After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or ineffectively supervised (or possibly both), the CEO instructed the shop foreman to “crack down” on the new workers to bring their productivity levels up.

1. Explain carefully in terms of production theory why it might be that no amount of “cracking down” can increase worker productivity at CF&D.

2. Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers.

After two quarters of increasing levels of production, the CEO of Canadian Fabrication & Design was upset to learn that, during this time of expansion, productivity of the newly hired sheet metal workers declined with each new worker hired. Believing that the new workers were either lazy or ineffectively supervised (or possibly both), the CEO instructed the shop foreman to “crack down” on the new workers to bring their productivity levels up.

a. Explain carefully in terms of production theory why it might be that no amount of “cracking down” can increase worker productivity at CF&D.
b. Provide an alternative to cracking down as a means of increasing the productivity of the sheet metal workers.

An engine manufacturer has observed failures with their product. In the last 6 years, they have experienced 2 engine failures one year, 3 engine failures in two consecutive years, 4 engine failures one year, and 5 engine failures in each of the preceding two years (two in the last month, alone).

The CEO of the engine manufacturer wants to reassure customers. He promises that in the next month, there will not be multiple engine failures (no more than 1 failure).

Assume the probability of failure is exponential.

The CEO asks you to calculate the probability that they are correct: What is the probability there will be no more than a single engine failure in the next month?

You have been recently hired by a multinational firm that manufactures airplanes parts. They are interested in investing in a new factory. However, the CEO is unsure of where they should invest. The CEO would like to either invest in a developed or a developing country and your input is valuable to his decision. Your focus will be on providing specific information on both a developed and developing country, providing that both countries have data for the last 20 years. You will need to provide support, through your analysis, for which country you think will be best for this factory to invest in. Do not pick a country that does not have data that is easily accessible.

A United Kingdom firm is planning to hedge an import payment of USD 10 million dollars due in 9 months (i.e. the firm will expect to pay the US $10 million in 9 months-time). The spot rate is 1 UK = 1.25 USD. Note: UK = UK pounds. USD = US Dollars. The 9-month forward rate is 1 UK = 1.2575 USD. The nine-month interest rate for borrowing (and lending) in the United Kingdom (UK) is 1.00% p.a. and in the United States (US) is 2.60% p.a. respectively. All interest rates are continuously compounded rates. Required: What is the best way for the company to hedge its future USD payment or cash outflow? Of the two possible alternative options to hedge the USD payment how much better off in UK pounds are you under the best option at time t = 9 months hence? Assume the firm can borrow or lend UK pounds and / or US dollars at the interest rates quoted above and also transact at the quoted spot and forward rates. If necessary state any other assumptions you make.

a. option one .. option two .. b. How much better off in UK pounds are you under the best option at time t = 9 months hence?

Case 8: Case Problem 10, p. 1112 (Mallor 16^th Ed. Chap 42) (No citation is available.) EZStreet.com, Inc.

Josh Thomas, Jack Wiley, and Will Regis are three close friends who have been offered the opportunity to invest $100,000 each and to become 10 percent shareholders each in a closely held corporation that will be controlled by their friends Leone and Teddy Battat, who will own the remaining the 70 percent of the shares. The business, to be named EZStreet.com, Inc., will be an online business networking site. Leone and Teddy's plan is to amass at least 500 million users worldwide, which they estimate will take five to seven years, after which they would like to take the company public or sell it to another company, like Google. Josh is a CPA with 10 years experience in business consulting and investment management. Jack is a software engineer who has designed more than 50 websites. Will has an MBA in consumer and business marketing with 12 years experience in public relations and ad sales.

Question 1: The following information is extracted from an article1 about Coronavirus relief measure in Hong Kong. Hong Kong’s embattled leader on Wednesday unveiled her government’s biggest coronavirus financial relief package so far, offering a HK$137.5 billion (US$18 billion) lifeline to save ailing businesses and ensure some 1.5 million workers would continue to get paid in the tough months ahead.

The government would, through employers, pay 50 per cent of salaries for half a year, each worker’s monthly subsidy capped at HK$9,000. Many small businesses are seriously affected by the Coronavirus. For example, some Chinese restaurants revealed that they might close their business in next few months.

1Coronavirus: Carrie Lam unveils Hong Kong’s biggest Covid-19 relief package yet, worth HK$138 billion, to ensure 1.5 million workers still get paid. SCMP. 8th April 2020.

a) Starting with long run equilibrium, show how small business are affected by the Coronavirus. Explain with aid of diagram.

b) The Hong Kong government proposed to subsidize the salaries of business. Discuss why some small business still decide to close in short run. Explain with aid of diagram.

Assume you are the audit senior of High-tech Limited (HTL) and currently planning the audit for the financial year ended 30 June 2020. You have obtained the following information: • Your firm has audited HTL since its incorporation six years ago. During this entire period, HTL has been given unmodified audit reports. • HTL manufactures high-tech car components and exports these exclusively to Japan. The Japanese market has grown exponentially in the last few years. It has become the company’s most significant customer base, representing 60% of HTL’s revenue. Most of the contracts are payable in $US or local currency. • The ongoing Covid-19 economic crisis and related currency downgrading is having a significant impact on most world economies, including Australia. Required: From the above information provided in relation to HTL: 1. Identify TWO key accounts that are at risk of misstatement due to fraud. 2. For each account identified in (1) above: (a) Provide a brief explanation as to why the account is at risk: (b) List the key assertion where audit efforts should be concentrated; and (c) Describe substantive test of detail you would perform to gather sufficient appropriate audit evidence in relation to the assertion identified in (b) above.

Wolverine Sales and Service entered into a lease agreement to lease a fleet of five vehicles from Boilermaker Motors. The term of the lease is five years and Wolverine makes annual payments of $15,000 per year beginning on January 1, 2017 (and every December 31 through December 31, 2020). January 1, 2017 is also the lease commencement date. Wolverine does not guarantee any residual value in the lease agreement. Wolverine received $6,000 on 1/1/17 as an incentive to sign the lease agreement and incurred initial direct costs in 2016 of $1,500 related to the lease that were recorded as prepaid assets. The estimated economic life of the vehicles is ten years and their fair value at lease inception is $175,000. Wolverine is unaware of Boilermaker’s implicit rate, but Wolverine’s incremental borrowing rate is 6% per year. There is no transfer of ownership at the end of the lease, nor is there a purchase option. The vehicles are not of a specialized nature.

Required:

A. What type of lease has Wolverine signed? Explain in terms of the new US GAAP standard. (2 pts)

B. Prepare all of the 2017 journal entries for Wolverine. (10 pts)

C. Prepare all of the 2018 journal entry(ies) for Wolverine. (2 pts)

D. Prepare all of the 2021 journal entries for Wolverine. (4 points)

Blooms Enterprise Project

Blooms Enterprise is a retail company that sells household electronics. The budget for the forthcoming period January to March 2021 is to be prepared. Expectations for the forthcoming period include the following:

1. Expected Statement of Financial Position as at 31 December 2020

2. Sales data – the company’s sales for December 2020 are expected to be $900,000 and it is expected that it will increase by 10% each month over the previous month for the quarter ending March 31, 2021. Sales are expected to remain constant at March 31, 2021 level for the next three months.

3. Collections – credit sales are typically 70% of total sales. Outstanding amounts from sales are normally collected as follows:

1. 80% during the month of sale
2. 20% during the month after sale

4. Cost of goods sold – this is normally 70% of total sales. To have adequate stocks of inventory on hand, the company attempts to have inventory at the end of each month equal to half (50%) of the next month’s projected cost of goods sold. Inventory is purchased on account and usually settled as follows:

1. 40% during the month of purchase
2. 60% during the month after purchase

5. Other monthly expenses:

6. Equipment is to be purchased on January 1, 2021 for cash in the amount of $700,000.

7. The directors have indicated an intention to declare and pay dividends of $120,000 on the last day of each quarter.

8. The executives believe that the company should maintain a minimum cash balance of $60,000. If the cash balance in any month is less than $60,000, then the company can borrow to cover the shortfall. Amounts borrowed must be in multiples of $1,000 (for example, $50,000 or $51,000 but not $51,500 or 51,566). The interest rate is 10% per annum. Repayment of principal and interest must be made on the last day of each quarter.

1. Tax payable represents 20% of Profit before Tax and will be paid April 30, 2021 (after the end of the first quarter).

Required:

Prepare the following budgets for Blooms Enterprise by month and the quarter in total for the period ending March 31, 2021:

1. Schedule showing breakdown of sales between cash and credit (Hint: show December 2020 and April 2021 as well).                                                                            

2. Schedule of cash collected from customers.                                                              

3. Purchases budget (Hint: show April 2021 as well).                                            

4. Schedule of cash disbursement to suppliers of products for resale.                        

5. Cash budget for the period.