Oakdale, Inc., is a subsidiary of Solomon Publishing and specializes in the publication and distribution of reference books. Oakdale's sales for the past year exceeded $18 million, and the company employed an average of 65 employees. Solomon periodically sends a member of its internal audit department to audit the operations of each of its subsidiaries, and Katherine Ford, Oakdale's treasurer, is currently working with Ralph Johnson of Solomon's internal audit staff. Johnson has just completed a review of Oakdale's investment cycle and prepared the following report.

General

Throughout the year, Oakdale has made both short-term and long-term investments in securities; all securities are registered in the company's name, According to Oakdale's bylaws, long-term investment activity must be approved by its board of directors, while short-term investment activity may be approved by either the president or the treasurer.

Transactions

Oakdale has a computer link with its broker; thus, all buy and sale orders are transmitted electronically. Only individuals with authorized passwords may initiate certain types of transacs tions. All purchases and sales of short-term secu_ rities in the year were made by the treasurer. In addition, two purchases and one sale of long. term securities were executed by the treasurer. The long-term security purchases were approved by the Board, The president, having online authorization access to all transactions, was able

to approve a sale of a long-term security. Th president is given access to authorize all transactions engaged in by the firm. Because the treasurer is listed with the broker as the company's contact, all revenue from these investments is received by this individual, who then forwards the checks to accounting for processing.

Documentation

Purchase and sales authorizations, along with brokers' advice, are maintained in an electronic file with authorized access by the treasurer. Brokers' advice is received verbally on the phone, and this advice is noted on a broker advice form. This form is filed by the treasurer. The certificates for all long-term investments are kept in a safe deposit box at the local bank; only the president of Oakdale has access to this box. An inventory of this box was made, and all certificates were accounted for. Certificates for short-term investments are kept in a locked metal box in the accounting office. Other documents, such as longterm contracts and legal agreements, are also kept in this box. There are three keys to the box, held by the president, treasurer, and the accounting manager. The accounting manager's key is available to all accounting personnel, should they require documents kept in this box. Certificates of investments may take up to four weeks to receive after the purchase of the investment. An electronic inventory list is kept perpetually. The data are keyed in by accounting personnel who receive a buy/sale transaction sheet from the treasurer. The president, treasurer, and accounting manager all have passwords to access and update this inventory list. The accounting manager's password is known by two of the accounting supervisors in case the inventory list needs to be updated when the accounting manager is not available. Documentation for two of the current short-term investments could not be located in this box; the accounting manager explained that some of the investments are for such short periods of time that formal documentauon is not always provided by the broker.

Accounting Records                                        

Deposits of checks for interest and dividends earned on investments are recorded by the accounting department, but these checks could not be traced to the cash receipts journal maintained by the individual who normally opens, stamps, and logs incoming checks. These amounts are journalized monthly to an account for investment revenue. Electronic payments for investment purchases are authorized by the treasurer. If the amount is in excess of $15,000, an authorization code given by the treasurer or president is necessary.

Each month, the accounting manager and the treasurer prepare the journal entries required to adjust the short-term investment account. There was insufficient backup documentation attached to the journal entries reviewed to trace all transactions; however, the balance in the account at the end of last month closely approximates the amount shown on the statement received from the broker. The amount in the long-term investment account is correct, and the transactions can be clearly traced through the documentation attached to the journal entries. No attempts are made to adjust either account to the lower of aggregate cost or market.

Required;

To achieve Solomon Publishing's objective of sound internal control, the company believes the following four controls are basic for an effective system of accounting control.

• Authorization of transactions
• Complete and accurate record keeping
• Physical control
• Internal verification

1. Describe the purpose of each of the four controls listed above.
2. Identify an area in Oakdale's investment procedures that violates each of the four controls listed above.

For each of the violations identified, describe how Oakdale can correct it.

You have recently been hired as the assistant controller for Stanton Temperton Corporation, which rents building space in major metropolitan areas. Customers are required to pay six months of rent in advance. At the end of 2018, the company's president, Jim Temperton, notices that net income has fallen compared to last year. In 2017, the company reported before-tax profit of $330,000, but in 2018 the before-tax profit is only $280,000. This concerns Jim for two reasons. First, his year-end bonus is tied directly to before-tax profits. Second, shareholders may see a decline in profitability as a weakness in the company and begin to sell their stock. With the sell-off of stock, Jim's personal investment in the company's stock, as well as his company-operated retirement plan, will be in jeopardy of severe losses. After close inspection of the financial statements, Jim notices that the balance of the Deferred Revenue account is $120,000. This amount represents payments in advance from long-term customers ($80,000) and from relatively new customers ($40,000). Jim comes to you, the company's accountant, and suggests that the firm should recognize as revenue in 2018 the $80,000 received in advance from long-term customers. He offers the following explanation: “First, we have received these customers' cash by the end of 2018, so there is no question about their ability to pay. Second, we have a long-term history of fulfilling our obligation to these customers. We have always stood by our commitments to our customers and we always will. We earned that money when we got them to sign the six-month contract.”

Discuss the ethical dilemma you face:

1. What is the issue?

2. Who are the parties affected?

3. What factors should you consider in making your decision?

4. What is the stance you will take?

Required: 1) Reach a consensus concerning the answers to the four questions.

2) Write a memo to the company’s controller discussing the issue and the stance that your group is taking.

Steve and Bill both produce computers and smart watches. If Steve uses all his resources on computers he can make 3 million computers per year. If he use all their resources on watches, Steve can make 5 million watches a year. If Bill uses all his resources they can make 2 million computers a year and if he use all of his resources on watches he can make 7 million watches per year. This information is summarized in the following table.

Table 2: Amount of each good each individual could produce if he only produced that particular good

   Computers Watches

Steve 3 million 5 million

Bill 2 million 7 million

a. Who has an absolute advantage in computers? In watches?

b.Find the opportunity cost of each good for each company. Fill in the table below with the opportunity costs (make sure you use the correct units).

Table 3: Opportunity Costs

Computers Watches

Steve

Bill

c. Who has comparative advantage in computers? In watches?

d. If Steve and Bill were to trade products with each other, who will trade away watches in exchange for computers?

e. The price of watches can be expresses in terms of computers. What is the highest price at which watches can be traded that would make both agents better of? What is the lowest price? Explain.

Promoting international trade is not a zero-sum game. It is a win-win proposition; both parties gain from trade.

Consider the following:

• Tariffs are paid by the citizens of the country imposing tariffs, not by the citizens of the country producing the products upon which the tariffs are levied.
• The term “trade deficits” is a misnomer. Every country’s trade is always in balance.
• Trade deficits do not mean the US no longer produces anything to export. The US is the world’s second largest manufacturer and the world’s second largest exporter of manufactured goods.
• Trade deficits reflect a strong economy. Trade deficits rise during economic expansions and fall during economic contractions. Unemployment falls as trade deficits rise and rises as trade deficits fall.
• Imports and exports are complements, not competitors. Both are necessary and both contribute to economic growth.
• Roughly one-third of all US imports and exports is trade between US multinational companies and their overseas subsidiaries.
• Foreign-owned companies operating in the US number in the thousands and provide directly or indirectly jobs for more than 13 million US workers (roughly, 10% of the US workforce).
• US trade deficit in goods in 2018 (as a % of GDP) was the same as it was 5, 10 and 15 years earlier.
• The rise in US goods trade deficit with China has not increased the US total goods trade deficit. It has been offset by reduced goods imports from other trading partners.
• There is a strong correlation between the rise in world trade and:
• The rise in world GDP
• The dramatic fall in the world’s extreme poverty rate
• The rise in world life expectancy
• For every US manufacturing job lost to trade between 2000 and 2010, seven US jobs were lost to domestic productivity improvements. Those seven jobs cannot be brought back from overseas because they never left the US.

Write an evaluation of credible economists’ unbiased opinions on the benefits, costs, and results of current US trade and tariff policies. Complete the following in your evaluation:

• Evaluate how US trade policy changes in the last 2 years affect global trade activities by multinational corporations.
• Discuss credible economists’ opinions on the long-term effects of trade and tariff policies changes in the last 2 years.
• Explain the effect of recent changes to trade and tariff policies have had on your employer, you, or someone you know.

4. Consider that an individual wants to allocate $1,000 between two goods, namely, DVDs and shirts. The price of DVDs are $20/DVD, and the price of shirts are $50/shirt.

(a) Suppose that the individual buys eight shirts. Show the combination of DVDs and shirts for this individual on their budget constraint. Illustrate this choice using the appropriate budget constraint.

(b) Explain how this individual makes the choice of buying this specific combination of DVDs and shirts.

(c) What would happen to the budget constraint if the price of shirts falls to $40/shirt? Illustrate the new budget constraint on the graph from part (a). What does the individual’s choices say about the ’Law of Demand?’

What are trade sanctions and embargos. List and describe an example of a global company that faces ethical issues for its operations outside the US.

The average GPA at the University of North Carolina is 3.2, with a standard deviation of 0.3. Assume that all GPAs at the University of North Carolina are normally distributed.

What is the probability of randomly selecting a student at the University of North Carolina with a GPA of 2.9 or lower? Possible answers: A. 0.10 B. 0.16 C. 0.24 D. 0.31

What is the probability of randomly selecting a student at the University of North Carolina with a GPA between 2.9 and 3.5? Possible answers: A. 0.34 B. 0.68 C. 0.75 D. 0.95

What is the probability of randomly selecting a student at the University of North Carolina with a GPA higher than 3.7? Possible answers: A. 0.023 B. 0.048 C. 0.058 D. 0.977

Suppose that there are 100 students entering the Master’s of Business Administration program. Of these students, 20 have two years of work experience, 30 have three years of work experience, 15 have four years of work experience, and 35 have five or more years of work experience.

a) One of the students is selected at random. What is the probability that this student has at least three years of work experience?

b) The selected student has at least three years of work experience. What is the probability the student has four years of work experience?

c) Three students are selected at random. Calculate the probability that all three students have five or more years of work experience. Describe the key assumption required to make the calculation and comment on whether the assumption is reasonable.

d) Would it be reasonable to use the probability calculated in part a) as an estimate of the proportion of students entering the MBA degree program who have at least three years of work experience? Explain your answer. Limit your explanation to at most five sentences.

I. ABC company repurchased its stock, this resulted in a “downsized” company. This is opposite to financial statement effects when common stocks are issued.

II. Preferred stock has preference over common stock in terms of liquidation and dividend payments.

III.  If US dollar appreciates then ABC company's subsidiary in Europe will experience a decrease in earnings when translated to US dollars.

IV. Star Wars Co. employees have the option to purchase company's own stock at a fixed price called the exercise price or star track price.

True

False