Crane Company issues $5040000, 7%, 5-year bonds dated January 1, 2020 on January 1, 2020. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 6%. What are the proceeds from the bond issue?

McAdoo & Co. is an engineering firm with offices in several cities in the Carolinas. McAdoo’s fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. For bookkeeping purposes, McAdoo has adopted a policy to record payments and collections in advance into asset and liability accounts, respectively. The company’s unadjusted trial balance at December 31, 2020 is shown below. All accounts have normal-side balances.

Additional information available at year-end is as follows:

1.         In the first week of January 2021, McAdoo received bills for December 2020 utilities totaling $28,985. The company paid all of these bills in late January 2021.

2.         On June 1, 2020, McAdoo purchased a 24-month insurance policy for $306,720 and paid the full cost of the policy in advance. The policy provides coverage through May 31, 2022. Note – Contrary to the company’s normal practice, McAdoo’s bookkeeper recorded the prepayment into the Insurance Expense account. Give the adjusting entry needed when a company uses the expense approach to record a payment in advance.

3.         McAdoo operates 5 days a week, Mondays through Fridays. Employees are paid each Monday, for hours worked through the previous Friday. On Monday, December 28, 2020, the last payday in 2020, McAdoo paid its employees for hours worked during the week of December 21-25. (Note that Christmas Day is a paid holiday for all employees.) The employees then worked their regular schedule through the end of the year. McAdoo’s payroll averages $14,215 per day.

4.         McAdoo sometimes leases unused space in its buildings to other businesses. On November 1, 2020, a new tenant signed a 1-year lease and paid the first 8 months’ rent of $63,880 in advance. The lease began on that date and runs through October 31, 2021.

5.         McAdoo started the year 2020 with a Supplies account balance of $51,320. During the year, McAdoo made several purchases of supplies totaling $78,465. A physical count at year-end 2020 revealed the company had a total of $59,715 of supplies on hand.

6.         The Notes Payable balance relates to a bank loan taken in 2019 that is payable in full on September 30, 2023. The loan agreement specifies that McAdoo pay interest annually on September 30 at the rate of 5.20% per year. McAdoo’s bookkeeper made the proper entry for the first interest payment, on September 30, 2020. (Hint – Think about the entry McAdoo made on the first interest payment date.)

7.         McAdoo performed $291,670 of legal services for several clients in December 2020 that it has not yet billed, recorded or collected.

8.         McAdoo estimates that 8.55% of the 2020 year-end accounts receivable balance will not be collected.

9.         McAdoo purchased its buildings in 2011 and its equipment in 2015. McAdoo depreciates its fixed assets according to the straight-line method. For the buildings, it uses estimates of 36 years for the useful life and $240,000 for the salvage value. For the equipment, it uses estimates of 12 years for the useful life and $37,000 for the salvage value.

10.       The company’s income tax rate for the year is 25%. (Hint – The income tax rate is applied to the company’s income after all revenues and expenses have been considered except for the income tax charge.)

– Instructions –

Complete the following tasks relating to McAdoo & Co.’s accounting process at year-end 2020:

(b)        Prepare the adjusting journal entries needed at December 31, 2020.

1. Acquired immunity that a fetus obtains from maternal antibodies that cross the placenta is called:

1. Artificially acquired natural immunity.
2. Naturally acquired passive immunity.
3. Naturally acquired active immunity.
4. Artificially acquired active immunity.

2. Which of the following are roles of the lymphatic system?

1. Filtering, recycling, and producing lymph.
2. Collecting surplus fluids.
3. Absorbing fat-soluble molecules from the digestive tract.
4. All of the above.

3. Which of the following cells plays a role in both specific and non-specific defenses?

1. Neutrophils
2. Lymphocytes
3. Macrophages
4. Eosinophils

4. What are the small proteins that are secreted by virally infected cells that protect neighboring cells and thwart further multiplication of viruses?

1. Interferon
2. Interleukins
3. Heparin
4. Histamine

QUESTION 5

Which of the following cells is a phagocyte?

1. Neutrophils
2. Monocytes
3. Eosinophils
4. All of the above.

QUESTION 6

Phagocytosis refers to which immune system response?

1. Decreased synthesis and distribution of immunoglobulin E.
2. Increased synthesis and distribution of immunoglobulin E.
3. Engulfment of any fluid materials.
4. Engulfment of molecular materials.

QUESTION 7

Which of the following is NOT true regarding lymphatic capillaries?

1. Lymphatic capillaries are the smallest lymphatic vessels.
2. Lymphatic capillaries are dead-end vessels.
3. Lymphatic capillaries are less porous than blood capillaries.
4. Lymphatic capillaries are more porous than blood capillaries.

QUESTION 8

Lymph flows:

1. Away from the heart only.
2. In a circular pattern within the tissues.
3. Into the capillaries.
4. Toward the heart only.

QUESTION 9

Which of the following is NOT an organ of the immune system?

1. Thymus
2. Spleen
3. Lymph Nodes
4. Esophagus

QUESTION 10

What is the purpose of a cytokine?

1. Digest pathogens
2. Engulf pathogens.
3. Increase body temperature.
4. Recruit immune cells.

QUESTION 11

The lining of the gastrointestinal tract are an example of what type of immune system defense?

1. Non-Specific
2. Pre-Determined
3. Specific
4. Spontaneous

QUESTION 12

Where are immune cells synthesized?

1. The liver.
2. The spleen.
3. The bone marrow.
4. The pancreas.

QUESTION 13

What are the proteins released by leukocytes to recruit other immune cells and regulate the immune response?

1. Interferon
2. Interleukins
3. Cytokines
4. Lymph

QUESTION 14

Specialized lymphatic capillaries that project into the small intestines are called:

1. Chyle
2. Lacteals
3. Lymphatic Trunks
4. Collecting Vessels

QUESTION 15

Which of the following is not a splenic function?

1. Destroy old blood cells.
2. Produce new blood cells.
3. Monitor blood flow.
4. Filter blood cells.

Discussion Questions

1. Using the common motives for cross-border deals discussed in this chapter, speculate as to the reasons Actavis acquired Forest Labs.

2. What alternatives to acquisition could Actavis have pursued? Speculate as to why a takeover was the preferred option?

3. Speculate as to how Actavis’s takeover of Forest Labs may have created shareholder value?

4. Do you believe firms should be allowed to engage in tax inversions?

5. Why is Actavis organized as a holding company in Ireland?

6. Speculate as to why investors for both firms responded so favorably when news of the deal was announced?

END OF CHAPTER CASE STUDY: IRELAND-BASED DRUG MAKER ACTAVIS BUYS U.S. PHARMACEUTICALS FIRM FOREST LABS

Case Study Objectives: To Illustrate • Alternative motives for cross-border acquisitions • How taxes impact cross-border deals and capital flows • How activist investors can impact corporate decisions.

Reflecting the escalating costs of developing blockbuster drugs (i.e., those with the potential to deliver more than $1 billion in annual revenue) and the loss of patent protection on many substantial revenue producing medications, the pharmaceutical industry has been undergoing a wave of consolidation for more than a decade. The takeover strategy in many instances appeared to be largely formulaic: acquire rivals, slash costs, and minimize taxes. While Valeant Pharmaceuticals and Endo Health Solutions have employed this strategy effectively, drug maker Actavis is perhaps the most successful, tripling its market value during the last 3 years. Actavis is a global, integrated specialty pharmaceutical company focused on developing, manufacturing, and distributing generic and branded products in more than 60 countries. Structured as a holding company, its global headquarters is located in Dublin, Ireland. The firm’s US administrative headquarters is in Parsippany, NJ. Actavis historically has focused on generic drugs, but in recent years it has expanded through acquisition into branded drugs. Actavis on February 18, 2014, announced that it had reached an agreement to buy Forest Laboratories for $25 billion in cash and stock to create a pharmaceuticals firm with substantial exposure to branded and generic drugs. Forest Labs is a fully integrated specialty pharmaceutical firm focused on the US market, with a portfolio of branded products. The combined revenues of the two specialty pharmaceutical companies are expected to be more than $15 billion in 2015. The new company announced that it would be increasing its annual budget for pharmaceutical research and development to more than $1 billion. Strategically, Forest Labs represented an opportunity for Actavis to diversify into branded drugs and for Forest Labs to penetrate foreign markets not currently survived. Forest Labs also has an impressive number of drugs in the pipeline. In 2012, US-based Watson Pharmaceuticals bought Actavis, then headquartered in Switzerland, for nearly $6 billion and adopted its name. In 2013, the firm bought Irish-based Warner Chilcott for about $5 billion expanding its presence in specialty pharmaceuticals and moved its headquarters to Ireland to take advantage of the country’s favorable corporate tax environment. The takeover of Forest Labs needed an assist from famed activist investor Carl Icahn. Icahn has a track record of investing in drug makers and profiting from their turnarounds or sales to larger companies. His previous investments included ImClone Systems which was sold to Eli Lilly & Co. in 2008 for $6.3 billion and in Genzyme Corp which was sold to Sanofi in 2011 for $19.4 billion. In 2012, Icahn investments that were later sold included Amylin Pharmaceuticals which was acquired by Bristol-Myers Squibb for $5.1 billion. Icahn, who owns 11% of Forest’s stock through his firm Icahn Enterprises, played a key role in making this deal happen by prodding Forest Labs to install a new CEO in 2013 who was more amenable to selling the firm. To avoid a third proxy fight in as many years, Forest added an Icahn representative to its board in 2013 increasing his influence on board decisions. Under the terms of the deal, Forest shareholders will receive $26.04 in cash and 0.3306 of a share of Actavis, equivalent to $89.48 per share. This represents a premium of 25% from Forest Lab’s closing price the prior day. Forest shareholders will own 35% of the combined firms. Forest Labs agreed to pay a termination fee of $875 million if it backs out of the agreement in favor of a competing takeover proposal or if the firm’s shareholders do not approve the deal. The acquisitive Actavis has completed seven deals since January 2013. Like those deals, the firm expects to realize substantial costs savings. However, in this case, the takeover of Forest Labs will be accretive to earnings immediately following closing. This is relatively unusual as cost savings in most deals in the first year are negated by a combination of severance expenses and other integration-related costs. Actavis announced that it expects to realize a combination of operating and tax savings of $1 billion annually to be realized beginning in the first full year of operation of the combined firms. Assuming a discount rate of 12%, the present value of these savings in perpetuity is $8.3 billion ($1 billion/0.12), well in excess of the $5 billion acquisition premium paid for Forest Labs. Not surprisingly, investors greeted news of the merger favorably. Shares of Forest rose 30% and those of Actavis were up 12%. The takeover of Warner Chilcott in 2012 allowed Actavis to complete a “tax inversion” in which it relocated its headquarters to Ireland to escape the higher American statutory corporate tax rate. A big advantage of a “tax inversion” besides the lower statutory tax rate is that acquisitions become more affordable. Cash held overseas because of the more favorable tax rates can be used to pay for a deal and the earnings from the acquired firm are also taxed at Actavis’s lower tax rate. Tax inversions are not viewed as tax evasion strategies by the US taxing authorities as long as they can be justified by good business reasons such as getting nearer to a firm’s customers or suppliers. Tax evasion is the avoidance of taxes through illegal means such as misrepresenting income on a tax return. The maximum corporate tax rate in Ireland is 12.5% compared to 35% in the United States. Forest Labs earnings which had been taxed at the higher US rate will be taxed at the lower Irish rate currently paid by Actavis. Annual tax savings are expected to amount to at least $100 million. This gave Actavis a huge advantage in bidding for Forest Labs over other potential suitors by enabling it to offer a larger premium. From a legal perspective, an inversion is simply the process by which a corporate entity, established in another country, “buys” an established American company. The transaction takes place when the overseas entity purchases either the shares or assets of a domestic corporation. The shareholders of the domestic company typically become shareholders of the new foreign parent company. In essence, the legal location of the company changes through a corporate inversion from the United States to another country. An inversion typically does not change the operational structure or location of a company. In most cases, an inversion simply means the addition of a small office in the company’s new foreign “home.” Therefore, a re-incorporation rarely, if ever, leads to the loss of American jobs. However, it does lead to a loss of tax revenue.

Background Information: Rights of Grandparents

As family structures have changed due to increases in divorce and single parenting, the role of grandparents has also changed. As a result, more decisions about grandparents’ visitation rights are being made by courts and state legislatures. Since the mid-1970s, all 50 states have passed laws granting grandparents the right to petition the courts for legally enforced visitation privileges. Before this time period, grandparents had no rights to their grandchildren except by consent of the children’s parents.

Early court decisions (e.g., Odell v. Lutz, 1947) emphasized parental autonomy and ruled that grandparent visitation rights would undermine parental authority. In fact, it was stated that grandparent visitation rights could subject children to intergenerational conflict (e.g., Noll v. Noll, 1950). These rulings also went along with the long tradition that the legal system should only intervene in the family in extreme circumstances. Early granting of grandparent visitation rights (e.g., Benner v. Benner, 1952) came in cases in which the grandchildren had lived with the grandparents for extended periods, or in cases in which the parents were deemed “unfit,” and the grandparents were given custody.

Consider the landmark case of Troxel v. Granville (2000). In 2000, based on this case, the United States Supreme Court placed limits on the grandparent visitation laws. The court concluded that parents who provide adequate care for their children must be able to decide with whom their children will associate. To leave such decisions up to a judge, in the view of the Supreme Court, would conflict with parents’ basic constitutional rights.

Discussion Question:

Discuss the pros and cons of regulated and enforced grandparent visitation rights. Part of your answer and discussion should involve the roles that grandparents play in grandchildren’s lives (e.g., alternative caregivers, playmates, family historians and transmitters of family values and traditions, advice-givers to parents). Also consider how to resolve intergenerational conflict, how to determine the “children’s best interests,” the consequences of grandparent visitation rights on family functioning, and how to resolve the grandparent policy.

Compute the deductions, net pay, and accumulated gross earnings for each weekly pay period. Assume that Joseph is single and that $28.25 was withheld for medical insurance (pre-tax) and $20 for his United Way contribution. Use the wage bracket method to determine federal income tax. Round answers to the nearest hundredth. Gross Earnings(650.95) Allow.(1) Fed. Inc. Tax Social Security (6.2%)Medicare (1.45%) Medical Insurance Pre-tax United Way Total Deductions Net Pay Accum. Gross Earnings ($1,558.90)

______________________________________________________________ is one of the most important international
organizations to date, establishing the 1980 Convention on Contracts for the International Sale of Goods (CISG), which will be discussed further in the next section.

The United Nations Commission International Trade Law

The UN Security Council

The UN General Assembly

The UN

_____________________________ is a regional international organization that includes many countries in Europe. It was established to create peace across the region and promote economic, social, and cultural development (Cheeseman, 2016, p. 561).

The European Union (EU)

NAFTA

The United Nations Commission International Trade Law

BREXIT

4. The stock of United Boot is priced at 5400 and offers a dividend yield of 2 percent. The company has a 2-for-1 stock split.

(a) Other things equal, what would you expect to happen to the stock price?

(b) In practice would you expect the stock price to fall by more or less than

this amount?

(c) Suppose that a few months later United Boot announces a rise in dividends

that is exactly in line with that of other companies. Would you expect the

announcement to lead to a slight abnormal rise in the stock price, a slight

abnormal fall, or no change?