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Leni [432]
3 years ago
5

Andrew lives in New York City and runs a business that sells boats. In an average year, he receives $793,000 from selling boats.

Of this sales revenue, he must pay the manufacturer, a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also if Andrew does not operate this boat business, he can work as a financial advisor, receive an annual salary of $50,000 with no additional monetary costs, and rent out his showroom a the $15,000 per year rate. No other costs are incurred in running this boat business.
Identify each of Andrew's costs in the following table as either an implicit cost or an explicit cost of selling boats.
Implicit Cost Explicit Cost
The wages and utility bills that Andrew pays
The rental income Andrew could receive if he choose to rent out his showroom
The salary Andrew could earn if he worked as a financial advisor
The wholesale cost for the boats that Andrew pays the manufacturer
Complete the following table by determining Andrew's accounting profit of his boat business.
Profit (Dollars)
Accounting Profit
Economic Profit
Business
1 answer:
melamori03 [73]3 years ago
7 0

Answer:

the solutions are below.

Explanation:

1. The wages and utility bills that Andrew pays is <u>explicit cost</u>

2. The rental income Andrew could receive if he choose to rent out his showroom  <u>is implicit cost</u>

3. The salary Andrew could earn if he worked as a financial advisor s an <u>implicit cost</u>

4. The wholesale cost for the boats that Andrew pays the manufacturer is an <u>explicit cost.</u>

<u></u>

<u>accounting profit = </u>revenue - explicit cost

= 793000-[430000+301000]

=$62000

<u>Economic profit = revenune - [explicit cost + implicit cost]</u>

<u>= </u>793000-[430000+301000+50000+15000]

= 793000-796000

= -$3000

<u></u>

<u></u>

<u></u>

<u></u>

<u></u>

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Answer:

a. $15,000

b. $10,000 & $3,000

c.  $3,000

Explanation:

a. The amount of loss deducted in a year will be equal to the stock basis in the company.

The excess amount of loss will be carry to the future years and deducted, if there is conditional stock basis in the company.

The amount is Jessica allowed to deduct in year 1: ($45,000 x 1/3) = $15,000

b. Her stock and debt bases in the corporation at the end of year 1:

=> Stock basis at the end of year 1: $10,000 - $10,000 = 0

=> Remaining amount of loss: $15,000 - $10,000 = $5,000 => Remaining loss: $5,000 - $3,000 = $2,000

So, Jessica has a suspended loss of $2,000 at the end of year 1

c. The profit is $12,000

Share of J: $12,000 x 1/3 = $4,000

Out of this $4,000, the $3,000 (one-third) will be its debt basis and $1,000 will be stock basis.

The amount of $2,000 loss will first be deducted from the stock basis and then from the debt basis.

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3 years ago
The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $3,
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Answer:

$1,290

Explanation:

The work in process inventory account balance is given by the sum of the direct material cost, direct labor cost and the amount of applied overhead.

If the balance is $3,850, with material cost of $1,790 and direct labor cost of $770, the applied overhead is:

O = \$3,850 - \$1,790 - \$770\\O=\$1,290

The amount of the applied overhead is $1,290.

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3 years ago
Nemesis, Inc., has 215,000 shares of stock outstanding. Each share is worth $81, so the company's market value of equity is $17,
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Answer:

$81, $75, and $69

a. Market value of existing shares = 215000 * $81 = $17415000

   Value of New shares issued = 48000 * $81 =        <u>$3888000</u>

                                                                                     <u>$21,303,000</u>

Price after issue of new shares = 21,303,000 / (215000 + 48000)

= 21,303,000 / 263,000

= $81

Conclusion: No changes ($0 per share

b. Market value of existing shares = 215000 * $81 = $17415000

   Value of New shares issued = 48000 * $75 =        <u>$3600000</u>

                                                                                     <u>$21015000</u>

Price after issue of new shares = 21015000 / (215000 + 48000)

= 21,015,000  / 263,000

= $79.90

Conclusion: There is a decrease in amount (81 - 79.90) = $1.10 per share

c. Market value of existing shares = 215000 * $81 = $17415000

   Value of New shares issued = 48000 * $69 =        <u>$3312000</u>

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Price after issue of new shares = 20,727,000 / (215000 + 48000)

= 20,727,000 / 263,000

= $78.81

Conclusion: There is a decrease in amount (81 - 78.81) = $2.19 Per share

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