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coldgirl [10]
3 years ago
11

A customer got serious food poisoning from Chix Now restaurant on April 30, 20x2, necessitating a trip to the emergency room. On

May 6, 20x2, the customer initiated a lawsuit. At December 31, 20x2, Chix Now estimated its probable loss to be $100,000. In January 20x3, before issuance of Chix Now's financial statements, a judge ruled in favor of the customer and awarded the customer $120,000 in damages. Must the company recognize the effects of this ruling in its 20x2 financial statements
Business
1 answer:
vodka [1.7K]3 years ago
7 0

Answer:

Yes the company must recognise the effects of this ruling.

Explanation:

As provided the law suit was initiated in the year 20x2, because of the activity happened in April 20x2.

Accordingly, company was already prepared for a liability of $100,000.

Whenever an event that occurs after the balance sheet is a mere confirmation to what was expected on balance sheet date, or is in alignment with things on record on the balance sheet date, it shall be provided in the balance sheet of that year.

In the given case the law suit was pending on the balance sheet date and was recorded as a liability then, now after the declaration by the judge, the additional liability of $20,000 shall be provided in the financial books of year 20x2.

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The price of a gallon of gasoline was $0.35 in 1972 when the CPI equaled 0.418. The price of a gallon of gasoline was $2.25 in 2
lana66690 [7]

Answer:

increased

Explanation:

Data provided in the question:

Price of a gallon of gasoline in 1972 = $0.35

CPI in 1972 = 0.418

Price of a gallon of gasoline in 2005 = $2.25

CPI in 2005 = 1.68

Now,

Real cost in 1972 = [ Nominal cost in 1972 ] ÷ [ CPI in 1972 ]

= $0.35 ÷ 0.418

= $0.837

Real cost in 2005 = [ Nominal cost in 2005 ] ÷ [ CPI in 2005 ]

= $2.25 ÷ 1.68

= $1.34

Hence,

The price of gallon of gasoline increased between 1972 and 2005

3 0
3 years ago
During a certain year, the nominal interest rate was 7 percent, the real interest rate was 4 percent, and the CPI was 198.3 at t
Dima020 [189]

Answer:

CPI at the beginning of the year = 192.52

Explanation:

given data

nominal interest rate = 7 percent

real interest rate = 4 percent

CPI = 198.3

to find out

CPI at the beginning of the year

solution

we know that according to fisher equation

1 + r = \frac{1+n}{1+i}    ....................1

and for smaller values is equivalent to r

r = n - i           .....................2

here r is real interest rate and n is nominal interest rate and i is inflation rate

so from equation 2

4 = 7 - inflation rate

inflation rate = 3 percent

so

Rate of inflation = (CPI at the end of the year - CPI at the beginning of the year) × 100 ÷ CPI at the beginning of the year

put here value

3% = (198.3 - CPI at the beginning of the year) × 100 ÷  CPI at the beginning of the year

CPI at the beginning of the year = \frac{19830}{103}

CPI at the beginning of the year = 192.52

7 0
2 years ago
Hotaling Corporation is analyzing a capital expenditure that will involve a cash outlay of $146,040. Estimated cash flows are ex
Molodets [167]

Answer:

The solution shows that a rate of return of 10% which provides an annuity factor of 4.868 generates an NPV which is equal to zero. Thus, our IRR or internal rate of return is 10%.

Explanation:

The IRR or internal rate of return is the rate at which NPV or Net Present Value of the investment becomes zero. We are provided with the initial outlay for the project and the annual cash inflows along with time period. Using the annuity factors given below, we need to find out the factor which makes the NPV zero. The NPV is calculated as follows,

NPV = Present Value of Cash Inflows - Initial Outlay

We can try out each annuity factor and see what NPV is generates.

1. 6% rate (Annuity factor = 5.582)

NPV = (30000 * 5.582)  -  146040

NPV = $21420

2. 8% rate (Annuity factor = 5.206)

NPV = (30000 * 5.206)  -  146040

NPV = $10140

3. 10% rate (Annuity factor = 4.868)

NPV = (30000 * 4.868)  -  146040

NPV = $0

So, from the above solution we can see that a rate of return of 10% which provides an annuity factor of 4.868 generates an NPV which is equal to zero. Thus, our IRR or internal rate of return is 10%

4 0
3 years ago
Suppose that $2500 is placed in a savings account at an annual rate of 5%, compounded quarterly. Assuming that no withdrawals ar
babymother [125]

Answer:

number of periods = 8 years.

Explanation:

We know,

Future Value = Present value × (1 + r)^{n}

Here,

Present value = PV = $2,500

Future value = FV = $3,500

Interest rate (Compounding) = 5% = 0.05

We have to determine how many years (Periods) it will take, n = ?

Putting the values into the above formula,

$3,500 = $2,500 × (1 + 0.05)^{n}

or, (1 + 0.05)^{n} = $3,500 ÷ $2,500

or, n log 1.05 = 1.4

or, n × 0.17609 = 1.4

or, n =  1.4 ÷ 0.17609

Therefore, number of years = 7.95 or 8 years.

5 0
3 years ago
Diamond Company is considering investing in new equipment that will cost $1,400,000 with a 10-year useful life. The new equipmen
Rom4ik [11]

Answer:

6.1 y

Explanation:

Diamond Company

New equipment÷(Annual net income +Depreciation expense)

New equipment$1,400,000

Annual net income $90,000

Depreciation expense $140,000

$1,400,000 ÷ ($90,000 + $140,000)

=$1,400,000÷$230,000

= 6.1 y

Therefore the cash payback period will be 6.1 years

5 0
3 years ago
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