Wang corporation follows generally accepted accounting principles in accounting for uncollectibles. wang received notification from a bankruptcy court that its customer, timber creek, had been adjudicated and released from all claims presently pending against it by wang corporation. frank wang, owner of wang corporation, was not at all with this decision. frank had anticipated recovering at least $50,000 from timber creek, and that balance remained in the accounts receivable accounts of wang corporation. because wang corporation has no further remedies for collection, frank directed the accounting department to prepare a journal entry to write off the account of timber creek.

a.

(i)  Rate of return=(2+(38-40))/20=0%

(ii) Rate of return=(2+(40-40))/20=10%

(iii)Rate of return=(2+(42-40))/20=20%

b.

(i) Real rate of return=(1+0%/1+3%)-1=0%

(ii) Real rate of return=(1+10%/1+3%)-1=6.8%

(iii) Real rate of return=(1+20%/1+3%)-1=16.50%

Explanation:

a. The return on any stock can be calculated using the below formula

Return=(Dividend+Capital gain)/Opening value of stock

Where Capital gain=Closing value of stock- opening value of stock.

Using the formula above

(i)  Rate of return=(2+(38-40))/20=0%

(ii) Rate of return=(2+(40-40))/20=10%

(iii)Rate of return=(2+(42-40))/20=20%

b. The Real rate of return can be calculated using the below formula:

Real rate of return=(1+ rate of return/1+inflation rate)-1

(i) Real rate of return=(1+0%/1+3%)-1=0%

(ii) Real rate of return=(1+10%/1+3%)-1=6.8%

(iii) Real rate of return=(1+20%/1+3%)-1=16.50%