One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is:

Question 12 options:

Fiscal policy most directly affects the economy by increasing or decreasing:

In the long run, changes in prices of goods and services paid by consumers:

Assume that the composite price level P is fixed. If the government wishes to decrease equilibrium GDP by $3,000b, and the MPC is 0.5, it should:

In the problems below, you can use a risk premium of 5.5 percent and a tax rate of 40 percent if none is specified.

1. Union Pacific Railroad reported net income of $770 million after interest expenses of $320 million in a recent financial year. (The corporate tax rate was 36 percent.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8 percent), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Union Pacific paid 40 percent of its earnings as dividends and working capital requirements are negligible. (The Treasury bond rate is 7 percent.)

a. Estimate the FCFF for the most recent financial year.

b. Estimate the value of the firm now.

c. Estimate the value of equity and the value per share now.

Chapter 15

Spending, Income, and GDP

1. The most commonly used measure of an economy's output is:

A. the rate of employment.

B. the rate of inflation.

C. gross domestic product.

D. the Dow Jones stock market index

2. Gross domestic product (GDP) equals the ______ of final _______ produced within a country during a given period of time.

A. market value; goods

B. market value; services

C. market value; goods and services

D. quantity; goods and services

3. When economists use market values to aggregate output, they sum the:

A. number of items produced.

B. quantity of items produced.

C. price times the quantity of each item produced.

D. amount of each item produced.

    4. If total output is calculated by adding up the market value of goods and services produced, then more expensive items:

A. receive the same weighting as cheaper items.

B. receive a higher weighting than cheaper items.

C. receive a smaller weighting than cheaper items.

D. are double counted.

5. If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:

A. oranges receive a greater weighting than cars.

B. oranges receive the same weighting as cars.

C. oranges receive a smaller weighting than cars.

D. the market value of oranges is excluded.

6.  The value of unpaid work by a homemaker ___ included in GDP and value of housekeeping services sold in the market ___ included in GDP.

A. is; is not

B. is; is

C. is not; is not

D. is not; is

7. The value of intermediate goods are excluded from the measurement of GDP in order to:

A. adjust for inflation.

B. avoid double counting.

C. index economic activity.

D. measure GDP in constant prices.

8. Capital goods are treated as _______ goods and, therefore, _______ GDP.

A. final; included in

B. final; excluded from

C. intermediate; included in

D. intermediate; excluded from

9. Which of the following transactions would be included in the GDP of the United States?

A. Coca Cola produces soft drinks in England.

B. Honda produces cars in Ohio.

C. McDonalds sells hamburgers in Russia.

D. Ford Motors produces cars in Mexico

   10.  In the year 2006, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of this transaction to GDP in the year 2006?

A. $0

B. $200,000

C. $2 million

D. $20.2 million

   11.  The four categories of final users of GDP are:

A. businesses, firms, governments, and the foreign sector.

B. households, the Federal Reserve, governments, and the foreign sector.

C. businesses, corporations, firms, and farms.

D. households, firms, governments, and the foreign sector.

12. Total spending on final goods and services in an economy must equal total:

A. profits.

B. production.

C. revenues from all transactions.

D. investment.

13. Consumption spending includes spending on:

A. durables, nondurables, and services.

B. stocks, bonds, and other financial instruments.

C. capital goods, residential housing, and changes in inventories.

D. goods and services by federal, state, and local governments.

    14.  Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

A. consumption expenditures.

B. investment.

C. government purchases.

D. service spending.

15. Government purchases include all of the following EXCEPT:

A. social security benefits paid by the federal government.

B. the construction of a new court house built by a county government.

C. the salary paid to an elementary school teacher employed by a local public school district.

D. the purchase of new military hardware by the U.S. Army.

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:

a.     As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:

b.    Actual sales for December and budgeted sales for the next four months are as follows:

c.     Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.

d.    The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

e.     Monthly expenses are budgeted as follows: salaries and wages, $29,000 per month: advertising, $67,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $44,340 for the quarter.

f.      Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

g.    One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

h.    During February, the company will purchase a new copy machine for $2,400 cash. During March, other equipment will be purchased for cash at a cost of $77,000.

i.      During January, the company will declare and pay $45,000 in cash dividends.

j.      Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the data above, complete the following statements and schedules for the first quarter:

1. Schedule of expected cash collections:

2-a. Merchandise purchases budget:

2-b. Schedule of expected cash disbursements for merchandise purchases:

3. Cash budget:

4. Prepare an absorption costing income statement for the quarter ending March 31.

5. Prepare a balance sheet as of March 31.

Required 2A

·      

Ring The Bells Co. makes one product. Budgeted unit sales for 1st Quarter, 2nd Quarter, 3rd Quarter, and 4th Quarter are 580,000; 560,000; 575,000; and 590,000 units, respectively. The ending finished goods inventory should equal 5% of the following month's sales. The budgeted required production for 3rd Quarter is:

a. 575,000 units

b. 575,750 units

c. 574,250 units

d. 560,750 units

e. 560,000 units

You are Given the Following Information for an OECS country for the years 2005 and 2004:

1. Calculate GDP for the years 2005 and 2004.You have just calculated nominal GDP.

2.You are told that inflation in 2005 was approximately 2%,what would be your initial estimate of real GDP growth in 2025?Briefly outline the difference between nominal and real GDP.

Para Corp is preparing its Master Budget for 20XX. To complete this problem you need to prepare a selection of Para’s individual budgets. Specifically, the Production Budget, the Direct Materials Budget and Schedule of Cash Payments, the Direct Labor Budget and the Ending Finished Goods Budget.

REQUIRED

1.         PREPARE A PRODUCTION BUDGET (2 POINTS)

Prepare the Production Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter using the format shown in the text book.

Relevant Information for preparing the Production Budget includes:

• Sales projections for the 3 months:
  • January – 75,000 units
  • February - 100,000 units
  • March – 90,000 units
  • April – 37022
• Finished goods inventory on January 1, 20XX = 7,500 units
• Desired ending inventory for each month = 25% of the next month’s budgeted unit sales.

2.         PREPARE A DIRECT MATERIALS BUDGET (3 POINTS)

(TO INSURE CONSISTENCY IN GRADING – USE THE REQUIRED PRODUCTION GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED FOR QUESTION 1.)

Prepare the Direct Materials Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant Information for preparing the Direct Materials Budget includes:

Required Production for the 3 months:

• January – 95,000 units
• February - 120,000 units
• March – 110,000 units
• April – 37022

Number of gallons needed per unit = 3

Raw materials inventory on January 1, 20XX = 30,000 gallons

Desired ending inventory for each month = 10% of the next month’s budgeted production

Raw materials cost per gallon = $2.00

3.         PREPARE A SCHEDULE OF CASH PAYMENTS FOR RAW MATERIALS (3 POINTS)

(TO INSURE CONSISTENCY IN GRADING – USE THE COST OF GALLON PURCUASED GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED IN PART 2.)

Prepare the Schedule of Cash Payments for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the textbook. Relevant information for the Schedule of Cash Payments includes:

• January cost of gallons purchased - $350,000

• February cost of gallons purchased - $400,000 units
• March cost of gallons purchased – $450,000
• Para pays for 40% of its purchases in the month of purchase, 50% in the month after purchase and 10% in the second month after purchase.
• Beginning Accounts Payable = $40,000

4.         PREPARE A DIRECT LABOR BUDGET (2 POINTS)

Prepare the Direct Labor Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant information for the Direct Labor Budget includes:

• Use the required production amounts given for the Direct Materials Budget in Question #2.
• Each unit requires .5 hours of direct labor at a rate of $20 per hour.

5.         PREPARE AN ENDING FINISHED GOODS BUDGET (2 POINTS)

Prepare the Ending Finished Goods Budget using the format shown in the text book. Be sure to compute an amount for ending finished goods inventory.

• Use the per unit amounts and costs given for Question 2 (Direct Materials Budget) and Question 4 (Direct Labor Budget)
• Assume Manufacturing Overhead is based on direct labor hours at a cost of $10 per hour.
• Assume ending finished goods inventory = 50,000 units.

  ACCTG 231 – FALL 2020

  Comprehensive Problem 3

  Para Corp is preparing its Master Budget for 20XX. To complete this problem you need to prepare a selection of Para’s individual budgets. Specifically, the Production Budget, the Direct Materials Budget and Schedule of Cash Payments, the Direct Labor Budget and the Ending Finished Goods Budget.

  REQUIRED

  1.         PREPARE A PRODUCTION BUDGET (2 POINTS)

  Prepare the Production Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter using the format shown in the text book.

  Relevant Information for preparing the Production Budget includes:

• Sales projections for the 3 months:
  • January – 75,000 units
  • February - 100,000 units
  • March – 90,000 units
  • April – 37022
• Finished goods inventory on January 1, 20XX = 7,500 units
• Desired ending inventory for each month = 25% of the next month’s budgeted unit sales.

• 2.         PREPARE A DIRECT MATERIALS BUDGET (3 POINTS)

  (TO INSURE CONSISTENCY IN GRADING – USE THE REQUIRED PRODUCTION GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED FOR QUESTION 1.)

  Prepare the Direct Materials Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant Information for preparing the Direct Materials Budget includes:

  Required Production for the 3 months:

• January – 95,000 units
• February - 120,000 units
• March – 110,000 units
• April – 37022

• Number of gallons needed per unit = 3

  Raw materials inventory on January 1, 20XX = 30,000 gallons

  Desired ending inventory for each month = 10% of the next month’s budgeted production

  Raw materials cost per gallon = $2.00

  3.         PREPARE A SCHEDULE OF CASH PAYMENTS FOR RAW MATERIALS (3 POINTS)

  (TO INSURE CONSISTENCY IN GRADING – USE THE COST OF GALLON PURCUASED GIVEN HERE, NOT THE AMOUNTS YOU COMPUTED IN PART 2.)

  Prepare the Schedule of Cash Payments for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the textbook. Relevant information for the Schedule of Cash Payments includes:

• January cost of gallons purchased - $350,000
• February cost of gallons purchased - $400,000 units
• March cost of gallons purchased – $450,000
• Para pays for 40% of its purchases in the month of purchase, 50% in the month after purchase and 10% in the second month after purchase.
• Beginning Accounts Payable = $40,000

• 4.         PREPARE A DIRECT LABOR BUDGET (2 POINTS)

  Prepare the Direct Labor Budget for the first three months of Para’s fiscal year (January, February, and March), along with the totals for the quarter, using the format shown in the text book. Relevant information for the Direct Labor Budget includes:

• Use the required production amounts given for the Direct Materials Budget in Question #2.
• Each unit requires .5 hours of direct labor at a rate of $20 per hour.

• 5.         PREPARE AN ENDING FINISHED GOODS BUDGET (2 POINTS)

  Prepare the Ending Finished Goods Budget using the format shown in the text book. Be sure to compute an amount for ending finished goods inventory.

• Use the per unit amounts and costs given for Question 2 (Direct Materials Budget) and Question 4 (Direct Labor Budget)
• Assume Manufacturing Overhead is based on direct labor hours at a cost of $10 per hour.
• Assume ending finished goods inventory = 50,000 units.

#71 Suppose that both the nominal exchange rate (Mexican Peso/U.S. Dollar) is falling and that the ratio of the prices (U.S. Dollar/Mexican Peso) is also falling. If the demand for U.S. Dollars relative to the Mexican Peso is rising, which open market theory do we believe is most consistent with our economy?

a. Purchasing Power Parity b. Open Economy Model c. Both a and b d. Neither a nor b

Answer is B, but why? What exactly is Purchasing Power Parity? What exactly is the Open Economy Model? What concepts do i need to understand to be able to get to this answer?

Windy City Corp. manufactures component parts for wind turbines. The controller is building a master budget for the first quarter of the upcoming calendar year. Selected information from the accounting records is presented next:

a. Accounts Receivable as of January 1 are $59,250. Selling price per unit is projected to remain stable at $14 per unit throughout the budget period. Sales for the first five months of the upcoming year are budgeted to be as follows:

b. Sales are 25% cash and 75% credit. All credit sales are collected in the month following the sale.

c. Windy City has a policy that states that each month’s ending inventory of finished goods should be 10% of the following month’s sales (in units).

d. Three pounds of direct material is needed per unit at $2.90 per pound. Ending inventory of direct materials should be 20% of next month’s production needs.

e. Monthly manufacturing overhead costs are $5,510 for factory rent, $2,900 for other fixed manufacturing costs, and $1.10 per unit produced for variable manufacturing overhead. All costs are paid in the month in which they are incurred.

Required:

1. What are the budgeted total cash collections for the 1st quarter?

2. What is the budgeted production for the quarter in terms of number of units?

3. What is the budgeted direct materials cost for the quarter?

4. What is the budgeted manufacturing overhead for the quarter?

Morrisey & Brown, Ltd., of Sydney, Australia, is a merchandising firm that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company’s income statements for the three most recent months follow:

(Note: Morrisey & Brown, Ltd.’s Australian-formatted income statement has been recast into the format common in Canada. The Australian dollar is denoted by A$.)

Required:

1. Identify each of the company’s expenses (including cost of goods sold) as being variable, fixed, or mixed.

2-a. Using the high-low method, separate each mixed expense into variable and fixed elements.

2-b. Using the high-low method, state the cost formula for each mixed expense.

3. Redo the company's income statement at the 6,440-unit level of activity using the contribution format.

4. Assume that the company’s sales are projected to be 5,100 units in the next quarter. Prepare a contribution margin income statement.