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Montano1993 [528]
3 years ago
9

During the course of your examination of the financial statements of the Hales Corporation for the year ended December 31, 2021,

you discover the following:
1) An insurance policy covering three years was purchased on January 1, 2021, for $5,400. The entire amount was debited to insurance expense and no adjusting entry was recorded for this item.
2) During 2021, the company received a $775 cash advance from a customer for merchandise to be manufactured and shipped in 2022. The $775 was credited to sales revenue. No entry was recorded for the cost of merchandise.
3) There were no supplies listed in the balance sheet under assets. However, you discover that supplies costing $795 were on hand at December 31.
4) Hales borrowed $22,000 from a local bank on October 1, 2021. Principal and interest at 12% will be paid on September 30, 2022. No accrual was recorded for interest.
5) Net income reported in the 2021 income statement is $37,000 before reflecting any of the above items.
Required:
Determine the proper amount of net income for 2021. (Amounts to be deducted should be indicated by a minus sign.)
Business
1 answer:
Licemer1 [7]3 years ago
7 0

Answer:

$39,960

Explanation:

Considering all the transactions recorded;

When insurance is paid in advance, the entries required are  

Debit Prepaid Insurance

Credit Cash account

As time elapses and the insurance expires,

Debit Insurance expense

As such amount that should have been posted to insurance expense

= $5400/3

= $1800

Adjustment required

= $5400 - $1800

= $3600

When a fee is received in advance for a service yet to be rendered, the revenue for such fee is said to be unearned. The entries required are

Debit Cash account and Credit Unearned fees or deferred revenue.

As the service is performed and the revenue is earned, debit Unearned fees and credit revenue.

Hence the revenue will be deducted ($775).

When the inventory closing balance is understated, the cost of goods sold is overstated and as such the net income which is posted to the retained earnings will be understated . $795

Interest expense to be recognized

= 12% * 3/12 * $22,000

= $660

the proper amount of net income for 2021

= $37,000 - $660 - $775 + $3600 + $795

= $39,960

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Explain how some of the behavioral biases discussed in the chapter might contribute to the successof technical trading rules.
kirill115 [55]

Answer:

A number of the behavioral biases discussed in the chapter might contribute to such trends and patterns. For example, a conservatism bias might contribute to a trend in prices as investors gradually take new information in to account, resulting in gradual adjustment of prices towards their fundamental values.

Explanation:

Step by step explanation:

1. Technical analysis can generally be viewed as a search for trends or patterns in market prices. Technical analysts tend to view these trends as momentum, or

gradual adjustments to ‘correct’ prices, or, alternatively, reversals of trends. A number of the behavioral biases discussed in the chapter might contribute to such trends and patterns. For example, a conservatism bias might contribute to a trend in prices as investors gradually take new information into account, resulting in gradual adjustment of prices towards their fundamental values. Another example derives from the concept of representativeness, which leads investors to inappropriately conclude, on the basis of a small sample of data, that a pattern has

been established that will continue well into the future. When investors

subsequently become aware of the fact that prices have overreacted, corrections reverse the initial erroneous trend.

2. Even if many investors exhibit behavioral biases, security prices might still be set efficiently if the actions of arbitrageurs move prices to their intrinsic values. Arbitrageurs who observe mispricing in the securities markets would buy

underpriced securities (or possibly sell short overpriced securities) in order to profit from the anticipated subsequent changes as prices move to their intrinsic values.

Consequently, securities prices would still exhibit the characteristics of an efficient market.

3. One of the major factors limiting the ability of rational investors to take advantage of any ‘pricing errors’ that result from the actions of behavioral investors is the fact

that a mispricing can get worse over time. An example of this fundamental risk is the apparent ongoing overpricing of the NASDAQ index in the late 1990s. A

related factor is the inherent costs and limits related to short selling, which restrict the extent to which arbitrage can force overpriced securities (or indexes) to move

towards their fair values. Rational investors must also be aware of the risk that an apparent mispricing is, in fact, a consequence of model risk; that is, the perceived

mispricing may not be real because the investor has used a faulty model to value the security

4. There are two reasons why behavioral biases might not affect equilibrium asset

prices: first, behavioral biases might contribute to the success of technical trading

rules as prices gradually adjust towards their intrinsic values, and second, the

actions of arbitrageurs might move security prices towards their intrinsic values. It

might be important for investors to be aware of these biases because either of these

scenarios might create the potential for excess profits even if behavioral biases do

not affect equilibrium prices.

In addition, an investor should be aware of his personal behavioral biases, even if

those biases do not affect equilibrium prices, to help avoid some of these

information processing errors (e.g. overconfidence or representativeness).

5. Efficient market advocates believe that publicly available information (and, for

advocates of strong-form efficiency, even insider information) is, at any point in

time, reflected in securities prices, and that price adjustments to new information

occur very quickly. Consequently, prices are at fair levels so that active

management is very unlikely to improve performance above that of a broadly

diversified index portfolio. In contrast, advocates of behavioral finance identify a

number of investor errors in information processing and decision making that could

result in mispricing of securities. However, the behavioral finance literature

generally does not provide guidance as to how these investor errors can be exploited

to generate excess profits. Therefore, in the absence of any profitable alternatives,

even if securities markets are not efficient, the optimal strategy might still be a

passive indexing strategy.

6. a. Davis uses loss aversion as the basis for her decision making. She holds on to

stocks that are down from the purchase price in the hopes that they will recover.

She is reluctant to accept a loss.

7. a. Shrum refuses to follow a stock after she sells it because she does not want to

experience the regret of seeing it rise. The behavioral characteristic used for the

basis for her decision making is the fear of regret.

8. a. Investors attempt to avoid regret by holding on to losers hoping the stocks will

rebound. If the stock rebounds to its original purchase price, the stock can be sold

with no regret. Investors also may try to avoid regret by distancing themselves from their decisions by hiring a full-service broker.

7 0
2 years ago
For 2014, Bakers Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per u
jeyben [28]

Answer:

1. $6 per machine hour

2. $5 per unit

Explanation:

1.

Indirect cost are those cost which are not directly traceable to the product / department / project. Actual indirect cost rate is the actual incurred cost per unit of activity on which it actually based. Actual Indirect cost rate can be calculated as the Actual indirect cost divided by the Actual indirect expense. As shown below

Actual Indirect cost rate = $300,000 / 50,000 = $6 per machine hour

2.

Profit margin the the net of Selling price and all direct and indirect expenses.  Direct cost is $3 per unit, which the indirect cost is $6 per machine hour, each unit consumes two machine hours.

Selling price        $20

Less:

Direct cost    $3

Indirect cost <u>$12</u>

(2x$6)

Total cost             <u>($15)</u>

Profit Margin         $5

Profit margin earned each unit is $5

8 0
3 years ago
What does the international banking system consist of?
iogann1982 [59]

Answer:

The correct answer is D. The international banking system consists of a network of world economic institutions.

Explanation:

The international banking system is a group of banks, financial associations, international economic groups and financial control authorities that, representing private interests and nations and through the signing of various treaties and agreements, regulate banking and financial activity both in the public and private spheres, affecting not only the economies of the different countries but the investment and development possibilities of billions of people. In general, the largest investment banks worldwide (such as JP Morgan Chase, HSBC, Wells Fargo, etc.) and the central banks of the different nations are part of this system, which in turn has the IMF and the World Bank, among other international organizations.

4 0
3 years ago
Read 2 more answers
While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial s
tatuchka [14]

Answer:

Larson did not have actual or constructive knowledge of the misstatements.

Explanation:

When a CPA conducts an audit of a firm's statements, they do not give a guarantee that all the firm's statements are accurate. Larson CPA is only giving an opinion that the books of its clients follows the generally accepted accounting practices.

They should however not knowing give opinion on statements that they know is untrue.

So the best defense for Larson Associates is that they did not have actual or constructive knowledge of the misstatements. Since they do not guarantee that all statements of the client is accurate.

8 0
2 years ago
State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash fl
Rudiy27

Answer:

A. Effect=CASH PAYMENT

Amount=$411,000

B. Effect=CASH RECEIPT

Amount=$440,000

C. Effect= CASH RECEIPT

Amount=$60,000

D. Effect= CASH PAYMENT

Amount=$650,000

E. Effect= CASH PAYMENT

Amount=$50,000

F.Effect=CASH RECEIPT

Amount=$490,000

G. Effect= CASH PAYMENT

Amount=$400,000

H. Effect=CASH PAYMENT

Amount=$1,320,000

Explanation:

Calculation to State the effect of cash receipt or payment and the amount

A. Based on the information given the effect will be CASH PAYMENT of the amount of $411,000

Effect= CASH PAYMENT

Amount=$411,000

B. Based on the information given the effect will be CASH RECEIPT of the amount of $440,000(20,000*$22))

Effect= CASH RECEIPT

Amount= $440,000

(20,000*$22)

C. Based on the information given the effect will be CASH RECEIPT of the amount of $60,000

Effect=CASH RECEIPT

Amount=$60,000

D. Based on the information given the effect will be CASH PAYMENT of the amount of $650,000

Effect=CASH PAYMENT

Amount= $650,000

E. Based on the information given the effect will be CASH PAYMENT of the amount of $50,000

Effect=CASH PAYMENT

Amount=$50,000

F. Based on the information given the effect will be CASH RECEIPT of the amount of $490,000 (98%*$500,000)

Effect=CASH RECEIPT

Amount=$490,000

(98%*$500,000)

G. Based on the information given the effect will be CASH PAYMENT of the amount of $400,000 (10,000*$40)

Effect=CASH PAYMENT

Amount=$400,000

(10,000*$40)

H. Based on the information given the effect will be CASH PAYMENT of the amount of $1,320,000 (1,000,0000*$1.50)-(120,000*$1.50)]

Effect= CASH PAYMENT

Amount=$1,320,000

[(1,000,0000*$1.50)-(120,000*$1.50)]

=$1,500,000-$180,000

=$1,320,000

8 0
2 years ago
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