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Nataly_w [17]
3 years ago
14

What is meant by allocative efficiency? Allocative efficiency is when every good or service A. is produced up to the point where

price equals marginal cost B. Is produced at lowest possible cost C. produced generates an equal amount of consumer surplus and producer surplus D. is produced up to the point where price equals marginal revenue E. is produced up to the point where the difference between the marginal benefit for consumers and the marginal cost of producing it is maximized
Business
1 answer:
Alborosie3 years ago
5 0

Answer:

Option (E) is correct.

Explanation:

Allocative efficiency is created when the gap between marginal benefit and marginal cost is maximum. The marginal benefit is the benefit that a consumer can get by consuming an additional unit of a commodity and the marginal cost is the cost that a producer incurred by producing an additional unit.

Hence, the allocative efficiency is achieved where the difference between these two terms is maximized.

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(Lessee-Lessor Entries, Sales-Type Lease; Guaranteed Residual Value) Phelps Company leases a building to Walsh, Inc. on January
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<u>Solution and Explanation:</u>

Calculation of Minimum lease annual payments from (MLP)    

Year  MLP from lessor       Present value                   Present valur of

                  point of view    factor 8%                    cash flows

1                  $4,703                  1 /(1.08)=0925   $4,350.28

2                    $4,703                  1 /(1.08)^{\wedge} 2=0.857 $4,030.47

3                   $4,703               1 /(1.08)^{\wedge} 3=0.793  $3,729.48

4                 $4,703               1 /(1.08)^{\wedge} 4=0.735  $3,456.71

5                   $4,703              1 /(1.08)^{\wedge} 5=0.680  $3,198.04

   

Total of Minimum

lease Payments  $23,515                                       $ 18,764.97

Add    

Unguaranteed

residual value(ugrv)  4000  1 /(1.08)^{\wedge 5}=0.680  $2,720.00

Asset to be recorded

in the books of lessor

(sum of mlp +ugrv)  $27,515                             $ 21,484.97

Here        

Gross Investment=$27515        

Lease receivable recorded in in the books of lessor(Phelps)(Mimum lease payments + Unguaranteed residual )value = $21484  $21,484      

Walsh (lessee) shoiuld be recorded the amount of present value of minimum lease payments + Guaranteed Residual value=$18764.97 as asset and liabilty            

b) In the books of phelps (lessor)        

2017.01.01  Lease Recievble from walsh ….Dr  $21,484      

                                 to Asset                              $21,484      

(Being Lease receivable recorded )        

In the books of Walsh (lessee)        

2017.01.01  Asset ac ……………Dr  $18,764        

         to Lease Liabilty(Lessor)               $18,764      

(Being the asset and liabilty recorded )                

2017.12.31  Depreciation ……Dr  3752        

                            to Asset                      3752        

(Beint Depreciation recorded charged during the year recorded 18764/5 provided for 5 years)

Here annual payment started from the at the beginning of year i.e annual lease payments start from 01.01.2018.

c)  If expected residual value of $4000 is guaranteed by walsh no changes will be made in classification of lease and there is no chages in asset recorded in Lessor books. But changes will be made in the books of lessee as present value of guaranteed residual value should be added to asset I.e $18764+Present vlue of $4000     $18764+2720=21484

d)   If expected residual value of $3000 is guaranteed by walsh no changes will be made in classification of lease and there is no chages in asset recorded in Lessor books But changes will be made in the books of lessee as present value of guaranteed residual value should be added to asset    I.e $18764+Present vlue of $3000       $18764+$2040=$20804

 

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