A U.S. company expects to have to pay 10 million Mexican pesos in six months. Explain how the exchange rate risk can be hedged using (a) a forward contract and (b) an option.

Recent election cycles have brought new challenges for corporations and their boards of directors. For example, in the 2016 presidential election campaign, candidate Hillary Clinton unveiled a prescription drug plan to lower prescription prices following the Turing Pharmaceutical price gouging scandal. Yet ironically, the pharmaceutical industry was one of the most generous industry donators to her campaign, as well as those of the other candidates. In fact, the health industry overall (including health professionals, hospitals, HMOs, and pharmaceutical companies) donated over $10 million to the presidential candidates by spring of 2016. In essence, the pharmaceutical companies and health-care professionals spent money to promote policies that went against their own financial interests. This happened in congressional elections as well. In 2010, the pharmaceutical industry’s trade group, PhRMA, donated funds to nonprofit groups that used those funds to help elect 23 representatives who subsequently voted to limit access to contraceptives. Some of those funds came from firms like Pfizer, Bayer, and Merck — all manufacturers of contraceptives. Political spending is also an issue with individual companies. Target Corporation, a company that had positioned itself as an LGBT-friendly corporation, found itself the target of angry employees and customers when they learned about Target’s political spending. Target, a sponsor of the annual Twin Cities G4y Pride Festival, donated money to a business group that supported an antig4y rights candidate for Minnesota governor. Angry employees and consumers conducted protests outside Target stores and threatened a boycott. These examples show how political spending can have dramatic consequences for corporations. Politicians take positions on a range of policies and so the same politician may hold some positions that support and other positions that damage a corporation’s best interests. This problem was exacerbated when the U.S. Supreme Court’s Citizen United decision changed the political spending landscape for corporations. Before that decision, political spending was constrained to political action committees (PACs), and PAC political activity had to be disclosed to the FEC (Federal Election Commission). Now firms can make unlimited contributions directly to candidates or indirectly to 501c4 nonprofits and trade associations, who can then hide both the donors who provided the money and the way the money was spent. Firms are now freer to become politically involved but, as Target and the pharmaceutical companies found out, that freedom comes with risk. Shareholders and other stakeholders are asking firms to be transparent in their political spending. They want to judge those expenditures for themselves to avoid agency problems and other conflicts of interest. Ira M. Millstein, founder of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School, proposes a new policy for boards of directors to follow in this new landscape. He suggests that: 1. Companies should require trade associations of which they are members to report to them on their political spending, 2. Companies should require trade associations of which they are members to disclose the donors who provide the money for their political spending, and 3. Companies should then disclose the information they receive from their trade associations when they disclose their other spending to shareholders and other stakeholders.

1. How would you react to the problem of political spending?

2. As the Chief Executive Officer of a pharmaceutical company, what would you do? Would you retain your PhRMA membership? Would you attach any conditions to your membership?

3. How would you react to the Target situation? What would you do as the CEO?

4. What is your reaction to Ira Millstein’s suggestions? Should corporations demand that trade associations disclose this information before they join?

5. Should companies start disclosing the information they gather? If a trade association refuses to give up that information, should the company decline to join?

Singh Song Pte Ltd had an opening cash balance of $40, 000 as at 1st June 2020.
Budgeted sales were as follows:
$
May 2020 80,000
June 2020 90,000
July 2020 75,000
August 2020 75,000
Receipts from sales:
The company allows a cash discount of 2% if payment is made within the month of
sales and 1%discount if payment is made in the month following the sale. It is estimated
that 50% of the accounts receivable pay within the month of the sale, and a further 50%
pay in the month following the sale.
Purchases are expected to be 30% of the sales value. Purchases are paid for 1
month after sales. The trade supplier allows a 2% discount for all payment made
on time.
Salaries have been set at $30,000 per month and payable at the end of the month.
Overheads are set at $10,000 per month. The overheads are paid for in the
month incurred. Overheads include depreciation of $2,000 per month.
Renovations to the premises are to be undertaken in June 2020 for $100,000. This
will be paid for in two equal monthly installments starting in June 2020.
The owner withdraws cash of 6,000 monthly.

Required:
a) Prepare a Cash Budget for the business for each of the three months from
June to August 2020 showing the ending cash balance at the end of each
month.
b) Briefly explain the usefulness of preparing a cash budget.

Question 6 Oriole Company reported the following amounts for its cost of goods sold and ending inventory: 2021 2020 Cost of goods sold $170,000 $175,000 Ending inventory 30,000 30,000 Oriole made two errors: (1) 2020 ending inventory was overstated by $10,500, and (2) 2021 ending inventory was understated by $9,000. Calculate the correct cost of goods sold and ending inventory for each year. 2021 2020 Correct ending inventory $enter a dollar amount $enter a dollar amount Correct cost of goods sold $enter a dollar amount $enter a dollar amount Describe the impact of the errors on profit for 2020 and 2021 and on owner’s equity at the end of 2020 and 2021. In 2020 profit is select an option by $enter a dollar amount , the amount of the error in ending inventory. This error flows through to owner’s equity in 2020 to produce an select an option of $enter a dollar amount . In 2021 both errors have an impact. The net effect is an select an option of profit by $enter a dollar amount . This is a result of the $10,500 select an option of the beginning inventory plus $enter a dollar amount select an option of ending inventory. Owner’s equity in 2021 would show only an select an option of $enter a dollar amount . The $10,500 select an option of 2020 would be offset by the $10,500 select an option in profit caused by the impact on beginning inventory in 2021

Presented below are three independent situations.

1. Ivanhoe Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Ivanhoe’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Ivanhoe’s liability for stamp redemptions was $13,180,300 at December 31, 2019. Additional information for 2020 is as follows.

If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be $5,191,300. What amount should Ivanhoe report as a liability for stamp redemptions at December 31, 2020?

2. In packages of its products, Shamrock Inc. includes coupons that may be presented at retail stores to obtain discounts on other Shamrock products. Retailers are reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs. Shamrock honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. Shamrock estimates that 60% of all coupons issued will ultimately be redeemed. Information relating to coupons issued by Shamrock during 2020 is as follows.

What amount should Shamrock report as a liability for unredeemed coupons at December 31, 2020?

3. Bridgeport Company sold 692,300 boxes of pie mix under a new sales promotional program. Each box contains one coupon, which submitted with $4.50, entitles the customer to a baking pan. Bridgeport pays $6.50 per pan and $1.00 for handling and shipping. Bridgeport estimates that 70% of the coupons will be redeemed, even though only 244,200 coupons had been processed during 2020. What amount should Bridgeport report as a liability for unredeemed coupons at December 31, 2020?

Question 12

The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and Pharoah Company, a lessee.

The collectibility of the lease payments by Shamrock is probable.

Compute the amount of the lease receivable at commencement of the lease. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answer to 2 decimal places, e.g. 5,275.15.)

Prepare a lease amortization schedule for Shamrock for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessor’s accounting period ends on December 31. Reversing entries are not used by Shamrock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

Suppose the collectibility of the lease payments was not probable for Shamrock. Prepare all necessary journal entries for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15.)

(Round answers to 0 decimal places, e.g. 2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Exercise 18-13

The condensed financial statements of Ness Company for the years 2019 and 2020 are presented below.

Compute the following ratios for 2020 and 2019. Inventory on December 31, 2018, was $310. Assets on December 31, 2018, were $1,900. Equity on December 31, 2018, was $870.

The widget market is currently monopolized by Widgets R Us (or simply Widgets), but another firm (Wadgets) is deciding whether to enter that market. If Wadgets stays out of the market, Widgets will earn $100 million profit. However, if Wadgets enters, Widgets can either share the market, in which case the two companies enjoy a total $20 million in profit, or wage a ruinous price war, in which case both companies lose big and go bankrupt (call this $0 profit for concreteness). The only sane choice for Widgets is to share the market, but before Wadgets chooses whether to enter, the Widgets Board of Directors has the opportunity to hire a new CEO—and this new CEO might just be crazy enough to wage a price war!

(a) Draw the game table for this game, where the relevant players are Wadgets, which decides whether to enter the market, and the Widgets Board, which decides whether to hire a crazy CEO who will wage a price war if Wadgets enters or hire a sane CEO who will share the market if Wadgets enters. (Assume that Wadgets has no way of knowing if the newly hired Widgets CEO is crazy or sane, making this a simultaneousmove game.)

(b) In this game, the Widgets Board views Hire a Sane CEO as a _______ strategy. Fill in the blank with one of the following answers: “superdominant,” “strictly dominant (but not superdominant),” “weakly dominant (but not strictly dominant),” or “not dominant.” Explain your answer.

(c) Find all pure-strategy Nash equilibria of this game.

(d) Suppose that, in addition to wanting to maximize profits and avoid bankruptcy, the Widgets Board would prefer not to have a crazy CEO. How does this extra consideration change your answer to part (b), and how does it change the set of pure-strategy Nash equilibria relative to part (c)? Explain your answers.