Suppose that Lorenzo, an economist from a university in Arizona, and Neha, an economist from a school of industrial relations, are arguing over government bailouts. The following dialogue shows an excerpt from their debate:

Neha: Thanks to recent financial crises, the concept of bailouts is a hot topic for debate among everyone these days.

Lorenzo: Indeed, it's gotten crazy! A government bailout of severely distressed financial firms is unnecessary because free markets will properly price assets.

Neha: I don't know about that. Without a bailout of severely distressed financial firms, the economy will experience a deep recession.

1. The disagreement between these economists is most likely due to

A. differences in scientific judgments

B. differences between perception versus reality

C. differences in values

2. Despite their differences, with which proposition are two economists chosen at random most likely to agree?

A. Minimum wage laws do more to harm low-skilled workers than help them.

B. Lawyers make up an excessive percentage of elected officials.

C. Tariffs and import quotas generally reduce economic welfare.

There are 550,000 people in the US infected with HIV. Of these people, 275,000 are drug users, and
the rest are not drug users. The total population of the US is 250 million. There are 10 million drug
users in the US. The standard blood test for HIV infection is not always accurate. The probability that
someone who is infected with HIV will test positive for HIV is 0.99. The probability that someone who is
not infected with HIV will test negative for HIV is also 0.99. Answer the following questions, clearly
stating any assumptions that you need to make.

Suppose that a randomly chosen person takes the standard blood test for HIV, and the outcome of the
test is positive. What is the probability that this person is infected with HIV? Is your answer
surprising?

Sales Returns

Which of the following statements is true relating to the allowance for sales returns?

a. Sales returns is treated as an expense in the income statement and, therefore, reduces profit for the period.

b. An excess of the amount by which the allowance for sales returns is increased compared with the actual returns for the period indicates the company may have inflated profit for the period.

c. The amount by which the allowance for sales returns is reduced during the period is recognized as a reduction of sales for the period, thus reducing profts.

d. Increasing the allowance for sales returns by an amount that is less than the actual returns recognized for the period may indicate either the company is attempting to increase profit for the period or its estimates that less of its products will be returned in the future.

Deferred Revenue
True or false: A reduction of the deferred revenue account can be interpreted as a leading indicator of lower future revenues. Explain

a. Fale. Revenue is recognized when the deferred revenue liability increases. If the deferred revenue account has decreased, more cash came in from customers and more revenue will be recgnized in the future.

b. True. Revenue is recognized when the deferred revenue liability decreases. If the deferred revenue account has decreased, less cash came in from customers and less revenue will be recognized in the future.

c. False. Revenue is recognized when the deferred revenue liability decreases. If the deferred revenue account has decreased, less cash came in from customers and more revenue will be recognized in the future.

d. True. Revenue is recognized when the deferred revenue liability decreases. If the deferred revenue account has decreased, more cash came in from customers and less revenue will be recognized in the future.

Foreign Exchange Effects on Sales  
True or false: A multinational company reports that a large amount of its sales is generated in foreign currencies that have strengthened vis-à-vis the $US. Consolidated revenues are likely lower than would have been reported in the absence of such a shift in exchange rates.

a. False. Strengthening foreign currencies implies a weakening $US. As the $US weakens, foreign currencies purchase less $US, resulting in an decrease in foreign currency-denominated sales, expense and profit. Consolidated revenues will therefore, likely be higher.

b. True. Strengthening foreign currencies implies a weakening $US. As the $US weakens, foreign currencies purchase less $US, resulting in an decrease in foreign currency-denominated sales, expense and profit. Consolidated revenues will therefore, likely be lower.

c. False. Strengthening foreign currencies implies a weakening $US. As the $US weakens, foreign currencies purchase more $US, resulting in an increase in foreign currency-denominated sales, expense and profit. Consolidated revenues will therefore, likely be higher.

d. True. Strengthening foreign currencies implies a weakening $US. As the $US weakens, foreign currencies purchase less $US, resulting in an increase in foreign currency-denominated sales, expense and profit. Consolidated revenues will therefore, likely be lower.

The transactions completed by AM Express Company during March, the first month of the fiscal year, were as follows:

Required:

1. The following accounts are setup in the general ledger as of March 1. Using the information below, enter the balances for each account.

2. Journalize the transactions for March using the required journal(s). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

2a. Journalize the transactions for March using the purchases journal (with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If no entry is required, type "No entry required" and leave the amount boxes blank.

If an amount box does not require an entry, leave it blank.

2b. Journalize the transactions for March using the cash receipts journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

2c. Journalize the transactions for March using the single-column revenue journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

2d. Journalize the transactions for March using the cash payments journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

2e. Journalize the transactions for March using the two-column general journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

3. Post the appropriate individual entries to the general ledger.

4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances.

If an amount box does not require an entry, leave it blank.

5. Prepare a trial balance.

If an amount box does not require an entry, leave it blank.

All Journals and The primary ledger, when used in conjunction with subsidiary ledgers, that contains all of the balance sheet and income statement accounts.General Ledger; Trial Balance

The transactions completed by AM Express Company during March, the first month of the fiscal year, were as follows:

Required:

1. The following accounts are setup in the general ledger as of March 1. Using the information below, enter the balances for each account.

2. Journalize the transactions for March using the required journal(s). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

2a. Journalize the transactions for March using the The journal in which all items purchased on account are recorded.purchases journal (with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts). Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If no entry is required, type "No entry required" and leave the amount boxes blank.

If an amount box does not require an entry, leave it blank.

2b. Journalize the transactions for March using the cash receipts journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

2c. Journalize the transactions for March using the single-column revenue journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

2d. Journalize the transactions for March using the cash payments journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

2e. Journalize the transactions for March using the two-column general journal. Assume that the daily postings to the individual accounts in the accounts payable subsidiary ledger and the accounts receivable subsidiary ledger have been made.

If an amount box does not require an entry, leave it blank.

3. Post the appropriate individual entries to the general ledger.

4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances.

If an amount box does not require an entry, leave it blank.

5. Prepare a trial balance.

If an amount box does not require an entry, leave it blank.

Flash Inc. was founded 5 years ago. It has been profitable for the last 2 years, but it has needed all of its earnings to support growth and thus has never paid a dividend. Management has indicated that it plans to pay a $1 dividend starting one year from today, then it will increase the dividend growth by 50% for the next two years, and then the company will achieve a long run growth rate of 6%. Assuming a required return of 11%, what is your estimate of the stock's intrinsic value today? a) Calculate the Flash Inc. non-constant dividends. b) Calculate the Flash Inc. horizon value. c) What is the firm's intrinsic value today, P̂ 0?

Problem:

On Monday morning when you enter your law office, you find Dr. Ben Heartache, the fastest scalpel in the West, waiting. He needs legal advice.

Two weeks earlier, Dr. Heartache explained, he emerged from the operating room after completing an exhausting three hour operation. He was immediately asked to go to the emergency room in order to assist with a diagnosis regarding an accident case. When the doctor arrived in the emergency room, he found an unconscious Professor Smith being attended to by his son, David

David was so upset it was difficult for the doctor to find out exactly what had taken place. Apparently, the professor and his son were out for a Sunday drive when his car was hit by a large truck. The doctor immediately concluded that the professor needed emergency brain surgery, and advised David that a request had already been made for a prominent brain surgeon from the State University to come and operate on his father. Unfortunately, the university medical facility was located 78 miles away, and the professor's condition was such that he might die before the

surgeon arrived.

David pleaded with Dr. Heartache. "I know you're exhausted, but I'm begging you. I'll give you $45,000 if you will operate on my father. Please, please, operate!" The doctor, moved by David's plea, decided to operate. Fighting back fatigue, Dr. Heartache performed valiantly. I certainly earned that fee, the doctor said to himself, as he emerged from the operating room.

The doctor truly put everything he had into the operation, but the injury was too great, and the professor died a few hours after the operation. When David learned what had happened, he fainted.

Two days later, Dr. Heartache received an angry letter from David. "Your incompetence was responsible for my father's death," he wrote. "Obviously, I'm not paying you a red cent.

Try and collect, and I'll make your life a living hell!"

Dr. Heartache feels that a valid contract entitling him to $45,000 was entered into by both parties. He feels that he has earned the fee, and would like to collect. How would you advise the doctor?

Please give a careful but brief answer to each of the following questions. (a) What is a population? A population is the complete set of measurements from every individual of interest. A population is a subset of the complete set of measurements from every individual of interest. A population is a numerical descriptive measure of the complete set of measurements from every individual of interest. A population is a numerical descriptive measure of a subset of the complete set of measurements from every individual of interest. Incorrect: Your answer is incorrect. . . How do you get a simple random sample? A simple random sample is accomplished by dividing the entire population into pre-existing segments. Make a random selection of segments. Include every member of each selected segment in the sample. A simple random sample is accomplished by numbering all members of the population sequentially. Then, from a starting point selected at random, include every kth member of the population in the sample. A simple random sample is accomplished by dividing the entire population into distinct subgroups based on a specific characteristic such as age, income, education level, and so on. All members of a subgroup share the specific characteristic. Draw random samples from each subgroup. A simple random sample is accomplished by assigning numbers to members of the population and then using a table, calculator, or computer to select random numbers from the numbers assigned to the population members. Create the sample by using population members with numbers corresponding to those randomly selected. A simple random sample is accomplished by using data from population members that are readily available. Incorrect: Your answer is incorrect. . . Give examples. This answer has not been graded yet. . (b) What is a sample statistic? A sample statistic is the complete set of measurements from every individual of interest. A sample statistic is a subset of the complete set of measurements from every individual of interest. A sample statistic is a numerical descriptive measure of the complete set of measurements from every individual of interest. A sample statistic is a numerical descriptive measure of a subset of the complete set of measurements from every individual of interest. What is a sampling distribution? A sampling distribution is a probability distribution of a ---Select--- population population parameter sample sample statistic based on all possible ---Select--- populations simple random samples of ---Select--- the same size different sizes from ---Select--- the same population different populations . Give examples. This answer has not been graded yet. . (c) Give a careful and complete statement of the central limit theorem. Given a probability distribution of x values where n = sample size, μ = the mean of the x distribution, and σ = the standard deviation of the x distribution. Even if the x distribution is not normal, if the sample size n is sufficiently large ( n ? < ≥ 30 in most cases), the central limit theorem tells us that the x distribution is approximately ---Select--- binomial normal poisson geometric , the mean of the x distribution is μx = c , and the standard deviation of the x distribution is σx = c . (d) List at least three areas of everyday life to which the above concepts can be applied. Be specific. This answer has not been graded yet.