ABC Energy Corp. (the “Company”), an SEC registrant, operates three manufacturing facilities in the United States. The Company manufactures various household cleaning products at each facility, which are sold to retail customers. The U.S. government granted the Company emission allowances (EAs) of varying useable years (i.e., the years in which the allowance may be used) to be used between 2015 and 2030. Upon receipt of the EAs, the Company recorded the EAs as intangible assets with a cost basis of zero, in accordance with the Federal Energy Regulatory Commission (FERC) accounting guidance for EAs. The Company has a fiscal year end of December 31.

As background, in an effort to control or reduce the emission of pollutants and greenhouse gases, governing bodies typically issue rights or EAs to entities to emit a specified level of pollutants. Each individual EA has a useable year designation. EAs with the same useable year designation are fungible and can be used by any party to satisfy pollution control obligations. Entities can choose to buy EAs from, and sell EAs to, other entities. Such transactions are typically initiated through a broker. At the end of a compliance period, participating entities are required to either (1) deliver to the governing bodies EAs sufficient to offset the entity's actual emissions or (2) pay a fine. The Company currently emits a significant amount of greenhouse gases because of its antiquated manufacturing facilities. The Company plans to upgrade its facilities in 2024, which will decrease greenhouse gas emissions to a very low level. On the basis of the timing of the upgrade, the Company currently anticipates a need for additional EAs in fiscal years 2020–2024.

However, upon completion of the upgrade, the Company believes it will have excess EAs in fiscal years subsequent to 2024 because of reduced emissions as a result of the upgrade. The Company currently has forecasted the updates to its facilities will cost approximately $15 million. As the Company operates in a capital intensive industry, analysts and investors focus on a number of important ratios and measures, including working capital, capital expenditures, cash flows from operations, and free cash flow. As a result, the board of directors and management provide forward-looking guidance on these ratios and measures and expend great effort managing these results in light of the Company’s operational needs. The Company entered into the following two separate transactions in fiscal year 2020, which will impact the Company’s results as presented in the statement of cash flows, which the Company prepares under the indirect method.

          1. To meet its need for additional EAs in fiscal years 2020–2024, on April 2,         2020, the Company spent $6.5 million to purchase EAs with a useable year of       2023 from XYZ Manufacturing Corp.

2. In an effort to offset the costs of the April 2, 2019, purchase of 2023 EAs, the Company sold EAs with a useable year of 2026 to DEF Chemical Corp. for $5 million.

Required:

1. What is the appropriate classification in the statement of cash flows in the Company’s December 31, 2020, financial statements for its purchase of 2023 EAs from XYZ Manufacturing Corp.?

2. What is the appropriate classification in the statement of cash flows in the Company’s December 31, 2020, financial statements for its sale of 2026 EAs to DEF Chemical Corp.?

3. Should these cash flows be reported at gross amounts or net amounts in the 2020 statement of cash flows?

Be sure to cite appropriate authoritative support for your answer from the Accounting Standards Codification.

4. Word Find A popular diversion in the United States, “word find” (or “word search”) puzzles ask the player to find each of a given set of words in a square table filled with single letters. A word can read horizontally (left or right), vertically (up or down), or along a 45 degree diagonal (in any of the four directions) formed by consecutively adjacent cells of the table; it may wrap around the table’s boundaries, but it must read in the same direction with no zigzagging. The same cell of the table may be used in different words, but, in a given word, the same cell may be used no more than once. Write a computer program for solving this puzzle.

Epsilon Airlines services predominantly the eastern and southeastern united States. The vast majority of Epsilon’s customers make reservations through Epsilon’s website, but a small percentage of customers make reservations via phones. Epsilon employs call center personnel to handle these reservations and to deal with website reservation system problems and for the rebooking of flights for customers whose plans have changed or whose travel is disrupted. Staffing the call center appropriately is a challenge for Epsilon’s management team. Having too many employees on hand is a waste of money, but having too few results in very poor customer service and the potential loss of customers.

Epsilon analysts have estimated the minimum number of call center employees needed by day of the week for the upcoming vacation season (June, July, and the first two weeks of August). These estimates are as follows:

The call center employees work for five consecutive days and then have two consecutive days off. An employee may start work on any day of the week. Each call center employee receives the same salary. Assume that the schedule cycles and ignore start up and stopping of the schedule.

Develop a model that will minimize the total number of call center employees needed to meet the minimum requirements.

Find the optimal solution.

Total Number of Employees =

Give the number of call center employees that exceed the minimum required.

Excess employees:

regular gasoline averaged $2.75 per gallon in the United States in March 2010. Assume the standard deviation for gasoline prices is $0.08 per gallon. A random sample of 30 service stations was selected.

a) What is the probability that the sample mean will be less than $2.77?

b) What is the probability that the sample mean will be more than $2.76?

c) What is the probability that the sample mean will be between $2.72 and $2.78?

d) Suppose the sample mean is $2.79. Does this result support the findings of AAA? Explain your answer.

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel’s president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel’s controller, to gather information on the costs associated with this change.

Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $700,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $200,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $600,000 if the eight salespeople are hired.

Required

1. Determine Lionel’s breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the company hires its own sales force and increases its advertising costs. Prove this by constructing a contribution income statement.

2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement.

Consider the following hypothetical natural experiment. The United States imposes a 25% tariff on imported automobiles (cars) in 2020 but does not do so on imported trucks. Canada does not impose such a tariff. In 2020 vehicles (cars+light trucks) in the U. S. (noncommercial) averaged 30 mpg while vehicles in Canada averaged 35 mpg. In 2025 vehicles in the US averaged 35 mpg while vehicles in Canada averaged 45 miles per gallon. Assume (this is a hypothetical natural experiment) that there are no differences between drivers and economic conditions in Canada and the U.S. In an actual analysis of such a situation any observable differences would be addressed using some matching algorithm. a. Using the difference in difference estimator calculate the yearly impact of the tariff on fuel efficiency for all vehicles. b. Assuming that there were 10 million vehicle (car and light truck) sales in the U.S. in 2025 and that each vehicle drives on average 10,000 miles per year, how much more gasoline would be consumed by U. S. drivers in 2025 due to the tariff?

Almost all medical schools in the United States require students to take the Medical College Admission Test (MCAT). To estimate the mean score μ of those who took the MCAT on your campus, you will obtain the scores of an SRS of students. The scores follow a Normal distribution, and from published information you know that the standard deviation is 10.4 . Suppose that, unknown to you, the mean score of those taking the MCAT on your campus is 495 .

In answering the questions, use z‑scores rounded to two decimal places.

(a) If you choose one student at random, what is the probability that the student's score is between 490 and 500 ? Use Table A, or software to calculate your answer.

(Enter your answer rounded to four decimal places.)

probability:

(b) You sample 25 students. What is the standard deviation of the sampling distribution of their average score ?¯? (Enter your answer rounded to two decimal places.)

standard deviation:

(c) What is the probability that the mean score of your sample is between 490 and 500 ? (Enter your answer rounded to four decimal places.)

probability:

STATE: How heavy a load (in pounds) is needed to pull apart pieces of Douglas fir 44 inches long and 1.51.5 inches square? Given are data from students doing a laboratory exercise.

To access the complete data set, click the link for your preferred software format:

Excel  Minitab  JMP  SPSS TI  R  Mac-TXT   PC-TXT  CSV CrunchIt!

We are willing to regard the wood pieces prepared for the lab session as an SRS of all similar pieces of Douglas fir. Engineers also commonly assume that characteristics of materials vary Normally. Suppose that the strength of pieces of wood like these follows a Normal distribution with standard deviation 3000 pounds.

PLAN: We will estimate μ by giving a 90% confidence interval.

SOLVE: Find the sample mean ?¯ . (Enter your answer rounded to the nearest whole number.)

?¯=

Give a 90% confidence interval, [low,high] , for the mean load required to pull the wood apart. (Enter your answers rounded to the nearest whole number.)

???=

ℎ??ℎ=

Short answer question:

Mr. Jones needs to send a shipment from China to the United States. His boss asks him to prepare a set of potential crash options for accomplishing this in 5 days, 4 days, 3 days, 2 days, and 1 day. He calls an air transport company and finds out that the shipment can be flown in one day for a cost of $1000. Then he calls an ocean shipping company and finds out that it can be transported in 5 days for a cost of $200. He uses these two numbers to find the slope: it costs $800 more to reach the US 4 days earlier, or $200 per day. Then, he uses the slope to calculate the cost of a 4-day trip ($400), a 3- day trip ($600), and a 2-day trip ($800). What is wrong with Mr. Jones’s approach?

Consider a city with three consumers: 1, 2, and 3. The city provides park land for the enjoyment of its residents. Parks are a public good, and the amount of park land (which is measured in acres) is denoted by z. The demands for park land for the three consumers are as follows:

D1 =40–z, D2 =30–z, D3 =20–z.

These formulas give the height of each consumer’s demand curve at a given level of z. Note that each demand curve cuts the horizontal axis, eventually becoming negative. For the problem to work out right, you must use this feature of the curves in deriving DΣ. In other words, don’t assume that the curves become horizontal once they hit the axis.

(a) The height of the DΣ curve at a given z is just the sum of the heights of the individual demands at that z. Using this fact, compute the expres- sion that gives the height up to the DΣ curve at each z.

(b) The cost of park land per acre, denoted by c, is 9 (like the demand intercepts, you can think of this cost as measured in thousands of dollars). Given the cost of park land, compute the socially optimal number of acres of park land in the city.

(c) Compute the level of social welfare at the optimal z. This is just the area of the surplus triangle between DΣ and the cost line.

(d) Suppose there are two other jurisdictions, each with three consum- ers, just like the given jurisdiction. Compute total social welfare in the three jurisdictions, assuming each chooses the same amount of park acres as the first jurisdiction.

(e) Now suppose the population is reorganized into three homoge- neous jurisdictions. The first has three type-1 consumers (i.e., high demanders). The second has three type-2 consumers (medium demand- ers), and the third has three type-3 consumers (low demanders). Repeat (a), (b), and (c) for each jurisdiction, finding the DΣ curve, the optimal number of park acres, and social welfare in each jurisdiction.

(f) Compute total social welfare by summing the social welfare results from (e) across jurisdictions. How does the answer compare with social welfare from (d)? On the basis of your answer, are homogeneous juris- dictions superior to the original mixed jurisdictions?

Multiple Choice

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