Today the 13th is D day for me. I have a mix feeling about this test. However, I think I am well prepared. Going in I was weak on IT, I just strengthen that in the past few days. Fear now is on Cost accounting.
Goodluck all. I Hope this will be the last time for me. In God's will.
Anyone please solve the Question no 16 of difficult level of aicpa released 2015 (difficult ) level question.
i cant fukin stand Becker breakeven point questions.
Yes i memorize dthe god damn formulas, but theyre useless when they expect you to set up algebra equations
can anyone explain this question:
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has identified four alternative sources of funds, which are given as follows.
1. Pay a factor to buy the company's receivables, which average $125,000 per month and have an average collection period of 30 days. The factor will advance up to 80% of the face value of receivables at 10% and charge a fee of 2% on all receivables purchased. The controller estimates that the firm would save $24,000 in collection expense over the year. Assume that the fee and interest are not deductible in advance.
Assume a 360-day year on all of your calculations.
The cost of Alternative 1 is:
A.
10.0%.
B.
12.0%.
C.
14.8%.
D.
16.0%.
Annual Cost
Interest on average balance
($100,000 x .10 rate) $10,000
Fee payable to factor
(2% of purchased receivables) 30,000
(.02 x $125,000 x 12 mo.) -------
$40,000
Less savings on collection expense (24,000)
-------
Net Cost $16,000
=======
Cost as a % = $16,000 / $100,000 = 16%
In the first step to the solution, why is the 10% factoring interest only being applied for 1 month's amount? They are taking the full 2% for the fee on receivables purchased (multiplying the amount by 12 months to correctly apply the annual rate). But they are not doing the same in multiplying $100,000 by 10%. Since the 10% is an annual rate, shouldn't it be applied to the annual factored amount (in this case, $1,200,000)? It seems like you should either be multiplying the annual interest/fee rate against the annual amount OR you could pro-rate the rate by dividing by 12 and then multiplying by the monthly amount. As it reads, it seems like an inconsistent treatment.
Factoring fees occur every time you actually factor the receivables. The interest applies only to the proceeds.
The proceeds are, on average, $100,000. The company needs to increase its WC by $100,000 thus they are factoring their AR as it replenishes - but AR is also constantly being collected. If I gave you $100,000 today, you earned a 10% APR on it, then I took the 100,000 away 30 days later, and repeated that every month, you'd earn $10,000 over the course of the year.
Going off of the same process from above, that means AR is being factored 12 times per year (360/30 day collection period) to maintain the $100,000 proceeds. Factoring fees occur each time you actually factor, AND on the total amount of AR factored.
So you are factoring $125,000 (to get you the $100,000 cash needed now), 12 times per year. So the fee is 125000 x 12 x 2%.
Bonus explanation: So your firm factored $125,000 this month. You got 100k now, they received 2.5 k in factoring fees. Wheres the 22.5k difference? It's still being collected, just by the factor over a 30 day period instead of being collected by your firm over a 30 day period. But, them collecting it instead of you is saving you 2k per month.
thank you for the explanation!
Does anyone else feel like they're not getting anywhere with their studying? I know that I am, but it seems difficult (at this point) to feel confident about a test with so many different subjects.
After passing FAR I thought this one would be a lot easier! ha ha...
Any tips/advice???
I gave myself 2.5 months to study for BEC, while working full time and it really feels that I could use another 2 months. I wonder why most people say that this is the easiest part? Makes me wonder what other 2 remaining - FAR and REG looks like :).
Ebjorndahl - consistency in studying, that's my advise :) Best of luck!
Well, good luck then. I have passed FAR and AUD, and BEC (Nov 30) seems to have been the easiest (so far). I managed to cover the material in about 5 weeks as opposed to 8 for FAR, and 7 for AUD. I am anticipating a longer studying time for REG as well.... And I have to work and be a mother at the same time.
How important are the the formulas in B6? I have found them very time consuming to practice and memorize and would love to just skip reviewing them...
I was wondering if anyone can help me on this one:
In short, a 3 month commercial paper was issued for 980000 with a face of 1000000. Transaction coats are 1200. What's the APR?
The answer is 8.65 based on costs of 21200 (20000 off face+ 1200 transaction) / 980000 total proceeds.
Why is it incorrect to subtract the transaction costs from the proceeds (add I've seen in many other examples), and calculate the rate as 20000/978800?
Hi Rose, hope you find this helpful:
Source: http://www.diffen.com/difference/Annual_Percentage_Rate_vs_Interest_Rate
Annual Percentage Rate, or APR, refers to the total cost of borrowing, as the calculation for APR includes not only the interest rate, but also many other fees the borrower might be charged. So APR is seen as the "effective interest rate," a way for borrowers to compare one loan to another (even if it has some pitfalls). When more of a loan's costs are taken into consideration in APR, a loan with a lower interest rate may actually be more expensive than previously assumed.
Thank you for your reply, ahugemistake. My real question is, which factors qualify as a deduction from the proceeds of the loan, and which ones are an increase to the cost.
I just got done today with reviewing all of the homework questions in Becker. Overall... I would say I scored an 79% on everything. I plan on taking the Final Exams soon. I have a 8 page cheat sheet I made of every formula and I plan on rewriting those until they all stick.
Am I missing anything??? Any last week tips before the real thing??? This test seems like the most difficult to me.
Also, how did you guys do when you guys reviewed all of the problems again???
Thanks for the help!
Can someone help me understand this question:
A company invests $100,000 in property. The company has a contract to sell it for $120,000 in one year.The bank has a guaranteed interest rate of 10%. What is the net present value of the company's investment in the property?
A.) 9,091
B.) 10,000
C.) 109,091
D.) 110,000
Answer is A
@Nikki87 - What review course do you use? If you use Becker, the formula on p20 B3 will help to calculate the present value of $120,000.
To calculate present value:
PV = (FV)/(1+r)^1
FV - 120,000
R-10%
PV =120,000/1.1
PV=109,090
NPV=109,090-100,000= $9,091
Hope this will help :)
Can someone clarify where July credit sales of .10 is coming from? Why.10? I am not getting the logic behind these percentages for September cash collections. Thanks!
On June 30, 20X1, a company is preparing the cash budget for the third quarter. The collection pattern for credit sales has been 60% in the month of sale, 30% in the first month after sale, and the rest in the second month after sales. Uncollectible accounts are negligible. There are cash sales each month equal to 25% of total sales. The total sales for the quarter are estimated as follows: July, $30,000; August, $15,000; and September, $35,000. Accounts receivable on June 30, 20X1, were $10,000. What amount would be the projected cash collections for September?
A.
$21,375
Incorrect B.
$28,500
C.
$30,125
D.
$37,250
You answered B. The correct answer is C.
Credit Sales:
July: $30,000 x 0.75 = $22,500
Aug.: $15,000 x 0.75 = 11,250
Sept.: $35,000 x 0.75 = 26,250
September Cash Collection:
Sept. Cash Sales $35,000 x 0.25 = $ 8,750
Sept. Credit Sales $26,250 x 0.60 = 15,750
Aug. Credit Sales $11,250 x 0.30 = 3,375
July Credit Sales $22,500 x 0.10 = 2,250
-------
Total Collection $30,125
The question doesn't explicitly say 10% in the third month, but it implies that when it says "and the rest in the third month after sale". It states: 60% in month of sale, 30% in following month [you've collected 90% total thus far], so the remainder must be collected in the third month [10%].
Thank you Lucci! I needed anther set of eyes to help me look at the obvious.
Can anyone help with this question? I don't understand the common stock cost of capital part.
Williams, Inc., is interested in measuring its overall cost of capital and has gathered the following data. Under the terms described as follows, the company can sell unlimited amounts of all instruments.
Williams can raise cash by selling $1,000, 8%, 20-year bonds with annual interest payments. In selling the issue, an average premium of $30 per bond would be received, and the firm must pay flotation costs of $30 per bond. The after-tax cost of funds is estimated to be 4.8%.
Williams can sell 8% preferred stock at par value, $105 per share. The cost of issuing and selling the preferred stock is expected to be $5 per share.
Williams' common stock is currently selling for $100 per share. The firm expects to pay cash dividends of $7 per share next year, and the dividends are expected to remain constant. The stock will have to be underpriced by $3 per share, and flotation costs are expected to amount to $5 per share.
Williams expects to have available $100,000 of retained earnings in the coming year; once these retained earnings are exhausted, the firm will use new common stock as the form of common stock equity financing.
Williams' preferred capital structure is long-term debt, 30%; preferred stock, 20%; and common stock, 50%.
The answer given for the common stock is:
"New equity consists of retained earnings and/or new issues of common stock. In this case, 50% of the 200,000 of total new funds must come from equity. Since the firm has $100,000 in retained earnings, the relevant cost of new equity is the cost of retained earnings, 7 ÷ 100 + 0%, or 7.0%."
Where are they getting the $200,000 total new funds from? I didn't see that anywhere in the problem. I kept coming up with $7 / (100,000 - 3,000 - 5,000), but the problem assumes all funds will come from retained earnings. Maybe I'm just overlooking something....
I can't believe I got the following question wrong, and I'm supposed to be an "Accountant".
A company has equity of $9,000. Long-term debt is $1,900. Net working capital, other than cash, is $2,500. Fixed assets are $2,200. What amount of cash does the company have?