Select the correct answer.

A financial analyst discovers that Stark Industries has been inappropriately capitalising R&D costs in each year and amortiz

Anvisha [2.4K]

Answer:

Stark Industries

a. Amount of total asset overstatement and expense understatement:

Total Asset and Expense Misstatements:

Assets Expenses

Overstatement Understatement

2017 $24m ($24m -$0) $24m

2018 $46m (24 -8 + 30)m $22m ($30m- $8m)

2019 $64m (46 -18 + 36)m $18m ($36m - $18m)

b. The Retained Earnings account will be misstated as a result of the above accounting treatment at the end of fiscal 2019.

c. Journal Entries:

June 30, 2019:

Debit R&D expense $82m

Credit Total assets $64m

Credit Amortization Expense $18m

To correct the R&D amortization and inappropriate capitalization.

Explanation:

a) Data and Calculations:

30 June 2019:

Total assets = $280m

Net income = $20m

Amortization R&D Amount

Expense Costs Capitalized

2017 $0 $24m $24m ($24m - $0)

2018 $8m $30m $46m ($24m - $8m + $30m)

2019 $18m $36m $64m ($46m - $18m + $36m)

Calculation of amortization expenses:

2017 R&D costs = $24m/3 = $8m

2018 R&D costs = $30m/3 = $10m

2019 R&D costs = $36m/3 =$12m

8 0

3 years ago

Louis Petit, a manager of Doggone Gorgeous, Inc., was reviewing the water bills of a dog daycare and spa. He determined that its

Sergeeva-Olga [200]

Answer:

Fixed cost = $1100

Explanation:

given data

Highest bill = $3,800

lowest bills = $2,000

dog washed in May = 600

dog washed in November = 200

to find out

fixed cost associated with the company's water bill

solution

first we get here variable cost that is express as

variable cost = (Highest bill - Lowest bill) ÷ ( Dogs washed may - Dogs washed November ) ...........1

put here value we get

variable cost = $\frac{3800-2000}{600-200}$

variable cost = $4.5 per dog

so fixed cost will be here as

Fixed cost = Total cost to wash 600 dogs - Variable cost to wash 600 dogs

Fixed cost = $3800 - $4.5 × 600 dogs

Fixed cost = $3800 - $2700

Fixed cost = $1100

7 0

3 years ago

One year ago, you entered into a futures contract to buy 100,000 euros at a futures contract price of $1.22, with a settlement d

Law Incorporation [45]

Answer:

Profit of $3000

Explanation:

The exchange rate of a future contract is usually fixed at the time when the contract is buy 100,000 euros at a futures contract price of $1.22.

The Value in dollars at the time is: $122,000

At the maturity spot rate of the euro is $1.25.

The value of the contract is: $125,000

The difference:

$125,000-122,000

=$3000.

Since the maturity spot rate is higher, there is a profit of $3000 from speculating with the futures contract.

8 0

3 years ago

Aaron's Rentals has 58,000 shares of common stock outstanding at a market price of $36 a share. The common stock just paid a $1.

snow_lady [41]

Answer:

The firm's weighted average cost of capital (WACC) is 7.76%.

Explanation:

Note: Par value of the preferred stock is $100 but it is omitted in the question.

Market price share = (Dividend just paid (1 + Dividend growth rate)) / (Cost of equity – Dividend growth rate) ………………………………….. (1)

Substituting the relevant values into equation and solve for cost of equity, we have:

36 = (1.64 * (1 + 0.028)) / (Cost of equity – 0.028)

36 = 1.68592/ (Cost of equity – 0.028)

36(Cost of equity – 0.028) = 1.68592

36Cost of equity - 1.008 = 1.68592

36Cost of equity = 11.68592 + 1.008

Cost of equity = (1.68592 + 1.008) / 36

Cost of equity = 0.0748, or 7.48%

Cost of preferred stock = (Par value * Dividend rate) / Current price = (100 * 6%) / 51 = 0.1176, or 11.76%

Cost of debt = Coupon rate * (100% - tax rate) = 8% * (100% - 34%) = 0.0528, or 5.28%

Common stock market value = 58,000 * $36 = $2,088,000

Preferred market value = 12,000 * $51 = $612,000

Bond market value = $750,000 * ($1,011 / $1,000) = $758,250

Total market value of the company = Common stock market value + Preferred market value + Bond market value = $2,088,000 + $612,000 + $758,250 = $3,458,250

WACC = (7.48% * ($2,088,000 / $3,458,250)) + (11.76% * (612,000 / $3,458,250)) + (5.28% * ($758,250/ $3,458,250)) = 0.0776, or 7.76%

4 0

3 years ago

Mia, an administrative assistant in the business division of a university, is assigned the responsibility of serving the needs o

Anika [276]

Answer: The professors have failed to engage Mia.

Explanation: Since Mia is an administrative officer, assigned with the role of serving the needs of the division's professor, her having plenty of ’free time’ simply tells the professors do not engage her well enough in her primary duty as an administrative officer to keep her busy.

4 0

4 years ago