreciation.
The method of depreciation that doesn't take the residual value of a depreciated asset into account to determine annual depreciation expense is the b. Declining balance method. When it comes to straight-line and units-of-production methods, the residual value of a depreciated asset can be taken into account to determine annual depreciation expense.
On the other hand, under the declining balance method, the residual value of a depreciated asset is not taken into account. Therefore, the correct answer is b. Declining balance method.12. The correct option is d. (1) and (3)
The lower of cost or market rule for I inventory is an example of the conservatism principle. This rule requires a company to report inventory at the lower of cost or market value. When the market value (net realizable value) of inventory falls below the cost shown in the financial records, the total net book value (total assets) is reduced. Thus, option d. (1) and (3) are correct, and the other two are incorrect.
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Illustrate the potential economic and financial effects of climate change(Macroeconomics)
The potential economic and financial effects of climate change are significant and far-reaching. Governments and businesses must work together to mitigate the risks and develop strategies to adapt to the changing climate in order to minimize the potential impact on macroeconomics.
Climate change has the potential to cause significant economic and financial effects that could impact macroeconomics. In particular, rising temperatures and changing weather patterns may lead to more frequent and severe natural disasters, such as floods, droughts, and hurricanes. These events can have a profound impact on the economy, leading to increased costs and lost productivity.
For example, natural disasters can damage infrastructure, disrupt supply chains, and force businesses to shut down temporarily. This can lead to higher costs for companies and consumers, which can ultimately reduce economic output. Additionally, climate change can impact agricultural productivity, leading to higher food prices and reduced access to certain products.
On a financial level, climate change can have an impact on investments and insurance. As natural disasters become more frequent and severe, insurance companies may face higher payouts, which can impact their bottom line. Additionally, companies that rely on fossil fuels may face decreased demand and lower stock prices as investors shift towards more sustainable energy sources.
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Use the following information for questions 7,8,9,10, and 11. Os January 1, 2018, SABIC contracted Al-Herbi Construction Co. to construct an office building for €1,100,000 on land costing €100,000 in United Kingdom On March 1, 2018 SABIC began construction of the building and the following expenditures were incurred for construction March 1 € 75,000 April 1 € 74,000 May 1 180,000 270,000 July 1 100.000 The building was completed and occupied on July 1 2018. To help pay for construction €50,000 was bomowed on March 1 on a 12%, three-year note payable. The only other general debt outstanding during the construction period was a E500,000. 10% note issued two years ago. 7. Compute the Weighted Average Accumulated Expenditures. A €395.500 B. €96,000 C. €56.000 D. 6699,000 & Compuse the Actual Interest related to the construction of the building A €52.000. B. €55,000 C. €55,000 D. E57.000 Determine the Capitalization interest Rate A 10% B 11% c.12% D.10.1829 10. Compute the Avoidable Interest related to the construction of de bailding A. 66,000 B. €4,600 C. €10,600 D. €96,000 11. Determine the amount of interest to be capitalized for the year 2018 A. €10,600 B. €55,000 C. €56,000 D. €96,000
Multiplying these expenditures by their respective periods and summing them up gives us a total of €1,263,000 as the Weighted Average Accumulated Expenditures, the Actual Interest related to the construction of the building is €6,000, Without this information, it is not possible to determine the exact rate.
7 The Weighted Average Accumulated Expenditures for the construction of the office building can be calculated by multiplying each expenditure by the respective period it was incurred and then summing them up. In this case, the expenditures and their respective periods are as follows: €75,000 incurred on March 1 (1 month), €74,000 incurred on April 1 (2 months), €180,000 incurred on May 1 (3 months), and €100,000 incurred on July 1 (5 months). Multiplying these expenditures by their respective periods and summing them up gives us a total of €1,263,000 as the Weighted Average Accumulated Expenditures.
8 The Actual Interest related to the construction of the building is the interest expense incurred on the borrowed funds during the construction period. In this case, SABIC borrowed €50,000 on March 1 on a 12%, three-year note payable. To calculate the interest for one year, we multiply the borrowed amount by the interest rate: €50,000 × 12% = €6,000. Therefore, the Actual Interest related to the construction of the building is €6,000.
9 The Capitalization Interest Rate represents the cost of capital that the company incurs to finance the construction project. It is used to determine the amount of interest that can be capitalized as part of the building's cost. The given information does not specify the Capitalization Interest Rate. Without this information, it is not possible to determine the exact rate.
10 The Avoidable Interest related to the construction of the building refers to the portion of the actual interest expense that could have been avoided if funds were not borrowed for the construction project. Since the Capitalization Interest Rate is not provided, we cannot calculate the Avoidable Interest accurately.
11 The amount of interest to be capitalized for the year 2018 is determined by multiplying the Weighted Average Accumulated Expenditures by the Capitalization Interest Rate. However, since the Capitalization Interest Rate is not provided, we cannot determine the exact amount of interest to be capitalized for the year 2018.
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Jake is a corn farmer in Nebraska. He rents his land on a long-term lease for $250,000 a year. He pays his farm hands $28,000 a year. Is his rent a fixed cost or a variable cost? Are the wages he pays his workers a fixed cost or a variable cost? Briefly explain your answers
The rent is a fixed cost as it remains constant regardless of the level of production, while the wages paid to farm hands are a variable cost as they vary with the level of production.
In the context of Jake's corn farming business in Nebraska, we can determine whether his rent and the wages he pays his workers are fixed costs or variable costs by considering their nature and behavior in relation to the level of production.
1. Rent: Jake's land lease cost of $250,000 per year is a fixed cost. A fixed cost is a cost that remains constant regardless of the level of production or the number of units produced. In this case, the rent remains the same irrespective of the amount of corn Jake produces. Even if Jake produces more or less corn, the rent expense will not change as it is predetermined by the long-term lease agreement.
2. Wages: The wages Jake pays his farm hands, amounting to $28,000 per year, are considered a variable cost. A variable cost is a cost that changes in proportion to the level of production or the number of units produced. In this case, the wages paid to farm hands can vary based on the level of work required to cultivate and harvest the corn. If Jake produces more corn and requires additional farm hands, the wage expense will increase. Conversely, if the production decreases and fewer workers are needed, the wage expense will decrease.
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Question 5 (1 point) A legal monopoly is the result of legal prohibitions against competition, such as regulated monopolies and intellectual property protection. True False Question 6 (1 point) Just like perfectly competitive firms, a monopolist is a price-taker. True False
Question 5 (1 point) A legal monopoly is the result of legal prohibitions against competition, such as regulated monopolies and intellectual property protection. False A legal monopoly is the result of legal prohibitions against competition, such as regulated monopolies and intellectual property protection.
A legal monopoly refers to a scenario in which a company enjoys complete control of a particular commodity or service since the government has granted it sole legal authority to do so. This type of monopoly does not result from legal prohibitions against competition.
Question 6 (1 point) Just like perfectly competitive firms, a monopolist is a price-taker. False A monopolist is not a price-taker like perfectly competitive firms. Unlike perfectly competitive firms, monopolies have control over the prices of the goods and services they provide. Monopolists can, therefore, change the prices of goods and services as they see fit without necessarily affecting the demand for their products. This makes a monopolist a price maker and not a price-taker.
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Use the information in Exercise 2-25 to prepare a December 31 balance sheet for Help Today. Hint: The ending C. Camry, Capital account balance as of December 31 is $106,470. Exercise 2-27 Preparing a balance sheet P1
A balance sheet is a type of financial statement that shows the financial situation of a company at a particular point in time. It is frequently created at the conclusion of an accounting period, such as a fiscal year or quarter, and outlines the company's assets, liabilities, and shareholders' equity.
Today's Balance Sheet as of December 31 Assets Amount Current Assets Cash $8,200 Accounts Receivable $5,600 Supplies $2,600 Total Current Assets $16,400 Property, Plant, and Equipment Land $30,000 Building $125,000 Accumulated Depreciation - Building ($31,250)
Equipment $20,000 Accumulated Depreciation - Equipment($5,000) Total Property, Plant, and Equipment $138,750 Total Assets $155,150 Liabilities and Owner's Equity Current Liabilities Accounts Payable $3,200 Wages Payable $2,000 Total Current Liabilities $5,200
Long-Term Liabilities Mortgage Payable $100,000 Total Long-Term Liabilities $100,000 Owner's Equity C. Camry, Capital$50,000 Add: Owner's Investment$20,000 Less: Drawings ($20,050) Net Income $100,000 Less: Dividends ($50,000) Total Owner's Equity$100,900 Total Liabilities and Owner's Equity $155,150
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pricing, promoting, selling, and distributing the organization's goods and services pertains to which of the following functions?
group of answer choices
a. marketing
b. research
c. accounting
d. production
Pricing, promoting, selling, and distributing the organization's goods and services are integral functions of marketing. The correct answer is option a.
Marketing encompasses a broad range of activities aimed at understanding customer needs and wants, creating value propositions, and effectively communicating and delivering those offerings to the target market.
Pricing involves determining the appropriate price for products or services, considering factors such as costs, competition, and customer perception of value. Promoting entails developing strategies and tactics to raise awareness, generate interest, and persuade potential customers to choose the organization's offerings.
Selling involves the personal interaction and persuasion efforts to close deals and convert prospects into customers. Distribution focuses on establishing and managing channels to ensure efficient and timely delivery of products or services to customers.
The correct answer is option a.
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the yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments
The yield to maturity (YTM) of a bond is the discount rate that equates the present value of all future cash flows from the bond to its current market price.
In other words, it is the rate of return an investor would earn if they held the bond until it matures and received all the promised payments.
To calculate the yield to maturity, you would need to use an iterative process or financial calculator. The formula for calculating the present value of a bond's cash flows involves discounting each cash flow by the YTM. By adjusting the YTM until the present value of the cash flows equals the bond's market price, you can determine the yield to maturity.
The YTM takes into account the time value of money and the risk associated with the bond's cash flows. It represents the average annual return an investor would earn if they purchased the bond at its current market price and held it until maturity.
It's important to note that the yield to maturity assumes that all coupon payments are reinvested at the YTM rate and that the bond is held until maturity.
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2) Suppose the industry's inverse demand curve is P = 190-2Q and the inverse supply function is p = 10+ Q. Calculate the CS and Ps if the market structure is perfectly competitive. Please note that to do this, you need to first find the X and Y intercepts as well as the X and Y coordinates of the intersection.
Inverse demand function is P = 190 - 2Q and the inverse supply function is P = 10 + Q.In a perfectly competitive market structure, equilibrium price and quantity are determined by the intersection of demand and supply curves. Therefore, equating these two functions can give us the market equilibrium point.
To find the consumer surplus (CS) and producer surplus (PS), we first need to find the equilibrium quantity and the equilibrium price. The equilibrium quantity is found by equating the inverse demand and supply functions and solving for Q.190 - 2Q = 10 + QQ = 90We substitute Q = 90 into either of the functions to find the equilibrium price. We can choose to use the demand function or the supply function.P = 190 - 2QP = 190 - 2(90)P = 10Therefore, the equilibrium price is 10 dollars per unit.To find the consumer surplus, we first need to find the highest price the consumers are willing to pay. This is found by equating the inverse demand function to the price the consumers are willing to pay.190 - 2Pmax = Pmax190 = 3PmaxPmax = 63.33 dollars per unitThe consumer surplus is therefore;CS = 0.5 (Pmax - Pe) x Q = 0.5 (63.33 - 10) x 90 = 2,361.45 dollarsTo find the producer surplus, we first need to find the lowest price the suppliers are willing to accept. This is found by equating the inverse supply function to the price the suppliers are willing to accept.10 + Q = Pmin10 + 90 = PminPmin = 100 dollars per unitThe producer surplus is therefore;PS = 0.5 (Pe - Pmin) x Q = 0.5 (10 - 100) x 90 = -4,050 dollarsSince the producer surplus is negative, it means that the producers are making losses in the market.The total surplus in the market is the sum of the consumer and producer surplus. Total surplus is therefore;TS = CS + PSTS = 2,361.45 - 4,050 = -1,688.55 dollarsTherefore, the total surplus in the market is negative, implying that the market is inefficient.
To conclude, we have found that in a perfectly competitive market structure, the equilibrium quantity and price are 90 units and 10 dollars respectively. The consumer surplus and producer surplus are 2,361.45 dollars and -4,050 dollars respectively. The total surplus in the market is -1,688.55 dollars, which is negative, implying that the market is inefficient.
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Jazz Corporation owns 10% of the Williams Corp. stock. Williams distributed a $30,000 dividend to Jazz Corporation. Jazz Corp.'s taxable income (loss) before the dividend was ($4,000). What is the amount of Jazz's dividends received deduction on the dividend it received from Williams Corp.? Multiple Choice $0. $13,000. $15,000. $23,000. None of the choices is correct.
The amount of Jazz Corporation’s dividends received deduction on the dividend it received from William Corp is $15,000.Option (c) $15,000 is the correct answer.To calculate the amount of Jazz Corporation’s dividends received deduction (DRD) on the dividend it received from William Corp., we need to understand the concept of DRD.
Dividends received deduction is a tax deduction given to a corporation who receives dividends from another corporation. The aim of DRD is to prevent double taxation. It is a deduction allowed for the corporation receiving dividends from another corporation. The deduction allows companies to reduce their tax liability, which arises from receiving a dividend from another corporation.The dividends received deduction is calculated as follows;DRD = Dividend received x DRD percentageWhere DRD percentage is equal to either 50% or 65% of the dividend received. The DRD percentage depends on the percentage of stock ownership in the distributing corporation.A corporation is entitled to a 50% DRD if it owns less than 20% of the distributing corporation.A corporation is entitled to a 65% DRD if it owns more than 20% of the distributing corporation.Let's apply the above information to the given problem. Jazz Corporation owns 10% of William Corp's stock. William distributed a $30,000 dividend to Jazz Corporation. Jazz Corp's taxable income (loss) before the dividend was ($4,000).The DRD percentage for Jazz Corporation will be 50% as they own less than 20% of William Corp’s stock's, the dividends received deduction for Jazz Corporation will be;DRD = Dividend received × DRD percentage = $30,000 × 50%DRD = $15,000Therefore, the amount of Jazz Corporation’s dividends received deduction on the dividend it received from William Corp is $15,000.Option (c) $15,000 is the correct answer.
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As demonstrated in both the 3M example here and the Enron Wind example in the textbook, senior managers have a vital role in the planned emergence process. Which of the following best describes that role?
a. Top managers need to provide financial rewards to emergent creators.
b. Top executives decide who to assign to specific projects.
c. Executives decide which projects to shut down and which to continue.
d. Senior leaders must add the emergent idea to the list of scenarios.
e. Executives provide a mission that fosters conformity and cohesiveness.
Senior leaders have various responsibilities that are essential in the planned emergence process, and the best description of their role is provided by : executives provide a mission that fosters conformity and cohesiveness. Correct answer is option E
Senior managers have the responsibility to create a mission statement that reflects the values and goals of the organization. A mission statement defines the company's purpose and helps to align all organizational activities with the strategic plan.
The mission statement provides a basis for creating a shared sense of purpose among employees and ensures that the organization's resources are being used effectively.In addition to creating a mission statement, senior managers are responsible for fostering conformity and cohesiveness among employees.
This involves creating an environment that encourages teamwork, collaboration, and a shared sense of purpose. Senior managers must also provide the necessary resources, including time, money, and personnel, to ensure that emergent ideas can be developed and implemented successfully. They must provide the necessary support for creativity to thrive within the organization. Correct answer is option E
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Special Fabricator assembles its product in several departments. It has two departments that process all units – cutting and finishing.
During October the beginning work-in-process in the Cutting department was half completed as to conversion and completed as to direct materials. The beginning inventory in this department, included $12,000 for materials and $3,000 for conversion. Ending work-in-process inventory in the Cutting department was 40 percent complete. In the Cutting department, direct materials are added at the beginning of the process and conversion costs are incurred evenly during the process. Special Fabricator uses the weighted average method for inventory in the Cutting department. Inspection for spoilage takes place at the 45% completion point in the department. Total defective units this period were 750 with expected spoilage to be 2 percent of units inspected. All spoiled units are scrapped.
Beginning work-in-process in the Finishing department was 55 percent complete as to conversion. In the Finishing department, direct materials are added at the 50% completion point and at the end of the process with conversion costs being incurred evenly during the process. Beginning inventory included $16,000 for transferred in costs, $10,500 regarding direct material one and $20,000 of conversion costs. Ending inventory was 35 percent complete. Special Fabricator applies the FIFO method in the Finishing department. The first inspection point for spoilage is at the 25% completion point. All defective units at this point are scrapped. At the 65% completion point, there is a second inspection where rejected units are returned for rework to the 30% completion point. The third inspection point is at the 70% completion point. Units spoiled at this point can be sold for $0.20 each. At inspection point one, one percent of units inspected are expected to be defective. For the second inspection point, the rate is 1% of units surviving inspection. At the third inspection point the expected rate of spoilage is 2% of units inspected.
Additional data:
Cutting Finishing
Beginning work-in-process units 20,750 20,000
Units started this period 40,000
Units transferred this period 50,000 ?
Ending work in process units ? 20,000
Total actual spoiled units Inspection 1 700
Total actual reworked units Inspection 2 520
Total actual spoiled units Inspection 3 800
Material one cost added $48,000 $34,000
Material two cost added $15,000
Direct manufacturing labour cost $16,000 $40,000
Factory overhead cost $8,000 $24,000
1.Prepare production cost reports for the Cutting and Finishing departments.
2. Indicate the journal entries to be recorded at the end of October regarding the Finishing department.
Production Cost Report for the Cutting Department:
Equivalent Units Cost per Equivalent Unit Total Cost
Direct Materials 20,750 units $12,000 / 20,750 units $0.579 per unit
Conversion 20,750 units $3,000 / 20,750 units $0.144 per unit
Spoilage (2% of units inspected) 750 units N/A N/A
Total $0.723 per unit
Cost of Units Completed and Transferred Out:
Direct Materials: 50,000 units (started this period)
Conversion: 50,000 units (started this period)
Cost of Ending Work-in-Process Inventory:
Direct Materials: 20,000 units × 40% completion × $0.579 per unit
Conversion: 20,000 units × 40% completion × $0.144 per unit
Production Cost Report for the Finishing Department:
Equivalent Units Cost per Equivalent Unit Total Cost
Direct Materials 20,000 units $10,500 / 20,000 units $0.525 per unit
Conversion 20,000 units $20,000 / 20,000 units $1.000 per unit
Spoilage (1% of units inspected) 50,000 units N/A N/A
Rejected Units (1% of surviving inspection) 49,500 units N/A N/A
Reworked Units (30% completion) 1,485 units N/A N/A
Spoilage (2% of units inspected) 48,015 units N/A N/A
Total $1.525 per unit
Cost of Units Completed and Transferred Out:
Direct Materials: 50,000 units (from Cutting department)
Conversion: 50,000 units (from Cutting department)
Cost of Ending Work-in-Process Inventory:
Direct Materials: 20,000 units × 35% completion × $0.525 per unit
Conversion: 20,000 units × 35% completion × $1.000 per unit
Journal Entries for the Finishing Department:
a) Record the cost of units completed and transferred out:
Work-in-Process Inventory - Finishing Department Dr.
Finished Goods Inventory Cr.
b) Record the cost of ending work-in-process inventory:
Work-in-Process Inventory - Finishing Department Dr.
Cost of Goods Manufactured Cr.
Note: The amounts for the journal entries will be calculated based on the cost per equivalent unit for direct materials and conversion, multiplied by the respective equivalent units for the ending work-in-process inventory in the Finishing department.
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1 . Construct a set of semantic differentials that measure emotions by using a PAD approach. What are the dimensions?
2 What three individual characteristics influence the way in which consumers react emotionally to a consumption situation?
Your answers to these questions should be at least a half-page, single-spaced, 12 point font.
1) The following is an example set of semantic differentials:Unpleasant ___________ Pleasant Low Arousal ___________ High Arousa l Low Control ___________ High Control
2) consuming a product in a positive social setting may lead to more positive emotional reactions than consuming the same product in a negative social setting.
1. Construct a set of semantic differentials that measure emotions by using a PAD approach. What are the dimensions?The PAD approach is a method that was first proposed by Mehrabian and Russell in the 1970s. It aims to classify emotions based on three dimensions: Pleasure, Arousal, and Dominance.Pleasure: This dimension is used to measure the degree of pleasantness or unpleasantness of an emotional experience. The scale ranges from unpleasant to pleasant, with a midpoint of neutral.Arousal: This dimension measures the level of physiological activity that occurs in response to an emotional experience.
The scale ranges from low arousal to high arousal, with a midpoint of neutral.Dominance: This dimension measures the degree of control that an individual perceives they have over a situation.
The scale ranges from low control to high control, with a midpoint of neutral.Based on these three dimensions, a set of semantic differentials that measure emotions can be constructed. The following is an example set of semantic differentials:Unpleasant ___________ Pleasant Low Arousal ___________ High Arousa lLow Control ___________ High Control
2. What three individual characteristics influence the way in which consumers react emotionally to a consumption situation?The three individual characteristics that influence the way in which consumers react emotionally to a consumption situation are:Personality: An individual's personality traits can influence how they react emotionally to a consumption situation. For example, individuals who are high in neuroticism may be more likely to experience negative emotions in response to a product failure.Self-Concept: An individual's self-concept can also influence their emotional reactions.
For example, individuals who have a strong need for uniqueness may feel more positive emotions towards products that are perceived as unique.Situation: The situation in which a product is consumed can also influence emotional reactions. For example, consuming a product in a positive social setting may lead to more positive emotional reactions than consuming the same product in a negative social setting.
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did the company generate more revenue from selling goods or providing services to customers?
The company generated more revenue from selling goods or providing services to customers, an analysis of the company's financial statements, such as the income statement, would be required.
The income statement provides a breakdown of the company's revenue sources. By examining the revenue section of the income statement, we can identify the primary sources of income for the company. If the company generates more revenue from selling goods, it indicates that the majority of its income comes from the sale of physical products. On the other hand, if the company generates more revenue from providing services, it suggests that the main source of income is derived from delivering non-tangible services to customers.
To ascertain the revenue composition, it is crucial to look at the specific revenue figures reported in the income statement. This statement outlines the company's total revenue and typically provides further details regarding different revenue streams. By analyzing the revenue breakdown, such as separate line items for goods sold and services rendered, it becomes possible to determine which category contributes more to the company's overall revenue.
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Human Resources: Training for improved performance
Discuss the relationship between differentiation versus cost leadership and internal versus external labor orientation to align corporate strategy with training to gain competitive advantage.
Differentiation versus cost leadership and internal versus external labor orientation are two important factors that organizations consider when aligning corporate strategy with training to gain a competitive advantage in the context of Human Resources.
Differentiation versus Cost Leadership:
Differentiation strategy focuses on creating unique and distinctive products or services that are perceived as superior by customers. This strategy aims to differentiate the organization from competitors.
Cost leadership strategy aims to achieve the lowest cost of production or service delivery in the industry. It focuses on operational efficiency and cost reduction.
The relationship with training:
Differentiation strategy requires organizations to invest in training programs that enhance employees' skills, knowledge, and capabilities to create innovative and unique products or services. Training programs can focus on creativity, problem-solving, and customer service to support differentiation efforts.
Cost leadership strategy emphasizes efficient and standardized processes. Training programs in this context may focus on operational efficiency, quality control, and waste reduction to achieve cost savings.
Internal versus External Labor Orientation:
Internal labor orientation refers to a focus on developing and promoting employees from within the organization. This approach values the existing workforce, emphasizes employee development, and provides opportunities for career growth.
External labor orientation involves hiring talent externally to bring in fresh perspectives, skills, and experiences. It relies on recruiting external candidates to fill specific roles and meet the organization's changing needs.
The relationship with training:
Internal labor orientation requires robust training and development programs to enhance the skills and competencies of existing employees. Training can be customized to address specific job requirements, career progression, and leadership development within the organization.
External labor orientation may involve training programs that focus on onboarding new hires, helping them adapt to the organization's culture and processes, and developing the necessary skills to contribute effectively.
Alignment with corporate strategy and gaining a competitive advantage:
To align corporate strategy with training, organizations need to consider their strategic goals and choose the appropriate training approaches. For example, a company pursuing a differentiation strategy may invest in innovation-focused training programs to nurture a culture of creativity and differentiation.
By aligning training with the chosen strategy, organizations can enhance employee performance, increase productivity, improve product/service quality, and differentiate themselves from competitors. This alignment helps create a competitive advantage by enabling the organization to deliver unique value propositions or cost-effective solutions to customers.
Overall, the relationship between differentiation versus cost leadership and internal versus external labor orientation influences the design and implementation of training programs to support an organization's corporate strategy and gain a competitive advantage in the market.
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How does the Bank of Canada implement its inflation control
policy?
What is an SRA and when is it used?
What are the differences between nominal interest rate and real
interest rate?
What is KYC rule?
The Bank of Canada implements inflation control policy through monetary policy tools, an SRA is a Strategic Risk Assessment used to identify and evaluate risks, nominal interest rate is the stated rate while real interest rate adjusts for inflation, and KYC is a rule that verifies customer identity and prevents illegal activities.
The Bank of Canada implements its inflation control policy through the use of monetary policy tools such as adjusting the target for the overnight interest rate, known as the key policy rate, to influence borrowing costs and stimulate or cool down the economy.
SRA stands for Strategic Risk Assessment, and it is used to identify and evaluate potential risks and vulnerabilities in an organization's strategic objectives, helping in the development of risk management strategies and mitigation plans.
Nominal interest rate refers to the stated interest rate without adjusting for inflation, while the real interest rate takes into account inflation and represents the purchasing power of the interest earned or paid.
KYC stands for Know Your Customer, and it is a rule or set of guidelines implemented by financial institutions to verify the identity of their customers, assess their risk profile, and understand the nature of their business transactions to prevent money laundering, fraud, and other illicit activities.
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What are the 5-steps in the Consumer Purchase decision process? Provide a brief explanation for each one.
The consumer compares the product or service's performance with their ideal performance and decides whether they will purchase it again.
The five steps in the consumer purchase decision process are as follows:1. Problem recognitionThe consumer identifies the problem that they need to solve. The consumer realizes the difference between their actual and ideal conditions and searches for a product or service to solve the problem.2. Information searchThe consumer looks for information on various products and services that may solve their problem. They look for information in various ways, including personal experience, family and friends, advertisement, online reviews, and product information.3. Evaluation of alternativesThe consumer evaluates the pros and cons of each product or service and chooses the best alternative that fits their needs. The consumer compares the alternatives based on their needs, preferences, and price.4. Purchase decisionThe consumer has selected the best alternative and makes the decision to purchase. The consumer decides where to buy, when to buy, how to pay, and how much to buy.5. Post-purchase evaluationThe consumer evaluates their purchase after the purchase has been made. The consumer assesses whether the product or service meets their needs and expectations. The consumer compares the product or service's performance with their ideal performance and decides whether they will purchase it again.
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On January 1, 2020, Pharoah Ltd. entered into a purchase commitment contract to buy 12,900 oranges from a local company at a price of $0.60 per orange any time during the next year. The contract provides Pharoah with the option either to take delivery of the oranges at any time over the next year, or to settle the contract on a net basis for the difference between the agreed-upon price of $0.60 per orange and the market price per orange for any oranges that have not been delivered. As at January 31, 2020, Pharoah Ltd. did not take delivery of any oranges, and the market price for an orange was $0.55.
Assuming that Pharoah Ltd. follows IFRS, how should Pharoah Ltd. account for this purchase agreement if it fully intends to take delivery of all 12,900 oranges over the next year? Prepare any required journal entries at January 1 and January 31.
Pharoah Ltd. should account for this purchase agreement by using the forward contract accounting method. The journal entries required for January 1 and January 31, 2020, respectively, are given below.
January 1, 2020:At the inception of the purchase commitment contract, there will be no entry recorded in the books of Pharoah Ltd. January 31, 2020:
There will be an entry recorded by the company at the end of the reporting period (January 31, 2020), to account for the changes in the fair value of the contract. The fair value of the contract is the difference between the current market price of oranges and the price agreed in the contract.
The journal entry is given below: Account, Debit, Credit Loss on purchase commitment contract ($0.60 – $0.55) × 12,900= $6,450 Accounts Payable $6,450Note:Since the price of oranges has fallen, Pharoah Ltd. has incurred a loss on the purchase commitment contract. The loss of $6,450 is recognized in the profit and loss statement.
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