. Gibson Company sales for the year 2019 were $4.5 million. The firm’s variable operating cost ratio was 0.45 and fixed costs (that is, overhead and depreciation) were $1 million. Its average (and marginal) income tax rate is 25 percent. Currently, the firm has $2.4 million of long-term bank loans outstanding at an average interest rate of 12 percent. The remainder of the firm’s capital structure consists of common stock (110,000 shares outstanding at the present time). a. Calculate Gibson’s degree of combined leverage for 2019. b. Gibson is forecasting a 15 percent increase in sales for this year (2020). Furthermore, the firm is planning to purchase additional labor-saving equipment which will increase fixed costs by $200,000 and will reduce the variable cost ratio to 0.42. Financing this equipment with debt will require additional bank loans of $900,000. Calculate Gibson’s expected degree of combined leverage for 2020. c. Determine how much Gibson must reduce its interest expenses in 2020 (for example, through the sale of common stock) to maintain its DCL at the 2019 level. d. Assuming that the debt is permanent (or perpetual) what is the reduction in debt associated with the interest expense reduction in part c?

Answers

Answer 1

Answer:

See solutions below

Explanation:

1. The degree of combined leverage

= (Sales - Variable costs) / EBIT - Interest

Sales = $4.5 million

Variable costs = 0.45 × $4.5 million

= $2,025,000

EBIT = $4,500,000 - $2,025,000 - $1,000,000

= $1,475,000

Interest = 12% × $2,400,000

= $288,000

Therefore,

DCL = [$4,500,000 - $2,025,000] / $1,475,000 - $288,000

= $2,475,000 / $1,187,000

= 2.09

2. Gibson expected degree of leverage

Sales = 15% × $4.5 million

= $5,175,000

Fixed cost = $200,000 + $1,000,000

= $1,200,000

Variable cost = $0.42 × $2,025,000 - $2,025,000

= $2,025,000 - $850,500

= $1,174,500

EBIT = $5,175,000 - $1,174,500 - $1,200,000

= $2,800,500

Interest = $2,400,000 + $900,000

= 12% × $3,300,000

= $396,000

DCL = $5,175,000 - $1,174,500 / $2,800,500 - $396,000

= $4,000,500 / $2,404,500

= 1.66


Related Questions

Advise the management of ABC Ltd.
about the various groups that can
be created in an organisation
= Effective group, Formal group, Informal group ​

Answers

Explanation:

Effective group, Formal group, Informal group is the correct answer

The management of ABC Ltd. can create various groups in an organization like Effective group, Formal group, Informal group .

What is an organization?

An organization refers to a collection of people, who are involved and work together in pursuing or achieving a defined objectives. It is a type of social system which comprises human relationships in a forma manner.

In organization there is division of work among employees and the tasks are given so that the ultimate goal of the company or an organization can be achieved.

An organization has a proper hierarchy of people and follow a proper formal structure to achieve the goals of the organization.

The management of ABC Ltd. can create various groups in an organization like Effective group, Formal group, Informal group .

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Explain how each of the following events would affect the equilibrium price and quantity of new textbooks. (Explain which curve(s) would shift and in which direction(s).)​

Answers

The events that would affect the equilibrium price and quantity of new textbooks include changes in production costs, shifts in student enrollment, changes in government policies etc.

How do these events impact the equilibrium price and quantity?

The changes in production costs will shift the supply curve of new textbooks. If production costs increase, the supply curve would shift to the left resulting in decrease in the equilibrium quantity and an increase in the equilibrium price.

But if production costs decrease, the supply curve would shift to the right leading to an increase in the equilibrium quantity and a decrease in the equilibrium price of new textbooks.

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True or False: Restaurants rarely adjust the amount they purchase of items

Answers

Answer:

false

Explanation:

because in a restaurant you suppose to have a monthly plan

Answer:

B .. false

Explanation:

 True or False: Restaurants rarely adjust the amount they purchase of items

Consider a firm redesigning its logistics network. What are the advantages of having a small number of centrally located warehouses? What are the advantages of having a larger number of warehouses closer to the end customers?

Answers

Small centrally located warehouses offer cost efficiency and simplified inventory management, while larger warehouses closer to customers provide faster delivery, better customer service, and cost savings in shipping.

Having a small number of centrally located warehouses offers several advantages in a firm's logistics network:

Cost Efficiency: Centralized warehouses can lead to cost savings in terms of inventory management, transportation, and operational overheads. With fewer warehouses, the firm can benefit from economies of scale in procurement, storage, and distribution.

Simplified Inventory Management: Managing inventory becomes more streamlined when there are fewer warehouses. It allows for better control and visibility over stock levels, reducing the risk of stockouts or overstocking.

Faster Transit Times: With centrally located warehouses, products can be shipped more quickly to various regions since they are closer to major transportation hubs. This reduces lead times and improves overall customer satisfaction.

Improved Coordination: Centralized warehouses facilitate better coordination and synchronization of supply chain activities. It becomes easier to manage inbound and outbound logistics, optimize transportation routes, and consolidate shipments.

On the other hand, having a larger number of warehouses closer to end customers provides the following advantages:

Faster Delivery: Proximity to end customers enables faster order fulfillment and delivery. Products can reach customers more quickly, reducing transit times and improving responsiveness.

Enhanced Customer Service: Local warehouses allow for better customization and personalization of service. They can cater to specific regional preferences, offer faster response times to customer queries, and handle returns or exchanges more efficiently.

Lower Shipping Costs: By locating warehouses closer to customers, transportation costs can be reduced as products travel shorter distances. This can lead to cost savings in shipping expenses.

Flexibility and Redundancy: Having multiple warehouses distributed geographically provides redundancy and flexibility in the supply chain. It mitigates the risk of disruptions, such as natural disasters or transportation issues, as the firm can rely on alternative warehouse locations.

In summary, a small number of centrally located warehouses offer cost efficiency and streamlined inventory management, while a larger number of warehouses closer to end customers provide faster delivery, improved customer service, lower shipping costs, and increased flexibility.

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Maria works for a startup tech company as an accountant. Her supervisor needs to know how much money is being spent on computers and software to prepare the company budget for the following year. The supervisor asks Maria to research and share this information with the team. Which type of document is best suited for Maria to share her research?

Answers

The best type of document for Maria to share her research on the amount of money spent on computers and software would be a financial report.

A financial report is a document that provides an overview of a company's financial performance and includes information on its expenses, revenues, and profits. It is a comprehensive document that provides an in-depth analysis of the company's financial health, and it is commonly used to inform decision-making and planning. In this case, Maria can create a financial report that details the amount of money spent on computers and software over a specific period. She can include a breakdown of the expenses, such as the cost of hardware, software licenses, maintenance, and upgrades. Additionally, Maria can provide a comparison of the expenses from previous years, and she can explain any significant changes in the cost of these items. A financial report will enable Maria's supervisor to make informed decisions about the company's budget for the following year. The report will provide insights into the company's financial health and help identify areas where cost savings can be made. Ultimately, the financial report will be a valuable tool for the entire team in making strategic decisions about the company's finances.

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Employees are an important part of the general environment.

True or false

Self actualization is the most basic need according to Maslow.
true or false

Customers are an important part of the general environment.

True or false

Answers

Answer:

true

true

false

Explanation:

Consider the following BPMN diagram:

Consider the following BPMN diagram:
Consider the following BPMN diagram:

Answers

If we look at the process model, we can see that Task A is the first task and must always be completed in order for the model to be run. Further observation reveals that because an exclusive gateway is employed, any of the two jobs, B and C, is carried out individually rather than simultaneously. As we continue to move through the BPMN diagram, we see that task M is the conversing task and is therefore always run along with a networks message flow from it to task F, which is done as soon as a message is received in pool 2 and finishes.

An item of networking hardware or software called a gateway is used in telecommunications networks to allow data to go from one distinct network to another.

The way that gateway differ from routers and switches is that they can join various networks using more than one protocol to communicate and that they can function at any of the seven OSI levels.

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What strategy should be applied when other strategies are ineffective and the company needs to change quickly

Answers

Answer:

Plan Carefully. ...

Be as Transparent as Possible. ...

Tell the Truth. ...

Communicate. ...

Create a Roadmap. ...

Provide Training. ...

Invite Participation. ...

Don't Expect to Implement Change Overnight.

Explanation:

Assume you joined as a Professor to a department. The tale of Professor John Smith and his grade book filled with Fs was told by one generation of faculty to the next with a mix of envy, awe and delight. If there was one thing you could be sure of, there was no grade inflation your new department, whose culture was formed primarily by: *

Answers

Answer:

Bruh

Explanation:

each time mayberry nursery hires a new employee, it must wait for some period of time before the employee can meet production standard. Management is unsure of the learning curve in its operations but it knows the first job by a new employees averages 40 hours and the second job averages 32 hours. assume all jobs to be equal in size. what is the learning curve percentage, assuming the incremental unit time learning model

Answers

Answer:

Learning percentage = 1.6%

Explanation:

Given - Each time may berry nursery hires a new employee, it must wait for some period of time before the employee can meet production standard. Management is unsure of the learning curve in its operations but it knows the first job by a new employees averages 40 hours and the second job averages 32 hours. assume all jobs to be equal in size.

To find - What is the learning curve percentage, assuming the incremental unit time learning model.

Proof -

First job = 40 hours

Second job = 32 hours

Now,

Job           Job hours               Cumm. of hours               Incremental av. hours

1                    40                              40                                        40

2                    32                             72                                         64

Learning percentage = \(\frac{64}{40}\) = 1.6%

Mr. Wiley owns a couple of houses. He lives in the better one. The other house he rents to the Jones family for $20,000 per year. By renting the newer and better house in which he chose to live, he could earn $35,000. Given this information, what would be the contribution of these two houses to U.S. GDP

Answers

Answer:

20,000

Explanation:

Only rented house is counted as per gdp

Analyse the benefits of employee training to a business.​

Answers

Explanation:

Boosts Employee Performance. ...

Improve Morale and Job Satisfaction. ...

Ensures Opportunities for Learning. ...

Opportunity to Identify Weaknesses. ...

Provide a Framework to Develop Strengths. ...

Encourages Innovation and Risk Acceptance. ...

Boosts Adherence to Quality Standards

"Monthly Sales Data. A simple random sample of 5 months of sales data provided the following information : Month: 1 2 3 4 5 Units Sold: 94 100 85 94 92 a. Develop a point estimate of the population mean number of units sold per month. b. Develop a point estimate of the population standard deviation"

Answers

The point estimate of the population mean number of units sold per month is 93.

To develop a point estimate of the population mean number of units sold per month (a), we can calculate the sample mean. The sample mean is obtained by summing up the individual values and dividing it by the sample size.

In this case, the sample mean is calculated as (94 + 100 + 85 + 94 + 92) / 5 = 465 / 5 = 93.

To develop a point estimate of the population standard deviation (b), we can calculate the sample standard deviation.

The sample standard deviation measures the spread of the data points around the sample mean.

It is calculated by finding the differences between each data point and the sample mean, squaring these differences, summing them up, dividing by the sample size minus one, and finally taking the square root of the result.

Using the given data, the calculations yield a sample standard deviation of approximately 5.92.

It is important to note that these point estimates are based on the assumption that the given sample is representative of the entire population.

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Use the drop-down menu to select the qualification best demonstrated in each example. Virgil is on time every day to his job as a Packaging Machine Operator. Lily analyzes a product's supply chain to identify ways to make it more efficient. Chase manages shipping schedules so products are sent on time. Zaida helps another worker get products ready for shipping.

Answers

Answer:

Dependability, critical-thinking skills, organizational skills, and teamwork.

Explanation:

I got it right.

Answer:

Noting here you answer is UP there ↑↑↑↑

Explanation:

what are the rules of a male and a female at home?​

Answers

Answer:

male is the protector female is a light for their house male is the foundation of there house they provide everything thats a male work female helping dou house hold things comport there husband understand.

design an approach that your team would recommend for Joseph and Nicholas to cover one area each that you deem necessary to aid in the planning and controlling functions

Answers

The combines strategic planning, performance measurement, effective communication, and continuous improvement to support Joseph and Nicholas in their planning and controlling functions. It ensures a well-defined direction, data-driven decision-making, collaboration, and a focus on growth and adaptability.

In order to aid in the planning and controlling functions, the following approach can be recommended to Joseph and Nicholas:

1. Establish Clear Objectives and Goals: The first step in planning is to establish clear objectives and goals for the team. It is important to have a clear understanding of what needs to be accomplished and what the team's priorities are.

2. Assign Responsibilities: Assigning specific responsibilities to team members helps to ensure that everyone is working towards a common goal. Joseph and Nicholas should each be assigned to cover one area that is necessary for planning and controlling functions. This will help to ensure that all aspects of the project are covered and that there is no overlap or duplication of efforts.

3. Develop a Schedule: Developing a schedule that outlines the key milestones and deadlines for the project is essential to effective planning and control. This will help to ensure that the project stays on track and that deadlines are met.

4. Monitor Progress: Regularly monitoring progress against the schedule and objectives is necessary to ensure that the project is progressing as planned. This will help to identify any issues or problems that arise and allow for corrective action to be taken.

5. Communicate: Effective communication is critical to the success of any project. Joseph and Nicholas should establish a regular communication schedule to ensure that everyone is up-to-date on the project's progress, any issues or problems that arise, and any changes to the schedule or objectives.

6. Make Adjustments: Finally, it is important to be flexible and make adjustments as needed. If the project is not progressing as planned, adjustments may be necessary to the schedule or objectives to ensure that the project stays on track and that goals are met.

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Some of the forklifts we use in the distribution centers will have to be replaced in the second quarter of the 2023 financial year, and we have to start thinking about it soon! We always purchased the forklifts outright from available cash resources or funded them by borrowing the required funding from the bank. We have recently learnt that many companies choose to lease their forklifts. These forklifts normally last a good ten years if we take good care of them. Prepare some relevant information that needs to be considered in a decision to lease or purchase?


Report on the following:


● Different options in the market


● Accounting treatment of the options


● Tax implications of the options


● Cost differentials and


● Cash flow implications


What would the correct decision be for the company.

Answers

Different options in the market:

The distribution center has two options when it comes to replacing its forklifts – leasing or purchasing. With leasing, the center would use the forklifts for a specified period, usually a few years, and then return them to the leasing company. On the other hand, purchasing the forklifts will give the center permanent ownership of the forklifts.

Accounting treatment of the options:

Leasing forklifts is treated as an operating expense that is reflected in the income statement. The lease payments are recorded as expenses over the life of the lease. However, purchased forklifts are treated as a fixed asset that is depreciated over their useful life. The depreciation expense is recognized over several accounting periods on the income statement.

Tax implications of the options:

Leasing forklifts can provide significant tax savings for the business as the lease payments are fully tax-deductible expenses in the financial year they are made. In contrast, depreciation and interest expense for purchased forklifts are deductible over several years, so tax deductions are delayed.

Cost differentials and cash flow implications:

Leasing forklifts would result in lower upfront costs and lower monthly payments compared to purchasing, but the total cost of leasing is typically higher over the long term. In contrast, purchasing requires a substantial upfront payment or a loan, but the total cost is lower over the long term. Cash flow implications of purchasing include funding the entire upfront cost of the forklifts and paying for any maintenance and repairs needed over the lifetime of the forklifts, while cash flow implications of leasing include lower upfront costs but higher monthly payments, which will reduce available cash flow in the short term.

What would the correct decision be for the company:

The company should decide based on its financial situation, long-term business planning, and cash flow requirements. If the company has a limited budget, a short-term need for the forklifts, or requires the latest models frequently, leasing may be a better option. But if the company values ownership, anticipates long-term use or higher utilization, and has the cash resources or access to financing, purchasing may be the more cost-effective option. The decision should consider the financial implications, tax considerations, and cash flow requirements of either option.

Ignoring commission, 250 shares of Kim's Kandies (KKS) were purchased for $10,850 at the close for the week. Calculate the close price for the week. Then find the quarterly dividend payment per share if the annual amount paid was $29.60.

Answers

To calculate the closing price for the week, we need to divide the total share price by the number of shares purchased:

Closing price for the week = total cost / number of shares

Closing price for the week = $10,850 / 250

Closing price for the week = $43.40 per share

To find the quarterly dividend payout per share, we divide the annual dividend payout by the number of quarters in the year:

Quarterly dividend payout per share = Annual dividend payout / Number of quarters

Quarterly dividend payout per share = $29.60 / 4

Quarterly dividend payout per share = $7.40 per share

Therefore, the closing price for the week is $43.40 per share and the quarterly dividend payment per share is $7.40.

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Applying the Cost of Goods Sold Model The following amounts were obtained from the accounting records of Enderle Company: 2019 2020 2021 Beginning inventory $38,900 (b) (d) Net purchases (a) $71,200 $91,820 Ending inventory 42,100 (c) 42,350 Cost of goods sold 83,500 90,800 (e) Required: Compute the missing amounts.

Answers

Answer:

Find below  a properly aligned details of the question:

The following amounts were obtained from the accounting records of Enderle Company:

                                     2016       2017      2018

Beginning inventory $38,900     (b         (d)

Net purchases              (a) $71,200 $91,820

Ending inventory              42,100 (c) 42,350

Cost of goods sold      83,500 90,800 (e)

Find all the answers and computations below

Explanation:

In the year 2016, net purchases can be computed using the cost of sales formula below:

cost of sales=beginning inventory+purchases-ending inventory

purchases=cost of sales+ending inventory-beginning inventory

purchases=$83,500+$42,100-$38,900=$ 86,700.00  

Ending inventory in 2016=beginning inventory in 2017=$42,100

Ending inventory in 2017=beginning inventory+purchases-cost of sales

Ending inventory in 2017=$42,100+$72,100-$90,800=$ 23,400.00  

ending inventory in 2017=beginning inventory in 2018=$23,400.00  

cost of sales in 2018=beginning inventory+purchases-ending inventory

cost of sales in 2018=$23,400+$91,820 -$42,350 =$72,870

Which example best explains the concept of government failure?
A. a failure of governments to meet budgetary needs
B. when government decisions lead to inefficient outcomes
C. the situation in which rebels overtake an established government
D. cessation of government business due to lack of funding

Answers

Answer:

D

Explanation:

The best justify the statement was the concept of government failure is cessation of government business due to lack of funding. Thus, option (d) is correct.

What is government?

The term "government" refers to a legal responsibility or system that is managed and directed by an office, public sector, country, or state. the government imposed the law. The government is keeping a close eye on the public's actions. The government imposed the taxes and laws.

The government are the fail to the main reasons such as economic improper budgeting. The government are the sometimes not performing well in the period of the crises. On the another causes was the corruption. Due to the lack of improper money as the business not run as the reason was the funding.

As a result, the government failure in example cessation of government business due to lack of funding. Therefore, option (d) is correct.

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What are the factors of production? Is one factor more important than the others? If so, which one? Why?

Answers

Answer:

No economic activity can happen without all three of them. However, different factors will be more or less important to different economic activities. For example, if one is engaged in subsistence farming, land is more important than the other factors. Labor and capital are important, but land is irreplaceable

4.2.9 Quiz: Selecting a Candidate and Making an Offer
Question 9 of 10
Which of the following is a way for an HR department to ensure it is following
up with job candidates in an EEO-compliant manner?
OA. They ensure that they have asked job candidates about their
willingness to work weekends.
OB. They ensure that have look at their budget before making a firm
offer on the wage or salary.
OC. They ensure that they ask job candidates about why they left their
last job or position.
OD. They ensure job candidates have been recruited from a wide
variety of minority channels.

Answers

One way that an HR department can ensure it is following up candidates right is D. They ensure job candidates have been recruited from a wide variety of minority channels.

What is EEO Compliance ?

It is crucial for organizations to maintain a diverse candidate pool as it upholds EEO compliance, thereby preventing discrimination and enabling equal opportunities, adopting various minority channels in the recruitment process guarantees unbiased consideration of applicants from distinct backgrounds, which counters traditional recruitment methods that may be partial to certain groups.

Through this approach, HR departments can ensure impartiality and inclusivity in their hiring processes while serving the organization's overall best interests.

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Why are credit card companies more willing to offer a young person a secure
credit card than an unsecured card?

Answers

Answer:

Some of the best credit cards for college students often include secured credit cards because approval rates are high on these cards. Secured credit cards for families with no credit or poor credit are great for building up good credit with minimal risk compared to unsecured cards

Explanation:

First Choice Carpets is considering purchasing new weaving equipment costing $ 734 comma 000. The​ company's management has estimated that the equipment will generate cash inflows as​ follows: Year 1 $ 214 comma 000 2 214 comma 000 3 254 comma 000 4 254 comma 000 5 154 comma 000 Considering the residual value is​ zero, calculate the payback period.​ (Round your answer to two decimal​ places.)

Answers

Answer: 3.20 years

Explanation:

The Payback Period is a financial evaluation technique for the viability of projects by checking how long it will take for a project to pay back it's Initial cost of capital.

The above weaving machine cost $734,000 and will generate cash for 5 years.

In the first 3 years it will generate,

= 214,000 + 214,000 + 254,000

= $682,000

You can tell that the Machine will have paid off by the fourth year judging by how much is left to payback.

However, the exact period is needed. You can get that by dividing the amount remaining by the Cashflow for the year in which it is to be completed. This way you can see the proportion of time it will take for the current year to reach the desired sum.

The Cashflow for Year 4 is $254,000.

= (Initial investment - Amount from Year before Payback Year) / Cashflow in Payback Year

= (734,000 - 682,000) / 254,000

= 52,000/ 254,000

= 0.20

It will take 0.20 of Year 4 to payback the amount fully.

That means that the total Payback Period is,

= 3 years + 0.20

= 3.2 years

By comparing subsidiary accounts to schedules of accounts payable, an
accountant can
O A. prove the accounts payable accounts at the end of a period
O B. determine a company's liabilities after assets and equity
O C. indicate which vendors are the most demanding regarding
payment terms
D. identify where the company can save money on vendor goods

Answers

A comparison of the subsidiary accounts to the schedules of accounts payable will help the accountant to A. prove the accounts payable accounts at the end of a period.

What is a Subsidiary Account?

A subsidiary account tracks the information of certain transactions in detail. Some of the most important subsidiary accounts include accounts receivable and accounts payable.

Thus, by comparing the subsidiary accounts to the schedules of accounts payable, an accountant proves the existence and completeness of the accounts payable balance at the end of a period.

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Q. Which investor type most likely uses a family office to manage their investments?
A. Retail investors
B. Endowment funds
C. Ultra-high-net-worth investors​

Answers

Answer:

The best answer would be C. Ultra-high-net-worth investors. Can I get brainliest

Can you think of other ways ethics and corporate social responsibility information could be communicated in an engaging way?

Answers

An objective tone that isn't overly self-congratulatory or promotional is the best strategy for CSR communications. In your communications, be sincere and fair. That entails spreading more than simply good news.

What ethical and socially responsible practices do firms display?

A firm can embrace social responsibility in a number of ways, including giving, encouraging volunteerism, using ethical hiring procedures, and making changes to the environment. For instance, businesses trying to minimize their environmental impact would try to cut back on waste and carbon emissions.

How are business ethics and corporate social responsibility related?

Therefore, corporate social responsibility (CSR) is more focused on the corporation (or organization) and its obligations and behavior to other stakeholders in the larger social system, as opposed to business ethics, which is more focused on the role and responsibilities of managers and employees as business agents.

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define the market segment and target market

Answers

The term market segment refers to people who are grouped together for marketing purposes. 

Target market is a group of customers with shared demographics who have been identified as the most likely buyers of a company's product or service.

Scare-2-B-U (S2BU) specializes in costumes for all occasions. The average price of each of its costumes is $310. For each occasion, S2BU receives a 20 percent deposit two months before the occasion, 50 percent the month before, and the remainder on the day the costume is delivered. Based on information at hand, managers at S2BU expect to make costumes for the following number of occasions during the coming months.
April 40
May 35
June 20
July 30
August 55
September 120
Required:
(a) What are the expected revenues for S2BU for each month, April through September? Revenues are recorded in the month of the occasion.
(b) What are the expected cash receipts for each month, April through July?

Answers

Answer:

Scare-2-B-U (S2BU)

a) The expected revenues for each month:

Month        Number of Occasions  Expected Revenue

April                         40                          $12,400

May                          35                            10,850

June                        20                             6,200

July                          30                             9,300

August                     55                           17,050

September             120                          37,200

Total                      300                        $93,000

b) The expected cash receipts:

                                  April        May         June       July  

Expected revenue $12,400  $10,850   $6,200   $9,300

20% 2 months         $1,240    $1,860     $3,410    $7,440

50% 1 month             5,425      3,100       4,650     8,525

30% delivery date     3,720     3,255        1,860     2,790

Cash receipts        $10,385   $8,215     $9,920  $18,755

Explanation:

a) Data and Calculations:

Average selling price for each costume = $310

Cash Collections:

20% 2 months before delivery

50% 1 month before delivery

30% on the delivery date

Month        Number of Occasions  Expected Revenue

April                         40                          $12,400

May                          35                            10,850

June                        20                             6,200

July                          30                             9,300

August                     55                           17,050

September             120                          37,200

Total                      300                        $93,000

                                  April        May         June       July      August    Sept.

Expected revenue $12,400  $10,850   $6,200   $9,300  $17,050  $37,200

20% 2 months         $1,240    $1,860     $3,410   $7,440

50% 1 month             5,425      3,100       4,650    8,525   $18,600

30% delivery date     3,720     3,255        1,860    2,790        5,115    $11,160

Cash receipts        $10,385   $8,215     $9,920 $18,755

During the month of June, Ace Incorporated purchased goods from two suppliers. The sequence of events was as follows: June 3 Purchased goods for $3,500 from Diamond Incorporated with terms 3/10, n/30. June 5 Returned goods costing $700 to Diamond Incorporated for credit on account. June 6 Purchased goods from Club Corporation for $1,150 with terms 3/10, n/30. June 11 Paid the balance owed to Diamond Incorporated. June 22 Paid Club Corporation in full. Required: Assume that Ace uses a perpetual inventory system and that the company had no inventory on hand at the beginning of the month. Calculate the cost of inventory as of June 30. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answers

Ace Incorporated's Cost of Inventory on June 30 is $3,950.

Data and Calculations:

June 3 Inventory $3,500 Accounts Payable (Diamond Incorporated) $3,500

terms 3/10, n/30

June 5 Accounts Payable (Diamond Incorporated) $700 Inventory $700

June 6 Inventory $1,150 Accounts Payable (Club Corporation) $1,150

terms 3/10, n/30

June 11 Accounts Payable (Diamond Incorporated) $2,800 Cash $2,716 Cash Discounts $84

June 22 Accounts Payable (Club Corporation) $1,150 Cash $1,150

Summary of the Cost of Inventory:

June 3 Inventory   $3,500

June 5 Returns         -700

June 6 Inventory    $1,150

Cost of inventory $3,950

Thus, the Cost of Ace Incorporated's Inventory on June 30 is $3,950.

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