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Andre45 [30]
3 years ago
7

Lewis Company traded machinery with a book value of $950,000 and a fair value of $900,000. It received in exchange from Timmons

Company a machine with a fair value of $1,000,000. Lewis also paid cash of $100,000 in the exchange. Timmons s machine has a book value of $950,000. What amount of gain or loss should Lewis recognize on the exchange (assuming lack of commercial substance)
Business
1 answer:
Komok [63]3 years ago
8 0

Answer:

Lewis should recognize a gain on the exchane of $13,636

Explanation:

In order to calculate the amount of gain or loss should Lewis recognize on the exchange, first we have to determine the amount of gain with the followig formula:

Gain=Total value of the machine received-Book value of machine exchanged

     =(cash received+fair value of machine received)- $950,000

     =($100,000+$1,000,000)-$950,000

     =$ 150,000

Next, In order to calculate the amount of gain or loss should Lewis recognize on the exchange we have to use the following formula:

recognize gain or loss=( <u>      cash received       )</u>× gain

                    cash received+fair value of equipment received

                                   =  (<u>    $ 100,000     </u>)× 150,000

                                  $100,000+$1,000,000

                                   =$13,636

Lewis should recognize a gain on the exchane of $13,636

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Answer:

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Giving the following information:

Predetermined overhead rate= $9 per direct labor hour.

Actual direct labor hours= 26,000

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Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 9*26,000

Allocated MOH= $234,000

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3 years ago
Roselawn Company reported net sales of $90,000 and net income of $18,000 for the previous year ended December 31. The company re
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Answer:

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Explanation:

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Profit Margin = \frac{20000}{100000} X 100

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2 years ago
Starset, Inc., has a target debt-equity ratio of 1.15. Its WACC is 8.6 percent, and the tax rate is 21 percent.
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Answer:

a. 4.94%

b. 11.48%

Explanation:

Here in this question, we are interested in calculating the pretax cost of debt and cost of equity.

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a. From the question;

The debt equity ratio = 1.15

since Equity = 1 ; Then

Total debt + Total equity = 1 + 1.15 = 2.15

Mathematically ;

WACC = Cost of equity x Weight of equity + Pretax Cost of debt x Weight of debt x (1-Tax rate)

Where WACC = 8.6%

Cost of equity = 14%

Weight of equity = 1/(total debt + total equity) = 1/(1+1.15) = 1/2.15

Pretax cost of debt = ?

Weight of debt = debt equity ratio/total cost of debt = 1.15/2.15

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Substituting these values, we have;

8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)

8.6% = 14% x 1/2.15 + Pretax cost of debt x 1.15/2.15 x (1-21%)

Pretax cost debt = (8.6%-6.511628%)/(1.15/2.15 x (1-21%))

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Cost of equity = (8.6%-3.26279%)/(1/2.15)

Cost of equity = 11.48%

6 0
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