The target capital structure for QM Industries is 39% common stock, 9% preferred stock, and 52% debt (A+)

The target capital structure for QM Industries is 39% common stock, 9% preferred stock, and 52% debt. If the cost of common equity for the firm is 18.8%, the cost of preferred stock is 9.7%, the before tax cost of debt is 8.6%, and the firm’s tax rate is 35%, what is QM’s weighted average cost of capital?

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Firm A has $10,000 in assets entirely financed with equity (A+)

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax)

a. What is the operating income (EBIT) for both firms?

b. What are the earnings after interest?

c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers derived in part b.

d. Why are the percentage changes different?

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ANSWER KEY Period 2 The General’s Favorite Fishing Hole – Period 2

The General’s Favorite Fishing Hole – Period 2

Comprehensive Problem. Heintz and Parry. College Accounting 19th Edition and 20th Edition.

Bob Night’s fishing camp, “The General’s Favorite Fishing Hole,” is in the second month of operation. The camp is open from April through September, which allows for many college basketball coaches to attend during their off-season. The camp’s attendees arrive on Sunday afternoon and return home the following Saturday afternoon. Each attendee pays a registration fee that includes room and board, the use of fishing boats, and professional instruction in fishing techniques. Based on suggestions from clients, Night plans to expand the facilities and provide additional services. The post-closing trial balance as of April 30, and chart of accounts are provided below.

May
1 In order to provide snacks for guests on a 24 hour basis, Night signed a contract with Snack Attack. Snack Attack will install vending machines with food and drinks and pay a 10% commission on all sales. Estimated payments are made at the beginning of each month. Night received a check for $200, the estimated commission on sales for May.
2 Night purchased a surround sound system and big screen TV with a Digital Satellite System for the guest lounge. The surround sound system cost $3,600 and has an estimated useful life of 5 years, and no salvage value. The TV cost $8,000 and has an estimated useful life of 8 years, and a salvage value of $800. Night paid cash for both items.

AND SO ON

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ANSWER KEY The General’s Favorite Fishing Hole – Period 1: Bob night opened “The General’s Favorite Fishing Hole”

The General’s Favorite Fishing Hole – Period 1

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Comprehensive Problem. Heintz and Parry. College Accounting 19th Edition and 20th Edition.

PERIOD 1

The Account Cycle
Bob night opened “The general’s favorite Fishing Hole” The fishing camp is open from April through September and attracts many famous college basketball coaches during the off-season. Guests typically register for one week, arriving on Sunday afternoon and returning home the following Saturday afternoon. The registration fee includes room and board, the use of fishing boats, and professional instruction in fishing techniques. The chart of accounts for the camping operations is provided below.

The General’s Favorite Fishing Hole

Chart of Account.

Assets Revenues
101 cash 401 Registration fees
142 Office Supplies
144 Food Supplies Expenses
145 Prepaid Insurance 511 Wages Expense
181 Fishing Boat 521 Rent Expense
181.1 Accum. Depr-Fishing Boats 523 Office Supplies Expense
524 Food Supplies Expense
Liabilities 525 Telephone Expense
202 Account Payable 533 utilities Expense
219 Wages Payable 535 Insurance Expense
536 Postage Expense
Owner’s Equity 542 Depr. Exp-Fishing Boats
311 Bob Night Payable
312 Bob Night Drawing
313 Income Summary

The following transactions took place during April 20–
April
1 Night invested cash in the business $90,000.
1 Paid insurance premium for camping season, 9,000.
2 Paid rent for lodge and campgrounds for the month of April, $40,000.
2 Deposited registration fee, $35,000
2 Purchase ten fishing boats on account for $60,000. The boats have estimated useful
lives of five years, at which time they will be donated to a local day camp. Arrangement
were made to pay for the boats in July.
3 Purchase food supplies from Acme Super Market on account, $7,000.
5 Purchase office supplies from Gordon Office Supplies on account, $500.
7 Deposited registration fee, $38,600.
10 Purchased food supplies from Acme Super Market on account, $8,200
10 Paid wages to fishing guides, $10,000
14 Deposited registration fees, $30,500
16 Purchased food supplies from Acme Super Market on account, $9,000
17 Paid wages to fishing guides, $10,000
18 Paid postage , $150.
21 Deposited registration fees, $35,600
24 Purchased food supplies from Acme Super Market on account, $8,500
24 Paid wages to fishing guides, $10,000
28 Deposited registration fees, $32,000.
29 Paid wages to fishing guides, $10,000
30 Purchased food supplies from Acme Super Market on account, $6,000.
30 Paid Acme Super market on account ,$32,700.
30 Paid utilities bill, $2,000.
30 Paid telephone bill, $1,200.
30 Bob Night withdrew cash for personal use, $6,000

Adjustment information for the end of April is provided below.
a Office supplies remaining on hand, $100.
b Food supplies remaining on hand, $8,000.
c Insurance expired during the month of April, $1,500.
d Depreciation on the fishing boatsfor the month of April, $1,000.
e Wages earned , but not yet paid, at the end of April, $500.

Required:
1 Enter the above transactions in a general journal. Enter transactions from April 1-5 on pages 1, April 7-8 on page 2, April 21-29 and the first two entries for April 30 on page 3, and the remain entries for April 30 on page 4.

2 Post the entries to the general ledger.(if you are not using the working papers that accompany this text, you will need to enter the account titles and account numbers in the general ledger accounts).

3 Prepare a trial balance on a work sheet.

4 Complete the work sheet.

5 Prepare the income statement.

6 Prepare the statement of owner’s equity

7 Prepare the balance sheet.

8 Journalise the adjusting entries (page 5)

9 Post the adjusting entries to the general ledger.

10 Journalise the closing entries (page 5 and 6)

11 Post the closing entries to the general ledger.

12 Prepare a post-closing trial balance.

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Sundown Company Assignment The material in Chapter 4 serves as the foundation for the remainder of the course (A+)

Sundown Company Assignment The material in Chapter 4 serves as the foundation for the remainder of the course. You must master this material. To this end, you are required to complete the Sundown Company Assignment. You will find this assignment on Blackboard (Assignment section). Pattern your response to this after the examples we did in class. The easiest way to complete this assignment is to use an Excel spreadsheet. You may also complete this assignment using WORD; however, WORD will not enable you to automatically total columns. I have posted a template with t-accounts if you would like to use that as a starting point. Sundown should not be completed on a group basis and should be submitted by bringing a hard copy to class on the due date. No late assignments will be accepted so plan accordingly. Sundown Bay Inn is incorporated on January 2, 2011. The following transactions are entered into during the month of January. January 2: The owners contribute $850,000 in cash in exchange for shares of stock in the business. January 3: A ten-year, 6%, $500,000 promissory note was signed at the Second State Bank. Interest and principal will be repaid on the maturity date of January 3, 2021. January 4: A Victorian inn is purchased for $1,100,000 in cash. An appraisal performed on this date indicates that the land is worth $300,000 and the remaining balance of the purchase price is attributable to the house. Establish two columns, one for Land and one for Building. January 4: Cleaning supplies are purchased on account for $1,200. The bill is payable within 30 days January 5: New furniture for the inn is purchased at a cost of $150,000 in cash. January 6: A 3-month- property insurance policy is purchased for $3,600 in cash. January 15: Wages of $2,500 for the first half of the month are paid in cash. January 16: A guest mails Sundown $3,500 in cash in full payment for a room to be rented for two weeks. The guest plans to stay at the inn during the last week of January and the first week of February. January 17: An advertisement for the inn is placed in the local newspaper. Sundown Bay pays $600 cash for the ad, which will run in the paper throughout the remainder of January. January 30: A dividend of $2,000 was paid to the shareholders. January 31: Cash receipts from rentals of rooms (in addition to the $3,500 above) for the month amount to $53,000. The following adjustments will be needed on January 31, 2011: a. Interest on the promissory note. Remember, interest rates are stated on an annual basis and you should calculate interest for one month. b. Recognition of the expired portion of the insurance. c. Recognition of the earned portion of the guest\’s deposit. d. Wages earned during the second half of January amount to $3,200 and will be paid on February. 3. e. Cleaning supplies on hand on January 31 amount to $650. f. Depreciation for the month is recorded for the building portion of the property. The house has a 20 year useful life and uses the straight-line method of depreciation. Land does not depreciate g. Depreciation for the month is recorded for the furniture. It has a 10 year useful life and uses the straight-line method of depreciation. h. A gas and electric bill for January amounts to $3,250 and is payable by February 5. Required: 1. Prepare journal entries for these transactions. 2. Establish t-accounts for each account, and post the journal entries to these t-accounts. You may use the excel template provided for the t-accounts. 3. Prepare a January income statement, statement of shareholder’s equity, a January 31, 2011 balance sheet and a statement of cash flows for January. These statements should all be in good form. Follow the examples of statements in Chapter 2 to get the correct titles, headings, totals, etc. NOTE: All calculations can be rounded to the nearest dollar. For all adjustments base your calculations on a monthly rather than a daily allocation.

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ACC 5200 Management Accounting (A+)

ACC5200 Management Accounting

Your group of four students are planning to start up your own business venture, marketing a single product or service produced or offered using some type of materials & labour; however as you have £60,000 in cash personally as a group to use towards this venture, you will need to prepare a summary business plan and supporting budgets in order to raise the additional finance required to meet your budgeted operations. You may assume that you can apply for the funding needed from a named bank or other lender at the prevailing market rate.

A major task involves drawing up the following budgets to resource your proposed business activity and to persuade lenders to contribute financially to your business:-

Table of Assumptions

** Any and all assumptions made in estimating figures must be researched,

referenced, reasonable & clearly stated in your table of assumptions **

Budgeted detailed Contribution Statement; Total contribution & C/S ratio
Calculations showing the Break-Even Point in units, £ of sales & percentage
Calculations showing the Margin of Safety in units, £ of sales & percentage
Capital Expenditure Budget detailing proposed asset acquisitions
Overheads Budget detailing any and all indirect costs
Sales Budget (principal budget factor)
Purchases Budget
Inventory Budget
Production Budget
Direct Labour Budget
Cash Budget

** N.B. Imperative that your budgets 6.-12. include TOTAL column for 12-months**

Budgeted Annual Income Statement
Budgeted Annual Balance Sheet

Other Instructions

** You must use Excel spreadsheets in Appendix with formulae correctly

applied for each of your budgets 1. – 14. above

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Global Corp., a new U.S.-based company, is interested in financial reporting under international accounting standards (IFRS) (A+)

Global Corp., a new U.S.-based company, is interested in financial reporting under international accounting standards (IFRS). They have decided to account for their transactions under both U.S. GAAP and IFRS for a one-year period. At the end of the one-year period, they will prepare their financial statements and notes under each of the methods.

As the accountant, you are responsible for journalizing the transactions and preparing any necessary adjusting entries, ledgers, trial balances, financial statements, footnotes, etc.

January 1,2011

1. Global issues 250,000 shares of $5 par value common stock for a total of $2,000,000.

2. Global issues 25,000 shares of mandatory redeemable preferred stock for $100 per share.

February 15, 2011

3. Global purchases 100,000 inventory items at a cost of $10 per item. Global will use the perpetual method and FIFO, if the methods are allowed. (Global pays cash.)

4. Global purchases land for use as a parking lot for its employees. The purchase price is $200,000. (Global pays cash.)

May 1, 2011

5. Global purchases marketable securities that it plans to hold as \”available for sale\” securities. Global pays $1,000,000 for 5,000 shares of Hewlett Hacker.

6. Global sells 5,000 of its inventory items and receives $14 cash per item.

June 30, 2011

7. Global leases two similar assets in two different manufacturing plants. The leases were separately negotiated. The assets each have an economic life of ten years and a seven-year lease. Global\’s incremental borrowing rate is 6%. The leases neither transfer ownership nor have bargain purchase options. Additional details for each leased asset follow:

Asset A: Has a fair market value of $100,000 and payments under the lease are $15,000 each year. The first payment is due at the inception of the lease.

Asset B: Has a fair market value of $100,000 and payments under the lease are $15,500 each year. The first payment is due at the inception of the lease.

8. Global purchases a building as investment property and pays $110,000 cash.

9. Global purchases a building to be used in the production or supply of goods or services and pays $250,000 cash.

Oct 2, 2011

10. Global sold 2000 units of inventory to a Japanese company for 1,500,000 yen with settlement due on 12/31/. The spot rate on Oct 1,2011 was 1 JPN=$.0105. On that same day, Global entered into forward contract with investment bank JP Morgan. According to the terms of the forward contract. Global will sell 1,500,000 yen to J.P Morgan at a forward rate equal to 1 JPN = $.0096

December 31, 2011

Additional Information:

1. The following information is available for the remaining inventory items purchased on February 15, 2005:

Net Realizable Value (NRV) = $9.10

Replacement Cost = $8.70

NRV minus normal profit margin = $8.05

2. The land purchased on February 15 is found to contain hazardous waste. The land is now determined to be worth only $170,000.

3. Hewlett Packard shares are now selling for $225/share on the equity market.

4. The building purchased as investment property, on June 30, is appraised at $130,000.

5. The building purchased to be used in the production or supply of goods or services, on June 30, is now determined to be worth $275,000.

6. Global annual depreciation for fixed assets is based on a pro rata monthly basis. Global uses the straight-line convention. Buildings and investment property have estimated useful lives of 10 years.

7. Ignore taxes for this exercise.

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ROBERT BLACK AND CAROL ALVAREZ ARE VICE-PRESIDENTS OF WESTERN MONEY MANAGEMENT AND CODIRECTORS OF THE COMPANY’S PENSION FUND MANAGEMENT DIVISION (A+)

ROBERT BLACK AND CAROL ALVAREZ ARE VICE-PRESIDENTS OF WESTERN MONEY MANAGEMENT AND CODIRECTORS OF THE COMPANY’S PENSION FUND MANAGEMENT DIVISION. A MAJOR NEW CLIENT, THE CALIFORNIA LEAGUE OF CITIES, HAS REQUESTED THAT WESTERN PRESENT AN INVESTMENT SEMINAR TO THE MAYORS OF THE REPRESENTED CITIES, AND BLACK AND ALVAREZ, WHO WILL MAKE THE ACTUAL PRESENTATION, HAVE ASKED YOU TO HELP THEM BY ANSWERING THE FOLLOWING QUESTIONS.

A. WHAT ARE THE KEY FEATURES OF A BOND?

B. WHAT ARE CALL PROVISIONS AND SINKING FUND PROVISIONS? DO THESE PROVISIONS MAKE BONDS MORE OR LESS RISKY?

C. HOW IS THE VALUE OF ANY ASSET WHOSE VALUE IS BASED ON EXPECTED FUTURE CASH FLOWS DETERMINED?

D. HOW IS THE VALUE OF A BOND DETERMINED? WHAT IS THE VALUE OF A 10-YEAR, $1,000 PAR VALUE BOND WITH A 10 PERCENT ANNUAL COUPON IF ITS REQUIRED RATE OF RETURN IS 10 PERCENT?

E.

1. WHAT WOULD BE THE VALUE OF THE BOND DESCRIBED IN PART D IF, JUST AFTER IT HAD BEEN ISSUED, THE EXPECTED INFLATION RATE ROSE BY 3 PERCENTAGE POINTS, CAUSING INVESTORS TO REQUIRE A 13 PERCENT RETURN? WOULD WE NOW HAVE A DISCOUNT OR A PREMIUM BOND?

2. WHAT WOULD HAPPEN TO THE BOND’S VALUE IF INFLATION FELL, AND kd DECLINED TO 7 PERCENT? WOULD WE NOW HAVE A PREMIUM OR A DISCOUNT BOND?

3. WHAT WOULD HAPPEN TO THE VALUE OF THE 10-YEAR BOND OVER TIME IF THE REQUIRED RATE OF RETURN REMAINED AT 13 PERCENT, OR IF IT REMAINED AT

F.

1. WHAT IS THE YIELD TO MATURITY ON A 10-YEAR, 9 PERCENT ANNUAL COUPON, $1,000 PAR VALUE BOND THAT SELLS FOR $887.00? THAT SELLS FOR $1,134.20? WHAT DOES THE FACT THAT A BOND SELLS AT A DISCOUNT OR AT A PREMIUM TELL YOU ABOUT THE RELATIONSHIP BETWEEN kd AND THE BOND’S COUPON RATE?

2. WHAT ARE THE TOTAL RETURN, THE CURRENT YIELD, AND THE CAPITAL GAINS YIELD FOR THE DISCOUNT BOND? (ASSUME THE BOND IS HELD TO MATURITY AND THE COMPANY DOES NOT DEFAULT ON THE BOND.)

G. WHAT IS INTEREST RATE (OR PRICE) RISK? WHICH BOND HAS MORE INTEREST RATE RISK, AN ANNUAL PAYMENT 1-YEAR BOND OR A 10-YEAR BOND? WHY?

H. WHAT IS REINVESTMENT RATE RISK? WHICH HAS MORE REINVESTMENT RATE RISK, A 1-YEAR BOND OR A 10-YEAR BOND?

I. HOW DOES THE EQUATION FOR VALUING A BOND CHANGE IF SEMIANNUAL PAYMENTS ARE MADE? FIND THE VALUE OF A 10-YEAR, SEMIANNUAL PAYMENT, 10 PERCENT COUPON BOND IF NOMINAL kd = 13%.

J. SUPPOSE YOU COULD BUY, FOR $1,000, EITHER A 10 PERCENT, 10-YEAR, ANNUAL PAYMENT BOND OR A 10 PERCENT, 10-YEAR, SEMIANNUAL PAYMENT BOND. THEY ARE EQUALLY RISKY. WHICH WOULD YOU PREFER? IF $1,000 IS THE PROPER PRICE FOR THE SEMIANNUAL BOND, WHAT IS THE EQUILIBRIUM PRICE FOR THE ANNUAL PAYMENT BOND?

K.

1. SUPPOSE A 10-YEAR, 10 PERCENT, SEMIANNUAL COUPON BOND WITH A PAR VALUE OF $1,000 IS CURRENTLY SELLING FOR $1,135.90, PRODUCING A NOMINAL YIELD TO MATURITY OF 8 PERCENT. HOWEVER, THE BOND CAN BE CALLED AFTER

2. IF YOU BOUGHT THIS BOND, DO YOU THINK YOU WOULD BE MORE LIKELY TO EARN THE YTM OR THE YTC? WHY?

L. DOES THE YIELD TO MATURITY REPRESENT THE PROMISED OR EXPECTED RETURN ON THE BOND?

M. THESE BONDS WERE RATED AA- BY S&P. WOULD YOU CONSIDER THESE BONDS INVESTMENT GRADE OR JUNK BONDS?

N. WHAT FACTORS DETERMINE A COMPANY’S BOND RATING?

O. IF THIS FIRM WERE TO DEFAULT ON THE BONDS, WOULD THE COMPANY BE IMMEDIATELY LIQUIDATED? WOULD THE BONDHOLDERS BE ASSURED OF RECEIVING ALL OF THEIR PROMISED PAYMENTS?

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Rae Corporation issued a 3-month, 15%, $50,000 note to Gamma Inc. on 10/1/12 in settlement (A+)

Rae Corporation issued a 3-month, 15%, $50,000 note to Gamma Inc. on 10/1/12 in settlement

of its open account. Gamma has a year-ending 12/31, and prepares a quarterly financial

statement on 12/31/12.

Gamma would record an adjusting entry that would include a credit to interest revenue.

What is the dollar amount of the adjusting entry? interest revenue. What is the dollar amount of the adjusting entry?

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Discount Corporation has the following receivables at the end of the accounting period (A+)

Discount Corporation has the following receivables at the end of the accounting period.

The estimated percent uncollectible for each category is also shown.

Age: Current 30-60 days

past due 61-91 days

past due More than 90 days

past due

Amount: $390,000 $120,000 $75,000 $50,000

% uncollectible 5% 7.5% 22% 55%

Prior to the necessary adjusting entry, Discount\’s Allowance for Doubtful Accounts has a DEBIT balance of $2,500.

What is the amount of the adjusting entry that Discount would need to make?

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