Question Completion:
Ratchet Company uses budgets in controlling costs. The August 2017 budget report for the company's Assembling
Department is as follows.
Ratchet Company
Budget Report
Assembling Department
For the Month Ended August 31, 2017
Difference
Favorable F
Manufacturing Cost Budget Actual Unfavorable U
Variable costs
Direct materials $48,000 $47,000 $1,000 F
Direct labor 54,000 51,200 2,800 F
Indirect materials 24,000 24,200 200 U
Indirect labor 18,000 17,500 500 F
Utilities 15,000 14,900 100 F
Maintenance 12,000 12,400 400 U
Total variable 171,000 167,200 3,800 F
Fixed costs
Rent 12,000 12,000 0
Supervision 17,000 17,000 0
Depreciation 6,000 6,000 0
Total fixed 35,000 35,000 0
Total costs $ 206,000 $ 202,200 $3,800 F
The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August because only 58,000 units were produced.
Instructions
(a) State the total monthly budgeted cost formula.
(b) Prepare a budget report for August using flexible budget data. Why does this report provide a better basis for evaluating performance than the report based on static budget data?
Answer:
Ratchet Company
a. The total monthly budget cost formula is:
= $35,000 + $2.85x
where x = budgeted monthly units
b. Flexible Budget for August:
Ratchet Company
Budget Report
Assembling Department
For the Month Ended August 31, 2017
Difference
Favorable F
Manufacturing Cost Flexible Actual Unfavorable U
Variable costs
Direct materials $46,400 $47,000 $600 U
Direct labor 52,200 51,200 1,000 F
Indirect materials 23,200 24,200 1,000 U
Indirect labor 17,400 17,500 100 U
Utilities 14,500 14,900 400 U
Maintenance 11,600 12,400 800 U
Total variable 165,300 167,200 1,900 U
Fixed costs
Rent 12,000 12,000 0
Supervision 17,000 17,000 0
Depreciation 6,000 6,000 0
Total fixed 35,000 35,000 0
Total costs $200,300 $ 202,200 $1,900 U
c. A flexible budget report provides a better basis for evaluating the Assembly Department's performance as it uses the same activity level as the actual results with which the budget is compared.
Explanation:
a) Data and Calculations:
Flexing the variable costs:
Direct materials = $46,400 ($48,000/60,000 * 58,000)
Direct labor 52,200 (54,000/60,000 * 58,000)
Indirect materials 23,200 (24,000/60,000 * 58,000)
Indirect labor 17,400 (18,000/60,000 * 58,000)
Utilities 14,500 (15,000/60,000 * 58,000)
Maintenance 11,600 (12,000/60,000 * 58,000)
Mark Company acquired Jackson Company for $2,000,000 cash. At that time, the fair value of recorded assets and liabilities was $1,500,000 and $250,000, respectively. Jackson also had unrecorded copyrights valued at $100,000 and its direct costs related to the acquisition were $50,000. What was the amount of the goodwill related to the acquisition?
Answer: $600,000
Explanation:
The amount of the goodwill related to the acquisition will be calculated thus:
Acquisition price = $2,000,000
The net assets will be:
= Assets + Copyrights - Liabilities
= $1,500,000 + $150,000 - $250,000
= 1,400,000
Goodwill will then be calculated as:
= acquisition price - net assets
= $2000000 - $1400000
= $600,000
Bennett Co. has a potential new project that is expected to generate annual revenues of $260,300, with variable costs of $143,200, and fixed costs of $60,700. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $23,500. The annual depreciation is $24,800 and the tax rate is 35 percent. What is the annual operating cash flow
Answer:
$45,340
Explanation:
Calculation to determine the annual operating cash flow
Sale $260,300
Less: Operating Cost $143,200
Contribution $117,100
($260,300-$143,200)
Less: Fixed Cost $60,700
Less: Depreciation as per table given below $24,800
Profit before tax $31,600
($117,100-$60,700-$24,800)
Tax $11,060
($34%$31,600)
Profit After Tax $20,540
($31,600-$11,060)
Add Depreciation $24,800
Cash Profit After tax $45,340
($20,540+$24,800)
Therefore the annual operating cash flow is $45,340
A university spent $2 million to install solar panels atop a parking garage. These panels will have a capacity of 700 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 20%, that electricity can be purchased at $0.10 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero.
Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first.
Approximately how many hours per year will the solar panels need to operate to enable this project to break even?
8,214.28
5,867.34
2,346.94
4,693.87
If the solar panels can operate only for 5,281 hours a year at maximum, the project break even.
Continue to assume that the solar panels can operate only for 5,281 hours a year at maximum.
In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least blank
Answer:
A university spent $1.7 million to install solar panels atop a parking garage. These panels will have a capacity of 300 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 20%, that electricity can be purchased at $0.10 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero. Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first. Approximately how many hours per year will the solar panels need to operate to enable this project to break even? 10,472.99 17,454.99 5,818.33 11,636.66 If the solar panels can operate only for 10,473 hours a year at maximum, the project break even. Continue to assume that the solar panels can operate only for 10,473 hours a year at maximum. In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least
Which situation best describes opportunity cost
Answer:
A store that buys a shipment of new computers cant afford to buy new phones.
Explanation:
Answer:
(D.) a trade-off
Explanation:
Got it right
Singh, a consumer, leases sheet music from Tunes Inc. for a public performance. United Music Corporation, which holds a copyright on the music, sues Singh to stop the performance without a royalty payment. Singh fails to notify Tunes of the suit within a reasonable time. The lessee:_________
a. loses any remedy against the lessor for liability established in the suit.
b. can assert this failure to delay the litigation, but it is not a defense.
c. can raise the failure to notify as a defense in copyright holder’s suit.
d. can sue the lessor to recover the expenses of the suit.
Answer:
a. loses any remedy against the lessor for liability established in the suit.
Explanation:
This is because it was lessee's responsibility to inform the lessor in time.
A lessee is in contract with the lessor and is responsible for all the actions taken on behalf of the lessor with the lessor's permission.
If the lessee fails to inform the lessor in time or do any action without his permission then the lessor can sue the lessee or take any other legal action as may be required by the law against the lessee.
In breach of contract the lessee has to face the consequences and pay penalty.
Choice a is the best option.
The lessee can never sue the lessor for his illegal actions.
So option d is incorrect.
b) Delaying the litigation would do no good. It would add to his failures.
Choice c is also incorrect.
Hau Lee Furniture, Inc., spends 50% of its sales dollars in the supply chain and finds its current profit of $21,000 inadequate. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Hau would like to improve the profit line to $26,000 so he can obtain the bank's approval for the loan. What percentage improvement is needed in the supply chain strategy for profit to improve to $26000
Answer: 7.1%
Explanation:
The cost of materials needs to reduce for the profit to increase. If the profit is to go from $21,000 to $26,000, the material cost would need to decrease by:
= 26,000 - 21,000
= $5,000
The current material cost is $70,000 so a decrease of $5,000 in percentage terms would be:
= 5,000 / 70,000 * 100%
= 7.1%
The new material cost would be:
= 70,000 - 5,000
= $65,000
true and false
4. Know the market trends of products that are in demand not
only within the local market but also in the international market.
Answer:
false
Explanation:
don't think so that s
is the answer
that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 13.0%. Its cost of internal equity is 17.0%, and its cost of external equity is 22.0%. Currently, the firm's capital structure has $310 million of debt, $60 million of preferred stock, and $130 million of common equity. The firm's marginal tax rate is 45%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $97 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $269 million
Answer:
9.05%
Explanation:
Calculation to determine the firm's marginal cost of capital at a total investment level of $269 million
Capital Budget = $269 million
To be financed through Equity = 269 million*130/(310+60+130)
To be financed through Equity = 269 million*130/500
To be financed through Equity = 69.9 million
Available from retained earnings = $97 million
Hence, No external equity will be required
Now let calculate the the firm's marginal cost of capital using this formula
WACC = Cost of debt*Weight of Debt + Cost of Preferred Stock*Weight of Preferred Stock + Cost of Equity*Weight of Equity
Let plug in the formula
WACC= 9%(1-45%)*310/500 + 13%*60/500 + 22%*130/500
WACC= 9%(55%)*310/500 + 13%*60/500 + 17%*130/500
WACC=.03069+.0156+.0442
WACC=0.09049*100
WACC=9.049%
WACC=9.05%(Appropriately)
Therefore the firm's marginal cost of capital at a total investment level of $269 million is 9.05%
impact of collusion in terms of output and price on consumers and producers
Answer: See explanation
Explanation:
Collusion refers to the agreements among the sellers of a particular product to either fix or increase the price and also reduce output. The main idea behind this is to increase profits and also reduce the competitiveness in such market.
Collusion can bring about high prices for the consumers and this ultimately leads to the reduction in the consumer surplus. Also, the new firms that want to enter the market may discouraged since the collusion can be an entry barrier.
stock y has a beta of 1.5 and an expected return of 16.35. what is the risk free rate if the market return is 12.5%
Answer:
the risk free rate of return is 4.8%
Explanation:
The computation of the risk free rate of return is shown below:
As we know that
Expected rate of return = Risk free rate of return + beta × (market rate of return - risk free rate of return)
Here we assume the risk free rate of return be x
So ,
16.35% = x + 1.5 × (12.5% - x)
16.35% = x + 18.75% - 1.5x
16.35% - 18.75% = -0.5x
x = 4.8%
Hence, the risk free rate of return is 4.8%
Interest can be regarded as the Group of answer choices payment to entrepreneurs for incurring risk in the production of new goods. return earned by capital as an input in the production process.
Answer:
return earned by capital as an input in the production process.
Explanation:
The interest means the return that is earned by the capiatl which represent as an input for the process of the production. Also it shows the reward for the capital purpose as the factor of production like land, labor, capital, etc
So, as per the given situation, the last option should be correct and the same is to be considered
Therefore the other options seems incorrect
An increase in the excise tax on alcohol of $1 per liter: a. coupled with a uniform drinking age nationwide would save lives. b. will raise the price of alcohol by exactly $1 per liter. c. will generate substantial revenue if demand is elastic. d. will generate minimal tax revenues for the federal government. e. will have no effect on alcohol consumption.
Answer:
c. will generate substantial revenue if demand is elastic.
Explanation:
If there is an increase in the excise tax on the alcohol so it would produced the high revenue since the demand for the alcohol is elastic also the excise tax represent the application with respective to the price elasticty of demand
Therefore as per the given options, the option c is correct
And, the same is to be considered
Samuel is the managing general partner of STU, in which he owns a 25% interest. For the year, STU reported ordinary income of $400,000 (after deducting all guaranteed payments). In addition, the LLC reported interest income of $12,000. Samuel received a guaranteed payment of $120,000 for services he performed for STU. How much income from self-employment did Samuel earn from STU
Answer:
$220,000
Explanation:
Calculation to determine How much income from self-employment did Samuel earn from STU
Using this formula
Income from self-employment =Guaranteed payment received+(Interest rate*Ordinary income)
Let plug in the formula
Income from self-employment=$120,000+(25%*$400,000)
Income from self-employment=$120,000+$100,000
Income from self-employment=$220,000
Therefore the amount of income from self-employment that Samuel earn from STU is $220,000
Information is considered material to the financial statements if
I. It falls within industry-specific quantitative guidelines published by the Financial Accounting Standards Board.
II. Its omission could make a difference in the decisions made by a user relying on the financial statements.
III. Its misstatement could make a difference in the decisions made by a user relying on the financial statement.
a. I and IIl only.
b. Il and Ill only.
c. I, Il and III.
d. I only.
Answer:
B
Explanation:
True or False: Both countries would be better off if they produced the good in which they have a comparative advantage and then traded 400 million tons of grain for 200 million cars.
Answer:
true
Explanation:
At year-end, the following additional information is available: a. The balance of Prepaid Rent, $4,920, represents payment on October 31, 2018, for rent from November 1, 2018, to April 30, 2019. b. The balance of Deferred Revenue, $1,100, represents payment in advance from a customer. By the end of the year, $275 of the services have been provided. c. An additional $700 in salaries is owed to employees at the end of the year but will not be paid until January 4, 2019. d. The balance of Supplies, $2,100, represents the amount of office supplies on hand at the beginning of the year of $750 plus an additional $1,350 purchased throughout 2018. By the end of 2018, only $610 of supplies remains.
Question Completion:
The December 31, 2018, unadjusted trial balance for Demon Deacons Corporation is presented below.
Accounts Debit Credit
Cash $ 8,100
Accounts Receivable 13,100
Prepaid Rent 4,920
Supplies 2,100
Deferred Revenue $ 1,100
Common Stock 11,000
Retained Earnings 4,100
Service Revenue 37,520
Salaries Expense 25,500
Total $ 53,720 $ 53,720
Use the following additional information to prepare the adjusted Trial Balance.
Answer:
Demon Deacons Corporation
Adjusted Trial Balance
As of December 31, 2018
Accounts Debit Credit
Cash $ 8,100
Accounts Receivable 13,100
Prepaid Rent 3,280
Supplies 610
Deferred Revenue $ 825
Common Stock 11,000
Retained Earnings 4,100
Salaries Payable 700
Service Revenue 37,795
Rent Expense 1,640
Salaries Expense 26,200
Supplies Expense 1,490
Total $ 54,420 $ 54,420
Explanation:
a) Data and Analysis:
a. Rent Expense $1,640 Prepaid Rent, $1,640 ($4,920 * 2/6) rent from November 1, 2018, to April 30, 2019.
b. Deferred Revenue, $275 Service Revenue $275
c. Salaries Expense $700 Salaries Payable $700
d. Supplies Expense $1,490 Supplies $1,490
Accounts Debit Credit
Cash $ 8,100
Accounts Receivable 13,100
Prepaid Rent 4,920 - 1,640 = 3,280
Supplies 2,100 - 1,490 = 610
Deferred Revenue $ 1,100 -275 = 825
Common Stock 11,000
Retained Earnings 4,100
Salaries Payable 700
Service Revenue 37,520 + 275 = 37,795
Rent Expense 1,640
Salaries Expense 25,500 + 700 = 26,200
Supplies Expense 1,490
Total $ 53,720 $ 53,720
Titan foods makes a high-energy forzen meal. the selling price per package is 7.20, and variable cost of production is 4.32. Total fixed cost per year is 569,880. the company is currently selling 225000 packages per year.
a. What is the margin of safety in packages?
b. What is the degree of operating leverage?
c. If the company can increase sales in packages by 30 percent, what percentage increase will it experience in income? Prove your answer using the income statement approach.
d. If the company increases advertising by $41,200, sales in packages will increase by 15 percent. What will be the new break-even point? The new degree of operating leverage?
Answer:
a = 12%
b = 4.82%
c = 248%
d = 4.78%
Explanation:
Calculating Break even point
Fixed cost / Sales price per unit - variable cost per unit = break even point
$569,880 / {$7.20-$4.32}
=$569,880 / $2.88
=$197,875 is the break even point.
a.
Margin of Safety
225,000 packages - $197,875 / 225,000 packages * 100
=12%
b.
Income is computed
Sales $1,620,000 {225,000 * $7.2}
Less: COGS $972,000 {225,000 * $4.32}
Less : Fixed Costs $569,880
Income = $78,120
Operating leverage is % change in Income / % change in sales
$78,120 / $1,620,000 * 100
= 4.82%
c. If sales increase by 30%
Sales $2,106,000 {225,000 * $7.2 * 130%}
Less: COGS $1,263,600 {225,000 * $4.32 * 130%}
Less : Fixed Costs $569,880
Income = $272,520
Increase in Income = $272,520 - $78,120 / $78,120 * 100
= 248%
d. Calculating Break even point
Fixed cost / Sales price per unit - variable cost per unit = break even point
$569,880 + $41,200 / {$7.20-$4.32}
= $212,180.56
Operating leverage is % change in Income / % change in sales
Calculating increase in income
Sales $1,863,000 {225,000 * $7.2 * 115%}
Less: COGS $1,117,800 {225,000 * $4.32 * 115%}
Less : Fixed Costs $611,080 {$569,880 + 41,200}
Income = $134,120
Increase in Income = $134,120 - $78,120 / $78,120 * 100
=71.68%
Operating leverage is % change in Income / % change in sales
71.68% / 15%
= 4.78%
Andy is driving a 20-year-old boat that he borrowed from a friend. While he's on the water, the steering system fails and the boat crashes. Subsequent investigation shows that the steering system failed as a result of corrosion. Andy sues the boat manufacturer for negligence. How strong is his negligence case against the product manufacturer
Answer:
Weak.
Explanation:
In the given scenario, the case is weak because Andy cannot sue the manufacturer company for negligence.
it is because Andy is driving a 20-year-old boat. So, Andy cannot prove that the corrosion was due to manufacturing defect. The possibility of corrosion must be the wearing or tearing away of the boat.
Normally, material corrodes if not taken care of properly or due to a long lifespan.
Therefore, the case of Andy against the product manufacturer is weak.
Al Ahli company had the following purchases and sales during its first year of operations:
Sales
January
February
May:
Purchases
15 units at $110
10 units at $135
7 units
Using the Weighted average inventory costing method, what is the cost of ending inventory?
A. $2,176
B. $3,840
OC. $1,800
D. $2,160
In fiscal year 2008, the U.S. government ran a deficit of about $459 billion. In fiscal year 2009, the government ran a deficit of about $1,413 billion. If there is crowding out, this change would be expected to have
Answer:
increased interest rates and decreased private investment.
Explanation:
decreased interest rates and private investment.
decreased interest rates and increased private investment.
increased interest rates and private investment.
Crowding out is when increased government borrowing leads to an increase in interest rate and this discourages private spending
governemnt borrowing occurs as a result of the government running a deficit
If nominal GDP is $900 billion and, on average, each dollar is spent six times in the economy over a year, then the quantity of money demanded for transactions purposes will be Multiple Choice 750 150 3,600 450 900
Answer:
Option B (150) is the correct answer.
Explanation:
Given:
Nominal GDP,
= $900
Money velocity,
= 6
As we know,
⇒ [tex]Nominal \ GDP=Quantity \ of \ demanded \ money\times Money \ velocity[/tex]
By putting the vales, we get
⇒ [tex]900=Quantity\times 6[/tex]
⇒ [tex]Quantity=\frac{900}{6}[/tex]
⇒ [tex]=150[/tex]
SME Company has a debt-equity ratio of .60. Return on assets is 7.9 percent, and total equity is $510,000. a. What is the equity multiplier
Answer:
1.60
Explanation:
Given the above information, equity multiplier is computed as shown below.
Equity multiplier = 1 + Debt - equity ratio
Where,
Debt - equity ratio = 0.60
Therefore,
Equity multiplier = 1 + 0.60
Equity multiplier = 1.60
Hence, equity multiplier is 1.60
Liam works at an IT firm. He finds that the activities carried out by his team are very complex and struggles to complete his tasks on time. He learns that some of his team members are also facing the same issue. Even though there is clarity of the target among the team members, the team struggles to efficiently carry out its task. Which of the following should the team do in order to ensure the completion of the tasks?
A. It should change the output and retain the workforce.
B. It should use informal communication to carry out its tasks.
C. It should standardize the work activities through flowcharts.
D. It should conduct an in-house training program to bring employees up to speed.
Answer: D. It should conduct an in-house training program to bring employees up to speed.
Explanation:
Since team struggles to efficiently carry out its task, in order to ensure the completion of the tasks, the team should conduct an in-house training program to bring employees up to speed.
With an in house training done, the employees will gain the necessary skills and experience which will be needed to carry out their jobs effectively and efficiently. Therefore, the correct option is D.
Suppose the Chester company shifts focus to only competing in the Thrift and Nano segments, while competing on price by reducing costs and passing the savings to the customers, what strategy would they be implementing
Answer: c. Niche cost leader
Explanation:
Niche marketing is when a company focuses on a particular market or good. It is usually done to become more efficient in that niche such that one can dominate the market and become more profitable.
When Chester focuses on these markets with the aim of reducing costs, they are trying to be a cost leader in this niche which means that they are trying to produce at the least cost so that they can charge cheaper prices and capture more market share in this particular niche.
Casey Company retired $500,000 face value, 9% bonds on June 30, 2018 at 96. The carrying value of the bonds at the redemption date was $508,000. Prepare the journal entry to record the redemption of the bonds.
Answer:
Dr Bonds Payable $500,000
Dr Premium on Bonds Payable $8,000
Cr Gain on Bond Redemption $28,000
Cr Cash $480,000
Explanation:
Preparation of the journal entry to record the redemption of the bonds.
Dr Bonds Payable $500,000
Dr Premium on Bonds Payable $8,000
($508,000-$500,000)
Cr Gain on Bond Redemption $28,000
($500,000+$8,000-$480,000)
Cr Cash $480,000
($500,000 × 96%)
(To record the redemption bonds)
Ted's Co. offers a zero coupon bond with an 11.3% yield to maturity. The bond matures in 16 years. What is the current price of a $1,000 face value bond
Answer:
Zero-cupon bond= $835.45
Explanation:
Giving the following information:
Face value= $1,000
YTM= 11.3%
Years to maturity= 16 years
To calculate the price of the bond, we need to use the following formula:
Zero-cupon bond= [face value/(1+i)^n]
Zero-cupon bond= 1,000 / (1.113^16)
Zero-cupon bond= $835.45
The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The firm will generate cash flows of $450,000 next year and $790,000 in two years, including the proceeeds from the liquidation. There are 20,000 shares of stock outstanding and shareholders require a return of 12 percent.
Required:
What is the current price per share of the stock?
Answer:
$53.09
Explanation:
Calculation to determine current price per share of the stock
First step is to determine the Dividend per share in Year 1
Using this formula
Dividend per share in Year 1 = Cash flow generated next year / Number of shares
Let plug in the formula
Dividend per share in Year 1 == $450,000 / 20,000
Dividend per share in Year 1 == $ 22.5
Second step is to determine the Dividend per share in Year 2 using this formula
Dividend per share in Year 2 = Cash flow generated in two years / Number of shares
Let plug in the formula
Dividend per share in Year 2 = $790,000 / 20,000
Dividend per share in Year 2 = $39.5
Dividend per share in Year 2 =$40 Approximately
Now let determine the Share price today using this formula
Share price today = [ Dividend in Year 1 / (1 + Required rate of return) ] + [ Dividend in Year 2 / (1 + Required rate of return)2 ]
Let plug in the formula
Share price today = [22.5 /(1+.12)]+ (40 / 1.12^2
Share price today = (22.5 /1.12) + (40 / 1.12^2)
Share price today =$20.09+(40/1.25)
Share price today =$20.09+32
Share price today = $ 53.09
Therefore current price per share of the stock
Is $53.09
All publicly traded companies must adhere to __________ accounting principles: a. IFRS b. SEC c. GAAP d. SOX
Answer:
c
Explanation:
Its c
You are planning to make annual deposits of $5,700 into a retirement account that pays 10 percent interest compounded monthly. How large will your account balance be in 30 years
Answer:
$12,884.78
Explanation:
The amount in Future for the dollar invested today is referred as the Future Value. We determine the Future Value by compounding the Principle amount using the effective interest rate.
We can simply calculate the Future Value using a Financial calculator as follows :
PV = $0
PMT = - $5,700
I = 10 %
P/YR = 12
N = 30 x 12 = 360
FV = ??
Therefore,
The Future Value (FV) will be $12,884.78
The Account balance will be $12,884.78 in 30 years.
Assume US GAAP to answer this question. In 2017, $2 million in wages were earned and no cash wages were paid. In 2018, $8 million in wages were earned and $9 million in cash wages were paid. Cash wages were used to first pay wages earned in 2017 with the remainder used to pay wages earned in 2018. Any earned but unpaid wages will be paid during the first quarter of 2019. Using only the information provided, which of the following statements is most accurate?
a. Liabilities increased by $1.0 million in 2018
b. Liabilities increased by $3.0 million in 2018
c. Assets decreased by $5.0 million in 2018
d. Retained earnings decreased by $10.0 million in 2018
e. Retained earnings decreased by $7.0 million in 2018
Answer: a. Liabilities increased by $1.0 million in 2018
Explanation:
In 2018, $9 million was used to settle the wage debt of 2017 and the remainder was used to settle the wages in 2018.
The money remaining in cash after the wage settlement was:
= 9,000,000 - 2,000,000 - 8,000,000
= -$1,000,000
This means that $1,000,000 of wages was not settled in 2018 which means that this would have to go to the Wages Payable account to signify that the company owes wages.
This account is a liability account so liabilities in 2018 would increase by $1,000,000.