On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000. For the year ended December 31, Fain earned income of $140,000 and paid dividends of $50,000. Journalize the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.
> Suppose that Ally Financial Inc. issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a. What was the price of this bond when it was is
> Are hostile takeovers necessarily bad for firms or their investors? Explain.
> Suppose a seven-year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises
> A 30-year bond with a face value of $1000 has a coupon rate of 5.5%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline.
> Suppose you invest $100 in a bank account, and five years later it has grown to $134.39. a. What APR did you receive, if the interest was compounded semiannually? b. What APR did you receive if the interest was compounded monthly?
> You can earn $50 in interest on a $1000 deposit for eight months. If the EAR is the same regardless of the length of the investment, determine how much interest you will earn on a $1000 deposit for a. 6 months. b. 1 year. c. 1⁄2 years.
> You are considering moving your money to a new bank offering a one-year CD that pays an 8% APR with monthly compounding. Your current bank’s manager offers to match the rate you have been offered. The account at your current bank would pay interest every
> After reading the Novy-Marx and Rauh article (see the Common Mistake Box on page 161), you decide to compute the total obligation of the state you live in. After some research you determine that your state’s promised pension payments amount to $1 billion
> Your firm is considering the purchase of a new office phone system. You can either pay $32,000 now, or $1000 per month for 36 months. a. Suppose your firm currently borrows at a rate of 6% per year (APR with monthly compounding). Which payment plan is mo
> In the summer of 2008, at Heathrow Airport in London, Best of the best (BB), a private company, offered a lottery to win a Ferrari or 90,000 British pounds, equivalent at the time to about $180,000. Both the Ferrari and the money, in 100-pound notes, wer
> Suppose you have outstanding debt with an 8% interest rate that can be repaid any time, and the interest rate on U.S. Treasuries is only 5%. You plan to repay your debt using any cash that you don’t invest elsewhere. Until your debt is repaid, what cost
> Your best friend consults you for investment advice. You learn that his tax rate is 35%, and he has the following current investments and debts: A car loan with an outstanding balance of $5000 and a 4.8% APR (monthly compounding) Credit cards with an out
> You are the CEO of a company and you are considering entering into an agreement to have your company buy another company. You think the price might be too high, but you will be the CEO of the combined, much larger company. You know that when the company
> You are enrolling in an MBA program. To pay your tuition, you can either take out a standard student loan (so the interest payments are not tax deductible) with an EAR of 51⁄2% or you can use a tax-deductible home equity loan with an APR (monthly) of 6%.
> Your uncle Fred just purchased a new boat. He brags to you about the low 7% interest rate (APR, monthly compounding) he obtained from the dealer. The rate is even lower than the rate he could have obtained on his home equity loan (8% APR, monthly compoun
> Your best taxable investment opportunity has an EAR of 4%. Your best tax-free investment opportunity has an EAR of 3%. If your tax rate is 30%, which opportunity provides the higher after-tax interest rate?
> Figure 5.4 shows that Johnson and Johnson’s five-year borrowing rate is 1.9% and Xerox’s is 4.0%. Which would you prefer? $500 from Johnson and Johnson paid today or a promise that the firm will pay you $575 in five ye
> Suppose the current one-year interest rate is 6%. One year from now, you believe the economy will start to slow and the one-year interest rate will fall to 5%. In two years, you expect the economy to be in the midst of a recession, causing the Federal Re
> What is the shape of the yield curve given the term structure in Problem 29? What expectations are investors likely to have about future interest rates? Data from Problem 29: Suppose the term structure of risk-free interest rates is as shown below: a
> Using the term structure in Problem 29, what is the present value of an investment that pays $100 at the end of each of years 1, 2, and 3? If you wanted to value this investment correctly using the annuity formula, which discount rate should you use? Da
> Many academic institutions offer a sabbatical policy. Every seven years a professor is given a year free of teaching and other administrative responsibilities at full pay. For a professor earning $70,000 per year who works for a total of 42 years, what i
> Suppose the term structure of risk-free interest rates is as shown below: a. Calculate the present value of an investment that pays $1000 in two years and $2000 in five years for certain. b. Calculate the present value of receiving $500 per year, with
> Consider a project that requires an initial investment of $100,000 and will produce a single cash flow of $150,000 in five years. a. What is the NPV of this project if the five-year interest rate is 5% (EAR)? b. What is the NPV of this project if the fiv
> Suppose that in 2016, Global launches an aggressive marketing campaign that boosts sales by 15%. However, their operating margin falls from 5.57% to 4.50%. Suppose that they have no other income, interest expenses are unchanged, and taxes are the same pe
> Can the nominal interest rate available to an investor be significantly negative? Can the real interest rate be negative? Explain.
> You need a new car and the dealer has offered you a price of $20,000, with the following payment options: (a) pay cash and receive a $2000 rebate, or (b) pay a $5000 down payment and finance the rest with a 0% APR loan over 30 months. But having just qui
> Your friend tells you he has a very simple trick for shortening the time it takes to repay your mortgage by one-third: Use your holiday bonus to make an extra payment on January 1 of each year (that is, pay your monthly payment due on that day twice). As
> Oppenheimer Bank is offering a 30-year mortgage with an APR of 5.25% based on monthly compounding. With this mortgage your monthly payments would be $2,000 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the mont
> Your mortgage has 25 years left, and has an APR of 7.625% with monthly payments of $1449. a. What is the outstanding balance? b. Suppose you cannot make the mortgage payment and you are in danger of losing your house to foreclosure. The bank has offered
> You have just purchased a home and taken out a $500,000 mortgage. The mortgage has a 30-year term with monthly payments and an APR of 6%. a. How much will you pay in interest, and how much will you pay in principal, during the first year? b. How much wil
> Oppenheimer Bank is offering a 30-year mortgage with an EAR of 53⁄8%. If you plan to borrow $150,000, what will your monthly payment be?
> You make monthly payments on your mortgage. It has a quoted APR of 5% (monthly compounding). What percentage of the outstanding principal do you pay in interest each month?
> Your son has been accepted into college. This college guarantees that your son’s tuition will not increase for the four years he attends college. The first $10,000 tuition payment is due in six months. After that, the same payment is due every six months
> You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is a. 0% per year? b. 8% per year
> Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated t
> What is the most important difference between a corporation and all other organizational forms?
> On March 31, 2018, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture wholesaler, are as follows: A. Prepare a multiple-step income statement for the year ended March 31, 2018. B. Compare the major advantages
> Alert Security Services Co. offers security services to business clients. Complete the following end-of-period spreadsheet for Alert Security Services Co.: Alert Security Services Co. End-of-Period Spreadsheet For the Year Ended October 31, 2018 Adj
> The following expenses were incurred by a merchandising business during the year. In which expense section of the income statement should each be reported: (A) selling, (B) administrative, or (C) other? 1. Advertising expense 2. Depreciation expense on s
> Financial information related to Ebony Interiors for February and March 2018 is as follows: A. Prepare balance sheets for Ebony Interiors as of February 28 and March 31, 2018. B. Determine the amount of net income for March, assuming that no additional
> Rearrange the following steps in the accounting cycle in proper sequence: A. A post-closing trial balance is prepared. B. Adjustment data are assembled and analyzed. C. Adjusting entries are journalized and posted to the ledger. D. An adjusted trial bala
> After all revenue and expense accounts have been closed at the end of the fiscal year, Income Summary has a debit of $2,450,000 and a credit of $3,000,000. At the same date, Retained Earnings has a credit balance of $8,222,600 and Dividends has a balance
> Prior to its closing, Income Summary had total debits of $1,190,500 and total credits of $1,476,300. Briefly explain the purpose served by the income summary account and the nature of the entries that resulted in the $1,190,500 and the $1,476,300.
> The debits and credits for five related transactions, A through E, are presented in the following T accounts. Describe each transaction. Cash Sales 39,200 A 41,160 Accounts Recelvable Cost of Goods Sold 41,160 C 1,960 25,200 A E 39,200 Inventory 1,2
> The following revenue and expense account balances were taken from the ledger of Acorn Health Services Co. after the accounts had been adjusted on January 31, 2018, the end of the fiscal year: Prepare an income statement. Depreciation Expense Insur
> The following account balances were taken from the adjusted trial balance for Urgent Messenger Service, a delivery service firm, for the fiscal year ended November 30, 2018: Prepare an income statement. $ 75,000 $ 10,650 Rent Expense 724,500 Salari
> The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in
> Triton Consulting is a consulting firm owned and operated by Jayson Neese. The following end-of-period spreadsheet was prepared for the year ended April 30, 2018: Based on the preceding spreadsheet, prepare an income statement, retained earnings statem
> Inspirational Inc. is a motivational consulting business. At the end of its accounting period, October 31, 2017, Inspirational has assets of $5,250,000 and liabilities of $1,600,000. Using the accounting equation and considering each case independently,
> The total assets and total liabilities (in millions) of Keurig Green Mountain Coffee, Inc. and Starbucks Corporation follow: Determine the stockholders’ equity of each company. Keurig Starbucks Assets $4.797 $10,753 Liabilities 1,
> On January 1, 20Y5, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 20Y5, the cost of the available-for-sale securities was $24,260, and the fair value was $26,350. Journalize the adjusting entry to record the u
> A fertilizer manufacturing company wants to relocate to Yellowstone County. A report from a fired researcher at the company indicates the company’s product is releasing toxic by-products. The company suppressed that report. A later report commissioned by
> From the following list of selected items taken from the records of Bobcat Appliance Service as of a specific date, identify those that would appear on the balance sheet: 1. Accounts Receivable 2. Cash 3. Common Stock 4. Fees Earned 5. Land 6. Supplies 7
> Jets Bancorp Inc. purchased a portfolio of trading securities during 20Y3. The cost and fair value of this portfolio on December 31, 20Y3, was as follows: Journalize the entry to record the adjustment of the trading security portfolio to fair value on
> Portions of the salaries expense account of a business follow: A. Indicate the nature of the entry (payment, adjusting, closing, reversing) from which each numbered posting was made. B. Journalize the complete entry from which each numbered posting was
> Storm, Inc. purchased the following available-for-sale securities during 20Y9, its first year of operations: The market price per share for the available-for-sale security portfolio on December 31, 20Y9, was as follows: Market Price per
> In teams, select a company from one of the following industries: banking, food service, manufacturing, or retail. For this company: A. Identify the primary activities that the company must perform to provide its product or service. B. Identify an activit
> Taser Consulting is a consulting firm owned and operated by Annamarie Phipps. The following end-of-period spreadsheet was prepared for the year ended October 31, 2018: Based on the preceding spreadsheet, prepare an income statement, retained earnings s
> The accountant for Eva’s Laundry prepared the following unadjusted and adjusted trial balances. Assume that all balances in the unadjusted trial balance and the amounts of the adjustments are correct. Identify the errors in the accounta
> Based on the data in Exercise 4-23, prepare the closing entries for Alert Security Services Co. Data from Exercise 4-23: Alert Security Services Co. offers security services to business clients. Complete the following end-of-period spreadsheet for Aler
> Based on the data in Exercise 4-22, prepare the adjusting entries for Alert Security Services Co. Data from Exercise 4-22: Alert Security Services Co. offers security services to business clients. The trial balance for Alert Security Services has been
> Based on the data in Exercise 4-23, prepare an income statement, retained earnings statement, and balance sheet for Alert Security Services Co. Data from Exercise 4-23: Alert Security Services Co. offers security services to business clients. Complete
> Alert Security Services Co. offers security services to business clients. The trial balance for Alert Security Services has been prepared on the following end-of-period spreadsheet for the year ended October 31, 2018: The data for year-end adjustments
> The following accounts were taken from the unadjusted trial balance of Orion Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the
> Bev’s Dry Cleaners is owned and operated by Beverly Zahn. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets, liabilities, an
> On August 1, 2018, Brooke Kline established Western Realty. Brooke completed the following transactions during the month of August: A. Opened a business bank account with a deposit of $35,000 in exchange for common stock. B. Purchased supplies on account
> Continental Railroad Company is evaluating three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows: Instructions: 1. Assuming that the desired rate of return is 20%, pre
> Peyton Smith enjoys listening to all types of music and owns countless CDs. Over the years, Peyton has gained a local reputation for knowledge of music from classical to rap and the ability to put together sets of recordings that appeal to all ages. Duri
> D’Lite Dry Cleaners is owned and operated by Joel Palk. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets, liabilities, and
> The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2018, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows: Instructio
> Selected accounts and related amounts for Kanpur Co. for the fiscal year ended June 30, 2018, are presented in Problem 5-5B. Instructions: 1. Prepare a single-step income statement in the format. 2. Prepare a retained earnings statement. 3. Prepare a ba
> The financial statements at the end of Atlas Realty’s first month of operations follow: Instructions: By analyzing the interrelationships among the four financial statements, determine the proper amounts for A through Q. Atlas
> For the past several years, Jeff Horton has operated a part-time consulting business from his home. As of April 1, 2018, Jeff decided to move to rented quarters and to operate the business, which was to be known as Rosebud Consulting, on a full-time basi
> On April 1, 2018, Maria Adams established Custom Realty. Maria completed the following transactions during the month of April: A. Opened a business bank account with a deposit of $24,000 in exchange for common stock. B. Paid rent on office
> Dynamic Weight Loss Co. offers personal weight reduction consulting services to individuals. After all the accounts have been closed on June 30, 2018, the end of the fiscal year, the balances of selected accounts from the ledger of Dynamic Weight Loss ar
> Reece Financial Services Co., which specializes in appliance repair services, is owned and operated by Joni Reece. Reece Financial Services’ accounting clerk prepared the following unadjusted trial balance at July 31, 2018: The data n
> The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March 31, 2018, the accountant for The Signage Company prepared the trial balances shown at the top of the following page. Instructions: Journalize the seven
> Crazy Mountain Outfitters Co., an outfitter store for fishing treks, prepared the following un Crazy Mountain Outfitters Co., an outfitter store for fishing treks, prepared the following un Crazy adjusted trial balance at the end of its first year of ope
> On August 1, 2018, Rafael Masey established Planet Realty, which completed the following transactions during the month: A. Rafael Masey transferred cash from a personal bank account to an account to be used for the business in exchange for common stock,
> Ken Jones, an architect, organized Jones Architects on April 1, 2018. During the month, Jones Architects completed the following transactions: A. Transferred cash from a personal bank account to an account to be used for the business in exchange for comm
> Tech Support Services has the following unadjusted trial balance as of January 31, 2018: The debit and credit totals are not equal as a result of the following errors: A. The cash entered on the trial balance was overstated by $8,000. B. A cash receipt
> On June 30, 2018, the balances of the accounts appearing in the ledger of Simkins Company are as follows: Instructions: 1. Does Simkins Company use a periodic or perpetual inventory system? Explain. 2. Prepare a multiple-step income statement for Simki
> On October 1, 2018, Jay Pryor established an interior decorating business, Pioneer Designs. During the month, Jay completed the following transactions related to the business: Oct. 1. Jay transferred cash from a personal bank account to an account to be
> Jose Loder established Bronco Consulting on August 1, 2018. The effect of each transaction and the balances after each transaction for August follow: Instructions: 1. Prepare an income statement for the month ended August 31, 2018. 2. Prepare a retaine
> The amounts of the assets and liabilities of Wilderness Travel Service at April 30, 2018, the end of the year, and its revenue and expenses for the year follow. The retained earnings were $145,000 at May 1, 2017, the beginning of the year, and dividends
> The following accounts appeared in recent financial statements of Delta Air Lines: Accounts Payable……………………………………………………………….Flight Equipment Advanced Payments for Equipment……………………Frequent Flyer (Obligations) Air Traffic Liability…………………………………………………………………
> Wilmington Chemical Company produces three products: ethylene, butane, and ester. Each of these products has high demand in the market, and Wilmington Chemical is able to sell as much as it can produce of all three. The reaction operation is a bottleneck
> The investment committee of Auntie M’s Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $900,000. The estimated net cash flows from each site are as follows:
> The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: The wind turbines require an investment of $887,600, while the biofuel equipment r
> Com-Tel Inc. manufactures and assembles two models of smartphones—the Tiger Model and the Lion Model. The process consists of a lean cell for each product. The data that follow concern only the Lion Model lean cell. For the year, Com-Tel Inc. budgeted th
> Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows: Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis. Instructions
> The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows: Each project requires an investment of $75,000. Straight
> The investment committee of Sentry Insurance Co. is evaluating two projects, office expansion and upgrade to computer servers. The projects have different useful lives, but each requires an investment of $490,000. The estimated net cash flows from each p
> Night Glow Inc. recently began production of a new product, the halogen light, which required the investment of $600,000 in assets. The costs of producing and selling 10,000 halogen lights are estimated as follows: Night Glow Inc. is currently consider
> The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the follo
> Master Chef Appliance Company manufactures home kitchen appliances. The manufacturing process includes stamping, final assembly, testing, and shipping. In the stamping operation, a number of individuals are responsible for stamping the steel outer surfac
> The following selected transactions were completed during March of the current year: 1. Billed customers for fees earned, $54,100. 2. Purchased supplies on account, $1,250. 3. Received cash from customers on account, $43,800. 4. Paid creditors on account
> Jamarcus Bradshaw, plant manager of Georgia Paper Company’s papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following: Jamarcus was concern
> HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg’s purchasing policy requires that the purchasing agents place each quarter’s purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its
> Zenith Consulting Co. has the following accounts in its ledger: Cash, Accounts Receivable, Supplies, Office Equipment, Accounts Payable, Common Stock, Retained Earnings, Dividends, Fees Earned, Rent Expense, Advertising Expense, Utilities Expense, Miscel
