Courtside Concepts Co. began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2012, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees’ earnings records were inadvertently destroyed.

None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees’ income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:

$$\begin{array}{lccc} \text { Employee } & \begin{array}{c} \text { Date First } \\ \text { Employed } \end{array} & \begin{array}{c} \text { Monthly } \\ \text { Salary } \end{array} & \begin{array}{c} \text { Monthly } \\ \text { Income Tax } \\ \text { Withheld } \end{array} \\ \hline \text { Garnett } & \text { Jan. } 2 & \$ 4,400 & \$ 706 \\ \text { Kidd } & \text { Oct. } 1 & 7,200 & 1,442 \\ \text { J. O'Neal } & \text { Apr. } 16 & 3,600 & 506 \\ \text { Bryant } & \text { Nov. } 1 & 3,000 & 356 \\ \text { S. O'Neal } & \text { Jan. } 16 & 12,800 & 3,012 \\ \text { Marbury } & \text { Dec. } 1 & 5,000 & 856 \\ \text { Duncan } & \text { Feb. 1 } & 11,200 & 2,564 \end{array}$$

Instructions

1. Calculate the amounts to be reported on each employee’s Wage and Tax Statement (Form W-2) for 2011
2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 4.6% on the first $10,000 of each employee’s earnings; (d) federal unemployment compensation at 0.8% on the first$10,000 of each employee’s earnings; (e) total.

Smart Video Company is a manufacturer of videoconferencing products. Maintaining the videoconferencing equipment is an important area of customer satisfaction. A recent downturn in the computer industry has caused the videoconferencing equipment segment to suffer, leading to a decline in Smart Video’s financial performance. The following income statement shows results for 2017: Smart Video’s management team is preparing the 2018 budget and is studying the following information: 1. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. The selling price of each maintenance contract is expected to remain unchanged from 2017. 2. Equipment sales in units are expected to increase by 6%, with a corresponding 6% growth in units of maintenance contracts. 3. Cost of each unit sold is expected to increase by 5% to pay for the necessary technology and quality improvements. 4. Marketing costs are expected to increase by $290,000, but administration costs are expected to remain at 2017 levels. 5. Distribution costs vary in proportion to the number of units of equipment sold. 6. Two maintenance technicians are to be hired at a total cost of$160,000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time. 7. There is no beginning or ending inventory of equipment. Required: 1. Prepare a budgeted income statement for the year ending December 31, 2018. 2. How well does the budget align with Smart Video’s strategy? 3. How does preparing the budget help Smart Video’s management team better manage the company?

$$\begin{matrix} \text{Smart Video Company Income Statement for the Year Ended December 31, 2017 (in thousands)}\\ \text{Revenues}\\ \text{Equipment} & \text{\$ 8.000}\\ \text{Maintenance contracts} & \text{1.900}\\ \text{Total revenues} & \text{ } & \text{\$ 9.900}\\ \text{Cost of goods sold} & \text{ } & \text{4.000}\\ \text{Gross margin} & \text{ } & \text{5.900}\\ \text{Operating costs}\\ \text{Marketing} & \text{630}\\ \text{Distribution} & \text{100}\\ \text{Customer maintenance} & \text{1.100}\\ \text{Total operating costs} & \text{ } & \text{2.750}\\ \text{Operating income} & \text{ } & \text{\$ 3.150}\\ \end{matrix}$$

See Table down below showing financial statement data and stock price data for Mydeco Corp.

a. How did Mydeco's book debt-equity ratio change from $2012$ to $2016$?

b. How did Mydeco's market debt-equity ratio change from $2012$ to $2016$.

c. Compute Mydeco's debt-to-enterprise value ratio to assess how the fraction of its business that is debt financed has changed over the period.

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

Jerry Jones is a chemical engineer working for a large diversified company on the East Coast. For the past two years, he has been a member-the only technically trained member-of a citizens' pollution-control group working in his city. As a chemical engineer, Jones has been able to advise the group about what can reasonably be done about abating various kinds of pollution, and he has even helped some smaller companies design and buy control equipment. (His own plant has air and water pollution under good control.) As a result of Jones' activity, he built himself considerable prestige on the pollution-control committee. Recently, some other committee members started a drive to pressure the city administration into banning the sale of phosphate-containing detergents. They have been impressed by reports in their newspapers and magazines on the harmfulness of phosphates. Jones feels that banning phosphates would be misdirected effort. He tries to explain that although phosphates have been attacked in regard to the eutrophication of the Great Lakes, his city's sewage flows from the sewage-treatment plant directly into the ocean. And he feels that nobody has shown any detrimental effect of phosphate on the ocean. Also, he is aware that there are conflicting theories on the effect of phosphates, even on the Great Lakes (e.g., some theories put the blame on nitrogen or carbon rather than phosphates, and suggest that some phosphate substitutes may do more harm than good). To top it all, he points out that the major quantity of phosphate in the city's sewage comes from human wastes rather than detergent. Somehow, all this makes no impression on the backers of the "ban phosphates" measure. During an increasingly emotional meeting, some of the committee men even accuse Jones of using stalling tactics in order to protect his employer who, they point out, has a subsidiary that makes detergent chemicals. Jones is in a dilemma. He feels that his viewpoint makes sense, and has nothing to do with his employer's involvement with detergents (which is relatively small, anyway, and does not involve Jones' plant). Which step should he now take? (a) Go along with the "ban phosphates" clique on the grounds that the ban won't do any harm, even if it doesn't do much good. Besides, by giving the group at least passive support, Jones can preserve his influence for future items that really matter more. (b) Fight the phosphate foes to the end, on the grounds that their attitude is unscientific and unfair and that lending it his support would be unethical. (Possible outcomes: his ouster from the committee, or its breakup as an effective body.) (c) Resign from the commit1ec, giving his side of the story to the local press. (d) None of the above. (Popper and Hughson, 1970)

Bergen Corporation has three divisions: pulp, paper, and fibers. Bergen’s new controller, David Fisher, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information for each division for 2017:

$$\begin{matrix} & \text{Pulp} & \text{Paper} & \text{Fibers}\\ \text{Revenues} & \text{\$19,600,000} & \text{\$34,200,000} & \text{\$51,000,000}\\ \text{Direct manufacturing costs} & \text{7,000,000} & \text{15,600,000} & \text{22,200,000}\\ \text{Division administrative costs} & \text{6,600,000} & \text{4,000,000} & \text{9,400,000}\\ \text{Division margin} & \text{\$6,000,000} & \text{\$14,600,000} & \text{\$19,400,000}\\ \text{Number of employees} & \text{600} & \text{300} & \text{1,100}\\ \text{Floor space (square feet)} & \text{106,400} & \text{70,680} & \text{202,920}\\ \end{matrix}$$

Until now, Bergen Corporation has allocated fixed corporate-overhead costs to the division on the basis of division margins. Fisher asks for a list of costs that comprise fixed corporate overhead and suggests the following new allocation bases:

$$\begin{matrix} \text{Fixed Corporate-Overhead Costs} & \text{} & \text{Suggested Allocation Bases}\\ \text{Human resource management} & \text{\$4,600,000} & \text{Number of employees}\\ \text{Facility} & \text{6,400,000} & \text{Floor space (square feet)}\\ \text{Corporate administration} & \text{9,200,000} & \text{Division administrative costs}\\ \text{Total} & \text{\$20,200,000}\\ \end{matrix}$$

1. Allocate 2017 fixed corporate-overhead costs to the three divisions using division margin as the allocation base. What is each division's operating margin percentage (division margin minus allocated fixed corporate-overhead costs as a percentage of revenues)? 2. Allocate 2017 fixed costs using the allocation bases suggested by Fisher. What is each division's operating margin percentage under the new allocation scheme?

In the Clean Air Act, Congress allowed California, which has particular problems with clean air, to adopt its own
standard for emissions from cars and trucks. California’s standard is subject to the approval of the Environmental Protection Agency (EPA) based on certain criteria.
Congress also allowed other states to adopt California’s standard after the EPA’s approval. In 2004, in an effort to address climate change, the California Air Resources Board amended the state’s standard to attain
“the maximum feasible and cost-effective reduction of GHG [greenhouse gas] emissions from motor vehicles.” The regulation, which applies to new passenger vehicles and light-duty trucks for 2009 and later, imposes decreasing limits on emissions of carbon dioxide through 2016. While EPA approval was pending, Vermont and other states adopted similar standards. Green Mountain Chrysler Plymouth Dodge Jeep and other
auto dealers, automakers, and associations of automakers filed a suit in a federal district court against George Crombie (then the secretary of the Vermont Agency of Natural Resources) and others, seeking relief from the state regulations. [Green Mountain [Green Mountain [ Chrysler Plymouth Dodge Jeep v. Crombie, 508 F.Supp.2d
295 (D.Vt. 2007)] (See 295 (D.Vt. 2007)] (See 295 (D.Vt. 2007)] Air Pollution.)

(a) Under the Environmental Policy and Conservation Act
(EPCA) of 1975, the National Highway Traffic Safety
Administration sets fuel economy standards for new cars. The plaintiffs argued, among other things, that the EPCA, which prohibits states from adopting separate fuel economy standards, preempts Vermont’s GHG regulation. Do the GHG rules equate to the fuel economy standards? Discuss.

The postclosing trial balance of the general fund of Serene Hospital, a not-for-profit entity, on December 31, 20X1, was as follows:

$$\begin{array}{lrr} & \textbf{ Debit } & \textbf{Credit} \\ \\ \text{Cash} & \$\hspace{10pt}125,000 \\ \text{Accounts Receivable} & 400,000 \\ \text{Allowance for Uncollectibles} && \$\hspace{15pt}50,000 \\ \text{Due from Specific - Purpose Fund} & 40,000 \\ \text{Inventories} & 95,000 \\ \text{Prepaid Expenses} & 20,000 \\ \text{Investments} & 900,000 \\ \text{Property, Plant \& Equipment} & 6,100,000 \\ \text{Accumulated Depreciation} & & 1,500,000 \\ \text{Accounts Payable} & & 150,000 \\ \text{Accrued Expenses} & & 55,000 \\ \text{Deferred Revenue - Reimbursement} & & 75,000 \\ \text{Bonds Payable} & & 3,000,000 \\ \text{Fund Balance - Without Donor Restrictions} && 2,850,000 \\ \hline \text{Total} & \underline{\underline{\$7,680,000}} & \underline{\underline{\$7,680,000}}\\ \end{array}$$

During 20X2 the following transactions occurred:

1. Provided the value of patient services, $6,160,000.

2. Approved contractual adjustments of$330,000 from patients' bills.

3. Had operating expenses totaling $5,600,000 as follows:

$$\begin{array}{lr} \text{Nursing services} & \$1,800,000 \\ \text{Other professional services} & 1,200,000\\ \text{Fiscal services} & 250,000 \\ \text{General services} & 1,550,000\\ \text{Bad debts} & 120,000 \\ \text{Administration} & 280,000 \\ \text{Depreciation} & 400,000 \\ \end{array}$$

Accounts credited for operating expenses other than depreciation:

$$\begin{array}{lr} \text{Cash} & \$4,580,000 \\ \text{Allowance for Uncollectibles} & 120,000 \\ \text{Accounts Payable} & 170,000 \\ \text{Accrued Expenses} & 35,000 \\ \text{Inventories} & 195,000 \\ \text{Prepaid Expenses} & 30,000 \\ \text{Donated Services} & 70,000 \\ \end{array}$$

4. Received $75,000 cash from specific-purpose fund for partial reimbursement of$100,000 for operating expenditures made in accordance with a restricted gift. The receivable increased by the remaining $25,000 to an ending balance of$65,000.

5. Had payments for inventories and prepaid expenses of $176,000 and$24,000, respectively.

6. Received $85,000 income from endowment fund investments.

7. Sold for$17,000 an X-ray machine that had cost $30,000 and had accumulated depreciation of$20,000.

8. Collected $5,800,000 in receivables and wrote off$132,000.

9. Acquired investments amounting to $60,000.

10. Had$72,000 income from board-designated investments.

11. Paid the beginning balance in Accounts Payable and Accrued Expenses.

12. Had a $20,000 increase in Deferred Revenue-Reimbursement.

13. Received$140,000 from the plant replacement and expansion fund for acquiring fixed assets.

14. Had $63,000 in net receipts from the cafeteria and gift shop.

Required

Prepare journal entries to record the transactions for the general fund. Omit explanations.

See Table down below showing financial statement data and stock price data for Mydeco Corp.

a. Compare accounts payable days in $2012$ and $2016$.

b. Did this change in accounts payable days improve or worsen Mydeco's cash position in $2016$?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

$

Almost all U.S. light-rail systems use electric cars that run on tracks built at street level. According to the Federal Transit Administration, light-rail is one of the safest modes of travel, with an accident rate of .99 accidents per million passenger miles as compared to 2.29 for buses. The following data show the miles of track and the weekday ridership in thousands of passengers for selected light-rail systems (USA Today, January 7, 2003).

$$\begin{matrix} \text{City} & \text{Miles} & \text{Riders}\\ \text{Los Angeles} & \text{22} & \text{70}\\ \text{San Diego} & \text{47} & \text{75}\\ \text{Portland} & \text{38} & \text{81}\\ \text{Sacramento} & \text{21} & \text{31}\\ \text{San Jose} & \text{31} & \text{30}\\ \text{San Francisco} & \text{73} & \text{164}\\ \text{Philadelphia} & \text{69} & \text{84}\\ \text{Boston} & \text{51} & \text{231}\\ \text{Denver} & \text{17} & \text{35}\\ \text{Salt Lake City} & \text{18} & \text{28}\\ \text{Dallas} & \text{44} & \text{39}\\ \text{New Orleans} & \text{16} & \text{14}\\ \text{St. Louis} & \text{34} & \text{42}\\ \text{Pittsburgh} & \text{18} & \text{25}\\ \text{Buffalo} & \text{6} & \text{23}\\ \text{Cleveland} & \text{15} & \text{15}\\ \text{Newark} & \text{9} & \text{8}\\ \end{matrix}$$

a. Develop a scatter diagram for these data, treating the number of miles of track as the independent variable. Does a simple linear regression model appear to be appropriate? b. Use a simple linear regression model to develop an estimated regression equation to predict the weekday ridership given the miles of track. Construct a standardized residual plot. Based upon the standardized residual plot, does a simple linear regression model appear to be appropriate? c. Perform a logarithmic transformation on the dependent variable. Develop an estimated regression equation using the transformed dependent variable. Do the model assumptions appear to be satisfied by using the transformed dependent variable? d. Perform a reciprocal transformation on the dependent variable. Develop an estimated regression equation using the transformed dependent variable. e. What estimated regression equation would you recommend? Explain.

The following problem is based on information from the National Oceanic and Atmospberic Administration (NOAA) Environmental Data Service. Let x be a random variable that represents the average daily temperature (in degrees Fahrenheit) in July in the town of Kit Carson, Colorado. The x distribution has a mean $\mu$ of approximately $75^{\circ} \mathrm{F}$ and standard deviation $\sigma$ of approximately $8^{\circ} \mathrm{F}$. A 20 -year study (620 July days) gave the entries in the rightmost column of the following table. $$ \scriptscriptstyle\begin{array}{lccc} \hline I & II & III & I\mathrm{V} \\ \hline & & & \text { Observed } \\ \text { Region under } & & \text { Expected % from } & \text { Number of Days } \\ \text { Normal Curve } & x^{\circ} \mathrm{F} & \text { Normal Curve } & \text { in 20 Years } \\ \hline \mu-3 \sigma \leq x<\mu-2 \sigma & 51 \leq x<59 & 2.35 \% & 16 \\ \mu-2 \sigma \leq x<\mu-\sigma & 59 \leq x<67 & 13.5 \% & 78 \\ \mu-\sigma \leq x<\mu & 67 \leq x<75 & 34 \% & 212 \\ \mu \leq x<\mu+\sigma & 75 \leq x<83 & 34 \% & 221 \\ \mu+\sigma \leq x<\mu+2 \sigma & 83 \leq x<91 & 13.5 \% & 81 \\ \mu+2 \sigma \leq x<\mu+3 \sigma & 91 \leq x<99 & 2.35 \% & 12 \\ \hline \end{array} $$ (i) Remember that $\mu=75$ and $\sigma=8.$. Write a brief explanation for Columns I, II, and III in the context of this problem. (ii) Use a 1% level of significance to test the claim that the average daily July temperature follows a normal distribution with $\mu=75$ and $\sigma=8$. What is the level of significance? State the null and alternate hypotheses.

See Table down below showing financial statement data and stock price data for Mydeco Corp.

a. In what year was Mydeco's net income the lowest?

b. In what year did Mydeco need to reduce its cash reserves?

c. Why did Mydeco need to reduce its cash reserves in a year when net income was reasonably high?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

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See Table down below showing financial statement data and stock price data for Mydeco Corp.

Was Mydeco able to improve its ROIC in $2016$ relative to what it was in $2012$?

2012–2016 Financial Statement Data and Stock Price Data for Mydeco Corp

Mydeco Corp. 2012–2016 $\hspace{30mm}$ (All data as of fiscal year end; in $million)$

$$\begin{array}{lccccc} \text{Income statement} & 2012 & 2013 & 2014 & 2015 & 2016 \\ \text{Revenue} & 401.9 & 361.6 & 429.6 & 513.6 & 602.6 \\ \underline{\text{Cost of Goods Sold}} & (192.1) & (175.4) & (207.1) & (248.3) & (295.8)\\ \text{Gross Profit} & 209.8 & 186.2 & 222.5 & 265.3 & 306.8\\ \text{Sales and Marketing} & (65.0) & (64.4) & (84.3) & (104.9) & (121.1)\\ \text{Administration} & (61.8) & (57.1) & (59.0) & (66.9) & (79.8)\\ \underline{\text{Depreciation $\And$ Amortization}} & (27.5) & (26.3) & (32.5) & (38.3) & (40.1)\\ \text{EBIT} & 55.5 & 38.4 & 46.7 & 55.2 & 65.8\\ \underline{\text{Interest Income (Expense)}} & (32.4) & (31.8) & (32.0) & (37.0) & (40.9)\\ \text{Pretax Income} & 23.1 & 6.6 & 14.7 & 18.2 & 24.9\\ \underline{\text{Income Tax}} & (8.1) & (2.3) & (5.1) & (6.4) & (8.7)\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Shares outstanding (millions)} & 56.8 & 56.8 & 56.8 & 56.8 & 56.8\\ \text{Earnings per share} & \$0.26 & \$0.08 & \$0.17 & \$0.21 & \$0.29\\ \text{Balance Sheet} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Assets}\\ \text{Cash} & 49.4 & 68.0 & 91.7 & 80.4 & 83.6\\ \text{Accounts Receivable} & 87.6 & 70.6 & 69.3 & 77.4 & 84.2\\ \text{Inventory} & 33.5 & 32.2 & 27.3 & 30.2 & 35.8\\ \text{Total Current Assets} & 170.5 & 170.8 & 188.3 & 188.0 & 203.6\\ \text{Net Property, Plant $\And$ Equip.} & 244.3 & 243.3 & 306.1 & 349.6 & 347.9\\ \text{Goodwill $\And$ Intangibles} & 365.5 & 365.5 & 365.5 & 365.5 & 365.5\\ \text{Total Assets} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Liabilities $\And$ Stockholders’ Equity}\\ \text{Accounts Payable} & 18.8 & 18.8 & 22.4 & 27.1 & 30.3\\ \text{Accrued Compensation} & 7.6 & 6.3 & 7.5 & 7.7 & 9.4\\ \text{Total Current Liabilities} & 26.4 & 25.1 & 29.9 & 34.8 & 39.7\\ \text{Long-term Debt} & 498.9 & 498.9 & 572.2 & 597.5 & 597.5\\ \text{Total Liabilities} & 525.3 & 524 & 602.1 & 632.3 & 637.2\\ \text{Stockholders’ Equity} & 255.0 & 255.6 & 257.8 & 270.8 & 279.8\\ \text{Total Liabilities $\And$ Stockholders’ Equity} & 780.3 & 779.6 & 859.9 & 903.1 & 917.0\\ \text{Statement of Cash Flows} & 2012 & 2013 & 2014 & 2015 & 2016\\ \text{Net Income} & 15.0 & 4.3 & 9.6 & 11.8 & 16.2\\ \text{Depreciation $\And$ Amortization} & 27.5 & 26.3 & 32.5 & 38.3 & 40.1\\ \text{Chg. in Accounts Receivable} & 3.9 & 17.0 & 1.3 & (8.1) & (6.8)\\ \text{Chg. in Inventory} & (2.9) & 1.3 & 4.9 & (2.9) & (5.6)\\ \underline{\text{Chg. in Payables $\And$ Accrued Comp.}} & 1.7 & (1.3) & 4.8 & 4.9 & 4.9\\ \text{Cash from Operations} & 45.2 & 47.6 & 53.1 & 44.0 & 48.8\\ \underline{\text{Capital Expenditures}} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Cash from Investing Activities} & (26.6) & (23.8) & (97.5) & (75.4) & (40.0)\\ \text{Dividends Paid} & (5.2) & (5.2) & (5.2) & (5.2) & (5.6)\\ \text{Sale (or purchase) of stock} & — & — & — & — & —\\ \underline{\text{Debt Issuance (Pay Down)}} & — & — & 73.3 & 25.3 & —\\ \text{Cash from Financing Activities} & (5.2) & (5.2) & 68.1 & 20.1 & (5.6)\\ \text{Change in Cash} & 13.4 & 18.6 & 23.7 & (11.3) & 3.2\\ \text{Mydeco Stock Price} & \$7.02 & \$3.55 & \$5.86 & \$8.33 & \$11.57\\ \end{array}$$

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The following problem is based on information from the National Oceanic and Atmospberic Administration (NOAA) Environmental Data Service. Let x be a random variable that represents the average daily temperature (in degrees Fahrenheit) in July in the town of Kit Carson, Colorado. The x distribution has a mean $\mu$ of approximately $75^{\circ} \mathrm{F}$ and standard deviation $\sigma$ of approximately $8^{\circ} \mathrm{F}$. A 20 -year study (620 July days) gave the entries in the rightmost column of the following table.

$$\scriptscriptstyle\begin{array}{lccc} \hline I & II & III & I\mathrm{V} \\ \hline & & & \text { Observed } \\ \text { Region under } & & \text { Expected \% from } & \text { Number of Days } \\ \text { Normal Curve } & x^{\circ} \mathrm{F} & \text { Normal Curve } & \text { in 20 Years } \\ \hline \mu-3 \sigma \leq x<\mu-2 \sigma & 51 \leq x<59 & 2.35 \% & 16 \\ \mu-2 \sigma \leq x<\mu-\sigma & 59 \leq x<67 & 13.5 \% & 78 \\ \mu-\sigma \leq x<\mu & 67 \leq x<75 & 34 \% & 212 \\ \mu \leq x<\mu+\sigma & 75 \leq x<83 & 34 \% & 221 \\ \mu+\sigma \leq x<\mu+2 \sigma & 83 \leq x<91 & 13.5 \% & 81 \\ \mu+2 \sigma \leq x<\mu+3 \sigma & 91 \leq x<99 & 2.35 \% & 12 \\ \hline \end{array}$$

(i) Remember that $\mu=75$ and $\sigma=8.$. Write a brief explanation for Columns I, II, and III in the context of this problem. (ii) Use a 1% level of significance to test the claim that the average daily July temperature follows a normal distribution with $\mu=75$ and $\sigma=8$. Find the value of the chi-square statistic for the sample. Are all the expected frequencies greater than 5? What sampling distribution will you use? What are the degrees of freedom?

The Air Force Reserve’s 53rd Weather Reconnaissance Squadron, better known as the Hurricane Hunters, fly into the eye of tropical cyclones in their WC-130 Hercules aircraft to collect and report vital meteorological data for advance storm warnings. The data are relayed to the National Hurricane Center in Miami, Florida, for broadcasting emergency storm warnings on land. According to the National Oceanic and Atmospheric Administration, the 2008 Atlantic hurricane season marked “... the end of a season that produced a record number of consecutive storms to strike the United States and ranks as one of the more active seasons in the 64 years since comprehensive records began.” A total of 16 named storms formed this season, including eight hurricanes, five of which

$$\begin{array}{l|c|c} \hline \text { Storm } & \text { Date } & \text { Max wind (mph) } \\ \hline \text { Arthur } & 05 / 30-06 / 02 & 45 \\ \text { Bertha } & 07 / 03-07 / 20 & 125 \\ \text { Cristobal } & 07 / 18-07 / 23 & 65 \\ \text { Dolly } & 07 / 20-07 / 25 & 100 \\ \text { Edouard } & 08 / 03-08 / 06 & 65 \\ \text { Fay } & 08 / 15-08 / 26 & 65 \\ \text { Gustav } & 08 / 25-09 / 04 & 150 \\ \text { Hanna } & 08 / 28-09 / 07 & 80 \\ \text { Ike } & 09 / 01-09 / 14 & 145 \\ \text { Josephine } & 09 / 02-09 / 06 & 65 \\ \text { Kyle } & 09 / 25-09 / 29 & 80 \\ \text { Laura } & 09 / 29-10 / 01 & 60 \\ \text { Marco } & 10 / 06-10 / 08 & 65 \\ \text { Nana } & 10 / 12-10 / 14 & 40 \\ \text { Omar } & 10 / 13-10 / 18 & 135 \\ \text { Paloma } & 11 / 05-11 / 10 & 145 \\ \hline \end{array}$$

were major hurricanes at Category 3 strength or higher. The maximum winds were recorded for each storm and are shown in the preceding table, abridged from a table in Wikipedia. Consider these storms a population of interest. Obtain the following parameters for the maximum wind speeds. Use the appropriate mathematical notation for the parameters to express your answers. a. Mean, b. Standard deviation, c. Median, d. Mode, e. IQR.