Assume that you are a Financial Manager of Starbucks Coffee, Inc., a multi-national corporation. You are in charge of determining the impact of exchange rate changes on the firm. Changes in currency exchange affect both the balance sheet and the income statement. The balance sheet impact occurs when the value of international assets are translated to U.S. dollars. The values of those assets change as the exchange rate changes. The value of costs, revenue, and profit also are impacted on the income statement because of exchange rate risk. Consider that Starbucks has the following investments in coffee bean production and processing:

Table One:

            The expense of all the labor, production, and beans will require the following foreign currency amounts during the current year:

                        Table Two:

            Starbucks Coffee has also invested in store facilities to sell coffee products. The countries and the value of the investments are as follows:

                        Table Three:

            The “Net Profit” from these countries during the current year is as follows:

                        Table Four:

            The current spot exchange rates per one U.S. dollar are as follows:

                                    Table Five:

            As the Financial Manager for Starbucks, your task is to determine the following:

2) Convert the “Net Profit” generated in Canada, Japan, and the United Kingdom shown

                        in Table Four above to U.S. dollars to calculate the total profits realized by Starbucks,

                        Inc. during the current year in U.S. dollars.

a. Starbuck’s “Return on Investment” (ROI) can be calculated using the following formula

Net Profit in U.S. dollars from Question #2 above/Total Investment for Production and Store Facilities in Tables One and Three above

=      ROI

                                  What is Starbuck’s “Return on Investment” for the current year?

Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) FDecide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has negative feedback.
(ii) Responds to changes in conditions.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F
7. Decide whether each of these statements is True (T) or False (F).
A closed-loop control system:
(i) Has a measurement system which gives feedback of a signal which is a measure of the variable being controlled.
(ii) Has a controller which has an input based on the difference between the set value and the fed back value for the variable being controlled.
1. (i) T (ii) T
2. (i) T (ii) F
3. (i) F (ii) T
4. (i) F (ii) F

In 2000, Enron enjoyed remarkable success in the capital markets. During that year, Enron’s shares increased in value by 89%, while the S&P 500 index fell by 9%. At the end of 2000, Enron’s shares were trading at roughly $83 per share, and all of the sell-side analysts following Enron recommended the shares as a ‘‘buy’’ or a ‘‘strong buy.’’ With 752.2 million shares outstanding, Enron had a market capitalization of $62,530 million and was one of the largest firms Enron had a market capitalization of $62,530 million and was one of the largest firms (in terms of market capital) in the United States. At year-end 2000, Enron’s book value of common shareholders’ equity was $11,470 million. At year-end 2000, Enron posted earnings per share of $1.19. Among sell-side analysts following Enron, the consensus forecast for earnings per share was $1.31 per share for 2001 and $1.44 per share for 2002, with 10% earnings growth expected from 2003 to 2005. At the time, Enron was paying dividends equivalent to roughly 40% of earnings and was expected to maintain that payout policy. At year-end 2000, Enron had a market beta of 1.7. The risk-free rate of return was 4.3%, and the market risk premium was 5.0%. (Note: The data provided in this problem, and the inferences you draw from them, do not depend on foresight of Enron’s declaring bankruptcy by the end of 2001.)

Reverse engineer Enron’s $83 share price to solve for the implied expected return on
Enron shares at year-end 2000. Do the reverse engineering under the following
assumptions:
(1) Enron’s market price equals value.
(2) The consensus analysts’ earnings-per-share forecasts through 2005 are reliable proxies
for market expectations.
(3) Enron will maintain a 40% dividend payout rate.
(4) Beyond 2005, Enron’s long-run earnings growth rate will be 3.0%.

Please include details on how the reverse engineering numbers are calculated.

Several studies suggest that breast-fed babies become more intelligent children than formula-fed babies. One such study (Mortensen, Michaelsen, Sanders, & Reinisch, 2002) involved a sample of over 3,000 women and men born in Copenhagen, Denmark, between October 1959 and December 1961. The samples were divided into five categories based on duration of breast-feeding, as assessed by physician interview with mothers at a one-year examination. The child’s intelligence was assessed using the Wechsler Adult Intelligence Scale (WAIS) at a mean age of 27.2 years. The results showed that duration of breast-feeding was associated with significantly higher scores on the verbal, performance, and full scale WAIS IAs. This difference was observed even after the researchers adjusted for differences in the social class and maternal education of the two groups. (This adjustment allowed the researchers to rule out any preexisting differences in the groups that might have independently contributed to IQ differences in their children.) The authors acknowledged that other differences between the groups, such as the children’s genetic potential or their parents’ caregiving skills or motivation to nurture, could explain the results. However, they believe that human milk contains various hormones and other factors that enhance brain growth and maturation.

1. State the research hypothesis in your own words and Identify variables a. Independent b. dependent variables

2. define all important concepts and terms as they are used in this study.

3. What evidence do the researchers offer as a test of their hypothesis? Is this evidence empirical (observable)? Is it valid?

4. What explanation do the researchers offer for their findings? Does this explanation make sense based on the evidence?

5. Given the results of this study, why can’t the researchers draw a causal connection between type of food and later intelligence?

6. What might be an alternative explanation for the results of this study?

7. What could the researchers do in order to make a causal connection between the dependent and independent variables?

8. Are there any practical implications for this research?

Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to:

1.2% × Service years × Final year’s salary

Stanley Mills was hired by Clark at the beginning of 2002. Mills is expected to retire at the end of 2046 after 45 years of service. His retirement is expected to span 15 years. At the end of 2021, 20 years after being hired, his salary is $97,000. The company’s actuary projects Mills’s salary to be $440,000 at retirement. The actuary’s discount rate is 6%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2021.
2. Suppose Clark’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the retirement date of annuity payments during the retirement period.
3. What is the company’s projected benefit obligation at the end of 2021 with respect to Stanley Mills?
4. Even though pension accounting centers on the PBO calculation, the ABO still must be disclosed in the pension disclosure note. What is the company’s accumulated benefit obligation at the end of 2021 with respect to Stanley Mills?
5. If we assume no estimates change in the meantime, what is the company’s projected benefit obligation at the end of 2022 with respect to Stanley Mills?
6. What portion of the 2022 increase in the PBO is attributable to 2022 service (the service cost component of pension expense) and to accrued interest (the interest cost component of pension expense)?

1. Annual Retirement Payments?

2. PV of retirement annuity?

3. Projected benefit obligation?

4. Accumulated benefit obligation?

5. Projected benefit obligation?

6. Interest Cost?

     Service Cost?

LAW OF ACCOUNTANTS
A QUESTION OF ETHICS-- Agency Formation and Duties: Emergency One, Inc. (EO), makes fi re and rescue vehicles. Western Fire Truck, Inc., contracted with EO to be its exclusive dealer in Colorado and Wyoming through December 2003. James Costello, a Western salesperson, was authorized to order EO vehicles for his customers. Without informing Western, Costello e-mailed EO about Western’s diffi culties in obtaining cash to fund its operations. He asked about the viability of Western’s contract and his possible employment with EO. On EO’s request, and in disregard of Western’s instructions, Costello sent some payments for EO vehicles directly to EO. In addition, Costello, with EO’s help, sent a competing bid to a potential Western customer. EO’s representative e-mailed Costello, “You have my permission to kick [Western’s] ass.” In April 2002, EO terminated its contract with Western, which, after reviewing Costello’s e-mail, fi red Costello. Western fi led a suit in a Colorado state court against Costello and EO, alleging, among other things, that Costello breached his duty as an agent and that EO aided and abetted the breach. [ Western Fire Truck, Inc. v. Emergency One, Inc., 134 P.3d 570 (Colo.App. 2006)]

(a) Was there an agency relationship between Western and Costello? Western required monthly reports from its sales staff, but Costello did not report regularly. Does this indicate that Costello was not Western’s agent? In determining whether an agency relationship exists, is the right to control or the fact of control more important? Explain.
(b) Did Costello owe Western a duty? If so, what was the duty? Did Costello breach it? If so, how?
(c) A Colorado state statute allows a court to award punitive damages in “circumstances of fraud, malice, or willful and wanton conduct.” Did any of these circumstances exist in this case? Should punitive damages be assessed against either defendant? Why or why not?

1. Which of the following is NOT true about Korean economy before 1960?

a. South Korea was one of the poorest country in the whole world in terms of personal income.

b. South Korea’s production facilities are totally destroyed over Korean War.

c. North Korean territory was totally destroyed over Korean War.

d. US provided infrastructure of South Korea.

2. Which of the following is NOT true about South Korea in 1980s?

a. Government pursued contractional policies.

b. Workers’ income was raised along with inflation.

c. There was high inflation in early 1980s.

d. The three-lows gave a stronger economic growth.

3. Which of the following is NOT true about North Korean economy in general?

a. Industrial capital is well maintained due to Soviet Union’s support.

b. There has been chronic shortages of food.

c. Private farming was partially allowed from 2002.

d. 2009’s redenomination was a totally failure.

4. Which of the following is NOT true about North Korea in 1960s?

a. There was a conflict between China and Soviet Union.

b. China decreased economic aid to North Korea.

c. Soviet Union maintained support to North Korea.

d. Trade with South Asian countries increased.

5. Which of the following is NOT an expected problem from the aging Korean economy?

a. decreasing labor force

b. increasing savings

c. worsened government budget deficit

d. low economic growth

6. According to lecture, which of the following is NOT correct about South Korea’s chip industry.

a. South Korea is the largest supplier in global chip market.

b. There has been a series of chicken game between chip manufacturers.

c. Each country’s government is supporting chip industry as a part of future development strategy.

d. South Korea is the most competitive in non-memory chips.

7. According to lecture, which of the following is NOT a part of automobile industry’s rear (or backward) industries?

a. plastic

b. steel

c. component

d. furniture

You are the manager responsible for the audit of Aspersion, a limited liability company, which mainly provides national cargo services with a small fleet of aircraft. The draft accounts for the year ended 30 September 2001 show profit before taxation of Kshs2·7 million (2000 ñ Kshs2·2 million) and total assets of Kshs10·4 million (2000 ñ Kshs9·8 million). The following issues are outstanding and have been left for your attention:

(1) The sale of a cargo carrier to Abra, a private limited company, during the year resulted in a loss on disposal of Kshs400,000. The aircraft cost Kshs1·2 million when it was purchased in October 1992 and was being depreciated on a straight-line basis over 20 years. The minutes of the board meeting at which the sale was approved record that Aspersionís finance director, Iain Jolteon, has a 30% equity interest in Abra.                          

(2) As well as cargo carriers, Aspersion owns two light aircraft which were purchased in 1998 to provide business passenger flights to a small island under a three year service contract. It is now known that the contract will not be renewed when it expires at the end of March 2002. The aircraft, which cost Kshs450,000 each, are being depreciated over fifteen years.

(3) Deferred tax amounting to Kshs570,000 as at 30 September 2001 has been calculated relating to tangible non-current assets at a tax rate of 30% using the full provision method (IAS 12 ëIncome Taxesí).   On 1 December 2001, the government announced an increase in the corporate income tax rate to 34%. The directors are proposing to adjust the draft accounts for the further liability arising.                                                                 

Required:

For each of the above points:

(i) Comment on the matters that you should consider; and

(ii) State the audit evidence that you should expect to find, in undertaking your review of the audit working papers and financial statements of Aspersion.                   

Summary: CASE REVIEW ON COMMERCIAL COMPANIES A commercial company is a legal entity established under a contract by two or more persons each of whom undertakes to participate in an enterprise for profit, by contributing a share of the capital in the form of tangible or intangible property, services or labour, with a view to sharing any profit or loss resulting from the enterprise. Mr. Ahmed, Abdulrahman and Abdullah are Omani citizens, friends and graduate of MCBS. They are from royal families and they love playing computer game, soccer and golf. They joined the college in 1999 and graduated in 2002. After their graduation they travelled to the United Kingdom for greener pasture. Ahmed is married with three children, Abdulrahman with four children and Abdullah with six children. While in the UK, they support Manchester United Football Club and they always watch all their games. In 2010, they decided to come back home and start a company. After some preliminary discussion, they decided to register a Company Limited by shares with a share capital of one million Omani Riyal. In their contract, they were so confident that based on their experience and exposure, they are certainly going to make profit. They therefore agreed on a profit-sharing formula of fifty percent for Ahmed, thirty percent for Abdulrahman and twenty percent for Abdullah. Unfortunately, the business did not go as planned and they made huge loses of ten million Omani Riyal. Abdulrahman being the eldest has informed others that since he has four children and he is paying tuition for them in a private secondary school which is very expensive and couple with the fact that his wife is pregnant with set of triplets and they will need money to take care of their family expenses, he will not be able to contribute to the loss of the company. Ahmed and Abdullah have disagreed with him.

Question 1 a. Using FILAC method, raise and discuss one legal issue from the fact pattern. 25 Marks b. Would your answer in (a) be different if parties never agreed on the profit-sharing formula?

Fenwick, the internal auditor for Discount Department Stores, hated traveling but since he covered all 14 discount stores in his district, he was on the road constantly. This time he was in Grapevine, Texas. Located near the end of Dallas/ Fort Worth International Airport runways, the Grapevine’s store windows shook every few minutes as each jet lumbered into the air.

It was evening and the store was empty except for the piles of financial records surrounding him. The Grapevine operation had lost money for three straight years, had closed the previous month, and its remaining inventory had been divided among other locations. Fenwick's instructions were clear: Find out what went wrong? He was about to reach for his last steaming cup of coffee—filled to the brim— when a jolt from yet another jet, the loudest of the day, spilled his coffee. This, in turn soaked the bank slips on his desk.

Fenwick got up and spread the dozen or so deposit slips on the carpet to dry. He then cleared the rest of the mess and returned his attention to the stained papers on the floor. He stacked the slips one by one, glancing at them casually. After looking at just a few, he spotted a distinct abnormality.

Fenwick had been around the other stores enough to know that currency and other checks represented about half the money going into their bank accounts; credit card deposits made up the rest. However, the documents in his hands were a different mix—three quarters credit card, one quarter cash. Also, Fenwick spotted a refund of exactly $300 on one day’s tape and a refund of $400 on the next day’s tape (Wells, 2002).

Required: Discuss in detail at least three missing internal controls, the reasons why these controls are important, and a remedy to avoid future fraud in the case of Discount Department Stores.