You have $50,000 saving and are considering

Question You have $50,000 saving and are considering a 30-year investment which is offered in two phases:   Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly.   Phase 2:  At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years.   Required:   a) Identify which option should you choose in Phase 1 by computing the effective annual interest rate (EAR)?  …

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You are an experienced investor in the securities market

Question You are an experienced investor in the securities market and you have established an investment portfolio of two blue chips five years ago:  Diamond shares with current market value of $235,000 and Platinum shares with current market value of $355,000.   Required:   a) If your portfolio has provided you with returns of 10.5%, 12.6%, – 11.5%, 14.5% and 15.2% over the past five years, respectively. Calculate geometric average return of the portfolio for this period. b) Assume that data in the table below is available for your portfolio performance, calculate the expected return, variance and standard deviation of the portfolio? Diamond Platinum Expected return 16.5% 23.5% Standard Deviation of return 7% 11% Correlation of coefficient (p) 0.45   c)…

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Mac, Holmes, Prime Moving, Shoe Wholesaler, Adam and Electrical

Question 1  Mac Ltd. provides legal advice to customers for fees. On 30 June 2020, Mac Ltd. completed its first year of operations. Some of the ledger account balances of the business, before any financial year end (30 June) adjustments, are provided below:   $ Fees Revenue 442,500 Rent Expense 21,960 Electricity Expense 8,460 Wages Expense 163,200 Advertising Prepaid 2,700   No adjusting entries have been made to these accounts at any time during the year. An analysis of the business records reveals the following.   The total Fees Revenue recorded includes $2,250 that was prepaid by a client as a deposit for legal advice to be provided in July 2020. The balance in Advertising Prepaid represents the amount paid for…

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Treasure Island Ltd. currently has the following

Treasure Island Ltd. currently has the following capital structure:   Debt:  $3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years.   Ordinary shares: 70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely.   Preferred shares: 45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%.   Company tax rate is 30%.   Required: Complete the following tasks: Calculate the current price of…

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You are working as a finance manager for Fire Fox Transport Ltd

You are working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one of the two following projects to buy a new equipment for their storage which is expected to boost the company’s revenue. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9.5%. The cash flows of the projects are provided below.     Equipment 1 Equipment 2 Cost $157,000 $182,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5   67 000 82 000 78 000 64 000 56 000   83 000 94 000 80 000 77 000 73 000  …

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ABC, Revaluation, JTX, Win Box, Deferred Tax, Mirvac

Question 1 ABC Ltd acquired a Machine from BAN Ltd for the following consideration: Cash    $70 000, Land in the books of ABC Ltd the land is recorded at its cost of $700 000. It has a fair value of $750 000. ABC Ltd also agrees to assume the liability of BAN Ltd bank loan of $95 000 as part of the Machine acquisition.   REQUIRED  (a) Calculate the acquisition cost of the Machine (b) Provide the journal entries that would appear in ABC Ltd’s books to account for the acquisition of the Machine   Question 2 An item of depreciable machinery is acquired on 1 July 2015 for $280 000. It is expected to have a useful life of 10…

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Revaluation, Acquisition, Lease and EPS

Question 1 An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders’ equity, before adjusting for the above revaluation and subsequent depreciation, is as follows:   Share capital 600 000 Revaluation surplus 90 000 Capital profits reserve 170 000 Retained earnings 140 000 Total 1 000 000   Required: Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation?     Question 2 ABC Ltd…

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Berry Ltd acquired 70% of the shares of James Ltd

Berry Ltd acquired 70% of the shares of James Ltd on 1st July 2016 for $540,000. The James Ltd equity consisted of the following items at acquisition date   Share Capital                                                    $500,000 General Reserve                                                   80,000 Retained Earnings                                                 50,000 Asset revaluation reserve                                         20,000   All identifiable assets and liabilities of James Ltd are recorded at fair value at this date except for inventory for which the fair value was $10,000 greater than carrying amount and plant which had a carrying amount of $150,000 (Accumulated depreciation net of $40,000) and a fair value was $170,000. The plant has a further 5 years life. The Financial information for…

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Cabarita Ltd (Cabarita) acquired 100% of the shares of Kakadu Ltd

Cabarita Ltd (Cabarita) acquired 100% of the shares of Kakadu Ltd (Kakadu) on 1 July 2019. The cost of investment was $620 000. At that date the capital and reserves of Kakadu were: Share capital            $260 000 Retained earnings    $200 000   At the date of acquisition all assets of Kakadu were considered to be fairly valued, except for a plant that had a fair value $20 000 greater than its carrying amount. The cost of the plant was $100 000 and it had accumulated depreciation of $60 000. The plant had original estimated useful life of 10 years.   During financial year 01/07/2019-30/06/2020, Kakadu sold $30 000 in inventory to Cabarita for on-sale to external parties. The inventory…

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Sam Ltd enters into a 5 years

Sam Ltd enters into a 5 years lease non-cancellable agreement with West Ltd on 1st July 2020. The lease is for an item of truck that has a fair value of $476912 at the inception of the lease. Sam Ltd’s incremental borrowing rate is 9% The truck is expected to have an economic life of 6 years, after which it will have an expected residual salvage value of $50,000. There is a purchase option that Sam Ltd will be able to exercise at the end of 5 year for $70,000. The rate of interest implicit in the lease is quoted as being 8%. There are to be 5 annual payments of $120,000 being made at the end of each year along…

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Morning Star Ltd and Aileen Ltd

Question 1  Morning Star Ltd was registered on 1 July 2020, as a company with a constitution limiting the shares that could be offered to 5 000 000 Ordinary shares (including all classes) and 2 000 000 preference shares. The company issued a prospectus dated 1 July 2020 inviting the public to apply for 3 600 000 Ordinary A class shares at $7.00 per share. The terms of the shares on issue are $3.00 on application, $2.00 on allotment and a future call of $2.00. If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess application money will be applied to allotment and calls before any refunds will be given. On 30 July, applications…

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Michael J owns renovation business under the name New Home

Michael J owns renovation business under the name New Home. Financial data for New Home as of 30 June 2019 are shown as below:

	$		$
Accounts receivable	109,500	Wages expense	117,000
Renovation revenue	300,000	Advertising expense	48,000
Interest Income	13,500	Prepaid insurance	13,500
Accounts payable	132,000	Insurance expense	10,500
Cash at bank	72,000	Equipment	285,000
Michael J, capital	?

 

Required:

a) Prepare an income statement for the business for the year ending 30 June 2019.
b) Prepare a balance sheet in narrative format for New Home as at 30 June 2019.