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Corporate Finance
Essence of Skunk Fragrances, Ltd., sells 5,600 units of its perfume collection each year at a price per unit of $425. All sales are on credit with terms of 1/10, net 40. The discount is taken by 60
The Sand Surfer Corporation has annual sales of $47 million. The average collection period is 36 days. What is the average investment in accounts receivable as shown on the balance sheet?
Skye Flyer, Inc., has weekly credit sales of $19,400, and the average collection period is 34 days. The cost of production is 75 percent of the selling price. What is the average accounts receivable
Rise Above This, Inc., has an average collection period of 39 days. Its average daily investment in receivables is $47,500. What are annual credit sales? What is the receivables turnover?
Bismark Co. is in the process of considering a change in its terms of sale. The current policy is cash only; the new policy will involve one period's credit. Sales are 40,000 units per period at a
The Johnson Company sells 3,300 pairs of running shoes per month at a cash price of $90 per pair. The firm is considering a new policy that involves 30 days' credit and an increase in price to $91.84
Silicon Wafers, Inc. (SWI), is debating whether or not to extend credit to a particular customer. SWI's products, primarily used in the manufacture of semiconductors, currently sell for $1,140 per
Consider the following information about two alternative credit strategies:The higher cost per unit reflects the expense associated with credit orders, and the higher price per unit reflects the
You observe that the inflation rate in the United States is 3.9 percent per year and that T-bills currently yield 5.8 percent annually. What do you estimate the inflation rate to be in:a. Australia,
Suppose the spot and three-month forward rates for the yen are ¥114.32 and ¥116.03, respectively.a. Is the yen expected to get stronger or weaker?b. What would you estimate is the difference
Suppose the spot exchange rate for the Hungarian forint is HUF 152.93. The inflation rate in the United States will be 4.9 percent per year. It will be 8.6 percent in Hungary. What do you predict
Lakonishok Equipment has an investment opportunity in Europe. The project costs €14 million and is expected to produce cash flows of €2.1 million in year 1, €3.4 million in year 2, and €4.3
You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 24 million. The cash flows from the project would be SF 6.6 million per
Atreides International has operations in Arrakis. The balance sheet for this division in Arrakeen solaris shows assets of 23,000 solaris, debt in the amount of 9,000 solaris, and equity of 14,000
Suppose the spot exchange rate for the Canadian dollar is Can$1.06 and the six-month forward rate is Can$1.11.a. Which is worth more, a U.S. dollar or a Canadian dollar?b. Assuming absolute PPP
Suppose the Japanese yen exchange rate is ¥112 = $1, and the British pound exchange rate is £1 = $1.93.a. What is the cross-rate in terms of yen per pound?b. Suppose the cross-rate is ¥209 =
Suppose your company imports computer motherboards from Singapore. The exchange rate is given in Figure 21.1. You have just placed an order for 30,000 motherboards at a cost to you of 204.7
The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in the United States is .37 percent per month. The interest rate in Great Britain is .51 percent per
The financial statements for the year ended 30 November 20X3 of Springboard Ltd included a provision for doubtful debts at that date of £900. During the year ended 30 November 20X4, the company
The following transactions are to be recorded. At the beginning of year 1 a provision for doubtful debts account is to be opened. It should show a provision of 2 per cent against trade receivables of
The statement of financial position as at 31 December 20X2 of Zoom Products Ltd included: £ Trade receivables...............................85,360 The financial statements for the year
Because of the doubtful nature of some debts, P. Rudent instructed his accountants to make a specific provision in the financial statements for the year ended 30 June 20X3 against the following
a. Explain the nature of a provision, including how this differs from a liability. b. Give one example of a provision other than provisions for bad debts and depreciation.
a. Explain the nature of a provision for bad debts. b. Explain the difference between a specific and general provision for bad debts.
Examine the purpose and logic behind a provision for bad debts, with particular reference to the timing of profits and losses arising from credit sales.
a. Businesses often create a provision for bad debts i Of which concept is this an example? Explain. ii What is the purpose for creating a provision for bad debts? iii How might the amount of a
1 The balance on trade receivables at the year end is £110,000.2 Two of the balances in the sales ledger have to be written off. One is £4,500 the other is £5,500.3 The company is to provide 5 per
In January 2012, Wilkinson, Inc., acquired 20 percent of the outstanding common stock of Bremm, Inc., for $700,000. This investment gave Wilkinson the ability to exercise significant influence over
Goldman Company reports net income of $140,000 each year and pays an annual cash dividend of $50,000. The company holds net assets of $1,200,000 on January 1, 2012. On that date, Wallace purchases 40
Willkom Corporation bought 100 percent of Szabo, Inc., on January 1, 2011. On that date, Willkom's equipment (10-year life) has a book value of $300,000 but a fair value of $400,000. Szabo has
On January 1, 2013, Stamford issues 10,000 additional shares of common stock for $25 per share. Neill acquires 8,000 of these shares. How will this transaction affect the parent company's Additional
In the 2013 consolidated statement of cash flows for Iverson Company: Net cash flows from operating activities were a. $12,000. b. $20,000. c. $24,000. d. $25,000.
House Corporation has been operating profitably since its creation in 1959. At the beginning of 2011, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared
On January 1, 2012, Travers Company acquired 90 percent of Yarrow Company's outstanding stock for $720,000. The 10 percent non-controlling interest had an assessed fair value of $80,000 on that date.
What is a father-son-grandson relationship? Discuss.
Pike, Inc., owns 60 percent of Stark Company. During the current year, Stark reported net income of $200,000 but paid a total cash dividend of only $40,000. What deferred income tax liability must be
Plumas, Inc., owns 85 percent of Santa Cruz Corporation. Both companies have been profitable for many years. During the current year, the parent sold for $100,000 merchandise costing $70,000 to the
On January 1, 2011, Aspen Company acquired 80 percent of Birch Company's outstanding voting stock for $288,000. Birch reported a $300,000 book value and the fair value of the non-controlling interest
On January 1, 2011, Uncle Company purchased 80 percent of Nephew Company's capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20 percent non-controlling
Mesa, Inc., obtained 80 percent of Butte Corporation on January 1, 2011. Annual amortization of $22,500 is to be recorded on the allocations of Butte's acquisition-date business fair value. On
Fontana Company developed a specialized banking application software program that it licenses to various financial institutions through multiple-year agreements. On January 1, 2013, these licensing
Up and its 80 percent owned subsidiary (Down) reported the following figures for the year ending December 31, 2013. Down paid dividends of $30,000 during this period.In 2012, unrealized gross profits
On January 1, 2012, Piranto acquires 90 percent of Slinton's outstanding shares. Financial information for these two companies for the years of 2012 and 2013 follows:Assume that a tax rate of 40
Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2012, for $420,000 in cash. Lowly's book value at that date was reported as $600,000 and the fair value of the
Politan Company acquired an 80 percent interest in Soludan Company on January 1, 2012. Any portion of Soludan's business fair value in excess of its corresponding book value was assigned to
On January 1, 2011, Alpha acquired 80 percent of Delta. Of Delta's total business fair value, $125,000 was allocated to copyrights with a 20-year remaining life. Subsequently, on January 1, 2012,
Phelps, Inc. owns 85 percent of Satellite Corporation's voting stock. The acquisition price exceeded book and fair value by $80,000 and was appropriately attributed to goodwill. Satellite holds 20
How should a company handle LIFO liquidation in an interim period when the liquidated inventory is expected to be replaced by year-end?
Cambi Company began operations on January 1, 2012. In the second quarter of 2013, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company's interim income
The following information for Quadrado Corporation relates to the three-month period ending September 30, 2013. .......................................... Units ............ Price per Unit Sales . .
The following information was extracted from quarterly reports for Wal-Mart Stores, Inc. (amounts in millions):The following information was extracted from the notes to the financial statements in
The Coca-Cola Company is organized geographically and defines reportable operating segments as regions of the world. The following information was extracted from Note 19 Operating Segments in the
Nuland International Corporation recently acquired 40 percent of Scott Trading Company and appropriately accounts for this investment under the equity method. Nuland's corporate controller is in the
Caplan Pharma, Inc., recently was sued by a competitor for possible infringement of the competitor's patent on a top-selling flu vaccine. The plaintiff is suing for damages of $15 million. Caplan's
What is the net impact on Werner's net income for the quarter ended March 31, 2013, as a result of this forward contract hedge of a firm commitment? a. $ -0-. b. $1,250 increase in net income. c.
What is the net impact on Werner's net income for the quarter ended June 30, 2013, as a result of this forward contract hedge of a firm commitment? a. $ -0-. b. $59,000 increase in net income. c.
On November 1, 2013, Dos Santos Company for ecasts the purchase of raw materials from a Brazilian supplier on February 1, 2014, at a price of 200,000 Brazilian reals. On November 1, 2013, Dos Santos
What is the net impact on Dos Santos Company's 2014 net income as a result of this hedge of a forecasted foreign currency transaction? Assume that the raw materials are consumed and become a part of
New Colony Corporation (a U.S. company) made a sale to a foreign customer on September 15, 2013, for 100,000 foreign currency units (FCU). It received payment on October 15, 2013. The following
On October 1, 2013, Mud Co., a U.S. company, purchased parts from Terra, a Portuguese company, with payment due on December 1, 2013. If Mud's 2013 operating income included no foreign exchange gain
Post, Inc., had a receivable from a foreign customer that is payable in the customer's local currency. On December 31, 2013, Post correctly included this receivable for 200,000 local currency units
Grete Corp. had the following foreign currency transactions during 2013: • Purchased merchandise from a foreign supplier on January 20, 2013, for the U.S. dollar equivalent of $60,000 and paid the
Assume that the peso is the subsidiary's functional currency. What balances does a consolidated balance sheet report as of December 31, 2013? a. Marketable equity securities = $16,000 and Inventory
Assume that the U.S. dollar is the subsidiary's functional currency. What balances does a consolidated balance sheet report as of December 31, 2013? a. Marketable equity securities = $16,000 and
Many companies make annual reports available on their corporate Internet home page. Annual reports also can be accessed through the SEC's EDGAR system at www.sec.gov (under Filing Type, search for
Many companies make annual reports available on their corporate Internet home page. Annual reports also can be accessed through the SEC's EDGAR system at www.sec.gov (under Filing Type, search for
Moxie Corporation incurs research and development costs of $500,000 in 2013, 30 percent of which relates to development activities subsequent to certain criteria having been met that suggest that an
Ilmanov Ltd. sold a building to a bank at the beginning of 2013 at a gain of $50,000 and immediately leased the building back for a period of five years. The lease is accounted for as an operating
Ramshare Company acquired equipment at the beginning of 2013 at a cost of $100,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight line basis. At
Quantacc Ltd. began operations on January 1, 2011, and uses IFRS to prepare its consolidated financial statements. Although not required to do so, to facilitate comparisons with companies in the
Lisali Company gathered the following information related to inventory that it owned on December 31, 2013: Historical cost ............................ $100,000 Replacement cost
Bracy Company acquired a new piece of construction equipment on January 1, 2013, at a cost of $100,000. The equipment was expected to have a useful life of 10 years and a residual value of $20,000
What is the purpose of a registration statement?
What is the SEC's relationship to the Public Company Accounting Oversight Board?
Jaez Corporation is in the process of going through a reorganization. As of December 31, 2013, the company's accountant has determined the following information although the company is still several
Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2013. The company currently has 30,000 shares of common stock
Smith Corporation has gone through bankruptcy and is ready to emerge as a reorganized entity on December 31, 2013. On this date, the company has the following assets (fair value is based on
Becket Corporation's accountant has prepared the following balance sheet as of November 10, 2013, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of
Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop
Use the trial balance presented for Lynch, Inc., in problem (45). Assume that the company will be liquidated and the following transactions will occur:• Accounts receivable of $18,000 are
In the early part of 2013, the partners of Page, Childers, and Smith sought assistance from a local accountant. They had begun a new business in 2012 but had never used an accountant's services. Page
An art display set up for the City of Coyote was recorded within the General Fund and generated revenues of $9,000 but had expenditures of $45,000 ($15,000 in expenses and $30,000 to buy land for the
The City of Bainland has been undergoing financial difficulties because of a decrease in its tax base caused by corporations leaving the area. On January 1, 2013, the city has a fund balance of only
What does the management's discussion and analysis (MD&A) normally include? Where does a state or local government present this information? Discuss.
How are fiduciary funds reported on government-wide financial statements?
On January 1, 2013, a city pays $60,000 for a work of art to display in the local library. The city will take appropriate measures to protect and preserve the piece. However, if the work is ever
The County of Maxnell decides to create a sanitation department and offer its services to the public for a fee. As a result, county officials plan to account for this activity within the enterprise
The Jones family lost its home in a fire. On December 25, 2013, a philanthropist sent money to the Amer Benevolent Society, a private not-for-profit organization, specifically to purchase furniture
During the year ended December 31, 2013, Anderson Hospital (operated as a private not-for profit organization) received and incurred the following: Fair value of donated medicines . . . . . . . . . .
Under Lennon Hospital's rate structure, it earned patient service revenue of $9 million for the year ended December 31, 2013. However, Lennon did not expect to collect this entire amount because it
Wilson Center is a private not-for-profit voluntary health and welfare organization. During 2013, it received unrestricted pledges of $600,000, 60 percent of which were payable in 2013, with the
Help & Save is a private not-for-profit organization that operates in Kansas. Swim For Safety is a private not-for-profit organization that operates in Missouri. The leaders of these two
What was the impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on the conveyance of property?
What is an inter vivos trust?
During 2012, an estate generated income of $20,000: Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,000 Interest income . . . . . . . . . . . . . . . . . . . . . . .
James Albemarle created a trust fund at the beginning of 2012. The income from this fund will go to his son Edward. When Edward reaches the age of 25, the principal of the fund will be conveyed to
Using Rhodes Corporation's financial statements (shown below), answer the following questions.a. What is the net operating profit after taxes (NOPAT) for 2013?b. What are the amounts of net
The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2013 the firm incurred a loss of
Explain how title insurance works. What risks does it cover? Who pays, and when? What common exceptions does it make?
If a grantee obtains title insurance, what value, if any, is there in the covenant of seizen in a warranty deed?
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