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Question A:
Is the company likely to be successful if it approaches its bank FCIB for a loan to undertake a project at a cost of $2.5 million?
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- ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements. ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: Year 2017 2018 2019 Overdraft ($'000) Trade creditors (S'000) Interest 1,167 1,133 50 567 400 733 The industry averages for firms similar to ARG Ine. are Net Profit 9% Creditor days 70 days Margin 15 times 85 days 75 days Current ratio Quick ratio Interest cover 21 times Stock days Debtor days 0.8 times DEBT/Equity ratio 40% (using Book value) Required: As the…ARG Inc, is a manufacturer of dairy products that was formed three years ago by three sisters who, as directors, retain sole ownership of its ordinary share capital. One third of the initial share capital was provided by each sister. However, the company has managed to return a profit in each year of operation as shown in the financial statements.ARG Inc. has an overdraft limit of $3.2 million and pays interest on its overdraft at a rate of 6 percent (6%) per year. The company currently has no long-term debt. Current liabilities consist of trade creditors and overdraft finance in each of the three years as follows: a) What is is the interest for the year 2017 b) what is the interest for the year 2018 c) what is the interest for the year 2019 THE INCOME STATEMENT AND BALANCE SHEET IS ATTACHEDSkysong, Inc. owns 25% of the common shares of Concord Corporation The other 75% of the shares are owned by the Concord family. Skysong acquired the shares eight years ago through a financing transaction. Each year, Skysong has received a dividend from Concord. Concord has been in business for 60 years and continues to have strong operations and cash flows. Skysong must determine the fair value of this investment at its year end. Since there is no market on which the shares are traded, Skysong must use a discounted cash flow model to determine fair value. Skysong management intends to hold the shares for 5 more years, at which time they will sell the shares to the Concord family under an existing agreement for $1 million. There is no uncertainty in this amount. Management expects to receive dividends of $82,500 for each of the five years, although there is a 20% chance that dividends could be $46,000 each year. The risk-free rate is 4% and the risk- adjusted rate is 6%. Click here to…
- Lauralee, Inc. owns a 30% interest in Eastwood Co., giving it representation on the investee’s board of directors. At the beginning of the year, the Equity Investment was carried on Lauralee’s balance sheet at $500,000. During the year, Eastwood reported net income of $250,000 and paid Lauralee a dividend of $50,000. In addition, Lauralee sold inventory to Eastwood, recording a gross profit of $20,000 on the sale. At the end of the year, 50% of the merchandise remained unsold by Eastwood. Required: a. Prepare the equity method journal entry to defer the unrealized inventory gross profit.b. How much equity income should Lauralee report from Eastwood during the year?c. What is the balance in the Equity Investment at the end of the year?Justin Thyme is one of three owners of a small spice company. Each owner of the company has 1,000 shares of stock. The three owners agree to bring on board a fourth owner and to give her an equal share in the company, so each owner now has 750 shares. Last year the company earned a profit of $50,000. Which of the following statements are true? a. Each owner previously held 33% ownership stake in the company and now owns 25%. The earnings per share under the prior ownership structure was $16.67 and remains the same with the new owner on board as the total number of shares did not change. b. The number of shares held by each owner and the earnings per share remained in both ownership structures. c.Each owner previously held 25% ownership stake in the company and now owns 33%. The earnings per share under the prior ownership structure was $12.50 but with the new owner on board it has increased to $16.67. d. Each owner previously held 33% ownership stake in the company and…McCannon Inc. has been in operations for four years. The first three years it accumulated operating losses of $82400. In the fourth year it earned $30900 in operating income. In the current year, its fifth year, it had $20600 of operating income and $5150 of dividend income from Irving Inc. McCannon owns 15% of Irving Inc. What is McCannon’s taxable income in the fifth year, assuming the 80% taxable income limit applies for all the years? [For your answer, please ignore the dollar sign and the comma.]
- McCannon Inc. has been in operations for four years. The first three years it accumulated operating losses of $115200. In the fourth year it earned $43200 in operating income. In the current year, its fifth year, it had $28800 of operating income and $7200 of dividend income from Irving Inc. McCannon owns 15% of Irving Inc. What is McCannon’s taxable income in the fifth year, assuming the 80% taxable income limit applies for all the years?Parch Inc. and Rees Urch, Parch's former head of R&D, formed Sede Inc., which will perform research and development. Sede issued 10,000 shares of common stock to Urch, who is now Sede's president. Parch lent $800,000 to Sede for initial working capital in return for a note receivable that can be converted at will into 100,000 shares of Sede's common stock. Parch also granted Sede a line of credit of $1,000,000. Is consolidation appropriate for Parch and Sede? Explain and justify your answer. What would Parch accomplish with this arrangement? If consolidation were not appropriate, what serious reporting issue exists regarding Parch's separate financial statements?Lone Star Company is a calendar-year corporation, and this year Lone Star reported $100,000 in current E&P that accrued evenly throughout the year. At the beginning of the year, Lone Star's accumulated E&P was $12,000. At the beginning of the year, Lone Star's sole shareholder was Matt. Lone Star declared $30,000 in cash distributions on each of the following dates: March 31, June 30, September 30, and December 31. Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. a. How much of the $120,000 in total distributions will be treated as dividends? b. Suppose that Matt sold half of the shares to Chris on June 1 for $40,000. How much dividend income will Matt recognize this year? Answer is complete but not entirely correct. Dividend recognized $ 35,714 X c. If Matt's basis in the Lone Star shares was $7,000 at the beginning of the year, how much capital gain will he recognize on the sale and distributions from Lone Star? Capital gain…
- Lone Star Company is a calendar-year corporation, and this year Lone Star reported $125,000 in current E&P that accrued evenly throughout the year. At the beginning of the year, Lone Star's accumulated E&P was $15,000. At the beginning of the year, Lone Star's sole shareholder was Matt. Lone Star declared $37,500 in cash distributions on each of the following dates: March 31, June 30, September 30, and December 31. Note: Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign. a. How much of the $150,000 in total distributions will be treated as dividends?ABC Co. and DEF Co. are joint venturers of XYZ Co., a producer of high tech machinery. ABC and DEF, each have a 50% interest in the net assets of XYZ Co. During the year, ABC Co. earns revenue of $1,000,000 from its own operations while DEF Co. reports revenue of $400,000. How much total revenue shall be reported in ABC Co.'s statement of profit or loss for the year? 1,000,000 1,200,000 1,400,000 either a orbXYZ, Inc. owns 2,500 of the 10,000 outstanding shares of the common stock of ABC Corporation. The stock was originally purchased on January 1, Year 1 for $5 per share. During the year, ABC earned $100,000 in revenue and paid out dividends in the amount of $40,000. At December 31, Year 1, the stock is valued at $6 per share. By what amount should the Investment in ABC Corporation account increase as a result of this year's transactions? $10,000 O $25,000 O $15,000 O $2,500