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2 years ago

The adjusted trial balance for Martell Bowling Alley at December 31, 2017, contains the following accounts:

Business

1 answer:

Virty [35]2 years ago

6 0

Answer:

Martell Bowling Alley

Balance Sheet

As of December 31, 2017

Assets

Current assets:

Cash $18,040

Accounts receivable 14,520

Prepaid insurance 4,680 $37,240

Equipment 62,400

Accumulated depreciation 18,720 $43,680

Buildings 128,800

Accumulated depreciation 42,600 86,200

Land 67,000 196,880

Total Assets $234,120

Liabilities and Equity

Current liabilities:

Accounts payable 12,300

Interest payable 2,600

Notes payable (short-term) 22,000 $36,900

Notes payable (long-term) 75,780

Total liabilities $112,680

Common stock 90,000

Retained earnings 31,440 $121,440

Total liabilities and equity $234,120

2. The current assets exceed the current liabilities by $340.

3. The percentage of current assets in cash is 48.44%.

4. The company's liquidity = 48.89%

Explanation:

a) Data and Calculations:

Adjusted Trial Balance

As of December 31, 2017

Debit Credit

Cash 18,040

Accounts receivable 14,520

Prepaid insurance 4,680

Equipment 62,400

Accumulated depreciation - equipment $18,720

Buildings 128,800

Accumulated depreciation - buildings 42,600

Land 67,000

Accounts payable 12,300

Interest payable 2,600

Notes payable 97,780

Common stock 90,000

Retained earnings 25,000

Service revenue 17,180

Insurance expense 780

Depreciation expense 7,360

Interest expense 2,600

$306,180 $306,180

Notes payable $ 97,780

Short-term notes payable $22,000

Long-term notes payable $75,780 (97,780 - 22,000)

Service revenue $17,180

Insurance expense 780

Depreciation expense 7,360

Interest expense 2,600 10,740

Net income $6,440

Retained earnings, beginning $25,000

Net income 6,440

Retained earnings, ending $31,440

2. Current assets = $37,240

Current liabilities = 36,900

Working capital = $340

Cash = $18,040

Current assets = $37,240

Percentage of cash in current assets = $18,040/$37,240 * 100 = 48.44%

Liquidity = Cash/Current liabilities = $18,040/$36,900 * 100 = 48.89%

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3 years ago

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2 years ago

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%. a.

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Answer:

a. The answers are as follows:

(i) Expected of Return of Portfolio = 4%; and Beta of Portfolio = 0

(ii) Expected of Return of Portfolio = 6.25%; and Beta of Portfolio = 0.25

(iii) Expected of Return of Portfolio = 8.50%; and Beta of Portfolio = 0.50

(iv) Expected of Return of Portfolio = 10.75%; and Beta of Portfolio = 0.75

(v) Expected of Return of Portfolio = 13%; and Beta of Portfolio = 1.0

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Explanation:

Note: This question is not complete as part b of it is omitted. The complete question is therefore provided before answering the question as follows:

Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%.

a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0

b. How does expected return vary with beta? (Do not round intermediate calculations.)

The explanation to the answers are now provided as follows:

a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) 0.25; (iii) 0.50; (iv) 0.75; (v) 1.0

To calculate these, we use the following formula:

Expected of Return of Portfolio = (WS&P * RS&P) + (WT * RT) ………… (1)

Beta of Portfolio = (WS&P * BS&P) + (WT * BT) ………………..………………. (2)

Where;

WS&P = Weight of S&P = (1) – (1v)

RS&P = Return of S&P = 13%, or 0.13

WT = Weight of T-bills = 1 – WS&P

RT = Return of T-bills = 4%, or 0.04

BS&P = 1.0

BT = 0

After substituting the values into equation (1) & (2), we therefore have:

(i) Expected return and beta of portfolios with weights in the S&P 500 of 0 (i.e. WS&P = 0)

Using equation (1), we have:

Expected of Return of Portfolio = (0 * 0.13) + ((1 - 0) * 0.04) = 0.04, or 4%

Using equation (2), we have:

Beta of Portfolio = (0 * 1.0) + ((1 - 0) * 0) = 0

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Using equation (1), we have:

Expected of Return of Portfolio = (0.25 * 0.13) + ((1 - 0.25) * 0.04) = 0.0625, or 6.25%

Using equation (2), we have:

Beta of Portfolio = (0.25 * 1.0) + ((1 - 0.25) * 0) = 0.25

(iii) Expected return and beta of portfolios with weights in the S&P 500 of 0.50 (i.e. WS&P = 0.50)

Using equation (1), we have:

Expected of Return of Portfolio = (0.50 * 0.13) + ((1 - 0.50) * 0.04) = 0.0850, or 8.50%

Using equation (2), we have:

Beta of Portfolio = (0.50 * 1.0) + ((1 - 0.50) * 0) = 0.50

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Using equation (1), we have:

Expected of Return of Portfolio = (0.75 * 0.13) + ((1 - 0.75) * 0.04) = 0.1075, or 10.75%

Using equation (2), we have:

Beta of Portfolio = (0.75 * 1.0) + ((1 - 0.75) * 0) = 0.75

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Using equation (1), we have:

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Using equation (2), we have:

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There expected return will increase by the percentage of the difference between Expected Return and Risk free rate. That is;

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3 years ago

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3 years ago