Based on the following information, use the market-based relative valuation approach to determine the target firm's price per
share.
The comparable firm:
Total market value of the common stock: $3,500,000
Total earnings: $4,000,000
The target firm:
Total earnings: $3,000,000
Number of shares outstanding: 500,000
Select one:
a. $4.85
b. $5.90
c. $5.25
d. $5.00
The correct answer is: $5.25
Answers
The target firm's price per share, according to the market-based relative valuation approach, is $5.25. So, the correct option is c.
To determine the target firm's price per share using the market-based relative valuation approach, we need to calculate the price-to-earnings (P/E) ratio based on the comparable firm and apply it to the target firm. Here are the steps to find the target firm's price per share:
1. Calculate the P/E ratio of the comparable firm:
P/E ratio = Total market value of the common stock / Total earnings
P/E ratio = $3,500,000 / $4,000,000
P/E ratio = 0.875
2. Calculate the target firm's market value of equity:
Market value of equity = Total earnings * P/E ratio
Market value of equity = $3,000,000 * 0.875
Market value of equity = $2,625,000
3. Calculate the target firm's price per share:
Price per share = Market value of equity / Number of shares outstanding
Price per share = $2,625,000 / 500,000
Price per share = $5.25
Therefore, based on the market-based relative valuation approach, the target firm's price per share is $5.25.
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Related Questions
lents for Chefs on O*NET
Click this link to view O*NET's Education section for Chefs. According to O*NET, what are the three most common
levels of education Chefs hold? Check all that apply.
O associate degree
master's degree
high-school diploma or equivalent
less than high-school diploma
bachelor's degree
doctoral degree
Intro
Answers
According to the O'NETS education sector, the degrees that chefs need to have are:
associate degreehigh-school diploma or equivalentless than high-school diplomaWho is a chef?A chef is a term that is used to refer to a cook that has been professionally trained on the ways to prepare several meals.
A chef is a person that is able to prepare different dishes and they are known to focus on one cuisine often times.
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Answer: The answer is 1 3 4
Explanation:
I got it right
In 2011 oil production in libya was interrupted by political unrest. at the same time, the demand for oil by china continued to rise.
a. demonstrate the impact on the quantity of oil bought and sold. instructions: draw a parallel shift in the demand or supply curve(s) by grabbing, dragging, and then dropping the curve(s) to the new position(s). in the market for oil, compared to the initial equilibrium (e0), the impact of these events on price is and the impact on quantity is .
b. oil production in libya returned to its original levels by the end of 2012. what was the likely effect on equilibrium oil price and quantity? compared to the equilibrium identified in part a, price will and quantity will .
Answers
Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. if the marginal propensity to consume is 0. 75, equilibrium gross domestic product will change by a maximum of $0. 5 million answer a: $0. 5 million a $1. 5 million answer b: $1. 5 million b $2. 0 million answer c: $2. 0 million c $8. 0 million answer d: $8. 0 million d $15. 0 million
Answers
According to question, the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of $15. 0 million .
Option D is correct .
A lump-sum tax (T) will cause the C + Ig + Xn line in an aggregate expenditures diagram to go downward by an amount equal to T MPC. The after-tax consumption schedule and the before-tax consumption schedule are parallel as a result of a lump-sum tax.
Supply shocks and fiscal and monetary policies are generally recognized as the two main drivers of stagflation. Anything that makes the economy less able to produce products and services at certain prices is considered a supply shock.
Taxes are another way that governments might limit a person's autonomy in spending. A fundamental household good's autonomous expenditure may go down if it is taxed and there are no alternatives.
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Drag the tiles to the correct boxes to complete the pairs.
Match each term to its description.
Tiles
1) depreciation
2) floating exchange rate
3) appreciation
4) fixed exchange rate
5) managed exchange rate
Pairs
an exchange rate system in which the central bank fixes the value of its currency to another currency
what happens to a currency If demand for a country's goods increases
a hybrid exchange rate system in which the currency
value floats within a limited range of values
decrease in the value of a currency in relation to another currency
an exchange rate system in which the value is set by supply and demand for the currency in the free market
Answers
Answer:
See photo
Explanation:
1. Depreciation - decrease in the value of a currency in relation to another currency.
2. Floating exchange rate - an exchange rate system in which the value is set by supply and demand for the currency in the free market.
3. Appreciation - what happens to a currency if demand for a country's goods increases.
4. Fixed exchange rate - an exchange rate system in which the central bank fixes the value of its currency to another currency.
5. Managed exchange rate - a hybrid exchange rate system in which the currency value floats within a limited range of values.
What is depreciation?Depreciation refers to the monetary value of an asset which decreases over time. The decrease may be caused by a number of other factors as well such as unfavorable market conditions etc.
What is the floating exchange rate?A floating exchange rate is an exchange rate system where a country’s currency price is determined by the foreign exchange market, depending on the relative supply and demand of other currencies.
What is Fixed exchange rate?
A fixed exchange rate is an exchange rate where the currency of one country is linked to the currency of another country or a commonly traded commodity like gold or oil. Nowadays, countries usually link their currencies to their trading partners like the United States dollar.
What is Managed exchange rate?
Under the managed exchange rate system, the exchange rate is predominantly determined in the foreign exchange market by supply of and demand for a currency.
Hence, the answer was given and explained above.
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Enter text- Apply A text Effect
Answers
Why is it a good idea to be organized in the workplace?
Answers
It is a good idea to be organized in a workplace because an organized workplace will facilitate increased productivity and increased efficiency.
What is workplace?A workplace is described as a place where an employee or a manager carries out projects, tasks, and jobs. It is important to mention that workplaces are the areas that are located inside a building or can be outside an office building.
An organized workplace means that everything in the workplace is kept in its respective places, and everything is very neat and clean. Such an organized workplace will allow the managers and the employees to focus entirely on the work and be more productive and efficient.
It can be concluded that it is a good idea to be organized in a workplace because an organized workplace will facilitate increased productivity and increased efficiency.
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3. A fine-dining restaurant has been making every- thing from scratch for the five years it has been open; it is the only operation in the area known for scratch- cooking. The management hires a new chef who does a make–buy analysis only to discover that she can get much better pricing on many of her products if she buys them premade. After a tasting comparison, she discovers that the premade products are of high quality and taste only slightly different from her own. Should she switch to the premade products? Would your answer be different if this decision took place when the restaurant first opened?
Answers
Answer:
No
Explanation:
The premade products could have been contaminated with any type of disease because she doesn't know what went inside whereas making it from scratch means she is able to monitor and remove and contaminated product.
:)
On+january+1,+2014,+huff+co.+issued+a+$4,000,000,+zero+interest+(0%),+10-year+note+payable+for+$2,575,711.+what+was+the+effective/market+annual+interest+rate+when+the+note+was+issued?
Answers
The Amount will be $212,471 as The expense of interest is related to the price of borrowing money. It is the fee that a lender assesses to a borrower in exchange for using their funds. Interest expenditure on the income statement can be the cost of borrowing money from lenders like banks or bond buyers.
The Right Response is Option AInterest expense to be reported on June 30
= 3,541,184 × 12% × 6 / 12= 212,471FORMULA
Multiplying a company's total debt by the average interest rate on its obligations yields the most straightforward approach to determine interest expenditure.Therefore Option A is The Correct Choice
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Correct Question - On January 1, 2014, Huff Co. sold $4,000,000 of its 10% bonds for $3,541,184 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2014?
$212,471
$177,064
$200,000
$240,000
Performance Assessment Task
Jrotc
This performance assessment task gives you an opportunity to document your achievement of the lesson’s competency: Demonstrate proper etiquette in social settings For this performance assessment task, you will complete the Dining-Out scenario. For this assessment you will: Read the following scenario and individually complete the information below. Be prepared to share your answers in class. The same criteria in the scoring guide below can be used to evaluate your performance of proper etiquette and manners at the annual Cadet Ball. Scenario: The annual Dining-Out is in five months. You have been asked to be a member of the Dining-Out committee. The committee plans all aspects of the Dining-Out. Complete this assignment as if you are preparing for the meeting and event. The committee will discuss invitations, table settings, receiving line protocol (guest speaker and other dignitaries), proper dress, protocol for honoring the nation, and thank you notes. 1. Invitations: Create the text for the invitation. Include all pertinent information including dress code and RSVP: Table Setting: On the back of this page, draw a picture of the appropriate table setting for the following menu: Fresh Garden Salad with Dressing Dinner Roll Tomato Soup Beef Tenderloin or Grilled Salmon New York Style Cheesecake with strawberries Iced Tea and water 2. Receiving line and other protocol: a. Who belongs on the line? b. What order should the guests stand in? c. Address the appropriate protocol for honoring the nation. d. Describe how you will greet the guest of honor(s): e. What attire should you wear? 3. Thank you notes: Create a sample thank you note to send to the guest speaker: 4. Explain your role in the annual Cadet Ball as a Year 1 Cadet: 5. Use the attached scoring guide criteria for what you need to do to complete this task. 6. Submit your completed performance assessment task and scoring guide to your instructor for evaluation and a grade.
Answers
The invitation should include the date, time, location, the dress code, RSVP deadline, and any other important relevant information such as the theme of the event.
The invitation text will be like this: You are cordially invited to attend the Annual Dining-Out hosted by the JROTC program. The event will take place on [date] at [time] at [location]. Dress code for the evening is formal attire, which includes a dress uniform or civilian formal wear.
Please RSVP by [RSVP deadline] to [contact information]. We look forward to your presence at this event.
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For the following taxpayers, determine if they are required to file a tax return in 2022.
Required:
a. Ricko, single taxpayer, with gross income of $15,000.
b. Fantasia, head of household, with gross income of $17,500.
c. Ken and Barbie, married taxpayers with no dependents, with gross income of
$20,000.
d. Dorothy and Rudolf, married taxpayers, both age 68, with gross income of $25,500.
e. Janyce, single taxpayer, age 73, with gross income of $13,500.
Complete this question by entering your answers in the tabs below
Answers
a. Ricko, a single taxpayer, with a gross income of $15,000.
b. Fantasia, head of household, with a gross income of $17,500.
c. Ken and Barbie, married taxpayers with no dependents, with a gross income of $20,000.
d. Dorothy and Rudolf, married taxpayers, both age 68, with a gross income of $25,500.
e. Janyce, single taxpayer, age 73, with a gross income of $13,500.
a. Ricko, a single taxpayer with a $15,000 gross income
The minimum gross income required to file a federal tax return in 2022 for a single taxpayer under the age of 65 is $12,550. Ricko would be required to file a tax return in 2022 because his gross income of $15,000 is above this limit.
b. Fantasia, household head with a $17,500 gross income.
In 2022, the minimum gross income required to file a federal tax return for a head of household under the age of 65 will be $18,800. In 2022, Fantasia would not be required to file a tax return due to the fact that her gross income of $17,500 falls below this threshold.
c. Ken and Barbie, married taxpayers without children, with a $20,000 gross income
In 2022, married taxpayers filing jointly will be required to have a minimum gross income of $25,100 in order to file a federal tax return. In 2022, Ken and Barbie would not be required to file a tax return because their gross income of $20,000 falls below this threshold.
d. Dorothy and Rudolf, taxpayers who are married and both 68 years old, have a gross income of $25,500.
In 2022, married taxpayers filing jointly who are both 65 or older must have a minimum gross income of $27,400 to be eligible to file a federal tax return. In 2022, Dorothy and Rudolf would not be required to file a tax return because their gross income of $25,500 falls below this threshold.
e. Janyce, 73 years old, a single taxpayer with a gross income of $13,500.
For a solitary citizen age 65 or more established in 2022, the base gross pay edge to document a government form is $14,950. In 2022, Janyce would not be required to file a tax return due to the fact that her gross income of $13,500 falls below this threshold.
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AJ's Markets is being liquidated. The mortgage holder is owed $830,000, the other secured creditors are owed $128,000, and the unsecured creditors are owed $329,000. Administrative costs of liquidation, wage and benefit payments, and consumer claims amount to $330,000. The firm owes no taxes. The building, which is mortgaged, just netted $794,000 after sale costs. The remaining assets have yielded $467,000 in net proceeds. How much will the unsecured creditors receive per each dollar they are owed?
A. $.027
B. $.025
C. $.333
D. $1.00
E. $.533
Answers
Answer:
B. $.025
Explanation:
Calculation to determine How much will the unsecured creditors receive per each dollar they are owed
First step is to determine the Mortgage unsecured
Mortgage unsecured = $830,000 -$794,000
Mortgage unsecured= $36,000
Second step is to calculate the Funds available after expenses
Funds available after expenses = $467,000 - $330,000
Funds available after expenses = $137,000
Third step is to calculate the Funds available after secured claims
Funds available after secured claims = $137,000 - $128,000
Funds available after secured claims= $9,000
Fourth step is to calculate the Total unsecured claims
Total unsecured claims = $36,000 + $329,000 Total unsecured claims = $365,000
Now let determine Percent unsecured claims paid
Percent unsecured claims paid = $9,000 / $365,000
Percent unsecured claims paid= .025*100
Percent unsecured claims paid=2.5%
Therefore the amount of that the unsecured creditors receive per each dollar they are owed will be $.025
Please read instructions all the way through, brainiest will be given and 50 pts. Explain the logistics of product delivery. Describe the ins-and-outs of importing and exporting your products. What are the most critical components of delivery and importing/exporting? (i know for a fact that you have to do research on latest distribution trends and i can give you a link to a possibly helpful website if you need, i mainly need pointers for starting off and maybe a little bit of guidance in creating a 2 page response)
Answers
Answer:
The logistics of product delivery could be described as all that's entailed in ensuring a goods or product gets to a customer's destination after it has been purchased from a particular destination.
Explanation:
The logistics of product delivery could be described as all that's entailed in ensuring a goods or product gets to a customer's destination after it has been purchased from a particular destination. It might include shipment or freight if the goods is coming from outside the desired clients location.
Ins-and-outs of importation;
- You'd have to decide the country you're buying from
- The next is to search for suppliers, those who sell the item in that particular country you've searched.
- You'll then need to search what their duty and taxes are, which you'd have to consider in the cost
- Finally, you'll need to find a reliable freight forwarder and customs broker who would handle the clearing of the goods when they get to your country.
Export has the same but there some changes as this time you'd have searched those who need your product and considered all that's needed to ship in your country and how it'll be cleared over your customers destination
am kandy but pls don't friends me...thank me or comment on this q anymore cz this is my school acc.
Is financial analyst hard to study?
Answers
Financial analysts are reimbursed well. The median pay in 2010 was more than $74,000 annually, according to the most recent figures released by the U.S. Bureau of Labor Statistics. ... Working as a financial analyst is an extremely stressful career, defined by long work hours and high pressure levels.
It may be hard but not IMPOSSIBLE!
Best wishes! :)
business question below:)
Answers
Answer:
C
Explanation:
Answer:
The answer is C
Explanation:
Personal selling can be part of ____ and involves direct spoken communication between sellers and customers
Process
Price
Promotion
Product
Answers
Personal selling can be part of Promotion and involves direct spoken communication between sellers and customers.
What is Personal selling?
Personal selling is a face-to-face sales method where a salesman uses their people abilities to convince a consumer to purchase a specific product. The salesperson tries to persuade the consumer that the product will only add value by emphasizing its different qualities.
Door-to-door sales are one of the typical forms of personal selling. To market and sell the goods/services, salespeople knock on the doors of potential clients. With their excellent interpersonal skills, they attempt to persuade people to purchase from them.
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imapct of corona virus as one of the socio - economic issues on business
Answers
Answer: It has also sparked fears of an impending economic crisis and recession. Social distancing, self-isolation, and travel restrictions have lead to a reduced workforce across all economic sectors and caused many jobs to be lost. Schools have closed down, and the need for commodities and manufactured products has decreased.
Hope this helped!
Answer:
the impact of the corona virus on bussisess and the econmy has made people lose their jobs and bussineses shut down
Explanation:
attempts to increase task efficiency by breaking down jobs into simple steps and assigning people to each of those steps.
Answers
job simplification is a technique that can be used to increase task efficiency, but it is important to weigh the benefits and drawbacks before implementing it.
The term you are looking for is job simplification. It is a technique used in job design to increase task efficiency by breaking down jobs into simple, repetitive steps that can be easily learned and performed by workers. This can lead to increased productivity, but it can also lead to boredom and dissatisfaction among workers.
Job simplification is one of the four basic principles of scientific management, which was developed by Frederick Taylor in the early 20th century. The other three principles are:
Job specialization: Breaking down jobs into their simplest components and assigning them to different workers.
Time study: Measuring the amount of time it takes to perform each task and then using this information to set standards for productivity.
Incentives: Paying workers based on their productivity.
Job simplification is still used in some businesses today, but it is not as widely used as it once was.
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what will happen to trade if business is flourishing?
Answers
Answer:
if the business is florishing, as an example Medical sectors during pandemic they are going to grow till they are in a high demand
Businesses are usually interested in promoting growth because it:
A. expands the frontier on their production possibilities curves.
B. weakens productivity for competing businesses.
C. reduces their need to pay a large staff of employees.
D. creates additional marketing value without extra investment.
Answers
Answer: A - expands the frontier on their production possibilities curves
Explanation:
It was correct when checked
Businesses are usually interested in promoting growth because it expands the frontier on their production possibilities curve. Hence, option A holds true regarding business growth.
What is business growth?An expansion in the scope of business, which gives business an opportunity to improve the productivity and increase the sales exponentially, ultimately leading to increased profitability, is known as business growth.
Increased productivity at a constant rate enables a business to assume expanding its production capacities on the production possibilities curve, which can be determined through graphical representation.
Hence, option A holds true regarding the business growth.
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Question #1
Multiple Choice
What is it called when a small number of companies control more than 40 percent of a market?
O monopoly
O oligopoly
O competitive market
duopoly
Question # 2
Fill in the Blank
Answers
Answer:
Oligopoly.
Explanation:
An oligopoly can be defined as a market structure comprising of a small number of firms (sellers) offering identical or similar products, wherein none can limit the significant influence of others.
Hence, it is a market structure that is distinguished by several characteristics, one of which is either similar or identical products and dominance by few firms.
The characteristics of an oligopolistic market structure are;
1. Mutual interdependence between the firms.
2. Market control by many small firms.
3. Difficult entry to new firms.
According to the concentration ratio, when a small number of companies control more than 40 percent of a market, it is called an oligopoly.
distinguish between capital intensive and labour intensive
Answers
answer:
capital intensive
— industries require a greater amount of machinery to produce the product
labour intensive
— product requires a larger amount of human labor to bring it off
explanation:
ex:
capital intensive
— telecommunications, airlines, automobile manufacturing, oil production
labour intensive
— food service, hospitality, public education, agriculture
credits: online search!
Labour intensive products required a larger amount of human labor to bring it off.
McGlone Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of $15,000. During 2010, it wrote off $10,800 of accounts and collected $3,150 on accounts previously written off. The balance in Accounts Receivable was $300,000 at 1/1 and $360,000 at 12/31. At 12/31/10, McGlone estimates that 5% of accounts receivable will prove to be uncollectible. What should McGlone report as its Allowance for Doubtful Accounts at 12/31/10
Answers
Answer:
18,400
Explanation:
Your older sister is planning on saving money by paying her bills, spending money on fun, and then saving whatever is leftover. Why is this not the best option for saving her money?
Answers
Answer:
spend money on bills first then food then save the leftover money for later
The productivity of the southland's aircraft industry during the war was a result of?
Answers
The productivity of the southland's aircraft industry during the war was a result of:
the infusion of federal dollars into the industrya work force motivated by rising wagesovertime that the workers put inThe Los Angeles region employed about two million people in the aerospace industry during World War II, producing about 300,000 aircraft. The largest industry in the world at the time was Southern California-based aircraft manufacturing.
And despite setbacks following the end of World War II and once again with the completion of the Apollo program, the 1980s saw further expansion. During this time, Southern California was home to one-third of all aerospace engineers in the nation, supporting a workforce of close to 500,000. However, once the Cold War ended in 1991, both the commercial and government sectors experienced a decline in activity, and thousands of employees lost their employment as aerospace firms consolidated or transferred their operations to Washington, D.C. In just five years, over two dozen major aerospace firms merged into three: Boeing-McDonnell Douglas, Lockheed Martin and Raytheon-Hughes.
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For Hair Salon
How much funding do you think you need to run your business for 1 year? Why?
Answers
Answer:
100,000 for a building and expect to have an extra 40,000 for hair equipment.
Explanation:
Honesty there will be a difference depending on where you live. But even small office space can range from 100,000 to 600,000 and keep in mind that you will need to have anywhere from 40,000 to 250,000 for any hair equipment. Staring a business is not cheap but most people try to start their business off at home they work their way up the ladder to success.
Hope this helps and good luck!
How can a diverse economy like the United States, satisfy the needs of its consumers?
Answers
Answer:
Supply and Demand
Explanation:
A firm that is committed to keeping manufacturing facilities in only the home country (and not developing multiple production sites in a variety of countries) can Multiple Choice not mitigate the effects of exchange rate changes. lessen the effect of exchange rate changes by pursuing a strategy of diversifying the markets in which the firm's products are sold. lessen the effect of exchange rate changes by pursuing a strategy of selling commodity products without product differentiation. pursue a strategy of increasing its products price elasticity of demand.
Answers
Answer:
lessen the effect of exchange rate changes by sourcing from where input costs are low
Explanation:
employees make greater use of their skills and enjoy more opportunities for professional development in a organization.
Answers
In a decentralized organisation, employee uses more of their skills and enjoy professional development as well.
Decentralized organization is a type of organizational structure where most decisions-making are made by mid or lower level managers.
Under a decentralized organizational structure, the senior management delegates majority of decision making to lower levels in the organization.In conclusion, employees who works under a decentralized organisation viii make greater use of their skills. Development of professional career will be enjoyed because more freedom are given to them at the workplace.
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Disadvantages of choosing a job that is extremely popular or in demand
Answers
The disadvantage of choosing a job that is very popular or a job that is in high demand is that after a while such a job may become saturated or it would become monotonous.
What is a high demand job?This is the term that is used to refer to a job that the people that wpould employ labor are constantly in need of. Such a job is one that would require the people that have the qualification to opt in and get the places and the roles that they are to fill.
The issues that may arise from such a job that is in high demand is that after a period, such a job may have a lot of persons that would want to fulfil the role.
The number of qualified persons may become more than the job that is available for the people to do in the long run.
Hence this is a disadvantage. Therefore I would conclude by saying that the disadvantage of choosing a highly popular job is that the number of persons that are willing to fulfil the role may exceed the job overtime.
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Rollins Company accumulates the following adjustment data at December 31 . (a) Service revenue eamed but unbilled totals $600. (b) Store supplies of $300 are on hand. Supplies account shows $1,900 balance. (c) Utility expenses of $275 are unpaid. (d) Service revenue of $490 collected in advance has been eamed. (e) Salaries of $800 are unpaid. (f) Prepaid insurance totaling $400 has expired. Instructions (a) Prepare journal entries for each of the events above. (b) Indicate the type of adjustment (prepaid expense, uneamed revenue, accrued revenue, or accrued expense). Problem 3. In its first year of Operations Buddy Company earned $28,000 in service revenue, $6,000 of which was on account and still outstanding at year-end. The remaining $22,000 was received in cash from customers. The company incurred operating expenses of $14,500. Of these expenses $13,000 were paid in cash; $1,500 was still owed on account at year-end. In addition, Buddy prepaid $3,600 for insurance coverage that would not be used until the second year of Operations. Instructions (a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first year's net earnings under the accrual basis of accounting. (b) Which basis of accounting (cash or accrual) provides more useful information for decision makers?
Answers
(a) The first year's net earnings under the cash basis of accounting is $9,000.
(b) The first year's net earnings under the accrual basis of accounting is $13,500.
Accrual basis of accounting provides more useful information for decision makers.
Journal entries for the events above are as follows:
(a) Debit: Service Revenue Accounts Receivable $600 Credit: $600
(b) Debit: Supplies Expense Supplies $300 Credit: $300
(c) Debit: Utility Expense Accounts Payable $275 Credit: $275
(d) Debit: Unearned Service Revenue Service Revenue $490 Credit: $490
(e) Debit: Salaries Expense Salaries Payable $800 Credit: $800
(f) Debit: Insurance Expense Prepaid Insurance $400 Credit: $400
The types of adjustments are as follows:
(a) Unearned revenue
(b) Prepaid expense
(c) Accrued expense
(d) Accrued revenue
(e) Accrued expense
(f) Prepaid expense
In its first year of operations, Buddy Company earned $28,000 in service revenue. $6,000 of the revenue was on account and still outstanding at year-end, while the remaining $22,000 was received in cash from customers. The company incurred operating expenses of $14,500, with $13,000 paid in cash and $1,500 still owed on account at year-end. Additionally, Buddy prepaid $3,600 for insurance coverage that would be used in the second year.
(a) The first year's net earnings under the cash basis of accounting is $9,000.
(b) The first year's net earnings under the accrual basis of accounting is $13,500.
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