Two methods can be used for producing solar panels for electric power generation. Method 1 will have an initial cost of $550,000, an annual operating cost of $160,000 per year, and $125,000 salvage value after its three-year life. Method 2 will cost $830,000 with an annual operating cost of $120,000. and a $240,000 salvage value after its five-year life. The company has asked you to determine which method is better, but it Wants the analysis done over a three-year planning period. The salvage value of Method 2 will be 35% higher after three years than it is after five years. If the company's minimum attractive rate of return is 10% per year, which method should the company select?
Answer:
the company should choose method 1
Explanation:
Method 1 Method 2
Initial outlay $550,000 $830,000
operating costs (years 1,2,3) $160,000 $120,000
salvage value $125,000 $324,000
we must determine which alternative has the lowest present value:
method 1 = $550,000 + $160,000/1.1 + $160,000/1.1² + $160,000/1.1³ - $125,000/1.1³ = $550,000 + $145,455 + $132,231 + $120,210 - $93,914 = $853,982
method 2 = $830,000 + $120,000/1.1 + $120,000/1.1² + $120,000/1.1³ - $324,000/1.1³ = $830,000 + $109,091 + $99,174 + $90,158 - $243,426 = $884,996
Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last year's operations:
Month Labor-Hours Machine-Hours Overhead Costs
1 730 1,354 $ 102,748
2 710 1,401 103,792
3 690 1,514 109,835
4 735 1,449 108,346
5 775 1,589 116,252
6 745 1,574 114,581
7 740 1,393 106,947
8 730 1,316 102,010
9 705 1,450 106,479
10 800 1,548 113,012
11 680 1,290 101,925
12 705 1,610 115,205
Required:
(a)
Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. (Round your variable cost answer to 2 decimal places.)
(b)
Managers expect the plant to operate at a monthly average of 1,400 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?
Answer:
A. Variable cost per hour=$41.50
Fixed cost =$48,390
B. $106,490
Explanation:
a. Using the high-low method to estimate the fixed and variable portions
Calculation for the variable cost per hour
Variable cost per hour=(115,205-101,925) / (1,610-1,290)
Variable cost per hour=13,280/320
Variable cost per hour=$41.50
Calculation for fixed cost
Fixed cost= 115,205-1,610*$41.50
Fixed cost =$48,390
B. Calculation for the estimated monthly overhead costs
Overhead cost =$48,390+1,400 machine-hours*$41.50
Overhead cost =$106,490
In early 2016, the same Germany machinery company has interest from four prospective clients from emerging markets: Indonesia, Brazil, Russia, and South Africa. They all want to buy ten machines, but the factory can only produce ten in time. Therefore, the company has to choose only one client. Given the volatility of the domestic currencies of the four prospective clients, the CFO would like to choose the client which is least likely to cancel the order due to currency volatility. The invoice comes due on June 30, 2016. According to volatility alone, which prospective client would be most likely to cancel the order?
Answer:
Brazil
Explanation:
According to the picture below, Brazilian real is the currency that has the lowers currency volatility, its spot is 4.0685, and its forward is 4.1820. These values are way lower than the values of the other three currencies, and for this reason, the CFO should choose the Brazilian client, clearly.
Indonesia is the country that is most likely to cancel this order. This is due to its high volatility.
Following the volatility chart that is attached to this question we can clearly spot that Indonesia has the most likelihood to cancel the order.
The volatility of the currency of the country Indonesia is shown to be high and this high volatility is very much going to have an impact on trade.
When there is a weakness in the currency of a nation, the cost of import would go up.
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Prepare an adjusted trial balance. If an amount
Ledger Accounts, Adjusting Entries, Financial Statements, and Closing Entries; Optional Spreadsheet.
The unadjusted trial balance of Recessive Interiors at January 31, 2019, the end of the year, follows:
Debit Balances Credit Balances
11 Cash 13,100
13 Supplies 8,000
14 Prepaid Insurance 7,500
16 Equipment 113,000
17 Accumulated Depreciation—Equipment 12,000
18 Trucks 90,000
19 Accumulated Depreciation—Trucks 27,100
21 Accounts Payable 4,500
31 Jeanne McQuay, Capital 126,400
32 Jeanne McQuay, Drawing 3,000
41 Service Revenue 155,000
51 Wages Expense 72,000
52 Rent Expense 7,600
53 Truck Expense 5,350
59 Miscellaneous Expense 5,450
325,000 325,000
The following additional accounts from Recessive Interiors' chart of accounts should be used: Wages Payable, 22; Depreciation Expense-Equipment, 54; Supplies Expense, 55; Depreciation Expense-Trucks, 56; Insurance Expense, 57.
The data needed to determine year-end adjustments are as follows:
Supplies on hand at January 31 are $2,850.
Insurance premiums expired during the year are $3,150.
Depreciation of equipment during the year is $5,250.
Depreciation of trucks during the year is $4,000.
Wages accrued but not paid at January 31 are $900.
Required:
Journalize the adjusting entries.
Answer:
Recessive Interiors
1. Adjusted Trial Balance
As of January 31, 2019:
Debit Credit
11 Cash $13,100
13 Supplies 2,850
14 Prepaid Insurance 4,350
16 Equipment 113,000
17 Acc. Depreciation—Equipment $17,250
18 Trucks 90,000
19 Accumulated Depreciation—Trucks 31,100
21 Accounts Payable 4,500
22 Wages Payable 900
31 Jeanne McQuay, Capital 126,400
32 Jeanne McQuay, Drawing 3,000
41 Service Revenue 155,000
51 Wages Expense 72,900
52 Rent Expense 7,600
53 Truck Expense 5,350
54 Depreciation-Equipment 5,250
55 Supplies Expense 5,150
56 Depreciation-Trucks 4,000
57 Insurance Expense 3,150
59 Miscellaneous Expense 5,450
$335,150 $335,150
2. Adjusting Journal Entries:
Debit 55 Supplies Expense $5,150
Credit 13 Supplies $5,150
To record the supplies expense for the period.
Debit 57 Insurance Expense $3,150
Credit 14 Prepaid Insurance $3,150
To record insurance expense that has expired.
Debit 54 Depreciation Expense - Equipment $5,250
Credit 17 Accumulated Depreciation-Equipment $5,250
To record depreciation expense for the period.
Debit 56 Depreciation Expense - Trucks $4,000
Credit 19 Accumulated Depreciation-Trucks $4,000
To record depreciation expense for the period.
Debit 51 Wages Expense $900
Debit 22 Wages Payable $900
To accrue unpaid wages expenses.
Explanation:
a) Data and Calculations: Unadjusted Adjustments Adjusted
Debit Credit Debit Credit Debit Credit
11 Cash $13,100 $13,100
13 Supplies 8,000 $5,150 2,850
14 Prepaid Insurance 7,500 3,150 4,350
16 Equipment 113,000 113,000
17 Acc. Depreciation—Equipment 12,000 5,250 17,250
18 Trucks 90,000 90,000
19 Accumulated Depreciation—Trucks 27,100 4,000 31,100
21 Accounts Payable 4,500 4,500
22 Wages Payable 900 900
31 Jeanne McQuay, Capital 126,400 126,400
32 Jeanne McQuay, Drawing 3,000 3,000
41 Service Revenue 155,000 155,000
51 Wages Expense 72,000 900 72,900
52 Rent Expense 7,600 7,600
53 Truck Expense 5,350 5,350
54 Depreciation Expense-Equipment 5,250 5,250
55 Supplies Expense 5,150 5,150
56 Depreciation-Trucks 4,000 4,000
57 Insurance Expense 3,150 3,150
59 Miscellaneous Expense 5,450 5,450
325,000 325,000 18,450 18,450
Robin, who is a head of household and age 42, provides you with the following information from his financial records for 2019. Robin itemizes deductions. Regular income tax liability $142,125 PositiveAMT adjustments 30,000 AMT preferences 100,000 Taxable income 481,000 Calculate Robin's AMT for 2019. a.$12,636. b.$3,757. c.$12,032. d.$15,126.
Answer:
$15,158.
Explanation:
We can calculate the Robin's AMT for 2019 by first deducting the AMT exemption for 2019 and then multiplying it by the rate of 26% FOR 2019.
DATA
AMT preferences 100,000
PositiveAMT adjustments 30,000
Total AMT = $100,000 + $30,000 = $130,000
Solution
Exemption for 2019 = $71,700.
Robin's AMT for 2019 = ($130,000 - $71,700) × 26%
Robin's AMT for 2019 = $15,158.
Mark or Make is a bourbon distillery. Sales have been steady for the past three years, and operating costs have remained unchanged. On January 1, 2019, Mark or Make took advantage of a special deal to prepay its rent for three years at a substantial savings. The amount of the prepayment was $60,000. The income statement items (excluding the rent) are shown here.
2019 2020 2021
Gross profit on sales 350,000 349,000 351,000
Operating expense 210,000 210,000 210,000
Assume that the rental is deducted on the corporate tax purposes in 2019 and that there are no other temporary differences between taxable income and pretax accounting income. In addition, there are no permanent differences between taxable income and pretax accounting income. The corporate tax rate for all three years is 30%.
Required:
Construct income statements for 2019, 2020, and 2021 under the following approaches to interperiod income tax allocation:
a. No allocation
b. Comprehensive allocation
c. Do you believe that no allocation distorts Mark or Make’s net income? Explain.
Answer:
a. No allocation
2019 2020 2021
Gross Profit on Sales 350,000 349,000 351,000
Less: Operating Expense 210,000 210,000 210,000
Gross Revenue 140,000 139,000 141,000
Rent (Prepaid) 0 0 0
Revenue after Rent paid 140,000 139,000 141,000
Less: Corporate Taxes at 30% 42,000 41,700 42,300
Net Income $98,000 $97,300 $98,700
Considerations for No Allocation
- Taxes are to be deducted from Gross Profit.
- Rent not to be deducted from Gross Profit.
b. Comprehensive Allocation
2019 2020 2021
Gross Profit on Sales 350,000 349,000 351,000
Less: Operating Expense 210,000 210,000 210,000
Gross Revenue 140,000 139,000 141,000
Rent (Prepaid) 60,000 60,000 60,000
Revenue after Rent paid 80,000 79,000 81,000
Less: Corporate Taxes at 30% 24,000 23,700 24,300
Net Income 56,000 55,300 56,700
Considerations for Comprehensive Allocation
- Taxes are to be deducted from Gross Profit.
- Rent is to be deducted from Gross Profit.
c. No allocation distorts Mark or Make’s Net Income for all three years. This is because if Rent is not allocated taxes will be calculated on Gross Revenue. That is to say, Rent is a Non-Operating Expense and hence is to be deducted from Revenue to Calculate the Taxes. When Revenue is reduced, obviously, the taxes will be reduced. Hence, less income is seen in Comprehensive Income Statement and more Revenue is seen in Simple - Non Comprehensive Statement.
Pooling has been used for a long time by businesses as a way to reduce risk. Imagine that years ago a small paint factory employed 200 people, each with an annual salary of $600/year. The factory owner knew from experience that 4 percent of workers were being injured each year, becoming unable to work. The factory owner decided to set up a fund to pay injured workers three months of salary to help their families and build good will with employees. The owner did not contribute to the injury fund. The workers themselves contributed a fixed amount each year to fund the plan. Answer the following questions (1 point each):_____.
1. How much did the owner need to collect from employees in total to fully fund the plan each year?
2. How much did each employee have to contribute each year to fully fund the plan?
3. What percentage of salary did each employee contribute to have an injury fund like this?
Answer:
1. Amount required to fund the plan = % of injured*Total employees* Annual salary
Amount required to fund the plan = 4%*200 people* $600
Amount required to fund the plan = $4800
2. Amount contributed by each employee = Amount required to fund the plan / Number of employees
Amount contributed by each employee = $4800/200
Amount contributed by each employee = $24
3. Percentage of salary = Amount contributed by each employee / Salary
Percentage of salary = 24/600
Percentage of salary = 0.04
Percentage of salary = 4%
The following transactions relate to the General Fund of the City of Buffalo Falls for the year ended December 31, 2020:
a. Beginning balances were: Cash, $98,000; Taxes Receivable, $197,000; Accounts Payable, $56,000; and Fund Balance, $239,000.
b. The budget was passed. Estimated revenues amounted to $1,280,000 and appropriations totaled $1,276,400. All expenditures are classified as General Government.
c. Property taxes were levied in the amount of $940,000. All of the taxes are expected to be collected before February 2021.
d. Cash receipts totaled $910,000 for property taxes and $310,000 from other revenue.
e. Contracts were issued for contracted services in the amount of $104,000.
f. Contracted services were performed relating to $93,000 of the contracts with invoices amounting to $90,400.
g. Other expenditures amounted to $986,000.
h. Accounts payable were paid in the amount of $1,130,000.
i. The books were closed.
Required:
a. Prepare journal entries for the above transactions.
b. Prepare a Statement of Revenues, Expenditures, and Changes in Fund Balance for the General Fund.
c. Prepare a Balance Sheet for the General Fund assuming there are no restricted or assigned net resources and outstanding encumbrances are committed by contractual obligation.
Answer:
Please see attached for the detailed solution.
Explanation:
a. Prepare Journal
b. Prepare statement
c. Prepare balance sheet
Please find attached solution to the above questions.
Harnett Corporation has two manufacturing departments--Molding and Assembly. The company used the following data at the beginning of the period to calculate predetermined overhead rates:
Molding Assembly Total
Estimated total machine-hours (MHs) 3,000 7,000 10,000
Estimated total fixed manufacturing overhead cost $24,000 $53,200 $77,200
Estimated variable manufacturing overhead cost per MH $1.00 $2.00
During the period, the company started and completed two jobs--Job E and Job M. Data concerning those two jobs follow:
Job E Job M
Direct materials $21,600 $9,300
Direct labor cost $22,600 $9,500
Molding machine-hours 2,500 500
Assembly machine-hours 2,500 4,500
Required:
a. Assume that the company uses a plant-wide predetermined manufacturing overhead rate based on machine-hours. Calculate that overhead rate, (Round your answer to 2 decimal places.)
b. Assume that the company uses a plant-wide predetermined manufacturing overhead rate based on machine-hours. Calculate the amount of manufacturing overhead applied to Job E. (Do not round intermediate calculations.)
c. Assume that the company uses a plant-wide predetermined manufacturing overhead rate based on machine-hours. Calculate the total manufacturing cost assigned to Job E. (Do not round intermediate calculations.)
d. Assume that the company uses a plant-wide predetermined manufacturing overhead rate based on machine-hours and uses a markup of 20% on manufacturing cost to establish se ling prices. Calculate the selling price for Job E. (Do not round intermediate
calculations.)
e. Assume that the company uses departmental predetermined overhead rates with machine-hours as the allocation base in both departments. What is the departmental predetermined overhead rate in the Molding department? (Round your answer to 2 decimal places.)
f. Assume that the company uses departmental predetermined overhead rates with machine-hours as the a location base in both production departments. What is the departmental predetermined overhead rate in the Assembly department? (Round your answer to
Answer:
Results are below.
Explanation:
a) To calculate the predetermined manufacturing overhead rate we need to use the following formula:
Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base
Predetermined manufacturing overhead rate= (77,200 + 3,000 + 14,000) / 10,000
Predetermined manufacturing overhead rate= $9.42 per machine hour
b) To allocate overhead, we need to use the following formula:
Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base
Job E:
Allocated MOH= 5,000*9.42
Allocated MOH= $23,550
c) Total cost= 21,600 + 22,600 + 47,100
Total cost= $91,300
d) Selling price= 91,300*1.2= $109,560
e) Predetermined manufacturing overhead rate= (24,000/3,000) + 1
Predetermined manufacturing overhead rate= $9 per machine hour
f) Predetermined manufacturing overhead rate= (53,200/7,000) + 2
Predetermined manufacturing overhead rate= $9.6 per machine hour
The given statements pertain to aggregate supply and aggregate demand. Label each statement as being either true or false.
Statement 1: An increase in the cost of energy affects both aggregate supply and aggregate demand.
A. True
B. False
Statement 2: One of the factors that increase aggregate demand is the consumption of more imports.
A. True
B. False
Statement 3: If the value of people's stock portfolios increases or if peoples houses appreciate in value, then this very easily could lead to an increase in aggregated demand.
A. True
B. False
Answer:
Statement 1: An increase in the cost of energy affects both aggregate supply and aggregate demand.
A. TrueAn increase in energy costs reduces both aggregate supply and demand.
Statement 2: One of the factors that increase aggregate demand is the consumption of more imports.
B. FalseIf net exports decrease (exports - imports), then the aggregate demand curve will shift to the left, which means it will decrease.
Statement 3: If the value of people's stock portfolios increases or if peoples houses appreciate in value, then this very easily could lead to an increase in aggregated demand.
A. TrueThis would lead to an increase in the net worth of households, which generally leads to higher spending.
What cycle time (in minutes) would match capacity and demand if demand is 100 units per day, there are two 8 hour shifts with 3 worker(s) each, and each worker gets two 18 minute breaks and one 40 lunch.
Answer:
24.24 minutes
Explanation:
The computation of the cycle time is shown below:
As we know that
Cycle time is
= Time ÷ quantity demanded
where,
Time is
= Total time - break time
= (no of workers × no of shifts × hours per shift) - (no of workers × no of shifts × 2 × short shifts + lunch break)
= (3 × 2 × 8 × 60 minutes) - (3 ×2 × (2 × 18) + 40)
= 2,880 - 456
= 2,424 minutes
And, the demand is 100
Now the cycle time is
= 2,424 ÷ 100
= 24.24 minutes
Aracel Engineering completed the following transactions in the month of June.
a. Jenna Aracel, the owner, invested $175,000 cash, office equipment with a value of $5,200, and $76,000 of drafting equipment to launch the company in exchange for common stock.
b. The company purchased land worth $56,000 for an office by paying $8,000 cash and signing a long-term not payable for $48,000.
c. The company purchased a portable building with $54,000 cash and moved it onto the land acquired in b.
d. The company paid $2,600 cash for the premium on an 18-month insurance policy.
e. The company completed and delivered a set of plans for a client and collected $6,200 cash.
f. The company purchased $32,000 of additional drafting equipment by paying $11,900 cash and signing a long-term not payable for $20,100.
g. The company completed $18,000 of engineering services for a client. This amount is to be received in 30 days.
h. The company purchased $2,000 of additional office equipment on credit.
i. The company completed engineering services for $25,000 on credit.
j. The company received a bill for rent of equipment that was used on a recently completed job. The $1,409 rent cost must be paid within 30 days.
k. The company collected $7,000 cash in partial payment from the client described in transaction g.
l. The company paid $2,400 cash for wages to a drafting assistant.
m. The company paid $2,000 cash to settle the account payable created in transaction h.
n. The company paid $1,105 cash for minor maintenance of its drafting equipment.
o. The company paid $10,170 cash in dividends.
p. The company paid $2,400 cash for wages to a drafting assistant.
q. The company paid $4,000 cash for advertisements on the web during June.
1. Prepare general journal entries to record these transactions using the following titles: Cash (101); Accounts Receivable (106); Prepaid Insurance (108); Office equipment (163); Drafting Equipment (164); Building (170); Land (172); Accounts Payable (201); Notes Payable (250); Common Stock (307); Dividends (319); Engineering Fees Earned (402); Wages Expense (601); Equipment Rental Expense (602); Advertising Expense (603); and Repairs Expense (604).
Transaction General Journal Debit Credit
a.
Answer:
a. Jenna Aracel, the owner, invested $175,000 cash, office equipment with a value of $5,200, and $76,000 of drafting equipment to launch the company in exchange for common stock.
Dr Cash 175,000
Dr Office equipment 5,200
Dr Drafting equipment 76,000
Cr Common stock 256,200
b. The company purchased land worth $56,000 for an office by paying $8,000 cash and signing a long-term not payable for $48,000.
Dr Land 56,000
Cr Cash 8,000
Cr Notes payable 48,000
c. The company purchased a portable building with $54,000 cash and moved it onto the land acquired in b.
Dr Building 54,000
Cr Cash 54,000
d. The company paid $2,600 cash for the premium on an 18-month insurance policy.
Dr Prepaid insurance 2,600
Cr Cash 2,600
e. The company completed and delivered a set of plans for a client and collected $6,200 cash.
Dr Cash 6,200
Cr Engineering fees earned 6,200
f. The company purchased $32,000 of additional drafting equipment by paying $11,900 cash and signing a long-term not payable for $20,100.
Dr Drafting equipment 32,000
Cr Cash 11,900
Cr Notes payable 20,100
g. The company completed $18,000 of engineering services for a client. This amount is to be received in 30 days.
Dr Accounts receivable 18,000
Cr Engineering fees earned 18,000
h. The company purchased $2,000 of additional office equipment on credit.
Dr Office equipment 2,000
Cr Accounts payable 2,000
i. The company completed engineering services for $25,000 on credit.
Dr Accounts receivable 25,000
Cr Engineering fees earned 25,000
j. The company received a bill for rent of equipment that was used on a recently completed job. The $1,409 rent cost must be paid within 30 days.
Dr Equipment rental expense 1,409
Cr Accounts payable 1,409
k. The company collected $7,000 cash in partial payment from the client described in transaction g.
Dr Cash 7,000
Cr Accounts receivable 7,000
l. The company paid $2,400 cash for wages to a drafting assistant.
Dr Wages expense 2,400
Cr Cash 2,400
m. The company paid $2,000 cash to settle the account payable created in transaction h.
Dr Accounts payable 2,000
Cr Cash 2,000
n. The company paid $1,105 cash for minor maintenance of its drafting equipment.
Dr Repairs expense 1,105
Cr Cash 1,105
o. The company paid $10,170 cash in dividends.
Dr Dividends 10,170
Cr Cash 10,170
p. The company paid $2,400 cash for wages to a drafting assistant.
Dr Wages expense 2,400
Cr Cash 2,400
q. The company paid $4,000 cash for advertisements on the web during June.
Dr Advertising expense 4,000
Cr Cash 4,000
Every year, management and labor renegotiate a new employment contract by sending their proposals to an arbitrator, who chooses the best proposal (effectively giving one side or the other $3 million). Each side can choose to hire, or not hire, an expensive labor lawyer (at a cost of $300,000) who is effective at preparing the proposal in the best light. If neither hires a lawyer or if both hire lawyers, each side can expect to win about half the time. If only one side hires a lawyer, it can expect to win nine tenths, or 0.9, of the time. Use the given information to fit in the expected payoff, in dollars, for each cell in the matrix.
Management (M)
No Lawyer Lawyer
No Lawyer L: M: S L: S M: S
Labor (L) Lawyer L: M: S L: S M: S
The Nash equilibrium for this game is for Management to_____a lawyer, and for Labor to_____a lawyer.
Answer: hire; hire
Explanation:
The Nash equilibrium for this game is for Management to hire a lawyer, and for Labor to hire a lawyer.
The Nash Equilibrium is the solution in a game where the parties are not cooperative with one another and refers to the strategy at which neither party would not want to move from as it would not benefit them to do so.
The Nash Equilibrium here is that they both hire a lawyer because if one side decides not to hire a lawyer, they could win only one tenths of the time. Both of them will therefore hire lawyers and neither would go without a lawyer on the chance that the other hires a lawyer.
During 2020, PC Software Inc. developed a new personal computer database management software package. Total expenditures on the project were $3,000,000, of which 40% occurred after the technological feasibility of the product had been established. The product was completed and offered for sale on January 1, 2021. During 2021, revenues from sales of the product totaled $4,800,000. The package is expected to be successfully marketable for five years, and the total revenues over the life of the product are estimated to be $20,000,000.
Required
A. Prepare the journal entry to account for the development of this product in 2020.
B. Prepare the journal entry to record the amortization of capitalized computer software development costs in 2021.
C. What disclosures are required in the December 31, 2021, financial statements regarding computer software costs?
At December 31, 2021, the unamortized software intangible asset totals ______. This is equal to _____ originally capitalized less amortization in 2021 of _______. The amount charged to expense as amortization of software intangible asset in 2021 was ______. The estimated net realizable value of computer software is greater than the remaining unamortized software intangible asset.
Answer:
PC Software Inc.
A. Journal Entry to account for the development of software in 2020:
Debit Software $1,200,000
Debit Development Expenses $1,800,000
Credit Cash Account $3,000
To capitalize 40% software development costs.
B. Journal Entry to amortize Capitalize Computer Software Development in 2021:
Debit Amortization Expense $240,000
Credit Accumulated Amortization - Software $240,000
To record the amortization of the capitalized software.
C. At December 31, 2021, the unamortized software intangible asset totals _$960,000_____. This is equal to _$1,200,000____ originally capitalized less amortization in 2021 of _ $240,000______. The amount charged to expense as amortization of software intangible asset in 2021 was _$240,000_____. The estimated net realizable value of computer software is greater than the remaining unamortized software intangible asset.
Explanation:
PC Software Inc. must follow the US GAAP rule, which states that the development costs incurred for an internally-generated software development are capitalized only when it is probable that the development is commercially feasible. Based on this, only 40% of the software expenditures are capitalized.
Pharoah Inc. has decided to raise additional capital by issuing $173,000 facevalue of bonds with a coupon rate of 6%. In discussions with investment bankers, it was determined that to help the sale of thebonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bondswithout the warrants is considered to be $155,700, and the value of the warrants in the market is $20,760. The bonds sold in the market at issuance for $174,600.
A. What entry should be made at the time of the issuance of the bonds and warrants?
B. Prepare the entry if the warrants were non-detachable.
Answer:
A. Dr Cash 174,600
Dr Discount on bonds payable 18,941
Cr Bond Payable 173,000
Cr Paid-in Capital—Stock Warrants
20,541
B. Dr Cash 174,600
Cr Discount on bonds payable 1,600
Cr Bond Payable 173,000
Explanation:
A. Preparation of the Journal entries that should be made at the time of the issuance of the bonds and warrants
Dr Cash 174,600
Dr Discount on bonds payable 18,941
($173,000 - $154,059)
Cr Bond Payable 173,000
Cr Paid-in Capital—Stock Warrants
20,541
[(174,600+18,941)-173,000]
B. Preparation of the journal entry if the warrants were non-detachable Journal entries
Dr Cash 174,600
Cr Discount on bonds payable 1,600
(174,600-173,000)
Cr Bond Payable 173,000
Calculation for value assign to bonds
Value assign to bonds=(155,700/155,700+20,760)*174,600
Value assign to bonds=155,700/176,460*174,600
Value assign to bonds=154,059
Calculation for value assign to warrant
Value assign to warrant=(20,760/155,700+20,760)*174,600
Value assign to warrant=20,760/176,460*174,600
Value assign to warrant=20,541
Darby Company, operating at full capacity, sold 500,000 units at a price of $94 per unit during the current year. Its income statement is as follows:
Sales $47,000,000
Cost of goods sold 25,000,000
Gross profit $22,000,000
Expenses:
Selling expenses $4,000,000
Administrative expenses 3,000,000
Total expenses 7,000,000
Income from operations $15,000,000
The division of costs between variable and fixed is as follows:
Variable Fixed
Cost of goods sold 70% 30%
Selling expenses 75% 25%
Administrative expenses50% 50%
Management is considering a plant expansion program for the following year that will permit an increase of $3,760,000 in yearly sales. The expansion will increase fixed costs by $1,800,000 but will not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs $_____
Total fixed costs $_____
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost $_____
Unit contribution margin $_____
3. Compute the break-even sales (units) for the current year.
4. Compute the break-even sales (units) under the proposed program for the following year.
5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $15,000,000 of income from operations that were earned in the current year.
6. Determine the maximum income from operations possible with the expanded plant.
7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year?
8. Based on the data given, would you recommend accepting the proposal?
a. In favor of the proposal because of the reduction in break-even point.
b. In favor of the proposal because of the possibility of increasing income from operations.
c. In favor of the proposal because of the increase in break-even point.
d. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
e. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.
Answer:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs = $17,500,000 + $3,000,000 + $1,500,000 = $22,000,000 Total fixed costs = $10,000,0002. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost = $22,000,000 / 500,000 = $44 Unit contribution margin = $94 - $44 = $503. Compute the break-even sales (units) for the current year.
break even point = $10,000,000 / $50 = 200,000 units4. Compute the break-even sales (units) under the proposed program for the following year.
break even point = $11,800,000 / $50 = 236,000 units5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $15,000,000 of income from operations that were earned in the current year.
units = ($11,800,000 + $15,000,000) / $50 = 536,000 units6. Determine the maximum income from operations possible with the expanded plant.
total units sold 500,000 + 40,000 = 540,000total contribution margin = 540,000 x $50 = $27,000,000operating income = $27,000,000 - $11,800,000 = $15,200,0007. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year?
operating income = (500,000 x $50) - $11,800,000 = $13,200,000represents a decrease of $15,000,000 - $13,200,000 = $1,800,0008. Based on the data given, would you recommend accepting the proposal?
b. In favor of the proposal because of the possibility of increasing income from operations.Dom has $90,000 that he wishes to invest now in order to use the accumulation for purchasing a retirement annuity in five years. After consulting with his financial advisor, he has been offered four types of fixed-income investments, labeled as investments A, B, C, and D.
Investments A and B are available at the beginning of each of the next five years (call them years 1–5). Each dollar invested in A at the beginning of a year returns $1.20 (a profit of $0.20) two years later, in time for immediate reinvestment. Each dollar invested in B at the beginning of a year returns $1.36 three years later.
Investments C and D will each be available just once in the future. Each dollar invested in C at the beginning of year 2 returns $1.66 at the end of year 5. Each dollar invested in D at the beginning of year 5 returns $1.12 at the end of year 5.
Your uncle is obligated to make a balloon payment on an existing loan in the amount of $24,000 at the end of year 3. He wants to make that payment out of the investment account.
1) Devise an investment plan for your uncle that maximizes the value of the investment account at the end of five years. How much money will be available for the annuity in five years?
2) Show the network diagram corresponding to the solution in (1). That is, label each of the arcs in the solution and verify that the flows are consistent with the given information.
Answer:
First of all, you must invest enough money in B in order to pay your debt.
present value = future value / expected return
present value = $24,000 / $1.36 = $17,647.06
you have $90,000 - $17,647.06 = $72,352.94 to invest in A.
at the end of year 2, you will have:
future value = present value x expected return = $72,352.94 x $1.20 = $86,823.53
then you should invest that money ($86,823.53) in invested D and at the end of year 4 you will have:
future value = $86,823.53 x $1.66 = $144,127.06
finally, you should invest $144,127.06 in investment E and at the end of ear 5 you will have:
future value = $144,127.06 x $1.12 = $161,422.31
2) it is really hard to draw a diagram without drawing tools, but i will try
⇒ invest $17,647.06 in B ⇒ year 3, collect $24,000
from B and pay off debt
today
$90,000
⇒ invest $72,352.94 ⇒ year 2, invest ⇒ year 4, invest
in A $86,823.53 in D $144,127.06 in E
continues ... ⇒ year 5, collect $161,422.31 from E
What was the first chess champion
Answer:
Wilhelm Steinitz
Explanation:
Answer:
Wilhelm Steinitz
Explanation:
in 1886 he took place the first officially recognized World Chess Championship. So in the year of 1886 he was proclaimed as the first World Chess Champion. The final result was 10 victories for Steinitz, 5 for Zukertort and 5 draws
Zeno Inc. sold two capital assets in 2019. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2015, and its tax records provide the following information:
2015 2016 2017 2018
Ordinary income $443,000 $509,700 $810,300 $921,000
Net capital gain 22,000 0 4,120 13,600
Taxable income $465,000 $509,700 $814,420 $934,600
Required:
a. Compute Zeno’s tax refund from the carryback of its 2019 nondeductible capital loss. Assume Zeno's marginal tax rate was 34 percent in 2015 through 2017, and 21 percent in 2018.
b. Compute Zeno’s capital loss carryforward into 2020.
Answer:
a. Zeno's tax refund from the carry back of it's 2019 non deductible capital loss is $6,025
b. Zeno's capital loss carry forward into 2020 is $9,680
Explanation:
Please find attached detailed explanations of the above answers.
Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will:
a. increase consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.
b. increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog buns.
c. decrease consumer surplus in the market for hot dog buns and increase producer surplus in the market for hot dogs.
d. decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.
Answer:
a)decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs
Explanation:
Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot dogs.
In economics, complements goods are ones(two goods) that their usage is very close,when there is increase in price of one, the demand of other goods that complement it falls, and from the question Hot dogs and hot dog buns are complementary goods.
consumer surplus is the difference between the price that was actually paid for a goods/service by the consumer and the price the consumer is willing to pay.
Since, Hot dogs and hot dog buns are complementary goods As the flour's price rise here consumer surplus for hot dog buns will definitely decreases, then the producer surplus decreases for hot dogs.
A University is offering a charitable gift program. A former student who is now 50 years old is consider the following offer: The student can invest $8,900.00 today and then will be paid a 9.00% APR return starting on his 65th birthday (i.e For a $10,000 investment, a 9% rate would mean $900 per year). The program will pay the cash flow for this investment while you are still alive. You anticipate living 21.00 more years after your 65th birthday. The former student wants a return of 6.00% on his investments, but would like to consider this opportunity.
Required:
Using the student's desired return, what is the value of this deferred annuity today on his 50th birthday?
Answer:
The value of this deferred annuity today on his 50th birthday is $2,621.27.
Explanation:
Since the student's desired return of 6% will also start to be paid starting on his 65th birthday, the value of this deferred annuity today on his 50th birthday can be calculated by first calculating the value of the investment on the 65th birthday.
We therefore proceed with the following two steps:
Step 1: Calculation of the value of the investment on the 65th birthday
The value of the investment on the 65th birthday can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)
Where;
PV at 65 = Present value of the annuity at 65th birthday =?
P = Annuity payment = Invested amount * Student's desired return = $8,900 * 6% = $534
r = Student's desired return rate = 6%, or 0.06
n = number of more years anticipate to live after 65th birthday = 21
Substitute the values into equation (1) to have:
PV at 65 = $534 * ((1 - (1 / (1 + 0.06))^21) / 0.06)
PV at 65 = $534 * 11.764076621288
PV at 65 = $6,282.02
Therefore, the value of the investment on the 65th birthday is $6,282.02.
Step 2: Calculation of the value of this deferred annuity today on his 50th birthday
The value of this deferred annuity today on his 50th birthday can therefore be calculated using the simple present value for as follows:
PV at 50 = PV at 65 / (1 + r)^N …………………………….. (2)
Where;
PV at 50 = the value of this deferred annuity today on his 50th birthday = ?
PV at 65 = Present value of the annuity at 65th birthday = $6,282.02
r = Student's desired return rate = 6%, or 0.06
N = number of years from 50th birthday to 65th birthday = 65 - 50 = 15
Substitute the values into equation (2) to have:
PV at 50 = $6,282.02 / (1 + 0.06)^15
PV at 50 = $6,282.02 / 2.39655819309969
PV at 50 = $2,621.27
Therefore, the value of this deferred annuity today on his 50th birthday is $2,621.27.
Comparative statements of retained earnings for Renn-Dever Corporation were reported in its 2021 annual report as follows.
RENN-DEVER CORPORATIONStatements of Retained Earnings
For the Years Ended December 31 2021 2020 2019
Balance at beginning of year $6,962,452 $5,659,552 $5,824,552
Net income (loss) 3,408,700 2,300,900 (165,000 )
Deductions:
Stock dividend (34,500 shares) 241,500
Common shares retired (120,000 shares) 240,000
Common stock cash dividends 899,950 758,000 0
Balance at end of year $9,229,702 $6,962,452 $5,659,552
At December 31, 2013, common shares consisted of the following:
Common stock, 1,855,000 shares at $1 par $1,855,00
Paid-in capital—excess of par 7,420,000
Required:
Infer from the reports the events and transactions that affected Renn-Dever Corporation's retained earnings during 2014, 2015, and 2016. Prepare the journal entries that reflect those events and transactions.
Answer:
Renn-Dever Corporation
a. The events and transactions that affected Renn-Dever Corporation's retained earnings during 2019, 2020, and 2021 include:
2019:
Net Loss from the Income Statement of $165,000 reduced the retained earnings balance.
2020:
Net Income from the Income Statement of $2,300,900 increased the retained earnings balance.
Some Common Stock held in Treasury Stock were retired permanently to the tune of $240,000. This reduced the balance of the retained earnings.
Declaration and payment of cash dividend of $758,000 reduced the retained earnings balance.
2021:
There was a net income of $3,408,700 from the income statement which increased the retained earnings balance.
The Company declared stock dividends of $241,500 and cash dividends of $899,950, which together reduced the retained earnings balance.
b. 2019:
Debit Retained Earnings $165,000
Credit Income Summary $165,000
To record the net loss transferred to Retained Earnings.
2020:
Debit Income Summary $2,300,900
Credit Retained Earnings $2,300,900
To record the net income transferred to Retained Earnings.
Debit Retained Earnings $240,000
Credit Treasury Stock $240,000
To record the common stock retired.
Debit Retained Earnings $758,000
Credit Dividends $758,000
To record the cash dividends to stockholders.
2021:
Debit Income Summary $3,408,700
Credit Retained Earnings $3,408,700
To record the transfer of net income to retained earnings.
Debit Retained Earnings $241,500
Credit Stock Dividends $241,500
To record the stock dividends (34,500 shares) to stockholders.
Debit Retained Earnings $899,950
Credit Cash Dividends $899,950
To record the cash dividends to stockholders.
Explanation:
a) Data and Calculations:
RENN-DEVER CORPORATION
Statements of Retained Earnings
For the Years Ended December 31 2021 2020 2019
Balance at beginning of year $6,962,452 $5,659,552 $5,824,552
Net income (loss) 3,408,700 2,300,900 (165,000)
Deductions:
Stock dividend (34,500 shares) 241,500
Common shares retired (120,000 shares) 240,000
Common stock cash dividends 899,950 758,000 0
Balance at end of year $9,229,702 $6,962,452 $5,659,552
Assume you work for a valuation firm, and you have been given the assignment of valuing a local law firm comprising three partners and four associates. One partner plans to retire spoon, and the partners are trying to agree on the value of a one-third interest in the firm in order to buy out the departing partner's interest. The firm's revenue per partner is two times higher than that of the average firm of a similar size, but you soon discover that 80% of firm revenue is from one client.
Required:
Please raise one question about this scenario that you would want to address.
Answer:
Valuation of a law firm
One question to raise:
Which of the partners brought in this one powerful client? I hope it is not the retiring partner.
Explanation:
If the retiring partner had brought in the client and had been in charge of the client's business, the firm's valuation would be drastically influenced by these facts. It is likely that the client might retire the service as the retiring partner retires. This will jeopardize the revenue outlook of the firm, its future prospects, and its current value. However, if the retiring partner is not linked to this powerful client, then it may be that the firm's value will not be at risk. Again, over-dependence on one client for firm's revenue is does not augur well for the firm. Moreover, the margin of over-dependence is too high for comfort. There is serious need for a review of the relationship, not in terms of termination, but in terms of seeking for more big-ticket clients to relatively reduce the over-dependence.
What is considered revenue recognition?
Answer:
revenue is recognized and determines how to account for it. Typically, revenue is recognized when a critical event has occurred, and the dollar amount is easily measurable to the company
Explanation:
examples:Sales Basis Method. With the sales basis revenue recognition methods, revenue is recorded at the time of sale.
Percentage of Completion Method
Completed Contract Method
Skidmore Music Company had the following transactions in March:
a. Sold instruments to customers for $16, 700, received $10, 700 in cash and the rest on account. The cost of the instruments was $7, 100.
b. Purchased $4, 900 of new instruments inventory; paid $1, 700 in cash and owed the rest on account.
c. Paid $720 in wages for the month.
d. Received $3, 100 from customers as deposits on orders of new instruments to be sold to the customers in April.
e. Received a $280 bill for March utilities that will be paid in April.
Required:
Complete the following statements:
1. Cash basis Income Statement
2. Accrual basis Income Statement
Answer: Check attachment
Explanation:
A cash basis income statement is simply referred to as an income statement which contains revenues and expenditures for the company whereby cash has either being received or paid by the company.
For accrual basis income statement, revenue and expenditures are recorded when they're either earned or made.
Check the attachment for more analysis.
Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018.
Other information:
Lease term 5 years
Annual payments $79,000 on January 1 each year
Life of asset 5 years
Implicit interest rate 7%
PV, annuity due, 5 periods, 7% 4.3872
PV, ordinary annuity, 5 periods, 7% 4,1002
Hi-Tech's cost of the equipment $346,589 There is no expected residual value.
Required:
Prepare appropriate journal entries for Hi-Tech Leasing for 2018 and 2019. Assume a December 31 year-end.
Answer:
January 1, 2018
Dr Lease receivable 395,000
Cr Unearned interest revenue 48,411
Cr Equipment inventory 346,589
Dr Cash 79,000
Cr Lease receivable 79,000
December 31, 2018
Dr Unearned interest revenue 18,731
Cr Interest revenue 18,731
January 2019
Dr cash 79,000
Cr lease receivable 79,000
December 31 2019
Dr Unearned interest revenue 14,512
Cr Interest revenue 14,512
Explanation:
Preparation of Journal entries for Hi-Tech Leasing for 2018 and 2019.
January 1, 2018
Dr Lease receivable 395,000
($79,000 x 5)
Cr Unearned interest revenue 48,411
(395,000-346,589)
Cr Equipment inventory 346,589
Dr Cash 79,000
Cr Lease receivable 79,000
December 31, 2018
Dr Unearned interest revenue 18,731
[($346,589- $79,000) x 7%]
Cr Interest revenue 18,731
January 2019
Dr cash 79,000
Cr lease receivable 79,000
December 31 2019
Dr Unearned interest revenue 14,512
[($346,589- $79,000-$60,269) x 7%]
(79,000-18,731=60,269)
Cr Interest revenue 14,512
DS Unlimited has the following transactions during August.
August 6 Purchases 52 handheld game devices on account from GameGirl, Inc.,
for $110 each, terms 2/10, n/60.
August 7 Pays $310 to Sure Shipping for freight charges associated with the
August 6 purchase.
August 10 Returns to GameGirl seven game devices that were defective.
August 14 Pays the full amount due to GameGirl.
August 23 Sells 32 game devices purchased on August 6 for $130 each to
customers on account. The total cost of the 32 game devices sold is
$3,670.00.
Required:
Record the transactions of DS Unlimited, assuming the company uses a perpetual inventory system.
Answer:
Date Account Title Debit Credit
Aug-06 Inventory $5,720
(52 * $110)
Accounts Payable $5,720
Aug-07 Inventory $310
Cash $310
Aug-10 Accounts Payable $770
(7 * $110 )
Inventory $770
Aug-14 Accounts Payable $4,950
Inventory $99
Cash $4,851
Aug-23 Accounts Receivable $4,160
( 32*$130)
Sales revenue $4,160
Aug-23 Cost of goods sold $3,670
Inventory $ 3,670
At year-end 2018, Marvel Company total assets were $4.5 million, and its accounts payable were $850,000. Sales, which in 2018 were $5.5 million, are expected to increase by 25% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Marvel typically uses no current liabilities other than accounts payable. Common stock amounted to $ 2.25 million in 2018, and retained earnings were $150,000. Marvel has arranged to sell $25,000 of new common stock in 2019 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2019. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 2.5%, and 55% of earnings will be paid out as dividends.
Required:
a. What were Marvel's total long-term debt and total liabilities in 2018?
b. How much new long-term debt financing will be needed in 2019?
Answer:
Marvel Company
a. Marvel's total long-term debt in 2018 = $1,250,000
a2. Marvel's total liabilities = $2,100,000 ($850,000 +$1,250,000)
b. New long-term debt financing needed in 2019 = $810,156
Explanation:
a) Data and Calculations:
Year-end 2018:
Total assets = $4.5 million
Accounts payable $850,000
Sales = $5.5 million
Common Stock = $2.25 million
Retained Earnings = $150,000
Long-term debt = Total assets Minus (Accounts payable + Equity)
= $4,500,000 - ($850,000 + 2,250,000 + 150,000)
= $1,250,000
Year 2019:
Sales = $6,875,000 ($5.5 million * 1.25)
Net profit margin on sales = $171,875 (2.5% * $6,875,000)
Dividends = 55% of earnings = $94,531 (55% * $171,875)
Retained earnings for the year = $77,344
Retained earnings for 2018: 150,000
Retained earnings, 2019: $227,344
Common Stock = $2,275,000 ($2,250,000 + $25,000)
Total equity = $2,502,344 ($2,250,000 + 227,344)
Total assets = $5,625,000 ($4.5 million * 1.25)
Accounts payable = $1,062,500 ($850,000 * 1.25)
Long-term debt = Total Assets - (Total equity + Accounts Payable)
= $5,625,000 - ($2,502,344 + 1,062,500)
= $2,060,156
Increase in long-term debt = $810,156 ($2,060,156 - $1,250,000)
Daily demand for a certain product is normally distributed with a mean of 138 and a standard deviation of 13. The supplier is reliable and maintains a constant lead time of 7 days. The cost of placing an order is $17 and the cost of holding inventory is $0.40 per unit per year. There are no stock-out costs, and unfilled orders are filled as soon as the order arrives. Assume sales occur over 358 days of the year.
Your goal here is to find the order quantity and reorder point to satisfy a 73 percent probability of not stocking out during the lead time.
a. To manage inventory, the company is using
Continuous review system
Periodic review system
b. Find the order quantity. (Round your answer to the nearest whole number.)
Order quantity books
c. Find the reorder point. (Use Excel's NORMSINV() function to find the correct critical value for the given α-level. Do not round intermediate calculations. Round "z" value to 2 decimal places and final answer to the nearest whole number.)
Reorder point
Answer:
A. Continuous review system
B. Order quantity = 2,049 Books
C. Reorder point=987
Explanation:
a. To manage inventory, the company is using CONTINUOUS REVIEW SYSTEM
b. Calculation to find the order quality
Using this formula
Order quantity = √((2DS)/H)
Let plug in the morning
Order quantity=√ ((2 x 49,404 x 17)/0.40)
Order quantity = 2,049 Books
Calculation for annual demand
Annual demand=138*358 days
Annual demand=49,404
C. Calculation for reorder point
First step is to find the σL
73 % S.L. - z = 0.613
Using this formula to find the σL
σL = (Lσ^2)
Let plug in the formula
σL=√(7(13)^2)
σL= 34.39
Second step is to find the Reorder point using this formula
Reorder point = d bar(L) + zσL
Let plug in the formula
Reorder point = (138)(7) + 0.613(34.39)
Reorder point = 966+21
Reorder point=987
BMW’s vehicle-assembly facility in South Carolina represents a direct investment inside the United States by the German manufacturer. This facility is an example of:
Answer:
Foreign direct investment.
Explanation:
BMW’s vehicle-assembly facility in South Carolina represents a direct investment inside the United States by the German manufacturer. This facility is an example of foreign direct investment.
A foreign direct investment (FDI) can be defined as an investment made by an individual or business entity (investor) into an investment market (industry) located in another country. The investor here, shares a different country of origin from the country where his investment is located.
In a foreign direct investment (FDI), an investor must establish his business, factory and operations in a foreign country or acquire assets in a business that is being operated in a foreign country.
Additionally, foreign direct investment (FDI) are categorized into three (3) main types and these are;
1. Vertical FDI: it involves establishing a different business that is however similar to the main business owned by the investor.
2. Horizontal FDI: it involves establishing the same type of business in a foreign country as owned in the investor's country.
3. Conglomerate FDI: it involves establishing a business that is completely different in another (foreign) country.