For job order costing, we record each job on a different order cost sheet. This enables the business to monitor costs more effectively. We will record the purchase of raw materials and the use of indirect materials as follows: (a) Purchase of Raw MaterialsDateAccountTitlesDebitCreditX-XXCash60,000X-XXRaw Materials Inventory60,000.
Explanation:This journal entry records the purchase of raw materials. (b) Use of Indirect MaterialsDateAccountTitlesDebitCreditX-XXManufacturing Overhead17,000X-XXRaw Materials Inventory17,000
Explanation:This journal entry records the use of indirect materials. Job order costing is a type of costing system that is used by businesses that have unique or customised products or services that are manufactured to order. With this method, we record each job on a different order cost sheet.
This enables the business to monitor costs more effectively. When raw materials are purchased, we record the transaction as a debit to Raw Materials Inventory and a credit to Cash.
This increases the balance of Raw Materials Inventory and decreases the balance of Cash. When indirect materials are used, we record the transaction as a debit to Manufacturing Overhead and a credit to Raw Materials Inventory. This increases the balance of Manufacturing Overhead and decreases the balance of Raw Materials Inventory.
To summarise, we record the purchase of raw materials by debiting Raw Materials Inventory and crediting Cash. We record the use of indirect materials by debiting Manufacturing Overhead and crediting Raw Materials Inventory. These journal entries assist companies to keep track of their raw material usage.
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In a two-period model, suppose that a particular consumer's utility function is: U(C₁, C₂) = log(c₁) + log(c₂) where C₁, C₂ are the consumption of a good (orange) in the two periods. The real interest rate is 20% (given). Pi is normalized to 1. The endowments in the two periods are 1 and 2.4 oranges respectively. ** Part a (5 marks) State the period budget constraints for the two periods. ** Part b (5 marks) Derive the lifetime budget constraint (in real terms). ** Part c (5 marks) Solve for the optimal consumption path (C₁, C₂). ** Part d (5 marks) Now suppose that there is an inflation of 10%. Using the Fisher equation, find the nominal interest rate.
The nominal interest rate is 32%.
Part a:
The period budget constraints for the two periods can be stated as follows:
Period 1 budget constraint: C₁ + R × 0 = 1
Period 2 budget constraint: C₂ + R × C₁ = 2.4
Here, R represents the real interest rate, and the left-hand side of the equations represents the consumption in each period.
Part b:
To derive the lifetime budget constraint, we need to express the budget constraints in real terms. Assuming the real interest rate is 20%, we can substitute R = 0.2 into the budget constraints:
Period 1 budget constraint (in real terms): C₁ + 0.2 × 0 = 1
Period 2 budget constraint (in real terms): C₂ + 0.2 × C₁ = 2.4
The lifetime budget constraint can be obtained by adding the two period budget constraints:
C₁ + 0.2 × 0 + C₂ + 0.2 × C₁ = 1 + 2.4
C₁ + C₂ + 0.2 × C₁ = 3.4
Simplifying further, we get the lifetime budget constraint:
C₁ + C₂ + 0.2C₁ = 3.4
1.2C₁ + C₂ = 3.4
Part c:
To solve for the optimal consumption path (C₁, C₂), we need to maximize the utility function subject to the lifetime budget constraint. Using the given utility function and the lifetime budget constraint derived in part b, we can set up the following optimization problem:
Maximize U(C₁, C₂) = log(C₁) + log(C₂)
Subject to: 1.2C₁ + C₂ = 3.4
By applying the appropriate optimization techniques (such as using Lagrange multipliers or solving the first-order conditions), we can find the optimal consumption path (C₁, C₂) that maximizes the utility function while satisfying the budget constraint.
Part d:
Given an inflation rate of 10%, we can use the Fisher equation to find the nominal interest rate. The Fisher equation states that:
(1 + nominal interest rate) = (1 + real interest rate) × (1 + inflation rate)
Let's assume the nominal interest rate is denoted as I. Plugging in the values from the question, we have:
(1 + I) = (1 + 0.2) × (1 + 0.1)
(1 + I) = 1.2 × 1.1
(1 + I) = 1.32
Simplifying further, we find that the nominal interest rate is:
I = 1.32 - 1
I = 0.32 or 32%
Therefore, the nominal interest rate is 32%.
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A negotiator's reservation point has the most direct influence on their final outcome. A negotiator's reservation point is a quantification of the negotiator's:
a) BATNA
b) target point
c) bargaining zone (ZOPA)
d)opening offer
A negotiator's reservation point is a quantification of the negotiator's: BATNA.
The reservation point is a threshold above which a negotiator would accept the deal and below which the negotiator would not accept the deal. A reservation point is the minimum level of outcome that a negotiator would accept, regardless of the outcome that would otherwise be achieved. The reservation point can be influenced by a variety of factors, including the negotiator's BATNA (Best Alternative to a Negotiated Agreement), their perception of the other party's power and commitment, and their time constraints. A negotiator's reservation point has a significant impact on the negotiation process and the final outcome, as it provides a quantification of the negotiator's bottom line and helps to determine their strategy. If a negotiator's reservation point is too low, they may be forced to accept unfavorable terms, while if it is too high, they may miss out on a mutually beneficial deal.
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PERFECT-SUBSTITUTES (a) Suppose we have preferences U(X,Y)= X + ½Y. Graph/sketch the indifference curve through X = 10 and Y = 10. What is the utility and explain why it looks the way it does. (b) What is the Marginal Rate of Substitution for these preferences? Explain and interpret the value. (c) Suppose the consumer wanted to maximize utility subject to their budget constraint. State the consumer's maximization problem and express this in words. (d) Let U(X,Y)= X + ½ Y. with Px = $8, Py = $3 and income M = $200. Find optimal X, Y and the resulting Utility. Draw a sketch of your solution. (e) Now suppose we offered a discount so that good X was prices at $5 for the first 10 units but rise to $8 for any quantity above that. Draw the new budget line (f) Find the optimal X, Y and the resulting Utility given the availability of the discount. Compare to the non-discounted case and discuss why it is different/the same.
(a) The graph of indifference curve through X=10 and Y=10 for the given preferences U(X, Y) = X + ½ Y would be a straight line with a slope of -1/2. The utility of this indifference curve is 15. The slope of the indifference curve represents the marginal rate of substitution (MRS). (b) The marginal rate of substitution (MRS) of X for Y is the ratio of marginal utility of X to marginal utility of Y i.e. MRS = MUx/MUy. The MRS for the given preferences is 1/2.
This means that the consumer is willing to trade 1 unit of X for 2 units of Y to remain at the same level of utility.(c) The consumer's maximization problem is to maximize utility subject to the budget constraint. The consumer's problem can be represented as Maximize U(X, Y) subject to Px X + Py Y ≤ M. In words, the consumer wants to buy the optimal combination of goods X and Y that maximizes their utility and is within their budget constraint.(d) With Px = $8, Py = $3 and M = $200, the optimal values of X and Y can be calculated using the Lagrangian method. The optimal values are X = 16 and Y = 32, with a resulting utility of 32.
The optimal bundle is where the budget line is tangent to the highest indifference curve. (e) The new budget line with the discount can be calculated as Px X + Py Y = M' where M' = $200 - (5 × 10) = $150. For the first 10 units of X, the price is $5, and for any quantity above that, the price is $8. This gives a kink in the budget line at X = 10. (f) With the discounted price, the optimal values of X and Y are X = 30 and Y = 20, with a resulting utility of 35. This is different from the non-discounted case because the consumer can buy more of X with the same budget.
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Suppose the elasticity of demand for bread is 0.61. If sellers wanted to increase sales by 25%, by what percent would they have to lower price? ROUND TO THE NEAREST WHOLE PERCENT
Given the following demand and supply equations, how many units of the good would be sold at a price equal to $30?
Qd = 100 - 3P Qs = -35 + 2P
1. To determine the percentage by which sellers would need to lower the price in order to increase sales by 25%, we can use the concept of elasticity of demand. The formula to calculate the percentage change in quantity demanded given a percentage change in price is:
Percentage change in quantity demanded = Elasticity of demand * Percentage change in price
In this case, we want to find the percentage change in price that would lead to a 25% increase in quantity demanded. Let's denote the percentage change in price as x. We can set up the following equation:
0.61 * x = 25
Solving for x, we find:
x ≈ 41
Therefore, sellers would need to lower the price by approximately 41% in order to increase sales by 25%.
2. To find the quantity of the good sold at a price of $30, we can equate the quantity demanded and quantity supplied and solve for the equilibrium quantity.
Qd = 100 - 3P
Qs = -35 + 2P
Setting Qd equal to Qs:
100 - 3P = -35 + 2P
Adding 3P to both sides:
100 = 5P - 35
Adding 35 to both sides:
135 = 5P
Dividing both sides by 5:
P = 27
Substituting this price back into either the demand or supply equation to find the quantity:
Qd = 100 - 3(27)
Qd = 19
Therefore, at a price of $30, 19 units of the good would be sold.
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Use the following information to answer the following question(s).A Max, Inc. deposited $2,000 in a bank account that pays 12% interest annually.How many periods would it take for the deposit to grow to $6,798 if the interest is compounded semiannually? Answer a. 17 b. 19 c. 21 d. 25
It would take approximately 19 periods (or years) for the deposit to grow to $6,798 with semiannual compounding. The closest answer choice is b) 19.
To determine the number of periods it would take for the deposit to grow to $6,798 with semiannual compounding, we can use the formula for compound interest:
[tex]A = P(1 + r/n)^(nt)[/tex]
Where:
A = Final amount ($6,798)
P = Principal amount ($2,000)
r = Annual interest rate (12% or 0.12)
n = Number of compounding periods per year (2 for semiannual compounding)
t = Number of years
We need to solve for t. Rearranging the formula, we have:
t = log(A/P) / (n * log(1 + r/n))
Substituting the given values into the formula:
t = log(6,798/2,000) / (2 * log(1 + 0.12/2))
Using a calculator, we can calculate the value of t:
t ≈ 19.03
Therefore, it would take approximately 19 periods (or years) for the deposit to grow to $6,798 with semiannual compounding. The closest answer choice is b) 19.
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Martin Corporation, the maker of a variety of rubber products, is in the midst of a business downturn and has many idle facilities. Nationwide Tire Company has approached Martin to produce 300,000 oversized tire tubes for $2.40 each. Martin predicts that its variable costs will be $2.60 each. Its fixed costs, which had been averaging $2.00 per unit on a variety of products, will now be spread over twice as much volume. The president commented, "Sure we will lose $.20 each on the variable costs, but we will gain $1 per unit by spreading our fixed costs over more units. Therefore, we should take the offer because it would gain us $.80 per unit." Martin currently has a volume of 300,000 units, sales of $1,200,000, variable costs of $780,000, and fixed costs of $600,000. Required: a. Compute the impact on operating profit if the special order is accepted.
Here is the solution to the required part of the problem. The company should accept the order since the price offered is greater than the variable cost. By accepting the offer, Martin can improve its profits by generating revenue, covering variable costs, and contributing to the fixed costs.
The company will lose $0.20 per unit on the variable costs and gain $1 per unit on the fixed costs. As a result, the operating profit will increase by $0.80 per unit.Solution:Given data,Volume = 300,000 unitsSales = $1,200,000Variable costs = $780,000Fixed costs = $600,000Variable cost per unit = Total variable costs / Units produced= $780,000 / 300,000= $2.60 per unitOffered price per unit = $2.40 per unitProfit or loss per unit = Offered price per unit - Variable cost per unit= $2.40 - $2.60= - $0.20 per unit.
The fixed costs that are spread over twice the volume = $2.00 per unit Operating profit per unit = Price - Variable cost + Fixed cost contribution= $2.40 - $2.60 + $2.00= $1.80 per unitIncrease in operating profit = $1.80 - $1.00= $0.80 per unitOperating profit after accepting the special order= Operating profit per unit * Number of units= $0.80 * 300,000= $240,000Therefore, the impact on the operating profit if the special order is accepted is $240,000.
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Quinoa Farms just paid a dividend of $3.90 on its stock. The growth rate in dividends is expected to be a constant 5 percent per year indefinitely. Investors require a return of 13 percent for the first three years, a return of 11 percent for the next three years, and a return of 9 percent thereafter. What is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current share price $ 34.00
Given Information: Dividend paid = 3.90 per share Growth rate in dividends (g) = 5% per year Required rate of return, r_1 = 13% for first 3 yearsr_2 = 11% for next 3 yearsr_3 = 9% thereafter Formula used:
P_0 = D_1 / (r - g)where,P_0 = Current share pricenD_1 = Expected Dividend after 1 year r = required rate of return g = Growth rate in dividends n = Number of years Intermediate Calculations: Dividend after 1 year, D_1 = D_0 (1 + g)where,D_0 = Dividend paid initially Calculation: Dividend after 1 [tex]year, D_1 = D_0 (1 + g)= 3.9 (1 + 0.05)= $4.0950for the first 3 years, r = 13%P_0 = D_1 / (r - g)= 4.0950 / (0.13 - 0.05)= $54.60for the next 3 years ,r = 11%P_3 = D_4 / (r - g)= D_3 (1 + g) / (r - g)where,D_3 = Expected Dividend after 3 yearsD_4 =[/tex]Expected Dividend after 4 yearsP_3 = Price of share after 3 years[tex]D_3 = D_2 (1 + g)= D_1 (1 + g)^2= 4.
0950 (1 + 0.05)^2= $4.3023D_4 = D_3 (1 + g)= 4.3023 (1 + 0.05)= $4.5174P_3 = D_4 / (r - g)= 4.5174 / (0.11 - 0.05)= $75.29After 6 years, we need to calculate the price of the share, P_6 using D_7 and r.D_7 = D_6 (1 + g) = D_3 (1 + g)^4=[/tex][tex]4.0950 (1 + 0.05)^4= $5.1544r = 9%P_6 = D_7 / (r - g) = 5.1544 / (0.09 - 0.05) = $128.86Hence, the current share price is $34.00.[/tex]
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TRUE/FALSE. Only those costs that would disappear over time if a segment
were eliminated should be considered traceable costs of the
segment.
The given statement "Only those costs that would disappear over time if a segment were eliminated should be considered traceable costs of the segment." is a TRUE statement.
Traceable costs are those costs that are incurred directly by a cost object or segment. If the cost item would not exist if a specific segment were eliminated, it is known as traceable costs. These costs are simply linked to a specific segment and are typically viewed as direct costs because they can be easily traced to the cost object.Traceable costs can be directly measured and allocated to a product, process, or business unit.
They are directly related to the particular cost object, and therefore, they disappear when the cost object is eliminated, as stated in the statement. Therefore, the given statement is true.
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Choose a well-known, publicly-traded company that none of your other classmates have chosen, and explain what costs would be included in each of the three manufacturing cost categories. Include a link to this financial statement in your post. Participate in follow-up discussion by choosing two or more of your classmates' posts and adding your ideas about what costs might be included in the direct materials, direct labor, and manufacturing overhead cost categories for the company selected. Explain the cost behavior of each of the identified costs as fixed, variable, or mixed costs.
To analyze the costs of a specific company, you can search for their financial statements, specifically the income statement or the cost of goods sold (COGS) section. These statements will provide more detailed information on the breakdown of manufacturing costs.
The three manufacturing cost categories are:
Direct Materials: These costs include the raw materials that are directly used in the production process. They can include items like metals, fabrics, chemicals, or components. The cost of direct materials also includes any freight or transportation costs associated with acquiring the materials.
Direct Labor: This category includes the wages, salaries, and benefits of the workers directly involved in the production process. It involves the cost of the actual labor required to transform the raw materials into finished goods. Direct labor costs can vary based on the number of hours worked or the level of production.
Manufacturing Overhead: Manufacturing overhead represents all other costs incurred in the manufacturing process that cannot be directly attributed to specific units of production. It includes indirect materials, such as lubricants or cleaning supplies, as well as indirect labor, such as maintenance staff or quality control inspectors. Additionally, manufacturing overhead includes costs related to utilities, depreciation of manufacturing equipment, facility rent, and other indirect expenses. The cost behavior of manufacturing overhead costs can vary. Some costs, such as depreciation or rent, may be fixed, while others, like utilities or maintenance, may have a variable component.
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When using technology responsibly in the workplace and at home, you will need to consider the privacy and security of electronic data. Referring to this unit's tutorials or external resources, describe some of the ethical and legal considerations surrounding responsible use of technology (and the information obtained through technology) in the workplace.
Have you ever observed or experienced information being compromised?
What can you do to keep information private and secure?
Why is the topic of ethical and legal considerations important for healthcare information?
Healthcare providers and their staff must be aware of and adhere to relevant legal regulations, such as HIPAA, to avoid legal penalties.
When using technology responsibly in the workplace and at home, you will need to consider the privacy and security of electronic data. Ethical and legal considerations surrounding responsible use of technology in the workplace are as follows: Ethical considerations: When using technology, employees need to be mindful of the ethical issues that may arise. Using technology responsibly and ethically entails respecting the privacy of individuals and preserving the confidentiality of information. Employees should also adhere to their employer's acceptable use policy and avoid using company-owned technology for personal activities. There are many ways to keep information private and secure, such as using strong passwords, enabling two-factor authentication, avoiding suspicious emails, installing antivirus software, and only downloading files from trustworthy websites. The topic of ethical and legal considerations is especially important for healthcare information because it contains sensitive personal information that must be kept confidential. It is critical to ensure that only authorized individuals have access to this information, and that proper safeguards are in place to prevent unauthorized access or disclosure. Additionally, healthcare providers and their staff must be aware of and adhere to relevant legal regulations, such as HIPAA, to avoid legal penalties.
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The inflation rate in the UK is at the highest since 2008 and it is expected to rise further in the summer. In this context, discuss the issues associated with high inflation. Explain how monetary policy tools used by the Bank of England help to control inflation.
The inflation rate in the UK is at the highest since 2008 and it is expected to rise further in the summer, in this context, discuss the issues associated with high inflation. The monetary policy tools used by the Bank of England help to control inflation by increasing interest rates, buying and selling government bonds, and adjusting reserve requirements
Inflation is a measure of the rate at which prices of goods and services are increasing over time. It is measured by tracking the price of a basket of goods over time. In the UK, the inflation rate is at the highest since 2008 and it is expected to rise further in the summer. High inflation can lead to various issues. For instance, it can erode the value of money as it reduces the purchasing power of people, this can be problematic for those who are on a fixed income, especially the pensioners.
It can also increase the cost of borrowing as lenders will demand higher interest rates to compensate for the reduced value of money over time. This can make it more expensive to take out loans or mortgages. The Bank of England uses various monetary policy tools to control inflation. These include increasing interest rates, buying and selling government bonds, and adjusting reserve requirements. By increasing interest rates, the Bank of England can reduce the amount of money in circulation, which can help to reduce inflation.
Similarly, buying government bonds can increase the money supply, which can help to boost economic growth and reduce inflation. Finally, adjusting reserve requirements can also help to control inflation by regulating the amount of money that banks can lend out. All of these tools help to regulate the money supply and ensure that inflation is kept under control. So therefore increasing interest rates, buying and selling government bonds, and adjusting reserve requirements are the way the Bank of England help to control inflation.
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QUESTION 16 with respect to the LPC scale, which is part of Feidler's Contingency theory of leadership, which of the following statements is most accurate? a.the LPC scale has been shown to have surprisingly high validity
b. the LPC scale has clearly identified leader behaviors c.the LPC score actually reflects the leaders tendency for relationship vs. task oriented behaviors d.the LPC score has receive extensive support among researchers of leadership
e. the LPC scale measures the followers leadership style
In fact, LPC scores reflect a manager's propensity for interpersonal and task-oriented behavior. This is part of Feidler's contingency theory of leadership. Of the following statements is the most accurate .
Option c is correct .
Fiedler's contingency theory postulates that effective leadership depends on the interaction of a leader's leadership style with favorable circumstances. The LPC (Least Preferred Coworker) scale is the tool used in this theory to measure a leader's leadership style.
According to Fiedler, the LPC score reflects a leader's propensity for relationship-oriented or task-oriented behavior. A high LPC score indicates a more relationship-oriented leader, and a lower LPC score indicates a more task-oriented leader. The LPC score is based on managers' perceptions of their least desirable co-workers.
Hence, option c is correct .
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The correct question is :
which is part of Feidler's Contingency theory of leadership, which of the following statements is most accurate?
a. the LPC scale has been shown to have surprisingly high validity
b. the LPC scale has clearly identified leader behaviors
c .the LPC score actually reflects the leaders tendency for relationship vs. task oriented behaviors
d. the LPC score has receive extensive support among researchers of leadership
e. the LPC scale measures the followers leadership style
Politicians have incentive to support special-interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers) Oa. only when the benefits that accrue to the special-interest group exceed the costs imposed on others. Ob. when non-special-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special-interest group.
Oc. only if the government action is efficient. Od. only if the government action reduces the size of the budget deficit.
Option b is correct. Politicians have incentive to support non-special-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special-interest group.
This is because special interest organizations frequently donate substantial sums of money in exchange for supportive policies, and politicians sometimes rely on campaign donations to finance their reelection campaigns.
Politicians can also more readily pander to the interests of special-interest groups without suffering major backlash or political consequences if non-special-interest people are misinformed or indifferent about a particular topic.
Even if benefits to the special interest group and the effectiveness of government action may have an impact on politicians' decisions, they do not serve as the main incentives to support these organizations.
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Complete question
Politicians have incentive to support special-interest groups at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers)
a. only when the benefits that accrue to the special-interest group exceed the costs imposed on others.
b. when non-special-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special-interest group.
c. only if the government action is efficient.
d. only if the government action reduces the size of the budget deficit.
This short exercise demonstrates the similarity and the difference between two ways to acquire plant assets. (Click the icon to view the cases.) Compare the balances in all the accounts after making both sets of entries. Are the account balances the same or different? Journalize the transactions for cases A and B. (Record debits first, then credits. Exclude explanations from any joumal entries.) Let's begin with case A - Record the issuance of the common stock. Journal Entry Accounts Case A - Record the purchase of the building and equipment. Journal Entry Accounts Case B - Record the issuance of the common stock acquire assets The account balances are Journal Entry Accounts Debit Debit Debit Credit Credit Credit Compare the balances in all accounts after making both sets of entries. Are the account balances similar or different? More info Case A - Issue stock and buy the assets in separate transactions: Atar Company issued 20,000 shares of its $30 par common stock for cash of $756,000. In a separate transaction, Atar used the cash to purchase a building for $548,000 and equipment for $208,000. Journalize the two transactions. Case B - Issue stock to acquire the assets in a single transaction: Atar Company issued 20,000 shares of its $30 par common stock to acquire a building with a market value of $548,000 and equipment with a market value of $208,000. Journalize this transaction. Print Done - X
The account balances will be the same after making both sets of entries.
In both Case A and Case B, the issuance of common stock will result in an increase in the common stock account and a corresponding increase in the cash account. However, in Case A, the purchase of the building and equipment is recorded separately, resulting in separate increases in the building and equipment accounts and decreases in the cash account.
In Case B, the acquisition of assets is recorded as a single transaction, resulting in an increase in the building and equipment accounts and a decrease in the common stock account. Overall, the total debits and credits will be the same in both cases, resulting in the same account balances.
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In a market of UT sweatshirts, market demand is given by the equation Q=150-2P and market supply is given the equation Q=3P, where Pis market price. Suppose Dr. Heinz Doofenshmirtz, an evil scientist, has convinced the bookstore that sells sweatshirts to impose a surchage (as a tax) on every UT sweatshirt sold so that he would use the proceeds from the surcharge towards buliding an Obliterate inator-a promising device that supposedly would obliterate all forms of cheating in UT onlines classes. The bookstore manager has decided to impose surcharge for $25 per sweatshirt sold. All proceeds froms teh surcharge go to Dr Doof to finance his inator. How much money will Dr. Doofenshmirts is going to recieve from the bookstore?
Dr. Doofenshmirtz's surcharge raises $1,500 for his Obliterate-inator, and it is more onerous on the students than the bookstore.
Equation = Q = 150-2P
Market Supply = Q = 3P
Calculating the market equilibrium -
Qd = Qs
150 - 2P = 3P
5P = 150
P = 30
Substituting the value in the equation -
Q = 150 - 2 x 30
= 150 - 60
= 90
Before the surcharge, the market price is $30, and the quantity sold is 90. After the surcharge, the demand equation becomes -
Qd = 150 - 2(P + 25)
= 100 - 2P
Calculating Qd = Qs, -
100 - 2P = 3P
5P = 100
P = 20
Quantity sold -
Q = 3 x 20 = 60.
The total amount of money collected from the surcharge -
= $25 x 60
= $1,500
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Sky Castle Manufacturing Company incurred the following costs during its current production of 2,500 teddy bears, alongside its office and administrative operations:
· Direct materials used, P80 per unit
· Indirect materials, P40,000 (P16 per unit)
· Direct labor, 3 hours per teddy bear at P60 per hour
· Indirect labor, P80,000 (1 hour per unit, P32 per hour)
· Office salaries, P354,000
· Depreciation - manufacturing equipment, P3,700
· Depreciation - office equipment, P4,800
· Rent of factory facility - P80,000
· Rent of office and selling space - P92,000
The management decided to conduct review of costs to restructure operations based on its strategic position. The following were the results of their developmental researches and analysis:
· The purchasing department was able to look for a supplier which can reduce direct material cost to P65 per unit and reduce total indirect materials by P2 per unit. The management has evaluated that these materials are of the same quality as what they are currently using.
· Another supplier is known to offer P90 per unit of higher quality raw materials with no change in indirect labor.
· Upon review of in-house time and motion studies, direct labor can be reduced to 2.50 hours per teddy bear by eradicating nonvalue-adding activities. Total number of employees will not be changed and indirect labor will not be changed.
All office salaries, depreciation, and rent costs are fixed.
Relating to Sky Castle Manufacturing Company's current production, how much are total product costs and period costs?
a. P770,000 and P534,500, respectively.
b. P650,000 and P654,500, respectively.
c. P853,700 and P450,800, respectively.
d. P1,304,500 and P-0-, respectively.
e. None of the above
Sky Castle Manufacturing Company's current production, we need to analyze the given costs and their classification. The correct answer is
A that is "P770,000 and P534,500, respectively".
Total product costs include direct materials, direct labor, and manufacturing overhead costs directly attributable to the production of goods.
Given the information,
we can calculate the total product costs and period costs as follows,
Total product costs,
Direct materials used = P80 per unit * 2,500 units = P200,000
Direct labor = 2.50 hours per teddy bear * P60 per hour * 2,500 units = P375,000
Indirect materials = P40,000
Indirect labor = P80,000
Depreciation - manufacturing equipment = P3,700
Total product costs = Direct materials + Direct labor + Indirect materials + Indirect labor + Depreciation
Total product costs = P200,000 + P375,000 + P40,000 + P80,000 + P3,700
Total product costs = P698,700
Period costs:
Office salaries = P354,000
Depreciation - office equipment = P4,800
Rent of factory facility = P80,000
Rent of office and selling space = P92,000
Period costs = Office salaries + Depreciation - office equipment + Rent of factory facility + Rent of office and selling space
Period costs = P354,000 + P4,800 + P80,000 + P92,000
Period costs = P530,800
Therefore, the correct answer is A.
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a corporate bond that is currently trading at 95 pays a semi-annual coupon of $25. what is the current yield?
The current surrender of the corporate bond is around 52.63%.
The current abdicate of a corporate bond is calculated by partitioning the yearly coupon installment by the bond's current advertise cost. In this case, the bond is exchanging at 95, which implies it is estimated at 95% of its confront esteem.
The semi-annual coupon installment is $25. To calculate the yearly coupon installment, we duplicate the semi-annual installment by 2 ($25 x 2 = $50).
The current surrender is at that point calculated as takes after:
Current Abdicate = (Yearly Coupon Installment / Current Showcase Cost) x 100
Stopping within the values, we get:
Current Surrender = ($50 / 95) x 100 = 52.63%
This demonstrates the return an speculator would win on the bond in case they bought it at its current showcase cost and held it for one year, based on the coupon installments gotten. Be beyond any doubt that current abdicate does not consider potential changes within the bond's cost over time.
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Case:
Your team has just been hired by a company to advise the firm’s capital budgeting division. The company has raised a sum of money, which will be invested in a new project. From your team of financial specialists, they are seeking advice on the financial feasibility of one of the proposed projects, and its potential effects on the wealth of the shareholders of the company. Over the last two years, the company has already spent $100,000 on R&D for the newly proposed project. If the company would decide to actually go ahead with the project, the initial investment in the required equipment is expected to be $1,010,000. The new project is expected to run for 10 years, and after that point the project will be retired. The expectation is that at the end of the project, the assets of the project can be sold at a residual value of only 1% of their original value. Half of the total sum which the company has raised for this project has been borrowed at an interest rate equal to the average cost of debt of the company of 4.4%. In the first year the project is expected to generate a revenue of $606,000, and in the following years the revenues of this new project are expected to grow by 8.1% each year. Your team will have to determine the rest of the cash flows associated with this proposed project. The CFO of the company has indicated that it would be reasonable to expect that the operating costs of the new plant will be of similar proportion relative to the revenues as the company’s other projects, which is at 65%. The new project would require an additional NWC of $20,200. Depreciation of the new equipment should be done in a straight-line over the full life of the project to a value of 0. Based on the already existing projects of the company, which will be running for the foreseeable future, the company is currently able to pay a stable yearly dividend of $5.00 per share. The company has 100,000 shares outstanding, and the shareholders require a return of 14.7%. The company is financed for 70% with equity, and 30% with debt (that is including the new loan). The effective tax rate for the company is 11%. If the company would decide to go ahead with the project, the yearly cash flows of the project can be partially paid out to the shareholders, and partially reinvested in other projects. The CFO has indicated that the company intends to have a payout ratio of 40%, such that each year 40% of free cash flows of the project will be paid as dividends.
Requested advice: The company is asking your team for financial advice on two issues:
(1) A demonstration of the expected yearly cash flows from the project. Remember, members of the senior management team often do not have a finance background, so you will have to present clear tables which show the calculation of the free cash flows, and clearly explain how the free cash flows were computed. You basically have to explain them to them in your presentation how capital budgeting works.
(2) A demonstration of the effect of the proposed project on the wealth of the shareholders, if the company would decide to go ahead with the project (regardless of your recommendation) and apply the suggested payout ratio. Present a well-designed figure that shows year by year, the change in the wealth of shareholders (= the share price + total dividends received). Also show their yearly capital gains and dividend yields.
Hints:
o Calculate for every year of the project the total dividends paid. (= the stable dividend from existing projects + the paid dividends from the project)
o Calculate for every year the 3-year average growth rate in total dividends – that is the average of the dividend growth rate over that year and the growth rate over the previous two years. (This can be done from year 3 onwards)
o Calculate for each year (from year 3 onwards) the share price using the DDM. You can use the average growth rate over the previous 3 years as the expected dividend growth rate in future.
The discount rate is 12%.
How to solve for the discount rateThe efficiency of a project is determined using the Net Present Value (NPV) and Internal Rate of Return (IRR) methods.
Both NPV and IRR are essential tools in capital budgeting, which helps companies evaluate the viability of new projects or investments. NPV calculates the difference between the present value of cash inflows and outflows over a specific time period. On the other hand, IRR measures the profitability of potential investments.
In the given case, the following information is provided:
Amount spent on Research & Development (R&D): $100,000
Expected initial investment: $1,040,000
Project duration: 10 years
Residual value of assets: 4% of their original value
Average cost of debt of the company: 4.4%
Revenue in the first year: $624,000
Annual revenue growth: 8.4%
Operating costs: 65%
Additional Net Working Capital (NWC): $20,800
Depreciation of new equipment: Straight-line method over the project's life to a value of 0
Stable yearly dividend per share: $5.00
Outstanding shares: 100,000
Cost of equity: 14.7%
Equity: 70%
Debt: 30%
Effective tax rate: 14%
Payout ratio: 40%
NPV and IRR are calculated based on the discount rate, which is the cost of capital.
The cost of capital is determined as follows:
Cost of capital = Cost of debt + Cost of equity
= (Total equity * Cost of equity) + (Total debt * Cost of debt)
= (0.7 * 14.7%) + (0.3 * 4.4%)
= 10.29% + 1.32%
= 11.61%
Therefore, the discount rate is 12%.
Using this discount rate, the NPV and IRR can be calculated to assess the project's efficiency.
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Panademic of 2020 has lots of effects in the buisness
and how they operate it. How could businesses use project
management can help to solve all the challenges and respond to new
ways of working? 300
Businesses can use project management to effectively address the challenges brought about by the pandemic and adapt to new ways of working by providing structure, coordination, and efficient management of resources.
The pandemic of 2020 has significantly disrupted businesses worldwide, requiring them to navigate through unprecedented challenges. Project management offers a systematic approach to tackle these obstacles and respond to the new ways of working that have emerged. By implementing project management methodologies, businesses can establish clear objectives, define project scopes, allocate resources effectively, and develop strategic plans to address the changing landscape.
Project management provides businesses with a structured framework to prioritize and execute tasks, ensuring efficient coordination and collaboration among teams. It enables businesses to adapt quickly, identify risks, and implement mitigation strategies to minimize disruptions. Project management also facilitates effective communication, allowing teams to stay connected, share information, and make informed decisions in real-time.
Furthermore, project management helps businesses optimize resource allocation, budgeting, and scheduling, enabling them to maximize productivity and meet changing demands. It allows businesses to monitor progress, track key performance indicators, and make data-driven decisions to stay agile in uncertain times.
In summary, project management empowers businesses to navigate the challenges posed by the pandemic and embrace new ways of working. It provides a structured approach to manage projects, coordinate resources, and adapt to evolving circumstances. By leveraging project management principles, businesses can enhance their ability to respond effectively, drive innovation, and ensure long-term success in the face of uncertainty.
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a client in the 33 percent marginal tax bracket is comparing a municipal bond that offers a 5.00 percent yield to maturity and a similar-risk corporate bond that offers a 6.70 percent yield. determine the equivalent taxable yield. note: round your answer to 2 decimal places. which bond will give the client more profit after taxes?
The equivalent taxable yield is 4.67 percent. The municipal bond will give the client more profit after taxes.
To determine the equivalent taxable yield, we need to compare the after-tax yields of the municipal bond and the corporate bond. Since the municipal bond is tax-exempt, its yield is not subject to federal income tax. However, the corporate bond's yield is fully taxable.
To calculate the equivalent taxable yield, we subtract the tax savings from the municipal bond's yield. The tax savings can be calculated by multiplying the municipal bond yield (5.00 percent) by the client's marginal tax rate (33 percent). The tax savings is 1.65 percent (5.00 percent * 0.33).
The equivalent taxable yield is obtained by subtracting the tax savings from the municipal bond yield: 5.00 percent - 1.65 percent = 3.35 percent.
Therefore, the equivalent taxable yield is 4.67 percent (6.70 percent - 1.65 percent). Since the corporate bond's yield of 6.70 percent is higher than the equivalent taxable yield of the municipal bond, the corporate bond will give the client more profit after taxes.
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Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?
$333
$320
$500
$280
The answer is $320.To calculate the sales price, we first need to find the amount of markup. Markup is calculated by multiplying the cost of the product by the markup percentage. In this case, the markup is $200 x 60% = $120.
The sales price is then calculated by adding the markup to the cost of the product. In this case, the sales price is $200 + $120 = $320.Here is an explanation of the calculation:
Cost-plus pricing is a pricing strategy where the seller adds a markup to the cost of the product to arrive at a selling price. The markup percentage is the amount of profit that the seller wants to make on each sale. The sales price is the price that the seller charges the customer for the product.
In this case, the cost-plus pricing strategy is used to determine the sales price of a suit that costs $200. The markup percentage is 60%, which means that the seller wants to make a profit of $120 on each sale. The sales price is therefore $200 + $120 = $320.
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Att Ner plant property, and equiment Total assets 38,000,000 101.000.000 000000 AZ Labtes and courty Accounts payable Accruals Current liabilities Long term det (40.000 bonds. 51.000 par value) Totalities Common stock (10,000,000 shares) Retained earning Total shareholders equity Total abilities and shareholders equity $10.000000 9.000.000 $ 19,000,000 10.000.000 3459.000.000 30.000.000 50.000.000 80.000.000 $139.000.000 The stock is currently selling for 515 25 pershare, and its moncallable $1,000 para o year, 7.25 bonds with manual payment for 5575.00. The betales. the yield one 6 month Treasury billion, and the field of Treasury bond in SS The required return on the stock market is ok, but the market badan 1450 during the past years. The firm's tax rate 125 Refer to the data for the Collins Group. What is the best estimate of the art cost of debt? 5. C60 O O. 10-10
To calculate the best estimate of the after-tax cost of debt for the Collins Group, we need to determine the yield to maturity of the company's bonds.
Given:
Number of bonds: 40,000
Par value: $1,000
Coupon rate: 7.25%
Current market price: $575.00
First, we calculate the annual interest payment:
Annual interest payment = Par value x Coupon rate = $1,000 x 7.25% = $72.50
Next, we calculate the yield to maturity (YTM) using the current market price and the annual interest payment:
YTM = (Annual interest payment / Current market price) + (Annual interest payment / Current market price) / 2
YTM = ($72.50 / $575.00) + ($72.50 / $575.00) / 2
YTM = 0.1261 + 0.0630
YTM = 0.1891 or 18.91%
Since the tax rate is given as 12.5%, we can calculate the after-tax cost of debt:
After-tax cost of debt = YTM x (1 - Tax rate)
After-tax cost of debt = 0.1891 x (1 - 0.125)
After-tax cost of debt = 0.1891 x 0.875
After-tax cost of debt = 0.1656 or 16.56%
Therefore, the best estimate of the after-tax cost of debt for the Collins Group is 16.56%.
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Union Local School District has bonds outstanding with a coupon rate of 3.7 percent paid semiannually and 16 years to maturity. The yield to maturity on these bonds is 3.9 percent and the bonds have a par value of $5,000. What is the dollar price of the bond? Settlement date Maturity date Coupon rate Coupons per year Redemption value (% of par) Yield to maturity Par value $ 1/1/2000 1/1/2016 3.70% 2 100 3.90% 5,000 Complete the following analysis. Do not hard code values in your calculations. Leave the "Basis" input blank in the function. You must use the built-in Excel function to answer this question. Dollar price
The dollar price of the bond is $6,139.19.
Semiannual coupon payment, Coupon rate = 3.7%, Coupon per year = 2, Par value = $5,000, Coupon payment = Coupon rate * Par value / Coupon per year= 3.7% * $5,000 / 2= $92.50
Total number of coupon payments: Total number of years to maturity = 16, Coupon per year = 2, Total number of coupon payments = Total number of years to maturity * Coupon per year= 16 * 2= 32
Present value of each coupon payment: Yield to maturity = 3.9% / 2 = 1.95% (semiannual yield to maturity), Coupon payment = $92.50, Number of semiannual periods = 32, Present value of each coupon payment = Coupon payment / (1 + Yield to maturity)^n= $92.50 / (1 + 1.95%)^1= $90.8689
Present value of the face value: Yield to maturity = 3.9% / 2 = 1.95% (semiannual yield to maturity), Face value = $5,000, Number of semiannual periods = 32, Present value of the face value = Face value / (1 + Yield to maturity)^n= $5,000 / (1 + 1.95%)^32= $2,908.3136
The dollar price of the bond: Dollar price of the bond = Present value of all coupon payments + Present value of the face value= $90.8689 * 32 + $2,908.3136= $6,139.19. A bond is a fixed-income security that pays interest to the bondholders at a specific rate called the coupon rate until the maturity date. A bond's yield to maturity (YTM) is the interest rate that equates the bond's current market price to its face value. The dollar price of a bond is the present value of all the future cash flows (coupon payments and face value) discounted at the bond's yield to maturity. The Union Local School District has a bond outstanding with a coupon rate of 3.7 per cent paid semiannually and 16 years to maturity. The yield to maturity on these bonds is 3.9 per cent, and the bonds have a par value of $5,000. To calculate the dollar price of the bond, we need to discount all the future cash flows to their present value and add them up. The semiannual coupon payment can be calculated as Coupon rate * Par value / Coupon per year = 3.7% * $5,000 / 2 = $92.50.The total number of coupon payments can be calculated as the Total number of years to maturity * Coupon per year = 16 * 2 = 32. The present value of each coupon payment can be calculated as Coupon payment / (1 + Yield to maturity)^n = $92.50 / (1 + 1.95%)^1 = $90.8689. Similarly, the present value of the face value can be calculated as Face value / (1 + Yield to maturity)^n = $5,000 / (1 + 1.95%)^32 = $2,908.3136.
The dollar price of the bond can be calculated as the present value of all coupon payments plus the present value of the face value, which is $6,139.19. Therefore, the Union Local School District bond is priced at a premium, as the dollar price of the bond is higher than the face value of $5,000. The dollar price of the Union Local School District bond is $6,139.19. The bond is priced at a premium as the dollar price of the bond is higher than the face value of $5,000. To calculate the dollar price of the bond, we first calculated the semiannual coupon payment, the total number of coupon payments, the present value of each coupon payment and the face value. Finally, we added up the present value of all coupon payments and the face value to arrive at the dollar price of the bond.
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Explain the Harrod-Domar model, Rostow’s Stage Theory, and
Lewis’ Structural Change Theory. Examine their similarities and
differences and how we can reconcile the differences?
The Harrod-Domar model and Rostow’s Stage Theory are both theories of economic growth and development that have been extensively used in explaining different aspects of economic growth.
The Harrod-Domar model states that the rate of economic growth depends on the level of savings and investment in an economy, while Rostow’s Stage Theory states that economies go through five stages of growth from traditional to modern. Despite their differences, both models provide insights into the process of economic growth and development in different contexts.The Harrod-Domar model was developed by economists Roy F. Harrod and Evsey Domar in the 1930s. It is a simple framework that relates the rate of economic growth to the level of savings and investment in an economy.
According to the model, an increase in savings and investment will lead to an increase in the rate of economic growth, which will in turn lead to higher levels of savings and investment. The model assumes that there is a constant relationship between the level of capital stock and output, and that the capital-output ratio is fixed in the short run. It also assumes that all investment is financed by savings.Rostow’s Stage Theory, on the other hand, is a more complex framework that describes the process of economic growth and development in different stages. According to Rostow, economies go through five stages of growth from traditional to modern: traditional society, preconditions for take-off, take-off, drive to maturity, and high mass consumption.
In the traditional society stage, the economy is based on subsistence agriculture and there is little or no trade. In the preconditions for take-off stage, the economy starts to diversify and there is an increase in investment in infrastructure. In the take-off stage, the economy experiences sustained growth and there is a rapid increase in industrialization. In the drive to maturity stage, the economy diversifies further and there is an increase in the level of technology. In the high mass consumption stage, the economy is characterized by high levels of consumption and services.Overall, both models provide insights into the process of economic growth and development in different contexts. While the Harrod-Domar model is more focused on the role of savings and investment in economic growth, Rostow’s Stage Theory provides a broader framework for understanding the different stages of economic growth.
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if the residual value is not guaranteed by baker but is instead guaranteed by a third party, how would each company classify the lease?
If the residual value is not guaranteed by Baker but is instead guaranteed by a third party, Grygiel Company would classify the lease as an operating lease, while Baker Company would also classify it as an operating lease.
When the residual value is guaranteed by a third party, it means that the risk associated with the machine's value at the end of the lease term is transferred to that third party. In this case, Grygiel Company, as the lessor, would classify the lease as an operating lease. This is because Grygiel does not retain the significant risks and rewards of ownership, and the lease term is less than a major part of the machine's expected economic life.
Similarly, Baker Company, as the lessee, would also classify the lease as an operating lease. This is because Baker does not have the risks and rewards of ownership, and the lease term is less than a major part of the machine's expected economic life. The guarantee of the residual value by a third party does not alter the classification of the lease for the lessee.
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------------The given question is incomplete, the complete question is:
"Guaranteed and Unguaranteed Residual Values
Grygiel Company leases a nonspecialized machine with a fair value of $80,000 to Baker Company. The lease has a life of 6 years and requires a $12,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.
If the residual value is not guaranteed by Baker but is instead guaranteed by a third party, how would each company classify the lease?"---------
inventory records for eliza company revealed the following: date transaction number of units unit cost march 1 beginning inventory 1,000 $ 7.20 march 10 purchase 600 7.25 march 16 purchase 800 7.30 march 23 purchase 600 7.35 eliza sold 2,300 units of inventory during the month. cost of goods sold assuming fifo would be:
The cost of goods sold assuming FIFO is $21,800.
FIFO (First-in, first-out) is an inventory costing method that is used to calculate the cost of goods sold.
It is based on the principle that the goods that come in first are the ones that are sold first.
Under the FIFO method, the first goods purchased are the first ones sold, and the most recent goods purchased are the last ones sold.
Inventory records for Eliza company show that the company had the following transactions in March:
Date Transaction Number of Units Unit Cost March 1Beginning inventory1,000$7.
20March 10Purchase6007.25March 16Purchase8007.30March 23Purchase6007.35
The company sold 2,300 units of inventory during the month.
The cost of goods sold assuming FIFO would be calculated as follows:
First, we need to determine the cost of goods sold for the units sold on March 1.
The cost of these units is $7.20 per unit, which means that the total cost of these units is
$7.20 x 1,000 = $7,200.
Next, we need to determine the cost of goods sold for the units sold on March 10.
The company purchased these units for $7.25 each, which means that the total cost of these units is
$7.25 x 600 = $4,350.
Next, we need to determine the cost of goods sold for the units sold on March 16.
The company purchased these units for $7.30 each, which means that the total cost of these units is
$7.30 x 800 = $5,840.
Next, we need to determine the cost of goods sold for the units sold on March 23.
The company purchased these units for $7.35 each, which means that the total cost of these units is
$7.35 x 600 = $4,410.
The total cost of goods sold is
$7,200 + $4,350 + $5,840 + $4,410 = $21,800.
Therefore, the cost of goods sold assuming FIFO is $21,800.
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y courses / Financial Accounting Practice BBAC301 22T2 / Assessments 01 Week 2 Online Quiz Opening Capital = $500,000 Capital contributed during the year = $130,000 Profit during the year = $240,000 C
The closing capital for the year is $790,000, calculated as the opening capital plus capital contributions, minus drawings, and plus profit.
Based on the information provided, the calculation of the closing capital can be done as follows:
Opening Capital: $500,000
Capital contributed during the year: $130,000
Profit during the year: $240,000
Drawings during the year: $80,000
To calculate the closing capital, we need to consider the changes in capital during the year. The formula is:
Closing Capital = Opening Capital + Capital contributed - Drawings + Profit
Plugging in the given values:
Closing Capital = $500,000 + $130,000 - $80,000 + $240,000
Closing Capital = $790,000
Therefore, the closing capital for the year is $790,000.
It's important to note that the closing capital represents the remaining amount of capital at the end of the year after considering the contributions, drawings, and profits.
This figure indicates the financial position of the business and can be used to determine the owner's equity in the company.
It's also worth mentioning that additional information, such as the treatment of income taxes or any other adjustments, could impact the calculation of closing capital.
However, based on the given information, the calculation above represents a straightforward determination of the closing capital.
The complete question is:
"Opening Capital = $500,000
Capital contributed during the year = $130,000
Profit during the year = $240,000
Find the closing capital."
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The aim of import tariffs is to encourage the entry of foreign goods into a country's market.
a. true
b. false
The statement "The aim of import tariffs is to encourage the entry of foreign goods into a country's market" is false because it is to discourage imports and encourage the consumption of domestically produced goods
The import tariffs are taxes levied on foreign goods that are brought into the country. The primary goal of these tariffs is to protect domestic industries from foreign competition by making imported goods more expensive, therefore reducing the demand for foreign goods.
Tariffs also serve as a source of revenue for the government of the importing country, which can be used to fund various public programs or to reduce the budget deficit.
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To emphasize the importance of honesty in filling out application forms employees should fill out an attestation clause. In this context, what is an attestation clause. O a. A clause that states that the information provided is true and complete to the applicant's knowledge O b. A clause that states that the applicant is always honest and would never be untruthful O c. A clause that states that applicants who lie will be prosecuted and be charged criminally Od. A clause that states that the employer will be truthful throughout the job application process
"A clause that states that the information provided is true and complete to the applicant's knowledge" Option A
What is the clause?A statement that asks the person filling out an application form or other document to acknowledge the veracity and correctness of the information provided is known as an attestation clause. It acts as the applicant's declaration or a bold statement from the person that is trying to apply, to the best of their knowledge, the information they have submitted is truthful and complete.
It is frequently employed to stress the value of honesty and integrity in entirety of the procedure that is involved in a recruitment and interview exercise as stated.
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Consider a market with two firms, A and B. The market demand is p = 150 - Q, where Q = 9A + 9B, që is the quantity of firm A, and ¶³ is the quantity of firm B. Assume both firms have the same marginal cost MC-30. How much will each firm choose to produce in Cournot equilibrium?
Each firm will produce 33.33 units and 38.89 units of output respectively in Cournot equilibrium.
According to the Cournot Model, the optimal amount produced by each firm is given by:
qi = a - bqi
where a = (α + β) / 2β and b = 1 / 2β
In this case, we have two firms, A and B. So the output of each firm is given by:
qa = (α + βqb)/2β and
qb = (α + βqa)/2β
Substituting values in the above two equations, we getqa = (150-3qa - 3qb)/6 and
qb = (150-3qa - 3qb)/6
Simplifying the above two equations, we get
qa = (150 - qb)/3 ---------(1)
qb = (150 - qa)/3 ---------(2)
To find the equilibrium output, we need to substitute equation (2) into (1)
qa = (150 - (150 - qa)/3)/3
qa = 300/9
qa = 33.33
and qb = (150 - qa)/3
qb = (150 - 33.33)/3
qb = 38.89
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