For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units 250
Days used per year 250
Lead time, in days 10
Ordering costs $100
Annual unit carrying costs $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points)
Click here for the solution: For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
Showing posts with label based. Show all posts
Showing posts with label based. Show all posts
Thursday, November 26, 2015
Tuesday, November 10, 2015
American Optical Corporation provides a variety of share-based compensation plans to its employees
E 19-5 Stock options
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company's $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry to record the award of options on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
Click here for the solution: American Optical Corporation provides a variety of share-based compensation plans to its employees
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2011, that permit executives to acquire 4 million of the company's $1 par common shares within the next five years, but not before December 31, 2012 (the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry to record the award of options on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
Click here for the solution: American Optical Corporation provides a variety of share-based compensation plans to its employees
Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees
E 19-4 Restricted stock award plan; forfeitures anticipated
Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company on January 1, 2011, granted 4 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares have a market price of $22.50 per share on the grant date.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Suppose Magnetic-Optical expected a 10% forfeiture rate on the restricted shares prior to vesting. Determine the total compensation cost.
Click here for the solution: Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees
Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock award plan, the company on January 1, 2011, granted 4 million of its $1 par common shares to various division managers. The shares are subject to forfeiture if employment is terminated within three years. The common shares have a market price of $22.50 per share on the grant date.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Suppose Magnetic-Optical expected a 10% forfeiture rate on the restricted shares prior to vesting. Determine the total compensation cost.
Click here for the solution: Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees
Monday, October 26, 2015
Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method
Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method.
Rashid Corporation
Income Statement
For Year ended Dec. 31, 2009
Sales 504,000
Cost of goods sold 327,600
Depreciation expense 42000
other operating expenses 125500 (495100)
other gains (losses):
Gain on sale of equipment 7200
Income before taxes 16100
Income tax expense (4800)
Net income 11,300
Rashid Corporation
Balance Sheets
For Year ended Dec. 31, 2009
2009 2008
Assets
Cash 64650 55800
Accounts Receivable 21000 29000
Inventory 58000 52100
Equipment 240000 222000
Accumulated depreciation (106000) (96000)
Total assets 277650 262900
Liabilities:
Accounts Payable 28400 23700
Income taxes payable 1050 1200
Total Liabilities 29450 24900
Equity
Common Stock 106000 106000
Capital in excess of par value 18000 18000
Retained earnings 124200 114000
Total equity 248200 238000
Click here for the solution: Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method
Rashid Corporation
Income Statement
For Year ended Dec. 31, 2009
Sales 504,000
Cost of goods sold 327,600
Depreciation expense 42000
other operating expenses 125500 (495100)
other gains (losses):
Gain on sale of equipment 7200
Income before taxes 16100
Income tax expense (4800)
Net income 11,300
Rashid Corporation
Balance Sheets
For Year ended Dec. 31, 2009
2009 2008
Assets
Cash 64650 55800
Accounts Receivable 21000 29000
Inventory 58000 52100
Equipment 240000 222000
Accumulated depreciation (106000) (96000)
Total assets 277650 262900
Liabilities:
Accounts Payable 28400 23700
Income taxes payable 1050 1200
Total Liabilities 29450 24900
Equity
Common Stock 106000 106000
Capital in excess of par value 18000 18000
Retained earnings 124200 114000
Total equity 248200 238000
Click here for the solution: Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method
Wednesday, October 14, 2015
Dewey and Cheatam is a law firm that is initiating an activity-based costing system
ACC 560 Week 3 Assignment
E4-16 Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm.
Classify each activity as either value-added or non-value-added.
Activity Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in court 2.5
Entertaining a prospective client 2.0
Instructions:
a) How much was value-added time
b) How much was non-value-added time
Click here for the solution: Dewey and Cheatam is a law firm that is initiating an activity-based costing system
E4-16 Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm.
Classify each activity as either value-added or non-value-added.
Activity Hours
Writing contracts and letters 1.0
Attending staff meetings 0.5
Taking depositions 1.0
Doing research 1.0
Traveling to/from court 1.0
Contemplating legal strategy 1.0
Eating lunch 1.0
Litigating a case in court 2.5
Entertaining a prospective client 2.0
Instructions:
a) How much was value-added time
b) How much was non-value-added time
Click here for the solution: Dewey and Cheatam is a law firm that is initiating an activity-based costing system
Prepare a bank reconciliation for Jax-Mart based on the following information
INSTRUCTIONS: Prepare a bank reconciliation for Jax-Mart based on the following information:
• Balance per bank at 8/30/07, $3,465.50
• Balance per books at 8/30/07, $2,012.87
• Outstanding checks total $2,003.84
• A $1,148.21 deposit was made too late to appear on the bank statement
• The bank collected a $1500 note plus $120 in interest charges
• A check for $110 was returned with the bank statement, but was charged by the bank as $1,100
• A check for $86 was returned with the bank statement but was recorded in the books at $68
• Bank service charges were $15 for August.
Click here for the solution: Prepare a bank reconciliation for Jax-Mart based on the following information
• Balance per bank at 8/30/07, $3,465.50
• Balance per books at 8/30/07, $2,012.87
• Outstanding checks total $2,003.84
• A $1,148.21 deposit was made too late to appear on the bank statement
• The bank collected a $1500 note plus $120 in interest charges
• A check for $110 was returned with the bank statement, but was charged by the bank as $1,100
• A check for $86 was returned with the bank statement but was recorded in the books at $68
• Bank service charges were $15 for August.
Click here for the solution: Prepare a bank reconciliation for Jax-Mart based on the following information
Sunday, September 27, 2015
Cost-based pricing assumes costs
1. Cost-based pricing assumes costs:
2. The last price a consumer paid or what they expect to pay is their:
3. Marketers of new and innovative products or services are more likely to use a price skimming strategy if:
4. While the manufacturers of the first electric cars charged relatively high prices to innovators and early adopters, they had to use a price skimming strategy because of:
5. The ____________ occurs when firms find the unit cost drops as increased volume is sold.
6. The primary reasons manufacturers offer seasonal discounts to retailers are to more easily plan production schedules and:
7. Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using:
8. Retailers might offer targeted coupons to loyal customers using kiosk-type technology and ____________.
9. If a telecommunications company drastically cut their price for cellular phone service in order to eliminate local competitors, the company could be charged with:
10. It is the responsibility of ___________________ to determine the ethical approach to setting prices so consumers find value and the firm can make a profit.
11. For a price skimming strategy to work, the product or service must:
12. In addition to merchandise and payments, information flows throughout a supply chain. Which of the following is NOT a good characterization of the flow of information in a supply chain?
13. International supply chains add layers of complexity to the flow of information, merchandise and payments. Neiman Marcus has been able to develop expedited shipments through customs, which gives it an advantage in having the most up-to-date merchandise, by _____________________.
14. Today, when a customer orders merchandise from an online vendor, he or she immediately receives a confirmation message by e-mail. Usually within a day or two, a second message arrives stating that the order is in the mail. This is a type of a(n):
15. If two companies use an electronic data interchange (EDI) to negotiate prices, specify product details, display pictures of new products, and offer sales promotions, the EDI is being used for the ____________ function in the four P's of marketing.
16. An effective CPFR system manages:
17. _______________ have dramatically reduced the time and labor associated with checking and receiving merchandise.
18. At the BMW plant in Spartanburg, South Carolina, suppliers deliver parts every four hours when the plant is in operation and are responsible for removing any packaging or pallets used to deliver their products. BMW uses a ______________ inventory control system.
19. After installing a(n)_______________ in their JIT system, Chocolate Tree, a retail chocolate store, was able to reduce lead time between the recognition that an order needed to be placed and the arrival of the needed merchandise.
20. With more frequent shipments associated with QR systems, a retailer is:
21. RFID offers the participants in the supply chain a powerful tool for tracking inventories and reducing handling. The main reason why it has NOT BEEN more widely adopted is:
22. One of retailers' most fundamental activities is providing the right mix of merchandise and services.
A) True
B) False
23. Retailers like Wal-Mart, Home Depot, and Kroger dictate to their suppliers all of the following EXCEPT:
24. Some companies want to get its products into as many outlets as possible, understanding that the more exposure it gets, the more of its products it will sell. If this is consistent with the company's overall strategy, it will choose __________________.
25. Retailers that offer a broad variety of merchandise, limited services and low prices are known as ______________________.
26. Category killers are also known as:
27. Many retail golf stores have driving ranges, some with visual imaging of famous golf courses. These driving ranges allow:
28. Which of the following retail stores would emphasize personal selling the most as part of the firm's promotional efforts?
29. Traditionally, retailers treated all their customers:
30. Jordan directs her salespeople to increase their "share of wallet." Jordan is directing her salespeople to:
31. Because the Internet offers little opportunity to touch, feel or try on merchandise before purchasing it, on-line retailers must addresses customers' need by ______________.
32. ______________________ is the term used to describe when retailers use some combination of stores, catalogs and the Internet to sell merchandise.
33. Which of the following is NOT one of the reasons a firm might employ electronic channels in multichannel retailing?
34. As the old cliché claims, the three most import things in retailing are:
35. Though a picture may be worth a thousand words, the most important facet of encoding is not what is received but what is sent.
A) True
B) False
36. If there is a difference between the message that is sent and the message that is received, it is probably due to noise.
A) True
B) False
37. Even the best marketing communication can be wasted if the sender does not gain the attention of the consumer.
A) True
B) False
38. "Top-of-mind awareness" is when consumers indicate they know the brand when the name is presented to them.
A) True
B) False
39. Commercial speech is defined as anything contained in a commercial.
A) True
B) False
40. Gerald knows which IMC communication channels are available and knows how he will measure the results of his IMC efforts. To implement his IMC efforts, Gerald also needs to:
41. The right communication channel to use in IMC is:
42. The sender of an IMC message hopes the receiver is:
43. National manufacturers and retailers pay a service company to monitor television ads around the country to ensure that their ads are seen in their entirety during the time frames that had been purchased. This service company helps avoid the IMC noise problem associated with:
44. Which of the following is NOT one of the steps in the AIDA model?
45. The IMC communications process:
46. Integrated marketing communications include all of the following except:
47. New technologies like PDAs, podcasts, and cell phones allow greater potential for ___________________ IMC efforts.
48. Companies can gain a competitive advantage using the Internet to:
49. Research has shown that IMC can make communications expenditures more effective and efficient by:
50. Competitive parity, percentage-of-sales, and affordable budget are types of ________________________ IMC budgeting.
Click here for the solution: Cost-based pricing assumes costs
2. The last price a consumer paid or what they expect to pay is their:
3. Marketers of new and innovative products or services are more likely to use a price skimming strategy if:
4. While the manufacturers of the first electric cars charged relatively high prices to innovators and early adopters, they had to use a price skimming strategy because of:
5. The ____________ occurs when firms find the unit cost drops as increased volume is sold.
6. The primary reasons manufacturers offer seasonal discounts to retailers are to more easily plan production schedules and:
7. Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using:
8. Retailers might offer targeted coupons to loyal customers using kiosk-type technology and ____________.
9. If a telecommunications company drastically cut their price for cellular phone service in order to eliminate local competitors, the company could be charged with:
10. It is the responsibility of ___________________ to determine the ethical approach to setting prices so consumers find value and the firm can make a profit.
11. For a price skimming strategy to work, the product or service must:
12. In addition to merchandise and payments, information flows throughout a supply chain. Which of the following is NOT a good characterization of the flow of information in a supply chain?
13. International supply chains add layers of complexity to the flow of information, merchandise and payments. Neiman Marcus has been able to develop expedited shipments through customs, which gives it an advantage in having the most up-to-date merchandise, by _____________________.
14. Today, when a customer orders merchandise from an online vendor, he or she immediately receives a confirmation message by e-mail. Usually within a day or two, a second message arrives stating that the order is in the mail. This is a type of a(n):
15. If two companies use an electronic data interchange (EDI) to negotiate prices, specify product details, display pictures of new products, and offer sales promotions, the EDI is being used for the ____________ function in the four P's of marketing.
16. An effective CPFR system manages:
17. _______________ have dramatically reduced the time and labor associated with checking and receiving merchandise.
18. At the BMW plant in Spartanburg, South Carolina, suppliers deliver parts every four hours when the plant is in operation and are responsible for removing any packaging or pallets used to deliver their products. BMW uses a ______________ inventory control system.
19. After installing a(n)_______________ in their JIT system, Chocolate Tree, a retail chocolate store, was able to reduce lead time between the recognition that an order needed to be placed and the arrival of the needed merchandise.
20. With more frequent shipments associated with QR systems, a retailer is:
21. RFID offers the participants in the supply chain a powerful tool for tracking inventories and reducing handling. The main reason why it has NOT BEEN more widely adopted is:
22. One of retailers' most fundamental activities is providing the right mix of merchandise and services.
A) True
B) False
23. Retailers like Wal-Mart, Home Depot, and Kroger dictate to their suppliers all of the following EXCEPT:
24. Some companies want to get its products into as many outlets as possible, understanding that the more exposure it gets, the more of its products it will sell. If this is consistent with the company's overall strategy, it will choose __________________.
25. Retailers that offer a broad variety of merchandise, limited services and low prices are known as ______________________.
26. Category killers are also known as:
27. Many retail golf stores have driving ranges, some with visual imaging of famous golf courses. These driving ranges allow:
28. Which of the following retail stores would emphasize personal selling the most as part of the firm's promotional efforts?
29. Traditionally, retailers treated all their customers:
30. Jordan directs her salespeople to increase their "share of wallet." Jordan is directing her salespeople to:
31. Because the Internet offers little opportunity to touch, feel or try on merchandise before purchasing it, on-line retailers must addresses customers' need by ______________.
32. ______________________ is the term used to describe when retailers use some combination of stores, catalogs and the Internet to sell merchandise.
33. Which of the following is NOT one of the reasons a firm might employ electronic channels in multichannel retailing?
34. As the old cliché claims, the three most import things in retailing are:
35. Though a picture may be worth a thousand words, the most important facet of encoding is not what is received but what is sent.
A) True
B) False
36. If there is a difference between the message that is sent and the message that is received, it is probably due to noise.
A) True
B) False
37. Even the best marketing communication can be wasted if the sender does not gain the attention of the consumer.
A) True
B) False
38. "Top-of-mind awareness" is when consumers indicate they know the brand when the name is presented to them.
A) True
B) False
39. Commercial speech is defined as anything contained in a commercial.
A) True
B) False
40. Gerald knows which IMC communication channels are available and knows how he will measure the results of his IMC efforts. To implement his IMC efforts, Gerald also needs to:
41. The right communication channel to use in IMC is:
42. The sender of an IMC message hopes the receiver is:
43. National manufacturers and retailers pay a service company to monitor television ads around the country to ensure that their ads are seen in their entirety during the time frames that had been purchased. This service company helps avoid the IMC noise problem associated with:
44. Which of the following is NOT one of the steps in the AIDA model?
45. The IMC communications process:
46. Integrated marketing communications include all of the following except:
47. New technologies like PDAs, podcasts, and cell phones allow greater potential for ___________________ IMC efforts.
48. Companies can gain a competitive advantage using the Internet to:
49. Research has shown that IMC can make communications expenditures more effective and efficient by:
50. Competitive parity, percentage-of-sales, and affordable budget are types of ________________________ IMC budgeting.
Click here for the solution: Cost-based pricing assumes costs
Friday, September 25, 2015
Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours
ACC 560 Week 6 Assignment
E10-4 Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Indirect labor $1.00
Indirect materials 0.50
Utilities 0.40
Fixed overhead costs per month are: Supervision $4,000, Depreciation $1,500, and Property Taxes $800. Assume that in July 2008, Raney Company incurs the following manufacturing overhead costs.
Variable Costs Fixed Costs
Indirect labor $8,700 Supervision $4,000
Indirect materials 4,300 Depreciation 1,500
Utilities 3,200 Property taxes 800
Instructions
a) Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month.
b) Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month.
c) Comment on your finding
Click here for the solution: Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours
E10-4 Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Indirect labor $1.00
Indirect materials 0.50
Utilities 0.40
Fixed overhead costs per month are: Supervision $4,000, Depreciation $1,500, and Property Taxes $800. Assume that in July 2008, Raney Company incurs the following manufacturing overhead costs.
Variable Costs Fixed Costs
Indirect labor $8,700 Supervision $4,000
Indirect materials 4,300 Depreciation 1,500
Utilities 3,200 Property taxes 800
Instructions
a) Prepare a flexible budget performance report, assuming that the company worked 9,000 direct labor hours during the month.
b) Prepare a flexible budget performance report, assuming that the company worked 8,500 direct labor hours during the month.
c) Comment on your finding
Click here for the solution: Raney Company uses a flexible budget for manufacturing overhead based on direct labor hours
Sunday, September 6, 2015
Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600
PR21-4A Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600. The variable cost per unit is $440, and fixed costs were $544,000. The maximum sales within Douthett's relevant range are 5,000 units. Douthett is considering a proposal to spend an additional $80,000 on billboard advertising during the current year in an attempt to increase sales and utilize and unused capacity.
INSTRUCTIONS:
1. Construct a cost volume profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.
2. Using the cost volume profit chart prepared in part (1) determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. Verify your answers arithmetically.
3. Construct a cost volume profit chart indicating the break even sales for the current year, assuming that a noncancelable contract is signed price or other costs. Verify your answer, using the break-even equation.
4. Using the cost volume profit chart prepared in part (3), determine (a)the income from operations if sales total 4,00 units and (b) the maximum income from operations that could be realized during the year. Verify your answers arithmetically.
Click here for the solution: Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600
INSTRUCTIONS:
1. Construct a cost volume profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.
2. Using the cost volume profit chart prepared in part (1) determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. Verify your answers arithmetically.
3. Construct a cost volume profit chart indicating the break even sales for the current year, assuming that a noncancelable contract is signed price or other costs. Verify your answer, using the break-even equation.
4. Using the cost volume profit chart prepared in part (3), determine (a)the income from operations if sales total 4,00 units and (b) the maximum income from operations that could be realized during the year. Verify your answers arithmetically.
Click here for the solution: Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600
Sunday, August 23, 2015
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Saturday, August 22, 2015
You wish to calculate the risk level of your portfolio based on its beta
You wish to calculate the risk level of your portfolio based on its beta. The five stocks in the portfolio with their respective weights and betas are shown in the accompanying table. Calculate the beta of your portfolio.
Stock portfolio weight Beta
Alpha 20% 1.15
Centauri 10 0.85
Zen 15 1.60
Wren 20 1.35
Yukos 35 1.85
Click here for the solution: You wish to calculate the risk level of your portfolio based on its beta
Stock portfolio weight Beta
Alpha 20% 1.15
Centauri 10 0.85
Zen 15 1.60
Wren 20 1.35
Yukos 35 1.85
Click here for the solution: You wish to calculate the risk level of your portfolio based on its beta
Friday, August 21, 2015
The executive officers of Coach Corp have a performance-based compensation plan
CA16-2 (Ethical issues—compensation plan) The executive officers of Coach Corp have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Coach executives earn 100% of the shares; ifgrowth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additonal compensation.
In 2006, Joanna Becker, the controller of Coach, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Peter Reiser, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Becker is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation.
Answer the following:
a) What, if any, is the ethical dilemma for Becker?
b) Should Becker's knowledge of the compensation plan be a factor that influences her estimate?
c) How should Becker respond to Reiser's request?
Click here for the solution: The executive officers of Coach Corp have a performance-based compensation plan
In 2006, Joanna Becker, the controller of Coach, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Peter Reiser, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Becker is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation.
Answer the following:
a) What, if any, is the ethical dilemma for Becker?
b) Should Becker's knowledge of the compensation plan be a factor that influences her estimate?
c) How should Becker respond to Reiser's request?
Click here for the solution: The executive officers of Coach Corp have a performance-based compensation plan
Friday, August 14, 2015
Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
10. Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts:
Cash = $5 million
Government securities = $7 million
Mortgage loans = $30 million
Other loans = $50 million
Fixed assets = $10 million
Intangible assets = $4 million
Loan-loss reserves = $5 million
Owners’ equity = $5 million
Trust-preferred securities = $3 million
Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.
a. Calculate the equity capital ratio.
b. Calculate the Tier 1 Ratio using risk-adjusted assets.
c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.
Click here for the solution: Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
Cash = $5 million
Government securities = $7 million
Mortgage loans = $30 million
Other loans = $50 million
Fixed assets = $10 million
Intangible assets = $4 million
Loan-loss reserves = $5 million
Owners’ equity = $5 million
Trust-preferred securities = $3 million
Cash assets and government securities are not considered risky. Loans secured by real estate have a 50 percent weighting factor. All other loans have a 100 percent weighting factor in terms of riskiness.
a. Calculate the equity capital ratio.
b. Calculate the Tier 1 Ratio using risk-adjusted assets.
c. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio using risk-adjusted assets.
Click here for the solution: Let’s assume that you have been asked to calculate risk-based capital ratios for a bank with the following accounts
Thursday, August 13, 2015
Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system
Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system. It is currently trying to decide whether to spend an additional $350 million on the project. The firm expects that this outlay will finish the project and will generate cash flow of $15 million per year over the next 5 years. The competitor has offered $450 million for the satellites already in orbit. Classify the firm’s outlays as sunk costs or opportunity costs, and specify the relevant cash flows.
Click here for the solution: Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system
Click here for the solution: Iridium Corp. has spent $3.5 billion over the past decade developing a satellite, based telecommunication system
Tuesday, August 4, 2015
Bubba’s Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours
Bubba’s Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours. For the current year overhead is estimated at $2,250,000 and direct labor hours are budgeted at 415,000 hours. Actual overhead was $2,200,000 and actual direct labor hours worked were 422,000.
(a) Calculate the predetermined overhead rate.
(b) Calculate the overhead applied.
(c) Determine the amount of overhead that is over/underapplied.
Click here for the solution: Bubba’s Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours
(a) Calculate the predetermined overhead rate.
(b) Calculate the overhead applied.
(c) Determine the amount of overhead that is over/underapplied.
Click here for the solution: Bubba’s Crawfish Processing Company uses a traditional overhead allocation based on direct labor hours
Sunday, July 19, 2015
You have two assets and must calculate their values today based on their different payment streams and appropriate required returns
E6–6 You have two assets and must calculate their values today based on their different payment streams and appropriate required returns. Asset 1 has a required return of 15% and will produce a stream of $500 at the end of each year indefinitely. Asset 2 has a required return of 10% and will produce an end-of-year cash flow of $1,200 in the first year, $1,500 in the second year, and $850 in its third and final year.
Click here for the solution: You have two assets and must calculate their values today based on their different payment streams and appropriate required returns
Click here for the solution: You have two assets and must calculate their values today based on their different payment streams and appropriate required returns
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