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lions [1.4K]
3 years ago
5

Fast Turnstiles Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $41

4,000 in additional credit sales, 8% are likely to be uncollectible. The company will also incur $17,400 in additional collection expense. Production and marketing costs represent 76% of sales. The firm is in a 35% tax bracket and has a receivables turnover of five times. No other asset buildup will be required to service the new customers. The firm has a 10% desired return.
A-1. Calculate the incremental income after taxes.A-2. Calculate the return on incremental investment. A-3. Should Fast Turnstiles Co. extend credit to these customers?A. YesB. NoB-1. Calculate the incremental income after taxes if 11% of the new sales prove to be uncollectible.B-2. Calculate the return on incremental investment if 11% of the new sales prove to be uncollectible. B-3. Should credit be extended if 11% of the new sales prove uncollectible?A. YesB. NoC-1. Calculate the return on incremental investment if the receivables turnover drops to 1.6, and 8% of the accounts are uncollectible. C-2. Should credit be extended if the receivables turnover drops to 1.6, and 8% of the accounts are uncollectible?A. NoB. Yes
Business
1 answer:
k0ka [10]3 years ago
3 0

Answer:

Follows are the solution to this question:

Explanation:

In point A-1:

Calculating the value of Incremental sales after tax:  

Further revenues= $414,000  

Recognize(Less)=Costs

Debt worth =$33,120  

Set Exp. = $17,400    

Production and commercialization cost= $314,640  

Pre-sales tax =$48,840.  

Lower: 35%   tax = $17,094  

Incremental tax income =$31,746

In point A-2:

Determine profits for extra expenditure  

Extra spending on debts = \frac{ \$ 414,000}{\$ 5}

                                         = \$ 82,800.

Return on the Expenditure = \frac{\$ 31746}{ \$ 82800}

                                             = 38.34 \%

In point A-3:

Yeah, For the Fast Turnstiles company must provide certain consumers with loans.

In point B-1:

Incremental taxes after-tax calculation:  

Further sales = $ 414,000    

Return: Costs  

gross debt= $45,540    

Set Exp = $17,400  

Cost for production and marketing = $314,640  

Net profits=$ 36,420  

Without tax 35% = $12,747  

Incremental tax revenue= $23,673    

In point B-2:    

Determine profits for extra expenditure  

Extra investment in debts = \frac{ \$ 414,000 }{ \$ 5}

                                             = \$ 82,800

Incremental return on that investment = \frac{\$ 23673}{\$ 82800}

                                                                   = 28.59 \%  

In point B-3:      

Yeah, The Fast Turnstiles company must provide to certain consumers to credit.

In point C-1:    

The incremental tax revenue estimate  

$414,000 = excess revenue  

Remember Costs

Debt worth= $ 33,120  

set Exp = $17,400    

Production and commercialization cost=  $314,640  

Pre- sales  tax = $48,840.  

Less: 35% Tax = $17,094  

Incremental tax income=  $31,746  

Calculate profits for extra expenditure  

Extra Accounting Investment = \frac{\$ 414000}{1.6}

                                                 = \$ 258750

Incremental Return= \frac{\$ 31,746} {\$ 258,750}

                                = 12.27 \%

In point C-2:

Yeah, its credit should be granted to all these consumers through Fast Turnstiles company limited.

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Answer:

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Answer:

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At the beginning of year 2, a government entity had a $500,000 judgment outstanding. The government entity paid $400,000 of the
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8 0
1 year ago
The December 31, 2018, adjusted trial balance for Fightin' Blue Hens Corporation is presented below.Accounts Debit CreditCash $1
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Answer:

These can be prepared as shown below:

Explanation:

1. Prepare a statement of stockholder equity for the year ends December 31, 2018, assuming no common stock was issued during 2018.

To do this, the income statement is first prepared by ignoring tax as follows:

Fightin' Blue Hens Corporation

Income Statement

for the year ended December 31, 2018.

Details                                                                    $

Service Revenue                                           300,000

Salaries Expense                                         (200,000)

Rent Expense                                                  (10,000)

Depreciation Expense                                   (20,000)

Interest Expense                                           <u>   (3,000) </u>

Earnings for the year                                   <u>   67,000 </u>

Therefore, we have:

Fightin' Blue Hens Corporation

Statement of Stockholder Equity

for the year ends December 31, 2018

Details                                                                    $

Common stock                                               100,000

Retained Earnings                                           40,000

Earnings for the year                                    <u>   67,000</u>

Stockholder Equity                                      <u> 207,000 </u>

2. Prepare a classified balance sheet as of December 31, 2018.

A balance sheet is a balance sheet that have different classifications suchas fixed assets, current assets and liabilities, long-term liabilities, and stockholder equity. This can be prepared as follows:

Fightin' Blue Hens Corporation

Classified Balance Sheet

for the year ends December 31, 2018

Details                                                          $                   $

<u>Fixed Assets</u>

Equipment                                           200,000

Accumulated Depreciation              <u>   (115,000) </u>    

Net Fixed Assets                                                          85,000  

<u>Current Assets</u>

Cash                                                        10,000

Accounts Receivable                           130,000

Prepaid Rent                                            4,000

Supplies                                               <u>  20,000 </u>

Total current assets                             164,000

<u>Current Liabilities</u>

Accounts Payable                                (10,000)

Salaries Payable                                    (9,000)

Interest Payable                                   <u>  (3,000) </u>

Working capital                                                            142,000

<u>Long-term Liabilities</u>

Notes Payable (due in two years)                              <u> (20,000) </u>

Net Total Assets                                                         <u> 207,000</u>

Financed by:

Common stock                                                              100,000

Retained Earnings                                                          40,000

Earnings for the year                                                   <u>   67,000</u>

Stockholder Equity                                                      <u> 207,000 </u>

Note: When a balance sheet is accurately prepared, the net total assets and the stockholder equity must be equal as above with both equaling $207,000.

6 0
3 years ago
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