Question 1 (1 point)

Equity-method investments (20%-50% ownership) are generally shown at their fair market value on the Balance Sheet.

A: True

B: False

Question 2 (1 point)

For Equity-Method investments (20-50% ownership), dividends received from the investee company will result in the following journal entry:

A: Dr. Cash and Cr. Investment

B: Dr. Investment and Cr. Cash

C: Dr. Investment and Cr. Dividend Revenue

D: Dr. Cash and Cr. Dividend Revenue

Question 3 (1 point)

On 1/1/20, Hershey Corporation purchases 20,000 of the 60,000 outstanding shares of CC Confectioneer for $40 per share. During 2020, CC Confectioneer reports net income of $600,000 and pays total dividends to common shareholders of $300,000. Hershey's 2020 pre-tax Net Income will be ________ because of this investment.

A: $600,000 higher

B: $200,000 higher

C: $100,000 higher

D: $300,000 higher

Question 4 (1 point)

There is usually more uncertainty about the accuracy of Level 3 investment valuations than Level 1 investment valuations.

A: True

B: False

PA10-3 Recording and Reporting Current Liabilities [LO 10-2] Lakeview Company completed the following two transactions. The annual accounting period ends December 31. On December 31, calculated the payroll, which indicates gross earnings for wages ($44,000), payroll deductions for income tax ($4,400), payroll deductions for FICA ($3,300), payroll deductions for American Cancer Society ($1,650), employer contributions for FICA (matching), and state and federal unemployment taxes ($385). Employees were paid in cash, but payments for the corresponding payroll deductions have not yet been made and employer taxes have not yet been recorded. Collected rent revenue of $5,325 on December 10 for office space that Lakeview rented to another business. The rent collected was for 30 days from December 12 to January 10 and was credited in full to Deferred Revenue. Required: 1. & 2. Prepare the journal entries to record payroll on December 31, the collection of rent on December 10 and adjusting journal entry on December 31. 3. Show how any of the liabilities related to these items should be reported on the company’s balance sheet at December 31

Brady Construction Company contracted to build an apartment complex for a price of $5,200,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Brady Construction Company contracted to build an apartment complex for a price of $6,000,000. Construction began in 2018 and was completed in 2020. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Required:
Complete the following table. (Do not round intermediate calculations. Enter answers in dollars. Round your final answers to the nearest whole dollar. Negative amounts should be indicated by a minus sign.)

Complete the following table.

                                Gross Profit (Loss) Recognized

                   Revenue Recognized Over Time             Revenue Recognized Upon Completion

Situation       2016       2017       2018                             2016       2017     2018       

1.

2.

3.

4.

5.

6.

2. Caterpillar Inc. reported its annual financial statements for the 2018 fiscal year (See the Excel sheet attached for Cat’s financials in the last 4 years). The day before the report, the firm’s market price per share closed at $127.07. For those who are not familiar with Caterpillar, here is a brief description of their business: Caterpillar Inc. is an American Fortune 100 corporation which designs, develops, engineers, manufactures, markets and sells machinery, and engines to customers via a worldwide dealer network. It is the world's largest construction equipment manufacturer. Caterpillar products and components are manufactured and sold in 110 facilities worldwide. 51 plants are located in the United States and 59 overseas plants are located in Australia, Belgium, Brazil, Canada, China, Czech Republic, England, France, Germany, Hungary, India (Chennai), Indonesia, Italy, Japan, Mexico, the Netherlands, Northern Ireland, Poland, Russia, Singapore, South Africa and Sweden. The market capitalization rate on the day before the report (Investors’ annual required rate of return given the firm’s debt/equity structure) is 32.85%, i.e. k=0.3285. Use the information provided here as well as the financial statements to answer the following questions: a) (4) What is Caterpillar’s 2018 Return on Equity (ROE)? Please use the Dupont system (Show its components) and the market-to-book method. b) (6) Find the intrinsic value per share using the Constant Dividend Discount Model. (Hint: Retained earnings for 2018 is the change in the balance of retained earnings since last year, i.e. 2018 retained earnings – 2017 retained earnings). Compare it with yesterday’s market price, is it time to add Caterpillar Inc. to our portfolio? c) (3) What is the major issue in using the constant dividend discount model when measuring the fundamental value of a firm? Use this firm as an example to illustrate your point. d) (3) In your opinion, how can Caterpillar provide growth to shareholders? And what type of macroeconomic factors/risks they are exposed to? (Think about its business line and where the growth in revenue can come from) e) (4) Find the inventory turnover ratio and average collection period for years (2018, 2017, and 2016). Comparing the ratios over the 3 years, is the company being more or less efficient in its use of assets?

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IMHR DILEMMA: WHOM DO YOU SATISFY? EXPATRIATE OR NATIONALS

Hi-Tech Electronics Limited was established in 2006 in Kuala Lumpur, Malaysia. It produces and markets all types of electronics goods in most of the Asian and Pacific countries. It has been one among the top five companies as for the level of technology and one among the top three companies regarding marketing of the products in Malaysia. The company’s policy and practices concerning human resource management are top in the country. The company’s salary administration policies and practices were taken as guidelines not only by the other companies but also by various wage boards and pay commissions in the country. But this company has been struggling a lot because of a minor problem relating to administration of salary and benefits. The problem is stated hereunder.

The company employed nearly 400 national young graduate and post graduate engineers and 20 expatriate engineers. This employee forms the cream of the company’s present human resource. The expatriate employees occupied higher position in all the departments including Human Resource Department. The company’s salary policy and benefit policy were formulated mainly on the basis of the expatriate employee’s desire. The base salary of the company is the same for both the expatriate and national employees. But expatriate receive additional allowances like international market allowance, educational allowance, settling-in allowance, car allowance, housing allowance and entertainment allowance. Thus, expatriate receives nearly 250% more salary than the nationals doing the same job.

The national employees demanded the management to pay equally with that of expatriates immediately. According to them, the pocket frustrates them severely.

QUESTIONS:

1. Identify the crucial issue in this case.

2. From your opinion what are the 3 factors that enables expatriate receives more salary than the nationals who are doing the same job? Explain and justify your statements.

In Year 1, Goodnight Sleep Company began to receive complaints from physicians that patients were experiencing unexpected side effects from the company’s sleep apnea drug. The company took the drug off the Market near the end of Year 1. During Year 2, the company was sued by 800 customers who had a severe allergic reaction to the company’s drug and required hospitalization. At the end of Year 2, the company’s attorneys estimated a 62% chance the company would need to make payments in the range of $2,500 to $7,000 to settle each claim, with all amounts in that range being equally likely. At the end of Year 3, while none of the cases had been resolved, the company’s attorney now estimated an 80% probability the company would be required to make payments in the range of $3,000 to $10,000 to settle each claim with all amounts in that range being equally likely. In Year 400 claims were settled at a total cost of $2.5 million. Based on this experience, the company believes 30% of the remaining cases will be settled at $5,500 each, 50% will be settled for $6,000 each and 20% will be settled for $6,200 each. Required: Prepare the journal entry (in good format) for Years 1 – 4 related to this litigation.

Netflix experienced some membership turbulence in 2016 as a price increase was phased in for its US subscribers. In May 2014, Netflix announced that the price of its standard subscription service would increase from $8 to $9. However, established customers were allowed to stay at the $7.99 price for two years. In 2015, Netflix increased the standard price to $9.99. As a result of the pricing plan and the deferred price increase, in May, 2016, the standard pricing plan for long time customers of Netflix increased from $7.99per month to $9.99per month. Netflix began notifying customers in April that the price increase would become effective in the second quarter. Netflix was trying to implement price increases more slowly after a 2011 increase led to negative publicity and a customer backlash. In that case, Netflix separated its streaming and DVD services, and charged separately for both services. However, regardless of the implementation of the price increase, the higher monthly prices seem to have impacted the growth of membership among US subscribers. In the two quarters before the price increase, Netflix added net membership of 1.6 million and 2.2 million members. By contrast, the number of members added in Q2 was only 160,000, and in Q3 only 400,000. The Q2 growth in US subscribers was the lowest since Netflix began reporting those numbers in 2012.

Netflix Price Increase Hurts Membership

U.S. Streaming (millions) Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Revenue 1026 1064 1106 1161 1208 1304

Contribution Profit 340 344 379 413 414 475

Contribution Margin 33.1% 32.3% 34.3% 35.6% 34.3% 36.4%

Paid Memberships 41.1 42.1 43.4 45.7 46.0 46.5   

Total Memberships 42.3 43.2 44.7 47.0 47.1 47.5

NET Additions 0.90 0.88 1.56 2.23 0.16 0.40

Monthly Revenue Per

Paid Member $ 8.33 $ 8.43 $ 8.49 $ 8.47 $ 8.75 $ 9.40    

Percentage change Rev. 3.7% 3.9% 5.0% 4.0% 7.9%

Percentage change 2.5% 3.2% 5.3% 0.6% 0.9%

Membership

Source: Netflix 10Q Q3, 2016

According to a MarketWatch article1on the price increase:Netflix said Monday that customers who learned in April that the price was about to increase had begun canceling their subscriptions, leading to unexpected “churn.” Netflix did not flat-out say inits letter to investorsthat the price increase led to higher churn among subscribers, however, instead saying it coincided with “press coverage” of the rate hike and that subscribers misunderstood “the news as an impending new price increase rather than the completion of two years of grandfathering.”The stock market reacted to news of Netflix price increase as well. The stock closed at $102.23 as of March 31, 2016. After the release of second quarter earnings in July, the stock price had fallen to $85.84 per share, a decline of 16%. This decline wiped out almost $7 billion of shareholder value during this period. Most of this decline was immediately following the release of the second quarter numbers.With competition increasing in for streaming services, especially with the growth of Amazon Prime Video and Hulu, the decline in membership growth could be a troubling sign.

1.Use the information on the change in membership, to estimate the own price elasticity for Netflix service.

2.What impact would this price change have on revenue and profits.

3.What concerns do you have regarding the reliability of your elasticity estimate?

4.What information / data would make your analysis better?

1. Previously, 20% of potential customers from St. Thomasville buy a certain brand of soap--say Brand A. To increase sales, the company conducts an extensive advertising campaign. At the end of the campaign, a random sample of 300 potential customers is interviewed and 80 customers prefer Brand A. Conduct an appropriate test to determine if the true proportion of customers that prefer Brand A soap is higher than 20%. Use a = 0.03.

5. A political campaign manager wants to know if the sample results can be used to conclude that the unemployment rate for 18- to 34-years-olds is significantly higher than the unemployment rate for all adults. According to the Bureau of Labor Statistics, the unemployment rate for all adults was 7.9%. Develop a hypothesis test that can be used to see if the conclusion that the unemployment rate is higher for 18- to 34-year-olds can be supported. In a sample of size 400 18- to 34-years-olds, there were 50 that indicated that they were unemployed. Let a = 0.05.

***Create null & alternate hypothesis, create rejection region, calculate test value & make conclusion to reject or not reject***

The following data are for the two products produced by Tadros Company.

The company's direct labor rate is $20 per direct labor hour (DLH). Additional information follows.

Required:

(Round your per unit cost answers to 2 decimal places and other answers to nearest whole number. Loss amounts should be indicated with minus sign.)