Scenario
It is 2020, and General Foryota Company opens a plant in which to build a new mass-produced hover-craft. This hover-craft will work using E-85 Ethanol, will travel up to 200 mph, and will reduce pollution worldwide at a rate of 10 percent per year. It is likely that when all automobiles in the industrial world have been changed over to hovercrafts, emission of greenhouse gasses may be so reduced that global warming may end and air quality will become completely refreshed.

However, the downside is that during the transition time, GFC's Hover-Vee (only available in red or black), will most likely put all transportation as we know it in major dissaray. Roadways will no longer be necessary, but new methods of controlling traffic will be required. Further, while the old version of cars are still being used, Hover-vee's will cause accidents, parking issues, and most likely class envy and warfare. The sticker price on the first two models will be about four times that of the average SUV (to about $200,000.) Even so, GFC's marketing futurists have let them know that they will be able to pre-sell their first three years of expected production, with a potential waiting list which will take between 15 and 20 years to fill.

The Chief Engineer (CE) of GFC commissions a study on potential liabilities for the Hover-vees. The preliminary result is that Hover-vees will likely kill or maim humans at an increased rate of double to triple over automobile travel because of collisions and crashes at high speeds -- projected annual death rates of 100,000 to 200,000. However, global warming will end, and the environment will flourish.

The U. S. Government gets wind of the plans. Congress begins to discuss the rules on who can own and operate Hover-vees. GFC's stock skyrockets. The Chief Engineer takes the results of the study to the Chief Legal Counsel (CLC), and together they agree to bury the study, going forward with the production plans. The Chief Project Manager (CPM), who has read the study and agreed to bury it, goes ahead and plans out the project for the company, with target dates and production deadlines.

Our class is a team of young lawyers, project managers, engineers, and congressional aides who are all part of the process of helping get this project off the ground. In fact, according to the first letter of your last name, you are the following team:

• A-G: Attorney on the GFC team
• H-N: Project Manager on the GFC team
• 0-S: Engineer on the GFC team
• T-Z: Congressional Aide

Somebody sent a secret copy of the report to you at your home address. It has no information in it at all, except for the report showing the proof of the increase in accidents and deaths. The report shows, on its face, that the CE, CLC, CPM, and your Congressional Representative have seen copies of this report. On the front there are these words typed in red: They knew — they buried this. Please save the world!

Each of you feel a very loyal tie to your boss and your company/country. You all have mortgages, and families to feed. It is likely if you blow the whistle on this report, you will lose your job and your livelihood. You're not even sure who wrote the study in your envelope or who actually sent it to you.

Upon studying the issue, you determine the source of the message that set you on the trail! The Source is Trace Velvet, a worker on the project that was fired for gross incompetence. As near as you can tell, the firing was deserved. This could be an act of revenge, or a demonstration of said incompetence. But you have no evidence that the information you have received was false. It may well point out a real problem. How does this change your responses?

Scenario
It is 2020, and General Foryota Company opens a plant in which to build a new mass-produced hover-craft. This hover-craft will work using E-85 Ethanol, will travel up to 200 mph, and will reduce pollution worldwide at a rate of 10 percent per year. It is likely that when all automobiles in the industrial world have been changed over to hovercrafts, emission of greenhouse gasses may be so reduced that global warming may end and air quality will become completely refreshed.

However, the downside is that during the transition time, GFC's Hover-Vee (only available in red or black), will most likely put all transportation as we know it in major dissaray. Roadways will no longer be necessary, but new methods of controlling traffic will be required. Further, while the old version of cars are still being used, Hover-vee's will cause accidents, parking issues, and most likely class envy and warfare. The sticker price on the first two models will be about four times that of the average SUV (to about $200,000.) Even so, GFC's marketing futurists have let them know that they will be able to pre-sell their first three years of expected production, with a potential waiting list which will take between 15 and 20 years to fill.

The Chief Engineer (CE) of GFC commissions a study on potential liabilities for the Hover-vees. The preliminary result is that Hover-vees will likely kill or maim humans at an increased rate of double to triple over automobile travel because of collisions and crashes at high speeds -- projected annual death rates of 100,000 to 200,000. However, global warming will end, and the environment will flourish.

The U. S. Government gets wind of the plans. Congress begins to discuss the rules on who can own and operate Hover-vees. GFC's stock skyrockets. The Chief Engineer takes the results of the study to the Chief Legal Counsel (CLC), and together they agree to bury the study, going forward with the production plans. The Chief Project Manager (CPM), who has read the study and agreed to bury it, goes ahead and plans out the project for the company, with target dates and production deadlines.

Our class is a team of young lawyers, project managers, engineers, and congressional aides who are all part of the process of helping get this project off the ground. In fact, according to the first letter of your last name, you are the following team:

• A-G: Attorney on the GFC team
• H-N: Project Manager on the GFC team
• 0-S: Engineer on the GFC team
• T-Z: Congressional Aide

Somebody sent a secret copy of the report to you at your home address. It has no information in it at all, except for the report showing the proof of the increase in accidents and deaths. The report shows, on its face, that the CE, CLC, CPM, and your Congressional Representative have seen copies of this report. On the front there are these words typed in red: They knew — they buried this. Please save the world!

Each of you feel a very loyal tie to your boss and your company/country. You all have mortgages, and families to feed. It is likely if you blow the whistle on this report, you will lose your job and your livelihood. You're not even sure who wrote the study in your envelope or who actually sent it to you.

Address all of the following:

• Utilizing your profession's code of ethics, what would be your first step?
• Who would you talk to first?
• Would you go to the press?
• Would you go to your boss?
• Should you do anything at all?

On January 1, 2020, the balance in Todd Co's "Prepaid Insurance" account was $3,600. At the December 31 year end, the balance was $1,200. In Todd's Cash Flow Statement for the year ended 12/31/2020, the net $2,400 net decrease will be
A Subtracted from Net Income in determining net cash provided by operating activities
B Reported as a cash inflow from financing activities
C Reported as a cash outflow from financing activities
D Added to Net Income in determining net cash provided by operating activities

On January 1, 2020, the balance in Tim Company's "Accounts Payable" account was $22,000. At the December 31 year end, the balance was $30,000. In Tim's Cash Flow Statement for the year ended 12/31/2020, the $8,000 net increase will be
A Subtracted from Net Income in determining net cash provided by operating activities
B Reported as a cash outflow from financing activities
C Reported as a cash inflow from investing activities
D Added to Net Income in determining net cash provided by operating activities

Consider two firms, A and B. Firm A is a US-based company and firm B is a Germany-based company. Firm A wants to finance a 10-year, €100 million project in Germany. Firm B wants to finance a 10-year, $111 million project in the US. The current spot rate is $1.11/€. Their borrowing opportunities are given in the table below:

1. Calculate the quality spread differential (QSD) between Firm A and Firm B.

2. Develop a cross-currency interest rate swap in which both Firm A and Firm B have an equal cost savings in their borrowing costs, and the swap bank makes 0.30% per annum in arranging the swap and assuming all foreign exchange risks.

3. Illustrate your swap and its cash flows by drawing the proper swap diagrams showing the swap interest rates, and the cash flows at the initiation of the swap, at each annual settlement during the life of the swap, and at maturity of the swap.

Enumerate and briefly explain some of potential accounting problems resulting from inflation.

Enumerate and briefly explain methods of dealing with inflation in financial reporting.

What are acceptable methods of dealing with inflation under US GAAP and IFRS?

Define “control” and “group” under US GAAP and IFRS.

Reporting on Discontinued Operations—Disposal in Current Year

On August 1, 2020, Fischer Inc. decided to discontinue the operations of its Services Division, which qualifies as a business component. An agreement was formalized to sell this component for $436,800 cash. The book value of the assets of the Services Division was $504,000. The disposal date was August 1, 2020. The income tax rate is 25%, and the accounting year-end is December 31. On December 31, 2020, the pretax income from all operations, including an operating loss of $56,000 incurred by the Services Division prior to August 1, 2020, was $1,120,000. There were 150,000 weighted average common shares outstanding during 2020.

Required

Prepare a partial income statement beginning with income from continuing operations. Include the earnings per share disclosures.

• Use a negative sign to indicate a loss.
• Round the per share amounts to two decimal places.

Answer

Elvis Inc. is planning to establish a subsidiary in Australia to produce canola oil. The manufacturing facility will cost the parent company an initial investment of 5 million U.S. dollars (US$) to set up. The project will end in 3 years. At the end of the project, Elvis will sell the Australian subsidiary for A$8 million to an Australian agriculture firm. This amount is net of capital gain tax and is not subject to the withholding tax. Elvis estimates the after-tax net cash flows are A$6,400,000, A$3,000,000, and A$5,900,000 at the end of the first, second and third year, respectively. The Australian government will impose a corporate tax of 27% and a withholding tax of 19% on remitted funds. Additionally, the Australian law requires the subsidiary to operate locally at least for 3 years before it can remit earnings to its parent company. The parent's required rate of return for the Australian project is 10%. Suppose that the subsidiary can invest at 5% p.a. in Australia throughout the project duration and the exchange rate for the Australian dollar would remain unchanged at $0.141 throughout the project duration. Conduct a capital budgeting analysis to determine the feasibility of this project by completing the table below.

You are the ISO for a medium size company that works in paper, but not any paper but the paper that US dollars are made on.

Write an incident flow chart for some catastrophes happening to your company. Include a flow chart based on the situation.

You make up the catastrophe, man-made or nature or freak accident.

Which practice is in accordance with US GAAP? 1. a company values assets at their market value 2. a company recognizes expenses when they incur them 3. the monetary unit principle takes inflation into account 4. the accoutning period of a buisness keeps changing 5. businesses and owners are legally dependent