Question 1
Problem 21-6 "TUTOR WILL YOU PLEASE PLACE ANSWER ON A EXCEL SPREAD SHEET, ALSO ATTACHED IS A WORD DOCUMENT TO MAKE THE PROBLEM CLEARER THANK YOU Merger Valuation with Change in Capital Structure VolWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Bulldog Cable Company (BCC), a regional cable company. VolWorld's analysts project the following post-merger data for BCC (in thousands of dollars, with a December 31): 2010 2011 2012 2013 2014 2015 Net sales $450.0 $518.0 $555.0 $600.0 $643.0 Selling and administrative expense 45.0 53.0 60.0 68.0 73.0 Interest 40.0 45.0 47.0 52.0 54.0 Total net operating capital 800.0 850.0 930.0 1,005.0 1,075.0 1,150.0 Tax rate after merger: 40% Cost of goods sold as a percent of sales: 50% BCC's pre-merger beta: 1.10 Risk-free rate: 5% Market risk premium: 7% Terminal growth rate of free cash flows: 6% If the acquisition is made, it will occur on January 1, 2011. All cash flows shown in the income statements are assumed to occur at the end of the year. BCC currently has a capital structure of 40% debt, which costs 8.50%, but over the next four years VolWorld would increase that to 50%, and the target capital structure would be reached by the start of 2015. BCC, if independent, would pay taxes at 20%, but its income would be taxed at 40% if it were consolidated. BCC's current market-determined beta is 1.10. The cost of goods sold is expected to be 50% of sales. What is the unlevered cost of equity for BCC? Round your answer to two decimal places. %
Question 2
Chapter 5 ? Accounting for Other Governmental Fund Types: Capital Projects, Debt Service, and Permanent 5?C. Part 1. Capital Projects Fund Transactions The voters of the City of Everlasting Sunshine approved the issuance of tax-supported bonds in the face amount of $4,000,000 for the construction and equipping of a new annex to the City Hall. Architects were to be retained, and construction was to be completed by outside contractors. In addition to the bond proceeds, a $500,000 grant was expected from the state government. Required: a. Open a general journal for the City Hall Annex Construction Fund. Record the following transactions and post to the general ledger. Control accounts are not necessary. (1) On January 1, 2012, the total face amount of bonds bearing an interest rate of 8 percent was sold at a $50,000 premium. The bonds are to mature in blocks of $200,000 each year over a 20-year period commencing January 1, 2013. Interest payment dates are July 1 and January 1. The first interest payment will be July 1, 2012. The premium was transferred to the City Hall Annex Debt Service Fund for the future payment of principal on the bonds. (2) The receivable from the state government was recorded. (3) Legal and engineering fees early in the project were paid in the amount of $53,000. This amount had not been encumbered. (4) Architects were engaged at a fee of $210,000. (5) Preliminary plans were approved, and the architects were paid 20 percent of the fee. (6) The complete plans and specifications were received from the architects and approved. A liability in the amount of $126,000 to the architects was approved and paid. (7) Bids were received and opened in public session. After considerable discussion in City Council, the low bid from Hardhat Construction Company in the amount of $3,800,000 was accepted, and a contract was signed. (8) The contractor required partial payment of $2,000,000. Payment was approved and vouchered with the exception of a 5 percent retainage. (9) Cash in the full amount of the grant was received from the state government. (10) Furniture and equipment for the annex were ordered at a total cost of $410,000. (11) Payment was made to the contractor for the amount vouchered (see 8 above). (12) The contractor completed construction and requested payment of the balance due on the contract. After inspection of the work, the amount, including the past retainage, was vouchered and paid. (13) Furniture and equipment were received at a total actual installed cost of $405,550. Invoices were approved for payment. (14) The remainder of the architects? fees was approved for payment. (15) The City Hall Annex Construction Fund paid all outstanding liabilities on December 31, 2012. The remaining cash was transferred to the City Hall Annex Debt Service Fund. 7 Continuous Problem ? City of Everlasting Sunshine b. Post the entries to the City Hall Annex Construction Fund general ledger. c. Prepare and post an entry closing all nominal accounts to Fund Balance. 5?C. Part 2. Existing Debt Service Fund Transactions The City Hall Debt Service Fund of the City of Everlasting Sunshine has been open for five years; it was created to service an $8,000,000, 6 percent tax-supported bond issue. As of December 31, 2011, this serial bond issue had a balance of $6,000,000. Semiannual interest payments are made on January 1 and July 1, and a principal payment of $400,000 is due on January 1 of each year. As this is a regular serial bond debt service fund, the only accounts with balances as of January 1, 2012, were Cash with Fiscal Agent and Fund Balance?Assigned for Debt Service, each with balances of $580,000. (Revenues were raised and collected in cash in 2011 in order to be able to pay bond principal and interest due on January 1, 2012.) The government chose not to accrue interest payable. Required: a. Open a general journal for the City Hall Debt Service Fund and prepare journal entries for the following transactions. Control accounts are not necessary (1) The fiscal agent reported that $180,000 in checks had been mailed to bondholders for interest due on January 1, and $400,000 in checks were mailed for bonds maturing that day. (2) Cash in the amount of $168,000 was received from the General Fund on June 30 and was transferred to the fiscal agent. (3) The fiscal agent reported that checks dated July 1 had been mailed to bondholders for interest due that day. (4) Cash in the amount of $568,000 was received from the General Fund on December 31 and transferred to the fiscal agent to be used for the interest and principal payments due on January 1, 2012. The government elected to not accrue the interest or principal at year-end. b. Post the entries to the City Hall Debt Service Fund ledger (t-accounts). c. Prepare and post an entry closing all nominal accounts to Fund Balance. 8 Continuous Problem ? City of Everlasting Sunshine 5?C. Part 3. New Debt Service Fund Transactions On the advice of the city attorney, a City Hall Annex Debt Service Fund is opened to account for debt service transactions related to the bond issue sold on January 1, 2012 (see Part 1). Required: a. Open a general journal for the City Hall Annex Debt Service Fund. Record the following transactions, as necessary. Control accounts are not necessary (1) The premium described in transaction 1 of Part 1 was received as a transfer from the capital projects fund. (2) Cash in the amount of $160,000 was received from the General Fund on June 30 and was transferred to the fiscal agent. (3) The fiscal agent reported that checks dated July 1 had been mailed to bondholders for interest due that day. (4) The transfer described in part c of Part 1 was received. (5) Cash in the amount of $360,000 was received from the General Fund on December 31 and transferred to the fiscal agent to be used for interest and principal payments due on January 1, 2010. The remaining cash on hand was invested. The government elected to not accrue the interest at year-end. b. Post the entries to the City Hall Annex Debt Service Fund ledger (t-accounts). c. Prepare and post an entry closing all nominal accounts to Fund Balance. Assume any remaining net resources are classified as Fund Balance ? Assigned for Debt Service. 5?C. Part 4. Governmental Funds Financial Statements Required: a. Prepare a Balance Sheet for the governmental funds for the City of Everlasting Sunshine as of December 31, 2012. Include the General Fund, the Street and Highway Fund (P4?C), the City Hall Debt Service Fund, and the City Hall Annex Debt Service Fund. Use the balances computed in 4-C for the General Fund and special revenue fund portions of this statement. b. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balances for the governmental funds for the City of Everlasting Sunshine for the Year Ended December 31, 2012. Include the same funds as listed in requirement a plus the City Hall Annex Construction Fund. I'v done part 1 to 3, but i'm stuck on how to do the statement and balance sheet.
Question 3
Prepare journal entries to record the following transactions and events of Kodan Company. 2008 Jan. 2 Purchased 30,000 shares of Goreten Co. common stock for $408,000 cash plus a broker's fee of $3,000 cash. Goreten has 90,000 shares of common stock outstanding and its policies will be significantly influenced by Kodan. Sept. 1 Goreten declared and paid a cash dividend of $1.50 per share. Dec. 31 Goreten announced that net income for the year is $486,900. 2009 June 1 Goreten declared and paid a cash dividend of $2.10 per share. Dec. 31 Goreten announced that net income for the year is $702,750. Dec. 31 Kodan sold 10,000 shares of Goreten for $320,000 cash. Prepare journal entries to record the following transactions involving both the short-term and long-term investments of Cancun Corp., all of which occurred during calendar year 2008. Use the account Short-Term Investments for any transactions that you determine are short term. a. On February 15, paid $160,000 cash to purchase American General's 90-day short-term notes at par, which are dated February 15 and pay 10% interest (classified as held-to-maturity). b. On March 22, bought 700 shares of Fran Industries common stock at $51 cash per share plus a $150 brokerage fee (classified as long-term available-for-sale securities). c. On May 15, received a check from American General in payment of the principal and 90 days' interest on the notes purchased in transaction a. d. On July 30, paid $100,000 cash to purchase MP3 Electronics' 8% notes at par, dated July 30, 2008, and maturing on January 30, 2009 (classified as trading securities). e. On September 1, received a $1 per share cash dividend on the Fran Industries common stock purchased in transaction b. f. On October 8, sold 350 shares of Fran Industries common stock for $64 cash per share, less a $125 brokerage fee. g. On October 30, received a check from MP3 Electronics for three months' interest on the notes purchased in transaction d. Prepare journal entries to record the following transactions involving the short-term securities investments of Blake Co., all of which occurred during year 2008. a. On February 15, paid $120,000 cash to purchase RTF's 90-day short-term debt securities ($120,000 principal), dated February 15, that pay 8% interest (categorized as held-to-maturity securities). b. On March 22, purchased 700 shares of XIF Company stock at $27.50 per share plus a $150 brokerage fee. These shares are categorized as trading securities. c. On May 16, received a check from RTF in payment of the principal and 90 days' interest on the debt securities purchased in transaction a. d. On August 1, paid $80,000 cash to purchase Flash Co.'s 10% debt securities ($80,000 principal), dated July 30, 2008, and maturing January 30, 2009 (categorized as available-for-sale securities). e. On September 1, received a $1.00 per share cash dividend on the XIF Company stock purchased in transaction b f. On October 8, sold 350 shares of XIF Co. stock for $34 per share, less a $140 brokerage fee. g. On October 30, received a check from Flash Co. for 90 days' interest on the debt securities purchased in transaction d.
Question 4
1. Use the numbers given to complete the cash budget and short-term financial plan. 2. Rework the cash budget and short-term financial plan assuming Piepkorn changes to a minimum balance of $80,000. 3. You have looked at the credit policy offered by your competitors and have determined that the industry standard credit policy is 1/10, net 40. The discount will begin to be offered on the first day of the first quarter. You want to examine how this credit policy would affect the cash budget and short-term financial plan. If this credit policy is implemented, you believe that 40 percent of all sales will take advantage of it, and the accounts receivable period will decline to 36 days. Rework the cash budget and short-term financial plan under the new credit policy and a minimum cash balance of $80,000. What interest rate are you effectively offering customers? 4. You have talked to the company's suppliers about the credit terms Piepkorn receives. Currently, the company receives terms of net 45. The suppliers have stated that they would offer new credit terms of 1.5/15, net 40. The discount would begin to be offered in the first day of the first quarter. What interest rate are the suppliers offering the company? Rework the cash budget and short-term financial plan assuming you take the credit terms on all orders and the minimum cash balance is $80,000. Information is in attached file.
Question 5
Voters in Phillips City approved the construction of a new $10 million city hall building and approved a $10 million bond issue with a stated rate of interest of 6% to fund the construction. When the bonds were issued, they sold for 101. What are appropriate entries related to the premium? In the debt service fund Answer -Debit Cash $100.000; Credit Revenues $100,000 ; no other entries required. -Debit Cash $100,000; Credit Other Financing Sources?Nonreciprocal Transfer $100,000; No other entries required. -Other Financing Sources?Nonreciprocal Transfer $100,000; credit Cash $100,000. -No entry in the Debt Service Fund,Voters in Phillips City approved the construction of a new $10 million city hall building and approved a $10 million bond issue with a stated rate of interest of 6% to fund the construction. When the bonds were issued, they sold for 101. What are appropriate entries related to the premium? In the capital project fund: -Debit Cash $100.000; Credit Revenues $100,000 ; no other entries required. -Debit Cash $100,000; Credit Other Financing Sources $100,000; No other entries required. -Debit Cash $100,000; Credit Revenues; ALSO Debit Other Financing Uses?Nonreciprocal Transfer $100,000; Credit Cash $100,000 -Debit Cash $100,000; Credit Other Financing Sources?$100,000; ALSO Debit Other Financing Uses?Nonreciprocal Transfer $100,000; Credit Cash $100,000
