Learning Activity 2
GDP and its Limitations
Consider the following country, Alpha, which makes two goods, Rice and Potatoes. The quantity and prices of these goods are given in the table below for the two years, 2018 and 2019:
2018 2019 Quantity Price Quantity Price Rice 12 $15 14 $17 Potatoes 20 $5 25 $10

Part 1: Use the information above to calculate the following:
1) Nominal GDP for Country Alpha for 2018 and 2019 2) Real GDP for 2018 and 2019, using 2018 as the base year 3) The Real GDP growth rate for the country from 2018 and 2019

Part 2: Suppose someone wants you to compare the standard of living of the country over 2018 and 2019. Looking at the Real GDP data, what would you tell him/her? Is the Real GDP doing a good job here as a measure of standard of living? Why or why not?

Part 3: Now suppose the population of the country was 100 people in 2018 and 120 people in 2019. Calculate the Real GDP per capita for the country for both years

On July 1, 2018, Gupta Corporation bought 30% of the outstanding common stock of VB Company for $170 million cash. At the date of acquisition of the stock, VB’s net assets had a total fair value of $490 million and a book value of $220 million. Of the $270 million difference, $50 million was attributable to the appreciated value of inventory that was sold during the last half of 2018, $160 million was attributable to buildings that had a remaining depreciable life of 10 years, and $60 million related to equipment that had a remaining depreciable life of 5 years. Between July 1, 2018, and December 31, 2018, VB earned net income of $60 million and declared and paid cash dividends of $50 million.

Required:
1. Prepare all appropriate journal entries related to the investment during 2018, assuming Gupta accounts for this investment by the equity method. Already did correctly.
2. Determine the amounts to be reported by Gupta.***** (This is still wrong when I do it). ?? Please help.

On January 1, 2018, the following information was drawn from the accounting records of Carter Company: cash of $225; land of $1,875; notes payable of $525; and common stock of $945. Required a. Determine the amount of retained earnings as of January 1, 2018. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $325 cash dividend to the stockholders. Can the company pay this dividend? c. As of January 1, 2018, what percentage of the assets were acquired from creditors? d. As of January 1, 2018, what percentage of the assets were acquired from investors? e. As of January 1, 2018, what percentage of the assets were acquired from retained earnings? f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation. g. During 2018, Carter Company earned cash revenue of $520, paid cash expenses of $310, and paid a cash dividend of $51. (Hint: It is helpful to record these events under an accounting equation before preparing the statements.) g-1. Prepare an income statement dated December 31, 2018. g-2. Prepare a statement of changes in stockholders’ equity dated December 31, 2018. g-3. Prepare a balance sheet dated December 31, 2018. g-4. Prepare a statement of cash flows dated December 31, 2018. j. What is the balance in the Revenue account on January 1, 2019?

1. You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $500,000, accounts receivable = $1,000,000, inventory = $1,500,000, accrued wages and taxes = $510,000, accounts payable = $810,000, and notes payable = $610,000.

Calculate Goodman Bees' net working capital.

2.

Ramakrishnan, Inc. reported 2018 net income of $35 million and depreciation of $2,850,000. The top part of Ramakrishnan, Inc.’s 2018 and 2017 balance sheets is listed below (in millions of dollars).

Calculate the 2018 net cash flow from operating activities for Ramakrishnan, Inc.

3. Mr. Husker’s Tuxedos Corp. ended the year 2018 with an average collection period of 33 days. The firm’s credit sales for 2018 were

$56.0 million.

What is the year-end 2018 balance in accounts receivable for Mr. Husker’s Tuxedos?

4. You are thinking of investing in Nikki T's, Inc. You have only the following information on the firm at year-end 2018: net income is $180,000, total debt is $2.80 million, and debt ratio is 60 percent.

What is Nikki T's ROE for 2018?

On January 1, 2018, the following information was drawn from the accounting records of Carter Company: cash of $400; land of $2,400; notes payable of $700; and common stock of $1,540.

Required

1. a. Determine the amount of retained earnings as of January 1, 2018.

2. b. After looking at the amount of retained earnings, the chief executive officer (CEO) wants to pay a $500 cash dividend to the stockholders. Can the company pay this dividend?

3. c. As of January 1, 2018, what percentage of the assets were acquired from creditors?

4. d. As of January 1, 2018, what percentage of the assets were acquired from investors?

5. e. As of January 1, 2018, what percentage of the assets were acquired from retained earnings?

6. f. Create an accounting equation using percentages instead of dollar amounts on the right side of the equation.

7. g. During 2018, Carter Company earned cash revenue of $660, paid cash expenses of $380, and paid a cash dividend of $58. (Hint: It is helpful to record these events under an accounting equation before preparing the statements.)

8. g-1. Prepare an income statement dated December 31, 2018.

9. g-2. Prepare a statement of changes in stockholders’ equity dated December 31, 2018.

10. g-3. Prepare a balance sheet dated December 31, 2018.

11. g-4. Prepare a statement of cash flows dated December 31, 2018.

12. j. What is the balance in the Revenue account on January 1, 2019?

You are auditing Lifetime Tours Ltd for the year ended 30 June 2018. The financial report will be approved and signed by the directors on 30 July 2018, with the auditor’s report signed on the same date. The audited financial report will be issued on 12 August 2018.

After 30 June 2018 the following information came to light:

1. On 1 July 2018, the government issued a travel warning to a number of African countries. Forty-five per cent of Lifetime Tours’ business comes from running adventure tours in the countries mentioned in the warning.

2. On 15 July 2018, one of Lifetime Tours’ clients, Jungle Adventures, went into liquidation. Jungle Adventures purchased travel packages in bulk. A letter from the liquidator dated 30 July 2018 indicated that creditors were likely to receive ‘$0.10 in the dollar’. At 30 June 2018, Jungle Adventures owed Lifetime Tours $1 245 285 and Lifetime Tours had provided for 10 per cent of the amount owed as a doubtful debt.

3. On 9 August 2018, a bus transporting a Lifetime Tours tour group in New Zealand crashed. Some passengers on board, including the Lifetime Tours guide, and the driver had minor injuries. Lifetime Tours is concerned about the negative publicity relating to the crash.

1. REQUIRED

For each situation above, assess the type of subsequent event and how each would impact Lifetime Tours’ financial report for the year ended 30 June 2018, if at all

1. Horizontal Analysis
   1. Compute the difference in each line item from 2018 to 2019.
   2. Using 2018 as a base year, determine the change and percentage change in each line item from 2018 to 2019.
   3. Did sales to customers increase or decrease from 2018 to 2019?
   4. Did net income increase for decrease from 2018 to 2019?
   5. What line item(s) is (are) driving the differences between sales to customers and net income from 2018 to 2019?
2. Vertical Analysis
   1. Compute each line item as a percentage of sales for 2018 and 2019.
   2. Which line items makes up the largest proportion of sales in 2018 and 2019? (Keep in mind that some of the items like gross profit and earnings before provision for taxes on income are subtotals.)
   3. Comment of any changes in the income and expenses as a percent of sales from 2018 and 2019.