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Cost of Managing Cash
Q7. The management of ABC Ltd anticipates Rs 12 lakh in cash outlay (requirement) during the next year. The recent experience has been that it costs Rs 20 to convert marketable securities to cash and vice versa. The marketable securities currently earn 7 percent annum return. Find the total cost of managing cash according to Baumol Model.
Cash Flow Statement
Q4: Prepare cash flow statement for the year ended 31st December, 2014 from the following Balance sheet of Raj Ltd.
1) Dividend Interim of Rs. 22000 was paid during the year
2) Depreciation on Building is provided at 5%
3) Plant and Machinery of Rs. 56,250 was acquired during the year
4) Income Tax provision for the year was Rs. 50,000
Q2. SBI and HDFC are two mutual funds. SBI has observed return of 15% and fund HDFC has observed return of 20%. HDFC has a beta of 2 and SBI has a beta of 1. The respective standard deviations are 18% of SBI and 22% of HDFC. The mean return for market index is 0.12, while the risk-free return is 9%.
a) Compute the Jensen index for each of the funds
b) Compute the Treynor index for each of the funds
c) Compute the Sharpe index for each of the funds
Marginal Tax Rate
Problem 6. Calculating Taxable Income: The Conrad Company has $267,000 in taxable income. Using the rates on the taxable income table below, calculate their average tax rate and marginal tax rate.
Problem 6. Calculating Taxable Income
Sustainable Growth Rate
Problem 5. Sustainable Growth: GTS Corporation has a 12 percent ROE and a 30 percent payout ratio. Calculate its sustainable growth rate.
Equity Multiplier and Return on Equity
Problem 4. Equity Multiplier and Return on Equity: Drake Company has a return on assets of 10.75 percent, total equity of $875,000, and a debt-equity ratio of 0.85. What is the equity multiplier? What is the return on equity? What is the net income?
Operating Cash Flow
Problem 3. Calculating Operating Cash Flow: Willard, Incorporated has sales of $26,400, costs of $9,400, depreciation expense of $1,500, interest expense of $925, and a tax rate of 40 percent. Calculate the operating cash flow.
Problem 2. Building an Income Statement: Tanner, Incorporated has sales of $863,000, costs of $407,000, depreciation expenses of $58,000, and interest expenses of $23,600, with a tax rate of 35 percent. Calculate the net income for the firm. If the company paid out $77,000 in cash dividends, calculate the increase to retained earnings.
5. The Baker Corporation is a publicly held corporation whose $10 par value stock is actively trading at $30 per share. The company issued 2,000 shares of stock to acquire land recently advertised at $65,000. When recording this transaction, the Baker Corp will
a. Debit Land for $65,000.
b. Credit Common Stock for $60,000.
c. Credit Paid-in Capital in Excess of Par Value-common stock for $40,000.
d. Credit Paid-in Capital in Excess of Par Value-common stock for $45,000.
Make the Journal entry for the acquisition of the land below:
6. A corporation has the following account balances: Common Stock, $1 par value, $100,000; Paid-in Capital in Excess of Par Value-Common Stock, $200,000. The treasury contains 1,000 shares of common stock which cost $5 a share. Retained earnings has a $20,000 balance. Based on this information, which of these statements is incorrect?
a. Total paid-in capital is $315,000
b. Average issue price is $3 a share
c. Average issue price is $3.18
d. Number of shares outstanding is 99,000
SHOW THE PROOF (MATH WORK) FOR THE PROBLEM BELOW:
7. A company purchases 900 shares of its $25.00 par value stock at $35.00 per share. It then reissues 300 shares at $40.00 per share. The entry upon reissue of the stock would include a credit to
a. Cash for $1,500.
b. Treasury Stock for $1,500.
c. Retained Earnings for $1,500.
d. Paid-in Capital from Treasury Stock for $1,500.
Make the Journal entry for the purchase of the treasury stock:
Make the journal entry for the reissue (sale) of the treasury stock:
8. Make the journal entries for the treasury stock transactions listed below:
June 1: The company purchased 5,000 shares of their common stock for the treasury stock for $12 a share.
October 1: The company sold 1,500 shares of treasury stock for $13 a share.
December 1: The company sold 2,000 shares of treasury stock for $5 a share.
Fundamentals of Accounting
Williams- Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.
a. A five-year casualty insurance policy was purchased at the beginning of 2009 for $49,000. The full amount was debited to insurance expense at the time.
b. On December 31, 2010, merchandise inventory was overstated by $40,000 due to a mistake in the physical inventory count using the periodic inventory system.
c. The company changed inventory cost methods to FIFO from LIFO at the end of 2011 for both financial statement and income tax purposes. The change will cause a $980,000 increase in the beginning inventory at January 1, 2010.
d. At the end of 2010 the company failed to accrue $25,000 f sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.
e. At the beginning of 2009, the company purchased a machine at a cost of $550,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double declining balance method. Its carrying amount on December 31, 2010, was $460,800. On January 1, 2011, the company changed to the straight to the straight-line method.
f. Additional industrial robots were acquired at the beginning of 2008 and added to the company’s assembly process. The $1,300,000 cost of the equipment was inadvertently recorded as repair expense. Robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight line method for both financial reporting and income tax reporting.
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjustment entry for 2011 related to the situation described. Any tax effects should be adjusted for through the deferred tax liability account.
3. Briefly describe any other steps that should be taken to appropriately report the situation.
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