An inexperienced accountant prepared this condensed incomestatement for Wright Company, a retail firm that has been in business for a number of years.,WRIGHT COMPANY,Income Statement,For the Year Ended December 31, 2014,Revenues,Net sales,$952,000,Other revenues16,000,968,000,Cost of goods sold 548,000,Gross profit,420,000,Operating expenses,Sellingexpenses,160,000,Administrativeexpenses 104,000,264,000,Net earnings,$156,000,As an experienced, knowledgeable accountant, you review thestatement and determine the following facts.,1.,Net salesconsist of sales $972,000, less freight-out on merchandise sold $20,000.,2.,Other revenuesconsist of sales discounts $12,000 and interest revenue $4,000.,3.,Sellingexpenses consist of salespersons’ salaries $88,000; depreciation on equipment$4,000; sales returns and allowances $46,000; advertising $12,000; andsales commissions $10,000. All compensation should be recorded as Salaries and Wages Expense.,4.,Administrative expenses consist of office salaries $54,000; dividends $14,000;utilities$13,000; interest expense $3,000; and rent expense $20,000, which includesprepayments totaling $2,000 for the first month of 2015. The utilities represent utilities paid. AtDecember 31, utility expense of $3,000 has been incurred but not paid.,Instructions,Prepare a correct detailed multiple-step income statement.
Suppose your company has decided to use a divisional WACCapproach to analyze projects. The firm currently has 2 divisions, A and B, withbetas for each division of 0.5 and 1.5, respectively. If all current and futureprojects will be financed with half debt and half equity, and if the currentcost of equity (based on an average firm beta of 1.0 and a current risk-freerate of 5%) is 16% and the after-tax yield on the company’s bonds is 6%, whatare the WACCs for divisions A and B? Hint: First Solve for Market Risk Premium(MRP). MRP = (Km-Rf),a. Division A WACC?,b. Division B WACC?
Bon Nebo Co. sold 25,000 annual subscriptions of Bjorn 20XXfor $85 during December 2014. These new subscribers will receive monthly issues, beginning inJanuary 2015. In addition, the business had taxable income of $840,000 during the first calendar quarter of2015. The federal tax rate is 40%. A quarterly tax ,payment will be madeon April 12, 2015. Prepare the Current Liabilities section of the balance sheetfor Bon Nebo Co. on March 31, 2015
Calculating cash flows. ,Weiland Co. shows the following information on its 2014income statement; sales = $167,000; costs = ,$88,600; otherexpenses = $4,900; depreciation expense = $11,600; interest expense = $8700;taxes = ,$18,620; dividends =$9,700. In addition, you’re told that the firm issued $2,900 in new equityduring ,2014, and redeemed$4,000 in outstanding long-term debt.,a. What is the 2014 operating cash flow?,b. What is the 2014 cash flow to creditors?,c. What is the 2014 cash flow to stockholders?,d. If net fixed assests increased by $23,140 during theyear, what was the addition to NWC?
E 19-5 Stock option,Its American OpticalCorporation provides a variety of share-based compensation plans to itsemployees.,Under its executive stockoption plan, the company granted options on January 1, 2011, that permitexecutives to acquire 4 million of the company’s $1 par common shares withinthe next five years, but not December 31, 2012 (the vesting date).,The exercise price is the market price of theshares on the date of grant, $14 per share.,The fair value of the 4 million options, estimated by an appropriateoption pricing model, is $3 per option.,No forfeitures are anticipated.,Ignore taxes.,Required:,1. Determine the total compensation cost pertaining to theoptions.,2. Prepare the appropriate journal entry to record the awardof options on January 1, 2011.,3. Prepare the appropriate journal entry to recordcompensation expense on December 31, 2011.,4. Prepare the appropriate journal entry to recordcompensation expense on December 31, 2012.
The adjusted trial balance for Dolton Corporation at the endof the current year contained the following accounts:,Bonds payable, 10% $400,000,Bond interest payable 20,000,Discount on bonds payable 30,000,Notes payable, 9%, due 2010 70,000,Accounts payable 120,000,Instructions,(a) Prepare the long-term liabilities section of the balancesheet.,(b) Indicate the proper balance sheet classification for theaccounts listed above that do not belong in the long-term liabilities section.
E 19-4 Restricted stock award plan; forfeitures anticipated,Magnetic-Optical Corporation offers a variety of share-basedcompensation plans to employees. Under its restricted stock award plan, thecompany on January 1, 2011, granted 4 million of its $1 par common shares tovarious division managers.,The sharesare subject to forfeiture if employment is terminated within three years.,The common shares have a market price of22.50 per share on the grant date.,Restricted:,1. Determine the total compensation cost pertaining to therestricted shares.,2. Prepare the appropriate journal entry to record the awardof restricted shares of January 1, 2011.,3. Prepare the appropriate journal entry to recordcompensation expense on December 31, 2011.,4. Suppose Magnetic-Optical expected a 10% forfeiture rateon the restricted shares prior to vesting.,Determine the total compensation cost.