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ECO 450 Week 9 Quiz – Strayer

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Quiz 7 Chapter 13 and 14

Chapter 13

The Theory of Income Taxation

True/False Questions

1. The actual federal income tax currently taxes all income irrespective of its source or use at the same tax rate.

2. Comprehensive income excludes unrealized capital gains.

3. Under a comprehensive income tax, transfer payments received by Social Security recipients would be fully taxable.

4. Homeowners earn rental income-in-kind from their home that would be taxable under a comprehensive income tax.

5. A comprehensive income tax is a lump-sum tax.

6. A comprehensive income tax will result in a divergence between gross wages paid by employers and net wages received by workers.

7. A comprehensive income tax will always reduce work effort by taxpayers.

8. The substitution effect of a tax-induced decline in wages always leads workers to work less.

9. The market wage elasticity of labor is zero. If this is the case, the excess burden of a tax on labor income will also be zero.

10. Points on a compensated labor supply curve are always more elastic than points for corresponding wage levels on a regular labor supply curve.

11. Comprehensive income is the sum of annual consumption and the change in net worth.

12. A tax on interest income does not prevent credit market from efficiently allocating resources.

13. If an individual is subject to a 30-percent income tax, then the net interest on a certificate of deposit yielding 5 percent would be 3.5 percent after taxes.

14. Because a tax on interest income results in income and substitution effects, it is not possible to predict the effect it will have on saving.

15. Most empirical studies indicate that the interest elasticity of supply of savings is close to zero.

16. Income tax became a permanent fixture in the United States starting in the early nineteenth century.

17. The Haig-Simons definition of income is different from comprehensive income.

18. Comprehensive income equals consumption plus the change in net worth.

Multiple Choice Questions

1. Comprehensive income:

a. is the sum of annual consumption and realized capital gains.

b. is the sum of annual consumption and changes in net worth.

c. excludes corporation income.

d. is the sum of annual consumption and net worth.

2. A tax on labor income:

a. results only in an income effect that always decreases hours worked per year.

b. results in a substitution effect that always decreases hours worked per year.

c. results in an income effect that increases hours worked per year if leisure is a normal good.

d. both (a) and (b)

e. both (b) and (c)

3. The market supply of labor is perfectly inelastic. Then it follows that:

a. the substitution effect of wage changes is zero.

b. the income effect of wage changes is zero.

c. leisure is a normal good and the income effect of wage changes exactly offsets the substitution effect.

d. the excess burden of a tax on labor income will be zero.

4. The compensated labor supply curve:

a. will always be vertical.

b. will always be upward sloping.

c. will always be downward sloping.

d. reflects both the income and substitution effects of wage changes.

5. Using a regular labor supply curve instead of a compensated supply curve to calculate the excess burden of a tax on labor income will:

a. result in an accurate estimate of the excess burden.

b. overestimate the excess burden.

c. underestimate the excess burden.

d. accurately estimate the excess burden only if the market supply of labor is perfectly inelastic.

6. Most empirical research indicates that the market supply curve of labor hours by prime-age males is:

a. very elastic.

b. almost perfectly inelastic.

c. always upward sloping.

d. perfectly elastic.

7. A flat-rate tax on labor income will:

a. always reduce hours worked per year.

b. always increase hours worked per year.

c. either increase or decrease hours worked per year.

d. never have any effect on the amount of leisure hours per year.

8. A tax on interest income:

a. causes the gross interest rate paid by investors to exceed the net interest rate received by savers.

b. will always reduce saving.

c. will always increase saving.

d. is equivalent to a lump-sum tax.

9. If the market supply curve of savings is upward sloping, a tax on interest income will:

a. increase the amount of saving.

b. increase the market rate of interest.

c. decrease the market rate of interest.

d. have no effect on the market rate of interest.

10. If the supply of labor is perfectly inelastic, then the incidence of a payroll tax levied entirely on employers will be:

a. borne by employers as a reduction in profits.

b. split between workers and employers.

c. paid entirely by workers.

d. shifted forward to consumers.

11. Which of the following is true about comprehensive income?

a. Only labor income is included.

b. Only capital income is included.

c. Capital gains are not included.

d. Both realized and unrealized capital gains are included.

12. Which of the following will increase a person’s comprehensive income?

a. an increase in the market value of the person’s home

b. a decrease in the value of the person’s stock portfolio

c. a decrease in labor income

d. a decrease in consumption

13. A tax on labor income will:

a. increase the net wage received by workers.

b. decrease the net wage received by workers.

c. cause that net wage received by workers to decline below the gross wage paid by employers.

d. both (b) and (c)

14. If the return to savings, r, is subject to taxation at rate t, then in equilibrium a saver’s marginal rate of time preference will equal:

a. r

b. t

c. (1 + r)

d. [1 + r(1 – t)]

15. The higher the compensated elasticity of supply of savings,

a. the lower the excess burden of a tax on capital income.

b. the higher the excess burden of a tax on capital income.

c. the higher the excess burden of a tax on labor income.

d. both (b) and (c)

16. The Haig-Simons definition of income:

a. is the sum of annual consumption and realized capital gains.

b. is the sum of annual consumption and changes in net worth.

c. excludes corporation income.

d. is the sum of annual consumption and net worth.

17 Comprehensive income:

a. includes realized capital gains, but not unrealized capital gains

b. includes both realized and unrealized capital gains.

c. excludes cash from the sale of assets.

d. excludes increases in the value of assets.

18. Income-in-kind:

a. is exemplified by nonpecuniary returns.

b. is generally non-taxable because there is no monetary transaction.

c. is generally taxable.

d. both (a) and (b).

19. An example of a nonpecuniary return is:

a. job satisfaction.

b. unemployment benefits.

c. employer contributions to a retirement plan.

d. both (b) and (c).

20. Income from labor services (wages) account for what percentage of gross income in the U.S.?

a. 90%

b. 75%

c. 60%

d. 50%

Chapter 14

Taxation of Personal Income in the United States

True/False Questions

1. Taxable income in the United States exceeds adjusted gross income.

2. Taxable income in the United States includes all capital gains earned, whether or not they are realized.

3. Taxable income in the United States amounts to less than 50 percent of personal income.

4. Tax preferences are really subsidies to certain activities.

5. A tax deduction allowed for an activity for which positive externalities are not likely to exist (such as home ownership) is likely to cause the marginal social cost of the activity to exceed its marginal social benefit.

6. The value of a personal exemption to a taxpayer varies with his or her marginal tax rate.

7. The U.S. personal income tax is not a progressive tax.

8. The highest statutory marginal tax rate under the federal personal income tax is 50 percent.

9. Under current rules, only real interest earned is subject to income tax.

10. Realized, long-term capital gains that reflect inflation are currently exempt from taxation.

11. The tax base under the personal income tax in the United States is the Haig-Simons definition of comprehensive income.

12. Tax credits vary with a person’s marginal tax rate.

13. The cuts in marginal tax rates initiated in 2001 are likely to reduce the excess burden of tax preferences.

14. The earned income tax credit is a negative tax the subsidizes the earnings of low-income workers.

15. If a progressive income tax is replaced with an equal-yield, flat-rate tax, then work effort will unequivocally increase.

16. As of 2009, there is no marriage penalty for an adjusted gross income of $60,000.

17. Tax preferences are exclusions, exemptions, and deductions from the tax base.

18. Income-in-kind is not considered a tax preference.

Multiple Choice Questions

1. Adjusted gross income, as defined by the United States Tax Code,

a. exceeds taxable income.

b. equals taxable income.

c. is less than taxable income.

d. is greater than comprehensive income.

2. Tax preferences:

a. are exclusions, exemptions, and deductions from the tax base.

b. are in the tax code by accident.

c. are extra taxes on certain taxpayers.

d. increase the amount of income that is taxable.

e. both (a) and (d)

3. Currently, the tax treatment of capital gains in the United States is such that:

a. all capital gains are taxed.

b. all realized capital gains are taxed.

c. most realized capital gains are taxed.

d. only capital gains adjusted for inflation are taxed.

4. The exclusion of interest of state and local bonds from taxation by the federal government:

a. decreases interest costs for state and local governments.

b. increases interest costs for state and local governments.

c. benefits lower-income taxpayers more than upper-income taxpayers.

d. discourages borrowing by local governments.

5. The value of personal exemptions in terms of taxes saved:

a. is the same for all taxpayers.

b. varies with family size.

c. varies with taxpayers’ marginal tax rates.

d. both (b) and (c)

6. A taxpayer is in a 33-percent tax bracket and itemizes deductions. He obtains a mortgage from a bank at 9-percent interest. The actual rate of interest he pays is:

a. 6 percent.

b. 9 percent.

c. 20 percent.

d. 25 percent.

7. Tax expenditures are:

a. expenditures made to collect taxes.

b. losses in revenue due to tax preferences.

c. less than 1 percent of tax revenue.

d. both (b) and (c)

8. Under the federal personal income tax rules prevailing as of 2009,

a. all interest expense is tax deductible.

b. the interest expense for mortgages on first and second homes is tax deductible.

c. the interest expense for mortgages only on first homes is tax deductible.

d. no interest is tax deductible.

9. The reduction in marginal tax rates will:

a. increase the excess burden of tax preferences.

b. increase tax expenditures.

c. decrease the excess burden of tax preferences.

d. have no effect of tax expenditures.

10. “Bracket creep�� is no longer a problem in the United States because:

a. the tax brackets are indexed.

b. capital gains are now fully taxable.

c. only real interest is taxed.

d. capital gains are indexed.

11. Which of the following is true for the federal income tax in the United States?

a. All income irrespective of its source or use is taxed at the same rate.

b. Comprehensive income is the tax base.

c. The tax base is less than 50 percent of comprehensive income.

d. All realized and unrealized capital gains are included in the tax base.

12. Because of the Earned Income Tax Credit, the effective tax rate for the lowest-income taxpayers in the United States is:

a. only 15 percent.

b. higher than that paid by upper-income taxpayers.

c. zero.

d. negative.

13. The excess burden of tax preferences:

a. depends on average tax rates.

b. will be higher, the higher the marginal tax rate is.

c. will be lower, the higher the marginal tax rate is.

d. is independent of marginal tax rates.

14. A shift to an equal-yield, flat-rate personal income tax from the current progressive income tax rate structure will:

a. reduce the tax burden on upper-income groups.

b. increase the tax burden on upper-income groups.

c. increase the share of taxes paid by lower-income groups.

d. both (a) and (c)

15. Removing savings from the tax base of the personal income tax is likely to:

a. increase work effort.

b. decrease work effort.

c. lower market equilibrium interest rates by increasing the supply of loanable funds.

d. increase market equilibrium interest rates, thereby increasing the demand for loanable funds.

16. Which is a justification for tax preferences?

a. administrative difficulties

b. improving equity

c. encouraging private expenditures that create external benefits

d. all of the above

17. If the excess burden from tax is $10 million, lowering marginal tax rates should make the excess burden:

a. more than $10 million.

b. less than $10 million.

c. remain at $10 million.

d. none of the above is certain to occur

18. Which of the following is the result of The Economic Growth and Tax Relief Reconciliation Act enacted in 2001?

a. reduction of the highest marginal tax rate

b. increased the marriage penalty

c. created a new 40% tax bracket

d. both (a) and (c)

19. As of 2009, the highest marginal tax rate is:

a. 39.6%

b. 38%

c. 35%

d. 32.5%

20. Which is an example of an itemized deduction under the U.S. code as of 2009?

a. state and local income tax

b. state and local property tax

c. all medical expenses

d. both (a) and (b)

#ECO 450 Week 9 Quiz – Strayer

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CIS 502 Week 9 Assignment 3 – Strayer New

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Assignment 3: Cybersecurity

Due Week 9 and worth 50 points

Cybersecurity is such an important topic today and understanding its implications is paramount in the security profession. Compliance, certification, accreditation, and assessment are critical in understanding the legal and ethical procedures to follow as a security professional. In support of cybersecurity initiatives, the National Initiative for Cyber Security Education (NICE) has published several initiatives in regard to protecting national security. The following document titled, “National Initiative for Cybersecurity Education”, located at http://csrc.nist.gov/nice/framework/documents/NICE-Cybersecurity-Workforce- Framework-Summary-Booklet.pdf, will be used to help you complete the assignment.

Write a three to five (3-5) page paper in which you:

1. Examine the National Initiative for Cyber Security Education and describe the initiative.

2. Assess the value of the NICE framework. Discuss the importance of this framework in regard to  the security profession and individual organizations.

3. Suggest three (3) examples that illustrate the importance of the National Initiative for Cyber Security Education initiative.

4. Describe the expected outcomes of this initiative.

5. Evaluate how organizations can implement the NICE framework to prevent internal and external attacks.

6. Determine how the NICE framework addresses the legal and ethical issues in the field of information security.

7. Use at least three (3) quality resources outside of the suggested resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Your assignment must follow these formatting requirements:

 Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

 Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.  The specific course learning outcomes associated with this assignment are:

 Evaluate and explain from a management perspective the industry-standard equipment, tools, and technologies organizations can employ to mitigate risks and thwart both internal and external attacks.

 Describe the legal and ethical issues inherent in information security.

 Use technology and information resources to research issues in security management.

 Write clearly and concisely about the theories of security management using proper writing mechanics and technical style conventions.

#CIS 502 Week 9 Assignment 3 – Strayer New

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HSA 525 Week 9 Assignment 3 – Strayer NEW

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Assignment 3: Post-Merger Analysis

Due Week 9 and worth 280 points

In today’s uncertain economic and regulatory environment for the health services industry, many organizations may be presented with merger and acquisition opportunities to gain market share and drive financial and operational efficiencies. Given the current state of this market segment:

Write a five to six (5-6) page paper in which you:

1. Suggest the key financial drivers that most likely will cause health care organizations to merge. Provide support for your rationale.

2. Assuming that two (2) health care organizations have merged. Determine the evaluation criteria that a financial analyst would use to evaluate the financial performance of the organization post- merger, and identify the determinants that the analyst would use to decide whether or not the merger generated favorable financial results for the organization. Provide support for your evaluation.

3. Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.

4. Create an argument to assert that the financial planning process is of high value to a health care organization. Provide support for your argument.

5. Predict the financial stability of the health care industry over the next five (5) years. Provide support for your prediction.

6. Use at least three (3) quality academic resources. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

 Evaluate the financial statements and the financial position of health care institutions.

 Describe the overall planning process and the key components of the financial plan.

 Use technology and information resources to research issues in health financial management.

 Write clearly and concisely about health financial management using proper writing mechanics.

#HSA 525 Week 9 Assignment 3 – Strayer NEW

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LEG 320 Week 9 Quiz – Strayer

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CHAPTER 16

DRUG ABUSE AND ALCOHOL-RELATED CRIMES

MULTIPLE CHOICE

1. Which of the following is NOT generally one of the elements of the crime of possession with intent to deliver?

the accused possessed a large amount of an illegal drug

the accused possessed scales

the accused possessed a cellular phone

the accused possessed a counterfeit credit card

432

2. In Gonzales v. Raich, the court reasoned that the private use of marijuana might have

an adverse impact on federal drug laws

a positive impact on federal drug laws

an adverse impact on state drug laws

a positive impact on state drug laws

443

3. In Gonzales v. Raich, the court reasoned Congress had the power under the Commerce Clause to regulate

even purely intra-sate use of marijuana

only purely intra-sate use of marijuana

even purely inter-sate use of marijuana

only purely inter-sate use of marijuana

443

4. All of the following are crimes under the Uniform Controlled Substances Act EXCEPT

manufacture or delivery of an illegal drug

possession with intent to deliver an illegal drug

delivery or possession with intent to deliver a counterfeit substance

possession of alcohol by a minor

428

5. Medical use of marijuana is permitted in some states. Although medical users can be prosecuted under federal laws,

in 2010 the Justice Department said it would not prosecute medical users

in 2010 the Justice Department said it would prosecute medical users

in 2010 the U.S. Supreme Court said it would not prosecute medical users

in 2010 the U.S. Supreme Court said it would prosecute medical users

433

6. What is the most widely abused and misused drug in America and in many other countries?

alcohol

meth

marijuana

cocaine

438

7. The 2002 National Institutes of Health study surveyed drinking among the 8 million college and university students in the United States. What percentage of students were shown to drink in binges?

44%

55%

40%

30%

438

8. How many alcohol-related student deaths are there each year?

1,445

2,545

3,645

4,745

438

9. The federal government and all states have enacted some form of the Uniform

Narcotics Act

Illegal Drug Act

Dangerous Drug Act

Controlled Substances Act

428

10. The most common illegal drug charge is some form of

selling

buying

possession

trafficking

428

11. How many states currently have a “Compassionate Use Medical Marijuana” statute?

433

12. The Uniform Controlled Substances Act divides drugs into how many schedules?

428

13. A minority of states require that the defendant have possessed what minimum amount of the illegal substance to sustain a conviction?

a trace amount

a usable amount

a gram

a bindle

430

14. What is the minimum amount of the illegal substance required to sustain a drug conviction by a majority of states?

usable amount

trace amount

any amount

a gram

430

15. In fourteen states, doctors may prescribe the personal use of what drug for pain management for people with serious illnesses?

cocaine

marijuana

heroin

methamphetamine

433

16. Challengers of the Federal Controlled Substances Act alleged Congress has no constitutional authority to prohibit the medical use of marijuana based on the

due process clause

equal protection clause

interstate commerce clause

none of these answers are correct

433

17. A defendant arrested in possession of a large amount of an illegal drug would most likely have been charged with the offense of

possession of a controlled substance

delivery of a controlled substance

possession with intent to deliver

possession of stolen property

432

18. In New Jersey an individual who provides an illegal drug to another, and that person dies as a result of ingesting the drug,

cannot be held liable for the death

may be held strictly liable for the death

will be found guilty of premeditated murder

will be charged with a misdemeanor drug offense

435

19. Approximately what number of people are killed every day in the United States because of driving under the influence?

100

150

438

20. The National Highway Traffic Safety Administration estimates the yearly costs of drunk driving to be

$45 billion

$35 billion

$25 billion

$15 billion

438

21. Which of the following is a violation of the Uniform Controlled Substances Act?

possession of a controlled substance

deliver a counterfeit substance

manufacture a controlled substance

all of these answers are correct

428

22. What are the two types of possession?

actual and constructive

real and actual

real and constructive

actual and contractual

430

23. The “usable quantity” rule holds that a useless trace amount is not

a usable amount

a sufficient amount

a chargeable amount

a sufficient quantity

430

24. Delivery of an illegal drug can be either an actual delivery, or it could be the crime of possession of a controlled substance with

intent to deliver

sufficient amount to deliver

quantity of delivery

delivery potential

432

25. What drug is particularly dangerous because it is an unpredictable killer that can cause life-threatening complications that are not related to the dose taken, the length of use, or the manner in which the drug is taken?

cocaine

heroin

marijuana

meth

435

26. Laws that make people who illegally manufacture, distribute, or dispense illegal drugs strictly liable for a death that results from the using such drugs are often called

Len Bias laws

Terrance Bianchi laws

Lawrence Brewer laws

Stephen Breyer laws

435

27. Which of the following may qualify as delivery of an illegal drug?

all of these may qualify as delivery of an illegal drug

possession of a controlled substance with intent to deliver

possession of a controlled substance with intent to sell

possession of a controlled substance with intent to transfer

432

28. British and U.S. studies of accidental deaths in the 1980s and a National Institutes of Health study in 2002 showed that alcohol has a high relationship to deaths caused by which of the following?

drowning

choking

burns

all of these answers are correct

438

29. What percent of state prisoners were convicted of a violent crime while under the influence of alcohol alone?

21%

31%

41%

51%

438

30. Which of the following is NOT a field sobriety test?

the walk-and-turn test

the HGB test

the one-leg-stand test

all of these are field sobriety tests

439

TRUE/FALSE

1. A suspect cannot be found to have been operating a motor vehicle by being behind the wheel of a car with the keys in the ignition.

2. The Uniform Controlled Substances Act lists marijuana as a Schedule I drug with the highest abuse potential.

3. In a majority of states, even a “trace” amount of an illegal drug will sustain a conviction for possession of that drug.

4. All states have a uniform charge of possession of a small amount of marijuana.

5. Possession of marijuana for personal use is illegal throughout the U.S.

6. A defendant arrested in possession of a large amount of an illegal drug may be charged with possession with intent to deliver.

7. A person who claims to be selling cocaine, but delivers baking soda, cannot be charged with a drug crime.

8. People who illegally dispense illegal drugs will be held strictly liable in many states for a death that results from the ingestion of such a drug.

9. Criminal liability for drug induced death requires that the state must show only that the defendant provided the drugs to the victim, and that the victim died as a proximate result of the defendant’s actions.

10. Victims of drunk driving may be able to sue bars or individuals who furnished the alcoholic drinks.

COMPLETION

1. Intent to deliver illegal drugs can be proved by showing a “ connection” between the facts of possession, such as the large quantity of the drug, and an intent to sell the drugs.

2. The most common criminal illegal drug charge is that of _____________ of a controlled substance.

3. Two types of drug possession are “actual” and “___________.”

4. An amount of an illegal drug that is so small that it is unusable is referred to as a “________” amount.

5. Depending upon the jurisdiction, possession of a small amount of marijuana may be charged as either a criminal or a _________ offense.

6. In Gonzales v. the court reasoned that private use of marijuana might have an adverse impact on federal drug laws.

7. In a number of states, a person who dispenses an illegal drug will be held ________ liable for a death that results from ingestion of such drug.

8. Most students drink or not at all, but 44 percent of students drink in binges.

9. The most widely abused and misused drug in America is _________.

10. Nystagmus is a persistent, rapid, , side-to-side eye movement.

CHAPTER 17

TERRORISM

MULTIPLE CHOICE

1. Terrorists are willing to take innocent lives to

make money

make a political statement

satisfy their bloodlust

stimulate reprisals

450

2. Congress was required to clearly define the acts that constituted terrorism and condemned under the conventions because of the

vagueness limitation on statutes

void limitation on statutes

definition limitation on statutes

discreet

451

3. People who believe that organized government is evil may be referred to as

anarchists

agnostics

advocates

agents

451

4. Generally, terrorists differ from other criminals on the basis of their

psychological characteristics

mental illness

motive

physical characteristics

451

5. Which of the following statements regarding terrorism is FALSE?

Acts of terrorism may be sponsored by a nation or a group.

Terrorism is not a form of warfare.

Terrorism is a global problem.

The U.S. is a stated target of the terrorist group Al Qaeda.

451

6. Who is authorized to identify groups or organizations as terrorist organizations?

the State Department

the President

the Congress

the House of Representatives

452

7. The Alabama Criminal Code, Section 13-A-10-151, defines the crime of terrorism as an act or acts intended to

Intimidate or coerce a civilian population.

Influence the policy of a unit of government by intimidation or coercion.

Affect the conduct of a unit of government by murder, assassination, or kidnapping.

all of these

454

8. Most state statutes also make it a crime for a person to support a terrorist act or organization. Actions that could constitute support include which of the following?

providing financial support

providing lodging

providing training

all of these

454

9. Which of the following is the definition of a terrorist threat under state laws?

threatened violence against another

terrorizing a person

threatened violence against another with the purpose of terrorizing

none of these

454

10. Most of the money used to finance the 9/11 terrorist attack came from which of the following?

charitable organizations

private donors

foreign governments

drug dealers

461

11. Which of the following crimes are favored by terrorists to finance their terrorist activities?

theft

fraud

drug trafficking

all of these

461

12. According to the text, terrorists sometimes use which of the following to move funds in and out of the United States?

electronic wire transfers

television commercials

radio advertisements

none of these

462

13. One way in which terrorists move funds in and out of the United States is through the use of IVTS. What does IVTS stand for?

informal value transfer systems

international value transfer systems

informal value terrorist systems

international value terrorist systems

462

14. One example of a kind of IVTS is

Hawala

Farouq

Mandamus

Baksheesh

462

15. What is one advantage of using an IVTS?

no paper trail

it is faster than wire transfers

more money is available through IVTS

none of these answers is correct

462

16. An extraordinary rendition occurs when a person is seized in one country and then transported to another country for

interrogation

extradition

repatriation

mediation

462

17. Customs and practices followed by most nations in wartime and now the subject of international conventions are known as

rules of war

degrees of war

peace negotiations

contracts

460

18. Advocating the forceful overthrow of the U.S. government is the crime of

sedition

sabotage

terrorism

treason

454

19. Which of the following is NOT one of the classes of crimes created by rules of war?

government crimes

crimes against peace

crimes against humanity

traditional war crimes

460

20. The use of unlawful force to coerce or intimidate persons or governments in the pursuit of political, social, or religious goals is known as

terrorism

genocide

humanism

feticide

450

21. Many states have adopted a definition of the crime of terrorism closely modeled after the

federal definition

international definition

Supreme Court definition

Hague definition

454

22. Damaging or injuring national defense material or national defense utilities with the intent to obstruct the national defense is the crime of

sedition

sabotage

treason

aiding a terrorist

457

23. Customs, practices, treaties, and agreements that most nations subscribe to for the conduct of wars openly declared against sovereign nations are called

international conventions

treaties

international agreements concerning waging war

rules of war

460

24. Funds for terrorist activities are often transferred through

informal value transfer systems

human couriers

high-tech electronic wire transfers

all of these

462

25. A program whereby suspected terrorists are seized by U.S. agents and transported to another country for interrogation is known as

secret abduction

extraordinary rendition

international detention

terrorist detention

462

26. Which of the following are possible charges against terrorists?

treason

sedition

sabotage

all of these

453-457

27. Which of the following statements regarding the rules of war is FALSE?

President Lincoln began the codification of these rules in 1864.

Most nations subscribe to the rules of war.

Combatants in a war are liable for the violation of ordinary criminal laws.

President Eisenhower began the codification of these rules in 1953.

460

28. Which of the following laws forbids the planning, commencement, and conduct of an aggressive war?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

29. Which of the following laws forbids deportation based on race, religion or ethnic origin?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

30. Which of the following laws addresses conduct of combatants towards prisoners of war?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

TRUE/FALSE

1. Not all terrorists are sponsored or protected by a nation or a group.

2. Acts of terrorism may be considered a form of warfare.

3. The term “terrorist” is reserved for those who believe organized government is evil.

4. The State Department is authorized to identify groups or organizations as terrorist organizations.

5. Congress enacted the Federal Antiterrorism Law following the 1995 bombing of the Oklahoma City federal building.

6. The intention to intimidate or coerce a civilian population is one of the elements of the crime of terrorism.

7. A terrorist threat is a threat to commit a violent felony that is a danger to human life, and is made to intimidate only a military group.

8. Rules of war are customs and practices followed by most nations in wartime and now the subject of international conventions.

9. No countries contribute directly to terrorists organizations.

10. An extraordinary rendition occurs when a person is seized in one country and then transported to another country for torture.

COMPLETION

1. Terrorists are criminals who use force and violence in the pursuit of _________, ideological, or religiousgoals.

2. People who believe organized government is evil are called _________.

3. The State Department is authorized to groups or organizations as terrorist organizations.

4. One of the elements of the crime of terrorism under most state laws is to

or coerce a civilian population.

5. The Antiterrorism and Effective ________ Penalty Act makes it a crime to aid a terrorist organization in the U.S.

6. A terrorist threat is a threat to commit a violent felony that is a danger to human life, and is made to intimidate or coerce a civilian group or a .

7. Rules of are customs and practices followed by most nations in wartime.

8. The shortage of financial support can affect the scope of a terrorist .

9. Individuals contribute indirectly to terrorist organizations by giving money and support to phony “ ” groups that support terrorists.

10. An “extraordinary “ occurs when a person is seized in one country and then transported to another country for interrogation.

#LEG 320 Week 9 Quiz – Strayer

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BUS 515 Week 9 Assignment 3 - Strayer New

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Assignment 3: Vice President of Operations, Part 3

Due Week 9 and worth 320 points

Using the same scenario from Assignment 1, present the following findings to your Chief Executive Officer.

Create a presentation in a common format (PowerPoint or a similar program) with a minimum of twenty (20) slides and corresponding speaker notes in which you:

1. Determine which statistical technique you will employ to measure the quality characteristics of your organization. Provide examples to support the rationale.

2. Analyze the current facility location, and then use the three-step procedure to determine a new location.

3. Analyze the key concepts related to capacity planning and facility location for the new location.

4. Examine the current work system design, and determine your organization’s selected feasibility in the job design (i.e., technical, economic, behavioral). Assess key elements of the rationale in the work design competitive advantage.

5. Using the method analysis described in the textbook, defend the new change implementation process and the rationale for the change of method.

6. Develop a diagram showing network planning techniques, in which you use the program evaluation and review technique (PERT) and the critical path method (CPM).

7. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.

Your assignment must follow these formatting requirements:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

Include corresponding speaker notes for each slide included in the presentation.

#BUS 515 Week 9 Assignment 3 - Strayer New

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ECO 550 Week 9 Assignment 3 – Strayer

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Assignment 3: Long-Term Investment Decisions Due Week 9 and worth 300 points

Assume that the low-calorie frozen, microwavable food company from Assignments 1 and 2 wants to expand and has to make some long-term capital budgeting decisions. The company is currently facing increases in the costs of major ingredients.

Use the Internet and Strayer databases to research government policies and regulation.

Write a six to eight (6-8) page paper in which you:

1. Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic. Provide a rationale for your response.

2. Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company.

3. Determine whether or not government regulation to ensure fairness in the low-calorie, frozen microwavable food industry is needed. Cite the major reasons for government involvement in a market economy. Provide two (2) examples of government involvement in a similar market economy to support your response.

4. Examine the major complexities that would arise under expansion via capital projects. Propose key actions that the company could take in order to prevent or address these complexities.

5. Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact to profitability of such a convergence. Provide two (2) examples of instances that support your response.

6. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.

Your assignment must follow these formatting requirements:

· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

· Propose how differences in demand and elasticity lead managers to develop various pricing strategies.

· Analyze the economic impact of contracting, governance and organizational form within organizations.

· Use technology and information resources to research issues in managerial economics and globalization.

· Write clearly and concisely about managerial economics and globalization using proper writing mechanics.

#ECO 550 Week 9 Assignment 3 – Strayer

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PAD 530 Week 9 Discussion Questions – Strayer NEW

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Week 9 DQ 1

"The Challenges of Succession Planning in Turbulent Times" Please respond to the following:

· Analyze this scenario: The Department of Social Services has lost 25% of its federal funding for the next fiscal year, leaving the budget at a $128,000 deficit. Within the agency, there are 125 full-time employees; the average pay for all employees is $39,000, 75% female and 25% male. In addition, 25% of employees have been with the agency for over 20 years, 20% are near retirement age in three years, and 50% are under the age of 30. Recommend three innovations to implement a succession plan for the agency.

Follow this format when responding

Analysis of the scenario: (Place your response here)

Recommend three innovations to implement a succession plan for the agency

1) (Place your response here)

2) (Place your response here)

3) (Place your response here)

Week 9 DQ 2

"Obstacles and Opportunities due to Retirement of Employees" Please respond to the following:

· From the eActivity, discuss at least two of the eight obstacles and opportunities that best address an agency’s challenge of 45% of its workforce retiring in the next 36 months. Provide a rationale for your views.

Follow this format when responding

From the eActivity, discuss at least two of the eight obstacles and opportunities that best address an agency’s challenge of 45% of its workforce retiring in the next 36 months.

Obstacle 1: (Place your response here/Provide a rationale for your views)

Obstacle 2: (Place your response here/Provide a rationale for your views)

Opportunity 1: (Place your response here/Provide a rationale for your views)

Opportunity 2: (Place your response here/Provide a rationale for your views)

#PAD 530 Week 9 Discussion Questions – Strayer NEW

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CIS 542 Week 9 Case Study Viruses – Strayer New

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Case Study: Viruses

The country of Iran is expending tremendous resources on developing a nuclear energy program that is believed by the Western countries to be weapons-oriented. Recently, a virus named the Stuxnet has been in the news because it was introduced into the Iranian computers controlling their nuclear program and wreaked havoc on their centrifuges. Unfortunately, this virus has now escaped and is available to malicious attackers so that it could potentially be used against our own infrastructure.

Watch the video from “60 Minutes” titled, “Stuxnet: Computer worm opens new era of warfare”, located at http://www.youtube.com/watch?v=6WmaZYJwJng, concerning the Stuxnet virus.

Read the article titled, “News briefs: Flame, Stuxnet, breach at LinkedIn and other security news”, located at http://www.scmagazine.com/news-briefs-flame-stuxnet-breach-at-linkedin-and-other-security-news/article/245502/, concerning the Flame virus and Stuxnet.

Write a three to five (3-5) page paper in which you:

1. Describe the virus and how it propagated itself onto servers over the Web based on the actual information provided. Assess the Web-based risks that led to the attack.

2. Create a graphic rendering of how the virus was able to replicate onto remote servers using Visio or an equivalent such as Dia. Note: The graphically depicted solution is not included in the required page length.

3. Describe some of the common vulnerabilities to utility companies with a virus such as Stuxnet.

4. Discuss some secure coding efforts and practices under way to mitigate the vulnerabilities exposed by this particular episode.

5. Determine if Stuxnet or a similar virus could happen here, and how you would protect the utility infrastructure in light of a heavy reliance on the Internet and Web-based applications which allow remote access.

6. Use at least four (4) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Your assignment must follow these formatting requirements:

• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

• Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

• Include charts or diagrams created in Visio or Dia. The completed diagrams / charts must be imported into the Word document before the paper is submitted.

#CIS 542 Week 9 Case Study Viruses – Strayer New

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CIS 555 Week 9 Case Study 2 – Strayer New

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Case Study 2: A Framework for Process Reengineering in Higher Education

Abdous and He (2008)[1] proposed a framework for process reengineering in higher education. Their framework was applied to reengineer the distance learning exam scheduling and distribution process. Read and analyze their paper titled, “A Framework for Process Reengineering in Higher Education: A case study of distance learning exam scheduling and distribution” located at http://www.irrodl.org/index.php/irrodl/article/view/535/1138.

Write a four to five (4-5) page paper in which you:

Determine the types of documents that would be worth considering for a background study prior to the use of other elicitation techniques. Indicate if the authors used the documents you identified.

Examine the Structured Analysis and Design Technique (SADT) diagrams that were used to document the reengineered parts of the exam scheduling and distribution process.

Identify the type of diagrams the authors used to document the reengineered parts of the exam scheduling and distribution process.

Assess the intentional, structural, responsibility, functional, and behavioral views of the system.

Predict five (5) potential failures of the reengineered system and indicate if the authors’ framework deals with potential failures.

Use at least three (3) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Your assignment must follow these formatting requirements:

Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

[1] Abdous, M.,& He, W. (2008). A Framework for process reengineering in higher education: A case study of distance learning exam scheduling and distribution. International Review of Research in Open Distance Learning Journal, 9(2).

#CIS 555 Week 9 Case Study 2 – Strayer New

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MKT 506 Week 9 Assignment 4 – Strayer

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Assignment 4: A Message Without Words

Due Week 9 and worth 200 points

Select one (1) of the picture ads from the Benetton advertisement images document, located in the online course shell. Assume you are the project lead at Benetton. You and your team are tasked with revitalizing a social conscious campaign to address a world issue Benetton wants to draw attention to.

Write a ten to fifteen (10-15) page paper in which you:

1. Copy or re-create the picture advertisement and include it on the title page.

2. Craft a message for this image and its appeal to the public on behalf of Benetton.

3. Define the goal of this campaign and the targeted audience with supporting rationale.

4. Develop a model for the advertisement strategy you will use and briefly discuss each stage of the model.

5. Formulate an integrated marketing communications plan that communicates the message to the targeted groups. Within this plan, be sure to address:

a. The technologies used along with expected benefits of each.

b. How the message and goals will be promoted.

6. Decipher and select at least two (2) types of individuals, groups, companies, etc., that you reach out to gain support for the campaign. Be sure to discuss the expected benefits that accompany each external partner you identified.

7. Use at least five (5) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Your assignment must follow these formatting requirements:

The specific course learning outcomes associated with this assignment are:

Formulate an integrated marketing communications strategy to support a firm’s marketing objectives that incorporates an effective media plan, direct marketing and Internet-based applications, and other promotional activities to effectively communicate with customers.

Develop an organizational concept to execute an integrated marketing communications strategy.

Analyze audiences, assess alternatives, and develop needed sales promotional, public relations, and publicity actions to support an integrated marketing communications strategy.

Integrate creative strategies into planning, developing, implementation, and evaluation of an advertising approach.

Use technology and information resources to research issues in integrated marketing communications.

Write clearly and concisely about integrated marketing communications using proper writing mechanics.

#MKT 506 Week 9 Assignment 4 – Strayer

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PAD 530 Week 9 Assignment 4 – Strayer

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Assignment 4: Analysis of the Agency’s Policies, Procedures, and Plans Regarding Unions, Privatization, Pensions, and Productivity, Part 4

Due Week 9 and worth 220 points

Refer to the Scenario for Assignments 1, 2, 3, 4, and 5

Write a four to six (4-6) page paper in which you:

1. Revise the previous assignment based on your professor’s feedback.

2. Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding unions. (Title this section The Agency and Unions)

3. Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding privatization. (Title this section The Agency and Privatization)

4. Analyze at least three (3) of the agency’s policies, procedures, and / or plans regarding pensions. (Title this section Employee Pension Plans)

5. Assess the agency’s approach to productivity and performance evaluation. (Title this section Productivity and Performance Evaluation)

6. Recommend at least three (3) actions the agency could take to improve in the areas of productivity and performance evaluation. (Title this section Recommendations for Improving Productivity and Performance Evaluation)

7. Provide at least four (4) relevant and credible outside sources that support the content of this assignment. (Include no more than one (1) non-government Website)

Your assignment must follow these formatting requirements:

 Examine the major components of the personnel management system, procedures, and processes in the public sector.

 Recommend improvements to processes involved in public personnel management and / or solutions to problems confronting those in the field.

 Assess external organizational and employee conditions as well as their implications to and impact on personnel management.

 Analyze pertinent issues, such as motivation and productivity, collective bargaining, labor relations, equal employment opportunity (EEO), affirmative action (AA), intergovernmental relations, and / or professionalism, facing public personnel managers.

 Evaluate current and emerging issues and trends in public personnel management, such as evaluation, public sector recruitment, staffing employment development compensation, benefits, pensions, strategic planning, and / or succession planning.

 Analyze pertinent public personnel management issues related to the federal government and / or privatization.

 Develop a proposal for strategic public personnel management for a specific setting.

 Use technology and information resources to research issues in public personnel management.

Write clearly and concisely about public personnel management using proper writing mechanics.

#PAD 530 Week 9 Assignment 4 – Strayer

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ECO 305 Week 9 Quiz – Strayer

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Quiz 8 Chapter 12 and 13

EXCHANGE-RATE DETERMINATION

MULTIPLE CHOICE

1. The relationship between the exchange rate and the prices of tradable goods is known as the:

a. Purchasing-power-parity theory

b. Asset-markets theory

c. Monetary theory

d. Balance-of-payments theory

2. If the exchange rate between Swiss francs and British pounds is 5 francs per pound, then the number of pounds that can be obtained for 200 francs equals:

a. 20 pounds

b. 40 pounds

c. 60 pounds

d. 80 pounds

3. Low real interest rates in the United States tend to:

a. Decrease the demand for dollars, causing the dollar to depreciate

b. Decrease the demand for dollars, causing the dollar to appreciate

c. Increase the demand for dollars, causing the dollar to depreciate

d. Increase the demand for dollars, causing the dollar to appreciate

4. High real interest rates in the United States tend to:

a. Decrease the demand for dollars, causing the dollar to depreciate

b. Decrease the demand for dollars, causing the dollar to appreciate

c. Increase the demand for dollars, causing the dollar to depreciate

d. Increase the demand for dollars, causing the dollar to appreciate

5. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:

a. Appreciate by 8 percent against the yen

b. Depreciate by 8 percent against the yen

c. Remain at its existing exchange rate

d. None of the above

6. In the presence of purchasing-power parity, if one dollar exchanges for 2 British pounds and if a VCR costs $400 in the United States, then in Great Britain the VCR should cost:

a. 200 pounds

b. 400 pounds

c. 600 pounds

d. 800 pounds

7. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:

a. $.50 per pound

b. $1.00 per pound

c. $2.00 per pound

d. $8.00 per pound

8. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:

a. Large trade surpluses for the United States

b. Relatively high inflation rates in the United States

c. Lack of investor confidence in the U.S. monetary policy

d. Relatively high interest rates in the United States

9. The high foreign exchange value of the U.S. dollar in the early 1980s can best be explained by:

a. Additional investment funds made available from overseas

b. Lack of investor confidence in U.S. fiscal policy

c. Market expectations of rising inflation in the United States

d. American tourists overseas finding costs increasing

10. When the price of foreign currency (i.e., the exchange rate) is below the equilibrium level:

a. An excess demand for that currency exists in the foreign exchange market

b. An excess supply of that currency exists in the foreign exchange market

c. The demand for foreign exchange shifts outward to the right

d. The demand for foreign exchange shifts backward to the left

11. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:

a. An excess supply of that currency exists in the foreign exchange market

b. An excess demand for that currency exists in the foreign exchange market

c. The supply of foreign exchange shifts outward to the right

d. The supply of foreign exchange shifts backward to the left

12. The appreciation in the value of the dollar in the early 1980s is explained by all of the following except:

a. The United States being considered a safe haven by foreign investors

b. Relatively high real interest rates in the United States

c. Confidence of foreign investors in the U.S. economy

d. Relatively high inflation rates in the United States

13. Suppose Mexico and the United States were the only two countries in the world. There exists an excess supply of pesos on the foreign exchange market. This suggests that:

a. Mexico's current account is in surplus

b. Mexico's current account is in deficit

c. The U.S. current account is in deficit

d. The U.S. current account is in equilibrium

14. If Canada runs a trade surplus with Mexico and exchange rates are floating:

a. The peso will depreciate relative to the dollar

b. The dollar will depreciate relative to the peso

c. The prices of all foreign goods will fall for Canadians

d. The prices of all foreign goods will rise for Canadians

15. If Mexico's labor productivity rises relative to Europe's labor productivity:

a. The peso tends to depreciate against the euro in the short run

b. The peso tends to appreciate against the euro in the short run

c. The peso tends to depreciate against the euro in the long run

d. The peso tends to appreciate against the euro in the long run

16. The international exchange value of the U.S. dollar is determined by:

a. The rate of inflation in the United States

b. The number of dollars printed by the U.S. government

c. The international demand and supply for dollars

d. The monetary value of gold held at Fort Knox, Kentucky

17. For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:

a. The United States to Japan, causing the dollar to depreciate

b. The United States to Japan, causing the dollar to appreciate

c. Japan to the United States, causing the yen to depreciate

d. Japan to the United States, causing the yen to appreciate

18. For the United States, suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent. For Japan, suppose the annual interest rate equals 5 percent. These variables would cause investment funds to flow from:

a. The United States to Japan, causing the dollar to depreciate

b. The United States to Japan, causing the dollar to appreciate

c. Japan to the United States, causing the yen to depreciate

d. Japan to the United States, causing the yen to appreciate

19. Given a system of floating exchange rates, stronger U.S. preferences for imports would trigger:

a. An increase in the demand for imports and an increase in the demand for foreign currency

b. An increase in the demand for imports and a decrease in the demand for foreign currency

c. A decrease in the demand for imports and an increase in the demand for foreign currency

d. A decrease in the demand for imports and a decrease in the demand for foreign currency

20. Given a system of floating exchange rates, weaker U.S. preferences for imports would trigger:

a. An increase in the demand for imports and an increase in the demand for foreign currency

b. An increase in the demand for imports and a decrease in the demand for foreign currency

c. A decrease in the demand for imports and an increase in the demand for foreign currency

d. A decrease in the demand for imports and a decrease in the demand for foreign currency

21. Under a system of floating exchange rates, relatively low productivity and high inflation rates in the United States result in:

a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

22. Under a system of floating exchange rates, relatively high productivity and low inflation rates in the United States result in:

a. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

b. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

c. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in the dollar

d. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar

23. Which example of market expectations causes the dollar to appreciate against the yen--expectations that the U.S. economy will have:

a. Faster economic growth than Japan

b. Higher future interest rates than Japan

c. More rapid money supply growth than Japan

d. Higher inflation rates than Japan

24. Which example of market expectations causes the dollar to depreciate against the yen--expectations that the U.S. economy will have:

a. Faster economic growth than Japan

b. Higher future interest rates than Japan

c. Less rapid money supply growth than Japan

d. Lower inflation rates than Japan

25. For an American investor, the expected rate of return on European securities depends on all of the following factors except the:

a. Rate of return on equivalent American securities

b. The current exchange rate between the dollar and the pound

c. Exchange rate anticipated to prevail when the securities mature

d. Interest rate paid on European securities

26. Which of the following is likely to result in long-run depreciation of the U.S. dollar relative to the euro?

a. Relatively low interest rates in the United States

b. Relatively high labor productivity in the United States

c. Tariffs levied by the United States on steel imports from Europe

d. Stronger American preferences for goods produced in Europe

27. Which of the following is likely to result in long-run appreciation of the U.S. dollar relative to the peso?

a. Relatively high interest rates in Mexico

b. Relatively high labor productivity in Mexico

c. Tariffs applied by Mexico on computer imports from the United States

d. Stronger Mexican preferences for goods produced in the United States

28. Long-run determinants of the dollar's exchange value include all of the following except:

a. Preferences of Americans for foreign produced goods

b. U.S. tariffs placed on imports of foreign produced goods

c. Productivity of the American worker

d. Interest rates in U.S. financial markets

29. Which theory of exchange-rate determination best views the foreign exchange market as being similar to a stock exchange where future expectations are important and prices are volatile?

a. Balance-of-payments approach

b. Purchasing-power-parity approach

c. Asset-markets approach

d. Monetary approach

30. According to the purchasing-power-parity theory, the U.S. dollar maintains its purchasing-power parity if it depreciates by an amount equal to the excess of:

a. U.S. interest rates over foreign interest rates

b. Foreign interest rates over U.S. interest rates

c. U.S. inflation over foreign inflation

d. Foreign inflation over U.S. inflation

31. An exchange rate is said to ____ when its short-run response to a change in market fundamentals is greater than its long-run response.

a. Overshoot

b. Undershoot

c. Depreciate

d. Appreciate

32. Concerning exchange rate forecasting, ____ is a common sense approach based on a wide array of political and economic data.

a. Econometric analysis

b. Technical analysis

c. Judgmental analysis

d. Sunspot analysis

33. Concerning exchange rate forecasting, ____ involves the use of historical exchange rate data to estimate future values, while ignoring the economic determinants of exchange rate movements.

a. Econometric analysis

b. Judgmental analysis

c. Technical analysis

d. Sunspot analysis

34. Concerning exchange rate forecasting, ____ relies on econometric models which are based on macroeconomic variables likely to affect currency values.

a. Fundamental analysis

b. Technical analysis

c. Judgmental analysis

d. Sunspot analysis

35. Concerning exchange-rate determination, "market fundamentals" include all of the following except:

a. Monetary policy and fiscal policy

b. Profitability and riskiness of investments

c. Speculative opinion about future exchange rates

d. Productivity changes affecting production costs

36. In the short run, exchange rates respond to market forces such as:

a. Inflation rates

b. Expectations of future exchange rates

c. Investment profitability

d. Government trade policy

37. Long-run exchange rate movements are governed by all of the following except:

a. National productivity levels

b. Consumer tastes and preferences

c. Rates of inflation

d. Interest rate levels

38. Exchange rate determination in the short run is underlied by which of the following assumptions:

a. Tariffs and quotas affect trade patterns only in the short run

b. Prices of goods and services affect trade patterns only in the short run

c. Expected returns on financial assets affect investment flows in the short run

d. Preferences for goods and services affect trade flows only in the short run

39. That identical goods should cost the same in all nations, assuming it is costless to ship goods between nations and there are no barriers to trade, is a reflection of the:

a. Monetary approach to exchange-rate determination

b. Law of one price

c. Fundamentalist approach to exchange-rate determination

d. Exchange-rate-overshooting principle

40. The Canadian dollar would depreciate on the foreign exchange market if:

a. Canadian consumer tastes change in favor of goods produced domestically

b. The profitability of assets in Canada rises relative to the profitability of assets abroad

c. Canada experiences a disastrous wheat-crop failure, leading to imports of more wheat

d. Canada realizes technological improvements in the production of manufactured goods, leading to relatively low costs for Canada

41. The demand in the United States for yen will increase if, other things remaining equal:

a. Labor costs rise in Japan

b. Income rises in Japan

c. Prices rise in Japan

d. Interest rates rise in Japan

42. The quantity of Canadian dollars supplied to the foreign exchange market would increase if, other things remaining equal:

a. Preferences for imports rise in Canada

b. Labor productivity increases in Canada

c. Prices of goods and services decrease in Canada

d. Import tariffs rise in Canada

43. The U.S. demand for pesos would shift to the right if there occurred a (an):

a. Change in preferences toward U.S. manufactured goods

b. Increase in the dollar/peso exchange rate

c. Decrease in the U.S. population

d. Increase in the U.S. price level

44. The supply of francs, would shift to the right for all of the following reasons except:

a. An increase in Swiss real income

b. An increase in Swiss prices

c. An increase in the Swiss population

d. An increase in Swiss interest rates

The figure below illustrates the supply and demand schedules of Swiss francs in a market of freely-floating exchange rates.

Figure 12.1 The Market for Francs

45. Refer to Figure 12.1. Should preferences for imports rise in the United States and fall in Switzerland, there would occur a (an):

a. Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollar

b. Increase in the demand for francs--decrease in the supply of francs-appreciation of the dollar

c. Decrease in the demand for francs--decrease in the supply of francs-appreciation of the dollar

d. Decrease in the demand for francs--increase in the supply of francs-depreciation of the dollar

46. Refer to Figure 12.1. Should real interest rates in the United States rise relative to real interest rates in Switzerland, there would occur a (an):

a. Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollar

b. Increase in the demand for francs--decrease in the supply of francs-appreciation of the dollar

c. Decrease in the demand for francs--increase in the supply of francs-appreciation of the dollar

d. Decrease in the demand for francs--decrease in the supply of francs-depreciation of the dollar

47. Refer to Figure 12.1. Should the U.S. price level rise relative to the Swiss price level, there would occur a (an):

a. Increase in the demand for francs--increase in the supply of francs-appreciation of the dollar

b. Decrease in the demand for francs--decrease in the supply of francs-depreciation of the dollar

c. Increase in the supply of francs--decrease in the demand for francs-appreciation of the dollar

d. Decrease in the supply of francs--increase in the demand for francs-depreciation of the dollar

48. Refer to Figure 12.1. Should the United States impose tariffs on imports from Switzerland, there would occur a (an):

a. Increase in the demand for francs and a depreciation of the dollar

b. Decrease in the demand for francs and an appreciation of the dollar

c. Decrease in the supply of francs and an appreciation of the dollar

d. Increase in the supply of francs and a depreciation of the dollar

49. Refer to Figure 12.1. Should Swiss labor productivity rise, leading to a decrease in Swiss manufacturing costs, there would occur a (an):

a. Increase in the supply of francs and a depreciation of the dollar

b. Increase in the supply of francs and an appreciation of the dollar

c. Decrease in the demand for francs and an appreciation of the dollar

d. Increase in the demand for francs and a depreciation of the dollar

50. Refer to Figure 12.1. If Switzerland experienced a disastrous wheat-crop failure, leading to additional wheat imports from the United States, there would occur an:

a. Increase in the supply of francs and an appreciation of the dollar

b. Increase in the supply of francs and a depreciation of the dollar

c. Increase in the demand for francs and a depreciation of the dollar

d. Increase in the demand for francs and an appreciation of the dollar

51. Given floating exchange rates, if Japan increases its demand for Canadian goods at the same time that Canada increases its demand for Japanese goods, then we would expect the yen's exchange value to:

a. Appreciate against the dollar

b. Depreciate against the dollar

c. Remain constant against the dollar

d. Appreciate, depreciate, or remain constant against the dollar

52. Given floating exchange rates, assume that the Swiss decrease their import purchases from Italy while at the same time the Italians increase their purchases of Swiss government securities. The first action by itself would lead to a (an) ____ of the franc against the lira while the second action by itself would lead to a (an) ____ of the franc against the lira.

a. Appreciation, appreciation

b. Depreciation, depreciation

c. Appreciation, depreciation

d. Depreciation, appreciation

53. Given floating exchange rates, a simultaneous decrease in the Canadian demand for British products and increase in the British desire to invest in Canadian government securities would cause a (an):

a. Appreciation of the pound against the dollar

b. Depreciation of the pound against the dollar

c. Unchanged pound/dollar exchange rate

d. None of the above

54. Assume a system of floating exchange rates. Due to a high savings rate, suppose the level of savings in Japan is in excess of domestic investment needs. If Japanese residents invest abroad, the yen's exchange value will ____ and the Japanese trade balance will move toward ____.

a. Appreciate, deficit

b. Appreciate, surplus

c. Depreciate, deficit

d. Depreciate, surplus

55. Given a system of floating exchange rates, assume that Boeing Inc. of the United States places a large order, payable in yen, with a Japanese contractor for jet engine parts. The immediate effect of this transaction will be a shift in the:

a. Supply curve of yen to the left which causes the dollar to appreciate against the yen

b. Supply curve of yen to the right which causes the dollar to depreciate against the yen

c. Demand curve for yen to the left which causes the dollar to appreciate against the yen

d. Demand curve for yen to the right which causes the dollar to depreciate against the yen

56. For purchasing-power parity to exist:

a. Flows of currency in the trade account must be offset by flows of currency in the capital account

b. The nominal interest rate must be equal to the real interest rate in all countries

c. Converting a sum of funds from one currency to another does not alter its purchasing power

d. A country's trade account must always be in balance

57. Assume that interest rates in the United States and Britain are the same. If a U.S. resident anticipates that the exchange value of the dollar is going to appreciate against the pound, she should:

a. Borrow needed funds from British banks rather than U.S. banks

b. Borrow needed funds from U.S. banks rather than British banks

c. Convert U.S. dollars into British pounds

d. Any of the above

58. Given a system of floating exchange rates, if Canada's labor productivity rises relative to the labor productivity of its trading partners:

a. Canadian imports will fall and the dollar will appreciate

b. Canadian imports will fall and the dollar will depreciate

c. Canadian imports will rise and the dollar will appreciate

d. Canadian imports will rise and the dollar will depreciate

59. Assume that labor productivity growth is slower in the United States than in its trading partners. Given a system of floating exchange rates, the impact of this growth differential for the United States will be:

a. Increased exports and an appreciation of the dollar

b. Increased exports and a depreciation of the dollar

c. Increased imports and an appreciation of the dollar

d. Increased imports and a depreciation of the dollar

60. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 10 percent in the United States and remains constant in Japan, the exchange rate will become

a. 72 yen per dollar

b. 81 yen per dollar

c. 99 yen per dollar

d. 108 yen per dollar

61. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing-power parity, if the price of traded goods rises by 5 percent in the United States and 15 percent in Japan, the exchange rate will become:

a. 72 yen per dollar

b. 81 yen per dollar

c. 99 yen per dollar

d. 108 yen per dollar

62. Suppose the exchange rate between the U.S. dollar and the Japanese yen is initially 90 yen per dollar. According to purchasing power parity, if the price of traded goods falls by 5 percent in the United States and rises by 5 percent in Japan, the exchange rate will become:

a. 72 yen per dollar

b. 81 yen per dollar

c. 99 yen per dollar

d. 108 yen per dollar

63. Suppose that the yen-dollar exchange rate changes from 85 yen per dollar to 80 yen per dollar. One can say that the:

a. Yen has appreciated against the dollar and the dollar has depreciated against the yen

b. Yen has depreciated against the dollar and the dollar has appreciated against the yen

c. Yen has appreciated against the dollar and the dollar has appreciated against the yen

d. Yen has depreciated against the dollar and the dollar has depreciated against the yen

64. Given a floating exchange rate system an increase in ____ would cause the dollar to appreciate against the euro.

a. U.S. labor costs

b. The U.S. money supply

c. U.S. prices of goods

d. U.S. real interest rates

65. Under a system of floating exchange rates, a Japanese trade surplus against Canada would result in a (an):

a. Rise in the dollar price of the yen

b. Fall in the dollar price of the yen

c. Rise in the yen price of the dollar

d. Unchanged dollar/yen exchange rate

66. When deciding between U.S. and British government securities, an American investor typically considers:

a. U.S. and British interest rates and anticipated changes in the exchange rate

b. Budget deficits of the U.S. government and British government

c. Shifts in the demand for U.S. goods and British goods

d. U.S. and British inflation rates and anticipated changes in the exchange rate

67. In the long run, exchange rates are primarily determined by:

a. Agreements among governments of the world's industrial countries

b. Relative interest rates in developing countries and industrial countries

c. Economic fundamentals such as relative productivity levels

d. The rate at which country's currencies exchange for gold

68. Increased tariffs on U.S. steel imports cause the dollar to ____ in the ____.

a. Appreciate, long run

b. Depreciate, long run

c. Appreciate, short run

d. Depreciate, short run

69. Lower tariffs on U.S. agricultural imports cause the dollar to ____ in the ____.

a. Appreciate, long run

b. Depreciate, long run

c. Appreciate, short run

d. Depreciate, short run

70. Relatively high interest rates in the United States causes the dollar to ____ in the ____.

a. Appreciate, long run

b. Depreciate, long run

c. Appreciate, short run

d. Depreciate, short run

71. The asset market theory of exchange rate determination suggests that the most important factor influencing the demand for domestic and foreign securities is:

a. Expected return on these assets relative to one another

b. Ability of these assets to easily be converted into cash

c. Riskiness of these assets relative to one another

d. Level of government restrictions on trade and investment flows

72. With floating exchange rates, easy credit and low short term interest rates lead to

a. Exchange rate depreciation in the short run

b. Exchange rate appreciation in the short run

c. Exchange rate depreciation in the long run

d. Exchange rate appreciation in the long run

73. With floating exchange rates, relatively high productivity growth for a nation leads to

a. Exchange rate depreciation in the short run

b. Exchange rate appreciation in the short run

c. Exchange rate depreciation in the long run

d. Exchange rate appreciation in the long run

74. All of the following are important long-run determinants of exchange rates except

a. Consumer tastes

b. Trade policy

c. Labor productivity

d. Interest rates

75. The purchasing-power parity theory suffers from the problem

a. Of choosing the appropriate price index

b. That it overlooks the influence of capital flows

c. That government policy may modify exchange rates

d. All of the above

TRUE/FALSE

1. In a free market, exchange rates are determined by market fundamentals and market expectations.

2. Concerning exchange-rate determination, market fundamentals include inflation rates, productivity levels, and speculative opinion about future exchange rates.

3. Market expectations include news about market fundamentals, speculative opinion about future exchange rates, and profitability and riskiness of investments.

4. In a free market, the equilibrium exchange rate occurs at the point where the quantity demanded of a foreign currency equals the quantity of that currency supplied.

5. Exchange rates are determined by the unregulated forces of supply and demand for foreign currencies as long as central banks do not intervene in the foreign exchange markets.

6. Over the long run, foreign exchange rates are determined by transfers of bank deposits that respond to differences in real interest rates and to shifting expectations of future exchange rates.

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.

Figure 12.2. The Market for Swiss Francs

7. Refer to Figure 12.2. If the United States decreases tariffs on imports from Switzerland, there would occur a decrease in the demand for francs and a decrease in the dollar price of the franc.

8. Refer to Figure 12.2. If Swiss manufacturing costs increase relative to those of the United States, there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.

9. Refer to Figure 12.2. If the Federal Reserve adopts a restrictive monetary policy that leads to relatively high interest rates in the United States, the demand for francs would decrease, the supply of francs would increase, and the dollar's exchange value would appreciate.

10. Refer to Figure 12.2. As the profitability of assets in Switzerland rises relative to the profitability of assets in the United States, U.S. residents make additional investments in Switzerland; this leads to an increased demand for francs and a depreciation of the dollar's exchange value.

11. Refer to Figure 12.2. If the rate of inflation in the United States is higher than the rate of inflation in Switzerland, the demand for francs decreases, the supply of francs increases, and the dollar's exchange value appreciates.

12. Under floating exchange rates, short-run exchange rates are primarily determined by national differences in real interest rates and shifting expectations of future exchange rates.

13. Day-to-day influences on foreign exchange rates always cause rates to move in the same direction as changes in long-term market fundamentals.

14. With floating exchange rates, a country experiencing faster economic growth than its trading partners find its currency's exchange value appreciating.

15. If U.S. labor productivity growth is 2 percent per annum and Swiss labor productivity growth is 6 percent per annum, the dollar will depreciate against the franc under a system of floating exchange rates.

16. In 1985 and 1986 U.S. interest rates fell relative to interest rates in Japan. Under floating exchange rates, this would lead to the dollar's exchange value depreciating against the yen.

17. A country having stronger preferences for imports than its trading partners have for its exports finds its demand for foreign exchange rising more rapidly than its supply of foreign exchange.

18. Economies with relatively high growth rates in labor productivity tend to find their currencies' exchange values appreciating under a floating exchange-rate system.

19. Under floating exchange rates, relatively low domestic interest rates tend to promote depreciation of a currency's exchange value while relatively high domestic interest rates lead to currency appreciation.

20. Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent while tight monetary policy in Switzerland leads to interest rates rising to 8 percent. With floating exchange rates, the dollar would appreciate against the franc.

21. The purchasing-power-parity theory is used to predict exchange-rate movements in the short run.

22. According to the law of one price, identical goods should cost the same in all nations, assuming there are no shipping costs nor trade barriers.

23. The purchasing- power-parity theory predicts that if the U.S. inflation rate exceeds the Japanese inflation rate by 4 percent, the dollar's exchange value will appreciate by 4 percent against the yen.

24. Assume the initial yen/dollar exchange rate to be 100 yen per dollar. If the U.S. inflation rate is 2 percent and the Japanese inflation rate is 7 percent, the exchange rate should move to 105 yen per dollar according to the purchasing-power-parity theory.

25. Assume the initial dollar/pound exchange rate to be $2 per pound. If the U.S. inflation rate is 8 percent and the U.K. inflation rate is 3 percent, the exchange rate should move to $2.10 per pound according to the purchasing-power-parity theory.

26. If consumer tastes in the United States change in favor of goods produced in France, the demand for francs will increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.

27. As the profitability of Japanese assets rises relative to the profitability of Australian assets, Australian residents will make additional investments in Japan; this results in an increased demand for yen and a depreciation of the dollar under a system of floating exchange rates.

28. If the United States experiences an enormous wheat crop failure, it will have to import more wheat and the dollar's exchange value will depreciate under a system of floating exchange rates.

29. If Japan realizes technological improvements in the production of automobiles, which lowers its production costs relative to foreign producers, Japanese exports will rise and the yen's exchange value will appreciate under a system of floating exchange rates.

30. If Mexico applies tariffs to imports of manufactured goods, Mexico's demand for foreign exchange will rise and the peso will depreciate under a system of floating exchange rates.

31. According to the "Big Mac" index, if a Big Mac costs $2.28 in the United States and 25.75 krone in Denmark (equivalent to $4.25), the Danish krone is an undervalued currency.

32. According to the "Big Mac" index, if a Big Mac costs $2.28 in the United States and 48 baht in Thailand (equivalent to $1.91), the baht is an undervalued currency.

33. Long-run determinants of exchange rate include labor productivity levels, inflation rates, consumer preferences for goods and services, and trade barriers.

34. In the short run, exchange rates are primarily determined by investor expectations of returns on assets such as government securities and bank accounts.

35. Changes in market expectations have their greatest impact on exchange-rate changes over the long run as opposed to the short run.

36. If it is widely expected that the British economy will experience more rapid inflation than the Australian economy, the pound will depreciate against the dollar under a system of floating exchange rates.

37. According to the asset-markets approach, adjustments among financial assets are a key determinant of long-run movements in exchange rates.

38. The asset-markets approach views exchange-rate determination as similar to the stock market in which prices are volatile and expectations are important.

39. According to the principle of exchange-rate overshooting, a short-run depreciation of a currency is likely to be greater than a long-run depreciation of that currency.

40. Exchange-rate overshooting is based on the notion that the supply schedule of a currency is more elastic in the short run than in the long run.

41. According to exchange-rate overshooting, an appreciation of the Australian dollar is likely to be greater over a long time period than over a short time period.

42. Concerning exchange rate forecasting, fundamental analysis involves consideration of a variety of macroeconomic variables and policies that tend to affect currency values.

43. Econometric models are best suited for forecasting long-run exchange rates rather than short-run exchange rates.

44. Concerning exchange rate forecasting, technical analysis extrapolates from past exchange-rate trends while ignoring economic and political determinants of exchange rates.

45. Given an efficient foreign exchange market, the spot rate is the rational approximation of the markets expectation of the forward rate that will exist at the end of the forward period.

46. A forward premium on the British pound serves as a rough benchmark of the expected rate of appreciation in the pound's spot rate.

47. A forward discount on Mexico's peso serves as a rough benchmark of the expected appreciation in the peso's spot rate.

48. If you were considering hiring a forecasting firm to predict future spot rates of the yen, you would hope that the firm could predict better what would be implied by the yen's forward rate.

49. Although the law of one price predicts that identical goods should cost the same in all nations, transportation costs and tariffs tend to prevent this prediction from actually occurring.

50. If real interest rates decline in the United States relative to real interest rates abroad, the dollar's exchange value will appreciate under a floating exchange-rate system.

SHORT ANSWER

1. What is the purchasing power parity approach to exchange rate determination?

2. What is exchange rate overshooting?

ESSAY

1. In a free market, what determines exchange rates in the long run and the short run?

2. What is the asset market approach to exchange rate determination?

CHAPTER 13—BALANCE-OF-PAYMENTS ADJUSTMENTS

MULTIPLE CHOICE

1. Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium? Variations in:

a. Domestic income

b. Foreign prices

c. Domestic prices

d. Foreign par values

2. The balance-of-payments adjustment mechanism developed during the 1700s by the English economist David Hume is the:

a. Income-adjustment mechanism

b. Flexible-exchange-rate-adjustment mechanism

c. Price-adjustment mechanism

d. Rank-reserve-adjustment mechanism

3. Which chain of events would promote payments equilibrium for a surplus nation, according to the price-adjustment mechanism?

a. Increasing money supply--increasing domestic prices--rising imports--falling exports

b. Increasing money supply--falling domestic prices--rising imports--falling exports

c. Decreasing money supply--increasing domestic prices--falling imports--rising exports

d. Decreasing money supply--decreasing domestic prices--falling imports--rising exports

4. Which chain of events would promote payments equilibrium for a deficit nation, according to the price-adjustment mechanism?

a. Increasing money supply--increasing domestic prices--rising imports--falling exports

b. Increasing money supply--falling domestic prices--rising imports--falling exports

c. Decreasing money supply--increasing domestic prices--falling imports--rising exports

d. Decreasing money supply--decreasing domestic prices--falling imports--rising exports

5. During the gold standard era, central bankers agreed to react positively to international gold flows so as to reinforce the automatic adjustment mechanism. Which of the following best represents the above statement?

a. Income-adjustment mechanism

b. Price-adjustment mechanism

c. Rules of the game

d. Discretionary fiscal policy

6. During the gold standard era, the "rules of the game" suggested that:

a. Surplus countries should increase their money supplies

b. Deficit countries should increase their money supplies

c. Surplus and deficit countries should increase their money supplies

d. Surplus and deficit countries should decrease their money supplies

7. Which of the following balance-of-payments adjustment mechanisms is most closely related to the quantity theory of money?

a. Income-adjustment mechanism

b. Price-adjustment mechanism

c. Interest-rate-adjustment mechanism

d. Output-adjustment mechanism

8. Under the gold standard, a surplus nation facing a gold inflow and an increase in its money supply would also experience a:

a. Rise in its interest rate and a short-term financial inflow

b. Rise in its interest rate and a short-term financial outflow

c. Fall in its interest rate and a short-term financial inflow

d. Fall in its interest rate and a short-term financial outflow

9. Under the gold standard, a deficit nation facing a gold outflow and a decrease in its money supply would also experience a:

a. Rise in its interest rate and a short-term financial inflow

b. Rise in its interest rate and a short-term financial outflow

c. Fall in its interest rate and a short-term financial inflow

d. Fall in its interest rate and a short-term financial outflow

10. Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account. Now suppose that Canadian interest rates increase to levels higher than those abroad. For Canada, this tends to promote:

a. Net financial inflows

b. Net financial outflows

c. Net merchandise exports

d. Net merchandise imports

11. Assume that Canada initially faces payments equilibrium in its merchandise trade account as well as in its capital and financial account. Now suppose that Canadian interest rates fall to levels below those abroad. For Canada, this tends to promote:

a. Net financial inflows

b. Net financial outflows

c. Net merchandise exports

d. Net merchandise imports

12. Suppose the United States levies an interest equalization tax, which taxes Americans on dividend and interest income from foreign securities. Such a tax would be intended to:

a. Encourage financial movements from the United States to overseas

b. Discourage financial movements from the United States to overseas

c. Discourage financial movements from overseas to the United States

d. None of the above

13. Assume that interest rates on comparable securities are identical in the United States and foreign countries. Now suppose that investors anticipate that in the future the U.S. dollar will appreciate against foreign currencies. Investment funds would thus be expected to:

a. Flow from the United States to foreign countries

b. Flow from foreign countries to the United States

c. Remain totally in foreign countries

d. Not be affected by the expected dollar appreciation

14. Suppose Japan increases its imports from Sweden, leading to a rise in Sweden's exports and income level. With a higher income level, Sweden imports more goods from Japan. Thus a change in imports in Japan results in a feedback effect on its exports. This process is best referred to as the:

a. Monetary approach to balance-of-payments adjustment

b. Discretionary income adjustment process

c. Foreign repercussion effect

d. Price-specie flow mechanism

Exhibit 13.1

Assume the marginal propensity to consume for U.S. households equals 0.9, and the marginal propensity to import for the United States equals 0.1. Suppose there occurs an increase in investment of $10 billion at each level of income.

15. Refer to Exhibit 13.1. The value of the multiplier for the United States equals:

a. 2

b. 3

c. 4

d. 5

16. Refer to Exhibit 13.1. The change in the level of U.S. income resulting from the additional investment spending equals

a. $20 billion

b. $30 billion

c. $40 billion

d. $50 billion

17. Refer to Exhibit 13.1. The change in the level of U.S. imports resulting from the rise in U.S. income equals:

a. $5 billion

b. $10 billion

c. $15 billion

d. $20 billion

18. The monetary approach to balance-of-payments adjustments suggests that all payments deficits are the result of:

a. Too high interest rates in the home country

b. Too low interest rates in the home country

c. Excess money supply over money demand in the home country

d. Excess money demand over money supply in the home country

19. The monetary approach to balance-of-payments adjustments suggests that all payments surpluses are the result of:

a. Too high interest rates in the home country

b. Too low interest rates in the home country

c. Excess money supply over money demand in the home country

d. Excess money demand over money supply in the home country

20. Starting from a position where the nation's money demand equals the money supply, and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation a:

a. Decrease in the money supply

b. Increase in the money demand

c. Decrease in the money demand

d. None of the above

21. Which approach to balance-of-payments adjustment suggests that balance-of-payments surpluses are the result of excess money demand in the home country?

a. Absorption approach

b. Elasticities approach

c. Monetary approach

d. Purchasing-power-parity approach

22. According to the "rules of the game" of the gold standard era, a country's central bank agreed to react to international gold flows so as to:

a. Officially devalue a currency during eras of payments surpluses

b. Officially revalue a currency during eras of payments deficits

c. Offset the automatic-adjustment mechanism (e.g., prices)

d. Reinforce the automatic-adjustment mechanism

23. According to the quantity theory of money, a change in the domestic money supply will bring about:

a. Inverse and proportionate changes in the price level

b. Inverse and less-than-proportionate changes in the price level

c. Direct and proportionate changes in the price level

d. Direct and less-than-proportionate changes in the price level

24. The formulation of the so-called income adjustment mechanism is associated with:

a. Adam Smith

b. David Ricardo

c. David Hume

d. John Maynard Keynes

25. The value of the foreign trade multiplier equals the reciprocal of the sum of the marginal propensities to:

a. Save plus import

b. Import plus invest

c. Consume plus export

d. Save plus import

26. Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a deficit position if there occurred in the nation:

a. An increase in the money supply

b. A decrease in the money supply

c. An increase in money demand

d. None of the above

27. Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

a. A decrease in the money supply

b. An increase in the money supply

c. A decrease in the money demand

d. None of the above

28. Starting from a position where the nation's money demand equals the money supply and its balance of payments is in equilibrium, economic theory suggests that the nation's balance of payments would move into a surplus position if there occurred in the nation:

a. An increase in the money demand

b. A decrease in the money demand

c. An increase in the money supply

d. None of the above

29. Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S. dollar will depreciate against foreign currencies. Investment funds would tend to:

a. Flow from the United States to foreign countries

b. Flow from foreign countries to the United States

c. Remain totally in foreign countries

d. Remain totally in the United States

30. Suppose that rising U.S. income leads to higher sales and profits in the United States. This would likely result in:

a. Increasing portfolio investment into the United States

b. Decreasing portfolio investment into the United States

c. Increasing direct investment into the United States

d. Decreasing direct investment into the United States

Figure 13.1. U.S. Capital and Financial Account

31. Refer to Figure 13.1. Upward movements along U.S. capital and financial account schedule CA0 would be caused by:

a. U.S. interest rates rising relative to foreign interest rates

b. U.S. interest rates falling relative to foreign interest rates

c. Taxes placed on income earned by U.S. residents from their foreign investments

d. Taxes placed on income earned by foreign residents from their U.S. investments

32. Refer to Figure 13.1. Downward movements along U.S. capital and financial account schedule CA0 would be caused by:

a. U.S. interest rates rising relative to foreign interest rates

b. U.S. interest rates falling relative to foreign interest rates

c. Taxes placed on income earned by U.S. residents from their foreign investments

d. Taxes placed on income earned by foreign residents from their U.S. investments

33. Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

a. U.S. interest rates exceeded foreign interest rates

b. Foreign interest rates exceeded U.S. interest rates

c. Taxes were placed on income earned by U.S. residents from their foreign investments

d. Taxes were placed on income earned by foreign residents from their U.S. investments

34. Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 if:

a. U.S. residents receive subsidies to invest in foreign nations

b. U.S. interest rates rise relative to foreign interest rates

c. Taxes are reduced on income earned by U.S. residents from their foreign investments

d. Expected profits decline on U.S. investments in foreign manufacturing

35. Refer to Figure 13.1. The U.S. capital and financial account schedule would shift upward from CA0 to CA1 for all of the following reasons except:

a. U.S. political stability improves relative to foreign political stability

b. U.S. interest rates fall relative to foreign interest rates

c. Taxes are placed on income earned by U.S. residents from foreign investments

d. Restrictions are imposed on foreign loans granted by U.S. banks

36. Refer to Figure 13.1. U.S. capital and financial account schedule CA0 would shift upwards, or downwards, for all of the following reasons except:

a. U.S. residents being taxed on income earned from foreign investments

b. U.S. banks being restricted on loans that can be made abroad

c. U.S. political stability changing relative to foreign political stability

d. U.S. interest rates changing relative to foreign interest rates

Table 13.1. Canada's Saving, Investment, Import, and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates

Export Function X = 3000

Investment Function I = 1000

Saving Function S = -1000 + 0.2Y

Import Function M = 500 + 0.25Y

37. Referring to Table 13.1, if Canada's income rises by $200 billion, saving would rise by:

a. $10 billion

b. $20 billion

c. $30 billion

d. $40 billion

38. Referring to Table 13.1, if Canada's income rises by $200 billion, imports would rise by:

a. $50 billion

b. $75 billion

c. $100 billion

d. $125 billion

39. Referring to Table 13.1, Canada's foreign trade multiplier equals:

a. 1.75

b. 2.05

c. 2.22

d. 2.64

40. Referring to Table 13.1, Canada's equilibrium level of income is:

a. $8000 billion

b. $9000 billion

c. $10,000 billion

d. $11,000 billion

41. Refer to Table 13.1. If improved business optimism leads to increases in Canada's planned investment spending from $1000 billion to $1200 billion, Canada's equilibrium income rises by approximately:

a. $444 billion

b. $555 billion

c. $666 billion

d. $777 billion

42. Refer to Table 13.1. If weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion, Canada's equilibrium income falls by approximately:

a. $888 billion

b. $990 billion

c. $1110 billion

d. $1220 billion

Figure 13.2. Australian Economy Under a Fixed Exchange Rate System

43. Refer to Figure 13.2. The slope of the (X-M) schedule and (S-I) schedule indicates that Australia's foreign trade multiplier is:

a. 0.5

b. 1.0

c. 1.5

d. 2.0

44. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, surplus of $2.5 billion

b. Rises to $60 billion, surplus of $5 billion

c. Falls to $40 billion, deficit of $2.5 billion

d. Falls to $40 billion, deficit of $5 billion

45. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S- I)0 intersects (X-M)0, suppose that worsening economic conditions abroad lead to an autonomous decrease in Australian exports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, surplus of $2.5 billion

b. Rises to $60 billion, surplus of $5 billion

c. Falls to $40 billion, deficit of $2.5 billion

d. Falls to $40 billion, deficit of $5 billion

46. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that improving profit expectations lead to an autonomous increase in Australian investment of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, deficit of $2.5 billion

b. Rises to $60 billion, deficit of $5 billion

c. Falls to $40 billion, surplus of $2.5 billion

d. Falls to $40 billion, surplus of $5 billion

47. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that worsening profit expectations lead to an autonomous decrease in Australian investment of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, deficit of $2.5 billion

b. Rises to $60 billion, deficit of $5 billion

c. Falls to $40 billion, surplus of $2.5 billion

d. Falls to $40 billion, surplus of $5 billion

48. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that increased thriftiness leads to an autonomous increase in Australian saving of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, deficit of $2.5 billion

b. Rises to $60 billion, deficit of $5 billion

c. Falls to $40 billion, surplus of $2.5 billion

d. Falls to $40 billion, surplus of $5 billion

49. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, deficit of $2.5 billion

b. Rises to $60 billion, deficit of $5 billion

c. Falls to $40 billion, surplus of $2.5 billion

d. Falls to $40 billion, surplus of $5 billion

50. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that changing preferences lead to an autonomous increase in Australian imports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, surplus of $2.5 billion

b. Rises to $60 billion, surplus of $5 billion

c. Falls to $40 billion, deficit of $2.5 billion

d. Falls to $40 billion, deficit of $5 billion

51. Refer to Figure 13.2. Starting at equilibrium income $50 billion, where (S-I)0 intersects (X-M)0, suppose that changing preferences lead to an autonomous decrease in Australian imports of $5 billion. Australian income thus ____ which leads to Australia's trade account moving to a ____.

a. Rises to $60 billion, surplus of $2.5 billion

b. Rises to $60 billion, surplus of $5 billion

c. Falls to $40 billion, deficit of $2.5 billion

d. Falls to $40 billion, deficit of $5 billion

52. In explaining balance-of-payments adjustments, the classical economists

a. Focused on interest rates exclusively

b. Remained aware of the role of interest rates

c. Only focused their attention on short-term interest rates

d. Paid exclusive attention to long-tem interest rates

53. J. M. Keynes suggested that a trade deficit nation

a. Would experience a fall in income

b. Would experience a decline in imports

c. Would require active intervention by the government

d. Both a and b

54. The classical gold standard

a. Existed from early 1800's to early 1900's

b. Did not allow for imports and exports of gold

c. Led to the outflow of gold from surplus nations

d. Led to the inflow of gold to deficit nations

55. The classical economists assumed

a. That the volume of final output is fixed at the full-employment level in the long-run

b. The velocity of money is constant

c. The velocity of money depends on physical, structural, and institutional factors

d. All of the above

TRUE/FALSE

1. Under a fixed exchange rate system, adjustment mechanisms work for the automatic return to current-account balance after the initial balance has been disrupted.

2. When a country's current account moves into disequilibrium, automatic adjustments in tariffs and quotas occur which move the current account back into equilibrium.

3. Prices, interest rates, and income are the automatic adjustment variables that help restore current-account equilibrium under a system of fixed exchange rates.

4. That the balance of payments could be adjusted by prices and interest rates, under a fixed exchange rate system, originated with Keynesian theory during the 1930s.

5. David Hume's price-adjustment mechanism supported the mercantilist view that a nation could maintain a trade surplus indefinitely.

6. Under the price-adjustment mechanism, a government's efforts to maintain a current-account surplus is self defeating over the long run because a nation's current account automatically moves toward equilibrium.

7. Under the gold standard of the 1800s, exchange rates were allowed to float freely in the currency markets.

8. Under the gold standard, each participating nation defined the mint price of gold in terms of its national currency was prepared to buy and sell gold at that price.

9. Under the gold standard, a nation with a current-account surplus would realize gold outflows, a decrease in its money supply, and a fall in its domestic price level.

10. The essence of the classical price-adjustment mechanism is embodied in the quantity theory of money.

11. According to the equation of exchange, the total expenditures on final goods equals the monetary value of the final goods sold.

12. Regarding the equation of exchange, the classical economists assumed that final output was below its maximum level while the velocity of money was volatile.

13. According to the quantity theory of money, a change in the money supply will induce an inverse and less-than-proportionate change in the price level.

14. Under the price-adjustment mechanism, a trade-surplus nation would realize gold inflows, an increase in its money supply, and a loss of international competitiveness.

15. The price-adjustment mechanism's relevance to the real world has been questioned on the grounds that national output is generally not at the full-employment level and that the velocity of money is not always constant.

16. According to the price-adjustment mechanism, trade deficits can occur only in the long run rather than in the short run.

17. Under the price-adjustment mechanism, trade-deficit nations realize price inflation and a loss of competitiveness while trade surplus nations realize price deflation and an improvement in competitiveness.

18. Under the classical gold standard, adjustments in domestic prices and short-term interest rates automatically promoted balance-of-payments equilibrium over the long run.

19. Under the classical gold standard, a trade surplus nation would realize gold inflows, an increase in its money supply, rising interest rates, and net investment inflows.

20. The gold standard's "rules of the game" required central bankers in a surplus country to initiate contractionary monetary policies which lead to higher interest rates and net investment inflows.

21. The gold standard's "rules of the game" required central bankers in a trade deficit nation to expand the money supply, leading to falling interest rates and net investment outflows.

22. The "rules of the game" served to reinforce and speed up the interest-rate-adjustment mechanism under a system of fixed exchange rates.

Figure 13.3. U.S. Capital and Financial Account Under a Fixed Exchange Rate System

23. Refer to Figure 13.3. As U.S. interest rates rise relative to foreign interest rates, the U.S. slides upward along schedule CA0, thus moving towards capital and financial account surplus.

24. Refer to Figure 13.3. Decreases in U.S. interest rates relative to foreign interest rates would shift U.S. capital and financial account schedule CA0 downward toward CA1, resulting in net financial outflows from the United States.

25. Refer to Figure 13.3. Falling investment profitability in the United States, relative to investment profitability abroad, would shift the U.S. capital and financial account schedule downward from CA0 to CA1, resulting in net financial outflows from the United States.

26. Refer to Figure 13.3. As the U.S. government decreases taxes on income earned by U.S. residents from foreign investments, the U.S. capital and financial account schedule shifts downward from CA0 to CA1 and the United States realizes net financial outflows.

27. Refer to Figure 13.3. If the political and economic stability of foreign countries worsens relative to that of the United States, the U.S. capital and financial account schedule would shift downward from CA0 to CA1, resulting in net financial outflows from the United States.

28. According to the Keynesian income-adjustment mechanism, income differentials among nations guarantee current-account equilibrium in a world of fixed exchange rates.

29. Keynesian theory asserts that, under a system of fixed exchange rates, the influence of income changes in surplus and deficit countries will automatically promote current-account equilibrium.

30. The Keynesian income-adjustment mechanism contends that a trade-surplus nation tends to realize falling income and falling imports, thus accentuating the trade surplus.

31. The foreign-trade multiplier equals the sum of the marginal propensity to import and the marginal propensity to save.

32. If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3, the foreign-trade multiplier equal 2.0.

33. For an open economy subject to international trade, equilibrium income occurs where saving plus investment equals imports plus exports.

34. If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3, an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

35. If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3, an autonomous decrease in investment spending of $1 million leads to a $2 million decrease in domestic income and a $600,000 decrease in imports.

36. For the income adjustment mechanism to reverse a trade deficit, economic policymakers must be willing to permit domestic income to increase which leads to rising imports.

37. Reliance on an automatic adjustment process tends to be unacceptable in trade-deficit nations since it requires them to accept price deflation and/or falling income as a cost of reducing imports.

38. An "automatic" adjustment mechanism would require a trade-surplus nation to accept price deflation and/or falling income as the cost of increasing imports.

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System

39. Referring to Figure 13.4, Canada's marginal propensity to save equals 0.25 and marginal propensity to import equal 0.5.

40. Referring to Figure 13.4, Canada's foreign-trade multiplier equals 2.0.

41. Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in Canadian imports of $10 billion leads to a $20 billion decrease in income and a trade deficit of $5 billion.

42. Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous increase in Canadian investment of $10 billion leads to a $20 billion increase in income and no change in the country's trade account.

43. Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

44. Refer to Figure 13.4. Starting at equilibrium income $100 billion, where (S - I)0 intersects (X - M)0, an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

45. According to the monetary approach, balance-of-payments disequilibriums are the result of imbalances in a country's money supply and money demand.

46. The monetary approach contends that, under a fixed exchange rate system, an excess supply of money leads to a trade surplus.

47. The monetary approach contends that, under a fixed exchange rate system, an excess demand for money leads to a trade deficit.

48. The monetary approach contends that, under a fixed exchange rate system, policies that increase the supply of money relative to the demand for money lead to a trade surplus.

SHORT ANSWER

1. Compared to classical economists, how did Keynesian economics change the discussion of trade adjustment?

2. What is the foreign repercussion effect?

ESSAY

1. Explain David Hume's theory of automatic adjustment for balance of payments disequilibria.

2. Is the monetary approach to the balance-of-payments part of the traditional adjustment theories?

#ECO 305 Week 9 Quiz – Strayer

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Quiz 7 Chapter 12 and 13

Not-for-Profit Organizations

TRUE/FALSE (CHAPTER 12)

1. The FASB has standard-setting jurisdiction over all private not-for-profits and all government-owned not-for-profits.

2. Private not-for-profit accounting is closer to business than to government accounting.

3. FASB Statement No. 117 directs that revenues and expenses be reported in a statement of financial position.

4. In the statement of activities, FASB Statement No. 117 requires revenues to be reported as increases in one of the three categories of net assets, depending on donor-imposed restrictions; however, all expenses should be reported as decreases in unrestricted net assets.

5. Restricted contributions may be reported as unrestricted if the restriction has been met in the same period as the contribution is made.

6. FASB Statement No. 95 requires not-for-profits use the direct method in the preparation of the statement of cash flows.

7. In accounting for investments, not-for-profits, like businesses, must report their investments at fair value and classify the investments as either trading, available-for-sale, or held-to-maturity.

8. Absent explicit donor or legal stipulations, a not-for-profit’s endowment principal (permanently restricted net assets) would not be affected by either gains or losses on investments.

9. Not-for-profits cannot own or be integrally affiliated with either businesses or other not-for-profits.

10. FASB Statement No. 93 makes the recognition of depreciation on long-lived assets optional at the discretion of the not-for-profit.

MULTIPLE CHOICE (CHAPTER 12)

1. Financial statements for Smith College, a church-supported college, should be prepared according to standards set by

a) AICPA.

b) FASB.

c) GASB.

d) Smith may choose any of the above.

2. The basis of accounting used by not-for-profit organizations in their external financial reports is

a) Industry-specific basis of accounting.

b) Cash basis of accounting.

c) Modified accrual basis of accounting.

d) Accrual basis of accounting.

3. FASB requires the focus of external financial reporting be on

a) The donor-imposed restrictions on resources.

b) All restrictions on resources.

c) Funds of the entity.

d) The entity taken as a whole.

4. Expenses incurred by not-for-profit organizations should be reported as

a) Decreases in one of the three categories of net assets.

b) Decreases in unrestricted net assets.

c) Decreases in temporarily restricted net assets.

d) Decreases in permanently restricted net assets.

5. Revenues of a not-for-profit organization should be reported as

a) Increases in one of the three categories of net assets.

b) Increases in unrestricted net assets.

c) Increases in temporarily restricted net assets.

d) Increases in permanently restricted net assets.

6. Restricted gifts to not-for-profit organizations

a) Must always be shown as an increase in restricted net assets.

b) Must always be shown as an increase in unrestricted net assets.

c) May be shown as an increase in unrestricted net assets if the restriction is met in the same period.

d) May be shown as an increase in unrestricted net assets at the discretion of management.

7. The account title “Resources Released from Restriction” is reported by a ‘restricted fund’ as a

a) Revenue account.

b) Contra-revenue account.

c) Expense account.

d) Contra-expense account.

8. The account title “Resources Released from Restriction” is reported by an ‘unrestricted fund’ as a

a) Revenue account.

b) Contra-revenue account.

c) Expense account.

d) Contra-expense account.

9. FASB requires that all not-for-profit organizations report expenses

a) By object.

b) By function.

c) By natural classification.

d) By budget code.

10. Voluntary health and welfare organizations must also report expenses by

a) Object.

b) Function.

c) Natural classification.

d) Budget code.

11. The National Association for the Preservation of Wildlife received $10,000 from a benefactor to support the overall objective of the organization. This amount will be recognized as revenue

a) In the period received.

b) In the period spent.

c) Never, because it is not earned.

d) In the period it becomes susceptible to accrual.

12. Not-for-profit organizations report their cash flows in which of the following categories?

a) Operating, noncapital financing, capital financing, investing.

b) Operating, noncapital financing, investing.

c) Operating capital financing, investing.

d) Operating, financing, investing.

13. Not-for-profit organization should report contributions restricted for long-term purposes in which of the following categories?

a) Operating.

b) Financing.

c) Capital financing.

d) Investing.

14. Not-for-profit organizations should report interest and dividends earned and restricted for long-term purposes in which of the following categories?

a) Operating.

b) Financing.

c) Capital financing.

d) Investing.

15. Revenue from an exchange transaction may be classified as an increase in which class of net assets?

a) Unrestricted net assets.

b) Temporarily restricted net assets.

c) Permanently restricted net assets.

d) Any of the above.

16. During the annual fundraising drive, the Cancer Society raised $900,000 in pledges of financial support for their general operations. By the fiscal year-end, the Society had collected $600,000 of the pledges. The Society estimates that 10% of the remaining pledges will be uncollectible. The NET amount of revenue the Society should recognize during the current year from this pledge drive is

a) $900,000.

b) $870,000.

c) $810,000.

d) $600,000.

Use the following information to answer #17 - #19.

United Charities’ annual fund raising drive in 2001 raised pledges of $600,000 of which $400,000 were collected in 2001 and $100,000 were collected in 2002. United Charities estimates $75,000 of the remaining pledges will never be collected.

17. The increase in unrestricted net assets in 2001 as a result of the fund raising drive is

a) $600,000.

b) $525,000.

c) $400,000.

d) $125,000.

18. The increase in temporarily restricted net assets in 2001 as a result of the fundraising drive is

a) $600,000.

b) $525,000.

c) $400,000.

d) $125,000.

19. In 2002, the change in unrestricted net assets is

a) $0

b) $100,000 increase.

c) $100,000 decrease.

d) $500,000 increase.

20. In a prior year, United Charities received a $100,000 gift to be used to acquire vans to provide transportation for physically challenged adults. During the current year, United acquired two vans at a cost of $60,000 each. The appropriate entry(ies) to record the acquisition should be

a) UNRESTRICTED FUND

Resources Released from Restriction $100,00

Cash $100,000

RESTRICTED FUND

Fixed Assets $120,000

Cash $ 20,000

Resources Released from Restriction $100,000

b) RESTRICTED FUND

Resources Released from Restriction $ 100,000

Cash $100,000

UNRESTRICTED FUND

Fixed Assets $120,000

Resources Released from Restriction $100,000

Cash $ 20,000

c) UNRESTRICTED FUND

Fixed Assets $120,000

Cash $120,000

d) RESTRICTED FUND

Fixed Assets $120,000

Cash $120,000

21. In the current year National Pet Charities, which uses fund-type accounting to maintain its books and records, received a $30,000 contribution to help educate people on responsible pet ownership. During the current year, the entry to record this donation is

a) UNRESTRICTED FUND. No entry.

RESTRICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.

b) UNRESTRICTED FUND. No entry.

RESTRICTED FUND. Debit Cash $30,000; Credit Net Assets $30,000.

c) UNRESTICTED FUND. Debit Cash $30,000; Credit Revenues $30,000.

RESTRICTED FUND. No entry.

d) UNRESTRICTED FUND. Debit Cash $30,000; Credit Net Assets $30,000.

RESTRICTED FUND. No entry.

22. Grace Church, a nondenominational not-for-profit entity, operates a school in connection with the Church. This year members of the Church decided to construct a new wing on the school with six classrooms. The Church hired an architect and a construction supervisor. The bulk of the labor for construction was donated by Church members who were willing workers but not necessarily skilled carpenters. Materials for the construction cost $300,000 and the paid labor was $100,000. The fair value of the completed building is $1 million. When the building is completed what should be the balance in the asset account ‘Building’ and the account ‘Contributed Revenue.’

a) Building $400,000; Contributed Revenue $0.

b) Building $400,000; Contributed Revenue $600,000.

c) Building $1 million; Contributed Revenue $600,000.

d) Building $1 million; Contributed Revenue $0.

23. Mary’s Extended Care Center, a not-for-profit entity, enjoys the services of a group of high school age people who each agree to work three afternoons a week for three hours each afternoon performing a variety of patient-related services such as writing letters for those who are unable to do so, delivering mail to the patient rooms, and pushing wheel-chair patients across the grounds. The services rendered by these young people enhance the quality of life for the residents. They could not be provided if they were not donated because there are not enough resources to do so. The past year the young people donated 5000 hours in total. The services would have cost $6.00 per hour if they had been purchased but they were worth $10 an hour to St. Mary’s. What is the amount of contributed revenue that should be recognized by St. Mary’s related to these services?

a) $50,000.

b) $30,000.

c) $0.

d) Cannot determine.

24. Simplex Games, a not-for-profit entity organized to provide athletic competition opportunities for high school students, utilizes a number of volunteers in carrying out its mission. At the 2002 Games 50 volunteers provided a total of 1000 hours of service performing tasks such as picking up litter and delivering water to the athletes. A local CPA firm donates its services to prepare the annual tax return and other federal and state required paperwork which must be filed to maintain its status as a tax-exempt organization. During 2002 the CPA firm provided 50 hours of service. If purchased, the CPA services would have cost $50 per hour and the game workers would have cost $5 per hour. How much contributed service revenue should Simplex Games recognize in 2002?

a) $7,500.

b) $5,000.

c) $2,500.

d) $0.

25. A not-for-profit Art Museum that has elected not to capitalize its art collection receives a donation of a rare piece of Tlinket Indian art. The donor paid $8,000 for the piece several years ago. Today the piece has an estimated fair value of $50,000. What entry should the Art Museum make upon receipt of this donation?

a) Debit Collection Items $50,000; Credit Donated Revenue $50,000.

b) Debit Collection Items $8,000; Credit Donated Revenue $8,000.

c) Debit Collection Items $50,000; Credit Unrestricted Net Assets $50,000.

d) No entry required.

26. Native Art Museum, a not-for-profit entity that elects not to capitalize its collection items, purchased for $10,000 a wonderful totem pole for display near the door of the Museum. As a result of this transaction, which of the following entries should be made?

a) Debit Collection Items $10,000; Credit Cash $10,000.

b) Debit Collection Expense $10,000; Credit Cash $10,000.

c) Debit Unrestricted Net Assets $10,000; Credit Cash $10,000.

d) No entry is required.

27. The Nature Conservatory, a not-for-profit entity, engaged in a fundraising drive to raise money to buy land to provide a habitat for the endangered Sleepy Eagle. A donor pledged $1 million to the project provided that the Nature Conservatory was able to raise an additional $1.5 million from other sources. What entry should the Nature Conservatory make at the time of the $1 million pledge?

a) Debit Pledge Receivable $1 million; Credit Unrestricted Revenue $1 million.

b) Debit Pledges Receivable $1 million; Credit Temporarily Restricted Revenue $1 million.

c) Debit Pledges Receivable $1 million; Credit Temporarily Restricted Net Assets $1 million.

d) No entry is made at the time of the pledge.

28. When should a not-for-profit entity recognize pledge revenue that is contingent upon raising a matching amount?

a) When the pledge is made.

b) When the cash is received.

c) When the matching funds have been raised.

d) When the project is completed.

29. A donor pledges $100,000 to the Shakespeare Foundation to be used only to support the summer Shakespeare Theater—an event that has been held every summer for 38 years. This is an example of a(an)

a) Conditional contribution.

b) Unconditional contribution.

c) Restricted contribution.

d) Unrestricted contribution.

30. United Charities accepted a contribution from a donor and agreed to transfer the assets to Aid for Friends, a not-for-profit that provides temporary shelter to the homeless. United Charities should debit cash or other assets and credit

a) Unrestricted revenue.

b) Temporarily restricted revenue.

c) Liability to Aid for Friends.

d) United Charities should not make an entry.

31. Music Lovers Foundation, a not-for-profit governed by an independent board, was founded to support the Northern State University Choir until such time as the state legislature shall adequately fund the choir. When the Choir is adequately funded by appropriation the Foundation may direct resources to other music projects that it deems acceptable. When Music Lovers accepts a contribution from a donor it should debit cash and/or other assets and credit

a) Unrestricted revenue.

b) Temporarily restricted revenue.

c) Liability.

d) It should not make an entry.

32. The Save the Animals Foundation received a gift of $500,000 from a donor who wanted the gift used to acquire habitat for endangered snails. The money may be invested but all earnings are restricted to habitat acquisition. During the year all of the gift was invested in corporate securities. At year-end, the securities had a value of $501,0000. The appropriate way to recognize the change in fair value is

a) Debit Investment $1,000; Credit Unrestricted Revenue $1,000.

b) Debit Investment $1,000; Credit Temporarily Restricted Revenue $1,000.

c) Debit Investment $1,000; Credit Permanently Restricted Revenue $1,000.

d) No entry should be made until the securities are sold.

33. Sheridan Public School Foundation had available temporarily restricted gifts in excess of $200,000. The Foundation decided to invest this money temporarily until it needs the funds for the restricted purpose. The donors had made no specific stipulations regarding investment earnings but the Foundation board had voted to use the earnings on the projects for which the gift had originally been restricted. At year-end, the securities had a fair value of $200,500. The appropriate way to recognize the change in fair value is

a) Debit Investment $500; Credit Unrestricted Revenue $500.

b) Debit Investment $500; Credit Temporarily Restricted Revenue $500.

c) Debit Investment $500; Credit Permanently Restricted Revenue $500.

d) No entry should be made until the securities are sold.

34. The Friends of the Library (FOL), a not-for-profit entity, received a gift restricted to acquisition of a special piece of the equipment used to restore books. Late last year FOL acquired the machine at a total cost of $19,000. The machine is estimated to have a useful life of eight years and a salvage value of $3,000. In what fund should FOL make the entry to record the depreciation for the current year?

a) Unrestricted fund.

b) Temporarily restricted fund.

c) Permanently restricted fund.

d) FOL should not recognize depreciation.

35. A not-for-profit would include which of the following financial statements in is Basic Financial Statements?

a) Statement of Financial Position and Statement of Activities.

b) Statement of Financial Position, Statement of Activities, and Cash Flow Statement.

c) Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.

d) Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

PROBLEMS (CHAPTER 12)

1. United Charities, a not-for-profit entity, supports activities for lower-income families. They have regularly engaged in activities such as providing transportation for physically-challenged individuals, providing shelters for the temporarily homeless, providing congregate meals for the homeless, and providing shelters for abused women and children. Record the following transactions. Your account titles should clearly indicate to which class of net assets the entry will be closed or the fund in which the entry is being made. If no entry is required, write “No entry required.”

a. United Charities engaged in a fund-raising campaign which resulted in pledges of $600,000 to support activities of the current year. During the year, United collected $500,000 on these pledges.

b. A local citizen pledged $50,000 to purchase and equip a van to provide transportation for physically challenged individuals. This citizen has donated regularly and there is no reason to believe that this pledge will not be collectible.

c. In prior years, an advocacy group for abused women donated $10,000 to be used to furnish a ‘safe-house’ for abused women and children. During the current year renovation of the safe house was completed and furniture was acquired at a total cost of $15,000.

d. A wealthy benefactor pledges $100,000 to United if United successfully raises a matching amount in a capital asset fund-raising drive being conducted over a 12-month period.

e. $60,000 cash is received from a donor who specifies that the money must be spent to provide educational activities for children who will be living in the ‘safe-house’. It will be next year before the ‘safe-house’ has its first residents.

f. A local attorney has agreed to provide legal services to United on a pro-bona basis. During the current period the attorney provided services for which she would have billed $1,500.

g. Several older housewives provide services at the United Charities congregate meal setting facility. These women work in the kitchen serving meals and cleaning up the kitchen. If these services were not donated they would have to purchased. The value of these services at the prevailing wage rate for similar employees would have amounted to $50,000 for the current year.

h. Fixed assets belonging to United Charities have an original cost of $270,000, an estimated salvage value of $70,000, and an estimated useful life of 20 years. Record depreciation if applicable.

2. The Heritage Art Museum, a not-for-profit entity specializing in art items created by natives of the Pacific Northwest, has a December 31 fiscal year-end. The Museum has a policy of not capitalizing collection items. Your entry should clearly indicate to which class of net assets the account would be closed, or in which fund the entry is being made. If no entry is required, write “No entry required.”

a. During the current year the Museum received admissions fees in cash $500,000.

b. Citizens of the local community are encouraged to participate in a program called ‘Friends of the Museum.’ For a yearly contribution of $25 per family, a family is entitled to free admission to the Museum during the calendar year. A ‘Friend of the Museum; also receives a monthly one-page newsletter announcing upcoming events. At year-end, there were 1000 members in the ‘Friends of the Museum.’

c. During the current year the Museum incurred salary expense of $1 million of which $60,000 remains unpaid at year end.

d. During the year the Museum incurred operating expenses of $400,000 of which $30,000 remains unpaid at year end. Of the $400,000, $50,000 was used to buy supplies of which $20,000 remains on hand at year-end.

e. Office equipment owned by the Museum has a historical cost of $100,000, salvage value of $20,000 and can be depreciated over 8 years on the straight-line basis.

f. During the year the Museum conducted a fund-raising drive to raise money to acquire new art items for the Museum. The Museum received pledges of $200,000 of which the Museum had collected $150,000 by year-end and expected to ultimately collect another $20,000.

g. The Museum had a small portfolio of investments in equity securities.. At the beginning of the year the portfolio had a fair value of $60,000. During the year the Museum collected $3,000 in dividends on the securities. At year-end the portfolio had a market value of $61,000.

h. During the year a citizen died and willed his wonderful collection of native art to the Museum. The appraised value of the collection was $600,000.

i. To balance its collection, the Museum sold two of its collection items for $250,000 which approximates fair value. These items had a historical cost to the Museum of $10,000.

j. The proceeds of the sale were used to acquire two new items at a cost of $310,000.

ESSAYS (CHAPTER 12)

1. For each of the cases below state whether or not the contributed services would be recognized, how much would be recognized, and how it would be recognized. Explain your answer in terms of the existing standard. Also explain why, in your opinion, the standard permits/prohibits recognition of this particular type of contribution.

a. A non-denominational church votes to construct a new educational wing on their existing facility. The church will hire an architect to design the new wing and a construction supervisor to oversee the construction. Church members will provide most of the labor for the construction. Labor donated by members who have construction experience or who are considered professional craftsmen at the prevailing wage for their trade or craft is $500,000. Labor donated by persons possessing non-building specialized skills (doctors, teachers, lawyers, etc.) at their prevailing wage rates is $700,000. Labor donated by non-professionals measured at the minimum wage is $300,000. The appraised value of the building when completed is $3 million. The architect was paid $700,000, the construction supervisor was paid $50,000 and the materials purchased for use in the building cost $1 million.

b. An investment advisor, a member of the Board of a not-for-profit entity, provides pro bono investment advise to the NFP. The NFP does not have a particularly large investment portfolio and without the advise of the Board member the NFP would probably invest its idle cash in certificates of deposits at an insured commercial bank to protect itself against loss of its principal. If the investment advisor had provided similar services to his customers he would have charged $2,000.

c. Members of a religious order provide professional nursing services for a health-care facility that is run by their order. The members are not compensated but their order provides lodging, food, and other necessities. The cost of the lodging, food, etc., is paid by the health-care entity and classified as Nursing Service Expense. At the end of the year the balance in the Nursing Service Expense account is $3 million. The value of the nursing services provided, measured at the prevailing wage for nurses, is $5 million.

2. A generous benefactor pledges $1 million to The R. J. Smith Foundation, a not-for-profit entity that promotes the arts. The gift is to be used to provide scholarships for talented musicians at a music camp operated by the Foundation. The gift was given in August, 2002 to support the Summer 2003 music program. The Foundation Director argues that the gift is a conditional restricted gift and therefore cannot be recognized as revenue in 2002. The accountant argues that the gift is an unconditional restricted gift and must be recognized in the current year. What is the basis for the Director’s argument? What is the basis for the accountant’s argument? In your answer provide an explanation of the terms conditional, unconditional, restricted and unrestricted.

Chapter 13

Special Issues for Not-for-Profit Health Care Providers and Institutions of Higher Education

TRUE/FALSE (CHAPTER 13)

1. The statement of financial position of a not-for-profit health care organization should distinguish among unrestricted, temporarily restricted, and permanently restricted net assets.

2. The statement of activities of a not-for-profit health care organization should classify the revenues as unrestricted, temporarily restricted, or permanently restricted, but should report expenses only as decreases in unrestricted resources.

3. Temporarily restricted funds related to plant and equipment generally account only for resources restricted to their purchase or construction, not for the plant and equipment itself, which are typically reported in the general operating fund.

4. Not-for-profit health care organizations must use exactly three funds to account for the three categories of restrictiveness.

5. In classifying expenses in the statement of activities of a not-for-profit health care organization, all expenses are reported exclusively within the temporarily restricted category.

6. Unlike businesses, not-for-profit health care providers often serve patients who they know will be unable to pay the amounts billed.

7. According to the AICPA audit guide, Health Care Organizations, revenue must be recorded using the patient discharge method.

8. The Hill-Burton Act stipulates that hospitals receiving federal construction funds must provide a certain amount of charity care.

9. Government hospitals are subject to the same FASB standards as private not-for-profit health care organizations.

10. Private not-for-profit colleges and universities are subject to the same FASB standards as other not-for-profit entities.

MULTIPLE CHOICE (CHAPTER 13)

1. For a not-for-profit hospital, which of the following financial statements is NOT required?

a) Statement of financial position.

b) Statement of activities.

c) Statement of cash flows.

d) Statement of functional expenses.

2. For a not-for-profit college or university, which of the following categories of net assets is NOT appropriate in its external financial statements?

a) Unrestricted net assets.

b) Temporarily restricted net assets.

c) Permanently restricted net assets.

d) None. All of the above are appropriate.

3. New College, a private college, received a $1 million donation. The donor specified that the principal of her gift could not be used for program activities but the earnings on the principal must be used to provide scholarships to academically qualified students in the business school. The $1 million gift would increase which of the following categories of net assets?

a) Unrestricted net assets.

b) Temporarily restricted net assets.

c) Permanently restricted net assets.

d) Either (b) and (c).

4. Intermountain Hospital, a not-for-profit health care provider, issued $70 million in term bonds to finance construction of a new wing at its main hospital. Terms of the bond issue require that $5 million of the proceeds of the bond issue be invested in U.S. government securities. The $5 million must be held until maturity of the bonds. The $5 million will increase which class of net assets?

a) Unrestricted net assets.

b) Temporarily restricted net assets.

c) Permanently restricted net assets.

d) Either (b) or (c).

5. During the current year, Jones University received a $50,000 gift from an alumnae who specified that it must be used to pay travel costs for faculty to attend health care conferences in foreign countries. During the year the university spent $8,000 to support travel to a health care conference in Italy. The $8,000 disbursement will cause a NET decrease in which class of net assets?

a) Unrestricted net assets.

b) Temporarily restricted net assets.

c) Permanently restricted net assets.

d) Cannot be determined.

Use the following information to answer #6 and #7.

Kale Hospital, a not-for-profit entity, received a pledge from a donor in support of a fund raising effort by the Hospital to finance construction of a new facility for cancer treatment. The donor promised to pay $1 million in equal annual installments of $100,000 over the next 10 years. The present value of the gift at the risk-free interest rate is $736,000.

6. The amount of unrestricted revenue that should be recognized by Kale in the year of the gift is

a) $1 million.

b) $736,000.

c) $100,000.

d) $0.

7. The amount of restricted revenue that should be recognized by Kale in the year of the gift is

a) $1 million.

b) $736,000.

c) $100,000.

d) $0.

8. An accountant has encountered a perplexing financial reporting issue related to the hospital for which she is preparing financial statements. The issue is not specifically addressed by FASB statements. To which of the following sources would the accountant probably look for industry-specific guidance?

a) GASB Statements.

b) AICPA accounting and auditing guide, Not-for-Profit Organizations.

c) AICPA accounting and auditing guide, Health Care Organizations.

d) Pronouncements of the HFMA or AHA.

9. Which of the following entities should recognize depreciation expense on its operating statement?

a) Not-for-profit University.

b) Not-for-profit Foundation.

c) Not-for-profit Hospital.

d) All of the above.

10. In prior years, a not-for-profit hospital received funds from a donor who restricted the use of those funds to providing nursing scholarships. During the current year $8,000 of scholarships were awarded. These scholarships should be reported

a) As expenses in the unrestricted fund.

b) As reductions in the revenue section in the unrestricted fund.

c) As expenses in the temporarily restricted fund.

d) As expenses in the permanently restricted fund.

11. During the current year, St. Mary’s Hospital (a not-for-profit entity) earned, based on its normal billings rate, $1 million in patient service revenues. Many of these patients belong to a health plan that has an established pay schedule. Based on the specific services rendered to members of the plan, the hospital estimates that $.05 million will not be collectible from the plan or the patient. Some of the patients are Hospital employees. These employees are given a 50% discount on the services rendered. Employee discounts for the current year total $.01 million. Some of the patients are uninsured and the hospital estimates, that of the amount billed to the uninsured patients, $.2 million will not be collectible (bad debts). The amount of net patient service revenues for St. Mary’s Hospital for the current year is

a) $1 million.

b) $.94 million.

c) $.87 million.

d) $.74 million.

12. A consortium of physicians agree to provide services to the employees of a large County government. The agreement calls for monthly payments from the County to the consortium in the amount of $100,000 per month. County employees are not billed for services rendered by the consortium. All County employees are required to use the consortium under their health care program (any services rendered to County employees by other physicians are not covered under the health plan). During the period the consortium performed services for County employees for which it would have billed $85,000. The consortium referred patients to other health care providers for services they could not perform. The consortium estimates that it will be billed $5,000 for those services. The amount of revenue that should be recognized by the consortium is

a) $100,000.

b) $95,000.

c) $85,000.

d) $80,000.

13. A hospital estimates, based on past experience, that it will incur $5 million in malpractice claims as a result of services rendered in the current period. The hospital carries a malpractice insurance policy with a yearly $2 million deductible clause. The amount that should appear on its year-end financial statement as Claims Expense (Loss) should be

a) $0.

b) $2 million.

c) $3 million.

d) $5 million.

14. A hospital carried a 2-year malpractice insurance policy that allows for retroactive premium adjustments based on experience (claims actually incurred). The basic premium is $150,000 for the 2-year policy payable in advance. At the end of the first year the hospital estimates that it will have to pay an additional $40,000 in premiums as a result of claims filed in the current year and it estimates that it will incur additional premiums in the second year of $50,000 as a result of claims filed in the second year. The amount of insurance expense that should appear on the financial statements at the end of the first year should be

a) $75,000.

b) $115,000.

c) $150,000.

d) $240,000.

15. An accountant has encountered a perplexing financial reporting issue related to the private college for which he is preparing financial statements. The issue is not specifically addressed by FASB Statements. To what standards would the accountant now look for guidance?

a) GASB Statements.

b) AICPA accounting and auditing guide, Not-for-Profit Organizations.

c) AICPA accounting and auditing guide, Audits of Colleges and Universities and/or AICPA SOP 74-8, Financial Accounting and Financial Reporting by Colleges and Universities.

d) College textbooks.

16. A private not-for-profit college would include which of the following financial statements in is Basic Financial Statements?

a) Statement of Financial Position and Statement of Activities.

b) Statement of Financial Position, Statement of Activities, and Cash Flow Statement.

c) Statement of Financial Position, Statement of Activities, Cash Flow Statement, and a Statement of Functional Expenses.

d) Statement of Financial Position, Statement of Activities, and a Statement of Functional Expenses.

17. For financial reporting purposes, government hospitals are within the jurisdiction of the

a) FASB.

b) GASB.

c) AICPA.

d) Hill-Burton Act.

18. For financial reporting purposes, private not-for-profit health care providers are within the jurisdiction of the

a) FASB.

b) GASB.

c) AICPA.

d) Hill-Burton Act.

19. For financial reporting purposes, state supported colleges and universities are within the jurisdiction of the

a) FASB.

b) GASB.

c) AICPA.

d) NACUBO.

20. For financial reporting purposes, private not-for-profit colleges and universities are within the jurisdiction of the

a) FASB.

b) GASB.

c) AICPA.

d) NACUBO.

PROBLEMS (CHAPTER 13)

1. St. Anthony’s hospital is a private not-for-profit entity that provides health care services to the citizens in the small rural community in which it is located. The most recent construction at the Hospital was financed using Hill-Burton funds. During the current month, St. Anthony’s engaged in the following transactions. Using the following information make the appropriate entries for St. Anthony's for the current month.

a. The Hospital would have billed $1.2 million for services rendered to in-patients. The $1.2 million is based on the hospital’s established billing rate. Of this amount $800,000 will be billed to Delta Medical Group, a third-party payor that insurers many state employees, $150,000 will be billed to uninsured patients, $200,000 is provided to indigents and will be considered charity care, and $50,000 was for services rendered to Hospital employees.

b. Based on prior experience with uninsured patients, the Hospital estimates that $60,000 of the $150,000 will be uncollectible.

c. The Hospital recognizes the value of charity services rendered.

2. Richards College is a not-for-profit college. Record the following transactions for Richards College. The College has a June 30 fiscal year.

a. Tuition revenue for the Fall semester 2002 (August - December) was $4 million; tuition for the Spring semester 2003 (January - May) was $3.8 million; tuition for the Summer semester 2003 (June 1-August 15) was $1 million. All tuition received in cash.

b. Faculty salaries for the Fall semester were $3 million; for the Spring semester, $2.9 million; for the Summer semester were $.5 million. All salaries are paid at the end of the month earned. Salaries earned in summer are June $.2 million, July $2 and August .5 million.

c. During June $3.2 million of tuition applicable to the Fall 2003 was received in cash.

d. Fixed assets of the University have a historical cost of $120 million, estimated salvage value of $20 million and an estimated useful life of 50 years.

ESSAYS (CHAPTER 13)

1. Alpha Hospital is a recipient of Hill-Burton funds and must provide some hospital care for which it will not be compensated. During the current year Alpha Hospital provided $1 million in charity care. What is the current financial reporting requirement for charity care? Do you agree or disagree with the current financial reporting requirement? Why or why not? If you do not agree, how do you think charity care should be reported? If you agree with the current standards, what alternative reporting requirements do you believe will be proposed by those who do not agree with the current standards?

2. Neither the FASB nor the GASB pronouncements, nor the current AICPA not-for-profit audit guide, addresses the issue of tuition revenue. Thus, the 1973 AICPA college and university guide remains the most authoritative source of guidance for both government and not-for-profit institutions. What is the directive on how to report revenues and expenditures of an academic term, such as a summer session, which is conducted over a fiscal year-end?

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Quiz 7 Chapter 8

Flexible Budgets, Overhead Cost Variances, and Management Control

Overhead costs are a major part of costs for most companiesmore than 50% of all costs for some companies.

At the start of the budget period, management will have made most decisions regarding the level of variable costs to be incurred.

One way to manage both variable and fixed overhead costs is to eliminate nonvalue-adding activities.

The planning of fixed overhead costs does not differ from the planning of variable overhead costs.

In a standard costing system, the variable-overhead rate per unit is generally expressed as a standard cost per output unit.

For calculating the cost of products and services, a standard costing system does not have to track actual costs.

Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.

The budget period for variable-overhead costs is typically less than 3 months.

A favorable variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.

10)

The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.

11)

The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs.

12)

The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used.

13)

The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.

14)

An unfavorable variable overhead efficiency variance indicates that variable overhead costs were wasted and inefficiently used.

15)

Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.

16)

If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable overhead efficiency variance.

17)

If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance.

18)

For fixed overhead costs, the flexible-budget amount is always the same as the static-budget amount.

19)

The fixed overhead flexible-budget variance is the difference between actual fixed overhead costs and the fixed overhead costs in the flexible budget.

20)

There is never an efficiency variance for fixed costs.

21)

All unfavorable overhead variances decrease operating income compared to the budget.

22)

A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.

23)

Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.

24)

Caution is appropriate before interpreting the production-volume variance as a measure of the economic cost of unused capacity.

25)

The production-volume variance arises whenever the actual level of the denominator differs from the level used to calculate the budgeted fixed overhead rate.

26)

The lump sum budgeted for fixed overhead will always be the same amount for the static budget and the flexible budget.

27)

A favorable production-volume variance arises when manufacturing capacity planned for is not used.

28)

The fixed overhead flexible budget variance is the difference between actual fixed overhead costs and fixed overhead costs in the flexible budget.

29)

An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.

30)

Favorable overhead variances are always recorded with credits in a standard cost system.

31)

Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed overhead costs.

32)

Managers should use unitized fixed manufacturing overhead costs for planning and control.

33)

For purposes of allocating fixed overhead costs to products, managers may view the fixed overhead costs as if they had a variable-cost behavior pattern.

34)

Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers.

35)

In the journal entry that records overhead variances, the manufacturing overhead allocated accounts are closed.

36)

Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity.

37)

At the end of the fiscal year, the fixed overhead spending variance is always written off to cost of goods sold.

38)

Variance analysis of fixed overhead costs is also useful when a company uses activity-based costing.

39)

An unfavorable fixed setup overhead spending variance could be due to higher lease costs of new setup equipment.

40)

A favorable variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setup-hours planned for the units produced.

41)

Overhead costs have been increasing due to all of the following EXCEPT:

increased automation

more complexity in distribution processes

tracing more costs as direct costs with the help of technology

product proliferation

42)

Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily add value for:

the current shareholders

the customer using the products or services

plant employees

major suppliers of component parts

43)

Variable overhead costs include:

plant-leasing costs

the plant manager's salary

depreciation on plant equipment

machine maintenance

44)

Fixed overhead costs include:

the cost of sales commissions

property taxes paid on plant facilities

energy costs

indirect materials

45)

Effective planning of fixed overhead costs includes all of the following EXCEPT:

planning day-to-day operational decisions

eliminating nonvalue-added costs

planning to be efficient

choosing the appropriate level of capacity

46)

Effective planning of variable overhead includes all of the following EXCEPT:

choosing the appropriate level of capacity

eliminating nonvalue-adding costs

redesigning products to use fewer resources

redesigning the plant layout for more efficient processing

47)

Choosing the appropriate level of capacity:

is a key strategic decision

may lead to loss of sales if overestimated

may lead to idle capacity if underestimated

All of these answers are correct.

48)

The MAJOR challenge when planning fixed overhead is:

calculating total costs

calculating the cost-allocation rate

choosing the appropriate level of capacity

choosing the appropriate planning period

49)

In a standard costing system, a cost-allocation base would MOST likely be:

actual machine-hours

normal machine-hours

standard machine-hours

Any of these answers is correct.

50)

For calculating the costs of products and services, a standard costing system:

only requires a simple recording system

uses standard costs to determine the cost of products

does not have to keep track of actual costs

All of these answers are correct.

51)

The variable overhead flexible-budget variance measures the difference between:

actual variable overhead costs and the static budget for variable overhead costs

actual variable overhead costs and the flexible budget for variable overhead costs

the static budget for variable overhead costs and the flexible budget for variable overhead costs

None of these answers is correct.

52)

A $5,000 unfavorable flexible-budget variance indicates that:

the flexible-budget amount exceeded actual variable manufacturing overhead by $5,000

the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000

the flexible-budget amount exceeded standard variable manufacturing overhead by $5,000

the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000

53)

Which of the following is NOT a step in developing budgeted variable overhead rates?

identifying the variable overhead costs associated with each cost-allocation base

estimating the budgeted denominator level based on expected utilization of available capacity

selecting the cost-allocation bases to use

choosing the period to be used for the budget

54)

In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are:

allocated costs

budgeted costs

fixed costs

variable costs

Answer the following questions using the information below:

Shimon Corporation manufactures industrial-sized water coolers and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Budgeted output units 15,000 units

Budgeted machine-hours 5,000 hours

Budgeted variable manufacturing overhead costs for 15,000 units $161,250

Actual output units produced 22,000 units

Actual machine-hours used 7,200 hours

Actual variable manufacturing overhead costs $242,000

55)

What is the budgeted variable overhead cost rate per output unit?

$10.75

$11.00

$32.25

$48.40

56)

What is the flexible-budget amount for variable manufacturing overhead?

$165,000

$236,500

$242,000

None of these answers is correct.

57)

What is the flexible-budget variance for variable manufacturing overhead?

$5,500 favorable

$5,500 unfavorable

$4,300 favorable

None of these answers is correct.

58)

Variable manufacturing overhead costs were ________ for actual output.

higher than expected

the same as expected

lower than expected

indeterminable

Answer the following questions using the information below:

White Corporation manufactures football jerseys and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Budgeted output units 20,000 units

Budgeted machine-hours 30,000 hours

Budgeted variable manufacturing overhead costs for 20,000 units $360,000

Actual output units produced 18,000 units

Actual machine-hours used 28,000 hours

Actual variable manufacturing overhead costs $342,000

59)

What is the budgeted variable overhead cost rate per output unit?

$12.00

$12.21

$18.00

$19.00

60)

What is the flexible-budget amount for variable manufacturing overhead?

$324,000

$342,000

$380,000

None of these answers is correct.

61)

What is the flexible-budget variance for variable manufacturing overhead?

$18,000 favorable

$18,000 unfavorable

zero

None of these answers is correct.

62)

Variable-manufacturing overhead costs were ________ for actual output.

higher than expected

the same as expected

lower than expected

indeterminable

Answer the following questions using the information below:

Fearless Frank's Fertalizer Farm produces fertalizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Budgeted output units 300 truckloads

Budgeted fleet hours 225 hours

Budgeted pounds of fertalizer 12,000,000 pounds

Budgeted variable manufacturing overhead costs for 300 loads $37,500

Actual output units produced and delivered 315 truckloads

Actual fleet hours 218 hours

Actual pounds of fertalizer produced and delivered 12,600,000 pounds

Actual variable manufacturing overhead costs $38,250

63)

What is the budgeted variable overhead cost rate per output unit?

$120.00

$125.00

$166.67

$175.00

64)

What is the flexible-budget amount for variable manufacturing overhead?

$40,000

$39,375

$37,500

$38,250

65)

What is the flexible-budget variance for variable manufacturing overhead?

$1,125 favorable

$1,125 unfavorable

zero

None of these answers are correct.

66)

Variable-manufacturing overhead costs were ________ for actual output.

higher than expected

the same as expected

lower than expected

indeterminable

67)

The variable overhead flexible-budget variance can be further subdivided into the:

price variance and the efficiency variance

static-budget variance and sales-volume variance

spending variance and the efficiency variance

sales-volume variance and the spending variance

68)

An unfavorable variable overhead spending variance indicates that:

variable overhead items were not used efficiently

the price of variable overhead items was more than budgeted

the variable overhead cost-allocation base was not used efficiently

the denominator level was not accurately determined

69)

When machine-hours are used as an overhead cost-allocation base, the MOST likely cause of a favorable variable overhead spending variance is:

excessive machine breakdowns

the production scheduler efficiently scheduled jobs

a decline in the cost of energy

strengthened demand for the product

70)

When machine-hours are used as an overhead cost-allocation base and the unexpected purchase of a new machine results in fewer expenditures for machine maintenance, the MOST likely result would be to report a(n):

favorable variable overhead spending variance

unfavorable variable overhead efficiency variance

favorable fixed overhead flexible-budget variance

unfavorable production-volume variance

71)

For variable manufacturing overhead, there is no:

spending variance

efficiency variance

flexible-budget variance

production-volume variance

Answer the following questions using the information below:

Kellar Corporation manufactured 1,500 chairs during June. The following variable overhead data pertain to June:

Budgeted variable overhead cost per unit $ 12.00

Actual variable manufacturing overhead cost $16,800

Flexible-budget amount for variable manufacturing overhead $18,000

Variable manufacturing overhead efficiency variance $360 unfavorable

72)

What is the variable overhead flexible-budget variance?

$1,200 favorable

$360 unfavorable

$1,560 favorable

$1,200 unfavorable

73)

What is the variable overhead spending variance?

$840 unfavorable

$1,200 favorable

$1,200 unfavorable

$1,560 favorable

Answer the following questions using the information below:

Patel Corporation manufactured 1,000 coolers during October. The following variable overhead data pertain to October:

Budgeted variable overhead cost per unit $ 9.00

Actual variable manufacturing overhead cost $8,400

Flexible-budget amount for variable manufacturing overhead $9,000

Variable manufacturing overhead efficiency variance $180 unfavorable

74)

What is the variable overhead flexible-budget variance?

$600 favorable

$420 unfavorable

$780 favorable

$600 unfavorable

75)

What is the variable overhead spending variance?

$420 unfavorable

$600 favorable

$600 unfavorable

$780 favorable

Answer the following questions using the information below:

Roberts Corporation manufactured 100,000 buckets during February. The overhead cost-allocation base is $5.00 per machine-hour. The following variable overhead data pertain to February:

Actual Budgeted

Production 100,000 units 100,000 units

Machine-hours 9,800 hours 10,000 hours

Variable overhead cost per machine-hour $5.25 $5.00

76)

What is the actual variable overhead cost?

$49,000

$50,000

$51,450

None of these answers is correct.

77)

What is the flexible-budget amount?

$49,000

$50,000

$51,450

None of these answers is correct.

78)

What is the variable overhead spending variance?

$1,000 favorable

$1,450 unfavorable

$2,450 unfavorable

None of these answers is correct.

79)

What is the variable overhead efficiency variance?

$1,000 favorable

$1,450 unfavorable

$2,450 unfavorable

None of these answers is correct.

Answer the following questions using the information below:

Roberson Corporation manufactured 30,000 ice chests during September. The overhead cost-allocation base is $11.25 per machine-hour. The following variable overhead data pertain to September:

Actual Budgeted

Production 30,000 units 24,000 units

Machine-hours 15,000 hours 10,800 hours

Variable overhead cost per machine-hour: $11.00 $11.25

80)

What is the actual variable overhead cost?

$121,500

$151,875

$165,000

$168,750

81)

What is the flexible-budget amount?

$121,500

$151,875

$165,000

$168,750

82)

What is the variable overhead spending variance?

$3,750 favorable

$16,875 unfavorable

$13,125 unfavorable

$30,375 unfavorable

83)

What is the variable overhead efficiency variance?

$3,750 favorable

$16,875 unfavorable

$13,125 unfavorable

$30,375 unfavorable

Answer the following questions using the information below:

Russo Corporation manufactured 16,000 space heaters during November. The overhead cost-allocation base is $15.75 per machine-hour. The following variable overhead data pertain to November:

Actual Budgeted

Production 16,000 units 18,000 units

Machine-hours 7,875 hours 9,000 hours

Variable overhead cost per machine-hour: $15.50 $15.75

84)

What is the actual variable overhead cost?

$122,063

$ 139,500

$124,031

$125,000

85)

What is the flexible-budget amount?

$ 124,031.30

$126,000.00

$124,000.00

$139,500.00

86)

What is the variable overhead spending variance?

$2,250 unfavorable

$1,968.75 unfavorable

$2,250 favorable

$1,968.75 favorable

87)

What is the variable overhead efficiency variance?

$1,968.75 favorable

$1,968.75 unfavorable

$2,250 favorable

$2,250 unfavorable

88)

What is the total variable overhead variance

$3,937.50 unfavorable

$1,968.75 unfavorable

$3,937.50 favorable

$1,968.75 favorable

89)

The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance.

the same as; the same as

the same as; differently than

differently than; the same as

differently than; differently than

90)

An unfavorable variable overhead efficiency variance indicates that:

variable overhead items were not used efficiently

the price of variable overhead items was less than budgeted

the variable overhead cost-allocation base was not used efficiently

the denominator level was not accurately determined

91)

Variable overhead costs can be managed by:

reducing the consumption of the cost-allocation base

eliminating nonvalue-adding variable costs

planning for appropriate capacity levels

Both A and B are correct.

92)

When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable variable overhead efficiency variance is:

excessive machine breakdowns

the production scheduler's impressive scheduling of machines

a decline in the cost of energy

strengthened demand for the product

93)

When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable variable overhead efficiency variance is:

using more machine hours than budgeted

workers wastefully using variable overhead items

unused capacity

more units being produced than planned

94)

When machine-hours are used as an overhead cost-allocation base, a rush order resulting in unplanned overtime that used less-skilled workers on the machines would MOST likely contribute to reporting a(n):

favorable variable overhead spending variance

unfavorable variable overhead efficiency variance

favorable fixed overhead flexible-budget variance

unfavorable production-volume variance

95)

When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the MOST likely result would be to report a(n):

unfavorable variable overhead spending variance

favorable variable overhead efficiency variance

unfavorable fixed overhead flexible-budget variance

favorable production-volume variance

96)

The fixed overhead cost variance can be further subdivided into the:

price variance and the efficiency variance

spending variance and flexible-budget variance

production-volume variance and the efficiency variance

flexible-budget variance and the production-volume variance

97)

The amount reported for fixed overhead on the static budget is also reported:

as actual fixed costs

as allocated fixed overhead

on the flexible budget

Both B and C are correct.

98)

An unfavorable fixed overhead spending variance indicates that:

there was more excess capacity than planned

the price of fixed overhead items cost more than budgeted

the fixed overhead cost-allocation base was not used efficiently

the denominator level was more than planned

99)

A favorable fixed overhead spending variance might indicate that:

more capacity was used than planned

the denominator level was less than planned

the fixed overhead cost-allocation base was not used efficiently

a plant expansion did not proceed as originally planned

100)

For fixed manufacturing overhead, there is no:

spending variance

efficiency variance

flexible-budget variance

production-volume variance

Answer the following questions using the information below:

Jenny's Corporation manufactured 25,000 grooming kits for horses during March. The fixed-overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March:

Actual Static Budget

Production 25,000 units 24,000 units

Machine-hours 6,100 hours 6,000 hours

Fixed overhead costs for March $123,000 $120,000

101)

What is the flexible-budget amount?

$120,000

$122,000

$123,000

$125,000

102)

What is the amount of fixed overhead allocated to production?

$120,000

$122,000

$123,000

$125,000

103)

What is the fixed overhead spending variance?

$1,000 unfavorable

$2,000 favorable

$3,000 unfavorable

$5,000 favorable

104)

What is the fixed overhead production-volume variance?

$1,000 unfavorable

$2,000 favorable

$3,000 unfavorable

$5,000 favorable

Answer the following questions using the information below:

Rutch Corporation manufactured 54,000 door jambs during September. The fixed-overhead cost-allocation rate is $50.00 per machine-hour. The following fixed overhead data pertain to September:

Actual Static Budget

Production 54,000 units 60,000 units

Machine-hours 985 hours 1150 hours

Fixed overhead costs for September $53,400 $57,500

105)

What is the flexible-budget amount?

$100,000

$53,400

$57,500

$51,750

106)

What is the amount of fixed overhead allocated to production?

$51,750

$100,000

$53,400

$57,500

107)

What is the fixed overhead spending variance?

$5,750 unfavorable

$5,750 favorable

$4,100 favorable

$4,100 unfavorable

Answer the following questions using the information below:

Matthew's Corporation manufactured 10,000 golf bags during March. The fixed overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March:

Actual Static Budget

Production 10,000 units 12,000 units

Machine-hours 5,100 hours 6,000 hours

Fixed overhead cost for March $122,000 $120,000

108)

What is the flexible-budget amount?

$100,000

$102,000

$120,000

$122,000

109)

What is the amount of fixed overhead allocated to production?

$100,000

$102,000

$120,000

$122,000

110)

What is the fixed overhead production-volume variance?

$2,000 unfavorable

$18,000 favorable

$20,000 unfavorable

$22,000 unfavorable

111)

Fixed overhead is:

overallocated by $2,000

underallocated by $2,000

overallocated by $22,000

underallocated by $22,000

112)

The production-volume variance may also be referred to as the:

flexible-budget variance

denominator-level variance

spending variance

efficiency variance

113)

A favorable production-volume variance indicates that the company:

has good management

has allocated more fixed overhead costs than budgeted

has a total economic gain from using excess capacity

should increase capacity

114)

An unfavorable production-volume variance of $40,000 indicates that the company has:

unused fixed manufacturing overhead capacity

overallocated $40,000 of fixed manufacturing overhead costs

$40,000 more capacity than needed

an economic loss of $40,000 from selling fewer products than planned

115)

When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable production-volume variance is:

an increase in the selling price of the product

the purchase of a new manufacturing machine costing considerably less than expected

a decline in the cost of energy

strengthened demand for the product

116)

When machine-hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable production-volume variance is:

a new competitor gaining market share

a new manufacturing machine costing considerably more than expected

an increase in the cost of energy

strengthened demand for the product

117)

Excess capacity is a sign:

that capacity should be reduced

that capacity may need to be re-evaluated

that the company is suffering a significant economic loss

of good management decisions

118)

An unfavorable production-volume variance:

is not a good measure of a lost production opportunity

measures the total economic gain or loss due to unused capacity

measures the amount of extra fixed costs planned for but not used

takes into account the effect of additional revenues due to maintaining higher prices

119)

The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called the fixed overhead:

efficiency variance

flexible-budget variance

combined-variance analysis

production-volume variance

120)

Variable overhead costs:

never have any unused capacity

have no production-volume variance

allocated are always the same as the flexible-budget amount

All of these answers are correct.

121)

Fixed overhead costs:

never have any unused capacity

should be unitized for planning purposes

are unaffected by the degree of operating efficiency in a given budget period

Both A and B are correct.

122)

Fixed overhead costs must be unitized for:

financial reporting purposes

planning purposes

calculating the production-volume variance

Both A and C are correct.

123)

Generally Accepted Accounting Principles require that unitized fixed manufacturing costs be used for:

pricing decisions

costing decisions

external reporting

All of these answers are correct.

124)

A nonfinancial measure of performance evaluation is:

increased sales

reducing distribution costs

energy used per machine-hour

All of these answers are correct.

125)

Variance information regarding nonmanufacturing costs can be used to:

plan capacity in the service sector

control distribution costs in the retail sector

determine the most profitable services offered by a bank

All of these answers are correct.

126)

Tucker Company uses a standard cost system. In March, $133,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $150,000. Which of the following variable manufacturing overhead entries would have been recorded for March?

Accounts Payable Control and other accounts 150,000

Work-in-Process Control 150,000

Variable Manufacturing Overhead Allocated 150,000

Accounts Payable and other accounts 150,000

Work-in-Process Control 133,000

Accounts Payable Control and other accounts 133,000

Variable Manufacturing Overhead Control 133,000

Accounts Payable Control and other accounts 133,000

127)

Alvarado Company made the following journal entry:

Variable Manufacturing Overhead Allocated 100,000

Variable Manufacturing Overhead Efficiency Variance 30,000

Variable Manufacturing Overhead Control 125,000

Variable Manufacturing Overhead Spending Variance 5,000

Alvarado overallocated variable manufacturing overhead.

A $5,000 favorable spending variance was recorded.

Work-in-Process is currently overstated.

This entry may be recorded yearly to provide timely feedback to managers.

128)

John's Football Manufacturing Company reported:

Actual fixed overhead $800,000

Fixed manufacturing overhead spending variance $20,000 favorable

Fixed manufacturing production-volume variance $30,000 unfavorable

To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated for:

$780,000

$790,000

$800,000

$810,000

129)

Brandon's Basketball Manufacturing Company reported:

Actual fixed overhead $1,000,000

Fixed manufacturing overhead spending variance $60,000 unfavorable

Fixed manufacturing production-volume variance $40,000 unfavorable

To isolate these variances at the end of the accounting period, Brandon would:

debit Fixed Manufacturing Overhead Allocated for $1,000,000

debit Fixed Manufacturing Overhead Spending Variance for $60,000

credit Fixed Manufacturing Production-Volume Variance for $40,000

credit Fixed Manufacturing Control Allocated for $900,000

130)

Jovana Company uses a standard cost system. In March, $117,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $120,000. Which of the following variable manufacturing overhead entries would have been recorded for March?

Accounts Payable Control and other accounts 120,000

Work-in-Process Control 120,000

Variable Manufacturing Overhead Allocated 120,000

Work-in-Process Control 117,000

Accounts Payable Control and other accounts 117,000

Variable Manufacturing Overhead Control 117,000

131)

Tate Company makes the following journal entry:

Variable Manufacturing Overhead Allocated 150,000

Variable Manufacturing Overhead Efficiency Variance 5,000

Variable Manufacturing Overhead Control 125,000

Variable Manufacturing Overhead Spending Variance 30,000

Tate underallocated variable manufacturing overhead.

A $30,000 unfavorable spending variance was recorded.

Work-in-Process is currently understated.

A $25,000 favorable flexible-budget variance was recorded.

132)

Jeremy's Football Manufacturing Company reported:

Actual fixed overhead $500,000

Fixed manufacturing overhead spending variance $30,000 favorable

Fixed manufacturing production-volume variance $20,000 unfavorable

To isolate these variances at the end of the accounting period, Jeremy would debit Fixed Manufacturing Overhead Allocated for:

$480,000

$490,000

$500,000

$510,000

133)

Kristin's Basketball Manufacturing Company reported:

Actual fixed overhead $800,000

Fixed manufacturing overhead spending variance $60,000 favorable

Fixed manufacturing production-volume variance $40,000 favorable

To isolate these variances at the end of the accounting period, Kristin would debit:

Fixed Manufacturing Overhead Allocated for $900,000

Fixed Manufacturing Overhead Spending Variance for $60,000

Fixed Manufacturing Production-Volume Variance for $40,000

All of these answers are correct.

Answer the following questions using the information below:

Production-

Variances Spending Efficiency Volume

Variable manufacturing overhead $ 4,500 F $15,000 U (B)

Fixed manufacturing overhead $10,000 U (A) $40,000 U

134)

Above is a:

4-variance analysis

3-variance analysis

2-variance analysis

1-variance analysis

135)

In the above chart, the amounts for (A) and (B), respectively, are:

$10,500 U; $55,000 U

$10,500 U; Zero

Zero; $55,000 U

Zero; Zero

136)

In a 3-variance analysis the spending variance should be:

$ 4,500 F

$10,000 U

$ 5,500 U

$10,500 U

137)

In a 2-variance analysis the flexible-budget variance and the production-volume variance should be ________, respectively.

$5,500 U; $55,000 U

$20,500 U; $40,000 U

$10,500 U; $50,000 U

$60,500 U; Zero

138)

In a 1-variance analysis the total overhead variance should be:

$20,500 U

$60,500 U

$121,000 U

None of these answers is correct.

Answer the following questions using the information below:

Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of car.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2004:

Actual Static-budget

Amounts Amounts

Units produced and sold 15,000 11,250

Batch size (number of units per batch) 250 225

Setup-hours per batch 5 5.25

Variable overhead cost per setup-hour $40 $38

Total fixed setup overhead costs $14,400 $14,000

139)

Calculate the efficiency variance for variable setup overhead costs.

$1,900 unfavorable

$600 unfavorable

$1,900 favorable

$600 favorable

140)

Calculate the spending variance for variable setup overhead costs.

$1,900 unfavorable

$1,900 favorable

$600 unfavorable

$600 favorable

141)

Calculate the flexible-budget variance for variable setup overhead costs.

$600 favorable

$1,300 favorable

$600 unfavorable

$1,300 unfavorable

142)

Calculate the spending variance for fixed setup overhead costs.

$3,200 unfavorable

$400 unfavorable

$3,600 unfavorable

$400 favorable

143)

Calculate the production-volume variance for fixed setup overhead costs.

$4,666.67 unfavorable

$400 unfavorable

$4,666.67 favorable

$400 favorable

Answer the following questions using the information below:

Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and tooling for different models of the air purifiers.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2008:

Budget Actual

Amounts Amounts

Units produced and sold 10,000 9,000

Batch size (number of units per batch) 400 375

Setup-hours per batch 6 5.5

Variable overhead cost per setup-hour $50 $52

Total fixed setup overhead costs $18,000 $17,750

144)

Calculate the efficiency variance for variable setup overhead costs.

$150 favorable

$114 favorable

$264 unfavorable

$264 favorable

145)

Calculate the spending variance for variable setup overhead costs.

$150 unfavorable

$150 favorable

$264 unfavorable

$264 favorable

146)

Calculate the flexible-budget variance for variable setup overhead costs.

$114 favorable

$264 favorable

$264 unfavorable

$114 unfavorable

147)

Calculate the spending variance for fixed setup overhead costs.

$250 unfavorable

$150 unfavorable

$250 favorable

$150 favorable

148)

Calculate the production-volume variance for fixed setup overhead costs.

$1,800 favorable

$1,800 unfavorable

$250 unfavorable

$250 favorable

149)

Fixed and variable cost variances can ________ be applied to activity-based costing systems.

always

most times

seldom

never

150)

Jael Equipment uses a flexible budget for its indirect manufacturing costs. For 20X5, the company anticipated that it would produce 18,000 units with 3,500 machine-hours and 7,200 employee days. The costs and cost drivers were to be as follows:

Fixed Variable Cost driver

Product handling $30,000 $0.40 per unit

Inspection 8,000 8.00 per 100 unit batch

Utilities 400 4.00 per 100 unit batch

Maintenance 1,000 0.20 per machine-hour

Supplies 5.00 per employee day

During the year, the company processed 20,000 units, worked 7,500 employee days, and had 4,000 machine-hours. The actual costs for 20X5 were:

Actual costs

Product handling $36,000

Inspection 9,000

Utilities 1,600

Maintenance 1,200

Supplies 37,500

Required:

a. Prepare the static budget using the overhead items above and then compute the static-budget variances.

b. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.

151)

Heather's Pillow Company manufactures pillows. The 20X5 operating budget is based on production of 20,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000.

Actual production for 20X5 was 18,000 pillows using 9,500 machine-hours. Actual variable costs were $20 per machine-hour.

Required:

Calculate the variable overhead spending and efficiency variances.

152)

Cirilla's Weathervane Company manufactures weathervanes. The 2008 operating budget is based on the production of 10,000 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $300,000.

Actual production for 2008 was 11,000 weathervanes using 12,100 machine-hours. Actual variable costs were $23.75 per machine-hour.

Required:

Calculate the variable overhead spending and the efficiency variances.

153)

McKenna Company manufactured 1,000 units during April with a total overhead budget of $12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data:

Variable overhead:

Standard cost per unit: 0.4 labor hour at $4 per hour

Actual costs: $2,100 for 376 hours

Flexible budget: a

Total flexible-budget variance: b

Variable overhead spending variance: c

Variable overhead efficiency variance: d

Fixed overhead:

Budgeted costs: e

Actual costs: f

Flexible-budget variance: $500 favorable

Required:

Compute the missing elements in the report represented by the lettered items.

154)

Everjoice Company makes clocks. The fixed overhead costs for 20X5 total $720,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month.

During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.

Required:

a. Determine the fixed overhead rate for 20X5 based on units of input.

b. Determine the fixed overhead static-budget variance for June.

c. Determine the production-volume overhead variance for June.

155)

Brown Company makes watches. The fixed overhead costs for 2008 total $324,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units. An equal number of units are budgeted for each month.

During October, 48,000 watches were produced and $28,000 was spent on fixed overhead.

Required:

a. Determine the fixed overhead rate for 2008 based on the units of input.

b. Determine the fixed overhead static-budget variance for October.

c. Determine the production-volume overhead variance for October.

156)

Lungren has budgeted construction overhead for August of $260,000 for variable costs and $435,000 for fixed costs. Actual costs for the month totaled $275,000 for variable and $445,000 for fixed. Allocated fixed overhead totaled $440,000. The company tracks each item in an overhead control account before allocations are made to individual jobs. Spending variances for August were $10,000 unfavorable for variable and $10,000 unfavorable for fixed. The production-volume overhead variance was $5,000 favorable.

Required:

a. Make journal entries for the actual costs incurred.

b. Make journal entries to record the variances for August.

157)

Different management levels in Bates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows:

Budgeted output units 3,200 units

Budgeted fixed manufacturing overhead $20,000

Budgeted variable manufacturing overhead $5 per direct labor hour

Budgeted direct manufacturing labor hours 2 hours per unit

Fixed manufacturing costs incurred $26,000

Direct manufacturing labor hours used 7,200

Variable manufacturing costs incurred $35,600

Actual units manufactured 3,400

Required:

a. Compute a 4-variance analysis for the plant controller.

b. Compute a 3-variance analysis for the plant manager.

c. Compute a 2-variance analysis for the corporate controller.

d. Compute the flexible-budget variance for the manufacturing vice president.

158)

Casey Corporation produces a special line of basketball hoops. Casey Corporation produces the hoops in batches. To manufacture a batch of the basketball hoops, Casey Corporation must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of basketball hoops.

Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to January 2005.

Static-budget Actual

Amounts Amounts

Basketball hoops produced and sold 30,000 28,000

Batch size (number of units per batch) 200 250

Setup-hours per batch 5 4

Variable overhead cost per setup hour $10 $9

Total fixed setup overhead costs $22,500 $21,000

Required:

a. Calculate the efficiency variance for variable setup overhead costs.

b. Calculate the spending variance for variable setup overhead costs.

c. Calculate the flexible-budget variance for variable setup overhead costs.

d. Calculate the spending variance for fixed setup overhead costs.

e. Calculate the production-volume variance for fixed setup overhead costs.

159)

Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.

160)

Briefly explain why a favorable variable overhead spending variance may not always be desireable.

161)

Can the variable overhead efficiency variance

a. be computed the same way as the efficiency variance for direct-cost items?

b. be interpreted the same way as the efficiency variance for direct-cost items? Explain.

162)

Explain why there is no efficiency variance for fixed manufacturing overhead costs.

163)

How is a budgeted fixed overhead cost rate calculated?

164)

Explain why there is no production-volume variance for variable manufacturing overhead costs.

165)

Abby Company has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead. While the company's managers are familiar with the concept of spending variances, they are unclear as to how to interpret the production-volume overhead variances. Currently, the company has a production capacity of 54,000 units a month, although it generally produces only 46,000 units. However, in any given month the actual production is probably something other than 46,000.

Required:

a. Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain.

b. What advice can you provide the managers that will help them interpret the production-volume overhead variances?

166)

Explain the meaning of a favorable production-volume variance.

167)

What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?

168)

Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.

169)

Explain why sales-volume variance could be helpful to managers.

170)

The chapter shows that variance analysis of overhead costs can be presented in 4, 3, 2, and 1-variance analysis. Explain what each of the variances presented under each method shows about overhead costs.

#ACC 350 Week 9 Quiz – Strayer New

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