The original Seven Essays, in a cool, new outfit ...
Call 412-567-OXEN [6936] Fax 412-567-6936 Email - [email protected]

All posts in General Questions

Doug Maltbee formed a lawn service business as a summer job. To start the business on May 1, he deposited $1,000 in a new bank account in the name of the proprietorship. The $1,000 consisted of a $600 loan from his father and $400 of his own money. Doug rented lawn equipment, purchased supplies, and hired fellow students to mow and trim his customer s lawns.

At the end of each month, Doug mailed bills to his customers. On August 31, he was ready to dissolve the business and return to Louisiana State University for the fall semester. Because he was so busy, he kept few records other than his checkbook and a list of amounts owed to him by customers.

At August 31, Doug s checkbook shows a balance of $690, and his customers still owe him $500. During the summer, he collected $4,250 from customers. His checkbook lists payments for supplies totaling $400, and he still has gasoline, weedeater cord, and other supplies that cost a total of $50. He paid his employees $1,900, and he still owes them $200 for the final week of the summer.

Doug rented some equipment from Scholes Machine Shop. On May 1, he signed a six month lease on mowers and paid $600 for the full lease period. Scholes will refund the unused potion of the prepayment if the equipment is in good shape. To get the refund, Doug has kept the mower in excellent condition. In fact, he had to pay $300 to repair a mower.

To transport employees and equipment to jobs, Doug used a trailer that he bought for $300. He figures that the summer s work used up one third of the trailer s service potential. The business checkbook lists a payment of $460 for cash withdrawals by Doug during the summer. Doug paid his father back during August.

Please prepare the income statement of Maltbee Lawn Service for the four months May through August. Prepare the classified balance sheet of Maltbee Lawn Service at August 31.

1. The arc price elasticity of demand for round trip airline tickets from Houston to San Angelo is 2.5 between the new price of $765 per ticket and the original price.
Before the price change took effect San Angelo Transcontinent Airways (STA) sold 840 round trip tickets per month and now, at the new price, it is selling 798 tickets per month.
Please find the original price?

2. The Current Arc cross elasticity of demand between New York to San Angelo and New York to Hawthorn round trip airline tickets is 2.3989. With the New York to San Angelo flight priced at $640, STA sold 1,800 New York to Hawthorn tickets per month. How many Monthly New York Hawthorn tickets can STA expect to sell at the new price of $577.60 per New York San Angelo flight? Are New York to San Angelo and New Yor to Hawthorn tickets complimentary substitute products?

Six years ago, Corporation granted a nonqualified stock option to employee to buy 5,000 shares of Rollo stock at $15 per share for six years. At the date of grant, Corp. stock was selling on the AMEX for $14.75 per share. This year, employee exercised the option when the price was $45.10 per share.

a. How much compensation income did employee recognize in the year the option
was granted?
b. How much compensation income did employee recognize in the year he exercised
the option?
c. Did Rollo have any tax consequences from the option in the year of grant or in the
year of exercise?

XYZ Corporation has $4 million in earnings after taxes and 1 million shares outstanding. The stock trades at a P/E ratio of 20. The firm has $3 million in excess cash.

a. Compute the current price of the stock.

b. If the $3 million is used to pay dividends, how much will dividends per share be?

c. If the $3 million is used to repurchase shares in the market at a price of $83 per share, how many shares will be acquired? (Round to the nearest share.)

d. What will the new earnings per share be? (Round to two places to the right of the decimal.)

e. If the P/E ratio remains constant, what will the price of the securities be? By how much, in terms of dollars, did the repurchase increase the stock price?