西方财务会计课后答案(第七章)

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国际会计课后题答案第七章,第八章整理版

一、讨论题7.1比照本章引述的金融工具的3个定义，说明各自的特点。

经济学家和金融界所举的定义都把金融工具界定为金融领域运用的单证：史密斯的定义把金融工具表述为“对其他经济单位的债权凭证和所有权凭证”，而《银行与金融百科全书》的定义中列举了金融领域运用的各种单证。

FASB和IASC所下的定义基础是一致的，都把金融工具界定为现金、合同权利或义务及权益工具。

IASC 的定义较清晰，在指明金融工具是“形成个企业的金融资产并形成另一企业的金融负债或权益工具的合同”后，又分别就金融资产、金融负债和权益工具下了定义。

7.2比照本章引述的衍生金融工具的4个定义，说叫各自的特点。

OECD的定义指叫衍生金融工具是“一份双边合约或支付交换协议”，ISDA定义中的表述是“有关互换现金流量和旨存为交易名转移风险的双边合同”。

后名的表述更清晰。

两个定义都着币指明衍生金融工具价值的“衍生性”，并指明可作为衍生价值的基础的标的。

两者都列举了各种不同的标的。

FASB和IASC所下的定义基本上是致的，更便于作为衍生金融工具交易的会计处理所依据的概念。

讨论时可参照教本中归纳的6项最基本的特征展开〔本章教学要点〔二〕第3点中的(2)也有简括的表述〕。

7.3区分金融资产和负债与非金融资产和负债项日是否等同于区分货币性资产和负债与非货币性资产和负债项日？请予以说明。

不等同。

形成收取或支付现金或另金融资产的合同权利或义务，是金融资产和负债的最摹本的特征，以此〔合同权利或义务〕区别于非金融资产和负债〔参阅教术7 2 1〕，而货币性资产和负债与非货币性资产和负债的区分则是根据这些项目对通货膨胀影响或汇率变动的不同反应而作出的。

二者是完全不相下的两种分类法。

更为币要的是，不要把“货币性金融资产和负债”与“货币性资产和负债”这两个概念相混淆。

前名是指“将按固定或可确定的金额收取或支付的金融资产和金融负债”，只是金融资产和金融负债的特定类别。

7.4衍生金融工具品目繁多，但其基本形式不外乎：(1)远期合同；(2)期货合同：〔3)期权合同：(4)互换〔掉期〕合同。

财务会计第七章《会计报表》历年考题解析

财务会计第七章《会计报表》历年考题解析财务会计第七章《会计报表》历年考题解析财务会计第七章《会计报表》历年考题解析历年考题解析题型单项选择题多项选择题判断题计算题综合题合计2001年-8分1分--9分2002年2分2分--10分14分2003年3分2分1分-12分18分（一）单项选择题1、在下列各项税金中，应在利润表中的主营业务税金及附加项目反映的是（）。

（2002年）a．车船使用税b．城市维护建设税c．印花税d．房产税[答案]b[解析]车船使用税、印花税和房产税均应计入管理费用。

2、某企业期末工程物资科目的余额为100万元，分期收款发出商品科目的余额为50万元，原材料科目的余额为60万元，材料成本差异科目的贷方余额为5万元。

假定不考虑其他因素，该企业资产负债表中存货项目的金额为（）万元。

（2002年）a．105b．115c．205d．215[答案]a[解析]考生应特别注意工程物资属于长期资产，而不属于流动资产中的存货。

存货＝原材料＋分期收款发出商品等－材料成本差异科目的贷方余额＝60＋50－5＝105万元。

3、下列资产负债表项目，可直接根据有关总账余额填列的是（）。

（2003年）a．货币资金b．应收票据c．存货d．应收账款[答案]b[解析]在编制资产表时，可直接根据有关总账科目的余额填列的有应收票据、短期借款等；需根据总账科目的余额计算填列的有货币资金等；应收账款则需要根据明细科目余额计算填列。

4、某企业本期实际发放工资和津贴共计110万元，其中车间生产人员55万元，行政管理人员25万元，在建工程人员20万元，离退休人员10万元。

该企业本期现金流量表中支付给职工以及为职工支付的现金项目填列的金额为（）万元。

（2003年）a．55b．80c．100d．110[答案]b[解析] 支付给职工以及为职工支付的现金项目反映企业实际支付给职工，以及为职工支付的现金，包括本期实际支付给职工的工资、奖金、各种津贴和补贴等，以及为职工支付的其他费用。

国际会计第七版英文版课后答案（第七章）

国际会计第七版英文版课后答案（第七章）预览说明:预览图片所展示的格式为文档的源格式展示,下载源文件没有水印,内容可编辑和复制Chapter 7Financial Reporting and Changing PricesDiscussion Questions Solutions1.Historical-based financial statements may be misleading during periods of significant inflation.Many resources may have been acquired in periods when the purchasing power of the monetary unit was much higher. These expenses then typically are deducted from revenues that reflect current purchasing power. The resulting income number is unintelligible. Another problem for statement readers is that the value of assets recorded at their historical acquisition cost is typically understated as a result of inflation. Understated asset values produce understated expenses and overstated earnings.Financial trends are also difficult to interpret, as trend statistics generally include monetary units of different purchasing power. A positive trend in sales may be due to price changes, not real increases in sales.2. A price index is a cost ratio, that is, the ratio of a representative “basket” of goods and servicesconsumed by an average family, compared to the price of that same basket in a benchmark (“base”) year. The price index is invaluable in enabling a statement reader to translate sums of money paid in the past to their current purchasing power equivalents.3.This statement is partly true and shows the confusion thatsurrounds inflation accounting. Inaccounting for changing prices, users must distinguish between general price changes and specific price changes. General prices refer to the prices of all goods and services in the economy. The object of accounting for general price level changes is to preserve the general purchasing power of a company’s money capital. Specific price changes refer to changes in the prices of specific commodities. The object of accounting for specific price changes is to preserve a company’s productive capacity or operating capability.4.The congressman is wrong. The object of inflation accounting is to clarify the distinction betweencapital and income, not to minimize corporate taxes. Inflation accounting shows how much money the company can pay in expenses, taxes, and dividends, while keeping enough resources to maintain its capital.5.Although it is generally conceded in principle that price level-adjusted financial statements are moreuseful than conventional accounting statements during periods of significant inflation, it is a judgment call to identify exactly when price level-adjusted statements become more meaningful. Asa rule of thumb, executives in Brazil use an inflation rate greater than 10 % per month. Investors inGermany or Switzerland may believe that 5 % inflation per year is alarming. Unfortunately, no one has yet developed a formal, rigorous, easy-to-apply definition of meaningfulness.How does one determine whether the benefits of price level-adjusted accounting information exceed the costs? While the costs to generate such information can be measured, it is muchharder to quantify the benefits. Financial accounting deals with information produced by business enterprises for use by external decision makers. Consequently, measurement of the benefits of price level-adjusted information must cover all user groups in an economy. Multiple user groups, uneven distributions of benefits (both within and between groups), and favorable economy-wide spillover effects of price level information complicate the task. Adding international dimensions makes the problem even worse.6.The U.S. approach resembles the price-level adjusted current cost model, whereas the U.K.approach embraces the current cost model. While both require disclosure of the impact ofchanging prices on monetary items, the U.S. approach basically uses the general price level index to compute monetary gains and losses, whereas the U.K. employs specific prices changes by way of its gearing adjustment.1.The International Accounting Standards Board sanctions use of the general price level model orthe current cost framework. Whichever method is employed, these inflation adjustments must be expressed in terms of constant purchasing power as of the balance sheet date. Purchasing powergains or losses are to be included in current income. Firms adjusting their accounts for changingprices must disclose, at a minimum: a) the fact that end-of-period purchasing power adjustmentshave been made, b) the asset valuation framework employed in the primary financial statements,c) the type of inflation index or indexes employed and theirlevel at the end of the period as wellas their movements during the period, and d) the net purchasing power gain or loss on netmonetary items held during the period. Given the options that are available, analysts mustunderstand the differences between the approved inflation accounting methods to be able tocompare companies choosing one option over the other and to assure proper interpretation ofinflation adjusted amounts.2.The historical cost-constant dollar model measures the impact of general price level changes on afirm's reported performance and financial position. The current cost model examines the impact of specific price changes on enterprise income and wealth.The two measurement frameworks are similar in that both attempt to clarify the distinction between capital and income. They differ in reporting objectives. Whereas the historical cost/constant dollar model attempts to preserve the general purchasing power of a firm's original money capital, the current cost model attempts to preserve an entity's physical capital or productive capacity.3.Your authors think that restating foreign and domestic accounts to their current cost equivalentsproduces information that is far more helpful to investor decisions than historical cost methods, whether or not adjusted for changes in general price levels. Such information provides a performance measure that signals the maximum amount of resources that enterprises can distribute without reducing their productive capacity. It also facilitates comparisons ofconsolidated data.10. The gearing adjustment is an inflation adjustment that partially offsets the additional charges toincome associated with assets whose values are restated for inflation (e.g., higher depreciation and cost of sales). This adjustment recognizes that borrowers generally gain from inflation because they can repay their debts with currency of reduced purchasing power. Hence, it is unnecessary to recognize the higher replacement cost of inventory and plant and equipment in the income statement so far as they are financed by debt.11. Accounting for foreign inflation differs from accounting for domestic inflation in two major ways.First, foreign rates of inflation often are higher than domestic rates, which increases potential distortions in an entity's reported results from changing prices. Second, as foreign exchange rates and differential national rates of inflation are seldom perfectly negatively correlated, care must be taken to avoid double-dipping when consolidating the results of foreign operations.12.Double-dipping refers to methods that count the effects of foreign inflation twice in reportedearnings. Earnings are reduced once when cost of sales is adjusted upwards for inflation, andagain when inventories are translated to domestic currency using a current exchange rate, whichyields a translation loss. Since the change in the exchange rate itself was caused by inflation, the result is a double charge for inflation.Exercise Solutions1.This exercise is a good way to test students’ understanding of the various approaches toaccounting for changin g prices. Vestel’s earnings numbers are based on the general price levelmodel whereas Infosys is measuring its performance based on a current cost framework. Modello goes a step further and adjusts its current cost statements for changes in the general price level.Some may feel that current cost data, which is based on the notion of replacement costs, is toosubjective a notion to be reliable. Since general price level data are based on general price level indices, the numbers appearing in Vestel’s income statement are much more objective andfacilitates comparisons among companies using a similar methodology. Moreover, Vestel’sstatements do not violate the historical cost doctrine. Others will argue that the value of stockinvestments are based on discounted future cash flows. Accordingly, the current cost framework provided by Infosys is more germane to investor decisions as it measures the amount of earnings that could be distributed as dividends without reducing the firm’s future dividend gen eratingpotential. Moreover, current cost earnings, including the gearing adjustment , reflects how thefirm is impacted by prices that are more germane to the firm, as opposed to the general public.Some will argue that Modello’s income statement combin es the best of both worlds. However,there is merit to the argument that the income statementshould measure the performance of thefirm and that this is best accomplished with the current cost framework. Since individualinvestors are affected by the g eneral price level, they should adjust their share of a firm’s current cost earnings distributions for general inflation.2. a.Income Statement Historical Price Level Historical Cost-Cost Adjustment Constant Dollar Revenue MXP 144,000,000 420/340 MXP 177,882,353 Operating expenses (86,400,000) 420/340 (106,729,412) Depreciation (36,000,000) 420/263 (57,490,494)Operating income MXP 21,600,000 MXP 13,662,447a Monetary gains(losses) - (73,248,759)Net income MXP 53,280,000 MXP(59,586,312)Balance SheetCash MX(P 157,600,000 420/420 MXP 157,600,000Land 180,000,000 420/263 287,452,471Building 720,000,000 420/263 1,149,809,885Acc. Depreciation (36,000,000) 420/263 (57,490,494)Total MXP 1,021,600,000 MXP 1,537,371,862Owners' equity(beg.) MXP1,000,000,000 rolled forward b MXP 1,596,958,174Net income (loss) 21,600,000 (59,586,312)Owner's equity MXP 1,021,600,000 MXP 1,537,371,862(end)a Monetary loss:CashBeginning balance 1,000,000,000 420/263 1,596,958,174 Purchase ofreal estate ( 900,000,000) 420/263 (1,437,262,356)Rental revenues 144,000,000 420/340 177,882,353Operating expenses (86,400,000) 420/340 106,729,412)157,600,000 230,848,759-157,600,000 Monetary loss (73,248,759)b Beginning equity x price level adjustment = adjusted amount= P 1,000,000,000 x 420/263 = P 1,596,958,1742.b.Cost HC/Constant DollarReturn on Assets 21,600,000 (59,586,312)1,021,600,000 1,537,371,862= 2.1% = -3.9%Cost-based profitability ratios tend to provide a distorted (overstated) picture of a company's operating performance during a period of inflation.3.20X7 20X8Cash MJR 2,500 MJR 5,100Current liabilities (1,000) (1,200)LT-Debt (3,000) (4,000)Net monetary liabilities MJR (1,500) MJR (100)Zonolia Enterprise’s net monetary liability position changed by MJR1,400 during the year (MJR100) –(MJR1,500).4.Nominal Restate for ConstantMJR’s Majikstan GPL MJR’sNet monetary liab.'s MJR 1,500 x 32,900/30,000 = MJR1,645 12/31/X7Decrease during year (1,400) = (1,400)Net monetary liab.'s MJR 100 x 32,900/36,000 = MJR 9112/31/X8Monetary (general purchasing power) gain MJR 1545. Historical Current Cost Current Income Statement Cost Adjustment Cost Revenues MXP 144,000,000 - MXP 144,000,000 Operating expenses 86,400,000 - 86,400,000 Depreciation (36,000.000) 1.8 64,800,000 Net Income (loss) MXP 21,600,000 MXP (7,200,000)Balance SheetCash MXP 157,600,000 - P 157,600,000 Land 180,000,000 1.9 342,000,000 Building 720,000,000 1.8 1,296,000,000 Acc. Depreciation (36,000,000) 1.8 (64,800,000) Total MXP1,021,600,000 MXP 1,730,800,000 Owners' Equity Beg. Balance MXP1,000,000,000 MXP 1,000,000,000 OE revaluation a - 738,000,000Net income (loss) 21,600,000 (7,200,000) Total MXP1,021,600,000 MXP 1,730,800,000a Revaluation of land MXP 162,000,000Revaluation of building 576,000,000MXP 738,000,0006. Solution in 000,000's:MJR8,000 X 137.5/100.0 = MJR11,00020X7 20X8Current cost MJR8,000 MJR11,000Acc. depreciation (1,600) (3,300)aNet current cost MJR6,400 MJR7,700a Current cost depreciation = MJR800 X 137.5/100.0 = 1,100per year for 3 years.7. As no new assets were acquired during the year, we must determine to what extent the MJR3,000 increase in the current cost of Zonolia's equipment exceeded the change in the general price level during the year. The appropriate calculation follows: MJR11,000 - [MJR8,000 X 36,000/30,000]= MJR11,000 - MJR9,600= MJR1,400Alternatively, if we follow the FASB’s sug gested methodology, where calculations are expressed in average (20X8) dollars, current cost depreciation would be computed by reference to the average current cost of the related assets. Thus, Current cost, 12/31/X7 MJR8,000,000Current cost, 12/31/X8 11,000,000MJR19,000,000Average current cost MJR19,000,000/2 = MJR9,500,000Current cost depreciation at 10% = MJR950,000Increase in current cost of equipment, net of inflation (000's): Current Restate for Current cost/Cost Inflation Constant Zonos Current cost, net12/31/X7 MJR6,400 X 32,900/30,000 MJR7,019Depreciation (950) (950)Current cost, net12/31/X8 7,700 X 32,900/36,000 7,037MJR 2,250 MJR968The increase in the current cost of equipment, net of inflation is MJR968. The difference between the nominal renge amount (MJR2,250) and constant renges (MJR968) is the inflation component of the equipment's current cost increase.8. Restate-translate method:Constant Translate $ Equivalentsrenges of constantrengesIncrease in currentcost of equip., netof inflation MJR968,000 X 1/4,800 = $202Translate-restate method:CC (MJR) Translate CC ($) Restate CC/ Constant $U.S. GPLCC, net MJR 6,400,000 x 1/4,800 = $1,333 x 292.5/281.5 = $1,38512/31/X7Dep. (950,000) x 1/4,800 = (198) = (198)CC, net 7,700,000 x 1/4,800 = 1,604 x 292.5/303.5 = 1,54612/31/X8MJR 2,250,000 $ 469 $ 3599.20X7 20X8￡m ￡mTrade receivables 242 270-Trade payables (170) (160)Net monetary working capital 72 110Change in monetary working capital = ￡38 (￡110 - ￡72) Nominal Restate for Constant￡British PPI ￡Net monetary W/C 72 X 110/100 = 79.212/31/20X7Increase during year 38 = 38.0Net monetary W/C 110 X 110/120 = 100.812/31/20X8Monetary working capital adjustment = (16.4)aa This amount is added to the current cost adjustments for depreciation and cost of sales because trade receivables exceeded trade payables, thus tying up working capital in an asset that lost purchasing power.Gearing adjustment:[(TL – CA)/(FA + I + MWC)] [CC Dep. Adj. + CC Sales Adj. + MWCA]where TL = total liabilities other than trade payablesCA = current assets other than trade receivables and inventoryFA = fixed assets including investmentsI = inventoryMWC = monetary working capitalCC Dep. Adj. = current cost depreciation adjustmentCC Sales adj. = current cost of sales adjustmentMWCA = monetary working capital adjustment= [(128 – 75)/(479 + 220 + 110] [￡m 216]= [.066 ] [216]= ￡14.3The only number I could readily identify in problem 9 is inventory of 220. The next number I could come close on is fixed assets. Looks like the solution above says 479, the text for 08 indicates 473. I could not see where the 110 (MWC) came from. Neither is it clear where the other 3 items in brackets came from. The solution needs to be clearer before I can check the numbers.This gearing adjustment of ￡14.3 million is subtracted from the current cost of sales and depreciation adjustments. It represents the purchasing power gain from using debt to finance part of the firm's operating assets.a.Nominal Thai Historical Translation U.S.baht inflation c ost/constant rate dollaradjustment baht equivalentInven-tory BHT500,000 x 100/200 = BHT250,000 x .02 = $5,000b.Nominal Translation U.S. U.S. Historicalbaht rate dollar inflation c ost/constantequivalent adjustment dollarsInven-tory BHT500,000 x .02 = 10,000 x 180/198 = $9,090Sorry this seems confusing compared to number 2 where the year end index was in the numerator and either the beginning or average index was in the denominator (e.g. 420/340 or 420/263). It is not clear why we do the opposite here where the Thai price level doubles and we put the 200 in the denominator and 100 in the numerator.c. Most students will prefer the restate-translate method. This approach has merit if general and specific pricelevels move in tandem. If not, neither approach is satisfactory as both are based on a historical cost valuation framework that is generally irrelevant for investment decisions.d. For reasons enumerated in this chapter, we favor restating local currency assets for specific price changesand then translating these current cost equivalents to dollars using the current exchange rate.11. We assume that Doosan Enterprises translates its inventory at the current rate and adjusts its cost ofsales for inflation by simulating what it would have been ona LIFO basis. Two adjustments are necessarybecause local inflation impacts exchange rates used to translate foreign currency inventory balances to dollars.With FIFO inventories, a translation loss is recorded in "as reported" earnings when it is originally translatedto U.S. dollars by a current exchange rate that changed (devalued) during the period. This translation loss isan indirect charge for local inflation. The inflation adjustment (simulated LIFO charge) to increase "as reported" cost of sales to a current cost basis is an additional charge for inflation. Absent some offsettingentry, consolidated results would be charged twice for inflation. To avoid this double charge, the translation loss embodied in reported earnings is deducted from the simulated LIFO charge to arrive at a net U.S. dollarcurrent cost of sales adjustment. Steps in the adjustment process are as follows:1. FIFO inventory subject to simulated LIFO charge KRW10,920,0002. Restate line 1 to January 1 currency units(KRW10,920,000 x 100/120). The result is anapproximation of December 31 LIFO inventory KRW9,100,0003. Difference between FIFO and LIFO inventorybalances (line 1 minus line 2) is the additionallira LIFO expense (current cost adjustment)for the current year. KRW1,820,0004. Translate line 3 to dollars at the January 1exchange rate (KRW1,820,000 ÷ 900). The resultis the additional dollar LIFO expense for thecurrent year $ 2,0225. Calculate the translation loss on FIFO inventory(line 1) that has already been reflected in "asreported" results:a. Translate line 1 at Januaryexchange rate (KRW10,920,000 ÷ KRW900) $ 12,133b. Translate line 1 at December 31exchange rate (L 10,920,000 ÷ KRW1,170) $ 9,333c. The difference is the translationloss in “as reported” results $ (2,800)6. The difference between lines 4 and 5c isthe cost of sales adjustment in dollars:a. Additional dollar LIFO expense fromline 4. $ 2,022b. Less: Inventory translation loss alreadyreflected in "as reported” results (fromline 5c) $ (2,800)c. The difference is the net dollar currentcost of sales adjustment $ (778)Here, the current cost of sales adjustment is negative (i.e., reduces the dollar cost of sales adjustment). This is because the won devalued by more than the differential inflation rate (assuming a U.S. inflation rate close to zero). If the lira devalued by less than the differential inflation rate, the cost of sales adjustment would have been positive.12.1. Cost of fixed assets at 12/31 EUR20,0002. FIFO inventory at 12/31 EUR 8,0003. Total EUR28,0004. Less: Owners' equity at 12/31 EUR 2,0005. Liabilities used to financefixed assets and inventory EUR26,0006. Restate liabilities to beginningof period markka (EUR26,000 X300/390) EUR20,0007. Purchasing power gain EUR 6,0008. Purchasing power gain inpounds (EUR 6,000/EUR 1.5) ￡4,0009. Translation gain on appliedliabilities(EUR 26,000/EUR 1.5 -EUR26,000/EUR1.95) ￡4,00010. Net purchasing power gain ￡ -0-In this case the translation gain on liabilities used to finance nonmonetary assets equals the purchasing power gain because the currency devaluation matched the differential inflation of 30%. Hence, no purchasing power gains would be recognized.Case 7-1 SolutionCase 7.1 Kashmir Enterprises1.a–cHistorical Price Level HistoricalCost Adjustment Cost ConstantIncome Statement RupeesRevenues INR6,000,000 160/144 I NR6,666,667Cost of Sales 2,560,000 160/128 3,200,000Selling & Admin. 1,200,000 160/144 1,333,333Depreciation 160,000 160/128 200,000Interest 240,000 160/160 240,000Monetary gains (losses)a - 741,666Net Income INR1,840,000 INR2,435,000Balance SheetCash INR2,480,000 160/160 I NR2,480,000 Inventory 480,000 160/128 600,000Building 3,200,000 160/128 4,000,000Accu. depreciation (160,000) 160/128 (200,000) Total INR6,000,000 INR6,880,000Accounts payable INR 620,000 160/160 I NR 620,000 Notes payable 2,400,000 160/160 2,400,000 Owners' equity 2,980,000 3,860,000INR 6,000,000 INR6,880,000a Monetary gains/(losses):CashBeg. balance INR 720,000 160/128 INR1,150,000 Down payment (800,000) 160/128 (1,000,000) Sales 6,000,000 160/144 6,666,667Selling & Adm. exp. (1,200,000) 160/144 (1,333,333) Payment on account (2,200,000) 160/144 (2,444,444) Interest (240,000) 160/160 (240,000)INR 2,480,000 INR2,798,890-2,480,000Monetary loss INR (318,890)a Monetary gains and losses:Accounts PayableBeg. balance INR 420,000 160/128 INR525,000 Purchases 2,400,000 160/128 3,000,000Payments on account (2,200,000) 160/144 (2,444,444) INR 620,000 INR1,080,556- 620,000Monetary gain INR 460,556a Monetary gains/(losses):Notes PayablePurchase warehouse INR 2,400,000 160/128 INR 3,000,000 - 2,400,000Monetary gain INR 600,000Net monetary loss: INR(318,890) + INR460,556 + INR600,000 = INR741,666.Current Cost Financial StatementsHistorical Adjustment Current Cost Income Statement Cost F actor EquivalentsRevenues INR6,000,000 - INR 6,000,000Cost of Sales 2,560,000 1.3 3,328,000Selling and adm. 1,200,000 - 1,200,000Depreciation 160,000 1.4 224,000Interest 240,000 - 240,000Net Income INR 1,840,000 INR1,008,000Balance SheetCash INR 2,480,000 - INR 2,480,000Inventory 480,000 1.3 624,000Building 3,200,000 1.4 4,480,000Acc. depreciation 160,000 1.4 224,000Total INR 6,000,000 INR 7,360,000Accounts payable INR 620,000 - INR 620,000Notes payable 2,400,000 - 2,400,000Owners' equity 2,980,000 4,340,000INR 6,000,000 INR 7,360,0002. Your authors favor current cost over historical or historical cost/constant dollar financial statements. Finance theory states that investors are interested in a firm's dividend-generating potential, as the value of their investment depends on future cash flows. A firm's dividend-generating potential, in turn, is directly related to its productive capacity. Unless a firm preserves itsproductive capacity or physical capital(e.g.,plant, equipment, inventories), dividends can’t be sustained over time. Under these circumstances, current cost financial statements give investors information important to their decisions. They show the maximum resources that a firm can distribute to investors without impairing its operating capability.3.Translate-Restate MethodBalance Sheet, Jan. 1Local Currency Trans. Dollar Inflation Historical costRate Equivalents Adjustment Constant $Cash INR 920,000 .025 $23,000 - $23,000Inventory 640,000 .025 16,000 - 16,000 Total INR1,560,000 $39,000 $39,000A/P INR 420,000 .025 $10,500 - $10,500 Owners' equity 1,140,000 .025 28,500 - 28,500 Total INR 1,560,000 $39,000 $ 39,000Income StatementDec. 31Revenues INR 6,000,000 .022 $ 132,000 108/104 $ 137,077 Cost of sales 2,560,000 .022 56,320 108/100 60,825Selling & Adm. 1,200,000 .022 26,400 108/104 27,415 Depreciation 160,000 .022 3,520 108/100 3,802 Interest 240,000 .022 5,280 108/108 5,280Net Income INR 1,840,000 $ 40,480 $ 39,755 Monetary gains (losses)a - - 4,468$44,223a Monetary gains/(losses):CashBeg. Bal INR 920,000 .02 $ 18,400 108/100 $ 19,872Downpayment (800,000) .02 (16,000) 108/100 (17,280) Sales 6,000,000 .02 120,000 108/104 124,615Selling & Adm. (1,200,000) .02 (24,000) 108/104 (24,923)Payments on Acc. (2,200,000) .02 (44,000) 108/104 (45,692) Interest (240,000) .02 (4,800) 108/108 (4,800)INR 2,480,000 $ 49,600 51,792-49,600Monetary loss $ (2,192) Accounts PayableBeg. Bal. INR 420,000 .02 $ 8,400 108/100 $ 9,072Purchases 2,400,000 .02 48,000 108/100 51,840Pmt. on acc. (2,200,000) .02 (44,000) 108/104 45,692INR 620,000 $ 12,400 $ 15,592- 12,400Monetary gain $ 2,820Notes payablePur. W/house Rpe 2,400,000 .02 $ 48,000 108/100 $ 51,840 48,000Monetary gain $ 3,840Netmonetary gain: $(2,192) + $2,820 + $3,840 = $4,468.Balance Sheet Local Trans. Dollar Inflation Historical cost- Dec. 31 Currency Rate Equiv. Adjustment Constant $Cash INR 2,480,000 .02 48,600 108/108 $ 48,600 Inventory 480,000 .02 9,600 108/100 10,368 Building 3,200,000 .02 64,000 108/100 69,120Acc. Dep. 160,000 .02 3,200 108/100 3,456Total INR 6,000,000 $120,000 $ 124,632Acc. payable 620,000 .02 12,400 108/108 $ 12,400Notes payable 2,400,000 .02 48,000 108/108 48,000Trans. adj.b - (9,380) (9,978)Owners' equity c 2,980,000 68,980 74,210Total INR 6,000,000 $120,000 $124,632________________________________________________________________ __b Translation adjustment:Beginning net assets Rpe 1,140,000 (.02 - .025) = $ (5,700) X 108/100 = $(6,156)Increase in net assets Rpe 1,840,000 (.02 - .022) = (3,680) X 108/104 = $(3,822)$(9,380) $(9,978) c Balancing residualRestate - Translate MethodBalance Sheet Local Inflation Historical Cost- Trans. D ollar Jan 1. Currency Adjustment Constant rupee Rate equivalents Cash INR 920,000 128/128 INR 920,000 .025 $ 23,000 Inventory d 640,000 128/128 640,000 .025 16,000Total INR1,560,000 INR1,560,000 $ 39,000Acct. payable INR 420,000 128/128 INR 420,000 .025 $ 10,500Owner's equity 1,140,000 1,140,000 28,500Total INR 1,560,000 INR 1,560,000 $ 39,000d Assumes inventory acquired near year-end.Income StatementYear ended Dec. 31Revenues INR 6,000,000 160/144 INR 6,666,666 .022 $ 146,667Cost of Sales 2,560,000 160/128 3,200,000 .022 70,400 Selling & Adm. 1,200,000 160/144 1,333,333 .022 29,333 Depreciation 160,000 160/128 200,000 .022 4,400Interest 240,000 160/160 240,000 .022 5,280Net Income INR1,840,000 INR1,693,334 $ 37,254 Monetary gains(losses)a- 741,666 .022 16,317INR2,435,000 $ 53,571Balance SheetDec. 31Cash INR 2,480,000 160/160 INR 2,480,000 .02 $ 49,600Inventory 480,000 160/128 600,000 .02 12,000Building 3,200,000 160/128 4,000,000 .02 80,000Acc. deprec. 160,000 160/128 200,000 .02 4,000Total INR 6,000,000 INR 6,880,000 $137,600Acc. payable INR620,000 160/160 INR 620,000 .02 $ 12,400 Notes payable 2,400,000 160/160 2,400,000 .02 48,000Owner's equity 2,980,000 3,860,000 87,770 Translation adj.b - (10,570)Total INR 6,000,000 INR 6,880,000 $137,600________________________________________b Beginning net assets INR1,140,000 (.02 - .025) = $ (5,700)Change in net assets 2,435,000 ).02 - .022) = $(4,870)$(10,570)Both methods are inadequate for American investors because they are based on the historical cost valuation framework. A better reporting procedure is to restate local accounts to their current cost equivalents, then translate these amounts to the reporting currency using the year-end (current) foreign exchange rate. This is illustrated here.Restate (current cost)/Translate (current rate)Cash INR 920,000 - INR 920,000 .025 $ 23,000Inventory 640,000 - 640,000 .025 16,000Total INR 1,560,000 INR1,560,000 $ 39,000Acc. payable INR 420,000 - INR 420,000 .025 $ 10,500Owner's equity 1,140,000 - 1,140,000 28,500。

国际财务课后习题答案chapter7

CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGESUGGESTED ANSWERS AND SCX.UTIONS TO END-OF-CIIAPTERQUESTIONS AND PROBLEMSQUESTIONS1 ・ Expl ain the basi c dificrcnces between the operation of a ciurcncy ibrward market and a fiitures market. Answer: Tlie forward mark巩is an OTC market where the forward contract for purchase or sale of foreign currency is tailor-made between the client and its international bank・ No money cliangess hands miti l tlie maturity d^:e of the contract when deliveiy and receipt are typically made. A fijtiues contract is ail exchaiige-tiaded instniment with standaidized featuies specifying contiact size and deliveiy date. Futiues coohacts aie m aiked-to-iiiarket daily to reflect chaiig es in tlie settlement pii ce. Delivery i s seldom made in a futures market. Rather a l^versi ng trade is made to close out a long or short position.2.In order for a derivatives market to fimetion most cfFio cntly, two types of economic agetits are needed: hedgers atid speculdtors・ Explain・Answer: Two types of niarket paiticipants arc ncccssaiy for the 巴尸五ci ent operat on of a derivatives market：speculators and hedgers. A speculator attempts to profit fiom a ijiange in the futures price・ To do this, the speculator wi 11 take a long or sliort position iti a futures contract depending upon his expectations of iuture price movern ent. A hedger, on- tlie-otlier- han d, desir es to avoid price var iation by locking in a purchase pri ce of die wide dying asset thiougli a long position in a liitures ccutract ci a sales price through a short positi on. hi effect, the hedger passes off the iisk of price vai iation to the speculator who is better able, or al I ea?t more willing, to bear this risk.3.Wliy are most fiitiu es positions cl os ed out th rough a reversing trade rath er than held to deliveiy? Answer: In forward markets，approximately 90 percent of all cont「勺cts that 前e initially establishucl result in the short making deliveiy to the long of the asset underlying the contract. This is natural because tlie term s of forward contracts ai e tailor — ni ade between th c long and s hort ・ By contrast, only about one percent of CIUTCIICV fiitiwcs cotit roots result in del i very ・ While futures contracts arc useful for speculation and hedging, their standardized delivery dates make them unlikely to correspond to the actual future dates wiicti forogii cxdiange transactions will occur. Tlius, they are genet'al closed out in arcs z ei^ing trade. In fact, the commission that buyers mid sell ers pay to transact hi the futures maket is s singl c amount that covei^ the round-trip tiTais actio ns of initiating and closing out the position・4.How can the FX firtut es maiket be used for pH cc discovery?Answer: To the extent tliat FX forward pri oes are ail unbiased predictor of fiiture spot exchange rates, tlie market anticipates whether one cuiyenoy will appreciate or depreciate versus another・ Because FX Eitiires conti-acts trade in an expi ration cycle, cliflerent c onto acts expire at diHeient peiiDclic dates into tlie iiiture ・Tlie patteiri of the prices of these contacts provides information as to tlie mai kefs ciin ent belief about th巴rd ative fiiture value of one ciui ency versus anothei at the scheduled expiration dates of the contracts. One will genially see a steadily appreci ating or depreciating pattern; howevei; it may be mixed at times. TTius, the fiitures market is usefill for price dscovery. i.e., obtaining the market's forecast of the spot exchange rate at different future：d“tES・5・ What is tlie major di fFerenoe in the obligation of one with a long positi on in a fijturcs (or fonvaid) contract in comparison to an options confraot?Answer: A futures (or forwaid) contract is a vehicle for buying or sei ing a staled amount of foreign exchange at a stated price per unit at a specified time in tlie fiitiue・ If the long holds the contract to the delivery date, he pays tlie effective contractual fiitures (or foiwat'd) price, regardless; of whether i t is an advantageous pti ce in oompaiiscn to tlie spot price at the delkeiy date. By oontiasf, ail option is a contiact giving the loris tlie riglit to buy ci sell a given quantity of an asset at a specified price at some time in the fiihn e? but not enforcing any obligation on him if the spot pti ce is more favorable tliaii the exercise prize. Because th巴opti on ownei* does not have to exercise t he option if it i s to his disadvaiit^e, the option has a price, or premium, whereas no price is p已id at inception to enter into a futures (orforward) contract6. Wliat is nieait by the terminology that an option is in-, at-, or oiit・of— the-money?Answer： A call (put.) option with St >E (E> S^) is refetred to as trading in-thc-monej r・ If E tlie option is hading at-tlic-money. If Sf< E (E<§) the call (put) option is trading out-ofithe- JYiOYie^ ・7 List the arguments (variables) of which an FX call or put oj^tion model price is a function ・ How does tiic call and put preininm change with respect to s change in the ai'guments?Answer: Botii call mid put options are fiinctions of only six variables：£, E, r讣讣 T an de When all else remains tlic same、the price of aEuicpcaii FX call (put) option w 11 incressc:1・ tlic lai'gei'(smaller) isS,2. the small曰(larged is E、3・ tlie smaller (larger) is r n4・ tlie i aiger (smalleij is r t>5.the laiger (smaller) is relative to r f, arid6.the gj eater is aWhen and are not too niucli different in size, a European FX call and put will increase in price when the option term-to-matiirity increases・ Howe、曰；when 飞 is very mu ch laigei than a European FX cal I will increase in price, but the put premium wil I decrease, whe厂i the option tenn-to-m increascs. The opposite i s tme when i s vety much greater than r$. ForAmerican 二X opti oils tlic analysis is I傑s complicated Since a longer tenn American option can be exercised on any date that a shorter tenn opti on can be exercised or □ some later date, it follows tliat tlie all else remaining the sarne. tlie longer tenn Americen opti on will sell at a price at least as laige as tlie shorter tenn option.PROBLEMS1. Assiunc toda>r，s settlement price on a CME EUR futures contract is S1.314O/EUR. Yon have a short position in one contract. Your performaiicc bond accoimt ciurcntly has a balance of $L 700. The next tlii'cc days, scttleincnt prices ETC $1.3126, $1.3133, arid S1.3049. Calculate the changes in tlic perfonnaiicc bond account from d已ily marking-to-market andthe balance of tlie perfotTnance bond accoiuit after the third day. Solution: $1, 700 +[〔$1.314 O・ S1.3126) + ($1.3126 -Si. 3133)+ (Sl.3133 - SI.3049)]XEUR125,000= $2,837.50,where EUR125, 000 is the contractual size of one EUR contract.2- Do problem 1 again assuming you have a long position in the futures conti act・Solution： $1,700+ [($1.3126 ・ $1.3140)+($ 1 ・ 31 33 ・S1・3126)十($L3(Mg • $1 .3133)] xEUR125,0OO= $562.50,where EUR125, OOO istlie contrachial sizeuf one EUR contract.With only $562・ 50 in your petfonnancc bond account, you would experience a tnargiti call requesting that additional fijnds be added to youipeiionnance bond account to bring tlic balance back up to tlie initial petdonnaiice bond level・3・ Using the quotations in Exlubit 7.3、cal cul ate the face value of the open interest in the June 2005 Swiss franc fiitures contiact ・Solution： 2401 contracts x SF125Q00 二SF262, 625JD00.vvhei'e SF125, 0C0 is tlie couti actnal size of one SF contract ・ing tlie quotations in Exliibit 7. 3, note that the June 2005 Mexican peso Mur es contract has a price of SO. 08845. You believe tlie spot piice in June wil be $ 0. 09500. WhM speculative position would you enter into to attempt to profit frotn your beliefs ? Calculate your anticipated profits, assuming you taP；e aposition in tlwee contracts ・ Wliat is the size of your profit (loss) if the fhtures price is indeed an unbiased predictor of the fiitii re spot price and this price materializes?Solution： If you expect the Mexi can peso to li se from SO.08845 to SO. 09500, you would take a long position in fiitiucs since the fiitiires price of $ 0.08845 is less than your expected spot price.Your anticipated profit from a I ong position in tiirec contracts is: 3 x ($0.09 500 -$0・ 08845)xMP500.0C'0= $9, 825.00. where MP500.00C1 isthe contractual size of one MP contrast.If the fiitures price is sn unbiased predictor of the expected spot price, the expected spot price is tlic iutca cs price of $0.08845///MP・ If tliis spot price materializes, you will not hsrs r e any profits or losses from your short position in three futures contracts: 3 x ($O・ 08845 -$0.08845) XMP500.000 =0.5.Do problem 4 again assuming you believe the Jiuie 2005 spot price will be $0.08500. Solution: If you expect tlie Mexi can psso to depieci ate fi-oni $ 0.08&15 to $ 0.07500, you wou d take a short position in fiitures since the futures price of $0.08845 is greater tliaii your expected spot price・Yciu anticipated p io fit from a sh or t pos ition in three contract s is： 3 x i, $ 0 ・ 08845 ・ $0.07500) xXlP500,000= $20,175.00 ・If tlie fiitiues price is an unbiased predictor of the Future spot price and this price materializes? you will not profit or lose from your long futwes pzisiti on.6.George Johnson is considering a possible ax-motith SI 00 million LJBClR-bascd, floating-ratebank loan to Hind a project 址terms shown in the tabic below. Johnson fears a possible ti ss in the LIBOR rate by December mid wants to use the December Eurodollar fiitures contrast to hedge thi s risk・ Tlie contract expires December 20< 1999. has a US$ 1 mi Ilion contract size,and a discount yield of 7. 3 pei cent・Joints on will ignore the cash flow implications of marking to market、i nitial margin requirements, and any timing niisinatch between ex change-ti'aded fiitures contiact cash flows and tlie interest payments due in March. Loan TermsaLoan First loan payment (9%) Second paynie nto initiated and fiitures contract expires and principal•••5 9/20/99 町2/20/933/20/00a・ Fonnulatc Jolmsotrs September 20 floating-to-f xed-ratc sti ategy using the Eurodollai futui c contracts discussed in tlie text above. Showthat tliis strategy would result in a fixed-rate Icaih assiuning ail increase in tlieLIBOR rate to 7・ 8 percent by December20, which remains at 7.8 peicent tbrougli March 2O・ Show all calculations.Johnson is considering s 1 2 — moutli loan as aii alternatiue・Ihi $ approach wi II result in two additional unceilain cash flows, as follows:I.oaricFii sbSecond Tliii(UFoin1li pa^nnento initiated payment (9%) s>payin ent payment a and principal9/20/99 12/20/99 码/20/00 6/20/009/20/00b. Describe tlie strip hedge that Johnson could use and explain how it liedges the 12-month loan (spec 迅'number of contracts). No calculatious are needed.CFA Guidel ine Answer孔Tlie basis point value (BPV) of a Eiu odollai' fiihu es cxDiiti act can be found by substituting the contract specifications into the following money m aiket relationship：a BPV FUI = Ciiange in Value = (face value) x (days to maturity / 360)x (change in yield)a q尸$(1 milion) x (90 / 360)x (.0001 )$25Tlie nimibcr of contract, N. can be found by:N = (BPV spot) / (BPV fiitiires)x($2,500)/($25)3 = 100aORo N = (value of spot position) f (face value of each Futures contract)尸($ 100 million) / (SI million)a =1CO(value of spot position) / (value of iutiucs position)b □ S(1 OO, 000, 000) / ($ 981,750)where value of fiitiires position = $1,000,000 x [1-(0.073/4)]« 102 contractsTlicreforc on September 20, Johnson would sell ICO (or 102) December Eurodollar futures contracts at the 7.3 percent yield. The imp： iedL1BOR rate in December is 7・3 percent as indicated by the December Eiuofiitiu'es discount yield of 7.3 percent・ fhus a boniowing rate of 9・3 percent (7.3 percent + 200 basis points) can be locked in if tlie hedge is cciTcctly implemented.A rise in the rate to 7.8 percent represents a 50 basis point (bp) increase over tlie implied LIBOR rate. For s 50 basis point increase in LIBOR, the cash flow on the short futures position is:o = ($25 per basis point per contract) x 50 bp x 100 contractsx$125,000.However, the cash flow on die floating rate liabi lity is:x -0.098x ($100,000,000/4)=・ S2,45O, 000.Combining the cash flow fiom tlie hedge with the cash flcwfi-om the loan results in a net outflow of S2?325,GOO, which translates into an annual rate of 9.3 percent：=($2,325,000x4) / $100,000,030 = 0.093This is precisely the implied bor rowii^ rate that Johnson locked in on September 2(). Regardless of the LIBOR rate on December 20. the net outflow will be $ 2,325,000, which translates into ail annualized rate of 9.3 percent. Consequently, tlie floating rate liability 1ms been converted to a fixed rate liabil ity i n the sense tliat tlie interest rate imcertaintv associated with tlie March 20 payine nt (using tlie December 20 contiact) has been removed as of Sepzember 20・ b・【1】a strip hedge, Johnson would sell 100 December futiues (for the March payment), 100 March fiitiires (lor the June payment)、and 100 June firtiu'es (for the September payment)・ The objective is to hedge each interest rate psynient sepaiately using tlie appropriate muiiber of contiacts. The probl em is the same as in Pai! A except here tlii ee cash flows sie subject to rising rat es and a strip of fiitu res is used to hedge this interest rate risk. Tliis pi obi em is simplified somewhat because the cash flow mismatch behveen the fiitiires and the loan payment is ignored ・ Therefore, in ord er to hedge each cash flow, Johnson simply sells 100 contracts far each payment・The strip hedge traiisfbrrns the floating rate loan into a strip of fixed rWc payments・As was done in Part A、the f xed rates are found by adding 200 basis points to tlie imp I icd Foiwar d LIBOR rate indicated by tile dis count yield of the tlirce diiFcrcnt Eiu^odollar fiitiires contracts・ Tlic fixed pajments will be equal wlicn the LIBOR temi structure is flat for the first year ・7.Jacob Bower has a liability that:•has a pnncipal balance of S1 DO million on June 30,1998,•accrues interest quarterly stalling on June 30. 1998.•pf^s interest quarterly、•has a one-yeai' tenn to maturity, end•calculates interest due based on 90-day LIBOR (die London Intel bank Offeredo Rate.)Bower wishes to hedge hi s remaining i nterest payments against changes in interest rates・Bower has coircctly cal cul ated that he needs to sell (short) 300 Eurodollar fhturcs contracts to accomplish the hedge ・ He is considei*ing the altemative hedging strategies out I inedin the following table.Initial Position(6/30/98) in90 Day LlBOR Eurodollai- Contracts曰Explanwhy strategy B is a more effective hedge than strategy A when the yield curve undergoes em instant aiieous iionparallel shift.b・ Discuss ail interest rate scenario in which strategy A would be superior to strates^/ B・CFA Guide! ine Answei*a.^Strategy, B's SuperiorityStrategy B is a strip hedge that is constructed by selling (shoiiiiig) 1 OO Bjtures contracts m aturiiig in each of the next three quailers. With tlie strip liedge in place, each qiiaiter of the coming year is hedged against shifts in interest rates for th at qnailei*. The r eason Strategy B will be a more effective hedge than Strategy A for Jacob Bower is that Strategy B is likely to work well whether a parallel shift or a nonpai'allcl shift occurs over th ㊁onc-yeat' term of Bow er 7s liability. That is, regardless of what happens to the term structiwc, Strategy B structures the fiihires hedge sc that the rates reflected by the Einodollar fiihwcs cash price match the applicable fates forthe undciiying liability-tlic 90day LIBOR-based rate on Bower's liability. The same is net true forStrategy A. Because Jacob Bowers liability cemcs a floating interest rate that resets quaitcrly ・ he needs a sti ategy that provides a series of th rec-month hedges ・ Strategy A will need to be re^triictm'ed when tlie three -montii September contract expires. In particular, if the yield curve twists upward (fijtures yields rise more for distant expirations than for neai' expirstious), Strategy A will produce iiife ioi hedge results・b. Scenaiio in Which Stiategy A is SuperiorStrategy A is a stack hedge stiategy that initially involves selling (sliortirig) 300 September contracts・ Strategy A is raiely better than Stiategy B as a hedging orrisk-nediiction strategy. Only from the perspecti ve of faxorable cnsh flows is Strategj r A better than Strategy B. Such cash flows occur only in certain interest rate scenarbs・For example Strategy A wil 1 work aswclI ss Strategy B for Bowct^s liability if interc^z rates (inst antatieously) change in parallel fashion. Another interest rate scenario where Sfratcgy A outpctioniis Strategy B is one in which tlie yield ciuve rises but witli ahvist so that futures yields rise more for neai' expi rations than for distant expirations. Upon expiration of the September co厂tract. Bower will have to rol 1 out his hedge by selling 200 December contracts to hedge the remaining interest payments. Tliis action will have the effect tliat tlie cash flow from Stiat 已gy A wi 11 be larger than the cash flow from Strategy B b©cause tlie appreciation ou the 300 slioi! September fiitures contracts will be larger tliaii the cumulative appreciation in the 300 contracts shorted in Strategy B (i.e., 100 Septem ber, 100 Deceinber, and 100 Mauch). Consequently, the cash flow fi-oni Strategy A will more thai offset the increase in the intei est payment on the liability, whereas the cash ilowfi-om Strategy B wil I exactly offset the increase in the interest payment on the I lability・e the quotations in Exliibit 7.7 to calcinate the intrinsic value and the time value of the 97 September Japanese yen Amet iceii call arid put options.Solution: Premium- Intrinsic Value = Time Value97 Sep Call 2.08 -Max [95.80 -97.00= - 1.20. o] =2.08 cents per 100 yen97Sep Put 2.47 - Ma>c[97.C0 - 95.80 =1. 20, 0] = 1.27 cents per 1 OOyen9.Assume spot Swiss franc is $ 0.7000 and the six-month fbrwaid rate is $0.6950. What is tlie minitnuni price that a six-month Ametican call option with a striking price of SO.6800 should sellFor in a rational market f Assume the aimualizcdsix-niontii Ewodollar rate is 3 % percent・ Solution:Note to Instnictor: A complete solution to this problem relies on the boiindaiy expressions presented in footnote 3 of the text 济Chapter 7.C a>Mzx[(70 — 68)、(6950 - 68)/(1.0175), O]>Zl4zx[ 2. 1.47. 0] = 2 cents10・ Do problem 9 again assimiing ail American put option instead of a call option・Solution：心必4(68 -70), (68-69. 50)/(1.0175), 0]-2, -1.47. 0] = 0 cents1 1 ・ Use tlie European option-pii ci ng models developed in tlie chapter to value the cal 1 of probl an 9 and tlie put of problem 1 0・ Assume the aimualized volatility of the Swiss fi*anc is 14.2 percent. This problem can be solved using tlie FXOPM.xJ s spreadsheet・Solution:^ = [/n(69.50/68)+.5(. 142)2(.50)]/(.142)心O=.2675<4= £・.142*50 =・ 2765 ・.1004 = .1671N(di) = .6055N(d^ =・ 5664M呦= .3945N(-d^) = .4336Q 二[69.50(.6055)・ 68(・5664)]e"3%j°)= 3.51 centsP. - [68(.4336)-69.50(. 3945张心珈刘=2.03 cents12. Use the binomial option-pricing model developed in the chapter to value the call of problem 9・ Tlie volatility of tlie Swissiiaiic is 14.2 percent・Solut ion: Tlie spot rate at T will be either 77.390 = 70・00c(l・ 1056) or 63.32 0 = 70.00^(.9045), where u = &*灼=1. 1056 and a? = 7血=・©045. At the exerci se price of E =6& the option wi II only be exercised at time T if the Swi ss franc appreciates; its exercise value would be C u f= 9.390 = 77.39^ - 68. If tlie Swiss franc depreciates it would not be rational to exercise the opti on ； its value woul cl be C dT = O.TVie hedge ratio is% = (9.39 一0)/(7739-63 J2)=・ 6674・Thus, the call premium is:=?k^{[69.50(.6674)-68((70/681 (. 6674 - 1)+])]/(1.0175), 70 -68}= Max[l. 64, 2] = 2 cctits per SF.国际财务管理课后习题答案chapter 711/11GMINI CASE ： THE OPTIONS SPECULATORA speciil at or is ccnsid ering the purchase of five three - month Japanese yen call options with a strikingprice of 96 cents per 100 yeti. Tlie premium is 1.35 cents per 100 yen ・ Tlie spot price is 95.28 cents per 100 yen and tlie 90・day forward rate is 95.71 cents. The speculator believes tlie yen will ^Jpreciate to $ 1.00 per 1 00 yen ovei the next du es months. As tlie speculator's assistant, you liavebeen asked to prepare the following ：1 ・ Graph the call option cash flow schedule.2. Det 已 rmine the speculator's profit if the yen appreciates to $1. 00/100 yen.3. Det 曰 Triine the speculators profit if the yen only appreciates to the fonvaid rate.4. Determine the fiitiu c spot price at which the speculator will only break wen.Suggested Solution to tlie Options Speculator:2. (5 x¥6,250000) x [(1 00 - 96)- 1. 35]/1 0000 = $&281・25・3. Sin c e the oprj on expi res out — of-the — money, the -s p ec u lator will let the opt ion expi leworthless ・ He uvill only lose tlie option pi emium ・4. = E +C=96 + 1.35 = 97.35 ceiitsper 100 yen.。

（财务会计）西方财务会计课后习题答案

（财务会计）西⽅财务会计课后习题答案Chapter 6Merchandise Inventory and Cost of Goods SoldCheck Points(10 min.) CP 6-1Nissan North AmericaBalance SheetDecember 31, 20X6Current assets:Inventory (300 @ $80)…………………..$24,000Nissan North AmericaIncome StatementYear Ended December 31, 20X6Sales revenue [700 ($80 + $40)]……….$84,000Cost of goods sold (700 @ $80)………… 56,000Gross profit………………………………….$28,000Chapter 6 Merchandise Inventory and Cost of Goods Sold 379(10-15 min.) CP 6-2 1. (Journal entries) Inventory…………………………………..100,000Accounts Payable…………………….100,000 Cash ($140,000 ?.20)……………………28,000 Amounts Receivable ($140,000 ? .80).. 112,000Sales Revenue………………………...140,000 Cost of Goods Sold……………………..60,000 Inventory ($100,000 ?.60)…………..60,000 2. (Financial statements)BALANCE SHEETCurrent assets:Inventory ($100,000 –$60,000)……………….$40,000 INCOME STATEMENTSales revenue………………………………………$140,000Cost of goods sold……………………………….. 60,000Gross profit…………………………………………$ 80,000 380Financial Accounting 6/e Solutions Manual(10 min.) CP 6-3Billions Inventory………………………… 6.4Cash…………………………... 6.4 Accounts Receivable………….28.5Sales Revenue……………….28.5Cost of Goods Sold…………… 6.2Inventory……………………... 6.2 Cash………………………………26.3Accounts Receivable……….26.3Chapter 6 Merchandise Inventory and Cost of Goods Sold 381(10 min.) CP 6-41. I nventory costs are increasing from $10 to $14 to $18 per unit.2. FIFO results in the highest cost of ending inventory($360)because under FIFO the ending inventory is costed at the last costs incurred during the period. When costs are increasing, the last costs are the highest costs.FIFO results in the lowest cost of goods sold. This occurs because the oldest costs are assigned to cost of goods sold. When costs are increasing, the oldest costs are the lowest.FIFO results in the highest gross profit because cost of goods sold, the expense, is the lowest. (Sales revenue is unaffected by the inventory costing method.)3. LIFO results in the lowest cost of ending inventory($240)because under LIFO, the ending inventory is costed at the oldest costs. When costs are increasing, the oldest costs are the lowest costs.LIFO results in the highest cost of goods sold. This occurs because the last costs of the period are assigned to cost of goods sold. When costs are increasing, the last costs are the highest.LIFO results in the lowest gross profit because cost of goods sold, the expense, is the highest. (Sales revenue is unaffected by the inventory costing method.)382Financial Accounting 6/e Solutions Manual(10 min.) CP 6-5a b cAverageCost FIFO LIFO Cost of goods sold:Average (50 @ $15*) $750FIFO (10 @ $10) + (25 @ $14) + (15 @ $18) $720LIFO (25 @ $18) + (25 @ $14) $800 Ending inventory:Average (10 @ $15*) $150FIFO (10 @ $18) $180LIFO (10 @ $10) $100 _____*Average cost= ($100 + $350 + $450)= $15per unit (10 + 25 + 25)Chapter 6 Merchandise Inventory and Cost of Goods Sold 383(10-15 min.) CP 6-6Kinko’sIncome StatementYear Ended December 31, 20XXAverage FIFO LIFO Sales revenue (600 ? $20) $12,000 $12,000 $12,000 Cost of goods sold (600 ? $9.90*)5,940(100 ? $9) + (500 ? $10) 5,900(600 ? $10) 6,000 Gross profit 6,060 6,100 6,000 Operating expenses 4,000 4,000 4,000 Net income $ 2,060 $ 2,100 $ 2,000 _____*Beginning inventory (100 @ $9.20)…………..$ 920 Purchases (700 @ $10)………………………… 7,000Goods available…………………….……………$7,920 Average cost per unit $7,920 / 800 units…$ 9.90384Financial Accounting 6/e Solutions Manual(10 min.) CP 6-7Kinko’sIncome StatementYear Ended December 31, 20XXAverage FIFO LIFO Sales revenue (600 ? $20) $12,000 $12,000 $12,000 Cost of goods sold (600 ? $9.90*)5,940(100 ? $9) + (500 ? $10) 5,900(600 ? $10) ______ ______ 6,000 Gross profit 6,060 6,100 6,000 Operating expenses 4,000 4,000 4,000 Income before income tax $ 2,060Income tax expense (40%) $ 824*From CP 6-6(5 min.) CP 6-8 Lands’ End managers can delay purchases of inventory until the next year. Under LIFO, high inventory costs that would have been paid for inventory do not become expense as cost of goods sold in the current year. As a result, the current year’s income statement reports a higher net income than Lands’ End would have reported if the company had replaced inventory before year end.Chapter 6 Merchandise Inventory and Cost of Goods Sold 385(5-10 min.) CP 6-9Millions BALANCE SHEETCurrent assets:Inventories, at market (which is lower than cost).. $ 330 INCOME STATEMENTCost of goods sold [$1,001 + ($333 – $330)]…………$1,004 386Financial Accounting 6/e Solutions Manual(10 min.) CP 6-101. FIFO2. LIFO Gross profitpercentage:Gross profit= $460*= 46%$340**= 34%Net sales revenue $1,000 $1,000 _____* $1,000 – $540 = $460** $1,000 – $660 = $340Inventory turnover:Cost of goods sold= $540 $660Average inventory ($100 + $360) / 2 ($100 + $240) / 2= 2.3 times = 3.9 times3. Gross profit percentage — FIFO looks better.4. Inventory turnover — LIFO looks better.Chapter 6 Merchandise Inventory and Cost of Goods Sold 387(10-15 min.) CP 6-11 1. Beginning inventory……………………………... $ 300,000+ Purchases……………………………………….… 1,600,000 = Goods available…………………………………... 1,900,000 –Cost of goods sol d………………………………. (1,800,000) = Ending inventory……………………………….…2. Beginning inventory……………………………..+ Purchases……………………………………….…= Goods available…………………………………...–Cost of goods sold:Sales revenue……………………….$3,000,000Less estimated gross profit (40%) (1,200,000)Estimated cost of goods sold……………….= Estimated cost of ending inventory…………... $ 100,000 388Financial Accounting 6/e Solutions Manual(5-10 min.) CP 6-12CorrectAmount(Millions)a. Inventory ($333 + $3)…………………………………$ 336b. Net sales (unchanged)……………………………….$1,755c. Cost of goods sold ($1,001 –$3)…………………...$ 998d. Gross profit ($754 + $3)……………………….……..$ 757(10 min.) CP 6-13 1. Last year’s reported g ross profit was understated.Correct gross profit last year was $5.6 million ($4.0 + $1.6). 2. This year’s gross profit is overstated.Correct gross profit for this year is $3.2 million ($4.8 – $1.6).3. Lang’s perspective is better because correcting the errorchanges the trend of correct gross profit from up (good) to down (bad), as follows:MillionsLast Year This Year Trend Reported gross profit……..$4.0 $4.8 Up (Good) Correct gross profit……….$5.6 $3.2 Down (Bad) Chapter 6 Merchandise Inventory and Cost of Goods Sold 389(5-10 min.) CP 6-14 1. Ethical. There is nothing wrong with buying inventorywhenever a company wishes.2. Ethical. Same idea as 1.3. Unethical. The company falsified its reported amounts ofinventory and net income.4. Unethical. The company falsified its reported inventorypurchases, cost of goods sold, and net income in order to cheat the government (and the people) out of income tax.5. Unethical. The company falsified its reported amount ofinventory in order to cheat the government (and the people) out of taxes.390Financial Accounting 6/e Solutions ManualExercises(15-20 min.) E 6-1 Req. 1 (journal entried)Perpetual System1. Purchases: ThousandsInventory…………………….……….… 2,200Accounts Payable………………….2,2002. Sales:Cash ($3,500 ?.20) (700)Accounts Receivable ($3,500 ? .80). 2,800Sales Revenue…………….……….3,500 Cost of Goods Sold………………….. 2,100 Inventory………………….………....2,100Req. 2 (financial statement amounts)BALANCE SHEET Thousands Current assets:Inventory ($370 + $2,200 – $2,100)... $ 470 INCOME STATEMENTSales revenue…………………………….$3,500Cost of goods sold……………………… 2,100Gross profit……………………………….$1,400Chapter 6 Merchandise Inventory and Cost of Goods Sold 391(15-25 min.) E 6-2JournalDATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT1 Inventory ($640 + $1,870 + $900)……….3,410Accounts Payable………………………3,4102 Accounts Receivable (17 @ $500)……...8,500Sales Revenue…………………………..8,500 Cost of Goods Sold……………………….2,800* Inventory…………………………………2,8003 Sales revenue………………………………$8,500Cost of goods sold……………………….. 2,800Gross profit…………………………………$5,700Ending inventory ($800 + $3,410 –$2,800)……...$1,410 _____*(9 @ $160) + (8 @ $170) = $2,800392Financial Accounting 6/e Solutions Manual(10-15 min.) E 6-3 1.Cost of Goods Sold Ending Inventory(a) Specificunit cost (6 @ $160) + (11 @ $170) = $2,830 (3 @ $160) + (5 @ $180) = $1,380 (b) Averagecost 17 ? $168.40* = $2,863 8 ? $168.40* = $1,347 _____*Average cost per unit = ($800 + $640 + $1,870 + $900)= $168.40(5 + 4 + 11 + 5)(c) FIFO (9 @ $160) + (8 @ $170) = $2,800 (5 @ $180) + (3 @ $170) $1,410(d) LIFO (5 @ $180) + (11 @ $170) + (1 @ $160) $2,930 (8 @ $160) $1,2802. LIFO produces the highest cost of goods sold.FIFO produces the lowest cost of goods sold.The increase in inventory cost from $160 to $170 to $180 per unit causes the difference in cost of goods sold. Chapter 6 Merchandise Inventory and Cost of Goods Sold 393(15-20 min.) E 6-4 Cost of goods sold:LIFO ($2,930) –FIFO ($2,800)…………………………$130 Incom e tax rate……………………………………….. .35 LIFO advantage in tax savings…………………………..$ 46(15 min.) E 6-51. a. FIFOCost of goods sold:(5 @ $90) + (5 @ $95)……………...$925Ending inventory:7 @ $95………………………………$665b. LIFOCost of goods sold:10 @ $95……………………………..$950Ending inventory:(5 @ $90) + (2 @ $95)……………...$6402.VPA, Inc.Income StatementMonth Ended May 31, 20XXSales revenue (3 @ $150) + (7 @ $155)................$1,535 Cost of goods sold. (925)Gross profit (610)Operating expenses (310)Income before income tax (300)Income tax expense (40%) (120)Net income………………………………………………$ 180 394Financial Accounting 6/e Solutions Manual(15 min.) E 6-6Millions1. Gross profit: FIFO LIFOSales revenue……………………………………$4.9 $4.9 Cost of goods soldFIFO: 600,000 ?$7…………………………… 4.2LIFO: (400,000 ? $5) + (100,000 ? $6)+ (100,000 ?$7)……………………… 3.3 Gross profit………………………………………$ .7 $1.6 2. Gross profit under FIFO and LIFO differ because inventorycosts decreased during the period.If you base your prediction on the decrease in inventory unit cost, then, yes, you would predict that LIFO gross profit would be higher.But if you assume that FIFO produces higher gross profit, then, no, the actual result does not follow your prediction. Chapter 6 Merchandise Inventory and Cost of Goods Sold 395(15-20 min.) E 6-7 DATE: _____________TO: Rick TaborFROM: Student NameSUBJECT: Proposal for Saving Income TaxWe can save income tax by buying above-normal quantities of inventory before the end of the year. Inventory costs are rising, and the company uses the LIFO inventory method. Under LIFO, the higher cost of year-end purchases of inventory goes straight into cost of goods sold. This increases cost of goods sold and decreases net income and income taxes. Because our inventory levels are lower than normal, we need the inventory anyway. In effect, we can use our cash to buy inventory or to pay income taxes. I think it would be wiser to buy inventory.396Financial Accounting 6/e Solutions Manual(10-15 min.) E 6-8 Specificunit cost 1. Used to account for automobiles, jewelry, and art objects.Average 2. Provides a middle-ground measure of ending inventory and cost of goods sold.FIFO 3. Maximizes reported income.LIFO 4. Matches the most current cost of goods sold against sales revenue.LIFO 5. Results in an old measure of the cost of ending inventory.LIFO 6. Generally associated with saving income taxes. FIFO 7. Results in a cost of ending inventory that is close to the current cost of replacing the inventory.LIFO 8. Enables a company to buy high-cost inventory at year end and thereby to decrease reportedincome.LIFO 9. Enables a company to keep reported income from dropping lower by liquidating older layers ofinventory.LCM 10. Writes inventory down when replacement cost drops below historical cost.Chapter 6 Merchandise Inventory and Cost of Goods Sold 397。

会计学原理FinancialAccountingbyRobertLibby第八版第七章答案

会计学原理FinancialAccountingbyRobertLibby第⼋版第七章答案Chapter 7Reporting and Interpreting Cost of Goods Sold and InventoryANSWERS TO QUESTIONS1. Inventory often is one of the largest amounts listed under assets on the balancesheet which means that it represents a significant amount of the resources available to the business. The inventory may be excessive in amount, which is a needless waste of resources; alternatively it may be too low, which may result in lost sales. Therefore, for internal users inventory control is very important. On the income statement, inventory exerts a direct impact on the amount of income.Therefore, statement users are interested particularly in the amount of this effect and the way in which inventory is measured. Because of its impact on both the balance sheet and the income statement, it is of particular interest to all statement users. 2. Fundamentally, inventory should include those items, and only those items,legally owned by the business. That is, inventory should include all goods that the company owns, regardless of their particular location at the time.3. The cost principle governs the measurement of the ending inventory amount.The ending inventory is determined in units and the cost of each unit is applied to that number. Under the cost principle, the unit cost is the sum of all costs incurred in obtaining one unit of the inventory item in its present state.4. Goods available for sale is the sum of the beginning inventory and the amount ofgoods purchased during the period. Cost of goods sold is the amount of goods available for sale less the ending inventory.5. Beginning inventory is the stock of goods on hand (in inventory) at the start of theaccounting period. Ending inventory is the stock of goods on hand (in inventory) at the end of the accounting period. The ending inventory of one period automatically becomes the beginning inventory of the next period.6. (a) Average cost–This inventory costing method in a periodic inventorysystem is based on a weighted-average cost for the entire period. At theend of the accounting period the average cost is computed by dividing thegoods available for sale in units into the cost of goods available for salein dollars. The computed unit cost then is used to determine the cost ofgoods sold for the period by multiplying the units sold by this average unitcost. Similarly, the ending inventory for the period is determined bymultiplying this average unit cost by the number of units on hand.(b) FIFO–This inventory costing method views the first units purchased as thefirst units sold. Under this method cost of goods sold is costed at theoldest unit costs, and the ending inventory is costed at the newest unitcosts.(c) LIFO–This inventory costing method assumes that the last unitspurchased are the first units sold. Under this method cost of goods sold iscosted at the newest unit costs and the ending inventory is costed at theoldest unit costs.(d) Specific identification–This inventory costing method requires that eachitem in the beginning inventory and each item purchased during the periodbe identified specifically so that its unit cost can be determined byidentifying the specific item sold. This method usually requires that eachitem be marked, often with a code that indicates its cost. When it is sold,that unit cost is the cost of goods sold amount. It often is characterized asa pick-and-choose method. When the ending inventory is taken, thespecific items on hand, valued at the cost indicated on each of them, is theending inventory amount.7. The specific identification method of inventory costing is subject to manipulation.Manipulation is possible because one can, at the time of each sale, select (pick and choose) from the shelf the item that has the highest or the lowest (or some other) unit cost with no particular rationale for the choice. The rationale may be that it is desired to influence, by arbitrary choice, both the amount of income and the amount of ending inventory to be reported on the financial statements. To illustrate, assume item A is stocked and three are on the shelf. One cost $100;the second one cost $115; and the third cost $125. Now assume that one unit is sold for $200. If it is assumed arbitrarily that the first unit is sold, the gross profit will be $100; if the second unit is selected, the gross profit will be $85; or alternatively, if the third unit is selected, the gross profit will be $75. Thus, the amount of gross profit (and income) will vary significantly depending upon which one of the three is selected arbitrarily from the shelf for this particular sale. This assumes that all three items are identical in every respect except for their unit costs. Of course, the selection of a different unit cost, in this case, also will influence the ending inventory for the two remaining items.8. LIFO and FIFO have opposite effects on the inventory amount reported underassets on the balance sheet. The ending inventory is based upon either the oldest unit cost or the newest unit cost, depending upon which method is used.Under FIFO, the ending inventory is costed at the newest unit costs, and under LIFO, the ending inventory is costed at the oldest unit costs. Therefore, when prices are rising, the ending inventory reported on the balance sheet will be higher under FIFO than under LIFO. Conversely, when prices are falling the ending inventory on the balance sheet will be higher under LIFO than under FIFO.9. LIFO versus FIFO will affect the income statement in two ways: (1) the amount ofcost of goods sold and (2) income. When the prices are rising, FIFO will give a lower cost of goods sold amount and hence a higher income amount than will LIFO. In contrast, when prices are falling, FIFO will give a higher cost of goods sold amount and, as a result, a lower income amount.10. When prices are rising,LIFO causes a lower taxable income than does FIFO.Therefore, when prices are rising, income tax is less under LIFO than FIFO. A lower tax bill saves cash (reduces cash outflow for income tax). The total amount of cash saved is the difference between LIFO and FIFO inventory amounts multiplied by the income tax rate.11. LCM is applied when market (defined as current replacement cost) is lower thanthe cost of units on hand. The ending inventory is valued at market (lower), which (a) reduces net income and (b) reduces the inventory amount reported on the balance sheet. The effect of applying LCM is to include the holding loss on the income statement (as a part of CGS) in the period in which the replacement cost drops below cost rather than in the period of actual sale.12. When a perpetual inventory system is used, the unit cost must be known for eachitem sold at the date of each sale because at that time two things happen: (a) the units sold and their costs are removed fromthe perpetual inventory record and the new inventory balance is determined; (b) the cost of goods sold is determined from the perpetual inventory record and an entry in the accounts is made as a debit to Cost of Goods Sold and a credit to Inventory. In contrast, when a periodic inventory system is used the unit cost need not be known at the date of each sale. In fact, the periodic system is designed so that cost of goods sold for each sale is not known at the time of sale. At the end of the period, under the periodic inventory system, cost of goods sold is determined by adding the beginning inventory to the total goods purchased for the period and subtracting from that total the ending inventory amount. The ending inventory amount is determined by means of a physical inventory count of the goods remaining on hand and with the units valued on a unit cost basis in accordance with the cost principle (by applying an appropriate inventory costing method). ANSWERS TO MULTIPLE CHOICE1. c)2. d)3. a)4. a)5. c)6. c)7. a)8. c)9. c) 10. a)Authors' Recommended Solution Time(Time in minutes)* Due to the nature of these cases and projects, it is very difficult to estimate the amount of time students will need to complete the assignment. As with any open-ended project, it is possible for students to devote a large amount of time to these assignments. While students often benefit from the extra effort, we find that some become frustrated by the perceived difficulty of the task. You can reduce student frustration and anxiety by making your expectations clear. For example, when our goal is to sharpen research skills, we devote class time to discussing research strategies. When we want the students to focus on a real accounting issue, we offer suggestions about possible companies or industries.MINI-EXERCISESM7–1.Type of BusinessType of Inventory Merchandising ManufacturingWork in process XFinished goods XMerchandise XRaw materials XM7–2.To record the purchase of 90 new shirts in accordance with the cost principle (perpetual inventory system):Inventory (+A) .............................................................. 2,150Cash ( A) .......................................................... 2,150 Cost: $1,800 + $185 + $165 = $2,150.The $108 interest expense is not a proper cost of the merchandise; it is recorded as prepaid interest expense and later as interest expense.M7–3.(1) Part of inventory (2) Expense as incurreda. Wages of factory workers Xb. Costs of raw materials purchased Xc. Sales salaries Xd. Heat, light, and power for the factory building Xe. Heat, light, and power for the headquartersoffice buildingXComputation: Simply rearrange the basic inventory model (BI + P – EI = CGS): Cost of goods sold ................................................. $11,042 million + Ending inventory .................................................... 2,916 million –Beginning inventory ............................................... (3,213) million Purchases .............................................................. $10,745 millionM7–5.(a) Declining costsHighest net income LIFOHighest inventory LIFO(b) Rising costsHighest net income FIFOHighest inventory FIFOM7–6.LIFO is often selected when costs are rising because it reduces the company’s tax liability which increases cash and benefits shareholders. However, it also reduces reported net income.M7–7.Quantity Cost perItem ReplacementCost per ItemLower of Costor MarketReported onBalance SheetItem A 70 $ 110 $100 $100 70 x $100 = $7,000 Item B 30 60 85 60 30 x $60 = $1,800 Total $8,800 M7–8.+ (a) Parts inventory delivered daily by suppliers instead of weekly.NE (b)Extend payments for inventory purchases from 15 days to 30 days.+ (c) Shorten production process from 10 days to 8 days.Understatement of the 2014 ending inventory by $50,000 caused 2014 pretax income to be understated and 2015 pretax income to be overstated by the same amount. Overstatement of the 2014 ending inventory would have the opposite effect; that is, 2014 pretax income would be overstated by $50,000 and 2015 pretax income understated by $50,000. Total pretax income for the two years combined would be correct.EXERCISESE7–1Item Amount ExplanationEnding inventory (physical count onDecember 31, 2014)$34,500 Per physical inventory.a. Goods purchased and in transit + 700 Goods purchased and in transit,F.O.B. shipping point, are ownedby the purchaser.b. Samples out on trial tocustomer + 1,800 Samples held by a customer ontrial are still owned by the vendor;no sale or transfer of ownershiphas occurred.c. Goods in transit to customer Goods shipped to customers,F.O.B. shipping point, are ownedby the customer becauseownership passed when they weredelivered to the transportationcompany. The inventory correctlyexcluded these items.d. Goods sold and in transit + 1,500 Goods sold and in transit, F.O.B.destination, are owned by the selleruntil they reach destination.Correct inventory, December 31, 2014 $38,500E7–2.(Italics for missing amounts only.)Case A Case B Case CNet sales revenue .......... $7,500 $4,800$5,000 Beginning inventory ........ $11,200 $ 7,000 $ 4,000 Purchases .................. 4,500 8,050 9,500Goods available for sale . 15,700 15,050 13,500Ending inventory ............ 9,000 11,050 9,300Cost of goods sold.......... 6,700 4,000 4,200 Gross profit .................. 800 800 800 Expenses .................. 300 1,000 700 Pretax income ................ $ 500 $ (200) $ 100E7–3.E7–4.Computations:Simply rearrange the cost of goods sold equationBI + P – EI = CGSP = CGS – BI + EICost of goods sold ................................... $1,639,188,000 –Beginning inventory .................................. (385,857,000) + Ending inventory ...................................... 569,818,000 Purchases ................................................ $1,823,149,000AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory ($5) ............. 2,000 $10,000 $10,000 $10,000 Purchases (March 21) ($6) ......... 5,000 30,000 30,000 30,000 (August 1) ($8) .......... 3,000 24,000 24,000 24,000Goods available for sale .. 10,000 64,000 64,000 64,000 Ending inventory* ....................... 4,000 30,000 22,000 25,600 Cost of goods sold** ........ 6,000 $34,000 $42,000 $38,400 *Ending inventory computations:FIFO: (3,000 units @ $8) + (1,000 units @ $6) = $30,000.LIFO: (2,000 units @ $5) + (2,000 units @ $6) = $22,000.Average: [(2,000 units @ $5) + (5,000 units @ $6) + (3,000 units @ $8)] =$64,000 ÷ 10,000 units = $6.40 per unit.4,000 units @ $6.40 = $25,600.**Cost of goods sold computations:FIFO: (2,000 units @ $5) + (4,000 units @ $6) = $34,000.LIFO: (3,000 units @ $8) + (3,000 units @ $6) = $42,000.Average: [(2,000 units @ $5) + (5,000 units @ $6) + (3,000 units @ $8)] =$64,000 ÷ 10,000 units = $6.40 per unit.6,000 units @ $6.40 = $38,400.AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory ($5) ............. 2,000 $10,000 $10,000 $10,000 Purchases (March 21) ($4) ......... 6,000 24,000 24,000 24,000 (August 1) ($2) .......... 4,000 8,000 8,000 8,000Goods available for sale .. 12,000 42,000 42,000 42,000 Ending inventory* ....................... 3,000 6,000 14,000 10,500 Cost of goods sold ........... 9,000 $36,000 $28,000 $31,500 *Ending inventory computations:FIFO: (3,000 units @ $2) = $6,000.LIFO: (2,000 units @ $5) + (1,000 units @ $4) = $14,000.Average: [(2,000 units @ $5) + (6,000 units @ $4) + (4,000 units @ $2)] =$42,000 ÷ 12,000 units = $3.50 per unit.3,000 units @ $3.50 = $10,500.**Cost of goods sold computations:FIFO: (2,000 units @ $5) + (6,000 units @ $4) + (1,000 units @ $2) = $36,000.LIFO: (4,000 units @ $2) + (5,000 units @ $4) = $28,000.Average: [(2,000 units @ $5) + (6,000 units @ $4) + (4,000 units @ $2)] =$42,000 ÷ 12,000 units = $3.50 per unit.9,000 units @ $3.50 = $31,500.E7–7.Req. 1BROADHEAD COMPANYIncome StatementFor the Year Ended December 31, 2015Case A Case BFIFO LIFOSales revenue1 .............................. $500,000 $500,000 Cost of goods sold:Beginning inventory ................ $ 27,000 $ 27,000Purchases .............................. 195,000 195,000Goods available for sale2 222,000 222,000 Ending inventory3 .................. 125,000 87,000Cost of goods sold4......... 97,000 135,000 Gross profit .................................. 403,000 365,000 Expenses .................................. 195,000 195,000 Pretax income ................................ $208,000 $170,000 Computations:(1) Sales: (10,000 units @ $50) = $500,000(2) Goods available for sale (for both cases):Units Unit Cost Total Cost Beginning inventory 3,000 $9 $ 27,000Purchase, April 11, 2015 9,000 10 90,000Purchase, June 1, 2015 7,000 15 105,000 Goods available for sale 19,000 $222,000 (3) Ending inventory (19,000 available – 10,000 units sold = 9,000 units):Case A FIFO:(7,000 units @ $15 = $105,000) +(2,000 units @ $10 = $20,000) = $125,000.Case B LIFO:(3,000 units @ $9 = $27,000)+(6,000 units @ $10 = $60,000) = $87,000.E7–7. (continued)Req. 1 (continued)(4) Cost of goods sold (10,000 units sold):Case A FIFO:(3,000 units @ $9 = $27,000) +(7,000 units @ $10 = $70,000) = $97,000Case B LIFO:(7,000 units @ $15 = $105,000) +(3,000 units @ $10 = $30,000) = $135,000Req. 2Comparison of AmountsCase A Case BFIFO LIFOPretax Income $208,000 $170,000Difference $38,000Ending Inventory 125,000 87,000Difference 38,000The above tabulation demonstrates that the pretax income difference between the two cases is exactly the same as the inventory difference. Differences in inventory have a dollar-for-dollar effect on pretax income.Req. 3LIFO may be preferred for income tax purposes because it reports less taxable income (when prices are rising) and hence (a) reduces income tax and (b) as a result reduces cash outflows for the period.E7–8.Req. 1BECK INC.Income StatementFor the Year Ended December 31, 2015Case A Case BFIFO LIFOSales revenue1 .............................. $704,000 $704,000 Cost of goods sold:Beginning inventory ................ $ 35,000 $ 35,000Purchases .............................. 281,000 281,000Goods available for sale2 316,000 316,000 Ending inventory3 .................. 128,000 80,000Cost of goods sold4......... 188,000 236,000 Gross profit .................................. 516,000 468,000 Expenses .................................. 500,000 500,000 Pretax income ................................ $16,000 $(32,000) Computations:(1) Sales: (8,000 units @ $28) + (16,000 units @ $30) = $704,000(2) Goods available for sale (for both cases):Units Unit Cost Total Cost Beginning inventory 7,000 $5 $ 35,000Purchase, March 5, 2015 19,000 9 171,000Purchase, September 19, 2015 10,000 11 110,000 Goods available for sale 36,000 $316,000 (3) Ending inventory (36,000 available – 24,000 units sold = 12,000 units):Case A FIFO:(10,000 units @ $11 = $110,000) +(2,000 units @ $9 = $18,000) = $128,000.Case B LIFO:(7,000 units @ $5 = $35,000)+(5,000 units @ $9 = $45,000) = $80,000.E7–8. (continued)Req. 1 (continued)(4) Cost of goods sold (24,000 units sold):Case A FIFO:(7,000 units @ $5 = $35,000) +(17,000 units @ $9 = $153,000) = $188,000Case B LIFO:(10,000 units @ $11 = $110,000) +(14,000 units @ $9 = $126,000) = $236,000Req. 2Comparison of AmountsCase A Case BFIFO LIFOPretax Income $16,000 $(32,000)Difference $48,000Ending Inventory 128,000 80,000Difference 48,000The above tabulation demonstrates that the pretax income difference between the two cases is exactly the same as the inventory difference. Differences in inventory have a dollar-for-dollar effect on pretax income.Req. 3LIFO may be preferred for income tax purposes because it reports less taxable income (when prices are rising) and hence (a) reduces income tax and (b) as a result reduces cash outflows for the period.E7–9.Req. 1AverageUnits FIFO LIFO Cost Cost of goods sold:Beginning inventory .................... 2,000 $ 76,000 $ 76,000 $ 76,000Purchases................................... 8,000 320,000 320,000 320,000 Goods available for sale .. 10,000 396,000 396,000 396,000 Ending inventory* ....................... 1,800 72,000 68,400 71,280 Cost of goods sold** ........ 8,200 $324,000 $327,600 $324,720Average Income statement FIFO LIFO Cost Sales revenue ....................................... $615,000 $615,000 $615,000 Cost of goods sold................................. 324,000 327,600 324,720 Gross profit ......................................... 291,000 287,400 290,280 Expenses ......................................... 194,500 194,500 194,500 Pretax income ....................................... 96,500 92,900 95,780 Income tax expense (30%) ......... 28,950 27,870 28,734 Net income ......................................... $ 67,550 $ 65,030 $ 67,046*Ending inventory computations:FIFO: 1,800 units @ $40 = $72,000.LIFO: 1,800 units @ $38 = $68,400.Average: [(2,000 units @ $38) + (8,000 units @ $40)] ÷ 10,000 units =$396,000 ÷ 10,000 units = $39.60 per unit.$39.60 x 1,800 units = $71,280.**Cost of goods sold computations:FIFO: (2,000 units @ $38) + (6,200 units @ $40) = $324,000.LIFO: (8,000 units @ $40) + (200 units @ $38) = $327,600.Average: [(8,000 units @ $38) + (8,000 units @ $40)] =$396,000 ÷ 10,000 units = $39.60 per unit.8,200 units @ $39.60 = $324,720.Req. 2FIFO produces a more favorable (higher) net income because when prices are rising it gives a lower cost of goods sold amount. FIFO allocates the old (lower) unit costs to cost of goods sold.LIFO produces a more favorable cash flow than FIFO because, when prices are rising, it produces a higher cost of goods sold amount and lower taxable income and, therefore, lower income tax expense for the period. Cash outflow is less under LIFO by the amount of income tax reduction. LIFO causes these comparative effects because it allocates the new (higher) unit costs to cost of goods sold.E7–9. (continued)Req. 3When prices are falling, the opposite effect occurs–LIFO produces higher net income and less favorable cash flow than does FIFO.E7–10.Req. 1AverageFIFO LIFO Cost Cost of goods sold:Beginning inventory (400 units @ $28) ... $11,200 $11,200 $11,200 Purchases (475 units @ $35) ................. 16,625 16,625 16,625 Goods available for sale ......................... 27,825 27,825 27,825 Ending inventory (525 units)*.................. 18,025 15,575 16,695 Cost of goods sold (350 units)** ............. $ 9,800 $12,250 $ 11,130 *Computation of ending inventory:FIFO: (475 units x $35) + (50 units x $28) = $18,025LIFO: (400 units x $28) + (125 units x $35) = $15,575Average: [(400 units @ $28) + (475 units @ $35)] ÷ 875 units =$27,825 ÷ 875 units = $31.80 per unit.$31.80 x 525 units = $16,695.**Cost of goods sold computations:FIFO: (350 units @ $28) = $9,800.LIFO: (350 units @ $35) = $12,250.Average: [(400 units @ $28) + (475 units @ $35)] ÷ 875 units =$27,825 ÷ 875 units = $31.80 per unit.$31.80 x 350 units = $11,130.Req. 2AverageFIFO LIFO Cost Sales revenue ($50 x 350) ............................... $17,500 $17,500 $17,500 Cost of goods sold............................................. 9,800 12,250 11,130 Gross profit ..................................................... 7,700 5,250 6,370 Expenses ..................................................... 1,700 1,700 1,700 Pretax income ................................................... $ 6,000 $ 3,550 $ 4,670E7–10. (continued)Req. 3Ranking in order of favorable cash flow: The higher rankings are given to the methods that produce the lower income tax expense because the lower the income tax expense the higher the cash savings.(1) LIFO–produces the lowest pretax income, hence the lowest amount of cash to bepaid for income tax.(2) Weighted average–produces next lower pretax income.(3) FIFO–produces the highest pretax income and as a result the highest income tax.This result causes the lowest cash savings on income tax.The above comparative effects occurred because prices were rising. If prices were falling the three methods would have produced the opposite ranking.。

西方财务会计课后习题答案-精品

西方财务会计课后习题答案-精品2020-12-12【关键字】财务会计The Financial StatementsCheck Points(5 min.) CP 1-1 Store manager decisions:a.What food items to offer and how to market the goodsb.Where to locate a restaurantc.How to finance operationsAccounting helps managers measure the revenue from food sales, the cost of the food, and the profit (or loss) on each food item. Accounting also helps measure which Taco Bells are most profitable and which are losing money. Finally, accounting helps managers decide how to finance operations. Items on YUM! Brands’ income statement that help decide whether to invest in the company:The company earned a net income (rather than a net loss).This year’s net income is more than last year’s.Net sales revenue is increasing from year to year. Student responses may vary.(5 min.) CP 1-2 Accounting is the information system that measures business activities, processes data into reports, and communicates results to people.Bookkeeping is only a part of accounting. Bookkeeping is related to accounting as arithmetic is related to mathematics.(5 min.) CP 1-3Standards of professional conduct are designed to produce relevant and reliable information for decision making. People need relevant and reliable information in order to make wise decisions.If accountants had no ethical guidelines, companies could report inaccurate information. This could cause people to invest in the wrong companies and lose money.(5 min.) CP 1-4 1. Novak can be misled into believing that YUM! Brands ownsmore assets than it actually has.2. The entity concept applies.3. Application of the entity concept will separate Novak’spersonal assets from the assets of YUM! Brands. This will help Novak, investors, and lenders know how much in assets the business controls, and this knowledge will help all parties evaluate the business realistically.(5 min.) CP 1-5 1. Owners’ Equity = Assets – LiabilitiesThis way of determining the amount of owners’ equity applies to eBay, Coca-Cola, your household, a Pizza Hut restaurant, or any other organization.2. Liabilities = Assets –Owners’ Equity3. Total Assets = Total Liabilities + Total Owners’ Equity(5 min.) CP 1-6 1. Assets are the economic resources of a business that areexpected to produce a benefit in the future.Owners’ equity represents the insider claims of a business, the owners’ interest in its assetsAssets and owners’ equity differ in that owners’ equity is a claim to assets, whereas assets are resources.Assets must be at least as large as owners’ equity, so equity can be smaller than assets.2. Both liabilities and owners’ equity are claims to assets.Liabilities are the outsider claims to the assets of a business;they are obligations to pay creditors. Owners’ equity represents the insider claims to the assets of the business, the owners’ interest in its assets.(5-10 min.) CP 1-7a. Accounts receivable A g. Accounts payable Lb. Long-term debt L h. Common stock Ec. Merchandise inventory A i. Supplies Ad. Notes payable L j. Retained earnings Ee. Expenses payable L k. Land Af. Equipment A l. Prepaid expenses A(5 min.) CP 1-81. Revenues and expenses2. Net income (or net loss)3. Total assets are not used to measure net income. Onlyrevenues and gains, expenses and losses enter into the measurement of net income.(10 min.) CP 1-9 2003 2002Percentage of cost= $2,300$7,441= 30.9%$2,109$6,891= 30.6%of goods sold tocompany salesThis trend is unfavorable for YUM because cost of goods sold (an expense) consumed a higher percentage of sales revenue in 2003. That could cause a decrease in profits.(5 min.) CP 1-10IHOP Corp.Statement of Retained EarningsYear Ended December 31, 2003Millions Retained earnings:Balance, beginning of year…………...$274Net income ($405 –$368) (37)Less: Dividends (16)Balance, end of year…………………...$295(10-15 min.) CP 1-11Toby Landscaping ServicesBalance SheetDecember 31, 2008ASSETSCurrent assets:Cash……………………………………………………$ 13,000 Receivables…………………………………………...2,000 Inventory……………………………………………… 40,000 Total current assets…………………………………55,000 Equipment……………………………………………….85,000 Other assets…………………………………………….. 10,000 Total assets……………………………………………...$150,000 LIABILITIESCurrent liabilities:Accounts payable……………………………………$ 8,000 Short-term notes payable…………………………. 12,000 Total current liabilities……………………………...20,000 Long-term liabilities:Long-term debt………………………………………80,000 STOCKHOLDERS’ EQUITYCommon stock………………………………………….15,000 Retained earnings……………………………………… 35,000* Total stockholders’ equity………………………… 50,000 Total liabilities and stockholders’ equity…………..$150,000 _____*Computation:Total assets ($150,000) – current liabilities ($20,000) – long-term debt ($80,000) – common stock ($15,000) = $35,000(10-15 min.) CP 1-12Clearsource Cable, Inc.Statement of Cash FlowsYear Ended December 31, 2006Cash flows from operating activities:Net income………………………………………...$ 88,000 Adjustments to reconcile net income to netcash provided by operating activities…. (20,000) Net cash provided by operating activities.. 68,000 Cash flows from investing activities:Purchases of equipment…………$(300,000)Sale of equipment………………… 90,000Net cash used for investing activities……..(210,000) Cash flows from financing activities:Borrowing…………………………..$150,000Payment of dividends……………. (10,000)Net cash provided by financing activities. 140,000 Net increase (decrease) in cash………………….(2,000) Cash balance, December 31, 2005………………. 24,000 Cash balance, December 31, 2006……………….$ 22,000(10 min.) CP 1-131. Cash BS, SCF2. Net cash used for financing activities SCF3. Accounts payable BS4. Common stock BS5. Interest revenue IS6. Long-term debt BS7. Increase or decrease in cash SCF8. Dividends SRE, SCF9. Salary expense IS10. Inventory BS11. Sales revenue IS12. Retained earnings SRE, BS13. Net cash provided by operating activities SCF14. Net income (or net loss) IS, SRE, SCFExercises(10-15 min.) E 1-1 a. Proprietorship. There is a single owner of the business, sothe owner is answerable to no other owner.b. Partnership. If the partnership fails and cannot pay itsliabilities, creditors can force the partners to pay the business’s debts from their personal assets. A partnership affords more protection for creditors than a proprietorship because there are two or more owners to share this liability.c. Corporation. If the corporation fails and cannot pay itsliabilities, creditors cannot force stockholders to pay theb usiness’s debts from their personal assets. Therefore, themost an investor can lose on an investment in a corporation is the amount invested.d. Corporation. Most investors are willing to invest more in acorporation than in a proprietorship or a partnership because of their limited personal liability for a corporation’s debts.(continued) E 1-1 What form of business organization would you choose?The answer depends on your objective. If you want to maintain absolute control of the business, you may prefer to organize as a proprietorship. If your objective is to maintain a high degree of control but you need additional money or expertise, a partnership may work for you. If you want the business to grow large, or if you wish to avoid personal liability for business debts, you should organize as a corporation.Student responses may vary.(10 min.) E 1-2The income statement reports the revenues and expenses of a particular entity for a period such as a month or a year. Total revenues minus total expenses equals net income, or profit. A lender would require this information in order to predict whether the borrower can generate enough income to repay the loan.The balance sheet reports the assets, liabilities, and owners’ equity of the entity at a particular point in time. The assets show the resources that the business has to work with. Because borrowers pay loans with assets, a lender wants to know the business’s assets (especially cash). Liabilities—debts —represent creditors’ claims to the business’s assets. Owners’ equity is the portion of the business assets owned outright by the owners.Student responses may vary.(5-10 min.) E 1-3a. Entity conceptb. Going-concern conceptc. Cost principled. Entity concept (No, Comer could not determine the successor failure of the business solely from his checkbook.)e. Reliability (Objectivity) principle (PepsiCo. should wait torecord a gain or loss after it sells the land.)(5-15 min.) E 1-4 (Amounts in billions)Assets = Liabilities + Owners’ Equity Dell $19 $13 $ 6Pier 1 Imports 0.9 0.3 0.6 Boeing 53 45 8Pier 1 appears to have the strongest financial position because its liabilities make up the smallest percentage of company assets ($3 / $9 = .333). Stated differently, Pier 1’s equity is the highest percentage of company assets ($6 / $9 = .667).(10-15 min.) E 1-5 Req. 1(Amounts in millions)Assets = Liabilities + Stockholders’Equity$141 $ 60202 7767Total $410 = $137 + $273Resources to workwithcreditors stockholdersReq. 5Krispy Kreme appears able to pay current liabilities of $60 million because current assets are over twice as large as current liabilities.Krispy Kreme also appears able to pay total liabilities because total assets far exceed total liabilities.(10-20 min.) E 1-6Situation1 2 3BillionsTotal stockholders’ equit yJanuary 31, 2003 ($30 –$10)………….. $20 $20 $20 Add: Issuances of stock……………….. 1 -0- 5 Net income…………………………. 1* 4*Less: Dividends…………………………... -0- (2) (1) Net loss…………………………….. (2)* Total stockholders’ equity,January 31, 2004 ($34 –$12)………….. $22 $22 $22 Situation 2 indicates the strongestis the highest.Situation 3 is the weakest because of the net loss._____*Must solve for these amounts.(10-15 min.) E 1-7 1. Fossil Inc.(Amounts in millions)Assets = Liabilities + Stockholders’EquityBeginning $ 483 = $142 + $341 Multiplier for increase 1.217Ending $ 5882. Bed Bath & Beyond(Amounts in billions)Assets –Liabilities = Stockholders’EquityBeginning amount $2.2 –$0.7 = $1.5 Net income 0.4 Ending amount $1.9(10-15 min.) E 1-8a. Balance sheetb. Income statementc. Balance sheetd. Balance sheete. Statement of retained earnings, Statement of cash flowsf. Income statementg. Balance sheet, Statement of retained earningsh. Income statementi. Balance sheetj. Statement of cash flowsk. Income statementl. Statement of cash flowsm. Balance sheet, Statement of cash flowsn. Balance sheeto. Income statement, Statement of retained earnings, Statement of cash flows(10-20 min.) E 1-9Wells Fargo & CompanyBalance Sheet (Adapted; Amounts in billions)December 31, 2003ASSETS LIABILITIESCash $ 16 Current liabilities $290 Receivable 253 Long-term liabilities 64 Investment assets 72 Total liabilities 354 Property andequipment, net 4 STOCKHOLDERS’Other assets 43EQUITYCommon stock 12Retained earnings 22*Total stockholders’ equity 34Total liabilities andTotal assets $388 stockholders’ equity$388 _____*Computation of retained earnings:Total assets ($388) – Total liabilities ($354) – Common stock ($12) = $22(15-25 min.) E 1-10 Req. 1Wells Fargo & CompanyIncome Statement (Adapted)Year Ended December 31, 2003Billions Total revenue……………………………………….$32 Expenses:Interest expense………………………………..$ 3Salary and other employee expenses (9)Other expenses (14)Total expenses (26)Net income………………………………………….$ 6 Req. 2The statement of retained earnings helps to compute dividends, as follows:Statement of Retained Earnings (Adapted)Billions Retained earnings, beginning of year..................... $19 Add: Net income for the year (Req. 1) (6)25 Less: Dividends (3)Retained earnings, end of year (from Exercise 1-9)…… $22 earnings.(15-20 min.) E 1-11ADP, Inc.Statement of Cash FlowsYear Ended December 31, 2004Millions Cash flows from operating activities:Net income………………………………………...$ 395Adjustments to reconcile net income tonet cash provided by operating activities….. 2,330 Net cash provid ed by operating activities………… $2,725 Cash flows from investing activities:Net cash used for investing activities…………... (3,140) Cash flows from financing activities:Net cash provided by financing activities (420)Net incr ease in cash (5)Beginning cash balance (145)Ending cash balance……………………………………….. $ 150Total assets –Balance sheetTotal liabilities –Balance sheetNet income…………………………………………. $ 7,500 Adjustments to reconcile net incometo net cash provided by operations……………. 2,000 Net cash provided by operating activit ies… 9,500 Cash flows from investing activities:Acquisition of equipment………………………… $(36,000) Net cash used for investing activities………(36,000) Cash flows from financing activities:Issuance (sale) of stock to owners…………….. $ 35,000Payment of dividends................................... (2,000) Net cash provided by financing activities.... 33,000 Net increase in cash.........................................$ 6,500 Cash balance, June 30, 20X6.. 0Cash balance, July 31, 20X6…………………………$ 6,500(10-15 min.) E 1-15 TO: Owner of Kinko’s storeFROM: Student NameSUBJECT: Opinion of operating results, dividends, financial position, a nd cash flowsYour first month of operations appears to have been successful. Revenues totaled $12,400 and net income was $7,500. These operating results look very strong.The company was able to pay a $2,000 dividend, and this should make you happy with so quick a return on your investment.Your financial position looks secure, with assets of $43,700 and liabilities of only $3,200. Your stockholders’ equity is $40,500.Operating activities generated cash of $9,500, which is respectable. You ended the month with cash of $6,500. Based on the above facts, I believe you should stay in business. Student responses may vary.(15-20 min.) E 1-16 a. The single best source of cash for a business is net incomeand the related cash receipts. This source of cash is best because it results from the core operations of the business.b. Borrowing, issuing stock, and selling land, buildings, andequipment can bring in cash even when the company has losses.c. P aying large dividends will cause retained earnings to be low.d. Heavy investing activity and paying off debts can result in acash shortage even if net income has been high.e. You can finance the payment of current liabilities in severalways: Borrow money, issue (sell) stock to stockholders, or sell long-term assets such as land, buildings, and equipment.Practice Quiz1. d2. a3. b4. b5. d6. a7. b8. c9. d10. c ($140,000 – $22,000 – $8,000 – $3,000 = $107,000)11. d ($110,000 + $95,000 – $30,000 = $175,000)12. d13. b14. aBegin.ChangesEnd._____15. cBegin.–End.ProblemsGroup A(15-30 min.) P 1-1A TO: Investment committeeSUBJECT: Genome Science Corporation request for us to buy its stockI recommend purchasing Genome Science stock because:1. Operations are the main source of Genome’s cash, and thecompany is increasing cash without a lot of borrowing.Moreover, Genome has been investing lots of money in long-term assets, as shown by its investing cash flows.2. Net income has increased dramatically during the past twoyears.3. Total assets have grown from $590,000 to $990,000 duringthe past two years, and liabilities have risen more slowly.I believe Genome has a bright future and that its stock islikely to increase in value.Student responses may vary.(15-20 min.) P 1-2A Req. 1General Electric CompanyIncome StatementYear Ended December 31, 20X5Billions Sales revenue………………………..$ 53Other revenue (73)Total revenue………………………...$126Cost of goods sold (36)Other expenses (70)Total expenses (106)Income before income tax (20)Income tax expense ($20 .30) (6)Net income……………………………$ 14(continued) P 1-2A Req. 2a. Reliability (objectivity) principle. Report revenues at theiractual sale value because that amount is more reliable than what management believes the goods are worth.b. Cost principle. Account for expenses at their actual cost, nota hypothetical amount that the company might have incurredif the products were purchased outside.c. Cost principle. Account for expenses at their actual cost.d. Entity concept. Each division of the company is a separateentity, and the company as a whole constitutes an entity for accounting purposes.e. Stable-monetary-unit concept. Accounting in the UnitedStates ignores the effect of inflation.f. Going-concern concept. There is no evidence that GeneralElectric is going out of business, so it seems safe to assume that the company is a going concern.(30-40 min.) P 1-3Abillions .FedEx Corp. Coca-Cola Ford Company Corp.Beginning :Assets $12 $17 $279 – Liabilities (7) (10) (228) = Owners’ equity $ 5 $ 7 $ 51Ending :Assets$13 $19 – Liabilities (7) (11) (204) = Owners’ Equity$ 6 $ 8 $ 65Owners’ Equity :Issuance of stock $ 1 – DividendsIncome Statement :Revenues$20 $119– Expenses(19) (97) = Net income$ 1 $ 4 $ 22Statement of owners’ equi ty :Beginning owners’ equity+ Issuance of stock+ Net income– Dividends(1) (3) (9) = E nding owners’ equity$ 6 $ 8 $ 65 __________ 1$5 + Issuance of stock2Net income = $4 3Assets = liabilities + OE + $1 – $1 = $6Revenue – expenses = net income Assets = $204 + $65 Issuance of stock = $1$19 – expenses = $4 Assets = $269 Expenses = $15(continued) P 1-3AFedEx Coca-Cola FordCorp. Company Corp.Percentage of liabilities to assets = $ 7 $11 $204$13 $19 $269= 53.8% = 57.9% = 75.8% Lowest 2nd LowestPercentage of net income to revenues = $ 1 $ 4 $ 22 $20 $19 $119= 5% = 21.1% = 18.5%HighestOn these measures, Coca-Cola looks the strongest. Coca-Cola has the second lowest percentage of liabilities to assets and the highest percentage of net income to revenues.(20-25 min.) P 1-4A Req. 1ICON, Inc.Balance SheetJuly 31, 20X7ASSETS LIABILITIESCash $15,000 Accounts payable $ 9,000 Accounts receivable 12,000 Note payable 16,000 Office supplies 1,000 Total liabilities 25,000 Office furniture 10,000 STOCKHOLDERS’Land 44,000 EQUITYStockholders’ equity 57,000*Total liabilities andTotal assets $82,000 stockholders’ equity $82,000 _____*Total assets ($82,000) – Total liabilities ($25,000) = Stockholders’ equity ($57,000).Req. 2ICON, Inc., is in better financial position than the erroneous balance sheet reports. True, assets are lower than reported, but by only $10,500 ($92,500 –$82,000). But liabilities are much lower, and owne rs’ equity is $36,300 higher than reported originally. Overall, ICON has less debt and more equity than first reported.Req. 3The following accounts are not reported on the balance sheet because they are revenues or expenses. These accounts are reported on the income statement.Rent expenseAdvertising expenseService revenueProperty tax expense(20-25 min. P 1-5A Req. 1Marjorie Caballero, Realtor, Inc.Balance SheetNovember 30, 2004ASSETS LIABILITIESCash $ 6,000 Accounts payable $ 6,000 Office supplies 1,000 Note payable 40,000 Franchise 20,000 Total liabilities 46,000 Furniture 17,000 STOCKHOLDERS’Land 120,000 EQUITYCommon stock 50,000Retained earnings 68,000*Total stockholders’ equity 118,000Total liabilities and ________ Total assets $164,000 stockholders’ equity$164,000 _____*Total assets ($164,000) – Total liabilities ($46,000) – Common stock ($50,000) = $68,000.Req. 2It appears that Caballero’s realty business can pay its debts. Total assets far exceed total liabilities.Req. 3Personal items not reported on the balance sheet of the business: a. Personal cash ($10,000)b. Personal account payable ($1,800)g. Personal residence ($160,000) and mortgagepayable ($100,000)(30-45 min.) P 1-6A Req. 1Hercules, Inc.Income StatementYear Ended December 31, 20X8RevenueService revenue…………………$220,000 ExpensesSalary expense………………….$63,000Rent expense…………………….23,000Advertising expense……………13,000Interest expense………………...9,000Property tax expense………….. 4,000Total expenses………………….. 112,000 Net income………………………….$108,000 Req. 2Hercules, Inc.Statement of Retained EarningsYear Ended December 31, 20X8Retained earnings, be ginning of year…… $ 10,000Add: Net income for the year…………… 108,000118,000 Less: Dividends……………………………. (70,000)Retained earnings, end of year…………… $ 48,000(continued) P 1-6A Req. 3Hercules, Inc.Balance SheetDecember 31, 20X8ASSETS LIABILITIESCash $ 10,000 Accounts payable $ 19,000 Accounts receivable 12,000 Salary payable 1,000 Supplies 3,000 Note payable 185,000 Furniture 20,000 Total liabilities 205,000 Building 150,000 STOCKHOLDERS’Land 98,000 EQUITYCommon stock 40,000Retained earnings 48,000Total stockholders’ equity 88,000Total liabilities andTotal assets $293,000 stockholders’ equity$293,000 Req. 4a. Hercules was profitable; net income was $108,000.b. Retained earnings increased by $38,000 —from $10,000 to$48,000.c. Total liabilities ($205,000) exceeds stockholders’ equity($88,000).The creditors own more of Hercules’ assets than do the company’s stockholders.(20 min.) P 1-7A Req. 1Nike, Inc.Statement of Cash FlowsYear Ended May 31, 20X4Millions Cash flows from operating activities:Net income…………………………………………. $796 Adjustments to reconcile net incometo cash provided by operations (473)Net cash provided by op erating activities (323)Cash flows from investing activities:Purchases of property, plant, and equipment.. $(510)Sales of property, plant, and equipment (24)Other investing cash receipts (33)Net cash used for investing activities (453)Cash flows from financing activities:Borrowing………………………………………….$ 388Issuance of common stock (26)Payment of dividends (101)Net cash provided by financing activities 313 Net increase in cash....................................... $ 183 Cash, beginning (262)Cash, ending………………………………………….. $ 445 Req. 2Operations and financing provided roughly equal amounts of cash. This signals a little financial weakness. Operations should be the main source of cash.(40-50 min.) P 1-8A Req. 120X6 20X5(Thousands)STATEMENT OF OPERATIONSRevenues $94,749 = $ k $88,412Cost of goods sold (74,564) (a) = 65,586 Other expenses (15,839) (13,564)Income before income taxes 4,346 9,262Income taxes (36.95% in 20X6) 1,606 = (l) (1,581)Net income 2,740 = $ m $ b = 7,681 STATEMENT OF RETAINED EARNINGSBeginning balance 17,213 = $ n $ 9,987Net income 2,740 = o c = 7,681 Dividends (559) (455)Ending balance 19,394 = $ p $ d = 17,213 BALANCE SHEETAssets:Cash 83 = $ q $ e = 45 Property, plant and equipment 23,894 20,874Other assets 18,564 = r 16,900 Total assets 42,541 = $ s $37,819Liabilities:Current liabilities 11,454 = $ t $ 9,973Long-term debt and other liabilities 11,331 10,120 Total liabilities 22,785 f = 20,093 Shareholders’ Equity:Common stock $ 229 $ 230Retained earnings 19,394 = u g = 17,213 Other shareholders’ equity 133 283 Total shareholders’ equity19,756 = v 17,726Total liabilities and shareholders’ equity42,541 = $ w $ h = 37,819 STATEMENT OF CASH FLOWSNet cash provided by operating activities 2,383 = $ x $ 2,906Net cash used for investing activities (3,332) (3,792)Net cash provided by financing activities 987 911 Increase (decrease) in cash 38 i = 25 Cash at beginning of year 45 = y 20Cash at end of year 83 = $ z $ j = 45(continued) P 1-8A Req. 2a. Operations deteriorated during 20X6. Revenues increased,but net income fell from $7,681 thousand to $2,740 thousand.b. The company retains most of its net income for use in thebusiness. Dividends were much less than net income.c. Total assets at the end of 20X6 were $42,541 thousand. Thisis the amount of total resources that the company has towork with as it moves into the year 20X7.d. At the end of 20X5, the company owed total liabilities of$20,093 thousand. At the end of 20X6, the company owed $22,785 thousand.e. The company’s major source of cash is operating activities,and cash is increasing. Based on these two facts, it appears that the comp any’s ability to generate cash is strong despite the dip in 20X6 net income. The company is using most of its cash to expand. This is clear from the large amounts of cash used for investing activities, which indicate that the company is growing.ProblemsGroup B(15-30 min.) P 1-1B TO: Edward Jones loan committeeSUBJECT: Kaiser Corporation loan requestI recommend not lending $50 million to Kaiser because:1. Operations are generating less and less of the company’scash, and the cash balance has decreased by $120 million during the past three years.2. Revenues decreased in 2007, and net income has decreasedfor the past two years.3. Dividends have exceeded net income for the past two years.As a result, stockholders’ equity has decreased from $400 million to $330 million.4. Liabilities have increased from $260 million to $390 million,which exceeds stockholders’ equity. A $50 million loan to Kaiser would make this situation worse.I doubt Kaiser could repay this loan.Student responses may vary.(15-20 min.) P 1-2B Req. 1Chrysler Division of DaimlerChrysler CorporationIncome StatementYear Ended December 31, 20X5Billions Sales revenue……………………………..$69.4Other revenue…………………………….. 5.8Total revenue……………………………...$75.2Cost of g oods sold……………………….$59.0Selling and administrative expenses… 3.7Other expenses……………………….….. 4.5Total operating expenses………………. 67.2Income before income tax………………8.0Income tax expense ($8.0 .35)………. 2.8Net income………………………………... $ 5.2(continued) P 1-2B Req. 2a. Reliability (objectivity) principle. Report revenues at theiractual sale value because that amount is more reliable than what management believes the good are worth.b. Cost principle. Account for expenses at their actual cost, nota hypothetical amount that the company might have incurredif the products were purchased outside.c. Cost principle. Account for expenses at their actual cost.d. Entity concept. Each division of the company is a separateentity, and the company as a whole constitutes an entity for accounting purposes.e. Stable-monetary-unit concept. Accounting in the UnitedStates ignores the effect of inflation.f. Going-concern concept. There is no evidence that Chrysler isgoing out of business, so it seems safe to assume that the division is a going concern.(30-40 min.) P 1-3BAmounts in billionsBest Buy Pier 1 Wal-Mart Beginning:Assets $ 3.0 $ 0.7 $ 78–Liabilities (1.9) (0.2) (47)= Owners’ equity $ 1.1 $ 0.5 $ 31 Ending:Assets $ 4.8 $ 0.9–Liabilities (3.0) (0.3) (48)= Owners’ Equity $ 1.8 $ 0.6 $ 35 Owners’ Equity:Issuance of stock $ 0 $ 0–Dividends (0)Income Statement:Revenues $218–Expenses (211)= Net income $ 7 Statement of owners’ equity:Beginning owners’ equity+ Issuance of stock+ Net income–Dividends (0) (0) (3)= En ding owners’ equity $ 1.8 $ 0.6 $ 35。

财务管理基础第七章课后题答案斯坦利.B.布洛克

ChProblems1. City Farm Insurance has collection centers across the country to speed up collections. Thecompany also makes its disbursements from remote disbursement centers. The collection time has been reduced by two days and disbursement time increased by one day because of these policies. Excess funds are being invested in short-term instruments yielding12 percent per annum.a. If City Farm has $5 million per day in collections and $3 million per day indisbursements, how many dollars has the cash management system freed up?b. How much can City Farm earn in dollars per year on short-term investments madepossible by the freed-up cash?7-1. Solution:City Farm Insurancea. $5,000,000 daily collections× 2.0 days speed up = $10,000,000 additional collections$3,000,000 daily disbursements× 1.0 days slow down = $ 3,000,000 delayed disbursements$13,000,000 freed-up fundsb. $13,000,000 freed-up funds12% interest rate$1,560,000 interest on freed-up cash2. Nicholas Birdcage Company of Hollywood ships cages throughout the country. Nicholashas determined that through the establishment of local collection centers around thecountry, he can speed up the collection of payments by one and one-half days. Furthermore, the cash management department of his bank has indicated to him that he can defer hispayments on his accounts by one-half day without affecting suppliers. The bank has aremote disbursement center in Florida.a. If the company has $4 million per day in collections and $2 million per day indisbursements, how many dollars will the cash management system free up?b. If the company can earn 9 percent per annum on freed-up funds, how much will theincome be?c. If the annual cost of the new system is $700,000, should it be implemented?7-2. Solution:Nicholas Birdcage Company of Hollywooda. $4,000,000 daily collections× 1.5 days speed up = $6,000,000 additional collections$2,000,000 daily disbursements× .5 days slow down = $1,000,000 delayed disbursements$7,000,000 freed-up fundsb. $7,000,000 freed-up funds9% interest rate$630,000 interest on freed-up cashc. No. The annual income of $630,000 is $70,000 less than theannual cost of $700,000 for the new system.3. Megahurtz International Car Rentals has rent-a-car outlets throughout the world. It alsokeeps funds for transactions purposes in many foreign countries. Assume in 2003, it held 100,000 reals in Brazil worth 35,000 dollars. It drew 12 percent interest, but the Brazilian real declined 20 percent against the dollar.a. What is the value of its holdings, based on U.S. dollars, at year-end (Hint: multiply$35,000 times 1.12 and then multiply the resulting value by 80 percent.)b. What is the value of its holdings, based on U.S. dollars, at year-end if it drew9 percent interest and the real went up by 10 percent against the dollar?7-3. Solution:Megahurtz International Car Rentala. $35,000 × 1.12 = $39,200$39,200 × 80% = $31,360 dollar value of real holdingsb. $35,000 × 1.09 = $38,150$38,150 × 110% = $41,965 dollar value of real holdings4. Thompson Wood Products has credit sales of $2,160,000 and accounts receivableof $288,000. Compute the value of the average collection period.7-4. Solution:Thompson Wood ProductsAccounts Receivable Average collection period Average daily credit sales$288,000$2,160,000/360$288,00048days $6,000====5. Lone Star Petroleum Co. has annual credit sales of $2,880,000 and accounts receivableof $272,000. Compute the value of the average collection period.7-5. Solution:Lone Star Petroleum Co.Accounts Receivable Average collection period Average daily credit sales$272,000$2,288,000/360$272,0008,00034days ====6. Knight Roundtable Co. has annual credit sales of $1,080,000 and an average collectionperiod of 32 days in 2008. Assume a 360-day year. What is the company ’s averageaccounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period.7-6. Solution:Knight Roundtable Co.$1,080,000annual credit sales $3,000credit sales a day 360days per year=$3,000 average 32 average $96,000 average accounts daily credit sales collection period receivable balance=⨯7.Darla ’s Cosmetics has annual credit sales of $1,440,000 and an average collection period of 45 days in 2008. Assume a 360-day year.What is the company ’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times the average collection period. 7-7. Solution:Darla ’s Cosmetic Company$1,440,000 annual credit sales/360 = $4,000 per day credit sales $4,000 credit sales × 45 average collection period = $180,000average accounts receivable balance8. In Problem 7, if accounts receivable change to $200,000 in the year 2009, while credit salesare $1,800,000, should we assume the firm has a more or a less lenient credit policy? 7-8. Solution:Darla ’s Cosmetics (Continued)To determine if there is a more lenient credit policy, compute the average collection period.Accounts ReceivableAverage collection period Average daily credit sales$200,000$1,800,000/360$200,00040 days $5,000====Since the firm has a shorter average collection period, it appears that the firm does not have a more lenient credit policy.9. Hubbell Electronic Wiring Company has an average collection period of 35 days. Theaccounts receivable balance is $105,000. What is the value of its credit sales?7-9. Solution:Hubbell Electronic Wiring CompanyAccounts receivable Average collection period Average daily credit sales$105,00035 days credit sales 360$105,000Credit sales/36035 daysCredit sales/360$3,000 credit sales per dayCredit sales $3,==⎛⎫ ⎪⎝⎭===000360$1,080,000⨯=10. Marv ’s Women ’s Wear has the following schedule for aging of accounts receivable.Age of Receivables, April 30, 2004(1)(2) (3) (4)Month of SalesAge of Account Amounts Percent of Amount Due April .................................0–30 $ 88,000 ____ March ...............................31–60 44,000 ____ February ...........................61–90 33,000 ____ January .............................91–120 55,000 ____ Total receivables ...........$220,000 100%a . Fill in column (4) for each month.b . If the firm had $960,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period.c . If the firm likes to see its bills collected in 30 days, should it be satisfied with the average collection period?d . Disregarding your answer to part c and considering the aging schedule for accounts receivable, should the company be satisfied? e . What additional information does the aging schedule bring to the company that theaverage collection period may not show?7-10. Solution:Marv’s Women’s WearAge of Receivables, April 30, 2004a.(1)(2)(3)(4)Month of SalesAge ofAccount AmountsPercent ofAmount DueApril 0-30 $ 88,000 40% March 31-60 44,000 20% February 61-90 33,000 15% January 91-120 55,000 25% Total receivables $220,000 100%b.Accounts receivable Average Collection PeriodAverage daily credit sales$220,000$960,000/120$220,000$8,00027.5 days====c. Yes, the average collection of 27.5 days is less than 30 days.d. No. The aging schedule provides additional insight that 60percent of the accounts receivable are over 30 days old.e. It goes beyond showing how many days of credit salesaccounts receivables represent, to indicate the distribution of accounts receivable between various time frames.11. Nowlin Pipe & Steel has projected sales of 72,000 pipes this year, an ordering cost of$6 per order, and carrying costs of $2.40 per pipe.a . What is the economic ordering quantity?b . How many orders will be placed during the year?c . What will the average inventory be?7-11. Solution:Nowlin Pipe and Steel Companya. EOQ 600 units =====b. 72,000 units/600 units = 120 ordersc. EOQ/2 = 600/2 = 300 units (average inventory)12. Howe Corporation is trying to improve its inventory control system and has installed anonline computer at its retail stores. Howe anticipates sales of 126,000 units per year, an ordering cost of $4 per order, and carrying costs of $1.008 per unit.a . What is the economic ordering quantity?b . How many orders will be placed during the year?c . What will the average inventory be?d . What is the total cost of inventory expected to be?7-12. Solution:Howe Corp.a. EOQ 1,000 units ===b. 126,000 units/1,000 units = 126 orders7-12. (Continued)c. EOQ/2 = 1,000/2 = 500 units (average inventory)d. 126 orders × $4 ordering cost= $ 504 500 units × $1.008 carrying cost per unit = 504 Total costs = $1,00813. (See Problem 12 for basic data.) In the second year, Howe Corporation finds it can reduceordering costs to $1 per order but that carrying costs will stay the same at $1.008 per unit. a . Recompute a, b, c , and d in Problem 12 for the second year.b . Now compare years one and two and explain what happened.7-13. Solution:Howe Corp. (Continued)a. EOQ 500 units =====126,000 units/500 units = 252 ordersEOQ/2 = 500/2 = 250 units (average inventory)252 orders × $1 ordering cost= $252 250 units × $1.008 carrying cost per unit = 252 Total costs = $504b. The number of units ordered declines 50%, while the numberof orders doubles. The average inventory and total costs both decline by one-half. Notice that the total cost did not decline in equal percentage to the decline in ordering costs. This isbecause the change in EOQ and other variables (½) isproportional to the square root of the change in orderingcosts (¼).14. Higgins Athletic Wear has expected sales of 22,500 units a year, carrying costs of $1.50per unit, and an ordering cost of $3 per order.a. What is the economic order quantity?b. What will be the average inventory? The total carrying cost?c. Assume an additional 30 units of inventory will be required as safety stock. What willthe new average inventory be? What will the new total carrying cost be?7-14. Solution:Higgins Athletic Weara. EOQ==300 units===b. EOQ/2 = 300/2 = 150 units (average inventory)150 units × $1.50 carrying cost/unit = $225 total carrying costc.EOQAverage inventory Safety Stock230030150301802=+=+=+= 180 inventory × $1.50 carrying cost per year = $270 total carrying cost15. Dimaggio Sports Equipment, Inc., is considering a switch to level production. Costefficiencies would occur under level production, and aftertax costs would decline by$35,000, but inventory would increase by $400,000. Dimaggio would have to finance the extra inventory at a cost of 10.5 percent.a. Should the company go ahead and switch to level production?b. How low would interest rates need to fall before level production would be feasible? 7-15. Solution:Dimaggio Sports Equipment, Inc.a. Inventory increases by $400,000× interest expense 10.5%Increased costs $ 42,000Less: Savings 35,000Loss ($ 7,000)Don’t switch to level production. Increased ROI is less thanthe interest cost of more inventory.b. If interest rates fall to 8.75% or less, the switch would befeasible.$35,000 Savings8.75%$400,000 increased inventory16. Johnson Electronics is considering extending trade credit to some customers previouslyconsidered poor risks. Sales will increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove to beuncollectible. Additional collection costs will be 3 percent of sales, and production and selling costs will be 79 percent of sales. The firm is in the 40 percent tax bracket.a. Compute the incremental income after taxes.b. What will Johnson’s incremental return on sales be if these new credit customers areaccepted?c. If the receivable turnover ratio is 6 to 1, and no other asset buildup is needed to servethe new customers, what will Johnson’s incremental return on new averageinvestment be?7-16. Solution:Johnson Electronicsa. Additional sales .................................................... $100,000Accounts uncollectible (10% of new sales) ......... – 10,000Annual incremental revenue ................................ $ 90,000Collection costs (3% of new sales) ...................... – 3,000Production and selling costs (79% of new sales) .– 79,000Annual income before taxes ................................. $ 8,000Taxes (40%) ......................................................... – 3,200Incremental income after taxes ............................ $ 4,800b.Incremental income Incremental return on salesIncremental sales$4,800/$100,000 4.8%===c. Receivable turnover = Sales/Receivable turnover = 6xReceivables = Sales/Receivable turnover= $100,000/6= $16,666.67Incremental return on new average investment =$4,800/$16,666.67 = 28.80%17. Collins Office Supplies is considering a more liberal credit policy to increase sales, butexpects that 9 percent of the new accounts will be uncollectible. Collection costs are5 percent of new sales, production and selling costs are 78 percent, and accounts receivableturnover is five times. Assume income taxes of 30 percent and an increase in sales of$80,000. No other asset buildup will be required to service the new accounts.a. What is the level of accounts receivable to support this sales expansion?b. What would be Collins’s incremental aftertax return on investment?c. Should Collins liberalize credit if a 15 percent aftertax return on investment isrequired?Assume Collins also needs to increase its level of inventory to support new sales and that inventory turnover is four times.d. What would be the total incremental investment in accounts receivable and inventoryto support a $80,000 increase in sales?e. Given the income determined in part b and the investment determined in part d,should Collins extend more liberal credit terms?7-17. Solution:Collins Office Suppliesa.$80,000 Investment in accounts receivable$16,0005==b. Added sales .......................................................... $ 80,000Accounts uncollectible (9% of new sales) ........... – 7,200 Annual incremental revenue ................................ $ 72,800 Collection costs (5% of new sales) ...................... – 4,000 Production and selling costs (78% of new sales) – 62,400 Annual income before taxes ................................. $ 6,400 Taxes (30%) ......................................................... – 1,920 Incremental income after taxes ............................ $ 4,480Return on incremental investment = $4,480/$16,000 = 28% c. Yes! 28% exceeds the required return of 15%.7-17. (Continued)d.$80,000 Investment in inventory =$20,0004Total incremental investmentInventory $20,000Accounts receivable 16,000Incremental investment $36,000 $4,480/$36,000 = 12.44% return on investmente. No! 12.44% is less than the required return of 15%.18. Curtis Toy Manufacturing Company is evaluating the extension of credit to a new group ofcustomers. Although these customers will provide $240,000 in additional credit sales,12 percent are likely to be uncollectible. The company will also incur $21,000 in additionalcollection expense. Production and marketing costs represent 72 percent of sales. Thecompany is in a 30 percent tax bracket and has a receivables turnover of six times. No other asset buildup will be required to service the new customers. The firm has a 10 percentdesired return on investment.a. Should Curtis extend credit to these customers?b. Should credit be extended if 14 percent of the new sales prove uncollectible?c. Should credit be extended if the receivables turnover drops to 1.5 and 12 percent ofthe accounts are uncollectible (as was the case in part a).Curtis Toy Manufacturing Companya. Added sales ............................................................. $240,000Accounts uncollectible (12% of new sales) ............ 28,800 Annual incremental revenue ................................... 211,200 Collection costs ....................................................... 21,000 Production and selling costs (72% of new sales) .... 172,800 Annual income before taxes .................................... 17,400 Taxes (30%) ............................................................ 5,220 Incremental income after taxes ............................... $ 12,180 $240,000Receivable turnover 6.0x 6.040,000 in new receivables ==$12,180Return on incremental investment 30.45%$40,000== b. Added sales ..........................................................$240,000 Accounts uncollectible (14% of new sales) .........– 33,600 Annual incremental revenue ................................$206,400 Collection costs ....................................................– 21,000 Production and selling costs (72% of new sales) .–172,800 Annual income before taxes .................................$ 12,600 Taxes (30%) .........................................................– 3,780 Incremental income after taxes ............................ $ 8,820$8,820Return on incremental investment 22.05%$40,000== Yes, extend credit.c. If receivable turnover drops to 1.5x, the investment inaccounts receivable would equal $240,000/1.5 = $160,000.The return on incremental investment, assuming a 12%uncollectible rate, is 7.61%.$12,180==Return on incremental investment7.61%$160,000The credit should not be extended. 7.61% is less than thedesired 10%.19. Reconsider problem 18. Assume the average collection period is 120 days. All other factorsare the same (including 12 percent uncollectibles). Should credit be extended?7-19. Solution:Curtis Toy Manufacturing Company (Continued) First compute the new accounts receivable balance.Accounts receivable = average collection period × average dailysales240,000120 days120$667$80,040⨯=⨯=360 daysorAccounts receivable = sales/accounts receivable turnover360 days==Accounts receivable turnover3x120 days=$240,000/3$80,000Then compute return on incremental investment.$12,18015.23%=$80,000Yes, extend credit. 15.23% is greater than 10%.20. Apollo Data Systems is considering a promotional campaign that will increase annualcredit sales by $600,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:Accounts receivable (5x)Inventory (8x)Plant and equipment (2x)All $600,000 of the sales will be collectible. However, collection costs will be 3 percent of sales, and production and selling costs will be 77 percent of sales. The cost to carryinventory will be 6 percent of inventory. Depreciation expense on plant and equipment will be 7 percent of plant and equipment. The tax rate is 30 percent.a. Compute the investments in accounts receivable, inventory, and plant and equipmentbased on the turnover ratios. Add the three together.b. Compute the accounts receivable collection costs and production and selling costsand add the two figures together.c. Compute the costs of carrying inventory.d. Compute the depreciation expense on new plant and equipment.e. Add together all the costs in parts b, c, and d.f. Subtract the answer from part e from the sales figure of $600,000 to arrive at incomebefore taxes. Subtract taxes at a rate of 30 percent to arrive at income after taxes.g. Divide the aftertax return figure in part f by the total investment figure in part a. If thefirm has a required return on investment of 12 percent, should it undertake thepromotional campaign described throughout this problem.7-20. Solution:Apollo Data Systemsa. Accounts receivable = sales/accounts receivable turnover=$120,000$600,000/5Inventory = sales/inventory turnover=$75,000$600,000/8Plant and equipment = sales/(plant and equipment turnover)=$600,000/2$300,000Total investment$495,0007-20. (Continued)b. Collection cost = 3% × $600,000 $ 18,000Production and selling costs = 77% × $600,000 = 462,000Total costs related to accounts receivable $480,000c. Cost of carrying inventory6% × inventory6% × $75,000 $4,500d. Depreciation expense7% × Plant and Equipment7% × $300,000 $21,000e. Total costs related to accounts receivable $480,000Cost of carrying inventory 4,500Depreciation expense 21,000Total costs $505,500f. Sales $600,000– total costs 505,500Income before taxes 94,500Taxes (30%) 28,350Income after taxes $ 66,150g. Income after taxes$66,15013.36%Total investment495,000==Yes, it should undertake the campaignThe aftertax return of 13.36% exceeds the required rate of return of 12%21. In Problem 20, if inventory turnover had only been 4 times:a. What would be the new value for inventory investment?b. What would be the return on investment? You need to recompute the total investmentand the total costs of the campaign to work toward computing income after taxes.Should the campaign be undertaken?7-21. Solution:Apollo Data Systems (Continued)a. Inventory = sales/inventory turnover$150,000 = $600,000/4b. New Total InvestmentAccounts receivable $120,000Inventory 150,000Plant and equipment 300,000$570,000Total Cost of the CampaignCost of carrying inventory6% × $150,000 = $9,000 ($4,500 more than previously)New Income After TaxesSales $600,000– total costs 510,000 ($505,500 + 4,500)Income before taxes 90,000Taxes (30%) 27,000Income after taxes $ 63,000Income after taxes$63,000==11.05%Total investment570,000No, the campaign should not be undertakenThe aftertax return of 11.05% is less than the required rate ofreturn of 12%(Problems 22–25 are a series and should be taken in order.)22. Maddox Resources has credit sales of $180,000 yearly with credit terms of net 30 days,which is also the average collection period. Maddox does not offer a discount for early payment, so its customers take the full 30 days to pay.What is the average receivables balance? What is the receivables turnover?7-22. Solution:Maddox ResourcesSales/360 days = average daily sales$180,000/360 = $500Accounts receivable balance = $500 × 30 days = $15,000Receivable turnover =Sales$180,00012x Receivables$15,000==or360 days/30 = 12x23. If Maddox were to offer a 2 percent discount for payment in 10 days and every customertook advantage of the new terms, what would the new average receivables balance be?Use the full sales of $180,000 for your calculation of receivables.7-23. Solution:Maddox Resources (Continued)$500 × 10 days = $5,000 new receivable balance24. If Maddox reduces its bank loans, which cost 12 percent, by the cash generated from itsreduced receivables, what will be the net gain or loss to the firm?7-24. Solution:Maddox Resources (Continued)Old receivables – new receivables with discount = Funds freed by discount$15,000 – $5,000 ................................... = $10,000Savings on loan = 12% × $10,000 .......... = $ 1,200Discount on sales = 2% × $180,000 ........ = (3,600)Net change in income from discount ...... $(2,400) No! Don’t offer the discount since the income from reduced bankloans does not offset the loss on the discount.25. Assume that the new trade terms of 2/10, net 30 will increase sales by 20 percent becausethe discount makes the Maddox price competitive. If Maddox earns 16 percent on salesbefore discounts, should it offer the discount? (Consider the same variables as you did for problems 22 through 24.)7-25. Solution:Maddox Resources (Continued)New sales = $180,000 × 1.20 = $216,000 Sales per day = $216,000/360 = $600 Average receivables balance = $600 × 10 = $6,000 Savings in interest cost ($15,000 – $6,000) × 12% = 1,080 Increase profit on new sales = 16% × $36,000* = $5,760 Reduced profit because of discount = 2% × $216,000 = (4,320) Net change in income ............................................ $2,520 Yes, offer the discount because total profit increases.*New Sales $36,000 = $216,000 – $180,000COMPREHENSIVE PROBLEMBailey Distributing Company sells small appliances to hardware stores in the southern California area. Michael Bailey, the president of the company, is thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a1/10, net 30, and the new policy would call for a 3/10, net 50. Currently 40 percent of Bailey customers are taking the discount, and it is anticipated that this number would go up to50 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $200,000 to $250,000 as a result of the change in the cash discount policy.The increased sales would also affect the inventory level. The average inventory carried by Bailey is based on a determination of an EOQ. Assume unit sales of small appliances will increase from 20,000 to 25,000 units. The ordering cost for each order is $100 and the carrying cost per unit is $1 (these values will not change with the discount). The average inventory is based on EOQ/2. Each unit in inventory has an average cost of $6.50.Cost of goods sold is equal to 65 percent of net sales; general and administrative expenses are 10 percent of net sales; and interest payments of 12 percent will be necessary only for the increase in the accounts receivable and inventory balances. Taxes will equal 25 percent of before-tax income.a. Compute the accounts receivable balance before and after the change in the cashdiscount policy. Use the net sales (Total sales – Cash discounts) to determine theaverage daily sales and the accounts receivable balances.b. Determine EOQ before and after the change in the cash discount policy. Translate thisinto average inventory (in units and dollars) before and after the change in the cashdiscount policy.c. Complete the income statement.Before Policy Change After Policy ChangeNet sales (Sales – Cash discounts)Cost of goods soldGross profitGeneral and administrativeexpenseOperating profitInterest on increase in accountsreceivable and inventory (12%)Income before taxesTaxesIncome after taxesd. Should the new cash discount policy be utilized? Briefly comment.Bailey Distributing Companya. Accounts receivable = average collection × averageperiod daily sales Before Policy ChangeAverage collection period .40 × 10 days = 4 .60 × 30 days = 18 22 days Average daily sales()()()$200,000.01.40$200,000Credit sales Discount 360360$200,000$800360$199,200360Average daily sales $553.33--=-===22 days × $553.33 = $12,173.26 accounts receivable before policy changeAfter Policy Change Average collection period .50 × 10 days = 5 .50 × 50 days = 25 30 days。

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