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Andre45 [30]
3 years ago
14

Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketing strategy to c

ompete with Burger King. The contract spans eight months. Burger Boy promises to pay $96,000 at the end of each month. At the end of the contract, Velocity either will give Burger Boy a refund of $32,000 or will be entitled to an additional $32,000 bonus, depending on whether sales at Burger Boy at year-end have increased to a target level. At the inception of the contract, Velocity estimates an 80% chance that it will earn the $32,000 bonus and calculates the contract price based on the expected value of future payments to be received. At the start of the fifth month, circumstances change, and Velocity revises to 60% its estimate of the probability that it will earn the bonus. At the end of the contract, Velocity receives the additional consideration of $32,000.
Business
1 answer:
romanna [79]3 years ago
5 0

Answer:

the journal entries:

to record the contract

Dr Accounts receivable 96,000

Dr Bonus receivable 2,400

    Cr Service revenue 98,400

to record adjustment of bonus receivable at month 5:

Dr Service revenue 6,400

    Cr Bonus receivable 6,400

to record service revenue for the fifth month:

Dr Accounts receivable 96,000

Dr Bonus receivable 800

    Cr Service revenue 96,800

to record getting the bonus:

Dr Cash 32,000

    Cr Bonus receivable 6,400

    Cr Service revenue 25,600

Explanation:

total value of the contract:

[($96,000 x 8) + $32,000] x 0.8 = $640,000

[($96,000 x 8) - $32,000] x 0.2 = $147,200

total expected value = $787,200

expected value of the bonus = $787,200 - ($96,000 x 8) = $19,200, monthly bonus receivable $19,200 / 8 = $2,400

the adjustments required during the fifth month:

[($96,000 x 8) + $32,000] x 0.6 = $480,000

[($96,000 x 8) - $32,000] x 0.4 = $294,400

total expected value = $774,400

expected value of the bonus = $774,400 - ($96,000 x 8) = $6,400, monthly bonus receivable $6,400 / 8 = $800

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Broker Burns is negotiating a first trust deed loan for buyers. The buyers have signed a contract for a fifteen year loan. What
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Answer:

The answer is 2. Ten percent of the principal of the loan

Explanation:

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A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. The arbit
stealth61 [152]

The arbitrage profit implied by these prices is $5.24.

<h3>Arbitrage profit</h3>

Given:

Future contract= 1645

Sport gold price = 1592

Risk-free rate (rf) = .03

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Arbitrage profit=1645-[1592(1+1.03)¹]

Arbitrage profit=1645- 1639.76

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5 0
1 year ago
Three weeks ago, you purchased a July 45 put option on RPJ stock at an option price of $3.20. The market price of RPJ stock thre
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Answer:

$25

Explanation:

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Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is C
sertanlavr [38]

Answer:

C. A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.

Explanation:

I prepared a summary of an amortization schedule to explain this:

principal = $100,000

r = 8% annual

n = 360 months

first payment = $733.76: $666.67 are interests and only $67.09 reduces principal

second payment = $733.76: $665.95 are interests and only $67.54 reduces principal

last payment = $733.76: $4.90 are interests and only $728.86 reduces principal to $0

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