Answer:
Since the capital account and owner's equity accounts are expected to have credit balances, the drawing account (having a debit balance) is considered to be a contra account. In addition, the drawing account is a temporary account since its balance is closed to the capital account at the end of each accounting year.
Explanation:
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Answer:
a. ROE (r) = 13% = 0.13
EPS = $3.60
Expected dividend (D1) = 50% x $3.60 = $1.80
Plowback ratio (b) = 50% = 0.50
Cost of equity (ke) = 12% = 0.12
Growth rate = r x b
Growth rate = 0.13 x 0.50 = 0.065
Po= D1/Ke-g
Po = $1.80/0.12-0.065
Po = $1.80/0.055
Po = $32.73
P/E ratio = <u>Current market price per share</u>
Earnings per share
P/E ratio = <u>$32.73</u>
$3.60
P/E ratio = 9.09
b. ER(S) = Rf + β(Rm - Rf)
ER(S) = 5 + 1.2(13 - 5)
ER(S) = 5 + 9.6
ER(S) = 14.6%
Explanation:
In the first part of the question, there is need to calculate the expected dividend, which is dividend pay-our ratio of 50% multiplied by earnings per share. We also need to calculate the growth rate, which is plowback ratio multiplied by ROE. Then, we will calculate the current market price, which equals expected dividend divided by the difference between return on stock (Ke) and growth rate. Finally, the price-earnings ratio is calculated as current market price per share divided by earnings per share.
In the second part of the question, Cost of equity (return on stock) is a function of risk-free rate plus beta multiplied by market risk-premium. Market risk premium is market return minus risk-free rate.
Answer:
$22,500
Explanation:
Data given in the question
Purchase value of the patent = $175,000
Legal fees = $5,000
The Remaining life of the patent = 13 years
Expected using life of the patent = 8 years
So by considering the above information, the annual amortization expense for 2019 is
= (Purchase value of the patent + Legal fees incurred) ÷ (Expected using life of the patent)
= ($175,000 + $5,000) ÷ (8 years)
= $22,500
Answer:
$28,000
Explanation:
When closing inventory is understated during an year, it would lead to understated profits during the year i.e understated net income for the year 2018.
So, correct pre tax income for 2018 would be,
= reported pre tax income + the amount by which closing inventory was understated
= $25,000 + $2000 = $27000
Now, since the same closing inventory would become the opening inventory for 2019, this means, the opening inventory for 2019 was understated.
When opening inventory is understated, it would lead to inflated net income for the year 2019. Thus, the extent by which the inventory has been understated has to be reduced from the reported pre tax profits for the year 2019.
Hence, correct pre tax income for 2019 would be,
= $30,000 - $2000 = $28000
Answer:unearned revenue, Supplies, prepaid rent
Explanation:
