9. In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $368,000 cost of equipment purchased on January 1, 2015. The equipment life was expected to be five years with no residual value. Straight-line depreciation is used by PKE.

Required:

1. Prepare the correcting entry assuming the error was discovered in 2018 before the adjusting and closing entries. (Ignore income taxes.) (If no entry is required, select "No journal entry required" in the first account field.)

Record the correcting entry for errors discovered.

Assume the error was discovered in 2020 after the 2019 financial statements are issued. Prepare the correcting entry. (If no entry is required, select "No journal entry required" in the first account field.)

The following is a four- year forecasted estimate for ABC limited.

Required

1. Estimate the fair market value of ABC limited at the end of 2018. Assume that after 2022 earnings before interest and tax will remain constant at Sh. 200 million, depreciation will equal capital expenditure in each year and working capital will not change. The weighted average cost of capital for the company is 11% and its tax rate is 30%.

2. Estimate the fair market value per share of the company’s equity at the end of 2018 if the company has 40 million shares outstanding and the market value of interest-bearing liabilities on the valuation date equals Sh. 300 million. (10 Marks)

1. Suppose that a simple economy produced only three goods: wheat, automobiles, and chairs. The table below lists the quantity and prices for each of the goods for year 2000 and 2010. Based on table, answer the following questions

1. Calculate nominal GDP in year 2000.
2. Suppose prices doubled by 2010 but production stayed the same. Calculate the nominal value of GDP in 2010.
3. Suppose production in wheat and chairs rose by 10 percent in 2010 compared to 2000. Automobile production fell by 5 percent. If prices remain unchanged over this period, what is nominal value of GDP in 2010?

Three companies, Optimax, Megachug, and Thirstoid, each with about the same market share, dominate the sports drink market. In an attempt to increase profits, the three companies coordinate their actions and agree to restrict their collective output of sports drinks, thereby increasing the price of sports drinks in the market.

This is an example of:

• A price war
• Price leadership
• A cartel

10. Suppose that the required reserve ratio is 7.5%. If the Fed sells $530 million of bonds to the First National Bank. What happens to reserves and the monetary base? What will happen to the money supply? Show the changes in The Federal Reserve’s balance sheet, First National Bank’s balance sheet, and the collective banking system’s balance sheet.

William's nominal income in 2010 was $72,500. How much was his real income if 2010 was the base year?

Question 3

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Developing a Master Budget
for a Merchandising Organization
Peyton Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2010.

Actual and forecasted sales for selected months in 2010 are as follows:

Monthly operating expenses are as follows:

Cash dividends of $17,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

• Part A
• Part B
• Part C
• Part D
• Part E
• Part F

(c) Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2010. Do not include repayments of borrowings.

(d) Prepare a cash budget for each month of the second quarter ending June 30, 2010. Include budgeted borrowings and repayments.

Only use negative signs, if needed, for: excess receipts over disbursements, balance before borrowings and cash balances (beginning and ending).

(e) Prepare an income statement for each month of the second quarter ending June 30, 2010.

Only use negative signs to show net losses in income.

(f) Prepare a budgeted balance sheet as of June 30, 2010.

Each question must be accompanied by a graph, labeled properly. Each answer (up, down, no change) should be accompanied by a one line explanation.

For a small open economy where the world interest rate is below the rate that would prevail if it were closed (equilibrium) predict the effect of an increase in G on the following variables:

a) Real Interest rate b) Desired Saving c) Desired Investment d) NX e) Does the country start out with a trade deficit or surplus? (before any shift)

Netscape planned to offer 3.5 mln shares at $14 in an IPO. A day before the offering their underwriters suggested to change the offer to 5 mln shares at $28. Netscape had an IPO on August 8^th, 1995 -- 5 mln shares at $28 were offered (excluding the 15% overallotment). During the first day of trading, the price of the stock rose to a maximum of $73 and closed the day at $54. How much money did Netscape ‘leave on the table’? For simplicity, disregard the overallotment shares and the underwriter’s spread.