The homework assignment this week requires you to prepare various journal entries for a series of transactions involving sales transactions, estimations for bad debts expense, and estimated warranty obligations. Remember – the only way to lose points is to leave something blank. Take your best shot even if you are NOT really sure. The Professor sold rubber life rafts with a full cash refund if they sunk within a year after the purchase. During the first year 300 rafts were sold on credit for $400 each. The cost of each raft to the Professor was $250. A. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit B. The Professor calculated that 2% of all sales would eventually be uncollectible. Prepare the entry to record bad debts expense. Account Debit Credit C. Based on his extensive research developing the rafts, he estimated 5% of all rafts would be returned for a full cash refund. Account Debit Credit D. During the year, the Professor wrote off $2,200 for delinquent accounts receivable. Account Debit Credit E. During the year, 12 rafts were returned for a full cash refund. Account Debit Credit F. What is the balance of the Allowance for Bad Debts at the end of the year? ____________ G. What is the balance of the Customer Refunds Payable at the end of the year?___________ Ginger sold clothing with a guarantee that Mary Ann would mend any rips or tears within 6 months after the purchase. Sales for the first year totaled $40,000 for clothes costing her $12,000. H. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit I. Ginger’s best guess is that the total cost for repairing items returned would amount to 2% of total clothing sales. Prepare the entry to record warranty expense. Account Debit Credit J. During the year, knitting supplies with a total cost of $750 were used to repair clothes brought back by customers. Account Debit Credit K. What is the balance of the Warranty Payable at the end of the year?___________ At the beginning of the second year, the Professor revised his policy to replace defective rubber life rafts with a new raft if the first one sunk within a year after the purchase (instead of the full cash refund). During the second year 500 rafts were sold on credit for $500 each. The cost of each raft to the Professor was $300. L. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit M. Prepare the entry to record warranty expense if he still expects 5% of the rafts to be returned for replacement. Account Debit Credit N. During the second year a total of 20 rafts were returned for replacement. Prepare the journal entry to record this transaction. Account Debit Credit O. What is the balance of the Warranty Payable at the end of the year?___________ “Following” a stock: All the information you will be requested to provide will be available by going to www.yahoo.com/finance and keying in the appropriate stock symbol in the search box at the top of the page. Once you hit “search” you will be on the “Summary” page of the stock. Feel free to explore this page and review all the information that is freely provided to all investors. Round about the middle of the page, you will see blue wording that indicates different ‘tabs’ (pages) where various statistical and financial information can be found. Since this is the last assignment it is a good time to see how your stock has performed since your “purchased” it at the beginning of the semester. You will need to take your “purchase” price and compare it to the current market price to determine what percentage gain or loss your investment has provided you. If you don’t remember what you “purchased” your stock for consult your assignment for Week 1. Company Name: Hewlett Packard Inc. (your) Company Name: Stock Symbol: HPQ Stock Symbol: Stock Price per share Stock Price per share (your company) Current balance 21.31 Beginning balance (from HW1) 18.51 Gain or (loss) 2.80 Divide the gain (loss) by Beginning balance x 100 15.31% 2.80 / 18.51 = 0.1531 x 100 = 15.31%

Consider two countries, Home and Foreign. Home’s demand for sugar is ??/d =60,000−400?. Home not only produces sugar domestically, but also imports sugar from Foreign. Home’s supply of sugar is ? ?/s=20,000+500 ? and Foreign’s supply of sugar to Home is ? ?/s =20,000+100?.
a. With sugar available from Home and Foreign, what is Home’s market price of sugar?
b. How much is produced by Home’s producers at Home’s market price?
c. Suppose an import quota of 13,000 is imposed by Home. What will be the new market price of sugar at Home?
d. How many units of sugar will Home’s producers supply after the quota is imposed?
e. Do Home’s consumers and producers benefit from this quota? Explain.
f. Suppose Home could convert this quota into a tariff equivalent. For the overall well-being of Home’s economy, would such a tariff be considered better, worse, or the same as the quota? Explain.

Use only the information given in a question to answer that question—assume ceteris paribus unless otherwise specified.

Answer all questions correctly.

1. Consider a Perfectly Competitive market where the demand is given by

P = 100 – Q. Use this same demand function for each part of the question.

1. Suppose the market supply is given by Q = 50. Calculate the equilibrium price, quantity, and total Producer Surplus. Draw the graph of the supply and demand functions. Show all calculations.

2. Suppose the market supply is given by P = Q. Calculate the equilibrium price, quantity, and total Producer Surplus. Draw the graph of the supply and demand functions.   Show all calculations.

3. Suppose the market supply is given by P = 50. Calculate the equilibrium price, quantity, and total Producer Surplus. Draw the graph of the supply and demand functions.   Show all calculations.

4. Explain what is happening to the total Producer Surplus and why.

Please help me complete steps 2 through 5.

Please help me complete steps 2 through 5.

Market demand for a retail product X in Our Town is given by Q^d = 42 – 0.4P (or P = 105 – 2.5Q_T). This market is shared by two firms, Mom & Pops and Walmart, whose cost structures are given by C_M&P = 15Q_M&P, and C_W = 100 + 5Q_W respectively. The two firms agree to share the market EQUALLY, and to collude on the price, which will be set by Walmart (as the dominant firm).

a. Determine Mom & Pop’s profit level under these conditions.

b. Walmart is considering pricing in a way that would force Mom & Pop’s to shut down its operations. Calculate Walmart’s profits as a monopolist as well as with Mom & Pop’s present (see assumption in (a) above), and advise Walmart whether or not it to do this. Set up your answers in a payoff matrix.

Construct profit diagrams or profit tables on expiration to show what position in IBM puts, calls and/or underlying stock best expresses the investor’s objectives described below. Assume IBM currently sells for $150 so that profit tables for stock prices between $100 and $200 (in $10 increments) are appropriate. Also assume that "at the money" puts and calls cost $15 each.

? An investor wants upside potential if IBM increases but wants (net) losses no greater than $15 if prices decline.

? An investor wants to capture profits if IBM declines in price but wants a guaranteed limited loss if prices increase.

? An investor wants to profit if IBM’s upcoming earnings announcement is either unexpectedly good or disappointingly bad.

? An investor already owns IBM (at a price of $150) and wants to protect against price declines but wants to retain upside if prices rise. Only one transaction is permitted here.

Q3 (20%) Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular customers:

                                        Variable costs:

                                    Direct materials                    $140

                                    Direct labor                             100

                                    Manufacturing support          105

                              Fixed costs:

                                    Manufacturing support          175

                                    Marketing costs                        65

                              Total costs                                     585

                              Markup (50%)                             292.5

                              Targeted selling price               $877.5

Required:

a. What is the contribution margin per unit?

b. Crandle Manufacturers Inc. , what is the minimum acceptable price of this one-time-only special order?

c.       Other than price, what other items should Crandle Manufacturers Inc. consider before accepting this one-time-only special order?

d.      How would the analysis differ if there was limited capacity?

3. (a) Define the term ‘credit risk’ and describe the key inputs required in models of credit risk. (b) Suppose that you are working for a bank who has lent €5 million Euro to firm YZ. Your manager is concerned about its ability to meet its repayments. Advise your manager as to how you can hedge this credit risk? Provide a numerical example. (c) An American call option on a non-dividend paying stock, with a strike price of $100 and an expiry date in six months, currently sells for $5. The underlying asset currently trades for $95 per share and the risk-free rate of interest is 10%. What are the upper and lower price bounds for an American put option written on the same stock, with the same strike price and same time to maturity? Why is it not possible to derive a parity condition for American options on non-dividend paying stocks?