Suppose you are interested in understanding the causal impact of having an MBA (versus just an undergraduate degree in business) on earnings.  To this end, you estimate a regression of the following form:

EARNINGS = 55679 + 27809(MBA)

The estimated coefficient above suggests that individuals with an MBA earn $27,809 more than those with just a business undergraduate, on average.  Give an example of how omitted variable bias might impact this estimate

Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2020. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 to the stockholders of Salt Company. On the acquisition date, Pretzel Company stock had the following characteristics:

Immediately prior to the acquisition, Salt Company's balance sheet reported the following book values and fair values:

Prepare the journal entry on the books of Pretzel Company to record the acquisition of the assets and assumption of the liabilities of Salt Company.

Calculation of depreciation; three methods)

On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of $12,000. The esti- mated output from this equipment is as follows: 2016—15,000 units; 2017—24,000 units; 2018—30,000 units; 2019—28,000 units; 2020—18,000 units. The company is now considering possible methods of depreciation for this asset.

Required:

a. Calculate what the depreciation expense would be for each year of the asset’s life, if the company chooses:

i. The straight-line method

ii. The units-of-production method

iii. The double-diminishing-balance method

b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.

The international tax code affects the United States economy. In this discussion, you will comment on the complexity of the tax code and how the international tax code interacts with the U.S. tax code.

It was mentioned in our textbook that Pam Olson, former Treasury Assistant Secretary for Tax Policy, was quoted as saying, “It is difficult to predict the future of an economy in which it takes more brains to figure out the tax on our income than it does to earn it.” Read Testimony of Pamela Olson Before the Senate Committee on International Tax Policy and Competitiveness and comment on your experience with the complexity of the tax code. Why should it change to become more competitive with other countries? Why is international tax so important to the U.S. tax code? Cite specific code sections that you believe should change.

Net U.S. energy imports have decreased every year since 2016. Last year’s change in net energy trade (crude oil, natural gas, coal, and petroleum products) in the U.S.—from 3.6 quads of net imports in 2018 to 0.8 quads of net exports in 2019—was the largest change in U.S. energy trade since 1980. How would the current low oil price affect the U.S. crude oil trade (import and export) in 2020? Apply the D-S (demand, supply) model.

The U.S. has been traditionally known as a relatively low saving country, compared to countries like Japan. The U.S. personal saving rate had seldom gone into the double digits since the early 1990s (Source: the Federal Reserve Bank of St. Louis).
In response to the coronavirus pandemic, people inevitably try to save more. We observe that the U.S. savings are rising in an unprecedented manner: the U.S. personal savings rate (personal saving as a percentage of disposable personal income) hit a historic 33% in April 2020.
What are the impacts of a rising savings on the U.S. pandemic-hit economy?

Getting an MBA is an investment in yourself, and it should be viewed through the same lens as any other investment decision. So let's see if MBA is a good decision with a simplified example? We have to look at the two following options.

1. You go to business school, forego two years of salary, borrow around $50,000 per year (both tuition and cost of living) and then go on to make more money (this is the whole point) than you would on your current career trajectory.
2. You do not go to business school and continue to make your current salary and get raises and promotions at a normal rate. These are not easy assumptions to make but linear growth usually works best.
3. Your current salary is 50,000 and grows at 3% every year.
4. Your salary after MBA will be 90,000 and will grow by the same percentage, i.e. 3%.
5. Your cost of capital, i.e. interest rate at which you can finance your MBA is 7%
6. Assume you're doing your MBA at the age of 40, and have 20 years of working life after MBA (or 22 including MBA)
7. For simplicity, assume your first cash flow, i.e. the first tuition payment is next year, i.e. you don't have any explicit cash flows (tuition or salary) in the present (Year 0).

Calculate the NPV of MBA using the information above. Ignore opportunity costs, just use explicitly stated costs (tuition) and benefits (salary). Use Excel, and upload the Excel file using the dialog box at the bottom of the exam.

Select one:

a. $327,623.38

b. $957,594.29

c. $204,594.64

d. $1,227,888.92

Consider each of the following independent and material situations. In each case:

• the financial report date is 31 December 2019;

• the field work was completed on 12 February 2020;

• the directors declaration and the audit report were signed on 19 February 2020; and

• the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020

A. You are an auditor pf PP Limited (PP), a company specialising in industrial property development. On 10 February 2020, you become aware that a major overseas investor has informed the management of PP of their intention to withdraw their investment in a proposed major development. On the basis of its discussions with the investor and previously pledged funds from them, PP has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs has been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.

B. You are the auditor of XY Limited (XY), a manufacturing client. XY has plans to upgrade its manufacturing process and plans to finance this by a sale of property which is superfluous to its needs, situated next to its head office. The property has been subdivided for the purposes of the sale and placed on the market in December 2019. On 25 January 2020, the state government approved a plan for the construction of an express freeway. The plan will result in the appropriation of a portion of the property owned by XY and subdivided for the purpose of sale. Construction of the freeway will begin in late 2020. No estimate of the compensation payment is available.

C. You are an auditor of Q limited (Q), a major public company involved in the property development industry. Prior to signing your audit report you sought a letter of comfort from Q’s bankers that the bank would continue to support Q by providing finance over the coming year. The bank agrees that it would continue to provide finance. It was your view that without such support Q had severe cash flow problems and the financial report would need to be modified with respect to a going concern assumption. On 15 March 2020, the company’s bankers wrote to you advising that the company had breached its loan covenant with the bank in February 2020 and that the loan facility was now due and payable and would not be renewed.

D. You are the auditor of Turbo Limited (Turbo), a professional services client. On 15 January 2020, Turbo settled and paid a personal injury claim to a former employee as the result of an accident that occurred in September 2017. The company had not previously recorded a liability for the claim. E. You are the auditor of Charge Limited (Charge), an automobile parts manufacturer. On 2 February 2020, Charge agreed to purchase for cash the outstanding shares of Electronic Fuel Injection Limited. The acquisition is likely to double the sales volume of Charge.

Required: For each of the events A to E:

1. Outline the required treatment in the financial report, if any. Justify your answer.