The economy of Euphoria has the following economic data.

1. Production costs are costs of raw materials, wages, capital goods and services.
2. Productivity index relates to all production inputs.

Examine the data relating to the economy of Euphoria above and answer the following questions.

Q1. What phase of the business cycle was the economy in 2018? Briefly give two reasons for your answer.                                                                                              

Q2. What was the likely cause of the change in the unemployment rate in 2018? What type of unemployment is likely to exist in Euphoria in 2018? Explain your answer.         

Q3. Identify and explain the likely cause of inflation / deflation in 2018?

Include in your answer the contribution that export and import prices made to inflation /   deflation in 2018.        

q. 28

Witter House is a calendar-year firm with 370 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $15 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $2 per option.

In 2018, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 25 million restricted common shares to senior executives at January 1, 2018. The shares vest four years later. The fair value of the stock was $20 per share on the grant date. The average price of the common shares was $20 and $25 during 2018 and 2019, respectively.

The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $220 million and $230 million in 2018 and 2019, respectively. Its income tax rate is 40%.

Required:
1. Compute basic and diluted earnings per share for Witter House in 2018.
2. Compute basic and diluted earnings per share for Witter House in 2019.

(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 10,000,000 should be entered as 10.00).)

q.28

Witter House is a calendar-year firm with 370 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $15 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $2 per option.

In 2018, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 25 million restricted common shares to senior executives at January 1, 2018. The shares vest four years later. The fair value of the stock was $20 per share on the grant date. The average price of the common shares was $20 and $25 during 2018 and 2019, respectively.

The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $220 million and $230 million in 2018 and 2019, respectively. Its income tax rate is 40%.

Required:
1. Compute basic and diluted earnings per share for Witter House in 2018.
2. Compute basic and diluted earnings per share for Witter House in 2019.

(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 10,000,000 should be entered as 10.00).)

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 26,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 26,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Brandlin's incremental borrowing rate is 15 percent. The present value factor for two months at an annual interest rate of 15 percent (1.25 percent per month) is 0.9755. Brandlin must close its books and prepare financial statements at December 31.

a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars.

a-2. What is the impact on 2017 net income?

a-3. What is the impact on 2018 net income?

a-4. What is the impact on net income over the two accounting periods?

b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.

b-2. What is the impact on 2017 net income?

b-3. What is the impact on 2018 net income?

b-4. What is the impact on net income over the two accounting periods?

Johnson Corporation began 2018 with inventory of 19,000 units of its only product. The units cost $7 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018:

1. Purchased 95,000 additional units at a cost of $10 per unit. Terms of the purchases were 3/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson.
2. 1,900 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.
3. Sales for the year totaled 90,000 units at $16 per unit.
4. On December 28, 2018, Johnson purchased 5,900 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019.
5. 22,100 units were on hand at the end of 2018.

Required:
1. Complete the below table to determine the ending inventory and cost of goods sold for 2018.
2. Assuming that operating expenses other than those indicated in the above transactions amounted to $168,000, determine income before income taxes for 2018.
  

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 13,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 13,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Brandlin's incremental borrowing rate is 18 percent. The present value factor for two months at an annual interest rate of 18 percent (1.5 percent per month) is 0.9707. Brandlin must close its books and prepare financial statements at December 31.

1. a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars.

2. a-2. What is the impact on 2017 net income?

3. a-3. What is the impact on 2018 net income?

4. a-4. What is the impact on net income over the two accounting periods?

5. b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.

6. b-2. What is the impact on 2017 net income?

7. b-3. What is the impact on 2018 net income?

8. b-4. What is the impact on net income over the two accounting periods?

Calculating Weighted-Average Cost Inventory Values

The Brattle Corporation began operations in 2018. Information relating to the company’s purchases of inventory and sales of products for 2018 and 2019 is presented below.

2018

March 1 Purchase 220 units @ $12 per unit

June 1 Sold 120 units @ $25 per unit

September 1 Purchase 100 units @ $15 per unit

November 1 Sold 130 units @ $25 per unit

2019

March 1 Purchase 70 units @ $16 per unit

June 1 Sold 80 units @ $30 per unit

September 1 Purchase 100 units @ $18 per unit

November 1 Sold 90 units @ $35 per unit

Calculate the weighted-average cost of goods sold and ending inventory for 2018 and 2019 assuming use of (a) the periodic method and (b) the perpetual method. a. Weighted-Average Periodic. Do not round your cost per unit. Do not round until your final answer. Round your answers to the nearest whole number.

2018

Cost of goods sold __________?

Ending inventory __________?

2019

Cost of goods sold __________?

Ending inventory __________?

b. Weighted-Average Perpetual. Do not round your cost per unit. Do not round until your final answer. Round your answers to the nearest whole number.

2018

Cost of goods sold __________?

Ending inventory __________?

2019

Cost of goods sold __________?

Ending inventory __________?

On January 8, 2017, Whitewater Riders purchased a van to transport rafters back to the point of departure after completing the on-the-water portion of the rafting adventures they operate. The cost of the van is $44,000 and Whitewater Rider expects to use the van for four years or 60,000 miles. The estimated selling price after four years is $2,000. The van was driven 12,000 miles in 2017, 18,000 miles in 2018, 21,000 miles in 2019, and 10,000 miles in 2020.

Required:

On the following Whitewater Riders worksheet, compute the annual depreciation expense and ending book value of the van using straight-line, double-declining, and units-of-production methods. In addition, answer the three questions below:

1.   Which method results in the highest net income for Whitewater Riders?

a. 2017 b. 2018 c. 2019. d. 2020

2.   Which method results in the lowest income tax liability for Whitewater Riders?

a. 2017 b. 2018 c. 2019. d. 2020

3.   Which method would you recommend Whitewater Riders use and why?  

Whitewater Riders

Schedule of Van Depreciation for years 2017- 2020

Depreciation Method       Year        Depreciation expense       Ending Book Value

Straight-line                       2017

Straight-line                       2018

Straight-line                       2019

Straight-line                       2020

Double-declining              2017

Double-declining              2018       

Double-declining             2019

Double-declining             2020

Units-of-production         2017     

Units-of-production         2018

Units-of-production         2019

Units-of-production         2020