On January 1, Year 1, Chaco Company sold \$300,000 of 10% twenty-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were issued for \$359,378, priced to yield 8%. What is the amount of effective interest expense that Chaco will record for the six months ended June 30, Year 1

The amount of effective interest expense that chaco will record in the first six months is \$14,375

Explanation:

interest payment that will be first made is on June 30, Year 1. Therefore, the outstanding balance used in the calculation is the issue price.

The interest expense is calculated by these formula

Interest expense = Effective semiannual interest rate × Outstanding balance

Interest expense = (8% ÷ 2) × \$359,378 = \$14,375

So the interest expense is gotten as %14,375

The Chaco Company will record an effective interest expense of \$14,375.12 for the six months ended June 30, Year 1.

Explanation:

The effective interest method is a technique used for discounting bonds. This method is used to calculate the amount of interest expense for a specific time period. In this case, we are finding the effective interest for the six months ended June 30, Year 1 on a bond issued by the Chaco Company.

The formula for the effective interest method is: Book value of the bond at the beginning of the period X Yield rate/Number of periods per year.

The book value of the bond at the beginning of the time period (January 1, Year 1) was \$359,378. The yield was 8% and there are two periods in the year because the interest is paid semiannually.

So, the effective interest for the six months ended June 30, Year 1 = \$359,378 * 8%/2 = \$14,375.12.

Therefore, the amount of effective interest expense that Chaco will record for the six months ended June 30, Year 1 is \$14,375.12.

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Related Questions

Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.1. On February 2, the corporation purchased goods from Martin Company for \$70,000 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.2. On April 1, the corporation bought a truck for \$50,000 from General Motors Company, paying \$4,000 in cash and signing a one-year, 12% note for the balance of the purchase price.3. On May 1, the corporation borrowed \$83,000 from Chicago National Bank by signing a \$92,000 zero-interest-bearing note due one year from May 1.4. On August 1, the board of directors declared a \$300,000 cash dividend that was payable on September 10 to stockholders of record on August 31.Make all the journal entries necessary to record the transactions above using appropriate dates.Edwardson Corporation

Edwardson Corporation

Journal Entries:

February 2:

Debit Purchases \$68,600

Credit Accounts Payable \$68,600

To record credit purchases, net (\$70,000 * 98%) with terms of 2/10, n/30.

February 26: Debit Purchases \$1,400

Credit Accounts Payable \$1,400

To revise the cash discounts not taken.

February 26: Debit Accounts Payable \$70,000

Credit Cash \$70,000

To record the full settlement for cash

April 1: Debit Truck \$50,000

Credit Cash \$4,000

Credit Notes Payable \$46,000

To record the purchase of truck with a 12% note.

May 1: Debit Cash \$83,000

Debit Interest Expense \$9,000

Credit Notes Payable \$92,000

To record zero-interest-bearing note due on May 1.

August 1: Debit Dividends \$300,000

Credit Dividends Payable \$300,000

To record the declaration of dividends.

Explanation:

a) Data and Analysis:

February 2: Purchases \$68,600 Accounts Payable \$68,600 (\$70,000 * 98%)

February 26: Purchases \$1,400 Accounts Payable \$1,400

Accounts Payable \$70,000 Cash \$70,000

April 1: Truck \$50,000 Cash \$4,000 Notes Payable \$46,000

May 1: Cash \$83,000 Interest Expense \$9,000 Notes Payable \$92,000

August 1: Dividends \$300,000 Dividends Payable \$300,000

b) Note that the Interest Expense of \$9,000 will be split between the current year and the following year.  Specific information for the split is not available.

Four transactions were needed to be journalized. These include a purchase of goods with cash discount terms, a truck purchase with a down payment and a note, a borrowed amount through signing a zero-interest note, and declaring a cash dividend by the board of directors.

Explanation:

Edwardson Corporation's transactions can be recorded in the following way:

1. On February 2, the corporation purchased goods for \$70,000 with 2/10, n/30 terms from Martin Company. But they only paid after the discount term period, so no discount was applied. The required journal entry would be:
Debit: Purchases: \$70,000
Credit: Accounts Payable: \$70,000
2. On April 1, the corporation bought a truck for \$50,000, paying \$4,000 in cash and the balance with a 12% note due in a year. The journal entry would be:
Debit: Truck (asset): \$50,000
Credit: Cash: \$4,000, Notes Payable: \$46,000
3. On May 1, the corporation borrowed \$83,000 by signing a \$92,000 zero-interest note due in a year. The journal entry would be:
Debit: Cash: \$83,000, Discount on Notes Payable: \$9,000
Credit: Notes Payable: \$92,000
4. On August 1, the board declared a \$300,000 cash dividend payable on September 10. The journal entry would be:
Debit: Retained Earnings: \$300,000
Credit: Dividends Payable: \$300,000

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1. In a Year 20,367 20,017

2. In a Year 21,333 21,917

3. In the case of NPW analysis Selected Target is best option because it is the better and cheaper investment while EUAM analysis states Walmart kit is better option,

4.Target is the best option because the cost difference is only around \$600 which will last for 6 Years while in walmart case we will need to replace all the furniture in 3 Years .

Explanation:

1. Using NPW Analysis

Walmart Kit Target

Intial Cost 40000 65000

AMC 10000 12000

Salvage Value 12000 25000

Life Years 3 6

Total Cost

Intial Cost 40000 65000

Less Salvage 12000 25000

Balance 28000 40000

5% Interest 6000 19500

AMC PV 2.71 5.05

Amc 27100 60600

Total Cost 61100 120100

In a Year 20,367 20,017

2. Using EUAW Analysis

Walmart Kit

Target

Intial Cost 40000 65000

AMC 10000 12000

Salvage Value 12000 25000

Life Years 3 6

Total Cost

Intial Cost 40000 65000

Less Salvage 12000 25000

Balance 28000 40000

5% Interest 6000 19500

AMC 30000 72000

Total 64000 131500

In a Year 21,333 21,917

In the case of NPW analysis Selected Target is best option because it is the better and cheaper investment while EUAM analysis states Walmart kit is better option,

Target is the best option because the cost difference is only around \$600 which will last for 6 Years while in walmart case we will need to replace all the furniture in 3 Years .

Hence Target product will be the best option we would advice the management to go for.

To determine which kitchen kit to choose, you can use NPW (Net Present Worth) analysis and EUAW (Equivalent Uniform Annual Worth) analysis. In NPW analysis, calculate the present worth of each option by subtracting the present value of the annual maintenance cost from the sum of the present value of the salvage value and the present value of the first cost. In EUAW analysis, divide the NPW by the present worth factor to calculate the equivalent uniform annual worth. You can extend the analysis to show the EUAW for an extended life of the products. Present the information ethically and transparently, addressing your bias towards the Target kit and presenting the analysis results objectively.

Explanation:

a. In order to determine which kitchen kit to choose using NPW analysis, we need to calculate the present worth of each option. The present worth is calculated by subtracting the present value of the annual maintenance cost from the sum of the present value of the salvage value and the present value of the first cost. You can use the formula: NPW = (-FC + PV(SV) + PV(AMC)) / (1 + i)^n, where FC is the first cost, PV(SV) is the present value of the salvage value, PV(AMC) is the present value of the annual maintenance cost, i is the interest rate, and n is the number of years.

b. To determine which kitchen kit to choose using EUAW analysis, we need to calculate the equivalent uniform annual worth of each option. The EUAW is calculated by dividing the NPW by the present worth factor. You can use the formula: EUAW = NPW / Present Worth Factor, where NPW is the net present worth, and the Present Worth Factor is calculated using the formula: Present Worth Factor = (1 - (1 + i)^-n) / i.

c. To show that the Target option is the better choice, you can extend the analysis from part b and calculate the EUAW for an extended life of the products. Simply substitute the new number of years into the formula and compare the EUAWs of the two options.

d. Since you have a bias towards the Target kit, it is important to present the information ethically and transparently. You can start by explaining your bias and personal preference, and then present the analysis results objectively, showcasing the financial aspects and consequences of each option. It is crucial to provide all the necessary information and allow management to make an informed decision based on the facts presented.

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Segment management is best suited for: _____________ a. small-to-medium businesses
c. businesses who already identify customers individually and differentiate them by value
d. businesses who do not yet identify or differentiate their customers individually
e. a, b, and c
f. a, b, and d

Segment management is best suited for: _____________

d. businesses who do not yet identify or differentiate their customers individually

Explanation:

Segment management is aimed at grouping customers according to their individual characteristics and value so that maximum benefits can be derived by the customers and the profitability of the company will be impacted positively in the long-term.  A business that can identify customers individually and differentiate them by value is already doing segment management.  It is the business that does not yet identify or differentiate their customers that should embrace segment management.

A stock with a beta of 0.8 has an expected rate of return of 12%. If the market return this year turns out to be 5 percentage points below expectations, what is your best guess as to the rate of return on the stock?

The correct answer is:  The expected rate of return for the stock would be around 7%.

Explanation:

The Beta coefficient is a numeral measure that portraits the volatility of a stock compared to the overall market performance. If a stock's beta is closed to the numerical value one (1) it implies it is highly correlated to the price movement of the overall market.

In that case, if a stock's beta is 0.8 it implies it follows the market price movements. If the stock expected rate return is 12% but the market return turns out to be 5% points below expectations, it means the stock's return would end up being around 7%.

The rate of return on the stock would decrease proportionally to its beta value in response to the market return being lower than expected. Given the stock's beta of 0.8 and the market return falling 5 percentage points below expectations, the new estimated rate of return on the stock would be 8%.

Explanation:

The rate of return on a stock can be affected by changes in market conditions. If the market return this year is lower than expected, this could affect the return on the particular stock in question, which has a beta of 0.8. The beta value of a stock measures its sensitivity to market movements, with a value less than 1 indicating that the stock is less volatile than the market. Given the expected return of 12%, a market return 5 percentage points below expectations implies that the new expected return on the stock would decrease proportionally to its beta. This can be calculated as 12% - (0.8 * 5%) = 12% - 4% = 8%. Therefore, if the market return is 5 percentage points below expectations, your best guess for the rate of return on the stock would be 8%.

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Audra owns a rental house. She makes mortgage payments of \$1,060 per month, which include insurance, and pays \$2,700 per year in property taxes and maintenance. Utilities are paid by the renter. What should Audra charge for monthly rent to make \$4,500 profit each year?

A \$740 cable bill for them to be able to watch shows and have internet.

Explanation:

Fern Corporation manufacturers a single product that has a selling price of \$25.00 per unit. Fixed expenses total \$50,000 per year, and the company must sell 5,000 units to break even. If the company has a target profit of \$15,500, sales in units must be:

Sales unit to achieve target profit =6,550 units

Explanation:

Break-even point is the level of activity that achieves no profit or loss. At this level profit is zero because the the total revenue is equal to total cost.

The break-even point is calculated as

Break -even in units = total general fixed cost/(selling price - variable cost)

ley represent tah variable cost per unit with letter "y"

5,000 = 50,000 / (25 - y)

cross multiply

5000× (25 - y) = 50,000

125000  - 5000 y = 50,000

collect like terms

125,000 - 50,000 = 5000 y

75000  = 5,000y

divide both sides by 5,000

y = 75,000/5000 = 15

Variable cost per unit = 15

Sales units to achieve target profit = Fixed cost + target profit/(selling price - variable cost per unit)

Sales unit to achieve target profit

= (50,000 + 15,500)/(25-15)

= 6,550

Sales unit to achieve target profit =6,550 units