Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Showing posts with label amount. Show all posts
Showing posts with label amount. Show all posts
Wednesday, November 11, 2015
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Thursday, September 24, 2015
Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest
P14-15 (Debtor/Creditor Entries for Continuation of Troubled Debt with
New Effective Interest) Mildred Corp. owes D. Taylor Corp. a 10-year,
10% note in the amount of $110,000 plus $11,000 of accrued interest. The
note is due today, December 31, 2007. Because Mildred Corp. is in
financial trouble, D. Taylor Corp. agrees to forgive the accrued
interest, $10,000 of the principal, and to extend the maturity date to
December 31, 2010. Interest at 10% of revised principal will continue to
be due on 12/31 each year.
Assume the following present value factors for 3 periods.
21/4% 23/8% 21/2% 25/8% 23/4% 3%
Single sum .93543 .93201 .92859 .92521 .92184 .91514
Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861
Instructions
(a) Compute the new effective interest rate for Mildred Corp. following restructure. (Hint: Find the interest rate that establishes approximately $121,000 as the present value of the total future cash flows.)
(b) Prepare a schedule of debt reduction and interest expense for the years 2007 through 2010.
(c) Compute the gain or loss for D. Taylor Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2007 through 2010.
(d) Prepare all the necessary journal entries on the books of Mildred Corp. for the years 2007, 2008, and 2009.
(e) Prepare all the necessary journal entries on the books of D. Taylor Corp. for the years 2007, 2008, and 2009.
Click here for the solution: Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest
Assume the following present value factors for 3 periods.
21/4% 23/8% 21/2% 25/8% 23/4% 3%
Single sum .93543 .93201 .92859 .92521 .92184 .91514
Ordinary annuity of 1 2.86989 2.86295 2.85602 2.84913 2.84226 2.82861
Instructions
(a) Compute the new effective interest rate for Mildred Corp. following restructure. (Hint: Find the interest rate that establishes approximately $121,000 as the present value of the total future cash flows.)
(b) Prepare a schedule of debt reduction and interest expense for the years 2007 through 2010.
(c) Compute the gain or loss for D. Taylor Corp. and prepare a schedule of receivable reduction and interest revenue for the years 2007 through 2010.
(d) Prepare all the necessary journal entries on the books of Mildred Corp. for the years 2007, 2008, and 2009.
(e) Prepare all the necessary journal entries on the books of D. Taylor Corp. for the years 2007, 2008, and 2009.
Click here for the solution: Mildred Corp. owes D. Taylor Corp. a 10-year, 10% note in the amount of $110,000 plus $11,000 of accrued interest
Wednesday, September 23, 2015
For each of the following depreciable assets, determine the missing amount (?)
E11-5 Depreciation methods; solving for unknowns
For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.
Asset Cost Residual Value Service of Life Depreciation Method Depreciation (Yr 2)
A ? $20,000 5 DDB $24,000
B $40,000 ? 8 SYD 7,000
C 65,000 5,000 ? SL 6,000
D 230,000 10,000 10 ? 22,000
E 200,000 20,000 8 150% DB ?
Click here for the solution: For each of the following depreciable assets, determine the missing amount (?)
For each of the following depreciable assets, determine the missing amount (?). Abbreviations for depreciation methods are SL for straight line, SYD for sum-of-the-years' digits, and DDB for double-declining balance.
Asset Cost Residual Value Service of Life Depreciation Method Depreciation (Yr 2)
A ? $20,000 5 DDB $24,000
B $40,000 ? 8 SYD 7,000
C 65,000 5,000 ? SL 6,000
D 230,000 10,000 10 ? 22,000
E 200,000 20,000 8 150% DB ?
Click here for the solution: For each of the following depreciable assets, determine the missing amount (?)
Sunday, September 20, 2015
On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary
ADVANCE ACCOUNTING Multiple Choice
1. On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary, Scully Company, for $200,000. Scully adopted a four-year economic life, no residual value, and the sum-of-the-years'-digits method of depreciation for the machine. If correct working paper eliminations are prepared for Passey Corporation and subsidiary on November 30, 2007, the end of the fiscal year, Passey's net income to be included in consolidated net income is (disregarding income taxes): (Points : 1)
2. In the measurement of minority interest in net income of a partially owned subsidiary, the credit for Depreciation Expense¾Parent in the working paper elimination (in journal entry format) for intercompany gain in a depreciable plant asset is attributed to net income of: (Points : 1)
3. A material realized gain on a subsidiary's open-market acquisition of its parent company's outstanding bonds at a discount is displayed in the consolidated income statement as: (Points : 1)
4. The starting point for the computation of net cash provided by operating activities in a consolidated statement of cash flows (indirect method) for a parent company and its partially owned subsidiary is: (Points : 1)
5. The realized but unrecognized gain on extinguishment of debt resulting from a parent company's open-market acquisition of the subsidiary's outstanding bonds is recorded in subsequent journal entries by: (Points : 1)
6. In the preparation of a consolidated statement of cash flows, dividends declared and paid to minority shareholders of a subsidiary are: (Points : 1)
7. Included in a working paper elimination (in journal entry format) for intercompany sales of merchandise was a debit to Minority Interest in Net Assets of Subsidiary. This debit indicates that: (Points : 1)
8. Included in a working paper elimination (in journal entry format) for intercompany sales was a credit of $60,000 to Cost of Goods Sold¾Subsidiary. The credit indicates that, for the accounting period involved: (Points : 1)
9. In the installment acquisition of a controlling interest in a subsidiary, the Retained Earnings of Subsidiary/Investee ledger account is first credited in a journal entry of the parent company/investor to: (Points : 1)
10. Intercompany loans, operating leases of property, and rendering of services do not include an element of intercompany profit gain or loss for the consolidated entity because: (Points : 1)
Click here for the solution: On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary
1. On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary, Scully Company, for $200,000. Scully adopted a four-year economic life, no residual value, and the sum-of-the-years'-digits method of depreciation for the machine. If correct working paper eliminations are prepared for Passey Corporation and subsidiary on November 30, 2007, the end of the fiscal year, Passey's net income to be included in consolidated net income is (disregarding income taxes): (Points : 1)
2. In the measurement of minority interest in net income of a partially owned subsidiary, the credit for Depreciation Expense¾Parent in the working paper elimination (in journal entry format) for intercompany gain in a depreciable plant asset is attributed to net income of: (Points : 1)
3. A material realized gain on a subsidiary's open-market acquisition of its parent company's outstanding bonds at a discount is displayed in the consolidated income statement as: (Points : 1)
4. The starting point for the computation of net cash provided by operating activities in a consolidated statement of cash flows (indirect method) for a parent company and its partially owned subsidiary is: (Points : 1)
5. The realized but unrecognized gain on extinguishment of debt resulting from a parent company's open-market acquisition of the subsidiary's outstanding bonds is recorded in subsequent journal entries by: (Points : 1)
6. In the preparation of a consolidated statement of cash flows, dividends declared and paid to minority shareholders of a subsidiary are: (Points : 1)
7. Included in a working paper elimination (in journal entry format) for intercompany sales of merchandise was a debit to Minority Interest in Net Assets of Subsidiary. This debit indicates that: (Points : 1)
8. Included in a working paper elimination (in journal entry format) for intercompany sales was a credit of $60,000 to Cost of Goods Sold¾Subsidiary. The credit indicates that, for the accounting period involved: (Points : 1)
9. In the installment acquisition of a controlling interest in a subsidiary, the Retained Earnings of Subsidiary/Investee ledger account is first credited in a journal entry of the parent company/investor to: (Points : 1)
10. Intercompany loans, operating leases of property, and rendering of services do not include an element of intercompany profit gain or loss for the consolidated entity because: (Points : 1)
Click here for the solution: On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary
Thursday, September 10, 2015
The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
3–5. The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million. Revenues were anticipated from sources other than the property tax in the amount of $24 million. The total assessed value of property in the school district amounts to $600 million. Owners of property have filed for and received household, old age, and other exemptions in the amount of $80 million. It is anticipated that 2 percent of the assessed taxes will not be collected.
a. Compute the amount to be raised from property taxes.
b. Compute the gross levy required to raise revenue in the amount you computed for requirement (a). Round the computation to the nearest dollar.
c. Compute the property tax rate per $100 net assessed valuation.
d. Compute the property tax rate per $1,000 net assessed valuation (this rate is often called the millage). Round fractional cents to the next higher whole cent.
e. You own a home with an assessed valuation of $60,000. You are eligible for a homestead exemption of $2,000; deduct this amount from the gross assessed valuation to determine the net assessed valuation (NAV) of your house. Multiply the NAV in thousands of dollars by the property tax rate computed in part (d) of this problem to determine the property tax payable
on your house.
Click here for the solution: The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
a. Compute the amount to be raised from property taxes.
b. Compute the gross levy required to raise revenue in the amount you computed for requirement (a). Round the computation to the nearest dollar.
c. Compute the property tax rate per $100 net assessed valuation.
d. Compute the property tax rate per $1,000 net assessed valuation (this rate is often called the millage). Round fractional cents to the next higher whole cent.
e. You own a home with an assessed valuation of $60,000. You are eligible for a homestead exemption of $2,000; deduct this amount from the gross assessed valuation to determine the net assessed valuation (NAV) of your house. Multiply the NAV in thousands of dollars by the property tax rate computed in part (d) of this problem to determine the property tax payable
on your house.
Click here for the solution: The Baker Independent School District passed an appropriations ordinance for the General Fund for a certain fiscal year in the amount of $50 million
Monday, August 31, 2015
Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases, assuming the taxpayers had no income other than the stated amounts.
a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl.
b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.
c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.
Click here for the solution: Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl.
b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.
c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.
Click here for the solution: Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
Monday, August 17, 2015
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
E 14-10 Issuance of bonds; effective interest; amortization schedule
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2011.
2. Prepare the journal entry to record their issuance by National on January 1, 2011.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2011.
5. Prepare the appropriate journal entries at maturity on December 31, 2014.
Click here for the solution: National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2011.
2. Prepare the journal entry to record their issuance by National on January 1, 2011.
3. Prepare an amortization schedule that determines interest at the effective rate each period.
4. Prepare the journal entry to record interest on June 30, 2011.
5. Prepare the appropriate journal entries at maturity on December 31, 2014.
Click here for the solution: National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
E 14-11 Bonds; effective interest; adjusting entry
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2031 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi's fiscal year ends December 31.
Required:
1. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2011.
2. Prepare the journal entry to record interest on July 31, 2011 (at the effective rate).
3. Prepare the adjusting entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on January 31, 2012.
Click here for the solution: On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2031 (20 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Strauss-Lombardi's fiscal year ends December 31.
Required:
1. Prepare the journal entry to record their issuance by Strauss-Lombardi on February 1, 2011.
2. Prepare the journal entry to record interest on July 31, 2011 (at the effective rate).
3. Prepare the adjusting entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on January 31, 2012.
Click here for the solution: On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000
On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000
E 14-12 Bonds; straight-line method; adjusting entry
On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000. The bonds sold for $294,000 and mature on February 28, 2031 (20 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31.
Required:
1. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2011.
2. Prepare the journal entry to record interest on August 31, 2011.
3. Prepare the journal entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on February 28, 2012.
Click here for the solution: On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000
On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000. The bonds sold for $294,000 and mature on February 28, 2031 (20 years). Interest is paid semiannually on August 31 and February 28. Stratford uses the straight-line method and its fiscal year ends December 31.
Required:
1. Prepare the journal entry to record the issuance of the bonds by Stratford Lighting on March 1, 2011.
2. Prepare the journal entry to record interest on August 31, 2011.
3. Prepare the journal entry to accrue interest on December 31, 2011.
4. Prepare the journal entry to record interest on February 28, 2012.
Click here for the solution: On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000
Wednesday, July 15, 2015
For each individual situation, determine the amount that should be reported as cash
E7-2 (Determine Cash Balance) Presented below are a number of independent situations.
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.
2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
Click here for the solution: At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.
2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
Click here for the solution: At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000
Monday, July 6, 2015
Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Required:
1. Compute the cash payback period for each of the four proposals.
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.
3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns and indicating which proposals should be accepted for further analysis and which should be rejected.
4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 in table above. Round to the nearest dollar.
5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.
6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).
8. Based upon the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Click here for the solution: Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Required:
1. Compute the cash payback period for each of the four proposals.
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. If required, round your answers to one decimal place.
3. Using the following format, summarize the results of your computations in parts (1) and (2) by placing the calculated amounts in the first two columns and indicating which proposals should be accepted for further analysis and which should be rejected.
4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 in table above. Round to the nearest dollar.
5. Compute the present value index for each of the proposals in part (4). If required, round your answers to two decimal places.
6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5).
8. Based upon the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
Click here for the solution: Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals
Thursday, July 2, 2015
Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009
Coley Co. issued $30 million face amount of 9%, 10-year bonds on June
1, 2009. The bonds pay interest on an annual basis on May 31, each year.
a.) Assume that the market interest rates were slightly higher than 9% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? Explain.
b.) Independent of your answer to part A, assume that the proceeds were $26,640,000. Use the horizontal model to show the effect of issuing the bonds.
c.) Calculate the interest expense that Coley Co. will show with the respect to these bonds in its income statement for the fiscal year ended September 30, 2009, assuming that the discount rate of $360,000 is amortized on a straight-line basis.
Click here for the solution: Coley Co. issued $30 million face amount of 9%, 10-year bonds on June 1, 2009
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