Practice Question:

It has long been told that the French purchased Manhattan island in 1626 for the value of 60 guilders ($24). Assuming that the French invested this money into an account earning 5%, approximately how much would their investment be worth 380 years later in 2006?

A) $1.9 billion B) $2.7 billion C) $3.1 billion D) $4.5 billion

CHAPTER 5

FATABÚÐ Distributing Company completed these merchandising transactions in the month of April. At the beginning of April, the ledger of FATABÚÐ showed Cash of $10,000 and Common Stock of $10,000.

Apr. 2 Purchased merchandise on account from Drekka Co. $8,700, terms 2/10, n/30.
Apr. 4 Sold merchandise on account to Gata, Inc. $6,000, terms 2/10, n/30, FOB Destination. The cost of the merchandise sold was $3,700.

Apr. 5 Paid $200 freight by check on April 4 sale.
Apr. 6 Received credit from Drekka Co. for merchandise returned $400.
Apr. 11 Paid Drekka Co. in full, less discount.
Apr. 13 Received collections in full, less discounts, from Gata, Inc., billed on
April 4.
Apr. 14 Purchased merchandise from Flug, Inc. for cash $4,700. No shipping costs incurred.
Apr. 16 Received refund of $500 from Flug, Inc. for returned merchandise on cash purchase of April 14.
Apr. 18 Purchased merchandise from Sigga Distributors $5,500, terms 2/10, n/30, FOB Shipping Point.
Apr. 20 Paid freight by check on April 18 purchase $180.
Apr. 23 Sold merchandise for cash to Kirkja, Inc. for $8,300. The cost of the merchandise sold was $5,580.
Apr. 26 Purchased merchandise for cash from Silung, Inc. for $2,300.
Apr. 27 Paid Sigga Distributors in full, less discount.
Apr. 29 Made refunds to various cash customers for returned merchandise $180. The returned merchandise had a cost of $120.
Apr. 30 Sold merchandise on account to Frimirki, Inc. $3,980, terms n/30. The cost of the merchandise sold was $2,500. No shipping charges.

FATABÚÐ Distributing Company’s chart of accounts includes:

Cash, Accounts Receivable, Inventory, Accounts Payable, Common Stock, Sales Revenue, Sales Returns and Allowances, Sales Discounts, Cost of Goods Sold, and Freight-Out.

Instructions (a) Journalize the transactions. (b) Prepare the income statement through gross profit for the month of April 2014.

TIP: Since you need to prepare an income statement through gross profit, you should keep track of your accounts as you go along.

All are arguments for privately provided health insurance except (based on lecture information from our textbook):

You are evaluating a new project for the firm you work for, a publicly listed firm. The firm typically finances new projects using the same mix of financing as in its capital structure, but this project is in a different industry than the firm’s core business. Describe the procedure for estimating the appropriate discount rate (cost of capital) to be used in the evaluation of the project

You are evaluating a new project for the firm you work for, a publicly listed firm. The firm typically finances new projects using the same mix of financing as in its capital structure, but this project is in a different industry than the firm’s core business. Describe the procedure for estimating the appropriate discount rate (cost of capital) to be used in the evaluation of the project.

Under normal market conditions, among General Electric, Ford and SalesForce (all three are publicly listed US firms), which company’s P/E ratio would be highest, lowest and why (please make sure to explain)? If you had to purchase shares of one of these companies, which one would you buy and why?

Suppose the Florida legislature is considering a measure that would provide publicly-financed health care to all new immigrants for a one-year period. If you were asked to do a cost-benefit analysis of the proposal, what sorts of costs and benefits would be important to consider? Why? Be sure to use the concepts of public goods and externalities in your answer.

a)Analyze the major pros and cons of preparing annual company budgets. Identify at least two (2) critical budget line items that you believe are essential for managing your company. Provide a rationale for your response.

b)One way to monitor a company is to break it into different centers or business units. For example, a Revenue Center oversees the sales teams while the Cost Center focuses on making the product or delivering the services. If the company maintains a store or locations that handles both revenue and costs, this is called a Profit Center. Managers of each center have their own budgets and are held accountable for achieving it. Analyze the most common responsibility reporting systems. From your analysis, argue at least one (1) pro and one (1) con of using responsibility reporting systems.

ONLY ONE ANSWER FOR EACH.