Packard Company began operations on 1/1/04. For its second year of operations, 2005, it has the following activity:

In addition to the foregoing, Packard received $25,000 of rents in 2005 of which $15,000 remained unearned as of December 31, 2005. It is anticipated that the remaining amount will be earned in 2006.

The enacted tax rate for 2004 is 40%, and 30% for 2005. For 2006 and all future years, it is 35%. Management has also determined that it is probable that 20 percent of all deferred tax assets will not be realized in the foreseeable future. As of December 31, 2004, there was a temporary difference in depreciation that resulted in future taxable amounts of $23,000. This temporary difference will reverse in 2005. (Note: As of 12/31/2004, the 40% enacted tax rate was the only tax rate that was enacted. The 30% rate and 35% rates were not enacted until after 12/31/2004).

Based on the foregoing, what is the net income of Packard for the year ended December 31, 2005?

On October 17, 2007, the classified ads on the web site of The Seattle Times listed the following 13 used Toyota Prius automobiles for sale; the data set below shows the year, color, mileage (in miles) and asking price (in U.S. dollars) for each car:

year     color      mileage     price
2006     green        17043     25995
2007     gray         12628     24980
2005     maroon       24039     24885
2005     silver       48226     23995
2006     black        10522     22995
2004     silver       66345     21995
2007     white         5611     21995
2005     gold         24479     21595
2004     white        14618     20995
2005     silver       53699     20980
2004     silver       47649     17995
2003     white        39600     17500
2005     black       103126     16995

1. compute the correlation between mileage and price:

The consumer Price Index for the different years are as follows.

2003 10.75

2004 89.25

2005 83.34

2006 56.25

1) Calculate Inflation rate for 2003, 2004, and 2005.

2) What kind of fiscal policy will you use to fight against inflation. Explain it briefly.

Shown here are Caterpillar's annual global sales and revenue streams for the years 2004 through 2014. By observing the data graphically and analyzing the data statistically using techniques and concepts from this chapter (forecasting trend line, etc.), share your insights and conclusions about Caterpillar's annual global sales and revenue streams over this period of time.

Consider the following price data from 2002 to 2010

a. Compute the simple price index using 2002 as the base year. (Round your answers to 2 decimal places.)

b. Update the index numbers with a base year revised from 2002 to 2005. (Round your answers to 2 decimal places.)

3. In the table below you can find the earnings per share (EPS) and dividend per share (DPS) information for General Electric (GE) and General Motors (GM). For each company, please explain whether it is appropriate to use DDM to value the stock. (3 points)

Year   Company   EPS($)   DPS ($)
2001   GENERAL ELECTRIC CO   1.38   0.64
2002   GENERAL ELECTRIC CO   1.42   0.72
2003   GENERAL ELECTRIC CO   1.5   0.76

2004   GENERAL ELECTRIC CO   1.62   0.8
2005   GENERAL ELECTRIC CO   1.58   0.88
2006   GENERAL ELECTRIC CO   2.01   1
2007   GENERAL ELECTRIC CO   2.18   1.12

Year   Company   EPS($)   DPS ($)
2001   GENERAL MOTORS CO   1.78   2
2002   GENERAL MOTORS CO   3.37   2
2003   GENERAL MOTORS CO   7.24   2
2004   GENERAL MOTORS CO   4.97   2
2005   GENERAL MOTORS CO   -18.69   2
2006   GENERAL MOTORS CO   -3.5   1
2007   GENERAL MOTORS CO   -68.45   1

UTStarcom is a global leader in the manufacture, integration, and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The following excerpt was obtained from the 2004 10-K of UTStarcom, Inc., which reported material weaknesses in the company’s internal controls. In describing the company’s remediation efforts, the company stated that “planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated cost of sales.”

These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the company’s fourth-quarter 2004 financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes but which did not result in any adjustments to the company’s fourth-quarter 2004 financial statements. If unremediated, these material weaknesses have the potential of misstating revenue in future financial periods. The company’s planned remediation measures include the following:

• “The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.”

• “In March 2005, the Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in the United States and, in April 2005, the Company conducted a similar seminar in China. Starting in May 2005, the Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.”

• “At the end of 2004, the Company began requiring centralized retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.”

  1. What features of this case should have indicated to the auditor a potentially heightened risk of fraudulent financial reporting?

  2. Using the previous disclosures as a starting point, identify challenges regarding internal controls that a company may face in doing business internationally.

  3. The company had disclosed its planned remediation efforts for 2004. How might the auditor have used that information in planning the 2005 audit?

  4. Considering potential analytical procedures relevant to the revenue cycle, identify analytics that the auditor might use in 2005 to provide evidence that the problems detected in 2004 have been remedied.

  5. Considering potential substantive tests of revenue, identify procedures that might be applied in 2005 to provide evidence that the problems detected in 2004 have been remedied.

The year-end net income (in millions) for a company for the years 2004-2015 are shown in the provided data set (incomedata.xlsx). Graph the best chart which effectively displays the income data over time.

Income Data:

American customer satisfaction index: Starbucks in the U.S. 2006-2016

This statistic shows the American customer satisfaction index scores of Starbucks in the United States from 2006 to 2016. Starbucks had an ACSI score of 75 in 2016. Just over 50 percent (around 7,880) of all Starbucks stores were company-operated stores, from which Starbucks generates around 79 percent of its revenue. Around 5,292 stores are licensed stores. Starbucks, which became a publicly traded company on June 26, 1992, generated around 21.32 billion U.S. dollars in revenue in the 2016 fiscal year. In its company-operated stores Starbucks generates 74 percent of revenue from the sale of beverages, 19 percent from food sales and three percent from the sale of packaged and single serve coffees. Another four percent of retail sales are attributable to coffee-making equipment and other merchandise. The United States is Starbucks’ biggest and most important market. In 2016, revenues from Starbucks Americas segment amounted to more than 14 billion U.S. dollars. The Americas segment comprises over 13,000 stores in the U.S., Canada, Mexico, Puerto Rico, Brazil Chile and other American countries with around 86 percent of those stores located in the United States. 1. Plot this set of data as a scatterplot in excel. 2. Find the correlation coefficient. 3. Is it positive or negative? 4. What does the sign tell us? 5. What does the correlation imply about the relationship between the time and the satisfaction? 6. Is the correlation significant? Why or why not? (Answer in 1-2 complete sentences.) (Use the Pearson calculator). 7. Draw the trendline in excel. Can the regression line be used for prediction? No, it is too weak. Insert excel graph here: