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Corporate Financial Accounting

Corporate Financial Accounting

14th Edition

ISBN:9781305653535

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter8: Receivables

Section: Chapter Questions

Problem 8.15EX: Effect of doubtful accounts on net income During its first year of operations, Macks Plumbing Supply...

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Problem 14-1 Cumulative Abnormal Returns

Delta, United, and American Airlines announced purchases of planes on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively.

Delta	United	American
Date	Market Return	Company Return	Date	Market Return	Company Return	Date	Market Return	Company Return
7/12	−.37	−.53	2/8	−.86	−1.12	10/1	.57	.24
7/13	.00	.27	2/9	−.96	−1.12	10/2	.47	.73
7/16	.79	.98	2/10	.47	.28	10/3	1.17	1.17
7/17	−.79	−.64	2/11	.67	2.41	10/6	.17	−1.72
7/18	−2.16	1.06	2/12	−.37	−.04	10/7	−2.27	−.45
7/19	−.91	−.59	2/15	1.17	2.18	10/8	.57	.57
7/20	−.96	−1.11	2/16	.57	.57	10/9	−.37	−.22
7/23	.77	.44	2/17	−.37	−.27	10/10	.37	−.22
7/24	.27	.16	2/18	.37	.14	10/13	.00	−.17

Given the above information, calculate the cumulative abnormal return (CAR) for these stocks as a group. All of the stocks have a beta of 1 and no other announcements are made. (A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Problem 14-1 Cumulative Abnormal Returns
Delta, United, and American Airlines announced purchases of planes on July 18 (7/18),
February 12 (2/12), and October 7 (10/7), respectively.
Date
7/12 -.37
.00
79
7/17 -.79
7/18 -2.16
7/13
7/16
7/19
7/20
7/23
7/24
Delta
Market Company
Return Return
-.53
.27
.98
-.91
-.96
-4
-3
-2
-1
0
1
2
3
4
77
27
Days from
announcement
-.64
1.06
-.59
-1.11
.44
16
United
Market Company
Return Return
Delta
Date
2/8 -.86
2/9 -.96
2/10
2/11
2/12 -.37
2/15
1.17
2/16
.57
2/17
-.37
2/18
37
.47
.67
-1.12
-1.12
.28
2.41
-.04
2.18
.57
-.27
14
American
Market Company
Return
Return
57
47
1.17
17
Date
10/1
10/2
10/3
10/6
10/7 -2.27
10/8
.57
10/9 -.37
10/10
10/13
Given the above information, calculate the cumulative abnormal return (CAR) for these
stocks as a group. All of the stocks have a beta of 1 and no other announcements are
made. (A negative answer should be indicated by a minus sign. Leave no cells blank -
be certain to enter "0" wherever required. Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)
Abnormal returns (R; - RM)
United
American
.37
.00
.24
.73
1.17
-1.72
-.45
.57
-.22
-.22
-.17
Sum
Average abnormal
return
Cumulative
abnormal return

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Problem 14-1 Cumulative Abnormal Returns Delta, United, and American Airlines announced purchases of planes on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively. Delta United American Date Market Return Company Return Date Market Return Company Return Date Market Return Company Return 7/12 −.38 −.55 2/8 −.87 −1.14 10/1 .58 .43 7/13 .00 .28 2/9 −.97 −1.14 10/2 .48 .75 7/16 .85 1.06 2/10 .48 .27 10/3 1.18 1.18 7/17 −.85 −.68 2/11 .68 2.68 10/6 .18 −1.99 7/18 −2.17 1.07 2/12 −.38 −.23 10/7 −2.28 −.44 7/19 −.92 −.58 2/15 1.18 2.36 10/8 .58 .58 7/20 −.97 −1.14 2/16 .58 .58 10/9 −.38 −.21 7/23 .78 .43 2/17 −.38 −.26 10/10 .38 −.21 7/24 .28 .15 2/18 .38 .13 10/13 .00 −.18 Given the above information, calculate the cumulative abnormal return (CAR) for these stocks as a group. All of the stocks have a beta of 1 and no other announcements are made. (A negative answer should be indicated by a minus sign. Leave no cells blank - be…
Exercise 9-15 During its first year of operations, Mack’s Plumbing Supply Co. had sales of $3,250,000, wrote off $27,800 of accounts as uncollectible using the direct write-off method, and reported net income of $487,500. Determine what the net income would have been if the allowance method had been used and the company estimated that 1% of sales would be uncollectible. --------------------------------------------------------------------- Using the data in Exercise 9-15, assume that during the second year of operations, Mack’s Plumbing Supply Co. had sales of $4,100,000, wrote off $34,000 of accounts as uncollectible using the direct write-off method, and reported net income of $600,000.a. Determine what net income would have been in the second year if the allowance method (using 1% of sales) had been used in both the first and second years.b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been…

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