Earned Interest
Earned Interest that is yet to be paid to the holder of the note is __________.
periodicity assumption
accrued interest
prepaid expense
systematic allocation
payroll
As you prepare payroll for the next pay period, the primary accounts impacted are
cash and salaries expense.
salaries payable and accounts receivable.
cash and salaries payable.
salaries payable and salaries expense.
trial balance
Which accounts do not appear in the post-closing trial balance?
Accounts receivable
Cash
Expenses
Retained earnings
purchase of assets
Which of the following is the process for recording the purchase of assets and then gradually transferring their cost to expense?
Depreciation
Matching principle
Prepaid expenses
Immediate recognition
business transactions
Which of the following is used to summarize and interpret all business transactions, resulting in useful financial data for the purposes of investment and business management?
Source documents |
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Accounting systems |
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Chart of Accounts |
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General Ledger |
Wombat Ltd
Wombat Ltd’s balance sheet and statement of financial position shows an item of machinery that cost $150,000 and that has accumulated depreciation of $40,000. For taxation purposes the asset has a net value of $90,000. Wombat Ltd also has interest receivable of $15,000 which will not be taxed by the ATO until it is received. Wombat has a provision for warranty expenses with a balance of $100,000. All of the provision was created in the current financial year, and no amounts have been paid. The warranty expense is not deductible until such time as the costs associated with the warranty are actually paid. The tax rate is 30 percent.
Required:
Calculate any deferred tax assets and liabilities for Wombat Ltd and provide the relevant journal entries.
Angola Superheros
Angola Superheros, Inc. is considering launching a production of a new superhero toy. The production and sales are expected to last 4 years. The project would require a new machine, with a cost of $1,000,000. The machine would be depreciated using the straight-line method over 8 years to zero value after year 8. After 4 years, at the end of the project, the machine is expected to be sold for $30,000. The company estimates that 40,000 toys would be sold annually, at a selling price of $20 per unit. The variable cost of producing each unit is estimated to be $5. In addition, the company will have to pay fixed costs equal to $35,000 each year. The relevant cost of capital is 14%, and the company faces a 25% marginal tax rate.
a. Compute the project’s cash flows in years 0-4, calculate the net present worth of the project and its internal rate of return, and determine whether the project should be accepted. Explain your answer.
b. Run a Monte Carlo simulation, varying the variable cost per unit, the annual fixed cost, and the number of units sold. Assume that the variable cost per unit has a mean of $5 and standard deviation of $0.20, that the annual fixed cost has a mean of $35,000 and standard deviation of $2,000, and that the number of units sold annually has a mean of 40,000 and standard deviation of 1,500, and that all three variables follow normal distribution. Compute the present worth of the project for 100 simulation runs. Based on the simulation results, compute the average net present worth and the threshold for the 5% of worst possible outcomes. Comment on the results, the uncertainty of the project’s net present worth, and whether the project should be accepted.
c. Use the data table function to construct a table showing the net present worth of the project, while varying the selling price per unit and the cost of capital. Use the following selling prices in your table: 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, and 25. Use the following cost of capital in your table: 9%, 10%, 11%, 12%, 13%, 14%, 15%, 16%, 17%, 18%, and 19%. Comment on the sensitivity of the project’s present worth to the cost of capital and the selling price per unit.
Angola United Theaters
Angola United Theaters, Inc. is considering opening a new movie theater in Angola, Indiana. The relevant cost of capital is 8%. The purchase, renovation, and modification of a downtown building would require an initial investment of $1.5 million. The theater is expected to be operational for 25 years. After 25 years, the property would be sold for $1 million. The annual operating cost is equal to $100,000 plus $2 per customer. The annual revenues are estimated at $15 per customer. Determine the minimum number of customers per year that would result in accepting the project. (Hint: use annualized worth and solve for the number of customers. Do not use Goal Seek or Solver; perform all of the necessary calculations directly in the Excel cells.)
RBC’s operations
What are the advantages of the possible upgrading of RBC’s operations in Thailand to a branch status?
