Indicate whether the following instruments are examples of money market or capital market securities. a. U.S. Treasury bills. b. Long-term corporate bonds. c. Common stocks. d. Preferred stocks. e. Dealer commercial paper.

Indicate whether the following instruments are examples of money market or capital market securities.

Common stocks

What would happen to the U.S. standard of living if people lost faith in the safety of the financial institutions? Explain.

Describe the different ways in which capital can be transferred from suppliers of capital to those who are demanding capital.

Pearson Brothers recently reported an EBITDA of $\$ 7.5$ million and net income of $\$ 1.8$ million. It had $\$ 2.0$ million of interest expense, and its corporate tax rate was $40 \%$. What was its charge for depreciation and amortization?

The rate of return on which one of the following is used as the risk-free rate?

A. U.S. Treasury bill
B. Long-term government bond
C. Inflation, as measured by the Consumer Price Index
D. Long-term corporate bonds

A total of $15,000 is invested in two corporate bonds that pay 5% and 7% simple annual interest. The investor wants to earn$880 in interest per year from the bonds. How much should be invested in each bond?

Indicate whether the following instruments are examples of money market or capital market securities.

Long-term corporate bonds

What is the corporate mission statement of your company (assuming it has one—if not, how would you go about writing one for it)? How well do the company’s actions carry out its stated mission?

Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 9% annual coupon, matures in 12 years, and has a$1,000 face value. Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 9%. a. Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. b. Calculate the price of each of the three bonds. c. Calculate the current yield for each of the three bonds. d. If the yield to maturity for each bond remains at 9%, what will be the price of each bond 1 year from now? What is the expected capital gains yield for each bond? What is the expected total return for each bond?

Calvin Inc. has operating segments in five different industries: apparel, building, chemical, furniture, and machinery. Data for the five segments for 20X1 are as follows:

$$\begin{array}{lrrrrr} & \textbf{Apparel} & \textbf{Building} & \textbf{Chemical} & \textbf{Furniture} & \textbf{Machinery}\\ \\ \text{Sales to nonaffiliates} & \$870,000 & \$750,000 & \$55,000 & \$95,000 & \$180,000\\ \text{Intersegment sales} &&& 5,000 & 15,000 & 140,000\\ \text{Cost of goods sold} & 480,000 & 450,000 & 42,000 & 78,000 & 150,000\\ \text{Selling expenses} & 160,000 & 40,000 & 10,000 & 20,000 & 30,000\\ \text{Other traceable}\\ \text{$\quad$expenses} & 40,000 & 30,000 & 6,000 & 12,000 & 18,000\\ \text{Allocated general}\\ \text{$\quad$corporate expenses} & 80,000 & 75,000 & 7,000 & 13,000 & 25,000\\ \text{Other information:}\\ \text{$\quad$Segment assets} & 610,000 & 560,000 & 80,000 & 90,000 & 140,000\\ \text{$\quad$Depreciation expense} & 60,000 & 50,000 & 10,000 & 11,000 & 25,000\\ \text{$\quad$Capital expenditures} & 20,000 & 30,000 &&& 15,000\\ \end{array}$$

Additional Information

1. The corporate headquarters had general corporate expenses totaling $235,000. For internal reporting purposes,$200,000 of these expenses were allocated to the divisions based on their cost of goods sold. The chief operating decision maker does not use the other corporate expenses for making segmental decisions.

2. The company has an inter-corporate transfer pricing policy that all intersegment sales shall be priced at cost. All intersegment sales were sold to outsiders by December 31, 20X1.

3. Corporate headquarters had assets of $125,000 that the chief operating decision maker did not use for making segmental decisions.

4. The depreciation expense (listed in the section titled Other Information) has already been added into cost of goods sold in accordance with the company's cost measurement policies.

Required

Prepare a segmental disclosure worksheet for Calvin Inc.

Scott Snapp contracted with Castlebrook Builders, Inc., which was owned by Stephen Kappeler, to remodel a house. Kappeler estimated that the remodeling would cost around $500,000. Eventually, however, Snapp paid Kappeler more than$1.3 million. Snapp filed a suit in an Ohio state court against Castlebrook, alleging breach of contract and fraud, among other things. During the trial, it was revealed that Castlebrook had issued no shares of stock and that personal and corporate funds had been commingled. The minutes of the corporate meetings all looked exactly the same. In addition, Kappeler could not provide an accounting for the Snapp project. In particular, he could not explain evidence of double and triple billing nor demonstrate that the amount Snapp paid had actually been spent on the remodeling project. Are these sufficient grounds to pierce the corporate veil? Explain.

A member of the board of directors is concerned that the company’s income statement reports income tax expense of $12.3 million, but the income tax obligation to the government for the year is only$7.9 million. How might the corporate controller explain this difference?

Cathy Carpenter, controller of the Sweet and Salty Snacks is preparing a presentation to senior executives about the performance of its four divisions. Summary data related to the four divisions for the most recent year are as follows: Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($1.2 million in the most recent year) and allocated to each division on the basis of its actual revenues. The top managers in each division share in a division-income bonus pool. Division income is defined as operating income less allocated corporate costs. Carpenter has analyzed the components of corporate costs and proposes that corporate costs be collected in four cost pools. The components of corporate costs for the most recent year and Carpenter’s suggested cost pools and allocation bases are as follows:$

$$\begin{matrix} \text{} & \text{} & \text{DIVISIONS} & \text{} & \text{} & \text{}\\ \text{} & \text{Candy} & \text{Nuts} & \text{Crackers} & \text{Cookies} & \text{Total}\\ \text{Revenues} & \text{\$870,000} & \text{\$975,000} & \text{\$654,000} & \text{\$501,000} & \text{\$3,000,000}\\ \text{Operating Costs} & \text{330,800} & \text{378,000} & \text{658,000} & \text{314,000} & \text{1,680,000}\\ \text{Operating Income} & \text{\$539,200} & \text{\$597,000} & \text{(\$4,000)} & \text{\$187,000} & \text{\$1,319,200}\\ \text{} & \text{} & \text{} & \text{} & \text{} & \text{}\\ \text{Identifiable assets} & \text{\$1,800,000} & \text{\$2,880,000} & \text{\$1,440,000} & \text{\$1,080,000} & \text{\$7,200,000}\\ \text{Number of employees} & \text{3,600} & \text{6,600} & \text{2,700} & \text{2,100} & \text{1,5000}\\ \end{matrix}$$

$$\begin{matrix} \text{Corporate Cost Category} & \text{Amount} & \text{Suggested Cost Pool} & \text{Suggested Allocation Base}\\ \text{Interest on debt} & \text{\$380,000} & \text{Cost Pool 1} & \text{Identifiable Allocation Base}\\ \text{Corporate salaries} & \text{200,000} & \text{Cost Pool 2} & \text{}\\ \text{Accounting and control} & \text{160,000} & \text{Cost Pool 2} & \text{Division revenues}\\ \text{General marketing} & \text{170,000} & \text{Cost Pool 2} & \text{}\\ \text{Public affairs} & \text{150,000} & \text{Cost Pool 3} & \text{Positive operating income}\\ \text{Personnel and payroll} & \text{140,000} & \text{Cost Pool 4} & \text{Number of employees}\\ \text{Total} & \text{\$1,200,000} & \text{} & \text{}\\ \text{} & \text{} & \text{} & \text{}\\ \text{Carpenten proposes that this cost be allocated using the operating income (if positive) of divisions,} & \text{} & \text{} & \text{}\\ \text{with only divisions with positive operating income included in the allocation base.} & \text{} & \text{} & \text{}\\ \end{matrix}$$

$ 1. Discuss two reasons why Sweet and Salty Snacks should allocate corporate costs to each division. 2. Calculate the operating income of each division when all corporate costs are allocated based on revenues of each division. 3. Calculate the operating income of each division when all corporate costs are allocated using the four cost pools. 4. How do you think the division managers will receive the new proposal? What are the strengths and weaknesses of Carpenter's proposal relative to the existing single cost-pool method?