1. Which of the following shocks did NOT contribute to the Great Depression

   		rising interest rates
   		stock market crash
   		bank panics
   		rising budget deficits

2. Both the Great Recession and the Great Depression

   		had unemployment peaking at 10%
   		were caused by short-run aggregate supply shocks
   		were associated with falling prices
   		were associated with a financial crisis

3. During the Great Depression, the lack of which safeguard for depositors created the incentive for bank runs?

   		Interest rate caps
   		unemployment insurance
   		deposit insurance
   		social security

4. When depositors withdraw from the banking system,

   		economic activity improves because people spend their money
   		economic activity declines because banks are unable to make loans
   		economic activity is unaffected because banks do not produce goods or services
   		none of the above

Assume that you are the CEO of a small publicly traded company. The company’s stock price has fallen recently, and you believe that the market does not fully understand the company’s potential. You wonder about ways to increase cash flow for the year. At your direction, your CFO provides you with the following recommendations that are designed to increase your cash flow in the current period. Your hope is that these will bring the stock price back up to where you believe it should be.

1. Lengthen the time taken to pay accounts payable (“lean on the trade”) to increase net cash flows from operating activities.
2. Cut spending on R&D by 10%, which improves cash flow but also operating performance measures.
3. Decrease discretionary spending on marketing and promotion activities.
4. Offer deep discounts (during the last quarter of fiscal year only) to favored customers to provide incentives for them to increase the quantities they purchase from you in the current period.
5. Delay certain capital expenditures to push the cash outflow to a subsequent period.

Evaluate TWO of the CFO’s recommendations. In your evaluation, consider whether each recommendation will increase free cash flow in the short-term and the long-term. Will any of these ideas improve the stock price?

Exercise 9-4 Direct Materials Variances [LO9-4]

Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 3,000 helmets, using 2,310 kilograms of plastic. The plastic cost the company $15,246.

According to the standard cost card, each helmet should require 0.68 kilograms of plastic, at a cost of $7.00 per kilogram.

Required:

1. What is the standard quantity of kilograms of plastic (SQ) that is allowed to make 3,000 helmets?

2. What is the standard materials cost allowed (SQ × SP) to make 3,000 helmets?

3. What is the materials spending variance?

4. What is the materials price variance and the materials quantity variance?

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations.)

1.Which of the following are characteristics of a peak in the business cycle?

a.Businesses begin rehiring full-time workers and ordering heavy equipment, and inflation begins to pick up.

b.Economic activity shows a decelerating rate of growth, businesses slow hiring, and capital spending rate of growth slows.

c.GDP growth turns positive, layoffs slow, and inflation remains moderate.

2.Which school of thought is associated with the belief that the boom bust pattern of the business cycle is largely due to misguided government policies especially monetary policy?

a.Austrians

b.Keynesians

c.Monetarists

3.

Which is the closest definition of disinflation?

a.A positive but declining rate of inflation.

b.A negative rate of inflation.

c. stable rate of inflation, either positive or negative.

4.

Which of the following would most likely cause higher inflation?

Increased interest rates brought about by open market operations

Higher industrial input prices accommodated with an increase in the money supply

Recession

5.

Relative to the overall economy, unemployment is:

A coincident indicator

A leading indicator

A lagging indicator

6.

Which of the following would most likely cause a recession?

Expansionary fiscal policy.

Fall in consumer confidence.

Lower interest rates.

7.

Deflation is most likely to be associated with:

Substantial macroeconomic contraction.

Expansionary monetary policy.

An increase in government spending.

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 9 million of the company’s $1 par common shares for $25 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of the grant is $27 per share. The fair value of the 9 million options, estimated by an appropriate option pricing model, is $7.50 per option.

Required:

1. Determine the total compensation cost pertaining to the incentive stock option plan.
2. & 3. Prepare the appropriate journal entries to record compensation expense on December 31, 2021, 2022, and 2023. Record the exercise of the options if all of the options are exercised on May 11, 2025, when the market price is $28 per share.

2 and 3.Prepare the appropriate journal entries to record compensation expense on December 31, 2021, 2022, and 2023. Record the exercise of the options if all of the options are exercised on May 11, 2025, when the market price is $28 per share. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Universal Foods issued 12% bonds, dated January 1, with a face amount of $155 million on January 1, 2018 to Wang Communications. The bonds mature on December 31, 2032 (15 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31. Universal uses the straight-line method. Universal Foods sold the entire bond issue to Wang Communications. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1-3. Prepare the journal entry to record the purchase of the bonds by Wang Communications on January 1, 2018, interest revenue on June 30, 2018 and interest revenue on December 31, 2025. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer is not complete.

IV              Suppose the U.S. government began 2016 with no debt. The expenditures listed below do not include interest on debt.

                  2016: Spending on goods & services and transfers         $4.5 trillion

                              tax receipts                                                                                      $4 trillion

                  What is the budget deficit? How much must the Treasury borrow?

                  2017:   Expenditures and tax receipts both increase by 1% from the year before.

                               In addition, the debt incurred in 2016 has a 2% interest rate, which must be paid this year.

                  What is the budget deficit? How much must the Treasury borrow? What is its total debt?

                  2018:   Spending and tax are same as 2017. Bonds issued in 2017 carry the same interest rate.

                  What is the budget deficit? How much must the Treasury borrow? What is its total debt?

                  2019:   Spending is the same as 2018. But taxes increase 10% due to major expansion in macroeconomy. Bonds issued in 2018 carry the same interest rate. In addition, half of the                                         (cumulative) Treasury bonds mature this year.

                  What is the budget deficit? How much must the Treasury borrow? How much in bonds must it issue?

Developing a Master Budget for a Merchandising Organization

Dils Brother Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2017.

Actual and forecasted sales for selected months in 2017 are as follows:

Monthly operating expenses are as follows:

Cash dividends of $15,000 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 cost of 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.

(a) Prepare a purchases budget for each month of the second quarter ending June 30, 2017.

(b) Prepare a cash receipts schedule for each month of the second quarter ending June 30, 2017. Do not include borrowings.

(c) Prepare a cash disbursements schedule for each month of the second quarter ending June 30, 2017. Do not include repayments of borrowings.

(d) Prepare a cash budget for each month of the second quarter ending June 30, 2017. 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, 2017.

Only use negative signs to show net losses for income.

(f) Prepare a budgeted balance sheet as of June 30, 2017.

On March 1, 2018, the Miner Company received authorization to issue $160,000 in debentures. The bonds have a stated interest rate of 6%, and they mature in ten years. Interest is payable each February 28^th and August 31^st. On October 31, 2021, Miner issued 90 of the bonds and received cash from the lender in the total amount of $98,500.

Then, on May 1, 2025, the bondholders converted the bonds into 8,800 shares of Miner’s $10 par common stock. Miner paid all interest due to May 1^st in cash.

Miner has a fiscal year-end that ends on each June 30^th. Prepare ONLY those journal entries that the company would make with relating to the bonds on MARCH 1, 2018, OCTOBER 31, 2021, FEBRUARY 28, 2022, and MAY 1, 2025.