Embree Corp. purchased a four-year insurance policy on May 1, Year 2, for $12,000, effective immediately. The company expensed t
he full cost of the policy in Year 2. The correct journal entry for Year 2 (ending December 31) will include a_____________.
1 answer:
Answer:
a. Debit to Prepaid Insurance of $10,000
* Option for this question was missing so I have attached a similar question with this answer and answered accordingly.
Explanation:
Insurance purchased for four years was actually prepaid insurance on May 1, Year 2.
The company expensed all amount by positing following entry ( which is a wrong entry)
DR. Insurance Expense $12,000
Cr. Cash $12,000
It should be entered as follow:
DR. Prepaid Insurance $12,000
Cr. Cash $12,000
At the end of the year 2 8 months has been passed for which $2,000 is accrued and it will be recorded, as all the amount is charged to the expense account we will adjusted the remaining amount of $10,000 to correct this mistake.
Now at the end of year 2 the correct entry which will settle the expense and prepaid insurance as well is as follow.
DR. Prepaid Insurance $10,000
Cr. Insurance Expense $10,000
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Answer:
Cost of capital = 12.40%
Explanation:
given data
cost of equity = 15.4 percent
pretax cost of debt = 8.9 percent
debt-equity ratio = 0.46
tax rate = 34 percent
to find out
What is the cost of capital for this project
solution
first we get Equity multiplier that is express as
Equity multiplier = 1 + debt-equity ratio ..................1
put here value
Equity multiplier = 1 + 0.46
Equity multiplier = 1.46
and
Weight of equity will be
Weight of equity = ....................2
put here value
Weight of equity =
Weight of equity = 0.6849
and
Weight of Debt will be here
Weight of Debt = 1 - weight of equity ...........................3
put here value
Weight of Debt = 1 - 0.6849
Weight of Debt = 0.3151
so
Cost of capital will be here as
Cost of capital = Weight of Debt × pretax cost of debt × (1- tax rate ) + cost of equity × Weight of equity .....................4
put here value we get
Cost of capital = 0.3151 × 8.9% × (1 - 0.34) + 15.4% × 0.6849
Cost of capital = 12.40%