What is the relationship between a bond's price and its yield to maturity?

What is the relationship between a bond's price and its yield to maturity?

Click here for the solution: What is the relationship between a bond's price and its yield to maturity?

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

E7-5 (Record sales gross and net) On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for balance due from Chester Company.

Instructions
a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
Sales and receivables are entered at gross selling price.
Sales and receivables are entered at net of cash discounts.
b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

Click here for the solution: On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n /60, f.o.b. shipping point

On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

E17-5 (Effective-Interest versus Straight line bond amortization) On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2010. The investment will provide Phantom Company a 12% yield. The bonds are classified as held to maturity.

Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.

Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589

Gaelic Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010

1. Gaelic Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010. Its income statement for 2010 is as follows:

Sales.......................... $3,352,500
Cost of goods sold............ 2,200,000
Gross Profit............................... 1,152,500
Expenses:
Selling expenses......................... $250,000
Administrative expenses.................. 250,000
Total expenses........................ 500,000
Income from operations..................... $ 652,500

The division of costs between fixed and variable is as follows:
Fixed Variable
Cost of sales 60% 40%
Selling expenses 50% 50%
Administrative expenses 55% 45%

Management is considering a plant expansion program that will permit an increase of $900,000 in yearly sales. The expansion will increase fixed costs by $242,500, but will not affect the relationship between sales and variable costs.

1. Determine for 2010 the total fixed costs and the total variable costs.
2. Determine for 2010 (a) the unit variable cost and (b) the unit contribution margin.
3. Compute the break-even sales (units) for 2010.
4. Compute the break-even sales (units) under the proposed program.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $652,500 of income from operations that was earned in 2010.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the 2010 level, what will the income or loss from operations be for 2011?
8. Based on the data given, would you recommend accepting the proposal? Explain.

Click here for the solution: Gaelic Industries Inc., operating at full capacity, sold 22,350 units at a price of $150 per unit during 2010

Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories

28. Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.


Click here for the solution: Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories

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

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.

Instructions
(a) Prepare journal entries on Hunt Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.


Click here for the solution: On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010

Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010, to construct a four-story office building. At that time, Monat estimated that it would take between 2 and 3 years to complete the project. The total contract price for construction of the building is $4,400,000. Monat appropriately accounts for this contract under the completed-contract method in its financial statements and for income tax reporting. The building was deemed substantially completed on December 31, 2012. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to the Hyatt Clinic under the contract are shown below.

(a) Prepare schedules to compute the amount to be shown as “Cost of uncompleted contract in excess of related billings” or “Billings on uncompleted contract in excess of related costs” at December 31, 2010, 2011, and 2012. Ignore income taxes. Show supporting computations in good form.
(b) Prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. Ignore income taxes. Show supporting computations in good form.


Click here for the solution: Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010

The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000

The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000. Fifty days of sales remained uncollected in accounts receivable at the end of the year. The firm produced the carts at a 42% cost ratio (COGS/Revenue) and had three months of inventory on hand at year end (3/12 of the year’s COGS).

The golf business is booming and management plans a 10% increase in unit sales despite a 5% price increase. The firm has programs in place to improve production efficiency, inventory management, and the effectiveness of collections efforts. It is assumed that these programs will decrease the cost ratio to 40% lower year-end inventory to two months, and lower year-end receivables to 40 days of sales.

Compute Lineberry’s revenue, COGS (cost of goods sold), and gross margin as well as ending receivables and inventory for this year’s and next year’s plan. Calculate using a 360-day year and assume sales are evenly distributed over the year.


Click here for the solution: The Lineberry Golf Cart Co. sold 7,400 carts this year at an average unit price of $3,000

An Alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently 5% above the existing market price

15-37 (Accounting Estimates) An Alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently 5% above the existing market price. In addition, the co-op has agreed to pay the farmers interest at 2% for each month delivery is delayed beyond December 31, 2009. Management expects that at least 14,500 tons will be delivered sometime after the balance sheet date.

Required
A. What factors should be considered in making an estimate of the loss accrual?
B. Assuming the amount of the purchase commitment is material, what information should management disclose in the footnotes to the financial statements concerning this purchase commitment?


Click here for the solution: An Alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently 5% above the existing market price

Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price

E 12-4 Various transactions relating to trading securities

Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2011 and the first week of 2012.

Required:
1. Prepare the appropriate journal entry for each transaction.
2. Indicate any amounts that Rantzow-Lear Company would report in its 2011 balance sheet and income statement as a result of this investment.


Click here for the solution: Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term differences in price

During 2010 Nilsen Company started a construction job with a contract price of $1,600,000

E18-4 (Recognition of Profit on Long-Term Contracts) During 2010 Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2012. The following information is available.

2010 2011 2012
Costs incurred to date $400,000 $825,000 $1,070,000
Estimated costs to complete 600,000 275,000 –0–
Billings to date 300,000 900,000 1,600,000
Collections to date 270,000 810,000 1,425,000

Instructions
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used.
(b) Prepare all necessary journal entries for 2011.
(c) Compute the amount of gross profit to be recognized each year assuming the completed-contract method is used.

Click here for the solution: During 2010 Nilsen Company started a construction job with a contract price of $1,600,000

On July 1, 2010, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000

P18-7 (Long-Term Contract with an Overall Loss) On July 1, 2010, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1, Torvill estimated that it would take between 2 and 3 years to complete the building. On December 31, 2012, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Gumbel for 2010, 2011, and 2012.

At At At
12/31/10 12/31/11 12/31/12
Contract costs incurred to date $ 300,000 $1,200,000 $2,100,000
Estimated costs to complete the contract 1,200,000 800,000 –0–
Billings to Gumbel 300,000 1,100,000 1,850,000

Instructions
(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. (Ignore income taxes.)
(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. (Ignore income taxes.)

Click here for the solution: On July 1, 2010, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000

Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000

Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000. The estimated total costs to complete the project were $6,000,000.

Instructions
(a) Make the entry to record construction costs of $3,600,000, on construction in process to date.
(b) Make the entry to record progress billings of $2,000,000.
(c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis.

Click here for the solution: Smith Construction Company was awarded a contract to construct an interchange at the junction of Interstate 5 and US Highway 27 at a total contract price of $8,000,000

Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

E6–4 Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%. How could a T-bill have had a negative real rate of return over the same period? How could it have had a zero real rate of return? What minimum rate of return must the T-bill have earned to meet your requirement of a 2% real rate of return?

Click here for the solution: Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

Chico's has sales of 15,000 units at a price of $20 per unit

E13-3 Chico's has sales of 15,000 units at a price of $20 per unit. The firm incurs fixed operating costs of $30,000 and variable operating costs of $12 per unit. What is Chico's degree of operating leverage (DOL) at a base level of sales of 15,000 units?

Click here for the solution: Chico's has sales of 15,000 units at a price of $20 per unit

St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share

St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share. After issuance costs, St. Joe netted $57 per share. The company has a marginal tax rate of 40 percent.

a. Calculate the after-tax cost of this preferred stock offering assuming that this stock is a perpetuity.
b. if the stock is callable in 5 years at $66 per share and investors expect it to be called at that time, what is the after-tax cost of this preferred stock offering? (Compute to the nearest whole percent.)

Click here for the solution: St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share

1) The Dow Theory considers price movements in the Dow Jones industrial and transportation averages

1) The Dow Theory considers price movements in the Dow Jones industrial and transportation averages.
2) Behavioral finance suggests that
3) The Dogs of the Dow strategy suggests buying the lowest dividend yields of the Dow stocks.
4) "Resistance" for a stock suggests that supply will blunt further price increases.
5) Which of the following is not used in technical analysis?
6) A point-and-figure chart of an X-O chart tracks dividends and earnings.
7) If a stock meets a resistance level and penetrates that level, the implication is avoid the stock.
8) Long dark candlesticks suggests
9) Behavior finance explains dramatic price changes in securities markets as a tendency for investors to "herd."
10) Insider purchases of stock are considered bullish.
11) Behavioral finance asserts that emotional investing produces higher returns.
12) If a moving average of the Dow Jones industrial average crosses the Dow Jones industrial average,
13) The moving average convergence divergence indicator uses
14) Which of the following human emotions tend to affect investments decisions?
1. the pain of regret
2. following the crowd or "herding"
3. selective memory
15) Empirical evidence

Click here for the solution: 1) The Dow Theory considers price movements in the Dow Jones industrial and transportation averages

The futures price of corn is $2.00

The futures price of corn is $2.00. The contracts are for 10,000 bushels, so a contract is worth $20,000. The margin requirement is $2,000 a contract, and the maintenance margin requirement is $1,200. A speculator expects the price of the corn to fall and enters into a contract to sell corn.

a. How much must the speculator initially remit?
b. If the futures price rises to $2.13, what must the spectator do?
c. If the futures price continues to rise to $2.14, how much does the speculator have in the account?

Click here for the solution: The futures price of corn is $2.00

The futures price of British pounds is $2.00

The futures price of British pounds is $2.00. Futures contracts are for 10,000, so a contract is worth $20,000. The margin requirement is $2,000 a contract and the maintenance market requirement is $1,200. A speculator expects the price of the pound to fall and enters into a contract to sell pounds.
a. How much must the speculator initially remit?
b. If the futures price rises to $2.13, what must the speculator do?
c. If the futures price continues to rise to $2.14, how much does the speculator have in the account?

Click here for the solution: The futures price of British pounds is $2.00