Diva Limited is the parent company of a group of global subsidiaries that specializes in the design, production anddistribution of apparel and accessories for extreme sports. The extreme sports industry is defined by youth culture, youthsaged 12 to 24, and is forecasted to grow at a rate of 15% to 18% annually. The industry is made up of several dozens ofgiant global brands and is intensely competitive.

In the company’s quest for product innovation and design to pursue its differentiation strategy, Diva Limited incurredsubstantial research and development costs in the past few years, which amount to $90 million, $105 million, $120 million,and $135 million for the years ended 2012, 2013, 2014, and 2015 respectively. The research and development costs wereexpensed off in the company’s income statement in the years they were incurred.

Required

As part of the accounting analysis process, you decide that Diva’s accounting treatment to expense its research anddevelopment costs does not meaningfully reflect the company’s underlying business economics. You estimate that 40% ofDiva’s research and development costs in each year should be capitalized and amortized on a straight-line basis, from thebeginning of the following year over a three-year period. Compute the effect of capitalizing the research and development costson Diva’s income statements and balance sheets for the financial years 2014 and 2015. Ignore any potential tax effects.Answer the following questions.

1. After the accounting adjustment, does the net income in 2014 increase or decrease? How much net income should be increased or decreased? Please show calculation.
2. After the accounting adjustment, does the net income in 2015 increase or decrease? How much net income should be increased or decreased?  Please show calculation.

You set up your own business in merchandising sector in Scranton, PA - opening a luxury watch shop on 1/1/2020.

The following is related information about the business:

-   Specific sub-sector: Merchandising sector.

-   Location: Scranton, PA

-   Business model: merchandiser - buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hired a shop manager. In order to handle different aspects of business, you had one employee responsible for the purchasing, receiving, and storing of watches purchased. A second employee is responsible for the maintenance of account receivable records and collection from customers. A third employee has responsibility for personal records, timekeeping, preparation of payrolls, and distribution of payroll checks. As a part of his job, the shop manager would do some internal control functions. In addition, you hired one security officer, and 4 full-time sales assistants.

Requirements:

1. You are given the following economic events of the business in 2020

1/1/2020: Opened the business, invested $1,000,000 cash in the business.

1/1/2020: bought a building for the business purpose for $100,000 cash. The building has a useful economic life of 10 years.

1/1/2020: purchased 100 luxury watches for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2021. (each watch costs $2,000)

3/1/2020: purchased 50 luxury watches for $250,000 with cash. Each watch costs $5,000.

4/1/2020: purchased 40 luxury watches for $240,000 with cash. Each costs $6,000.

6/1/2020: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2021.

7/1/2020: paid $1,200 in advance for 12 months’ property insurance (7/1/20 to 7/1/21).

8/1/2020: borrowed $500,000 from a local Chase bank. Interest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2021. Principal would be paid on 8/1/2021.

9/1/2020: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

12/31/2020: Paid 2020 utilities expense, advertising expense, and miscellaneous expense for $5000, $15,000, and $4,000, respectively.

Salary is paid on the last day of each month. Each month’s salary expense is $20,000.

Notes:

• On 12/31/2020: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
• Your business used straight-line depreciation method for all fixed assets.
• Ignore tax.

Requirement: Prepare an excel file that includes

1. Tab 1 titled “accounting entries”: prepare all journal entries, adjusting entries, closing entries needed for the period ending on 12/31/2020 based on above economic events

You set up your own business in merchandising sector in Scranton, PA - opening a luxury watch shop on 1/1/2020.

The following is related information about the business:

-   Specific sub-sector: Merchandising sector.

-   Location: Scranton, PA

-   Business model: merchandiser - buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hired a shop manager. In order to handle different aspects of business, you had one employee responsible for the purchasing, receiving, and storing of watches purchased. A second employee is responsible for the maintenance of account receivable records and collection from customers. A third employee has responsibility for personal records, timekeeping, preparation of payrolls, and distribution of payroll checks. As a part of his job, the shop manager would do some internal control functions. In addition, you hired one security officer, and 4 full-time sales assistants.

Requirements:

1. You are given the following economic events of the business in 2020

1/1/2020: Opened the business, invested $1,000,000 cash in the business.

1/1/2020: bought a building for the business purpose for $100,000 cash. The building has a useful economic life of 10 years.

1/1/2020: purchased 100 luxury watches for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2021. (each watch costs $2,000)

3/1/2020: purchased 50 luxury watches for $250,000 with cash. Each watch costs $5,000.

4/1/2020: purchased 40 luxury watches for $240,000 with cash. Each costs $6,000.

6/1/2020: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2021.

7/1/2020: paid $1,200 in advance for 12 months’ property insurance (7/1/20 to 7/1/21).

8/1/2020: borrowed $500,000 from a local Chase bank. Interest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2021. Principal would be paid on 8/1/2021.

9/1/2020: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

12/31/2020: Paid 2020 utilities expense, advertising expense, and miscellaneous expense for $5000, $15,000, and $4,000, respectively.

Salary is paid on the last day of each month. Each month’s salary expense is $20,000.

Notes:

• On 12/31/2020: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
• Your business used straight-line depreciation method for all fixed assets.
• Ignore tax.

Requirement: Prepare an excel file that includes

Tab 2 titled “income statement”: prepare a multiple-step income statement for year ended 12/31/2020.

Project Monitoring and Control Process Plan:
You have a Project Budget for building a five-bedroom house in Ashburn, VA. Assume that your building project is two months behind and has a $100,000.00 cost overrun. This should not be a surprise to you because of the monitoring processes. Identify and discuss some of the monitoring processes that could have alerted you of the schedule and cost problems. What are some of the controlling steps you would take to bring both the schedule and the cost back on track? Be sure to justify your answers. . Your Project Monitoring and Control Process Plan should be at least two pages including a summarization and conclusion page. If necessary, include data from the Project Budget and Project Schedule in the table shown below to support your schedule and cost problems.

Following hurricane Katrina, many people were housed in trailers provided by the Federal Emergency Management Agency (FEMA). A potential health concern for individuals living in the trailers is exposure to formaldehyde (due to its use in adhesives). From Sept. 19 to Oct. 7, 2006, air samples were collected from 96 new, unused travel trailers from, at a staging area in Baton Rouge, LA. Only previously unoccupied trailers were tested in order to eliminate any effects from human activities that might cause formaldehyde levels to rise. The units tested had been closed for approximately six weeks before the sampling. The air sampling data was analyzed for FEMA by the Department of Health and Human Services' Agency for Toxic Substances and Disease Registry (ATSDR) in Atlanta, GA. The baseline concentration of formaldehyde in the units averaged 1.2 ppmv (parts per million by volume) at the beginning of the test. What was the average formaldehyde concentration within the trailers, expressed in units of g/m3? Assume that the temperature inside the units was 25oC and P = 1 atm. Molecular weight of formaldehyde is 30 g/mole.

6. Answer the following questions based on the following quotation. On October 1, 2007, S&P 500 closed at 1547 where the quotation of CALL options on S&P 500 was as follows. Those contracts expire in October 2007.

(a) Which option is in the money?

(b) Decompose the value of 1540 call, $31.7, into intrinsic value and time value.

(c) Again using the call with exercise price of 1540, what would be your cash proceeds if you exercise the option on October 1 (index options are settled by cash)? Assume that both dividends and transaction costs are small enough to be ignored. Based on this answer and answer on (b), does it make sense to exercise an American call before expiration? Explain.

(d) Assume that put-call parity holds for these options (it does not exactly hold since the above options are all American). What should be the value of a PUT on S&P 500 with exercise price of 1600? Assume that the annual risk-free rate is 5%.

1. A vibrating string is cut in half. The fundamental frequency of the string will be...

a. doubled

b. unchanged

c. reduced by half

2.On a pipe organ, for a closed pipe, if you double the length of the pipe, what happens to the fundamental frequency?

a. It does not change.

b. It doubles.

c. It is reduced by half.

d. It is reduced by 1/4.

e. It is increased 4x.

3. When you blow gently across the top of a particular soda bottle, it emits a tone. The column of air in the bottle is vibrating up and down in its fundamental mode. If you replace the air in the bottle with something heavier than air (like carbon dioxide) and then blow gently across the top of the bottle, it will emit

a) a higher pitched tone. b) a tone at the same pitch as before.

c) no sound at all. d) a lower pitched tone.

9. If you blow across the top of a half full bottle of soda you can produce a clear tone. If you take a drink of soda to reduce the amount of liquid in the bottle and try this again the pitch (frequency) of the sound produced will

a) increase. b) stay the same.

c) exactly double. d) decrease.

A) Two arthroscopic surgeries were compared among patients suffering from osteoarthritis who had at least moderate knee pain. The lavage type has the joint flushed with fluid and no instrument is used to remove tissue; the debridement type has the joint flushed with fluid and an instrument is used to remove tissue. Knee pain scores, ranging from 0 to 100 with higher scores indicating severe pain, were obtained for patients randomly assigned to the two groups after the surgery and the results are given below:

------------Sameple Size--------Sample Mean-------Sample Standard Deviation

Lavage 11 59 24

Debridment 13 49 23

Determine a 95% confidence interval for the difference between the mean knee pain score for the lavage group and that for the debridement group

B) A test of abstract reasoning is given to a random sample of 10 students before and after completing a formal logic course. The results are shown below.

Before----------After

71 71

81 86

85 82

67 75

92 95

71 66

61 67

78 81

64 71

80 88

Determine a 95% confidence interval for the difference between the mean score after completing the course and the mean score before completing the course

C) The quality control officer collects a random sample of 100 yardsticks from the day's production run. The sample mean is 36 inches. The population standard deviation for that day’s production is σ =1 inches.

1)Find a 99% confidence interval for the mean length of all yardsticks made that day

2)The margin of error associated with the 99% confidence interval for the mean length of all yardsticks made that day is

3)You decide that margin of error in previous question is too large, and you want it to be at most 0.1 inches, what is the minimum sample size in order to obtain this margin of error with a confidence level of 99%?

NYC Limo has a client who will sign a lease for a limousine. Consider a $90,000 limousine that will last for four years and can be depreciated on a three-year MACRS schedule. Assume that lease rates for old and new limousine are the same and that Acme Limo Inc's pretax administrative costs are $9,000 per limousine per year (these costs will occur at the beginning of the year). The after-tax cost of capital is 8% and the tax rate is 20%. The limousine is expected to be sold for $15,000 at the end of 4 years. The Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. What is the break-even operating lease rate for the limousine?

Use the following table for depreciation-MACRS Rates for three year asset-Half Year Convention

Year %

1 33.33%

2 44.45%

3 14.81%

4 7.41%

Please choose all correct answers. However, if you choose a wrong answer, then each incorrect answer will reduce the score by 10%

1. The cash flow for year 4 is $9798 to 9802

2. The cash flow at year 2 is 685 to 695

3. The break-even leasing payment before tax is $31960 to $31970

4. The breakeven leasing payment before tax is $31940 to 31950

5. The break-even leasing payment after tax is $25550 to $25560

6. The cash flow at year 0 is -$97,200 (that's a negative sign just in case it's not clear)

7. The cash flow at year 2 is $696 to 700

8. The break-even leasing payment after tax is $25560 to $25570

9. The break-even leasing payment after tax is 25570 to 25580

10. The cash flow for year 4 is $9805 to 9810

11. The cash flow at year 0 is -$97,000 (that is a negative sign just in case it's not clear)

12. The break-even leasing payment before tax is $31950 to $31960