Tom Ajax purchases a tiny home for his elderly mother. After a large down payment, he finances $\$88,600$ at $7\frac{1}{4}$ for $10$ years. Prepare a repayment schedule for the first two payments. (See the Example discussed before .)

$$\begin{array}{ccccc} \begin{array}{}\text{Payment}\\\text{Number}\end{array}& \begin{array}{}\text{Total}\\\text{Payment}\end{array}& \begin{array}{}\text{Interest}\\\text{Payment}\end{array}& \begin{array}{}\text{Principal}\\\text{Payment}\end{array}& \begin{array}{}\text{Remaining}\\\text{Balance}\end{array}\\ \end{array}$$

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)

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. Compute the discount rate.

On July 31, 2020. Amsterdam Company engaged Minsk Tooling Company to construct a special-purpose piece of factory machinery. Construction began immediately and was completed on November 1, 2020. To help finance construction, on July 31 Amsterdam issued a $300,000, 3-year, 12% note payable at Netherlands National Bank, on which interest is payable each July 31.$200,000 of the proceeds of the note was paid to Minsk on July 31. The remainder of the proceeds was temporarily invested in short-term marketable securities (trading securities) at 10% until November 1. On November 1, Amsterdam made a final $100,000 payment to Minsk. Other than the note to the Netherlands, Amsterdam's only outstanding liability at December 31, 2020, is a$30,000, 8%, 6-year note payable, dated January 1, 2017, on which interest is payable each December 31.

Instructions

a. Calculate weighted average accumulated expenditures, avoidable interest, and total interest cost to be capitalized during 2020. (Round all computations to the nearest dollar.)

b. Prepare the journal entries needed on the books of Amsterdam Company at each of the following dates.

1. July 31, 2020.

2. November 1, 2020

3. December 31, 2020.

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.

What is the dollar amount of discounts granted under the current and the proposed credit policies?

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?

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.

Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers. On August 1, 2020, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge. Kimmel also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2020, and mature on September 30, 2022. Kimmel's operating cycle is less than one year.

Instructions

a. 1. Using the net method, how should Kimmel account for the sales discounts at the date of sale? What is the rationale for the amount recorded as sales under the net method?

2. Using the net method, what is the effect on Kimmel's sales revenues and net income when cus tomers do not take the sales discounts?

b. What is the effect of trade discounts on sales revenues and accounts receivable? Why?

c. How should Kimmel account for the accounts receivable factored on August 1, 2020? Why?

d. How should Kimmel account for the note receivable and the related interest on December 31, 2020? Why?

Did you know that you can get lots of financial information free of charge? Go to finance.yahoo.com. Use the quote lookup located on the left side to get financial information about any publicly traded company. 1. For your company of choice, obtain the most recent income statement and balance sheet information by clicking on the financials in the bottom left hand corner. 2. Click on competitors to obtain a direct competitor comparison with your company of choice. Select a competing company and obtain their most recent income statement and balance sheet information. 3. Calculate the following risk ratios for both companies for the most recent year. Based on these calculations, which company appears to be more risky? a. Receivables turnover ratio. b. Inventory turnover ratio. c. Current ratio. d. Acid-test ratio. e. Debt to equity ratio. 4. Calculate the following profitability ratios for both companies for the most recent year. Based on these calculations, which company appears to be more profitable? a. Gross profit ratio. b. Return on assets. c. Profit margin. d. Asset turnover. e. Return on equity.

Apolitical action group is planning to interview home owners to assess the impact caused by a recent slump in housing prices. According to a Wall Street Journal/Harris Interactive Personal Finance poll, 26% of individuals aged 18–34, 50% of individuals aged 35–44, and 88% of individuals aged 55 and over are home owners (All Business website, January 23, 2008). a. How many people from the 18–34 age group must be sampled to find an expected number of at least 20 home owners? b. How many people from the 35–44 age group must be sampled to find an expected number of at least 20 home owners? c. How many people from the 55 and over age group must be sampled to find an expected number of at least 20 home owners? d. If the number of 18–34 year olds sampled is equal to the value identified in part (a), what is the standard deviation of the number who will be home owners? e. If the number of 35–44 year olds sampled is equal to the value identified in part (b), what is the standard deviation of the number who will be home owners?

Union Market Wholesale Ltd and RFL Wholesale are two major wholesale organisations that supply small and medium-sized retail businesses.

$$\begin{array}{|l|l|l|l|l|l|l|l|l|} \hline & \textbf{ Debtors } & \textbf{ Inventories } & \textbf{ Cost of } & \textbf{ Revenue } & \textbf{ Capital } & \textbf{ Long-term } & \textbf{ Creditors } & \textbf{ Credit } \\ &\textbf{ (\$m) } & \textbf{ 31 December} & \textbf{ sales 2014 } & \textbf{ 2014 (\$m) } & \textbf{ employed } & \textbf{ loans 31 } & \textbf{ (accounts } & \textbf{ purchases } \\ && \textbf{ 2014 (\$m) } & \textbf{ (\$m) } && \textbf{ (\$m)} & \textbf { December } & \textbf{ payable) } & \textbf{ 2014 (\$m) } \\ &&&&&& \textbf{ 2014 (\$m) } & \textbf{ 31 December }\\ &&&&&&& \textbf{ 2014 (\$m) } \\ \hline\text { Union Market } & 300 & 73 & 580 & 1120 & 1575 & 500 & 58 & 300 \\ \text { Wholesale Ltd } \\ \hline \text { RFL Wholesale } & 330 & 150 & 750 & 1460 & 2050 & 1025 & 105 & 550 \\ \hline \end{array}$$

RFL Wholesale is planning to invest in a new expansion project costing $\$ 75$ million. It is considering raising finance either by selling inventories or by taking a bank loan. Discuss the advantages and disadvantages of these two options.

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 conversations 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.

&emsp: 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 each feature.

QUESTION

Any positive covenants. Also, discuss several possible positive covenants S&S Air might consider.

Grieg Landscaping began construction of a new plant on December 1, 2020. On this date, the company purchased a parcel of land for $139,000 in cash. In addition, it paid$2,000 in surveying costs and $4,000 for a title insurance policy. An old dwelling on the premises was demolished at a cost of$3,000, with $1,000 being received from the sale of materials.

Architectural plans were also formalized on December 1, 2020, when the architect was paid$30,000. The necessary building permits costing $3,000 were obtained from the city and paid for on December 1 as well. The excavation work began during the first week in December with payments made to the contractor in 2021 as follows.

$$\begin{array} {lcccc} \underline{\hspace{5pt}\text{Date of Payment}\hspace{5pt}}&\underline{\hspace{2pt}\text{Amount of Payment}\hspace{2pt}}\\ \text{March 1}& \hspace{10pt}\text{\$240,000}&\\ \text{May 1}& \hspace{10pt}\text{\hspace{5pt}330,000}&\\ \text{July 1}& \text{\hspace{20pt}60,000}&\\ \end{array}$$

The building was completed on July 1, 2021.

To finance construction of this plant, Grieg borrowed $600,000 from the bank on December 1, 2020, Grieg had no other borrowings. The$600,000 was a 10-year loan bearing interest at 8%.

Instructions

Compute the balance in each of the following accounts at December 31, 2020, and December 31, 2021. (Round amounts to the nearest dollar.)

a. Land.

b. Buildings.

c. Interest Expense.

Sunset Boards is a small company that manufactures and sells surfboards in Malibu. Tad Marks, the founder of the company, is in charge of the design and sale of the surfboards, but his background is in surfing, not business. Hence, the company’s financial records are not well maintained.

 The initial investment in Sunset Boards was provided by Tad and his friends and family. Because the initial investment was relatively small, and the company has made surf-boards only for its own store, the investors haven’t required detailed financial statements from Tad. But thanks to word of mouth among professional surfers, sales have picked up recently, and Tad is considering a major expansion. His plans include opening another surfboard store in Hawaii, as well as supplying his “sticks” (surfer lingo for boards) to other sellers.

Tad’s expansion plans require a significant investment, which he plans to finance with a combination of additional funds from outsiders along with some money borrowed from banks. Naturally, the new investors and creditors require more organized and detailed financial statements than Tad has previously prepared. At the urging of his investors, Tad has hired financial analyst Christina Wolfe to evaluate the performance of the company over the past year.

 After rooting through old bank statements, sales receipts, tax returns, and other records, Christina has assembled the following information:

Sunset Boards currently pays out 40% of net income as dividends to Tad and the other original investors, and it has a 30% tax rate. You are Christina’s assistant, and she has asked you to prepare the following:

1. An income statement for 2014 and 2015.

2. A balance sheet for 2014 and 2015.

3. Operating cash flow for each year.

4. Cash flow from assets for 2015.

5. Cash flow to creditors for 2015.

6. Cash flow to stockholders for 2015.

QUESTION

In light of your discussion in the previous question, what do you think about Tad’s expansion plans?