The estimate of bad debts expense was .5% (which equals .005) of sales on account. Sales on account totaled 925,000 925,000 X .005 = 4,625 This is the uncollectible accounts expense for 2012 The entries would be Debit Bad Debt expense 4,625 Credit Allowance for Doubtful Accounts 4,625 The credit balance in Allowance for Doubtful Accounts would be: Allowance for doubtful accounts 4,725 Minus the amount wrote off 3,100 Plus the Credit Allowance of Doubtful accounts 4,625 The credit balance for Doubtful Accounts is now 6,250 2. Net realizable value of receivable at the end of 2012. Take the Beginning Accounts Receivable Balance 52,500 Add Sales on Account 925,000 Minus Collections of Account Receivables 835,000 Minus Account written off 3,100 Equals Gross Value of Accounts Receivables 139,400 Minus Credit Balance in Allowance for Doubtful Acct. 6,250 Net Realizable Balance of Accounts Receivable of 2012 133,150 B.
Hallstead Jewelers Case Study | 2003 | 2004 | 2006 | Total Fixed Costs ($)(In Thousands) | 3,177 | 3,240 | 4,799 | Sales ($)(In Thousands) | 8,583 | 8,102 | 10,711 | Total Variable Cost ($)(In Thousands) | 4,808 | 4,630 | 6,228 | Number of Sales tickets | 10,153 | 9,967 | 13,063 | Sales Revenue Per Unit ($) | 845.37 | 812.88 | 819.95 | Variable Cost Per Unit ($) | 473.56 | 464.53 | 476.77 | Contribution Margin ($)(In Thousands) | 3,775 | 3,472 | 4,483 | Contribution Margin Per Unit ($) | 371.81 | 348.35 | 343.18 | Break Even Point in # of Units | 8,544 | 9,301 | 13,984 | Break Even Point in Sales Dollars ($) | 7,222,841 | 7,560,597 | 11,466,180 | Margin of Safety (%) | 15.9% | 6.7% | -7% | 1) Over the three years that we examine in the case, the Break Even Point in sales dollars increases. This can be expected as production and expenses increase, however it is important to note the large jump in 2006. Granted, this is after two years during an expansion. The margin of safety has decreased. This measures the risk of investing in a company.
Additionally, there are horizontal and vertical analyses for Riordan’s balance sheet and income statement. Profitability Ratios Profitability Ratios | | 2011 | 2010 | | | | | | | | Asset Turnover | | | | | | (Net Sales/Avg. Total Assets) | 1.62 | | 66,608,660 ÷ (47,409,137 + 34,825,498 = 82,234,635 ÷ 2) 41,117,317.5 = 1.6199 or 1.62 | | | | | 1.66 | 56,534,254 ÷(34,825,498 + 33,1004,430 = 67,299,928 ÷2) 33,964,964 = 1.6644 or 1.66 | | | | | | | Profit Margin | | | 4.97% | | 3,310,662 ÷66,608,660 = 0.497 or 4.97 | (Net Income/Net Sales) | | | 4.30% | 2,430,872 ÷ 56,534,254 = 0.429 or 4.30 | | | | | | | Return on Assets | | | 8.05% | | 3,310,662 ÷ (47,409,137 + 34,825,498 = 82,234,635 ÷ 2) 41,117,317.5 = 0.805 or 8.05 | (Net Income/Avg. Total Assets) | | 7.17% | 2,430,872 ÷ (34,825,498 + 33,1004,430 = 67,299,928 ÷2) 33,964,964 = 0.071569986 or 7.17 | | | | | | | Return on Common Stockholder's Equity | | | 10.44% | | 3,310,662 ÷ (33,477,982 + 29,946,92 ÷ 2) 31,712,487 = 0.104396164 or 10.44 | (Net Income/Avg. Common Stockholder's Equity) | | | | 8.46% | 2,430,872 ÷ (29,946,92 + 27,517,328 ÷ 2) 28,732,160 = 0.84604568 or 8.46 | Solvency Ratios A formulation used to measure a company's financial risk by determining how much of the company's assets have been financed by debt.
Government spending cuts reduce output significantly, and Extract B, line 2 states that the ONS have found that there has been ‘a sharp fall in employment in the public sector which has helped to push total unemployment above 2.5 million last month’. This therefore proves that there will be a significant reduction in public sector employment however there will be a greater demand for the private sector output and as a result an increase in employment in the private sector. In contrary, reducing government spending also helps to reduce the national debt in the economy so that a budget surplus can be achieved. (AD/AS diagram shifting left or unemployment) Extract C, line 2 states that ‘the 2.5% rise in VAT…will drive up unemployment’ and this is a fiscal policy measure that will affect unemployment in the economy because with an increase in VAT consumers will be less resistant in buying goods because they have to spend more and so they instead decide to save which is known as a withdrawal from the circular flow of income. Furthermore, an increase in taxation such as income tax and VAT will also reduce aggregate demand from AD1 to AD2 and real GDP because
To calculate ROE divide Net Profit after Taxes by Stockholder‟s Equity. The calculation determined in 2008 that Berry‟s Bug Blasters had a 3.7% return on Stockholder‟s equity. Calculations Asset Turnovers: Asset turnovers= sales revenue/total assets Asset turnovers= 3,249,580.53/1,932,041.17 Asset Turnovers= 1.68 Profit Margin: = Profitability (net income)/revenue. =493,139.75/ 3,249,580.53 = 6.58% Return on Assets: ROA= Net Income/Total Assets ROA= 493.139.75/1,932,041.17 ROA= 25.52% ROE = Net Profit After Taxes / Stockholders' Equity ROE= 431,811.49/1,625,235.46 ROE=
If I take the contradictory monetary policy as an example it will show that; an increase in interest rates will affect investments by decreasing them and that leads to a decrease in consumption, which then continues onto aggregate demand which decreases causing inflation to decrease. This situation most often happens during “the boom” in an economy In conclusion there are many factors that could decrease consumption, however all of those factors can be turned around and used for the exact opposite, increasing consumption. They also all have an effect on aggregate demand and on
Even though sales have gone up from 2003 to 2006, as the break-even in sales dollars increased through the years, the margin of safety decreased and is even negative in 2006. This is one of the explanations why Hallstead Jewelry incurred a loss in 2006. Some of the causes may be that their fixed costs have increased as lot as seen in the income statement specifically in the costs of good sold, salaries, rent, and depreciation. 2) | Old Price ($) | New Price (10% Increase, in $) | Old Income (Old P x Q) | New Income (7,500 units x New Price, in $) | Breakeven Quantity (units) | Breakeven Sales ($) | 2003 | 1,607 | 1,446.30 | 8,582,987 | 10,847,250 | 5,927 | 8,572,220.10 | 2004 | 1,524 | 1,371.60 | 8,101,584 | 10,287,000 | 6,472 | 8,876,995.20 | 2006 | 1,553 | 1,397.70 | 10,711,041 | 10,482,750 | 9,780 | 13,669,506.00 | Looking at the
Inventory had a slight increase from 4% to 4.8% in 2004. The increase in accounts receivable shows an increase in credit sales. While the decrease in cash and cash equivalents and increase in marketable securities shows that Lucent is removing idle cash and investing to earn interest and cash inflows are declining. The increase in inventory shows their products are revolving as well as they should. Total current assets have declined from 49.4% to 48.5%.
First, if the government increases its purchases but keeps taxes constant, it increases demand directly. Second, if the government cuts taxes or increases transfer payments, households’ disposable income rises, and they will spend more on consumption. This rise in consumption will in turn raise aggregate demand” (Weil, 2008, para. 4). Consumer income has a huge effect on aggregate supply and demand just as the aggregate supply and demand can affect consumer income.
Take gasoline for examples as the price goes up people tend to drive less. These laws of supply and demand also affect business decisions; if wages go up employers will hire less people as this increase in average fixed cost would eat into their marginal revenue. Economists estimate that for every 10% increase in wages workforces are cut by 3% (Danzinger 2009) Minimum Wage Merrell