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1. Determine the amount of underapplied or overapplied manufacturing overhead for the period. 2. Assume that the company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company’s gross margin? By how much? QUESTION 3 The following […]

QUESTION 1 Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):   Selling expenses $ 210,000 Purchases of raw materials $ 266,000 Direct labor ? Administrative expenses $ 159,000 Manufacturing overhead applied to work in process $ 372,000 Actual manufacturing overhead cost

Dilution of Value: Book versus Market Values   A stock’s market value will fall if the NPV of the project being financed is negative and rise if the NPV is positive. Whenever a stock’s book value is greater than its market value, selling new stock will result in accounting dilution (but not necessarily result in

Cost of Equity Method Estimated Value SML 8.80% DCF 9.75% Average (RE) 9.28%             Slide 35   12-35 Eastman Chemical Bond Data Source: http://www.sec.gov     Go to the SEC website to get book value information from the firm’s most recent 10Q             Slide 36

Dilution of Proportionate Ownership   This occurs when the firm sells stock through a general cash offer and new stock is sold to persons who previously weren’t stockholders. For many large, publicly held firms this simply isn’t an issue, since there are many different stockholders to begin with. For some firms with a few large

The Cost of Issuing Securities     Issuing securities to the public isn’t free, and the costs of different methods are important determinants of which is used. These costs associated with floating a new issue are generically called flotation costs.   The cost of issuing securities can be broken down into the following main categories:

Lockup Agreements • Not legally required but common • Restricts insiders from selling IPO shares for a specified time period – Common lockup period = 180 days • Stock price tends to drop when the lockup period expires due to market anticipation of additional shares hitting the Street     The lockup agreement prevents insiders

Dutch or Uniform Price Auction Example The company wants to sell 1,500 shares of stock. The firm will sell 1,500 shares at $15 per share. Bidders A, B, C, and D will get shares. Bidder Quantity Bid A 500 $20 B 400 18 C 250 16 D 350 15 E 200 12 Bidder Quantity Bid

Firm Commitment Underwriting • Issuer sells entire issue to underwriting syndicate • Syndicate resells issue to the public • Underwriter makes money on the spread between the price paid to the issuer and the price received from investors when the stock is sold • Syndicate bears the risk of not being able to sell the

Methods of Issuing New Securities     15-6 Underwriters • Underwriters: investment firms that act as intermediaries between the issuer and the public • Underwriting services: – Formulate method to issue securities – Price the securities – Sell the securities – Price stabilization by lead underwriter in the aftermarket • Syndicate = group of investment