5. Real versus nominal GDP

Consider a simple economy that produces two goods: pencils and oranges. The following table shows the prices and quantities of the goods over a three-year period.

Use the information from the preceding table to fill in the following table.

From 2019 to 2020, nominal GDP (Decreased/Increased), and real GDP(Decreased/Increased) .

The inflation rate in 2020 was (-47.5%, -0.5%, 47.5%, 52.5%, 190.5%) .

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

- Real GDP does not include the value of intermediate goods and services, but nominal GDP does.

- Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.

-Real GDP is not influenced by price changes, but nominal GDP is.

Laker Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Units sold at Retail Jan. 1 Beginning inventory 180 units @ $ 10.50 = $ 1,890 Jan. 10 Sales 140 units @ $ 19.50 Jan. 20 Purchase 110 units @ $ 9.50 = 1,045 Jan. 25 Sales 130 units @ $ 19.50 Jan. 30 Purchase 270 units @ $ 9.00 = 2,430 Totals 560 units $ 5,365 270 units The company uses a periodic inventory system. For specific identification, ending inventory consists of 290 units, where 270 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,650, and that the applicable income tax rate is 40%. (Round intermediate calculations and final answers to 2 decimal places.)

Net income    [ ][ ][ ][ ]

2. Which method yields the highest net income?

3. Does net income using weighted average fall between that using FIFO and LIFO?

4. If costs were rising instead of falling, which method would yield the highest net income?

Required information

Use the following information for the Exercises below.

[The following information applies to the questions displayed below.]

Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 370 units, where 350 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

Exercise 5-4 Perpetual: Income effects of inventory methods LO A1

Required:

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,100, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

2. Which method yields the highest net income?

• Weighted average

• FIFO

• Specific identification

• LIFO

3. Does net income using weighted average fall between that using FIFO and LIFO?

• No

• Yes

4. If costs were rising instead of falling, which method would yield the highest net income?

• LIFO

• FIFO

• Weighted average

• Specific identification

Use the following information for the Exercises below. [The following information applies to the questions displayed below.] Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 345 units, where 310 are from the January 30 purchase, 5 are from the January 20 purchase, and 30 are from beginning inventory.

Exercise 6-4 Perpetual: Income effects of inventory methods LO A1

A music conservatory has two concert halls. One concert hall had a pipe organ that was in poor repair, and the other had no organ. The conservatory decided to buy a new organ for its concert hall with no organ. After some negotiation, the conservatory entered into a contract with a business that both repairs and sells organs. Under the contract, the business agreed to sell a new organ to the conservatory for its concert hall for $225,000 and would add repairing the existing pipe organ for the conservatory. The business would usually charge a higher price for a project of this magnitude, but the business agreed to this price because the conservatory agreed to prepay the entire amount. The contract was signed on January 3, and the conservatory paid.

Two weeks later, before the business had commenced repair of the existing organ, the business suffered serious and unanticipated financial reversals. The chief financial officer for the business contacted the conservatory and said, Bad news. We had an unexpected liability and as a result are in a real cash crunch. In fact, even though we haven’t acquired the new organ from our supplier or started repair of your existing organ, we’ve already spent the cash you gave us, and we have no free cash on hand. We’re really sorry, but we’re in a fix. I think that we can find a way to perform both contracts, but not at the original prices. If you agree to pay $60,000 more for the repair and $40,000 more for the new organ, we can probably find financing to finish everything. If you don’t agree to pay us the extra money, I doubt that we will ever be able to perform either contract, and you’ll be out the money you already paid us.

After receiving this unwelcome news, the conservatory agreed to pay the extra amounts, provided that the extra amount on each contract would be paid only upon completion of the business’s obligations under that contract. The business agreed to this arrangement, and the parties quickly signed documents reflecting these changes to each contract. The business then repaired the existing organ, delivered the new organ, and demanded payment of the additional $100,000. The conservatory now has refused to pay the business the additional amounts for the repair and the new organ.

1. Must the conservatory pay the additional $60,000 for the organ repair? Explain.

2. Does the common law, Uniform Commercial Code, or both laws apply here and why?

International Trade

The Director of Purchasing for parts distribution company wants to purchase steel coach screws from Germany; however, he is not sure what the best option is. The director comes to you and asks your opinion. You know that Germany, Canada, and Korea are the best sources for obtaining this product. While your research shows coach screws from Germany are of the highest quality, the United States imposes a tariff of 12.5%, which makes this option noncompetitive.

Which US trade laws should you consider when selecting a country?

Is there any way by which you can seek a reduction on the tariff? If so, how? If not, why?

Select an alternative country (Canada or Korea) for purchasing the coach screws and explain your reasons for selecting the country.

Millennium University College has engaged Messrs Wilkado Construction Limited to construct a thousand bed hostel facility. As an underwriter with All Peoples Insurance Company Limited, identify the specific insurance policy for the project, list and explain the constituent parts of the policy (i.e. policy structure), discuss the main areas (items or activities) of this project which could be covered under the policy, the perils or (indemnifiable causes of loss); including five exclusions usually included in such policies.

a. What is a warranty, as used in a fire policy? Give an example.