Accounting Answers

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1. Key Insurance Agency was organized on October 1, 2020. Assume that the accounts are closed and financial statements prepared each month. The company occupies rented office space but owns office equipment estimated to have a useful life of 10 years from date of acquisition, October 1. The trial balance for Key Insurance Agency at December 31 is shown below.

Cash $22,565

Accounts Receivables 7.050

Office Equipment 9,600

Accumulated Depreciation: Office Equipment 160

Accounts Payable 2,260

Income Taxes Payable 4,965

Capital Stock 20,000

Retained Earnings 7,450

Dividends 2,500

Commissions Earned 31,080

Advertising Expense 2,400

Salaries Expense 18,000

Rent Expense 3,800

Totals $65,915 $65,915

a. Prepare the adjusting entry to record depreciation of the office equipment for the month of December, using the straight line method of computing depreciation expense.

Assume the following data extracted from accounting records of XYZ Company, a merchandising firm

Gross Purchase Br. 400,000

Sales returns and allowance 5,000

Sales discount 1,000

Purchase returns and allowance 2,000

Purchase discount 500

Gross sales 800,000

Ending inventory 40,000

Beginning inventory 50,000

Transportation in 1500

Operating expenses 150,000

Non-operating Expenses 10,000

Income Tax 30%

Required: Compute Net income (net loss) for the period

Discuss about the four finance functions (financial management decisions)

Discuss about the four basic financial statement (income statement, statement of owners’ equity, balance sheet, and statement of cash flows); comparing and contrasting their differences in merchandising firms Vs. service providing entities

Show diagrammatically the impact on the firm's profit if in the short run demand or the product reduces.

3. X Company is evaluating its cost of capital under alternative financing arrangements. In consultation with investment bankers, X Company expects to be able to issue new debt at par with a coupon rate of 10% and to issue new preferred stock with a $4.00 per share dividend at $25 a share. The common stock of X Company is currently selling for $20.00 a share. X Company expects to pay a dividend of $2.50 per share next year. Market analysts foresee a growth in dividends in Invest stock at a rate of 5% per year. Invest does not expect its cost of debt, preferred stock or common stock, to be different under the two possible financing arrangements. X Company marginal tax rate is 40%. Hint: coupon rate of the bond is the same as the before-tax cost of debt. The two arrangements are: Financing Arrangement, Debt, Preferred Stock, Common Stock, respectively

1, 20% 30% 50%

2, 50% 30% 20%

A. What is the weighted average cost of capital to X Company under the first financing arrangement?

2. Based on the following information answer questions Holy products corporations have the following capital structure, which it considers optimal: Bonds, 7% (at par)      Br 300,000   

Preferred stock, Br.5     240,000

Common stock                        360,000 Retained earnings                      300,000   Additional Information: Dividends on common stock are currently Br 3 per share and are expected to grow at constant rate of 6%. Market price of common stock is Br 40 and the preferred stock is selling at Br50. Flotation cost on new issues of common stock is 10%. A. Based on the above information, what would be the cost of the bond? B. What would be the cost of common stock for Holy Products Corporation?

1, Bonds with a nominal rate of interest of 7% are issued to yield 8% will bond sell at a premium or a discount?

2, Compare and contrast Petty Cash and Voucher Payable by giving tangible examples how to undertake both systems.

3, Write at least six types of short-term investment (discuss detail distinction features of each security). 

4, Write history of IFRS adoption in Ethiopia: role of IFRS in the development of accounting standards in Ethiopia and challenges of adopting IFRS.

1, On January 1, year 2, Investor Company made long term investments of 400,000 in the common stock of several publicly owned corporations. The aggregate market value of the investments was 360,000 at the end of year 2 and 384, 000 at the end of year 3. On October 20, year 4 Investor Company sold long term investment that cost 200,000 for 150,000 and the aggregate market value of the remaining investments (costs 200,000) was 190,000.

Required

A, Present the Journal entries to record the above transactions and information.

B, Determine the balance of (i) the investment, (ii) the allowance, and (iii) the unrealized loss account at the end of year 2, year 3 and year 4.

C, Show how the investment in marketable equity securities and the unrealized loss are presented in the balance sheets of investor Company at the end of year 2, year 3, and year 4.

Why is accounting considered a language of business? How is it related to management

process?