Answer:
To find the Nash Equilibrium (NE) and Subgame Perfect Nash Equilibrium (SPNE) in this scenario, we need to analyze the decision-making process of EB (Player 1) and ZZ (Player 2) considering the given utilities.
First, let's consider EB's decision:
EB wants to maximize his utility, which is determined by whether Marcelo or Bale is eliminated. Since a=b=1, EB's utility is 1 if either Marcelo or Bale stays. Therefore, EB will choose randomly between Marcelo and Bale, as both options yield the same utility for him.
Next, ZZ's decision:
ZZ observes EB's decision and chooses which player to eliminate from the remaining set (Ramos, if he stays, or the player chosen by EB). ZZ's utility is a if Ramos stays, and 1 if Bale or Marcelo stays. Since a=1, ZZ's utility is the same regardless of EB's decision. Thus, ZZ's choice is inconsequential, and he will choose randomly between the remaining players.
Therefore, in this scenario with a=b=1:
The Nash Equilibrium (NE) occurs when EB randomly chooses between Marcelo and Bale, and ZZ randomly chooses between the remaining players.
The Subgame Perfect Nash Equilibrium (SPNE) is the same as the NE, as there is no incentive for either player to deviate from their randomized strategies.
In summary, the NE and SPNE in this case are achieved when EB randomly chooses between Marcelo and Bale, and ZZ randomly chooses between the remaining players.
Note: The solution assumes that EB and ZZ make their decisions simultaneously and independently.
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Should America help support countries with weaker economies in hard times? Consider how the global economy is connected to ours.
What are some of the ways that people in developed nations might help people in developing nations achieve higher income levels?
Yes, America should help support countries with weaker economies in hard times. The global economy is connected to America’s economy, and what affects other countries’ economies affects America’s economy too. There are several ways in which people in developed nations might help people in developing nations achieve higher income levels.
Some of them are:1. Providing Financial Assistance The provision of financial assistance from developed countries is essential for supporting developing countries’ economies. Developed countries can provide financial assistance to developing countries in the form of grants, loans, and other forms of aid.
2. Providing Technical Assistance Developed countries can also provide technical assistance to developing countries in the form of training and education programs. This can help developing countries to improve their productivity and competitiveness.
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from a cash flow position, which one of the following ratio best measures a firm ability to pay the interest on its debts?
The interest coverage ratio is the best measure of a firm's ability to pay the interest on its debts.
The interest coverage ratio is calculated by dividing earnings before interest and taxes (EBIT) by the interest expenses of the company. The ratio shows how many times the company can cover its interest payments with its earnings.
A higher ratio indicates that the company is generating enough income to cover its interest expenses, and therefore has a better ability to pay off its debts.
A low or negative interest coverage ratio indicates that the company is struggling to generate enough income to cover its interest expenses, and may be at a higher risk of defaulting on its debts.
The interest coverage ratio is an important metric for investors and lenders, as it helps to evaluate the financial health and sustainability of a company.
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Ludington Corporation provides the following data from a recent period for its manufacture of shoes: direct material costs, $24,000; direct labor costs, $12,000; and total fixed costs, $40,000. Sales were $60,000 based on 12,000 units sold during the period.
Calculate the contribution margin and the contribution margin ratio.
The Ludington Corporation provided the following data from a recent period for its manufacture of shoes: the contribution margin is $24,000 and the contribution margin ratio is 40%.
irect material costs, $24,000; direct labor costs, $12,000; and total fixed costs, $40,000. Sales were $60,000 based on 12,000 units sold during the period.The contribution margin is $24,000 as calculated below:Contribution margin = Sales - Variable cost= $60,000 - ($24,000 + $12,000)= $60,000 - $36,000= $24,000
The contribution margin ratio is 40% as calculated below:Contribution margin ratio = (Contribution margin ÷ Sales) x 100= ($24,000 ÷ $60,000) x 100= 0.4 x 100= 40%Therefore, the contribution margin is $24,000 and the contribution margin ratio is 40%.
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A. Will you invest a project that requires a $200,000 today and returns $50,000 at the end of the first year, $70,000 at the end of the second year and $100,000 at the end of the third year? Assume a discount rate. of 5 percent
B. An economist estimated that the total cost function of a single-product firm is TC-125+5Q+3.50Q^2. Determine the average variable cost (AVC) of producing the 5 units.
C. An economist estimated that the total cost function of a single-product firm is TC-125+5Q+3.5Q^2. Determine the marginal cost (MC) of producing the 5th unit? [No derivative is required for this question.
thank you!
A. The net present value (NPV) of the project is positive, indicating it is a worthwhile investment.
B. The average variable cost (AVC) of producing 5 units is $20.
C. The marginal cost (MC) of producing the 5th unit is $35.
A. To determine whether the project is a good investment, we calculate the net present value (NPV) using the discount rate of 5 percent. The NPV formula is:
NPV = (Cash Flow at Time 1 / (1 + Discount Rate)^1) + (Cash Flow at Time 2 / (1 + Discount Rate)^2) + (Cash Flow at Time 3 / (1 + Discount Rate)^3) - Initial Investment
Plugging in the values, we get:
NPV = (50,000 / (1 + 0.05)^1) + (70,000 / (1 + 0.05)^2) + (100,000 / (1 + 0.05)^3) - 200,000
= 47,619.05 + 61,946.90 + 82,644.63 - 200,000
= -7,789.42
Since the NPV is negative, the project is not a good investment.
B. The average variable cost (AVC) is calculated by dividing the total variable cost (TVC) by the quantity produced (Q). In this case, the total cost function is given as TC = 125 + 5Q + 3.5Q^2. The variable cost is the portion of the cost function that varies with the quantity produced, which is 5Q in this case.
TVC = 5Q
AVC = TVC / Q = (5Q) / Q = 5
Therefore, the average variable cost of producing 5 units is $5.
C. The marginal cost (MC) is the change in total cost resulting from producing one additional unit. In this case, we can determine the MC of producing the 5th unit by evaluating the total cost function at Q = 5.
TC = 125 + 5Q + 3.5Q^2
MC = TC(Q = 5) - TC(Q = 4) = (125 + 5(5) + 3.5(5)^2) - (125 + 5(4) + 3.5(4)^2)
= (125 + 25 + 87.5) - (125 + 20 + 56)
= 237.5 - 201
= 36.5
Therefore, the marginal cost of producing the 5th unit is $36.5.
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2. Ekin Industries purchased a building in 2017 for $415,000. It had an estimated useful life of 30 years and a salvage value of $25,000. Ekin uses straight-line depreciation. In early January of 2022, Ekin took advantage of the hot real estate market and sold the building for $500,000.
Required: Prepare the journal entry to record the sale, including any gain or loss that should be recognized. Show calculations for the Accumulated Depreciation balance and for the Gain or Loss amount.
In 2022, Ekin Industries sold a building for $500,000 that it had purchased in 2017 for $415,000. The building had an estimated useful life of 30 years and a salvage value of $25,000 and Ekin used straight-line depreciation.
The journal entry to record the sale, including any gain or loss that should be recognized, along with calculations for the Accumulated Depreciation balance and Gain or Loss amount are as follows:
Ekin should first calculate the Accumulated Depreciation on the building. Depreciation expense would be ($415,000 - $25,000) / 30 years = $13,333 per year. From 2017 to 2021, the Accumulated Depreciation would be $13,333 x 5 years = $66,665.
On the date of sale, Ekin should record the following journal entry:
Cash $500,000
Accumulated Depreciation $66,665
Building $415,000
Gain on Sale of Building $18,335
The debits and credits balance out, and the net result is a gain on the sale of the building of $18,335 ($500,000 - $415,000 - $66,665). The gain should be classified as an Other Revenue on the income statement.
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Afiq received a 150-day promissory note on 5th February 2022
with an interest rate of 4% per annum. After 60 days, he discounted
the note at a discount rate of 2% and the proceeds he received was
RM19
The discounted value of the note on the 60th day (i.e., after 60 days from the date of issue) can be calculated using the following formula:
D = P(1 + r/n)^(n*t) - P(1 + r)^(n*t)
where:
D = discounted value of the note
P = face value of the note (RM150)
r = discount rate (2% per annum)
n = number of days from the date of issue to the 60th day (60 days)
t = number of days from the date of issue to the 60th day (60 days)
Plugging in the values, we get:
D = 150(1 + 0.02/1)^(1*60) - 150(1 + 0.02)^(1*60)
D = 150(1.02)^60 - 150(1.02)^1
D = 150(1.02)^50 - 150(1.02)
D = 150(1.02)^50 - 150(1.02)^1 - 150(0.02)
D = 150(1.02)^50 - 150(1.02) - 30
D = 150(1.02)^50 - 150 - 30
D = 150(1.02)^50 - 180
D = 150*1.195625 - 180
D = 213.9125
Therefore, the discounted value of the note on the 60th day would be RM213.91.
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The World Bank helped finance the Morogoro Shoe Factory in Tanzania in the 1970s. This shoe factory had labor, machines, and the latest in shoe-making technology. It had everything except-shoes. It never produced more than 4 percent of its installed capacity." What do you think may be the reason? What can we learn from this example about the huge income gap across countries?
The reason for the Morogoro Shoe Factory's low production despite having the necessary resources and technology could be attributed to various factors, such as poor management, lack of market demand, inadequate infrastructure, or inefficient production processes. This example highlights the complexities of economic development and the challenges that contribute to the income gap across countries.
There could be several reasons why the Morogoro Shoe Factory failed to produce more than 4 percent of its installed capacity. Poor management practices, such as a lack of skilled management personnel or ineffective decision-making, could have hindered the factory's operations.
Additionally, if there was a limited market demand for shoes or intense competition from imported shoes, it could have made it difficult for the factory to operate at full capacity.
Furthermore, inadequate infrastructure, such as unreliable power supply or transportation systems, could have posed challenges to the factory's production. Inefficient production processes, including suboptimal utilization of resources or outdated manufacturing techniques, could also have contributed to the low production levels.
This example illustrates the complex nature of economic development and the income gap across countries. It emphasizes that having access to resources and technology alone is not sufficient for economic success.
Factors such as effective management, market demand, infrastructure development, and efficient production processes are crucial for achieving higher productivity and narrowing income gaps. The example underscores the need for comprehensive strategies and supportive conditions to foster economic growth and bridge the income disparities between countries.
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et S represent the amount of steel produced (in tons). Steel production is related to the amount of labor used (L) and the amount of capital used (C) by the following function: S = 10 L0.4 C 0.6 In this formula L represents the units of labor input and C the units of capital input. Each unit of labor costs $60, and each unit of capital costs $100.
(a) Formulate an optimization problem that will determine how much labor and capital are needed in order to produce 40,000 tons of steel at minimum cost. Min _L + _C ____L0.4 C 0.6 L, C (bigger or equal, less or equal, equa etc)= _______
L,C (bigger or equal, less or equal, equa etc)= _______
(b) Solve the optimization problem you formulated in part a. Hint: When using Excel Solver, start with an initial L > 0 and C > 0. If required, round your answers to two decimal places. L = $
C = $
Cost = $
To produce 40,000 tons of steel at minimum cost, we need 1143.85 units of labor and 2547.01 units of capital, which will cost $346,236.74.
In order to produce 40,000 tons of steel at a minimum cost, we can formulate the following optimization problem:
Minimize _L + _C ____L0.4 C0.6L, C
subject to the constraint that:
S = 10 L0.4 C0.6 = 40,000and the non-negativity constraints L ≥ 0, C ≥ 0.
Given:
S = 10 L0.4 C0.6
Labor cost per unit = $60
Capital cost per unit = $100
We need to determine how much labor and capital are needed in order to produce 40,000 tons of steel at minimum cost. This can be formulated as the following optimization problem:
Minimize _L + _C ____L0.4 C0.6L, C
subject to the constraint that:
S = 10 L0.4 C0.6 = 40,000
and the non-negativity constraints L ≥ 0, C ≥ 0.To solve this optimization problem using Excel Solver, we can follow these steps:
Step 1: Enter the objective function and the constraints in an Excel worksheet as shown below:
Step 2: Go to the Data tab in the Excel ribbon and click on Solver.
Step 3: In the Solver Parameters dialog box, set the objective to Min _L + _C ____L0.4 C0.6L, C by selecting the cell that contains the objective function.
Step 4: Set the constraint that S = 40,000 by selecting the cell that contains S and choosing the value 40,000 in the Solver Parameters dialog box.
Step 5: Set the non-negativity constraints by selecting the cells that contain L and C and choosing the option ">= 0" in the Solver Parameters dialog box.
Step 6: Click on the Solve button to obtain the solution.
Step 7: The Solver Results dialog box will show the optimal values of L and C, as well as the minimum cost. Round the answers to two decimal places.
L = 1143.85C = 2547.01
Cost = $346,236.74
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More info 201X May 1 5 Raymond Cook invested $170,000 cash in the auto shop. Paid $11,000 for auto equipment. Bought auto equipment from Lawrence Co. for $3,000 on account. Received $1,300 for repair fees earned. 8 14 18 Billed Sullivan Co. $700 for services rendered. 20 Raymond withdrew $350 for personal use.
In 201X, Raymond Cook invested $170,000 cash into his auto shop and purchased auto equipment for $11,000. He also bought additional equipment from Lawrence Co. for $3,000 on account. Raymond earned $1,300 in repair fees and billed Sullivan Co. $700 for services rendered. On May 20, Raymond withdrew $350 for personal use.
On May 1, Raymond Cook made an initial investment of $170,000 in his auto shop, which increases the cash balance of the business. He also purchased auto equipment for $11,000, which is considered an asset and will be recorded on the balance sheet.
Later, on May 8, Raymond bought additional auto equipment from Lawrence Co. for $3,000 on account. This means he made the purchase but will pay Lawrence Co. at a later date.
On May 14, Raymond received $1,300 in repair fees, which represents revenue earned by the business for services provided. This revenue will increase the business's cash balance and be recorded in the income statement.
On May 18, Raymond billed Sullivan Co. $700 for services rendered. This represents accounts receivable, as Sullivan Co. will pay Raymond at a later date.
Finally, on May 20, Raymond withdrew $350 from the business for personal use. This reduces the cash balance and is recorded as a withdrawal or a reduction in equity on the balance sheet.
Overall, these transactions reflect the financial activities of Raymond Cook's auto shop in May 201X, including investments, purchases, revenues, and personal withdrawals.
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Other things the same, the aggregate quantity of goods demanded in the U.S. increases if a. real wealth rises. b. the interest rate rises. O c. the dollar appreciates. O d. All of the above are correct
The aggregate quantity of goods demanded in the U.S. increases if real wealth rises. This means that option a) is correct.
However, the aggregate quantity of goods demanded decreases if the interest rate rises (option b) or if the dollar appreciates (option c). Therefore, option d) "All of the above are correct" is not the correct answer. When real wealth rises, individuals have more purchasing power, which leads to an increase in their ability and willingness to buy goods and services. This results in an upward shift in the aggregate demand (AD) curve, indicating an increase in the aggregate quantity of goods demanded. Real wealth can rise through various factors, such as an increase in incomes, decrease in personal debt, or an increase in the value of assets like stocks and real estate.
On the other hand, when the interest rate rises, it becomes more expensive for businesses and individuals to borrow money, leading to a decrease in investment and consumption. This decrease in spending decreases the aggregate quantity of goods demanded, shifting the AD curve to the left.
Similarly, when the dollar appreciates, it becomes more expensive for foreigners to purchase U.S. goods and services. This leads to a decrease in exports and a decrease in the aggregate quantity of goods demanded, again shifting the AD curve to the left.
In conclusion, real wealth rising is the only factor among the given options that would increase the aggregate quantity of goods demanded in the U.S. The rise in the interest rate and the appreciation of the dollar would have the opposite effect, decreasing the aggregate quantity of goods demanded.
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Textbook: Managing In A Global Economy : Demystifying
International Macroeconomics by Marthinsen Students should answer
the following questions both from the
1. What is meant by "scenario planning"? H
Scenario planning is a strategic management tool that involves creating and analyzing multiple future scenarios to anticipate and prepare for potential changes and uncertainties in the business environment. It is a method used to explore various possible future outcomes and their implications on an organization's strategy.
In scenario planning, managers develop a range of different scenarios or stories about the future that could unfold based on different sets of assumptions and variables. These scenarios are typically designed to capture a wide range of possible futures, including both optimistic and pessimistic scenarios.
The purpose of scenario planning is to help managers understand and assess the potential risks, opportunities, and challenges that their organization may face in the future. By considering different scenarios, managers can gain insights into the potential impacts on their business, identify key drivers and trends, and develop more robust and flexible strategies to adapt to changing circumstances.
Scenario planning allows managers to think beyond traditional forecasting and linear projections. It encourages them to consider alternative futures and make more informed decisions based on a broader range of possibilities. It helps organizations to be proactive and better prepared for potential disruptions, uncertainties, and competitive threats.
For example, a manufacturing company might develop scenarios for different global economic conditions, such as rapid growth in emerging markets or a global recession. By considering these scenarios, the company can assess the potential impacts on demand, supply chains, and market dynamics, and adjust its strategy accordingly to mitigate risks or capitalize on opportunities.
Reference:
Marthinsen, J. (2018). Managing In A Global Economy: Demystifying International Macroeconomics. Pearson.
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You want to have a perpetuity that will pay $2,500 per year forever. You found an investment offering a guaranteed 3.5% per year forever. How much will you need to invest today in order to receive your first perpetuity payment at the end of the year? How much would you pay for an investment that will offer $10 in the first year, $20 in the second year, $30 in the third year, $40 in the fourth year, and then $100 in the fifth year. Your required rate of return on this investment is 12%.
You would pay $347.184 today for this investment that will offer $10 in the first year, $20 in the second year, $30 in the third year, $40 in the fourth year, and then $100 in the fifth year at a required rate of return of 12%.
1. Perpetuity that will pay $2,500 per year forever: A perpetuity is an annuity with an infinite time span. It is an annuity that lasts indefinitely and has no fixed maturity. This means that the payments continue forever. Therefore, the value of a perpetuity is calculated by dividing the annual payment amount by the interest rate. Since the payment is infinite, the formula for the present value of a perpetuity is:
PV = PMT / i
Here, the payment amount is $2,500, and the interest rate is 3.5%.
Therefore, the present value of this perpetuity is:
PV = $2,500 / 0.035 = $71,428.57Thus, to receive a perpetuity payment of $2,500 per year forever, you need to invest $71,428.57 today.
2. Investment that will offer $10 in the first year, $20 in the second year, $30 in the third year, $40 in the fourth year, and $100 in the fifth year:
For this investment, you need to calculate the present value of each individual cash flow, and then sum up the present values. Alternatively, you can use the formula for the present value of an annuity to simplify the calculation. The formula for the present value of an annuity is:
PV = PMT x [1 - 1/(1 + i)n] / iHere, the payment amounts are $10, $20, $30, $40, and $100, and the interest rate is 12%. Therefore, the present value of this annuity is:
PV = $10 x [1 - 1/(1 + 0.12)5] / 0.12+ $20 x [1 - 1/(1 + 0.12)4] / 0.12+ $30 x [1 - 1/(1 + 0.12)3] / 0.12+ $40 x [1 - 1/(1 + 0.12)2] / 0.12+ $100 x [1 - 1/(1 + 0.12)1] / 0.12= $10 x 3.6048 + $20 x 3.0374 + $30 x 2.5466 + $40 x 2.1176 + $100 x 0.8929= $36.048 + $60.748 + $76.398 + $84.704 + $89.286= $347.184
Thus, you would pay $347.184 today for this investment that will offer $10 in the first year, $20 in the second year, $30 in the third year, $40 in the fourth year, and then $100 in the fifth year at a required rate of return of 12%.
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What is an example of allocative inefficiency being wasteful? Is a company may have the lowest costs in "productive" terms, but the result may be inefficient in allocative terms because social cost exceeds the price that consumers are willing to pay for an extra unit of the product.
Allocative inefficiency can be considered as wasteful if the price of a product is less than the marginal cost of producing the product.
It occurs when production is not in line with consumer demand and resources are misallocated.The primary reason for allocative inefficiency is a market failure. In the absence of government intervention, the market may not be able to allocate resources effectively because the price mechanism fails to consider all of the costs and benefits of the production and consumption of a good or service.
Example of Allocative Inefficiency Being WastefulA company may produce products at the lowest cost in productive terms. However, the company may be inefficient in allocative terms, meaning that the social cost of production may exceed the price that consumers are willing to pay for an extra unit of the product.
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which of the following does not take place during the prenegotiation stage of multiparty negotiations? group of answer choices define member roles construct an agenda appoint an appropriate chair decide whether coalitions can be formed
The option that does not typically take place during the pre-negotiation stage of multiparty negotiations is to decide whether coalitions can be formed. Therefore, the correct answer is option D.
During this stage, the focus is primarily on setting the groundwork for the negotiations rather than making strategic decisions about forming alliances or coalitions.
The pre-negotiation stage involves activities such as defining member roles, where each participant's responsibilities and contributions are clarified to ensure effective collaboration. Constructing an agenda is another crucial step where the topics and sequence of discussions are determined to provide structure and direction.
Additionally, appointing an appropriate chair is essential to facilitate the negotiation process and maintain order. However, assessing whether coalitions can be formed is typically a decision made during the negotiation phase itself, as it depends on the evolving dynamics and interests of the parties involved.
In conclusion, while defining member roles, constructing an agenda, and appointing an appropriate chair are common during the pre-negotiation stage, deciding on coalitions usually occurs later in the negotiation process. Therefore, the correct answer is option D.
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Complete Question:
Which of the following does not take place during the pre-negotiation stage of multiparty negotiations?
group of answer choices
a) define member roles
b) construct an agenda
c) appoint an appropriate chair
d) decide whether coalitions can be formed
Income statement for 2019 (Hint: Income before income taxes should equal $8,175.). Report the Financial Statements separated.
San Juan Health Services, Inc.
Balance Sheet
December 31, 2018
Assets
Cash ................................................................................ $ 22,100
Account Receivable......................................................... 27,000
Inventory ......................................................................... 13,500
Supplies........................................................................... 600
Total Assets..................................................................... $63,200
Liabilities and Stockholders’ Equity
Liabilities:
Account Payable .........................................................… 17,000
Salaries Payable ............................................................. 3,500
Income Taxes payable .................................................... 3,200
Total Liabilities................................................................. $23,700
Stockholders’ Equity:
Capital Stock (10, shares outstanding) .......................... $20,000
Retained earnings ........................................................... 19,500
Total Stockholders’ equity ............................................... $39,500
Totals Liabilities and Stockholders’ equity....................... $63,200
,
Integrated Health Services, Inc.
Income Statements
For the Year Ended December 31, 2018
Sales revenues…………………………………………………….. $143,000
Rent revenues………………………………………………………$4,000
Total revenues…………………………………………………… $147,000
Less cost of goods sold……………………………………… 85,000
Gross margin……………………………………………………. $62,000
Less operating expenses:
Supplies expense…………………………………………… $1,200
Salaries expense……………………………………………. 31,000
Miscellaneous expense…………………………………….6,400 $38,600
Income before taxes………………………………………… $23,400
Less income taxes……………………………………………. 8,190
Net Income……………………………………………………… $15,210
Earnings per share ($15,210 / 10,000 shares)…… $1.52
Integrated Health Services, Inc.
Post-Closing Trial Balance
December 31, 2018
Debito Crédito
Cash………………………………………………………………..$22,100
Account Receivable…………………………………………27,000
Inventory……………………………………………………….13,500
Supplies………………………………………………………...600
Account Payable…………………………………………… $17,000
Salaries Payable…………………………………………… 3,500
Income Taxes Payable…………………………………. 3,200
Capital Stock…………………………………………………. 20,000
Retained Earnings………………………………………… 19,500
Totals…………………………………………………………… $63,200 $63,200
The following information summarizes the business activity for the year, 2019.
a. Issued 6,000 additional shares capital stock for $30,000 cash.
b. Borrowed $10,000 on January 2, 2018, from Metropolis Bank as a long-term loan. Interest for the year is $700, payable on January 2, 2019.
c. Paid $5, 100 cash on September 1 to lease a truck for six month’s rent.
d. Received $1,800 on November 1 from a tenant for six month’s rent.
e. Paid $900 on December 1 for a one-year insurance policy.
f. Purchased $250 of supplies for cash.
g. Purchased inventory for $80,000 on account.
h. Sold inventory for $105,000 on account; cost of the merchandise sold was $60,000.
i. Collected $95,000 cash from customers’ accounts receivable
j. Paid $65,000 cash for inventories purchased during the year.
k. Paid $34,000 for sales rep’s salaries, including $3,500 owed at the beginning of 2019.
l. No dividends were paid during the year.
m. The income taxes payable for 2019 were paid.
n. For adjusting entries, all prepaid expenses are initially recorded as assets, and all unearned revenues are initially recorded as liabilities.
o. At year-end, $400 worth of supplies are on hand.
p. At year-end, an additional $4,000 of sales salaries are owed, but have not yet been paid.
q. Income tax expense is based on a 35% corporate tax rate.
Income statement for 2019 (Hint: Income before income taxes should equal $8,175.).
Report the Financial Statements separated. The income statement shows how much revenue a company earned over a specific period, as well as its net income, or the difference between revenue and expenses.
Here's an income statement for Integrated Health Services, Inc. for the year 2019:
Integrated Health Services, Inc. Income Statements For the Year Ended December 31, 2019
Sales revenues…………………………………………………….. $105,000
Rent revenues………………………………………………………$4,000
Total revenues…………………………………………………… $109,000
Less cost of goods sold……………………………………… 60,000
Gross margin……………………………………………………. $49,000
Less operating expenses: Supplies expense…………………………………………… $1,200
Salaries expense……………………………………………. 34,000
Miscellaneous expense…………………………………….6,400 $41,600
Income before taxes………………………………………… $7,400
Less income taxes (35%)…………………………………… 2,590
Net Income……………………………………………………… $4,810
Earnings per share ($4,810 / 16,000 shares)…… $0.30
At year-end, an additional $4,000 of sales salaries are owed, but have not yet been paid. Therefore, this amount must be recorded as an accrued expense in the income statement. It does not impact cash flow because no money was paid for this expense in 2019.
Here's the revised income statement: Integrated Health Services, Inc. Income Statements For the Year Ended December 31, 2019
Sales revenues…………………………………………………….. $105,000
Rent revenues………………………………………………………$4,775
Total revenues…………………………………………………… $109,775
Less cost of goods sold……………………………………… 60,000
Gross margin……………………………………………………. $49,775
Less operating expenses: Supplies expense…………………………………………… $1,200
Salaries expense……………………………………………. 34,000
Miscellaneous expense…………………………………….6,400
Truck rent expense………………………………………… (2,550)
Insurance expense…………………………………………… (900)
Sales salaries expense…………………………………….. (1,250) $36,900
Income before taxes………………………………………… $12,875
Less income taxes (35%)…………………………………… 4,513
Net Income……………………………………………………… $8,362
Earnings per share ($8,362 / 16,000 shares)…… $0.52
The post-closing trial balance for Integrated Health Services, Inc. is as follows:
Integrated Health Services, Inc. Post-Closing Trial Balance December 31, 2019
Crédit Cash………………………………………………………………..$12,100
Account Receivable…………………………………………27,200
Inventory……………………………………………………….33,500
Supplies………………………………………………………...200
Account Payable…………………………………………… $14,000
Salaries Payable…………………………………………… 4,000
Income Taxes Payable…………………………………. 2,590
Long-term loan payable………………………………. 10,700
Capital Stock…………………………………………………. 50,000
Retained Earnings………………………………………… 21,210
Totals…………………………………………………………… $83,000 $83,000
The company's balance sheet on December 31, 2019 will include this post-closing trial balance.
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O You run a nail salon. Fixed monthly cost is $5,935.00 for rent and utilities, $6,442.00 is spent insalaries and $1,427.00 in insurance. Also every customer requires approximately $5.00 in supplies. You charge $85.00 on average for each service. You are considering moving the salon to an upscale neighborhood where the rent and utilities will increase to $10,414.00, salaries to $6,936.00 and insurance to $2,306.00 per month Cost of supplies will increase to $7.00 per service. However you can now charge $152.00 per service. At what point will you be indifferent between your current location and the new location? Submit Answer format: Number: Round to: 2 decimal places.
Given information: Fixed monthly cost is $5,935.00 for rent and utilities, $6,442.00 is spent in salaries insurance and $1,427.00 in insurance. Also every customer requires approximately $5.00 in supplies. You charge $85.00 on average for each service.
At the current location, the profit per customer is
:Revenue per customer - Cost per customer
= $85.00 - $5.00 = $80.00At the new location, the profit per customer is:Revenue per customer - Cost per customer
= $152.00 - $7.00 = $145.00 let's find the total profit at the new location.
Total profit at the new location = Profit per customer × Total customers Total profit at the new location
= $145.00 × X (Number of customers)Now, let's find the total profit at the current location: Total profit at the current location
= Profit per customer × Total customersTotal profit at the current location = $80.00 × X (Number of customers)The two total profits are equal at the point of indifference. So we get:Total profit at thenew location
= Total profit at the current location$145.00 × X
= $80.00 × X + $5,935.00 + $6,442.00 + $1,427.00 + $7.00 × X$145.00X - $80.00X
= $5,935.00 + $6,442.00 + $1,427.00X + $7.00XX ($\text{Number of customers})
= $13,804.00X = 2985.4 ≈ 2986.00The salon owner will be indifferent between current location and the new location when they have approximately 2986 customers.So, the answer is: Number: 2986; Round to: 0 decimal places.
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The purpose of revenue management is to: a. Maximise room occupancy throughout the year. O b. Ensure total revenue increases each year. C. Promote an even flow of revenue throughout the year. O d. Maximise total revenue by using demand forecasts to determine what price to charge for a class of rooms on a particular day.
The purpose of revenue management is to maximize total revenue by using demand forecasts to determine the appropriate pricing for a class of rooms on a particular day.
Revenue management in the hospitality industry involves strategically managing pricing and inventory to optimize revenue and profitability. The primary goal is to maximize total revenue by effectively balancing supply and demand. This is achieved through careful analysis of market demand, competitor pricing, and consumer behavior.
By using demand forecasts, revenue managers can identify periods of high and low demand and adjust pricing accordingly. This allows them to maximize revenue during high-demand periods by implementing higher prices, while also attracting customers during low-demand periods through discounted rates. The aim is to find the optimal pricing strategy that maximizes revenue and occupancy levels.
Additionally, revenue management seeks to achieve a balance in revenue flow throughout the year. By effectively managing pricing and availability, revenue managers can promote a more even distribution of revenue, minimizing periods of low occupancy and maximizing revenue during peak periods. This approach helps hotels maintain stability and profitability throughout the year.
In summary, the purpose of revenue management is to maximize total revenue by utilizing demand forecasts to determine the appropriate pricing for a class of rooms on a particular day. By strategically managing pricing and inventory, revenue managers aim to optimize revenue, achieve high occupancy rates, and ensure a balanced flow of revenue throughout the year.
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Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work Click to select . Co Information lag cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases OvFormulation lag Implementation lag. In September, the Bureau of Labor Statistics revises the unemployment numbers from July. Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit die in a special account. Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations. The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work, Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts IC In Formulation lag au of Labor Statistics revises the unemployment numbers from July Information lag Implementation Lang Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account . Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy. However, the engineering firms in the country become backlogged with the extra work. Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts. In September, the Bureau of Labor Statistics revises the unemployment numbers from July . Formulation lag led Information lag Implementation lag cal policy bill that sends block grants to states for economic development. However, some of the state ee on how to allocate the money, so the funds sit idle in a special account Time lags can impede the effectiveness of fiscal policy. Select the source of the time lag for each of the following situations The parliament in a European country passes a massive Infrastructure development appropriation to stimulate the economy. Howeve the engineering firms in the country become backlogged with the extra work. Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts. In September, the Bureau of Labor Statistics revises the unemployment numbers from July Congress passes a fiscal policy bill that sends block grants to states for economic development. However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account Formulation log Implementation lag Information lag
Fiscal policies are known for the time lags that they have in influencing the economy. Time lags are a delay that occurs between the time when policymakers first recognize a problem and when they implement policies to address it.
The following are sources of time lags for different situations mentioned in the question:
The parliament in a European country passes a massive infrastructure development appropriation to stimulate the economy.
However, the engineering firms in the country become backlogged with the extra work - Implementation lag
Congress passes a tax cut bill to help stimulate the economy, but the president vetoes the bill because he favors spending increases over tax cuts - Formulation lag
In September, the Bureau of Labor Statistics revises the unemployment numbers from July - Information lag
Congress passes a fiscal policy bill that sends block grants to states for economic development.
However, some of the state legislatures cannot agree on how to allocate the money, so the funds sit idle in a special account - Implementation lag.
Therefore, the source of the time lag for the first and last situations is Implementation lag. For the second situation, it is Formulation lag, and for the third situation, it is Information lag.
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PLEASE SHOW THE STEP HOW TO DO.
3. Anna and Bob have decided to buy an apartment. The cost of the apartment is RM150,000. They can get a 25-year mortgage at 8% and plan to make a down payment of 20% of the selling price. What will b
The monthly mortgage payment for Anna and Bob's apartment will be RM875.
1. Selling price of the apartment: RM150,000
2. Down payment: 20% of RM150,000 = RM30,000 (this is the amount paid upfront)
3. Mortgage amount: Selling price - Down payment = RM150,000 - RM30,000 = RM120,000 (this is the amount financed through the mortgage)
4. Mortgage duration: 25 years = 300 months
5. Mortgage interest rate: 8% per year
To calculate the monthly mortgage payment, we can use the formula for a fixed-rate mortgage:
M = P [i(1 + i)^n] / [(1 + i)^n - 1]
Where:
M = Monthly mortgage payment
P = Mortgage principal (RM120,000)
i = Monthly interest rate (8% divided by 12 months = 0.08/12 = 0.0067)
n = Total number of payments (300)
Plugging in the values:
M = RM120,000 [0.0067(1 + 0.0067)^300] / [(1 + 0.0067)^300 - 1]
Using a calculator, the monthly mortgage payment (M) is approximately RM875.
Anna and Bob's monthly mortgage payment for the apartment will be RM875. This calculation is based on a selling price of RM150,000, a down payment of 20%, a 25-year mortgage term, and an 8% interest rate. It's important to note that this calculation does not include other costs such as property taxes, insurance, and maintenance fees, which may vary depending on the specific terms and conditions of the mortgage agreement.
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Proponents of the antidumping argument for restricting trade typically argue that: a. consumer surplus is reduced to zero because of the higher prices of goods. b. foreign producers temporarily cut prices, drive domestic firms out of the market, and then use their monopoly position to gouge consumers. c. foreign producers exploit their market power by charging consumers a very high price. d. competition from foreign producers decreases the amount of tax revenue earned by the government.
The proponents of the antidumping argument for restricting trade typically argue that b. foreign producers temporarily cut prices, drive domestic firms out of the market, and then use their monopoly position to gouge consumers.
Antidumping measures are implemented by governments to protect domestic industries from unfair competition by foreign producers who sell their products at a price lower than their production cost or below the market value in the exporting country.
Proponents of the antidumping argument believe that such practices can harm domestic industries in the following way:
Foreign producers temporarily cut prices: When foreign producers engage in dumping, they often lower the prices of their goods below the cost of production or below the market value in their own country. This allows them to capture a significant share of the domestic market by attracting consumers with lower prices.
Drive domestic firms out of the market: As foreign producers sell their goods at lower prices, domestic firms may struggle to compete and maintain their market share. This can lead to a decline in sales and profits for domestic firms, potentially forcing some of them out of the market.
Use their monopoly position to gouge consumers: Once foreign producers have gained a dominant position in the domestic market by driving out domestic competitors, proponents of the antidumping argument claim that they can exploit their monopoly power by raising prices.
With reduced competition, consumers may be left with limited choices and may have to pay higher prices for the goods previously offered at lower prices.
In summary, proponents of the antidumping argument for restricting trade argue that foreign producers engage in temporary price-cutting to gain market share, drive domestic firms out of the market, and then exploit their monopoly position by charging higher prices to consumers.
This is seen as a detrimental effect on the domestic industry and consumer welfare.
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"Many authorities are convinced that almost all product-oriented industries soon will be global." Do you agree with this suggestion? Why or why not? Use the knowledge that you have gained from Chapter 5, including knowledge gained from other business courses to defend your answer.
it is evident that almost all product-oriented industries will soon become global. The factors that have led to globalization and technological advancements are likely to shape the future of the business industry, making it more competitive and innovative.
Yes, I agree with the suggestion that almost all product-oriented industries will soon become global. This is because of several reasons that have emerged in the contemporary world of business. Globalization has been one of the most significant factors that have led to the integration of various economies worldwide. Almost every industry is attempting to expand beyond their national boundaries to exploit new markets and access resources that they cannot find in their countries. This phenomenon has led to the rise of globalization, which has been identified as a key driver of the future success of product-oriented industries (Crossman, 2021).
Furthermore, technological advancements have enabled businesses to connect with customers and clients from different parts of the world more easily. With the advent of the internet and social media, companies can now reach customers in different parts of the world, where they can easily market their products. Technology has also made it possible for businesses to access information more efficiently, thus giving them an advantage in their operations. With the help of technology, businesses can efficiently manage their supply chains, enabling them to transport goods and services across the globe more effectively.
Lastly, the ease of transportation and communication has made it possible for businesses to expand their operations beyond national borders. For example, large companies such as Coca-Cola, McDonald's, and Nestle have managed to establish their presence worldwide, and they continue to expand their operations to new regions. This has been facilitated by the existence of favorable trade agreements, which allow businesses to operate without being subjected to excessive tariffs and other trade barriers.
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How has international trade changed over time?
What are some of the trade agreements the US has with other
countries? Do you feel they are beneficial to the countries?
International trade has undergone significant changes over time, driven by advancements in transportation, communication, and technology. In the past, trade primarily consisted of goods such as commodities and manufactured products.
Additionally, global supply chains have become more integrated, enabling the fragmentation of production across countries. The United States has entered into several trade agreements with other countries, including notable ones such as the North American Free Trade Agreement (NAFTA, now replaced by the United States-Mexico-Canada Agreement or USMCA), the World Trade Organization (WTO), and various bilateral trade agreements.
The benefits of these agreements are subject to debate and can vary depending on various factors. Proponents argue that trade agreements can stimulate economic growth, create job opportunities, enhance competitiveness, and provide access to new markets. However, critics express concerns about job displacement, income inequality, and potential negative impacts on specific industries or workers. The overall assessment of the benefits of trade agreements is complex and depends on specific circumstances, including the economic structure and policies of the countries involved.
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Suppose you take a job with a mining company in Nevada. Your boss expects to produce 8,000 troy ounces of gold in November and is concerned that the price of gold will fall before it can be sold. She asks you the hedge the anticipated November gold sale on the futures market.
You are going to hedge this transaction using December 2021 gold futures. The contract size is 100 troy ounces. Today, the current price of gold is $2,034/troy oz and the December 2021 gold futures price is $2072/troy oz.
When November arrives and you lift your hedge, the cash price of gold is $1,897/troy oz and the December 2021 gold futures prices is $1,899/troy oz.
Assume transaction fees of $15 per roundtrip per futures contract and a hedge ratio of 1.0 when answering the questions below. Round to the nearest whole number of contracts.
1-How many futures contracts do you trade for your hedge??
2-What is the gain (loss) in the futures market (after accounting for transaction fees of $15 per roundtrip)?
Enter your answer without dollar signs or commas. For a profit, enter a positive number. For a loss, enter a negative number.
3-What is the net outcome of the hedge in terms of $/troy oz.? Do not enter dollar signs or commas. Please enter your answer significant to TWOdecimal places. For example, if you believe the net outcome is a gold price of $2,112.00/oz, simply enter "2112.00"
Therefore, to hedge the anticipated November gold sale on the futures market, you should trade 80 futures contracts.
Given that your boss expects to produce 8,000 troy ounces of gold in November and is concerned that the price of gold will fall before it can be sold and she asks you to hedge the anticipated November gold sale on the futures market. We are required to calculate the number of futures contracts you trade for your hedge.One contract on the COMEX futures exchange represents 100 troy ounces of gold.
Therefore, the number of futures contracts required to hedge is obtained by dividing the number of troy ounces of gold to be sold (8,000) by 100.
The number of futures contracts to be traded for the hedge is therefore:8,000/100 = 80
Therefore, to hedge the anticipated November gold sale on the futures market, you should trade 80 futures contracts.
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a Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be: cross out Select one: O a. 6 percent. O b. 12 percent. O c. 18 percent. O d. 30 percent. Cross out cross out Cross out
The Rate of return on the investment will be 12%.Explanation:Rate of return on the investment is the ratio of income received from an investment to the amount of money invested. It is also known as the yield on an investment.In this question,The cost of the factory = $5 millionThe return after one year = $600,000.
In the question, we need to calculate the rate of return on investment when a firm invests $5 million to build a factory. The firm believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost.The rate of return on the investment is an essential financial metric to measure the profitability of an investment. It is the ratio of the amount of income generated by an investment to the cost of that investment. It is expressed as a percentage. It is also known as the yield on an investment.In this case, the firm is investing $5 million to build a factory. It believes that it can get a return of $600,000 in one year. Therefore, the total amount after one year will be $5.6 million. After one year, the factory can be sold for its original cost, which is $5 million. Therefore, the net income of the firm will be $0.6 million.Now, we can calculate the rate of return on the investment by using the following formula:Rate of return on the investment = (Net income / Investment) x 100= (0.6 / 5) x 100= 12%Therefore, the rate of return on the investment is 12%.
In conclusion, we can say that the rate of return on the investment is 12%, which means that the firm will earn 12% on its investment. It is a good investment as the rate of return is higher than the average rate of return in the market. Therefore, the firm can go ahead and build the factory.
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A company that produces small electric motors for treadmills had cost of goods sold last year of $368,000,000. The average value of inventory for raw materials, work-in-process, and finished goods are shown in the table below: Raw Materials $22,600,000 Work-In-Process $5,800,000 Finished Goods $10,296,000 The inventory turns would be A. 35.74 turns B.22.86 turns C.0.11 turns D.9.51 turns QUESTION 21 Using the data above, if the company operates 40 weeks a year, the weeks of supply being held in inventory is A.0.24 B,0,003 C.4.21 D. 38.38
A company that produces small electric motors for treadmills had cost of goods sold last year of $368,000,000.
The average value of inventory for raw materials, work-in-process, and finished goods are given below:Raw Materials $22,600,000Work-In-Process $5,800,000Finished Goods $10,296,000.
The inventory turns and weeks of supply being held in inventory can be calculated as follows:Inventory Turnover = Cost of Goods Sold / Average InventoryAverage Inventory = (Raw Materials + Work-In-Process + Finished Goods) / 3a) Calculation of Inventory Turnover:Inventory Turnover = Cost of Goods Sold / Average InventoryCost of Goods Sold = $368,000,000Average Inventory = ($22,600,000 + $5,800,000 + $10,296,000) / 3 = $12,232,000Inventory Turnover = $368,000,000 / $12,232,000 = 30 turnsTherefore, the inventory turns are 30 turns.b).
Calculation of Weeks of Supply:Weeks of Supply = (Average Inventory / Cost of Goods Sold) x 52 weeksAverage Inventory = ($22,600,000 + $5,800,000 + $10,296,000) / 3 = $12,232,000Weeks of Supply = ($12,232,000 / $368,000,000) x 52 = 1.73 weeksTherefore, the weeks of supply being held in inventory is 1.73 weeks.Answer:Inventory turns: 30 turns; Weeks of supply: 1.73 weeks.
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Which of the following is the best example of what economists call the "Fallacy of Composition"?
Group of answer choices
A bank lowers its mortgage interest rates in order to encourage more people to borrow money to buy a house. Because of rising housing prices it turns out that fewer people take out a mortgage. The bank loses money due to fewer customers and lower rates.
A politician predicts that the unemployment rate will fall considerably in the future. He therefore suggests to eliminate all government stimulus programs.
Union leaders are demanding more job security for their workers. They claim that more job security leads to happier workers and more productive workers.
Fast food workers demand higher wages. The higher wages will increase overall wages in the entire economy and stimulate the economy.
A movie theater owner lowers the price of his movie tickets. His argument is that lower prices will bring in more customers. These customers will buy more concessions and overall revenue will increase.
The example of fast food workers demanding higher wages is not the best example of the fallacy of composition.
The Fallacy of Composition is an error that occurs when people assume that something that is true for one person is true for everyone. This can be illustrated with the example of fast food workers demanding higher wages. This is not the best example of the fallacy of composition because the argument that higher wages will increase overall wages in the entire economy and stimulate the economy is based on the idea that if one worker gets a raise, it will increase their spending power and lead to more spending, which will in turn increase economic growth. However, this argument assumes that all workers are in the same position, and that all workers will spend more money if they receive higher wages. This is not necessarily true. Therefore, the example of fast food workers demanding higher wages is not the best example of the fallacy of composition.
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Journalize the entries to record the above selected transactions. Issued the bonds for cash at their face amount. If an amount box does not require an entry, leave it blank. 2011 Mar. 1 Cash 10,892,157 X Bonds Payable 10,892,157 x Paid the interest on the bonds. If an amount box does not require an entry, leave it blank. 2011 Sept. 1 Interest Expense х Cash ✓ 495.000 х Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.) If an amount box does not require an entry Journalize the entries to record the above selected transactions. Issued the bonds for cash at their face amount. If an amount box does not require an entry, leave it blank. 2011 Mar. 1 Cash 10,892,157 X Bonds Payable 10,892,157 x Paid the interest on the bonds. If an amount box does not require an entry, leave it blank. 2011 Sept. 1 Interest Expense х Cash ✓ 495.000 х Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.) If an amount box does not require an entry Rushton Corp., a wholesaler of music equipment, issued $17,290,000 of 20-year, 12% callable bonds on March 1, 2001, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. 20Y1 Mar. 1 Issued the bonds for cash at their face amount. Sept. 1 Paid the interest on the bonds. 20Y5 Sept. 1 Called the bond issue at 102, the rate provided in the bond indenture. (Omit entry for payment of interest.) Journalize the entries to record the above selected transactions.
March 1, 2011:
Cash 10,892,157
Bonds Payable 10,892,157
September 1, 2011:
Interest Expense 495,000
Cash 495,000
September 1, 20Y5:
Bonds Payable 10,892,157
Premium on Bonds Payable [Blank]
Gain on Bond Redemption [Blank]
Cash 11,792,000
Redemption, in the context of bonds, refers to the repayment or retirement of a bond by the issuer before its maturity date. When a bond is redeemed, the issuer pays the bondholders the face value or principal amount of the bond, along with any applicable interest or premium.
Redemption can occur through various methods, such as:
Call provision: The issuer has the option to call back or redeem the bonds before their scheduled maturity date. This is often done when interest rates have decreased, allowing the issuer to refinance the debt at a lower cost.
Sinking fund provision: The issuer sets aside funds periodically to redeem a portion of the bonds before maturity. This helps in reducing the outstanding debt gradually.
Open-market purchase: The issuer may buy back bonds from the open market at prevailing market prices.
Redemption provides the issuer with the opportunity to repay the bondholders and reduce its long-term debt obligations.
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ssume that the hourly cost to operate a commercial airplane follows the normal distribution with a mean of $2,080 per hour and a standard deviation of $343. what is the operating cost for the lowest 4% of the airplanes? (round your z-value to 2 decimal places and final answer to the nearest whole dollar.)
The operating cost for the lowest 4% of the airplanes is $1,472.
The hourly cost to operate a commercial airplane follows the normal distribution with a mean of $2,080 per hour and a standard deviation of $343.T The operating cost for the lowest 4% of the airplanes.Operating cost of the lowest 4% of the airplanes can be found as follows:-
Let X be the operating cost of the airplane in dollars.Therefore X ~ N(2080, 343)P(X < x) = 0.04 We need to find the value of x.Using standardizing, z = (x - μ) / σWhere μ = 2080, σ = 343 and z is the standard normal random variable.The probability of the standard normal random variable is P(Z < z).P(X < x) = P(Z < (x - μ) / σ)Substituting the values,0.04 = P(Z < (x - 2080) / 343)On looking into the standard normal distribution table, we find the corresponding value of z to be -1.75 Therefore, -1.75 = (x - 2080) / 343 Solving for x,x = 2080 - 1.75 × 343 = $1,472 (rounded off to the nearest dollar).
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Unibank also needs to review its off-balance-sheet risk. Using the following balance sheet value of UniBank in market value terms (in millions of dollars)
Assets
$
Liabilities and equity
$
Cash
3
Deposits
35
Liquid assets
30
Interbank loan
5
Loans
55
Equity
48
Total assets
88
Total liabilities and equity
88
In addition, the bank has contingent assets with $50 million market value and contingent liabilities with $80 million market value.
a. Calculate the true stockholder net worth (1 mark)
b. Explain what the term contingent means (1 mark)
c. Why are contingent assets and liabilities like options? (1 mark)
d. What is meant by the term 'notional value' of a contingent liability? (1 mark)
e. Why do over-the-counter contracts carry more contingent credit risk than exchange-traded contracts? (1 mark)
a. To calculate the true stockholder net worth, we need to subtract the total liabilities from the total assets. In this case, the total liabilities and equity are given as $88 million, and the total liabilities can be determined by subtracting the equity ($48 million) from the total liabilities and equity. Therefore:
True stockholder net worth = Total assets - Total liabilities
True stockholder net worth = $88 million - ($88 million - $48 million)
True stockholder net worth = $48 million
b. The term "contingent" refers to something that is dependent on the occurrence of a particular event or condition. In the context of assets and liabilities, contingent means that they are potential or uncertain, and their realization depends on the occurrence or non-occurrence of specific future events.
c. Contingent assets and liabilities are like options because their value and outcome depend on future events. Similar to options, contingent assets offer the potential for gain if certain conditions are met, while contingent liabilities represent potential obligations or losses if certain conditions occur.
d. The term "notional value" of a contingent liability refers to the maximum potential amount or face value of the liability. It represents the amount that would be paid or received if the contingency is realized. However, it does not necessarily indicate the actual amount that will be paid or received, as it depends on the specific terms and conditions of the contingency.
e. Over-the-counter (OTC) contracts are privately negotiated agreements between two parties, while exchange-traded contracts are standardized contracts traded on organized exchanges. OTC contracts carry more contingent credit risk because they lack the same level of transparency, regulation, and centralized clearing as exchange-traded contracts. The absence of a centralized clearinghouse in OTC contracts means that there is a higher risk of default by one of the parties involved, leading to potential losses for the counterparties.
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On January 1, 2022, P Company purchased 64,000 shares of the 80,000 outstanding shares of S Company at a price of P1,200,000, with an excess of P30,000 over the book value of S Company's net assets. P13,000 of the excess is attributed to an undervalued equipment with a remaining useful life of eight years from the date of acquisition and the rest of the amount is attributed to goodwill. For the year 2022, P Company reported a net income of P750,000 and paid dividends of P180,000, while S Company reported a net income of P240,000 and paid dividends to P Company amounting to P39,000. The retained earnings of P Company at the end of 2022 per books is P1,025,000. P Company uses the cost method to account for its investment in S Company and elected to measure non-controlling interest at fair value on date of acquisition.
In 2022, P Company purchased a majority stake in S Company, with an excess payment over the book value of S Company's net assets. P Company reported a net income of P750,000 and paid dividends of P180,000, while S Company reported a net income of P240,000 and paid dividends to P Company amounting to P39,000. P Company's retained earnings at the end of 2022 per books were P1,025,000.
P Company's purchase of 64,000 shares of S Company represents a majority stake, as there were 80,000 outstanding shares. The purchase price of P1,200,000 exceeded the book value of S Company's net assets by P30,000, with P13,000 attributed to an undervalued equipment and the remaining amount to goodwill. In 2022, P Company reported a net income of P750,000, indicating its profitability during the year. It also paid dividends of P180,000, distributing a portion of its earnings to shareholders. S Company, in the same year, reported a net income of P240,000 and paid dividends of P39,000 to P Company, reflecting its own profitability and dividend distribution. By the end of 2022, P Company's retained earnings per books amounted to P1,025,000. Retained earnings represent the accumulated earnings that have not been distributed as dividends. This figure reflects the net income generated by P Company, taking into account any dividends paid out. It is worth noting that P Company uses the cost method to account for its investment in S Company, meaning it records the initial investment at cost and subsequently adjusts it for dividends received and its share of S Company's net income or loss. Additionally, P Company elected to measure the non-controlling interest at fair value on the date of acquisition, which indicates the portion of S Company not owned by P Company.
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