The 2020 inventory data for Garden Corporation’s patio furniture Bermuda set is presented below. Assume that Garden uses periodic inventory tracking.

When Garden examines the actual units in ending inventory, they see that 15 of the units are from 2020 beginning inventory, 20 units are from the 1/20/20 purchase, and 60 units are from the 6/15/20 purchase.  

1. In a period of falling prices, which of the following statements is true?
   1. FIFO produces a lower amount of net income than LIFO
   2. LIFO produces a lower cost for ending inventory than FIFO
   3. Average cost produces a higher net income than FIFO or LIFO
   4. LIFO produces a higher cost of goods sold than FIFO

2. Heavenly Rest, Inc. uses a periodic inventory system. When a warehouse supervisor counts the inventory on December 31, 2019, he accidentally counts one pile of blankets twice, resulting in 2019 ending inventory being overstated by $100,000. The warehouse supervisor counts the December 31, 2020 inventory correctly. Which of the following statements is true related to Heavenly Rest's 2019 and 2020 financial statements?
   1. 2019 Cost of Goods Sold will be understated by $100,000.
   2. 2020 Beginning Inventory will be understated by $100,000.
   3. 2020 Cost of Goods Sold will be overstated by $100,000.
   4. All of the above are true.
   5. Both a and c are true.

3. On October 28, Unilever sells and ships $100,000 worth of merchandise to Target. The goods are shipped FOB shipping point and arrive at Target stores on November 4. Which of the following statements is TRUE?
   1. The goods are in transit on October 31 so neither company includes the $100,000 as part of its October 31 Inventory balance.
   2. Unilever includes the $100,000 as part of its October 31 Inventory balance.
   3. Target includes the $100,000 as part of its October 31 Inventory balance.
   4. Both companies include the $50,000 as part of their October 31 Inventory balances.

Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December

2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei

Province, China. The illness was reported to the World Health Organization and there is heightened

uncertainty around the Globe.

You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it

expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that

Porsche’s management entertains three scenarios:

Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.

Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.

Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.

Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are

realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to

be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping

an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per

vehicle.

The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€.

The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team

made the following forecasts about the exchange rates at the end of December 2020:

• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe

haven currency during the pandemic.

• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a

safe haven currency during the pandemic

1. As the CFO, you decided to hedge using option contracts. Assuming expected final sales

volume is 35,000, what are your total revenue and the percentage revenue from hedging

(compared to no hedging) (do not use any variable costs to calculate in this question)

a) if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?

b) if the investors consider the U.S. dollar a safe haven currency during the pandemic?

2. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven

currency during the pandemic. What are your euro cash flows if you did not hedge, hedged

using forward contracts, and hedged using option contracts?

The Australian economy is "weak", with households weighed down by slow wages growth and higher taxes, the OECD has declared in a report that backs lower interest rates, calls for more government spending and paves the way for unconventional monetary policies. In its six-monthly review of the global economy, the Paris-based think tank has sharply downgraded its expectations for Australia while raising serious concerns about the level of debt being carried by households. The Morrison government this week announced $3.8 billion of infrastructure projects would be pulled forward or given additional funding over the next four years. The decision followed calls from the Reserve Bank of Australia (RBA), which has sliced official interest rates to a record low 0.75 per cent, for a lift in public spending plus productivity-enhancing structural reforms. But economists have warned the new spending will equate to less than 0.1 per cent of gross domestic product (GDP), arguing much more needs to be done to get the economy growing fast enough to bring down the national unemployment rate. The Organisation for Economic Co-operation and Development (OECD), which noted the global economy was now growing at its slowest rate since the global financial crisis, said it expected Australian GDP to expand by 2.3 per cent this year and next, well short of the federal government's forecast. It also expects private consumption, which accounts for about 60 per cent of total economic activity, to barely grow faster than inflation over the next two years. In March, the OECD was expecting unemployment to start edging down. It has now lifted its forecasts, tipping unemployment to average 5.3 per cent in 2020. 3 ECON 1007 Macroeconomics Assignment SP2 2020 "Economic activity has been weak," the OECD said about Australia. "Private consumption spending has been sluggish, weighed down by slow wage growth and an increase in taxes paid by households." While the government has argued its recent tax cuts will help households offset slow wages growth, the OECD and other organisations such as the RBA have noted overall tax levels are increasing as the budget returns to surplus. Research this week from National Australia Bank found Australian household debt was now at a record high of 202 per cent of annual income. The OECD said high household indebtedness could "exacerbate" any economic shock that hit Australia. It said with the RBA likely to cut interest rates further, which in turn could feed into a lift in house prices, lending standards might have to be tightened to protect households. "High household indebtedness means that the authorities should stand ready to tighten macroprudential policy settings if lower interest rates fuel house price inflation through a sharp pickup in credit," the OECD found. While expecting further rate cuts, the organisation said the Morrison government should "loosen fiscal policy" to help get the economy growing faster. "Fiscal policy is expected to provide little support to economic growth, in accordance with the federal government's commitment to future budget surpluses," it said. "A more expansionary fiscal stance may be warranted given that the economy is growing well below its potential and the relatively low public debt burden. "At the same time, growth-enhancing tax reforms should be prioritised. These include shifting the tax mix away from direct taxes and inefficient taxes like real estate stamp duty to the GST and land taxation." Treasurer Josh Frydenberg said the nation's economic fundamentals remained sound, with the country now in its 29th consecutive year of growth. He said there were "headwinds", particularly due to trade policy tensions that have hit confidence and business investment globally since May, but "the government's focus on productivity-enhancing reform will ensure our economy remains resilient". "The international challenges are a stark reminder of why we must stick to our economic plan which has delivered lower taxes so you can keep more of what you earn, more infrastructure to boost productivity and which will return the budget back to surplus so we can meet the challenges that lie ahead," he said.

Consider the following statement “The Australian economy is "weak", with households weighed down by slow wages growth and higher taxes, the OECD has declared in a report that backs lower interest rates, calls for more government spending…” Use the dynamic AD-AS model to describe a longer run scenario where the government is trying to pursue higher economic growth using higher government spending, but were incorrect in their estimation of the major parameters governing long run full employment equilibrium. In your analysis discuss the implications of an incorrect scenario predicted by the government when effecting their stimulus policy on equilibrium output and (un)employment. Make sure to outline the assumptions you have made to reach your conclusion.

The deliverable for this assignment is a written report. You must address the following questions in your analysis. Question 1: What prompted the pricing change in the case of Netflix and the debit card fee in the case of BoA? What explanation did the companies offer their customers? Do additional research as required to answer these questions. Question 2: What explains customers’ reactions to the pricing plan change announced by Netflix and the fee proposal announced by BoA? Include in your discussion what role elasticity may have played. Identify the determinant of elasticity most applicable to the explanation you have provided. Question 3: How do you explain why Netflix and Bank of America reacted differently to essentially similar customer responses? Include in your discussion what role a consideration of elasticity may have played in the company decisions. Do additional reading and research as required. Identify the determinant of elasticity most applicable to the explanation you have provided. Question 4: How long did it take for Netflix to recover lost ground in terms of its subscriber base? Which determinant of elasticity is most applicable to your answer for this question? What did Netflix do to bring about this turnaround? This "compare & contrast" case study is based on two real-world examples of pricing strategy dating back to 2011. The expectation is that you will apply your understanding of elasticity of demand to explain the contrasting final decisions. A reading list is provided for your reference. 1. The Case of Netflix Netflix, the popular online movie rental company, was founded in 1997 by Reed Hastings and Marc Randolph. In 1998, the Netflix.com website was launched; it was the first online DVD rental and sales site. The dominant brick-and-mortar DVD rental company at the time was Blockbuster. In 1999, Netflix debuted its subscription service, allowing subscribers to rent DVDs for monthly subscription fees. Netflix went public on May 23, 2002, listing on NASDAQ with an initial offer price of $15 per share and raising $77.2 million. Between October 2002 and January 2004, the stock price had appreciated by more than 1,500%. The company did a 2-for-1 stock split in February 2004 when the price reached $80 (Caplinger, 2016). At the time of its IPO in 2002, Netflix had about 600,000 subscribers. In 2007, it introduced online streaming, allowing subscribers to instantly watch TV shows and movies on their laptops or computers. Between 2007 and 2011, the number of subscribers in the U.S. grew from 7.48 million to 23.53 million (Dunn, 2017). On July 11, 2011, the stock closed at $41.53 (price adjusted for dividends). The Misstep: On July 12, 2011, Netflix split up its existing one DVD at a time + unlimited streaming plan for $9.99 into 3 separate plans: (1) DVD only starting at $7.99, (2) streaming only for $7.99, and (3) DVD + streaming for $15.98 (Gilbert, 2012). The rate hike caused a loss of subscriber base from 24.8 million subscribers in end-June to 23.8 million subscribers in end-September (Pepitone, 2011). By July 29, the stock price had dropped to $37.99, a drop of 8.5% from July 11. By November 25, it had tumbled to $9.12, a plunge of almost 78% since the day of the announcement (closing prices from NASDAQ). The Final Decision: Despite subscribers and investors voting with their feet, the company defended its decision – albeit apologetically - and implemented the new pricing plans. 2. The Case of Bank of America (BoA) Bank of America was established in 1904 as Bank of America National Trust and Savings Association. The Bank of America (BoA) entity was formed in 1998 as a merger between the erstwhile BankAmerica Corporation and NationsBank. From checking and savings accounts to debit cards, credit cards, loans, and asset management, BoA provides a range of services for both households and businesses. In the words of CEO Brian Moynihan, "Bank of America has been helping connect people to what is most important to them for more than 200 years." (Bank of America website). In 2010, the bank had $916.11 billion in deposits. At 12% of market share, this ranked BoA number one in terms of deposits. It was followed closely by JP Morgan Chase and Wells Fargo, each of which had about 10% market share (Comoreanu, 2017). BoA stock is listed on the NYSE. On April 1, 1998, the stock closed at $38 (price adjusted for dividends). On September 1, 2008, the stock closed at $35. The bank suffered losses during the financial crisis; monthly stock price data reveal a low of $3.95 on February 1, 2009. After recovering to $17.83 by March 1, 2010, the stock price started declining again. The downtrend continued in 2011, with a drop of almost 19 per cent between March 1 and June 1 (from $13.93 to $11.24), and another 29 per cent to $7.91 by September 1, 2011. The Misstep: On September 29, 2011, Bank of America announced that, beginning in early 2012, it would start charging its customers $5 a month for using their debit cards (Rauch, 2011). The announcement was met with angry outrage by customers on social media. Reflecting the negative sentiment, stock price declined 7 per cent in the week following the announcement, from $6.35 on September 29 to $5.90 on October 6. It had recovered about 8 per cent to $6.83 on October 31, 2011; it may be noted that this price was still almost 14 per cent lower compared to the price on September 1. The Final Decision: Following the tremendous backlash from its card holders, BoA abandoned its plans. On November 1, 2011, it announced that it would not implement the debit card usage fee (Bernard, 2011).

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,300; cost of goods sold, $7,200; selling expenses, $1,400; general and administrative expenses, $900; interest revenue, $150; interest expense, $250. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $320. Schembri also had an unrealized gain of $420 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,300.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $660 in 2021 prior to the sale, and its assets were sold at a gain of $1,600.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $300.
5. Negative foreign currency translation adjustment for the year totaled $320.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.

Due to less business at many car repair workshops during lockdown, some of the workshops had to lay off a number of employees. People were mostly working from home and they were not using their cars. John was among the people that were retrenched. The industry consultants reckon it could take them a while before the business can peak.

John decided to set his own backyard business at home where he could serve the people in his neighbourhood. He then realised that for him to be able to make a viable business, he has to order genuine parts form recognised dealers for the types of cars that he will be working on. The suppliers have computerised their systems and some of the suppliers have closed warehouses where he cannot go and select the motor parts.

John must make his orders online from the car parts suppliers. Besides repairing cars, John also sells parts to other mechanics in the area who are not able to buy from the car parts dealers. John’s clients order the car parts and online. John’s company uses a delivery service to get the car parts to the respective clients who would have ordered online. John uses social media and word of mouth to advertise the businesses.

Suppliers of different car parts deliver the products to his home. He receives different types of delivery notes. Some suppliers send hard copies and some send the delivery notes to be signed online when the order arrives. There are clients from the neighbourhood that can order online and make a payment when they go to John’s house to collect their orders. Source: Makhurane, N. (2020)

Question 8

How does John protect the business systems from software threats?

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,700; cost of goods sold, $7,400; selling expenses, $1,420; general and administrative expenses, $920; interest revenue, $190; interest expense, $330. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $340. Schembri also had an unrealized gain of $440 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,500.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $680 in 2021 prior to the sale, and its assets were sold at a gain of $1,640.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $320.
5. Negative foreign currency translation adjustment for the year totaled $360.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,900; cost of goods sold, $7,500; selling expenses, $1,430; general and administrative expenses, $930; interest revenue, $200; interest expense, $310. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $350. Schembri also had an unrealized gain of $460 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,600.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $680 in 2021 prior to the sale, and its assets were sold at a gain of $1,660.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $330.
5. Negative foreign currency translation adjustment for the year totaled $380.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 800,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.