A person purchased a house 10 years ago for $160,000. The house was financed by paying 20% down and signing a 30-year mortgage at 7.75% on the unpaid balance. Equal monthly payments were made to amortize the loan over a 30-year period. The owner now (after the 120th payment) wishes to refinance the house due to a need for additional cash. If the loan company agrees to a new 30-year mortgage of 80% of the new appraised value of the house, which is$225,000, how much cash (to the nearest dollar) will the owner receive after repaying the balance of the original mortgage?

Dragonfly Limited (Dragonfly), a diversified electronics firm headquartered in Singapore, reported the following income statement information for its year ended December 31, Year 7. Dragonfly applies Singapore financial reporting standards and reports its results in thousands of Singapore dollars ($). In answering this problem, assume Dragonfly uses either U.S. GAAP or IFRS; for purposes of this problem, this choice will not matter.$

$$\begin{array}{lr} &{\text { Year } 7} \\ \hline \text{Sales}&\$ 460,830 \\ \text{Cost of Sales}&(416,378) \\ \hline\text{Gross Profit}& 44,452 \\ \text{Other Income }&1,558 \\ \text{Selling and Marketing Costs}&(20,714) \\ \text{General and Administrative Costs}&(20,254) \\ \text{Development Costs}&(1,232) \\ \text{Finance Costs, net}&(6,692) \\ \text{Gain on Sale of Land}&6,546 \\ \text{Share in Results of Associated Companies}&(2) \\ \hline \text{Profit Before Tax}&3,662 \\ \text{Taxation}&(1,094) \\ \hline \text{Profit (Loss)}& \$2,568 \\ \hline \hline \text{Portion of Profit Owned by Minority Interests}&(567) \\ \text{Portion of Profit Owned by Shareholders}&3,135 \\ \hline \end{array}$$

$Assume that Dragonfly supplied additional information about the following six hypothetical transactions or events that happened during Year 7, with all monetary amounts reported in thousands of Singapore dollars.

For each transaction, determine whether revenues and expenses for Year 7 are over- or understated.

e. In December Year 7, Dragonfly recognized interest income on investments in marketable securities of$230. The firm included this income in sales revenues.

Interstate Automobiles Corporation leased 40 vans to VIP Transport under a four-year noncancelable lease on January 1, 2018. Information concerning the lease and the vans follows:

a. Equal annual lease payments of $\$ 300,000$ are due on January 1, 2018, and thereafter on December 31 each year. The first payment was made January 1, 2018. Interstate's implicit interest rate is $10 \%$ and known by VIP. b. VIP has the option to purchase all of the vans at the end of the lease for a total of $\$ 290,000$. The vans' estimated residual value is $\$ 300,000$ at the end of the lease term and $\$ 50,000$ at the end of 7 years, the estimated life of each van. c. VIP estimates the fair value of the vans to be $\$ 1,240,000$. Interstate's cost was $\$ 1,050,000$. d. VIP's incremental borrowing rate is $9 \%$. e. VIP will pay the maintenance fees not included in the annual lease payments of $\$ 1,000$ per year. The depreciation method is straight-line. Your instructor will divide the class into two to six groups depending on the size of the class. The mission of your group is to assess the proper recording and reporting of the lease described.

Required:

1. Each group member should deliberate the situation independently and draft a tentative argument prior to the class session for which the case is assigned.
2. In class, each group will meet for 10 to 15 minutes in different areas of the classroom. During that meeting, group members will take turns sharing their suggestions for the purpose of arriving at a single group treatment.
3. After the allotted time, a spokesperson for each group (selected during the group meetings) will share the group's solution with the class. The goal of the class is to incorporate the views of each group into a consensus approach to the situation.

Specifically, you should address: a. Identify potential advantages to VIP of leasing the vans rather than purchasing them. b. How should the lease be classified by VIP? by Interstate? c. Regardless of your response to previous requirements, suppose VIP recorded the lease on January 1,2018 , as a finance lease in the amount of $\$ 1,100,000$. What would be the appropriate journal entries related to the finance lease for the second lease payment on December $31,2018 ?$

The Robinson Corporation has $\$ 43$ million of bonds outstanding that were issued at a coupon rate of $113 / 4$ percent seven years ago. Interest rates have fallen to $10^{3 / 4}$ percent. Mr. Brooks, the vice president of finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was $2.4$ percent of the total bond value. The underwriting cost on the new issue will be $1.7$ percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole number. Calculate the present value of total inflows.

What are two theories about migration to the Americas?

At Rydell High School the senior class is represented on six school committees by Annemarie (A), Gary (G), Jill (J), Kenneth (K), Michael (M), Norma (N), Paul (P), and Rosemary (R). The senior members of these committees are {A, G, J, P}, {G, J, K, R},{A, M, N, P}, {A, G, M, N, P}, (A, G, K, N, R}, and {G, K, N, R}. (a) The student government calls a meeting that requires the presence of exactly one senior member from each committee. Find a selection that maximizes the number of seniors involved. (b) Before the meeting, the finances of each committee are to be reviewed by a senior who is not on that committee. Can this be accomplished so that six different seniors are involved in this review process? If so, how?

The proper asset allocation for an investor planning for retirement changes dramatically over time. Investors who do not frequently update their asset allocation could be caught in a tragic investment scenario that significantly delays retirement. This is exactly what occurred in 2008, when many investors planning for retirement realized they had not reallocated their portfolios away from stocks and into fixed-income securities over the years, as they should have. Go to money.cnn.com and under the Personal Finance tab, select Calculators. Then choose the Asset Allocation calculator in the Investing category. Calculate an asset allocation for the following two scenarios: A. Need the money: 20 + years How much risk: As much as possible How flexible: If I miss my goal . . . OK During market sell-offs: See an opportunity to buy B. Need the money: 3–5 years How much risk: Not much at all How flexible: I can’t afford to miss my target During market sell-offs: Do nothing Explain the impact on an investor planning to retire in 3–5 years if the investor had maintained asset allocation A and not asset allocation B during the 2008 stock market crash.

Mark Sexton and Todd Story, the owners of S&S Air, have planned to expand their operations. They instructed their newly hired financial analyst, Chris Guthrie, to enlist an underwriter to help sell $35 million in new 10-year bonds to finance construction. Chris has entered into converstations with Renata Harper, an underwriter from the firm of Raines and Warren, about which bond features S&S Air should consider and what coupon rate the issue will likely have.

 Although Chris is aware of the bond features, he is uncertain about the costs and benefits of some features, so he isn’t sure how each feature would affect the coupon rate of the bond issue. You are Renata’s assistant, and she has asked you to prepare a memo to Chris describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages of the security of the bond—that is, determine whether the bond has collateral.

Ray now asks you to examine his company's credit policy to determine whether changes are needed. One of his employees, who graduated recently with a finance major, has recommended that the credit terms be changed from 2/10, net 30, to 3/20, net 45, and that both the credit standards and the collection policy be relaxed. According to the employee, such a change would cause sales to increase from $3.6 million to $4.0 million.

Currently, 62.5 percent of SSP's customers pay on Day 10 of the billing cycle and take the discount, 32 percent pay on Day 30, and 5.5 percent pay (on average) on Day 60. If the firm adopts the new credit policy, Ray thinks that 72.5 percent of customers would take the discount, 10 percent would pay on Day 45, and 17.5 percent would pay late, on Day 90. Bad debt losses for both policies are expected to be trivial.

SSP's variable operating costs are currently 75 percent of sales, its cost of funds is 10 percent, and its marginal tax rate is 40 percent. None of these factors would change as a result of a credit policy change. All cash payments associated with the production and sale of products (including credit costs) are made on the day the products are sold.

To help him decide whether to adopt the new policy, Ray has asked you to answer the question below.

Should SSP make the change?

James Kirk is a financial executive with McDowell Enterprises. Although James Kirk has not had any formal training in finance or accounting, he has a “good sense” for numbers and has helped the company grow from a very small company ($500,000 sales) to a large operation ($45 million in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which James Kirk feels a little “overhis head.” He therefore has decided to hire a new employee with “numbers” expertise to help him. As a basis for determining whom to employ, he has decided to ask each prospective employee to prepare answers to questions relating to the following situations he has encountered recently. Here are the questions.

• a. In 2016, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2017, McDowell took possession of the leased property. The 20-year lease is effective for the period January 1, 2017, through December 31, 2036. Advance rental payments of $800,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of$400,000 are due on January 1 for each of the last 10 years of the lease term. McDowell has an option to purchase all the leased facilities for $1 on December 31, 2036. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately$7,200,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest. Should the company have purchased rather than leased the facilities?
• b. Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost$90,000. What is the fair value of the note?
• c. The company has always followed the policy to take any cash discounts on goods purchased. Recently, the company purchased a large amount of raw materials at a price of $800,000 with terms 1/10, n/30 on which it took the discount. McDowell has recently estimated its cost of funds at 10%. Should McDowell continue this policy of always taking the cash discount?

The Flatiron Pub provides catering services to local businesses. The following information was available for The Flatiron Pub for the years ended December 31, 2019 and 2020.

Flatiron management is preparing for a meeting with its bank concerning renewal of a loan and has collected the following information related to the above balances.

1. The cash reported at December 31, 2020, reflects the following items: petty cash $1,575 and postage stamps$110. The other current assets balance at December 31, 2020, includes the checking account balance of $4,000.

2. On November 30, 2020, Flatiron agreed to accept a 6-month,$5,000 note bearing 12% interest, payable at maturity, from a major client in settlement of a $5,000 bill. The above balances do not reflect this transaction.

3. Flatiron factored some accounts receivable at the end of 2020, It transferred accounts totaling$10,000 to Final Factor, Inc. with recourse. Final Factor will receive the collections from Flatiron's customers and will retain 2% of the balances. Final Factor assesses Flatiron a finance charge of 3% on this transfer. The fair value of the recourse liability is $400. However, management has determined that the amount due from the factor and the fair value of the resource obligation have not been recorded, and neither are included in the balances above.

4. Flatiron charged off uncollectible accounts with balances of$1,600. On the basis of the latest available information, the 2020 provision for bad debts is estimated to be 2.5% of accounts receivable.

Accounting

a. Based on the above transactions, determine the balance for (1) Accounts Receivable and (2) Allow- ance for Doubtful Accounts at December 31, 2020.

b. Prepare the current assets section of The Flatiron Pub's balance sheet at December 31, 2020.

Analysis

a. Compute Flatiron's current ratio and accounts receivable turnover for December 31, 2020. Use these measures to analyze Flatiron's liquidity. The accounts receivable turnover in 2019 was 4.37.

b. Discuss how the analysis you did above of Flatiron's liquidity would be affected if Flatiron had trans- ferred the receivables in a secured borrowing transaction.

Principles

What is the conceptual basis for recording bad debt expense based on the percentage-of-receivables ap- proach at December 31, 2020?

The Robinson Corporation has $\$ 43$ million of bonds outstanding that were issued at a coupon rate of $113 / 4$ percent seven years ago. Interest rates have fallen to $10^{3 / 4}$ percent. Mr. Brooks, the vice president of finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was $2.4$ percent of the total bond value. The underwriting cost on the new issue will be $1.7$ percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole number. Calculate the present value of total outflows.

L.W. Clement and his brother Charles formed a partnership in the 1920s to run a plumbing business. The partnership lasted some 40 years. However Charles ultimately became suspicious of the way L.W., who had total control over the partnership finances, was handling partnership funds. He filed an equity suit maintaining that L.W. had used partnership funds to invest in personal real estate and insurance policies. The chancellor of equity heard the case and awarded Charles one-half interest in the real estate and insurance policies in question. The appellate court reversed the chancellor’s decision saying that Charles had no claim as he could not trace the flow of partnership funds into L.W.’s investments. The Supreme Court of Pennsylvania then agreed to hear the case. The issue as perceived by the Pennsylvania Supreme Court was whether L.W. owed to Charles the duty of negating the inference that the source of the funds for the investment was the partnership coffers. Decide. (Clement v. Clement, 260 A.2d 728)

(a) Plot either receipts and outlays or federal debt and GDP (plot both time series on the same graph).

(b) Describe the trend (if any) and discuss possible causes.

(c) Fit a trend of your choice to each.

(d) Interpret each fitted trend equation, explaining its implications.

(e) To whom is this issue relevant?