Answer:
The total estimated uncollectible debt is $6000 as computed below
Explanation:
The total estimated uncollectible debt is computed as follows:
Accounts not yet due $25000*4% $1000
Accounts 1-60 days past due $10000*25% $2500
Accounts more than 60 days $5000*50% <u>$2500</u>
Total estimated uncollectible debt <u> $6000</u>
The necessary journal entry to record this estimate is shown below:
Dr bad debt expense $5000
Cr Allowance for uncollectible debt $5000
Even though $6000 is the estimated uncollectible, the implication is that the closing balance in allowance for uncollebtible debt should be $6000,since there is a credit of $1000 already in the account, the balance required to top it up to $6000 is $5000
Answer:
$9,000
Explanation:
Calculation of the amount that Deb must include in her gross income
Total assets $264,000 -Remaining loans $255,000 =$9,000
Therefore the amount that Deb must include in her gross income would be $9,000. Hence a discharge of indebtedness will not be taxable in a situation where the taxpayer is insolvent before and after the debt might have been forgiveness and in a situation where the the discharge of indebtedness tend to makes the taxpayer solvent, the taxpayer will tend ro recognizes the taxable income to the extent of his solvency.
<span>Crystal corporation makes $2,000 payments every month for leasing office equipment. Crystal recorded a lease payment as an operating lease.
An operating lease is a lease that is commonly used for a short term basis and asset. The operating lease payment is found on the financial statement.
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Answer:
a. What is the value today of Steinberg's debt and equity?
b. What is the value today of Dietrich's debt and equity?
c. Steinberg’s CEO recently stated that Steinberg’s value should be higher than Dietrich’s because the company has less debt and therefore less bankruptcy risk. Do you agree or disagree with this statement?
- A. Disagree: a company's value is determined by by its operating income (EBIT), not by there capital structure (M&M theory).
Explanation:
economic expansion 80% chance, EBIT $3.5 million
economic recession 20% chance, EBIT $1.9 million
expected EBIT = (3.5 x 0.8) + (1.9 x 0.2) = $2.8 million + $0.38 million = $3.18 million
Steinberg's debt obligations $980,000 at the end of next year
Dietrich's debt obligations $2,000,000 at the end of next year
total company value = $3.18 million / (1 + 10%) = $2,890,909
Answer: a. $5.50
b. $6.1
c. $3,500,000
Explanation:
a. From the question, we are informed that Hawar International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding and that Hawar announces plans to lower its corporate taxes by borrowing $20 million and repurchasing shares.
We are informed that Hawar announces plans to lower its corporate taxes by borrowing $20 million and repurchasing shares. This is a transaction and therefore, the value if the share won't be changed. So, the value for the share will still be $5.50.
b. If the only imperfection is corporate tax rate of 30%, the share price after this announcement will be:
= [30% × (20million/10million)] + $5.50
= [0.3 × 2] + $5.50
= $0.6 + $5.50
= $6.1
Therefore, the share price be after this announcement will be $6.1.
c. If the share price rises to $5.75 after this announcement, the PV of financial distress costs Hawar will incur as the result of this new debt will be:
= ($6.1 - $5.75) × 10,000,000
= $0.35 × 10,000,000
= $3,500,000
