ᴀ ꜰᴜʀɴᴀᴄᴇ ʜᴀꜱ ɪɴᴛᴇʀɴᴀʟ ᴄᴏᴍʙᴜꜱᴛɪᴏɴ ᴛᴇᴍᴘᴇʀᴀᴛᴜʀᴇ ᴏꜰ 7000 ᴅᴇɢ. ᴄ ᴀɴᴅ ɪꜱ ʙᴇɪɴɢ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ꜰᴏʀ ɪɴᴄɪɴᴇʀᴀᴛɪᴏɴ ᴏꜰ ᴍᴇᴅɪᴄᴀʟ ᴡᴀꜱᴛᴇꜱ. ᴛʜᴇ ɪɴɪᴛɪᴀʟ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɪꜱ $300,000 ᴀɴᴅ ᴀɴɴᴜᴀʟ ʀᴇᴠᴇɴᴜᴇꜱ ᴀʀᴇ ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ $175,000 ᴏᴠᴇʀ ᴛʜᴇ ꜱɪx-ʏᴇᴀʀ ʟɪꜰᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ. ᴀɴɴᴜᴀʟ ᴇxᴘᴇɴꜱᴇꜱ ᴡɪʟʟ ʙᴇ $100,000 ᴀᴛ ᴛʜᴇ ᴇɴᴅ ᴏꜰ ᴇᴀᴄʜ ʏᴇᴀʀ. ᴛʜᴇ ʀᴇꜱᴀʟᴇ ᴠᴀʟᴜᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴀꜰᴛᴇʀ ꜱɪx ʏᴇᴀʀꜱ ɪꜱ $20,000. ᴅᴇᴛᴇʀᴍɪɴᴇ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ: ᴀ. ʀᴀᴛᴇ ᴏꜰ ʀᴇᴛᴜʀɴ ɪꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴏᴡɴᴇʀ ᴇxᴘᴇᴄᴛꜱ ᴛᴏ ᴇᴀʀɴ 12% ᴘᴇʀ ʏᴇᴀʀ.   ʙ. ᴘᴀʏʙᴀᴄᴋ ᴘᴇʀɪᴏᴅ ᴏꜰ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ᴄ. ɪꜱ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɢᴏᴏᴅ ꜰᴏʀ ɪᴍᴘʟᴇᴍᴇɴᴛᴀᴛɪᴏɴ? ᴡʜʏ?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

ᴀ ꜰᴜʀɴᴀᴄᴇ ʜᴀꜱ ɪɴᴛᴇʀɴᴀʟ ᴄᴏᴍʙᴜꜱᴛɪᴏɴ ᴛᴇᴍᴘᴇʀᴀᴛᴜʀᴇ ᴏꜰ 7000 ᴅᴇɢ. ᴄ ᴀɴᴅ ɪꜱ ʙᴇɪɴɢ ᴄᴏɴꜱɪᴅᴇʀᴇᴅ ꜰᴏʀ ɪɴᴄɪɴᴇʀᴀᴛɪᴏɴ ᴏꜰ ᴍᴇᴅɪᴄᴀʟ ᴡᴀꜱᴛᴇꜱ. ᴛʜᴇ ɪɴɪᴛɪᴀʟ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɪꜱ $300,000 ᴀɴᴅ ᴀɴɴᴜᴀʟ ʀᴇᴠᴇɴᴜᴇꜱ ᴀʀᴇ ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ʙᴇ $175,000 ᴏᴠᴇʀ ᴛʜᴇ ꜱɪx-ʏᴇᴀʀ ʟɪꜰᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ. ᴀɴɴᴜᴀʟ ᴇxᴘᴇɴꜱᴇꜱ ᴡɪʟʟ ʙᴇ $100,000 ᴀᴛ ᴛʜᴇ ᴇɴᴅ ᴏꜰ ᴇᴀᴄʜ ʏᴇᴀʀ. ᴛʜᴇ ʀᴇꜱᴀʟᴇ ᴠᴀʟᴜᴇ ᴏꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴀꜰᴛᴇʀ ꜱɪx ʏᴇᴀʀꜱ ɪꜱ $20,000. ᴅᴇᴛᴇʀᴍɪɴᴇ ᴛʜᴇ ꜰᴏʟʟᴏᴡɪɴɢ:
ᴀ. ʀᴀᴛᴇ ᴏꜰ ʀᴇᴛᴜʀɴ ɪꜰ ᴛʜᴇ ꜰᴜʀɴᴀᴄᴇ ᴏᴡɴᴇʀ ᴇxᴘᴇᴄᴛꜱ ᴛᴏ ᴇᴀʀɴ 12% ᴘᴇʀ ʏᴇᴀʀ.  
ʙ. ᴘᴀʏʙᴀᴄᴋ ᴘᴇʀɪᴏᴅ ᴏꜰ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ
ᴄ. ɪꜱ ᴛʜᴇ ɪɴᴠᴇꜱᴛᴍᴇɴᴛ ɢᴏᴏᴅ ꜰᴏʀ ɪᴍᴘʟᴇᴍᴇɴᴛᴀᴛɪᴏɴ? ᴡʜʏ?

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Earnings Quality, Measurement and Management
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education