# Tutor profile: Manish K.

## Questions

### Subject: Corporate Finance

Adams and Adams, Inc. (AA), a law firm prepares ANNUAL financial statements at December 31 each year. The following questions relate to the adjusting entries recorded at December 31, 2018. On November 4, 2018, AA received $25,200 from a client for legal services to be performed at a trial beginning in December. This is the unadjusted balance in the Unearned Revenue account. At December 31, AA calculates that it has earned $10,000 of the $25,200. After the appropriate adjusting entry, what will be the balance in the Unearned Revenue account?

unadjusted balance in the Unearned Revenue account = 25,200 Less: Earned amount 10,000 balance in the Unearned Revenue account = 25200-10000 = 15200 Answer

### Subject: Finance

Q.1 Assume that a $1,000 par value bond with a coupon rate of 7.5% (paid semi-annually) has 20 years to maturity. a. If the current rate of interest on bonds like this is 9%, what will be the price of the bond? What is the price if current interest rates are instead 6%? b. Assume that you buy the bond described above when interest rates are 9%. Five years later, you decided to sell the bond when current interest rates are still 9%. At what price will the bond be selling? Do the same assuming that you buy the bond when interest rates are 6%, and five years later they are still 6%. c. Now assume that you purchase the bond in part a above when interest rates are 9%, and five years later interest rates are 11%. What will be the price of the bond? What percentage gain or loss would you incur in the value of this bond? d. What is the current yield and capital gains yield on this bond under each of the two conditions in part a?

(a) Bond Price Formula :- Bond price is calculated as the sum of present value of ordinary annuity of interest payment and present value of bond maturity value: 1. If Current Interest rate 9% Semiannually Interest payment @ 7.5% = 1000*7.5%/2 = 37.5 Ordinary annuity of 37.5 for 20 years = 37.5*((1-(1.045)^-40)/.045) = 690.06 Present value of 1000 at 20 years = 1000/(1.045)^40 = 171.93 Price of Bond @ 9% = 690.06+171.93 = 861.99 2. If Interest rate 6% Interest payment @ 7.5% = 1000*7.5%/2 = 37.5 Ordinary annuity of 37.5 semi annual for 20 years = 37.5*((1-(1.03)^-40)/.03) = 866.80 Present value of 1000 at 20 years = 1000/(1.03)^40 = 306.56 Price of Bond @ 6% = 866.80+311.80 = 1173.36 b. Price of Bond after 5 years. Remaining life is 15 years 1. If Current Interest rate 9% Semiannually Interest payment @ 7.5% = 1000*7.5%/2 = 37.5 Ordinary annuity of 37.5 for 15 years = 37.5*((1-(1.045)^-30)/.045) = 610.83 Present value of 1000 at 15 years = 1000/(1.045)^30 = 267 Price of Bond @ 9% = 610.83+267 = 877.83 2. If Interest rate 6% Interest payment @ 7.5% = 1000*7.5%/2 = 37.5 Ordinary annuity of 37.5 semi annual for 15 years = 37.5*((1-(1.03)^-30)/.03) = 735.02 Present value of 1000 at 15 years = 1000/(1.03)^30 = 411.99 Price of Bond @ 6% = 735.02+411.99 = 1147 c. Interest rate 11% after 5 Years: Price of Bond for 20 years @ 9% = 861.99 Price of Bond after 5 years if interest rate is 11% Interest payment @ 7.5% = 1000*7.5%/2 = 37.5 Ordinary annuity of 37.5 semi annual for 15 years = 37.5*((1-(1.055)^-30)/.055) = 545.02 Present value of 1000 at 15 years = 1000/(1.055)^30 = 200.64 Price of Bond @ 11% = 545.02+209 = 745.66 Interest payment of 5 years = 75*5 = 375 Price of Bond @ 9% = 861.99 Price of bond after 5 years @ 11% = 745.66 Gain in selling bond = (861.99-375)-745.66 = 258.67 % of Gain = 258.67 / 861.99 = 30% d. Current Yield and Capital Gain Yield Current Yield Formula = Annual Interest / Current Price of Bond Current Yield @ 9% = 75/861.99 = 8.70% Current Yield @ 6% = 75 / 1173.36 = 6.40% Capital Gain yield formula = ( Price after 5 years – Price at initial year ) / Price at Initial Year Capital Gain Yield @ 9% = (877.83-861.99)/ 861.99 = 1.83% Capital Gain Yield @ 6% = (1147.00-1173.36) 1173.36 = -2.24%

### Subject: Accounting

January 2018 Transactions - 1/1/2018 The Company paid $6,000 to rent office space for the period 1/1/2018 to 12/31/2018 - 1/2/2018 The Company paid the employees the amount owed from December. - 1/3/2018 The Company issued 20,000 additional shares of stock for $18,000. The stock has a par value of $0.05 per share. - 1/5/2018 The Company received $2,000 from a customer for an accounts receivable. - 1/12/2018 The Company purchased supplies costing $800. The purchase was made half with cash and half on account (i.e. on credit). The supplies were capitalized when purchased. - 1/15/2018 The Company sold half of the land for $14,800. - 1/16/2018 The Company paid $300 for radio advertising during January. - 1/17/2018 The Company paid employees $5,200 for hours worked during the first half of January. - 1/18/2018 The Company performed services for a customer. The Company billed the customer $80,000. The customer is expected to pay their bill in March. - 1/24/2018 The Company collected another $15,000 cash from customers for services performed last year (in 2017). The customers were billed in 2017 but did not pay until 1/24/2018. - 1/29/2018 The Company paid $3,050 to the bank. $900 of the payment was for interest expense incurred during January 2018 and $300 was to pay the interest owed as of 12/31/2017. The remainder of the payment was made to reduce the note payable balance. - 1/31/2018 The Company declared and paid a $1,000 dividend to the shareholders.

Date Transaction Debit Credit Prepaid Rent 6000 Cash 6000 Wages Payable 5200 Cash 5200 Cash 18000 Common Stock 1000 Capital 17000 Cash 2000 Account Receivable 2000 Supply 800 Cash 400 Account Payable 400 Cash 14800 Land 14800 Advertising Expenses 300 Cash 300 Wages Expenses 5200 Cash 5200 Account Receivable 80000 Fee 80000 Cash 15000 Account Receivable 15000 Interest Expenses 900 Interest Payable 300 Note Payable 1850 Cash 3050 dividend 1000 cash 1000

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