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Vikki [24]
3 years ago
9

A customer has an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market intere

st rates have dropped, the customer's income has declined and she would like to allocate part of the portfolio to corporate bonds that offer potential growth. The BEST recommendation is to buy:
Business
1 answer:
vredina [299]3 years ago
3 0

Complete question:

A customer has an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market interest rates have dropped, the customer's income has declined and she would like to allocate part of the portfolio to corporate bonds that offer potential growth. The BEST recommendation is to buy:

a). convertible debentures

b). equipment trust certificates

c) long term zero coupon bonds

d). commercial paper

Answer:

a). convertible debentures

Explanation:

Convertible debentures also known as convertible bonds, are a form of long term bonds, they are the type of bonds that can be converted into common stock or cash of equivalent value by the issuing company.

In this case, the customer has an existing portfolio that is mainly invested in high quality corporate bonds. The customer's income declined as a result of drops in market interest rates. The best recommendation to buy would be convertible bonds, because, when markets interest rate rises, value of the cutomer's convertible bond also rises. Here there is always a potential for growth. But this cannot be said for the other three options (equipment trust certificates, long term zero coupon bonds and commercial paper).

Thus the best recommendation would be to buy convertible debentures.

Option A is correct

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Answer:

a. Computation of the following amounts for the month of May using T-accounts:

1. Cost of direct materials used = $176,000

2. Cost of direct labor used = $77,000

3. Cost of goods manufactured = $286,150

4. Cost of goods sold = $308,850

5. Gross profit = $691,150

6. Overapplied or underapplied overhead = $89,650 (underapplied)

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Debit Raw materials $172,000

Credit Cash $172,000

To record the purchase of raw materials for cash.

Debit Factory payroll $100,000

Credit Cash $100,000

To record the payroll paid in cash.

Debit Factory overhead:

 Indirect materials $6,000

 Indirect labor $23,000

 Other overhead costs 103,000

Credit Raw materials $6,000

Credit Factory payroll $23,000

Credit Cash $103,000

To record indirect materials, labor and other costs.

Debit Work in process $42,350

Credit Factory overhead $42,350

To apply overhead based on direct labor cost 55%.

Debit Cash $1,000,000

Credit Sales Revenue $1,000,000

To record the sale of goods for cash.

Explanation:

a) Data and Calculations:

Inventories:

Raw materials $ 42,000 $ 32,000

Work in process 9,100 18,300

Finished goods 57,000 34,300

Activities for May:

Raw materials purchases (paid with cash) 172,000

Factory payroll (paid with cash) 100,000

Factory overhead:

Indirect materials 6,000

Indirect labor 23,000

Other overhead costs 103,000

Sales (received in cash) 1,000,000

Predetermined overhead rate based on direct labor cost 55%

T-accounts:

Raw materials

Beginning balance $ 42,000

Cash                         172,000

Manufacturing overhead                6,000

Work in process                          176,000

Ending balance                         $ 32,000

Work in process

Beginning balance    9,100

Raw materials       176,000

Payroll                     77,000

Overhead applied 42,350

Finished goods                          286,150

Ending balance                            18,300

Finished goods

Beginning balance 57,000

Work in process   286,150

Cost of goods sold                   308,850

Ending balance                           34,300

Manufacturing overhead

Indirect materials             6,000

Indirect labor                 23,000

Other overhead costs 103,000

Work in process                            42,350

Underapplied overhead               89,650

Sales revenue    $1,000,000

Cost of goods sold 308,850

Gross profit            $691,150

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Raw materials $172,000 Cash $172,000

Factory payroll $100,000 Cash $100,000

Factory overhead:

Indirect materials $6,000 Raw materials $6,000

Indirect labor $23,000 Factory payroll $23,000

Other overhead costs 103,000 Cash $103,000

Work in process $42,350 Factory overhead $42,350

Predetermined overhead rate based on direct labor cost 55%

Cash $1,000,000 Sales Revenue $1,000,000

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