Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $62,370. The equipment was expected to have a useful life of three years, or 7,560 operating hours, and a residual value of $1,890. The equipment was used for 1,400 hours during Year 1, 2,600 hours in Year 2, 2,300 hours in Year 3, and 1,260 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-output method

c. Double-declining-balance method

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $75,870. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $2,160. The equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-activity method

c. Double-declining-balance method

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $37,530. The equipment was expected to have a useful life of three years, or 4,860 operating hours, and a residual value of $1,080. The equipment was used for 900 hours during Year 1, 1,700 hours in Year 2, 1,500 hours in Year 3, and 760 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-output method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-output method

c. Double-declining-balance method

Chapter 5: Chain-type growth rate, GDP deflator, Consumer Price Index (CPI), and Inflation

1. If year 1 is the base year, what is the constant-dollar real growth rate from year 1 to year 2?
2. If year 2 is the base year, what is the constant-dollar real growth rate from year 1 to year 2?
3. If year 1 is the base year, what is the GDP deflator in year 2?
4. If year 1 is the base year, what is the consumer price index (CPI) in year 2?
5. If year 1 is the base year, what is the inflation rate between year 1 and 2?

1. Suppose Joe Sixpack would like to make a decision about how much he should invest in his health based on the Grossman’s model (1972) and human capital theory.

a. Fill out the table above by assuming the initial wage level (W1) of $100. Given total cost of (health) capital (C) of $2,500 (including visits to doctor’s office, medicine, daily exercise, and vitamin supplements) and 7 percent depreciation rate (?) and 5 percent real interest rate (r), calculate the optimum level of health stock and demonstrate your results in graph (as in Figure A2-3 in your associated readings). (Please do not forget to fill out the table-if necessary- and demonstrate your results in the same graph in the following steps)

B. Suppose there was an economic crisis and the real interest rate (r) fell down to zero percent (as it happened recently right after the Great Recession). Everything else is being constant; calculate the optimal level of health stock for the same person. Explain the rationale for the difference between the new level of health stock and the previous one (calculated in part a)? Why?Do not forget to mention what happened to the cost first and why).

C. Given total cost of (health) capital (C) of $2,500 (including visits to doctor’s office, medicine, daily exercise, and vitamin supplements) and 7 percent depreciation rate (?) and 5 percent real interest rate (r), calculate the optimum level of health stock if Joe loses his job (W2=$0). Compare the new result with the ones in part (a) and (b) above. Provide an explanation according to human capital theory.

Erin McKenna’s Bakery’s Florida location is at Disney Springs. Please review the web page about her bakery. As a result of COVID-19, Disney Springs has closed indefinitely. Locations in New York City and Los Angeles are also impacted. Like so many businesses, sadly 2020 is not going as planned for Erin.

Erin’s budget plans for 2020 were most likely set before January 1^{st ,} way before the current situation unfolded.

Here are the three initial questions for this discussion. Each student should post the answers to these questions individually (due date is Friday April 10th at Midnight). Then, once students have done their initial post, you are required to post at least four comments as you discuss everyone's responses as a group (due date is Tuesday April 14th at Midnight). No final group response is required on this assignment - just the posts conversing back and forth with the group will be enough.

Question 1: Erin McKenna’s Bakery will definitely have significant budget variances due to the COVID-19 virus business closure, especially if she receives no assistance financially from an outside source. After reviewing the web page, discuss the potential impact of COVID-19 on sales, operating expenses, cash receipts and cash disbursements. Be detailed in your answers - please mention specific impacts within those four categories. (10 points)

Question 2: Erin McKenna’s Bakery has less than 500 employees, therefore her business could qualify for some of the Small Business Administration programs (Links to an external site.) that are included in the CARES Act (Links to an external site.) that was signed into law by President Trump on Friday March 27^th. (10 points)

A. How can the Paycheck Protection Program (Links to an external site.) help Erin’s business?

B. How can the EIDL Loan Advance (Links to an external site.) help Erin’s business?

C. How can the SBA Express Bridge Loans (Links to an external site.) help Erin’s business?

Question 3: How do you feel about the outlook for Erin McKenna's Bakery's future, if she pursues some of these options with the Small Business Administration? Your answer should be a full paragraph, not just a single sentence. (10 points)

You work for a small advertising agency in Greengrass, N.Y. The agency’s principal
advertising clients are automobile dealers and automobile repair shops. The agency has a good
record of placing advertisements for its clients in both real-space and on the internet.
Last week, you were considering buying a used car, and you found a web-site called
“CarValues.com.” The web site contains a database of information about used vehicles on the
market. The (searchable) database contains dealer-written factual descriptions of the make,
model, color and condition of the vehicle; the number of miles on the vehicle; how long the
vehicle has been on the market; and the price history of the vehicle (what it was originally
offered for, and any subsequent price reductions).
The web site was very helpful to you as a consumer. The data base also contained
information about past used-car sales in the area for the prior 6 months. The formatting on
CarValues.com was not good, and the interface was not user-friendly. You are confident the
developers who work for your company would have created a more user-friendly website.
When you got to work on Monday, a light bulb went on in your head. Why don’t we
create a car-selling website for our advertising clients? They would love it. All we need is a
database to start with. And one is available – right there on the internet, at CarValues.com. So,
you go back and check. There was no Terms of Use Agreement!!! Their data is right there for the
taking. Once we have the data, our company can update the information on our own going
forward without having to copy it from CarValues. But being able to use the CarValues
information would help us get started right away.
Your technician says he can capture all the existing data in minutes. Then your
organization can do the updating going forward as new cars come on the market and existing
ones are sold.
You mention your idea to, Carla Speil, the head of the agency at lunch. She is intrigued.
But is it legal? What are the potential consequences if CarValues.com finds out? ...She sees the
rewards.... But what are the risks? “Should we do it?,” she asks. Unusual for an advertising
executive, she seemed concerned about the ethics.
Write a one-page memo, Ms. Speil says, answering her questions.

Lacrosse is one of the oldest sports in North America. Despite its long history, it is a very dangerous contact sport comparable with football and ice hockey. Lacrosse involves inherent impact to participants and the National Collegiate Athletic Association (NCAA) stated that head injuries account for approximately 13% of all game-related injuries in the sport. Head injuries and repetitive head impacts can cause cumulative damage and chronic neurologic problems. Helmets are required in the sport but around 2000, there were several versions of helmets allowed with no mention of which version would offer the greatest level of protection. Some of these helmet types were deemed ‘Traditional’ while some were newer, more lightweight and considered to be ‘Contemporary’. These helmets are designed to take impact from all directions but two specific impact sites are of particular interest: a head-on collision where impact is received from the ‘Front’ and a blind-side impact where impact is received from the ‘Rear’.

A researcher interested in head injury prevention and lacrosse helmet protection, attempted to study which version of helmet was best in different impact situations. In order to have a quantitative measure of impact severity, the Gadd Severity Index (GSI) was used by the researcher. Note that higher GSI scores correspond to more severe impacts and, consequently, lower GSI scores are preferable.

(2) Using the StatCrunch output stated bellow, state initial conclusions that could be made in two to four complete sentences.

the Data:

I) Two measures of center and two measures of variation for the sample overall

2 measures of center

Mean              Median                      

1154.1125        1110.47                 

2 measures of variation

Variance          Std. dev.

62462.103          249.92419

ii) Two measures of center and two measures  of variation for the sample ‘grouped by’ helmet type (i.e. contemporary and traditional).

data

2 measures of center

Mean              Median

Contemporary                     1070.0749            1065.26

Traditional                             1238.1501            1288.002

                                    2 measures of variation

Variance        Std. dev.

Contemporary                     25801.136        160.62732

Traditional                             86237.861        293.66283

iii) Two measures of center and two measures of variation for the sample ‘grouped by’ impact site (i.e. front and rear).

2 measures of center

Mean              Median

Back                                           1217.35            1115.797

Front                                          1090.875               1093.975

                                    2 measures of variation

Variance        Std. dev.

Back                                          73260.9            270.66751

Front                                          45061.863        212.2778

Q1- Ali, Betty, Carmel, Devaki and Eli are enthusiast stamp collectors and want to start an
online business that buys and sells historical collector-item stamps from around the world.
They decide to set up a company to do this. All four agree to put in $5,000 each to buy
shares in the company. Ali and Betty are assigned to put in an application to ASIC to register
a company called ‘Stamps R Us Pty Ltd’. Carmel is to look into getting a web design company
to design a website and get a quote. She visits Software Designs Pty Ltd in Parramatta CBD
and the salesman spends some time showing her various web design packages. Carmel is
very impressed with the ‘Super Delux’ package but is a little concerned about the $15,000
cost. The salesman informs her, however, that they currently have a 30 per cent sale on that
package, but that it finishes at 5 pm that day. Carmel excitedly calls Ali from the store, who
has been the driving force behind creating the business, to get his thoughts. He says ‘Yes.
Let’s do it’. Carmel signs the contract on behalf of both Stamps R Us and Ali, then and there.
Eli is assigned to investigate buying some stamps that the new company can have as stock
when it first launches. He visits his local stamp dealer, Charlie, of Charlie’s Stamps Pty Ltd,
who is very keen to get Eli’s business. Charlie tells Eli that if the new business buys stamps
from him worth over $10,000, he will give Eli a rare 1901 Australian Federation stamp, now
worth around $2,000 as a personal gift to show his appreciation. Eli is excited about this. He
contacts the group at their next meeting and they agree to buy $11,000 worth of stamps.
However, he doesn’t mention the personal gift. He goes ahead and buys the stamps and
receives the Federation stamp.
The following week, Ali and Betty’s application is successful and the company is registered.
All five become directors. However, at their first board meeting, Betty, Devaki and Eli are
unhappy about the cost of the website package and refuse to accept the contract, saying
the basic package would have been more than sufficient.
Advise the parties of their respective legal rights and liabilities.

Self-Driving Cars and Insurance

One thing I find interesting about risk management and insurance is that there are new risks popping up all the time. 3D printing, nanotechnology, cyber risks, legalized marijuana, pandemics, etc. to name a few. If you want to do the same thing for the next 30 years, don't go into risk management!

According to the Insurance Institute for Highway Safety, it is anticipated that there will be 3.5 million self-driving vehicles on U.S. roads by 2025, and 4.5 million by 2030. However, the institute cautioned that these vehicles would not be fully autonomous, but would operate autonomously under certain conditions.

Safety is an obvious key benefit of self-driving cars. With lasers and radar for eyes, the computer can monitor the surrounding environment and react much quicker than a human ever could. Not to mention a computer doesn’t fall victim to fatigue, texting, or get caught up chatting with passengers the way human drivers can. Self-driving cars could reduce accidents and congestion by driving smarter and safer.

If vehicles do end up safer, some companies are predicting it could reduce auto premiums- but there are several other factors to consider first. Auto insurance companies will have to re-evaluate how to write auto insurance policies and how to discover how to find fault in an accident. Regulations will have to evolve to account for electronics, rather than management.

Let's jump ahead 10 years or so. After performing your due diligence, you purchase a self-operating car designed and built by a leading automobile manufacturer. Due to a major technical glitch in the robot's operating system, a horrific accident ensues. Who is the culpable party? Could you face some liability in not properly performing your due diligence or failing to perform the requisite maintenance on the vehicle? Conversely, some experts would argue that in a fully autonomous auto, the robot itself is liable. Could a robot with full autonomy be held civilly liable for its actions? Or the firm that manufactures it? So, what do you think? Who should bear the legal liability of negligence in auto accidents pertaining to semi-autonomous or autonomous autos? How would our laws have to be altered? What are some other factors that might play into assigning this responsibility?