a. After completing its capital spending for the year, U Manufacturing has $1,000 extra cash. U’s managers must choose between investing the cash in Treasury bonds that yield 8% or paying the cash out to investors who would invest in the bonds themselves.

i. If the corporate tax rate is 35%, what personal tax rate would make the investors equally willing to receive the dividend or to let U invest the money?

ii. Is the answer to part i) reasonable? Explain.

b. The desire for high current income is a valid explanation of preference for high current dividend policy. Comment on the validity of this statement.

In Habersham County, Tom was feeling slightly nervous as he exited the staff lounge

and entered the hustle and bustle of County Hospital’s ER to begin his first shift as an RN. The first few hours of his shift passed slowly as Tom mostly checked vital signs and listened to patients complain about various aches, pains, coughs, and sniffles. He realized that the attending physician, Dr. Greene, who was rather “old school” in general about how he interacted with nursing staff , wanted to start him out slowly. Tom knew, though, that the paramedics could bring in a trauma patient at any time.

After his lunch break, Tom didn’t have long to wait before the paramedics burst in through the swinging double-doors of the ambulance bay wheeling in a young man on a gurney. Edward, a veteran EMT, recited the vital signs to Tom and Dr. Greene as they helped push the gurney into the trauma room, “A 18-year-old male, GSW to the right abdomen, heart rate 92, respiratory rate 22, blood pressure 95/65 no loss of consciousness.” A gunshot wound! Tom knew that gunshot wounds were sometimes the most difficult traumas to handle.

Once inside the trauma room, Dr. Greene began his initial assessment of the patient while Tom got busy organizing the things he knew would be needed. He attached a pulse-ox monitor to the patient’s index finger so Dr. Greene could keep an eye on the O2 levels in the patient’s blood and he inserted a Foley catheter so the patient’s urine output could be monitored.

After finishing his initial duties, Tom heard Dr. Greene saying, “It looks like the bullet missed the liver and kidney, but it may have severed an artery. That’s probably why his BP is a bit low. Tom, grab a liter of saline and start a fast IV drip … we need to increase his blood volume.” Tom grabbed one of the fluid-filled bags from the nearby shelf, attached a 12-gauge IV needle to the plastic tubing, and gently slipped the needle into

the patient’s antecubital vein. He then hung the plastic bag on the IV stand and let the fluid quickly start to flow down the tubing and into the patient’s vein.

The reaction was quick and violent. The patient’s heart rate began to skyrocket and Tom heard Dr. Greene shouting, “His O2 saturation is falling! Pulse is quickening! What is going on with this guy?!” Tom stood frozen in place by the fear. He heard Dr. Greene continuing, “Flatline! We’ve lost a pulse … Tom, get the crash cart, we need to shock this guy to get his heart going again!” Tom broke free from his initial shock and did as Dr. Greene had ordered. He then started CPR as Dr. Greene readied the cardiac defibrillator to shock the patient. They continued to alternate between CPR and defibrillation for almost an hour, but to no avail. As Dr. Greene announced the time of death, Tom felt a sickening feeling in the pit of his stomach. He couldn’t believe that he had lost his first trauma patient!

Then Tom noticed that the fluid in the Foley catheter bag was bright red. “Dr. Greene, there’s hemoglobin in the Foley bag,” he said. “How could that be?” responded Dr.

Questions

1)      After Tom made his error, is there anything that could have been done to save the patient’s life?

2) The solute concentration in blood is equivalent to 0.9% NaCl.

Several drops of blood were added to three different solutions: 0.09% NaCl, 0.9% NaCl and 9% NaCl. What would happen to the cells dipped in three different solutions?

The financial report of Allgreen Ltd, a company incorporated in Singapore, for the year ended 31 December 2018, contained the following disclosure: Foreign currency – Effective 1 January 2019, the Malaysian Ringgit became the functional currency for translating the financial statements of Allgreen’s 59% owned Malaysian subsidiary Allgreen Sendirian Berhad. Economic factors and circumstances related to Allgreen Sendirian Berhad’s operations have changed significantly since the last quarter of 2018. It is deemed that Allgreen Sendirian Berhad is now an independent and relatively self-contained subsidiary. Under these circumstances, these changes require a change in Allgreen Sendirian Berhad’s functional currency from the Singapore dollar to the Malaysian Ringgit. The Malaysian Ringgit has generally depreciated steadily over the past decade with respect to the Singapore dollar. As a result of the change, at 1 January 2019, Allgreen Ltd’s shareholders’ equity and minority interest accounts were reduced by $156 million and $108 million respectively. These amounts were driven principally by a reduction in fixed assets.

(a) Show why the change in functional currency reduced Allgreen Ltd’s fixed assets, shareholders’ equity and minority interest.

(b) Discuss how the change in functional currency affects each of the following, as reported in Allgreen Ltd’s financial statements:

(i) Sales

(ii) Cost of goods sold

(iii) Depreciation expense

On June 1, Maxwell Corporation (a U.S.-based company) sold goods to a foreign customer at a price of 1,140,000 pesos and will receive payment in three months on September 1. On June 1, Maxwell acquired an option to sell 1,140,000 pesos in three months at a strike price of $0.080. The time value of the option is excluded from the assessment of hedge effectiveness, and the change in time value is recognized in net income over the life of the option. Relevant exchange rates and option premia for the peso are as follows:

Maxwell must close its books and prepare its second-quarter financial statements on June 30.

1. a-1. Assuming that Maxwell designates the foreign currency option as a cash flow hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.

2. a-2. What is the impact on net income over the two accounting periods?

3. b-1. Assuming that Maxwell designates the foreign currency option as a fair value hedge of a foreign currency receivable, prepare journal entries for the export sale and related hedge in U.S. dollars.

4. b-2. What is the impact on net income over the two accounting periods?

Estimated Income Statements, using Absorption and Variable Costing

Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:

The company is evaluating a proposal to manufacture 30,400 units instead of 27,200 units, thus creating an ending inventory of 3,200 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses.

a. 1. Prepare an estimated income statement, comparing operating results if 27,200 and 30,400 units are manufactured in the absorption costing format. If an amount box does not require an entry leave it blank.

Feedback

a. 1. Recall that under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. Calculate unit cost for direct materials, direct labor, variable factory overhead, fixed factory overhead. Add together to get total unit cost. For 30,400 units, use the same unit costs for direct materials, direct labor, and variable overhead, but instead recalculate the fixed factory overhead and add this to obtain the unit cost at the 30,400 unit level. Sales - (cost of goods manufactured - Inventory, October 31) = Gross profit; gross profit - selling and administrative expenses = income from operations. Remember that the Inventory, October 31 adjustment will only be necessary at the 30,400 level.

a. 2. Prepare an estimated income statement, comparing operating results if 27,200 and 30,400 units are manufactured in the variable costing format. If an amount box does not require an entry leave it blank.

Prompt: Complete the unit homework questions below and submit them.

1. Why isn’t money considered capital in economics?
2. Which of the following are microeconomic issues? Which are macroeconomic issues?

a. How will an increase in the price of Coca-Cola affect the quantity of Pepsi Cola sold?

b. What will cause the nation’s inflation rate to fall?

c. How does a quota on textile imports affect the textile industry?

d. Does a large federal budget deficit reduce the rate of unemployment in the economy?

3. Explain the importance of the ceteris paribus assumption for an economic model.

4. Analyze the positive versus normative arguments in the following case. What statements of positive economics are used to support the requiring of airbags? What normative reasoning is used?

Should the Government Require Air Bags?

Technological advances continuously provide new high-tech options to save lives that add to the price of cars, such as cameras, radar, and airbags. Airbag advocates say airbags will save lives, and the government should require them in all cars. Airbags add an estimated $600 to the cost of a car, compared to about $100 for a set of regular seat belts. Opponents argue that airbags are electronic devices subject to failure and have produced injuries and death. For example, airbags have killed both adults and children whose heads were within the inflation zone at the time of deployment. Opponents, therefore, believe the government should leave the decision of whether to spend an extra $600 or so for an airbag to the consumer. The role of the government should be limited to providing information on the risks of having versus not having airbags.

5. Suppose a retailer promotes its store by advertising a drawing for a “free car.” Is this car free because the winner pays zero for it?

6. Which of the following decisions has the greater opportunity cost? Why?
7. A decision to use an undeveloped lot in Tokyo’s financial district for an apartment building.
8. A decision to use a square mile in the desert for a gas station.

7. Why does a production possibilities curve have a bowed-out shape?

8. The present choice between investing in capital goods and producing consumer goods now affects the ability of an economy to produce in the future. Explain.

9. Why are all costs really “opportunity costs”? What is the opportunity cost of attending class?

10. In Exhibit 2-15, evidence of the law of increasing opportunity costs is:

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $3.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $15 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending direct materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

Variable manufacturing overhead is incurred at a rate of $0.50 per unit produced. Annual fixed manufacturing overhead is estimated to be $6,000 ($500 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $550 per month plus $0.70 per unit sold.

Iguana, Inc., had $11,100 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $5,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $350 in depreciation. During April, Iguana plans to pay $2,000 for a piece of equipment.

Compute the following for Iguana, Inc., for the second quarter (April, May, and June).

1.Budgeted Sales Revenue

2.Budgeted Production in Units

3.Budgeted Cost of Direct Material Purchases

4.Budgeted Direct Labor Cost

5.Budgeted Manufacturing Overhead

6.Budgeted Cost of Goods Sold

7.Total Budgeted Selling and Administrative Expenses

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12 per hour. Iguana has the following inventory policies:

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending direct materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $8,400 ($700 per month) for expected production of 6,000 units for the year. Selling and administrative expenses are estimated at $750 per month plus $0.50 per unit sold.

Iguana, Inc., had $14,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $4,500. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $280 in depreciation. During April, Iguana plans to pay $4,300 for a piece of equipment.

Required:
Complete Iguana's budgeted income statement for quarter 2. (Round cost per unit in intermediate calculations and final answers to 2 decimal places.)

• Budgeted Contribution Margin
• Budgeted Cost of Goods Sold
• Budgeted Interest Expense
• Budgeted Sales Returns and Allowances
• Budgeted Sales Revenue
• Budgeted Selling and Administrative Expenses
• 
  
• 
  
• 
  

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

3. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,100 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $936 per month (includes depreciation on new assets).

7. Equipment costing $1,300 will be purchased for cash in April.

8. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

1. Complete the schedule of expected cash collections.

2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

3. Complete the cash budget.

Visit the Bureau of Economic Analysis Web site at www.bea.gov In “U.S. Economic Accounts” under “National” click on “Gross Domestic Product (GDP)”, then “Interactive Tables”: “GDP” and the” National Income and Product Account (NIPA)” Historical Tables, click “Begin using the data”, and use Section 1 - Tables 1.1.5 (Gross domestic product (nominal)) and 1.1.6 (Real Gross Domestic Product). 1. a) Create the table that contains the following information for the last quarter.You need this information from both Omit the intermediate lines found in Tables 1.1.5 and 1.1.6 on the web site. Gross domestic product Personal consumption expenditures Gross private domestic investment Net exports of goods and services Government consumption expenditures and gross investment 1. b) Calculate the percentage of each category in nominal and real GDP. Present the information that you received in 1 (a) and 1 (b) as a table(s) in your project. 2. Write a report (2 pages double - spaced), which contains an analysis of the results you received. In this report consider, but do not be limited to the following: 1. Why was the nominal GDP greater than the real GDP? By how much? 2. GDP is composed of a number of categories. What category makes up the largest portion of GDP? What category makes up the smallest portion of GDP? 3. What is “Gross private domestic investment”? What does gross private domestic investment measure? 4. What is “Net exports of goods and services”? Why it is negative? 5. In the table 1.1.5 find the category “National defense”. How much was the National defense for the last quarter? Calculate percentage of National defense out of “Government consumption expenditures and gross investment”. Calculate percentage of National defense out of GDP. 6. Please analyze and discuss the significance of the data that you received for this Data exercise. Reflect on what you have learned from this exercise.