Categories

## at what discount rate would you be indifferent between accepting the project and rejecting it?

 Buy Coastal, Inc., imposes a payback cutoff of three years for its international investment projects.
 Year Cash Flow (A) Cash Flow (B) 0 –\$ 53,000 –\$ 63,000 1 19,500 11,500 2 21,000 14,500 3 17,500 19,000 4 4,500 223,000
 What is the payback period for both projects? (Round your answers to 2 decimal places. (e.g., 32.16))
 Payback period Project A years Project B years
 Which project should the company accept? Project BProject A
 An investment project costs \$10,000 and has annual cash flows of \$2,950 for six years.
 What is the discounted payback period if the discount rate is zero percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))
 Discounted payback period years
 What is the discounted payback period if the discount rate is 4 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))
 Discounted payback period years
 What is the discounted payback period if the discount rate is 21 percent? (Enter 0 if the project never pays back. Round your answer to 2 decimal places. (e.g., 32.16))
 Discounted payback period years
 A project that provides annual cash flows of \$16,600 for eight years costs \$72,000 today.
 What is the NPV for the project if the required return is 7 percent? (Round your answer to 2 decimal places. (e.g., 32.16))
 NPV \$
 At a required return of 7 percent, should the firm accept this project? AcceptReject
 What is the NPV for the project if the required return is 19 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))
 NPV \$
 At a required return of 19 percent, should the firm accept this project? AcceptReject
 At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))
 Discount rate %
 Garage, Inc., has identified the following two mutually exclusive projects:
 Year Cash Flow (A) Cash Flow (B) 0 –\$ 29,200 –\$ 29,200 1 14,600 4,400 2 12,500 9,900 3 9,300 15,400 4 5,200 17,000
 a-1 What is the IRR for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
 IRR Project A % Project B %
 a-2 Using the IRR decision rule, which project should the company accept? Project AProject B
 a-3 Is this decision necessarily correct? YesNo
 b-1 If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
 NPV Project A \$ Project B \$
 b-2 Which project will the company choose if it applies the NPV decision rule? Project AProject B
 c. At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 Discount rate %
 Slow Ride Corp. is evaluating a project with the following cash flows:
 Year Cash Flow 0 –\$ 29,900 1 12,100 2 14,800 3 16,700 4 13,800 5 – 10,300
 The company uses an interest rate of 10 percent on all of its projects.
 Calculate the MIRR of the project using the discounting approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 MIRR %
 Calculate the MIRR of the project using the reinvestment approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 MIRR %
 Calculate the MIRR of the project using the combination approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
 MIRR %
Categories

## ¿me lo estás preparando? se los debemos pedir. tienes que mostrármelos.

Rewrite the sentences using pronouns. Follow the model

Model He’s going to bring us the dishes.
He will bring them to us. / He’s going to bring them to us.

1. We will serve coffee.

____________________

2. I am showing you the menu.

____________________

3. Did the french fries serve you?

____________________

4. I will bring the salmon.

____________________

5. I ordered a seafood soup.

____________________

Diagnostic 2
More sentences
Use pronouns to rewrite the sentences without changing their meaning. Follow the model

Model Are you going to recommend it to us?
Are you going to recommend it to us?

1. We are preparing it.

____________________

2. I will repeat it to you.

____________________

3. Are you preparing me?

____________________

____________________

5. You have to show them to me.

____________________

Diagnostic 3
Questions
Answer these questions in the affirmative, using pronouns.

1. Are you recommending that book to me?

____________________

2. Does the iced tea serve you?

____________________

3. Are they going to bring you the butter?

____________________

4. Do they have to show us the photos?

____________________

5. Are you buying the shrimp?

____________________

Diagnostic 4
Complete
Complete the conversation using pronouns.

ARTURO, did you buy me the red wine?

LUIS Yes, ____________________.

ARTURO And, did you choose the music we’re going to listen to?

LUIS Yes, ____________________.

ARTURO Did you wash the dishes for me?

LUIS Yes, I just ____________________.

ARTURO What do you say, Luis? Should I wear this tie?

LUIS Yes, ____________________.

ARTURO Oh! And the food? Did you prepare the pork chops?

LUIS Calm down, Arturo! I already ____________________ .

Categories

## bus 303 week 2 assignment

Job Description Paper

The primary function of the job description paper is to increase understanding of your current, or a prospective, position. The following areas of the job description should be considered:

Tools and Technology,

Knowledge,

Skills and Abilities,

Educational Requirements.

Submit a paper in which you describe each of the above mentioned areas of the job description from the vantage point of your chosen position. Provide two or more ways that you would advertise or recruit someone for that position (see chapter 4 of the textbook). In addition, include a description of at least two methods of assessment used when recruiting qualified candidates and why these two assessment methods would be most appropriate.

Writing the Job Description Paper:

Must be three double-spaced pages in length, excluding the cover page and reference page, and formatted according to APA style as outlined in your approved style guide.

Must include a cover page with the following:

Name of paper

Student’s name

Course name and number

Instructor’s name

Date submitted

Must include an introductory paragraph with a succinct thesis statement.

Must address the topic of the paper with critical thought.

Must conclude with a restatement of the thesis and a conclusion paragraph.

Must use APA style as outlined in your approved style guide to document all sources.

Must include, on the final page, a Reference List that is completed according to APA style as outlined in your approved style guide and has at least two references in addition to the text.

Carefully review the Grading Rubric (Links to an external site.)Links to an external site. for the criteria that will be used to evaluate your assignment.

Categories

## article where physical security failed

• Search the Internet for an article where physical security failed
• Propose a possible change in that organization’s physical security that could have prevented the breach/failure for that scenario
• Submit at least 2 but no more than 4 pages double spaced
• No photos or graphs
• Reference all sources used
• You may submit a second review if you change your mind after submitting the first review, but only the last attempt will be graded
• no plagiarism
• should in apa format
Categories

## cannonier, inc., has identified an investment project with the following cash flows.

 Discounted Cash Flow Valuation 6

THE SIGNING OF BIG-NAME ATHLETES is frequently accompanied by great fanfare, but the numbers are often misleading. For example, in late 2013, catcher Brian McCann reached a deal with the New York Yankees, signing a contract with a reported value of \$85 million. Not bad, especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). Another example is the contract signed by Jacoby Ellsbury, also with the New York Yankees, which had a stated value of \$153 million.

It looks like Brian and Jacoby did pretty well, but then there was Clayton Kershaw, who signed to play in front of the Los Angeles Dodgers’ fans. Clayton’s contract has a stated value of \$215 million, but this amount was actually payable over several years. The contract consisted of an \$18 million signing bonus, along with \$4 million in salary in the first year plus \$193 million in future salary to be paid in the years 2015 through 2020. Brian’s and Jacoby’s payments were similarly spread over time. Because all three contracts called for payments that are made at future dates, we must consider the time value of money, which means none of these players received the quoted amounts. How much did they really get? This chapter gives you the “tools of knowledge” to answer this question.

For updates on the latest happenings in finance, visit www.fundamentalsofcorporatefinance.blogspot.com.

Learning Objectives

After studying this chapter, you should understand:

 LO1 How to determine the future and present value of investments with multiple cash flows. LO2 How loan payments are calculated and how to find the interest rate on a loan. LO3 How loans are amortized or paid off. LO4 How interest rates are quoted (and misquoted).

In our previous chapter, we covered the basics of discounted cash flow valuation. However, so far, we have dealt with only single cash flows. In reality, most investments have multiple cash flows. For example, if Target is thinking of opening a new department store, there will be a large cash outlay in the beginning and then cash inflows for many years. In this chapter, we begin to explore how to value such investments.

When you finish this chapter, you should have some very practical skills. For example, you will know how to calculate your own car payments or student loan payments. You will also be able to determine how long it will take to pay off a credit card if you make the minimum payment each month (a practice we do not recommend). We will show you how to compare interest rates to determine which are the highest and which are the lowest, and we will also show you how interest rates can be quoted in different—and at times deceptive—ways.

Page 150FIGURE 6.1 Drawing and Using a Time Line

6.1 Future and Present Values of Multiple Cash Flows

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Thus far, we have restricted our attention to either the future value of a lump sum present amount or the present value of some single future cash flow. In this section, we begin to study ways to value multiple cash flows. We start with future value.

FUTURE VALUE WITH MULTIPLE CASH FLOWS

Suppose you deposit \$100 today in an account paying 8 percent. In one year, you will deposit another \$100. How much will you have in two years? This particular problem is relatively easy. At the end of the first year, you will have \$108 plus the second \$100 you deposit, for a total of \$208. You leave this \$208 on deposit at 8 percent for another year. At the end of this second year, it is worth:

\$208 × 1.08 = \$224.64

Figure 6.1 is a time line that illustrates the process of calculating the future value of these two \$100 deposits. Figures such as this are useful for solving complicated problems. Almost anytime you are having trouble with a present or future value problem, drawing a time line will help you see what is happening.

In the first part of Figure 6.1, we show the cash flows on the time line. The most important thing is that we write them down where they actually occur. Here, the first cash flow occurs today, which we label as Time 0. We therefore put \$100 at Time 0 on the time line. The second \$100 cash flow occurs one year from today, so we write it down at the point labeled as Time 1. In the second part of Figure 6.1, we calculate the future values one period at a time to come up with the final \$224.64.

EXAMPLE 6.1 Saving Up Revisited

You think you will be able to deposit \$4,000 at the end of each of the next three years in a bank account paying 8 percent interest. You currently have \$7,000 in the account. How much will you have in three years? In four years?

At the end of the first year, you will have:

\$7,000 × 1.08 + 4,000 = \$11,560

Page 151At the end of the second year, you will have:

\$11,560 × 1.08 + 4,000 = \$16,484.80

Repeating this for the third year gives:

\$16,484.80 × 1.08 + 4,000 = \$21,803.58

Therefore, you will have \$21,803.58 in three years. If you leave this on deposit for one more year (and don’t add to it), at the end of the fourth year, you’ll have:

\$21,803.58 × 1.08 = \$23,547.87

When we calculated the future value of the two \$100 deposits, we simply calculated the balance as of the beginning of each year and then rolled that amount forward to the next year. We could have done it another, quicker way. The first \$100 is on deposit for two years at 8 percent, so its future value is:

\$100 × 1.082 = \$100 × 1.1664 = \$116.64

The second \$100 is on deposit for one year at 8 percent, and its future value is thus:

\$100 × 1.08 = \$108

The total future value, as we previously calculated, is equal to the sum of these two future values:

\$116.64 + 108 = \$224.64

Based on this example, there are two ways to calculate future values for multiple cash flows: (1) Compound the accumulated balance forward one year at a time or (2) calculate the future value of each cash flow first and then add them up. Both give the same answer, so you can do it either way.

To illustrate the two different ways of calculating future values, consider the future value of \$2,000 invested at the end of each of the next five years. The current balance is zero, and the rate is 10 percent. We first draw a time line, as shown in Figure 6.2.

On the time line, notice that nothing happens until the end of the first year, when we make the first \$2,000 investment. This first \$2,000 earns interest for the next four (not five) years. Also notice that the last \$2,000 is invested at the end of the fifth year, so it earns no interest at all.

Figure 6.3 illustrates the calculations involved if we compound the investment one period at a time. As illustrated, the future value is \$12,210.20.

FIGURE 6.2 Time Line for \$2,000 per Year for Five Years

FIGURE 6.3 Future Value Calculated by Compounding Forward One Period at a Time

Page 152FIGURE 6.4 Future Value Calculated by Compounding Each Cash Flow Separately

Figure 6.4 goes through the same calculations, but the second technique is used. Naturally, the answer is the same.

EXAMPLE 6.2 Saving Up Once Again

If you deposit \$100 in one year, \$200 in two years, and \$300 in three years, how much will you have in three years? How much of this is interest? How much will you have in five years if you don’t add additional amounts? Assume a 7 percent interest rate throughout.

We will calculate the future value of each amount in three years. Notice that the \$100 earns interest for two years, and the \$200 earns interest for one year. The final \$300 earns no interest. The future values are thus:

The total future value is thus \$628.49. The total interest is:

\$628.49 − (100 + 200 + 300) = \$28.49

How much will you have in five years? We know that you will have \$628.49 in three years. If you leave that in for two more years, it will grow to:

\$628.49 × 1.072 = \$628.49 × 1.1449 = \$719.56

Notice that we could have calculated the future value of each amount separately. Once again, be careful about the lengths of time. As we previously calculated, the first \$100 earns interest for only four years, the second deposit earns three years’ interest, and the last earns two years’ interest:

Page 153PRESENT VALUE WITH MULTIPLE CASH FLOWS

We often need to determine the present value of a series of future cash flows. As with future values, there are two ways we can do it. We can either discount back one period at a time, or we can just calculate the present values individually and add them up.

Suppose you need \$1,000 in one year and \$2,000 more in two years. If you can earn 9 percent on your money, how much do you have to put up today to exactly cover these amounts in the future? In other words, what is the present value of the two cash flows at 9 percent?

The present value of \$2,000 in two years at 9 percent is:

\$2,000/1.092 = \$1,683.36

The present value of \$1,000 in one year is:

\$1,000/1.09 = \$917.43

Therefore, the total present value is:

\$1,683.36 + 917.43 = \$2,600.79

To see why \$2,600.79 is the right answer, we can check to see that after the \$2,000 is paid out in two years, there is no money left. If we invest \$2,600.79 for one year at 9 percent, we will have:

\$2,600.79 × 1.09 = \$2,834.86

We take out \$1,000, leaving \$1,834.86. This amount earns 9 percent for another year, leaving us with:

\$1,834.86 × 1.09 = \$2,000

This is just as we planned. As this example illustrates, the present value of a series of future cash flows is simply the amount you would need today to exactly duplicate those future cash flows (for a given discount rate).

An alternative way of calculating present values for multiple future cash flows is to discount back to the present, one period at a time. To illustrate, suppose we had an investment that was going to pay \$1,000 at the end of every year for the next five years. To find the present value, we could discount each \$1,000 back to the present separately and then add them up. Figure 6.5 illustrates this approach for a 6 percent discount rate; as shown, the answer is \$4,212.37 (ignoring a small rounding error).

FIGURE 6.5 Present Value Calculated by Discounting Each Cash Flow Separately

Page 154FIGURE 6.6 Present Value Calculated by Discounting Back One Period at a Time

Alternatively, we could discount the last cash flow back one period and add it to the next-to-the-last cash flow:

(\$1,000/1.06) + 1,000 = \$943.40 + 1,000 = \$1,943.40

We could then discount this amount back one period and add it to the Year 3 cash flow:

(\$1,943.40/1.06) + 1,000 = \$1,833.40 + 1,000 = \$2,833.40

This process could be repeated as necessary. Figure 6.6 illustrates this approach and the remaining calculations.

EXAMPLE 6.3 How Much Is It Worth?

You are offered an investment that will pay you \$200 in one year, \$400 the next year, \$600 the next year, and \$800 at the end of the fourth year. You can earn 12 percent on very similar investments. What is the most you should pay for this one?

We need to calculate the present value of these cash flows at 12 percent. Taking them one at a time gives:

If you can earn 12 percent on your money, then you can duplicate this investment’s cash flows for \$1,432.93, so this is the most you should be willing to pay.

EXAMPLE 6.4 How Much Is It Worth? Part 2

You are offered an investment that will make three \$5,000 payments. The first payment will occur four years from today. The second will occur in five years, and the third will follow in six years. If you can earn 11 percent, what is the most this investment is worth today? What is the future value of the cash flows?

We will answer the questions in reverse order to illustrate a point. The future value of the cash flows in six years is:

Page 155The present value must be:

\$16,710.50/1.116 = \$8,934.12

Let’s check this. Taking them one at a time, the PVs of the cash flows are:

This is as we previously calculated. The point we want to make is that we can calculate present and future values in any order and convert between them using whatever way seems most convenient. The answers will always be the same as long as we stick with the same discount rate and are careful to keep track of the right number of periods.

CALCULATOR HINTS

How to Calculate Present Values with Multiple Future Cash Flows Using a Financial Calculator

To calculate the present value of multiple cash flows with a financial calculator, we will simply discount the individual cash flows one at a time using the same technique we used in our previous chapter, so this is not really new. However, we can show you a shortcut. We will use the numbers in Example 6.3 to illustrate.

To begin, of course we first remember to clear out the calculator! Next, from Example 6.3, the first cash flow is \$200 to be received in one year and the discount rate is 12 percent, so we do the following:

Now, you can write down this answer to save it, but that’s inefficient. All calculators have a memory where you can store numbers. Why not just save it there? Doing so cuts way down on mistakes because you don’t have to write down and/or rekey numbers, and it’s much faster.

Next we value the second cash flow. We need to change N to 2 and FV to 400. As long as we haven’t changed anything else, we don’t have to reenter I/Y or clear out the calculator, so we have:

You save this number by adding it to the one you saved in your first calculation, and so on for the remaining two calculations.

As we will see in a later chapter, some financial calculators will let you enter all of the future cash flows at once, but we’ll discuss that subject when we get to it.

Page 156

How to Calculate Present Values with Multiple Future Cash Flows Using a Spreadsheet

Just as we did in our previous chapter, we can set up a basic spreadsheet to calculate the present values of the individual cash flows as follows. Notice that we have simply calculated the present values one at a time and added them up:

A NOTE ABOUT CASH FLOW TIMING

In working present and future value problems, cash flow timing is critically important. In almost all such calculations, it is implicitly assumed that the cash flows occur at the end of each period. In fact, all the formulas we have discussed, all the numbers in a standard present value or future value table, and (very important) all the preset (or default) settings on a financial calculator assume that cash flows occur at the end of each period. Unless you are explicitly told otherwise, you should always assume that this is what is meant.

As a quick illustration of this point, suppose you are told that a three-year investment has a first-year cash flow of \$100, a second-year cash flow of \$200, and a third-year cash flow of \$300. You are asked to draw a time line. Without further information, you should always assume that the time line looks like this:

On our time line, notice how the first cash flow occurs at the end of the first period, the second at the end of the second period, and the third at the end of the third period.

We will close this section by answering the question we posed at the beginning of the chapter concerning baseball player Clayton Kershaw’s contract. Recall that the contract called for an \$18 million signing bonus and \$4 million in salary in 2014. The remaining \$193 million was to be paid as \$30 million in 2015, \$32 million in 2016, \$33 million in 2017, Page 157\$33 million in 2018, \$32 million in 2019, and \$33 million in 2020. If 12 percent is the appropriate discount rate, how much money was really thrown at the Dodgers’ pitcher?

To answer, we can calculate the present value by discounting each year’s salary back to the present as follows (notice we assume that all the payments are made at year-end):

If you fill in the missing rows and then add (do it for practice), you will see that Clayton’s contract had a present value of about \$139.1 million, or about 65 percent of the stated \$215 million value.

Concept Questions

6.1a   Describe how to calculate the future value of a series of cash flows.

6.1b   Describe how to calculate the present value of a series of cash flows.

6.1c   Unless we are explicitly told otherwise, what do we always assume about the timing of cash flows in present and future value problems?

6.2 Valuing Level Cash Flows: Annuities and Perpetuities

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We will frequently encounter situations in which we have multiple cash flows that are all the same amount. For example, a common type of loan repayment plan calls for the borrower to repay the loan by making a series of equal payments over some length of time. Almost all consumer loans (such as car loans) and home mortgages feature equal payments, usually made each month.

More generally, a series of constant or level cash flows that occur at the end of each period for some fixed number of periods is called an ordinary annuity; more correctly, the cash flows are said to be in ordinary annuity form. Annuities appear frequently in financial arrangements, and there are some useful shortcuts for determining their values. We consider these next.

annuity A level stream of cash flows for a fixed period of time.

PRESENT VALUE FOR ANNUITY CASH FLOWS

Suppose we were examining an asset that promised to pay \$500 at the end of each of the next three years. The cash flows from this asset are in the form of a three-year, \$500 annuity. If we wanted to earn 10 percent on our money, how much would we offer for this annuity?

From the previous section, we know that we can discount each of these \$500 payments back to the present at 10 percent to determine the total present value:

Page 158This approach works just fine. However, we will often encounter situations in which the number of cash flows is quite large. For example, a typical home mortgage calls for monthly payments over 30 years, for a total of 360 payments. If we were trying to determine the present value of those payments, it would be useful to have a shortcut.

Because the cash flows of an annuity are all the same, we can come up with a handy variation on the basic present value equation. The present value of an annuity of Cdollars per period for t periods when the rate of return or interest rate is r is given by:

The term in parentheses on the first line is sometimes called the present value interest factor for annuities and abbreviated PVIFA(rt).

The expression for the annuity present value may look a little complicated, but it isn’t difficult to use. Notice that the term in square brackets on the second line, 1/(1 + r)t, is the same present value factor we’ve been calculating. In our example from the beginning of this section, the interest rate is 10 percent and there are three years involved. The usual present value factor is thus:

Present value factor = 1/1.13 = 1/1.331 = .751315

To calculate the annuity present value factor, we just plug this in:

Just as we calculated before, the present value of our \$500 annuity is then:

Annuity present value = \$500 × 2.48685 = \$1,243.43

EXAMPLE 6.5 How Much Can You Afford?

After carefully going over your budget, you have determined you can afford to pay \$632 per month toward a new sports car. You call up your local bank and find out that the going rate is 1 percent per month for 48 months. How much can you borrow?

To determine how much you can borrow, we need to calculate the present value of \$632 per month for 48 months at 1 percent per month. The loan payments are in ordinary annuity form, so the annuity present value factor is:

With this factor, we can calculate the present value of the 48 payments of \$632 each as:

Present value = \$632 × 37.9740 = \$24,000

Therefore, \$24,000 is what you can afford to borrow and repay.

Annuity Tables Just as there are tables for ordinary present value factors, there are tables for annuity factors as well. Table 6.1 contains a few such factors; Table A.3 in the appendix to the book contains a larger set. To find the annuity present value factor we calculated just before Example 6.5, look for the row corresponding to three periods and then find the column for 10 percent. The number you see at that intersection should be 2.4869 (rounded to four decimal places), as we calculated. Once again, try calculating a few of these factors yourself and compare your answers to the ones in the table to make sure you know how to do it. If you are using a financial calculator, just enter \$1 as the payment and calculate the present value; the result should be the annuity present value factor.

Page 159TABLE 6.1 Annuity Present Value Interest Factors

CALCULATOR HINTS

Annuity Present Values

To find annuity present values with a financial calculator, we need to use the  key (you were probably wondering what it was for). Compared to finding the present value of a single amount, there are two important differences. First, we enter the annuity cash flow using the  key. Second, we don’t enter anything for the future value, . So, for example, the problem we have been examining is a three-year, \$500 annuity. If the discount rate is 10 percent, we need to do the following (after clearing out the calculator!):

As usual, we get a negative sign on the PV.

Annuity Present Values

Using a spreadsheet to find annuity present values goes like this:

Page 160Finding the Payment Suppose you wish to start up a new business that specializes in the latest of health food trends, frozen yak milk. To produce and market your product, the Yakkee Doodle Dandy, you need to borrow \$100,000. Because it strikes you as unlikely that this particular fad will be long-lived, you propose to pay off the loan quickly by making five equal annual payments. If the interest rate is 18 percent, what will the payment be?

In this case, we know the present value is \$100,000. The interest rate is 18 percent, and there are five years. The payments are all equal, so we need to find the relevant annuity factor and solve for the unknown cash flow:

Therefore, you’ll make five payments of just under \$32,000 each.

CALCULATOR HINTS

Annuity Payments

Finding annuity payments is easy with a financial calculator. In our yak example, the PV is \$100,000, the interest rate is 18 percent, and there are five years. We find the payment as follows:

Here, we get a negative sign on the payment because the payment is an outflow for us.

Annuity Payments

Using a spreadsheet to work the same problem goes like this:

Page 161

EXAMPLE 6.6 Finding the Number of Payments

You ran a little short on your spring break vacation, so you put \$1,000 on your credit card. You can afford only the minimum payment of \$20 per month. The interest rate on the credit card is 1.5 percent per month. How long will you need to pay off the \$1,000?

What we have here is an annuity of \$20 per month at 1.5 percent per month for some unknown length of time. The present value is \$1,000 (the amount you owe today). We need to do a little algebra (or use a financial calculator):

At this point, the problem boils down to asking, How long does it take for your money to quadruple at 1.5 percent per month? Based on our previous chapter, the answer is about 93 months:

1.01593 = 3.99 ≈ 4

It will take you about 93/12 = 7.75 years to pay off the \$1,000 at this rate. If you use a financial calculator for problems like this, you should be aware that some automatically round up to the next whole period.

CALCULATOR HINTS

Finding the Number of Payments

To solve this one on a financial calculator, do the following:

Notice that we put a negative sign on the payment you must make, and we have solved for the number of months. You still have to divide by 12 to get our answer. Also, some financial calculators won’t report a fractional value for N; they automatically (without telling you) round up to the next whole period (not to the nearest value). With a spreadsheet, use the function =NPER(rate,pmt,pv,fv); be sure to put in a zero for fv and to enter −20 as the payment.

Finding the Rate The last question we might want to ask concerns the interest rate implicit in an annuity. For example, an insurance company offers to pay you \$1,000 per year for 10 years if you will pay \$6,710 up front. What rate is implicit in this 10-year annuity?

In this case, we know the present value (\$6,710), we know the cash flows (\$1,000 per year), and we know the life of the investment (10 years). What we don’t know is the discount rate:

So, the annuity factor for 10 periods is equal to 6.71, and we need to solve this equation for the unknown value of r. Unfortunately, this is mathematically impossible to do directly. The only way to do it is to use a table or trial and error to find a value for r.

Page 162If you look across the row corresponding to 10 periods in Table A.3, you will see a factor of 6.7101 for 8 percent, so we see right away that the insurance company is offering just about 8 percent. Alternatively, we could just start trying different values until we got very close to the answer. Using this trial-and-error approach can be a little tedious, but fortunately machines are good at that sort of thing.1

To illustrate how to find the answer by trial and error, suppose a relative of yours wants to borrow \$3,000. She offers to repay you \$1,000 every year for four years. What interest rate are you being offered?

The cash flows here have the form of a four-year, \$1,000 annuity. The present value is \$3,000. We need to find the discount rate, r. Our goal in doing so is primarily to give you a feel for the relationship between annuity values and discount rates.

We need to start somewhere, and 10 percent is probably as good a place as any to begin. At 10 percent, the annuity factor is:

Annuity present value factor = [1 − (1/1.104)]/.10 = 3.1699

The present value of the cash flows at 10 percent is thus:

Present value = \$1,000 × 3.1699 = \$3,169.90

You can see that we’re already in the right ballpark.

Is 10 percent too high or too low? Recall that present values and discount rates move in opposite directions: Increasing the discount rate lowers the PV and vice versa. Our present value here is too high, so the discount rate is too low. If we try 12 percent, we’re almost there:

Present value = \$1,000 × {[1 − (1/1.124)]/.12} = \$3,037.35

We are still a little low on the discount rate (because the PV is a little high), so we’ll try 13 percent:

Present value = \$1,000 × {[1 − (1/1.134)]/.13} = \$2,974.47

This is less than \$3,000, so we now know that the answer is between 12 percent and 13 percent, and it looks to be about 12.5 percent. For practice, work at it for a while longer and see if you find that the answer is about 12.59 percent.

CALCULATOR HINTS

Finding the Rate

Alternatively, you could use a financial calculator to do the following:

Notice that we put a negative sign on the present value (why?). With a spreadsheet, use the function=RATE(nper,pmt,pv,fv); be sure to put in a zero for fv and to enter 1,000 as the payment and −3,000 as the pv.

To illustrate a situation in which finding the unknown rate can be useful, let us consider that the Tri-State Megabucks lottery in Maine, Vermont, and New Hampshire offers you a choice of how to take your winnings (most lotteries do this). In a recent drawing, participants were offered the option of receiving a lump sum payment of \$250,000 or an annuity Page 163of \$500,000 to be received in equal installments over a 25-year period. (At the time, the lump sum payment was always half the annuity option.) Which option was better?

To answer, suppose you were to compare \$250,000 today to an annuity of \$500,000/25 = \$20,000 per year for 25 years. At what rate do these have the same value? This is the same type of problem we’ve been looking at; we need to find the unknown rate, r, for a present value of \$250,000, a \$20,000 payment, and a 25-year period. If you grind through the calculations (or get a little machine assistance), you should find that the unknown rate is about 6.24 percent. You should take the annuity option if that rate is attractive relative to other investments available to you. Notice that we have ignored taxes in this example, and taxes can significantly affect our conclusion. Be sure to consult your tax adviser anytime you win the lottery.

In another example, in early 2014, Warren Buffett and Dan Gilbert, founder of Quicken Loans, teamed up to offer \$1 billion to anyone who could correctly predict a perfect NCAA March Madness bracket. The odds of winning: 1 in 9.2 quintillion! Of course, you didn’t receive the \$1 billion today, but rather \$25 million per year for 40 years, or a lump sum of \$500 million. See if you don’t agree that the rate of return on this arrangement is 3.93 percent.

FUTURE VALUE FOR ANNUITIES

On occasion, it’s also handy to know a shortcut for calculating the future value of an annuity. As you might guess, there are future value factors for annuities as well as present value factors. In general, here is the future value factor for an annuity:

To see how we use annuity future value factors, suppose you plan to contribute \$2,000 every year to a retirement account paying 8 percent. If you retire in 30 years, how much will you have?

The number of years here, t, is 30, and the interest rate, r, is 8 percent; so we can calculate the annuity future value factor as:

The future value of this 30-year, \$2,000 annuity is thus:

CALCULATOR HINTS

Future Values of Annuities

Of course, you could solve this problem using a financial calculator by doing the following:

Notice that we put a negative sign on the payment (why?). With a spreadsheet, use the function = FV(rate,nper, pmt,pv); be sure to put in a zero for pv and to enter −2,000 as the payment.

Page 164Sometimes we need to find the unknown rate, r, in the context of an annuity future value. For example, if you had invested \$100 per month in stocks over the 25-year period ended December 1978, your investment would have grown to \$76,374. This period had the worst stretch of stock returns of any 25-year period between 1925 and 2005. How bad was it?

Here we have the cash flows (\$100 per month), the future value (\$76,374), and the time period (25 years, or 300 months). We need to find the implicit rate, r:

Because this is the worst period, let’s try 1 percent:

Annuity future value factor = (1.01300 − 1)/.01 = 1,878.85

We see that 1 percent is too high. From here, it’s trial and error. See if you agree that r is about .55 percent per month. As you will see later in the chapter, this works out to be about 6.8 percent per year.

So far we have only discussed ordinary annuities. These are the most important, but there is a fairly common variation. Remember that with an ordinary annuity, the cash flows occur at the end of each period. When you take out a loan with monthly payments, for example, the first loan payment normally occurs one month after you get the loan. However, when you lease an apartment, the first lease payment is usually due immediately. The second payment is due at the beginning of the second month, and so on. A lease is an example of an annuity due. An annuity due is an annuity for which the cash flows occur at the beginning of each period. Almost any type of arrangement in which we have to prepay the same amount each period is an annuity due.

annuity due An annuity for which the cash flows occur at the beginning of the period.

There are several different ways to calculate the value of an annuity due. With a financial calculator, you simply switch it into “due” or “beginning” mode. Remember to switch it back when you are done! Another way to calculate the present value of an annuity due can be illustrated with a time line. Suppose an annuity due has five payments of \$400 each, and the relevant discount rate is 10 percent. The time line looks like this:

Notice how the cash flows here are the same as those for a four-year ordinary annuity, except that there is an extra \$400 at Time 0. For practice, check to see that the value of a four-year ordinary annuity at 10 percent is \$1,267.95. If we add on the extra \$400, we get \$1,667.95, which is the present value of this annuity due.

There is an even easier way to calculate the present or future value of an annuity due. If we assume cash flows occur at the end of each period when they really occur at the beginning, then we discount each one by one period too many. We could fix this by simply multiplying our answer by (1 + r), where r is the discount rate. In fact, the relationship between the value of an annuity due and an ordinary annuity is just this:

Time value applications abound on the Web. See, for example, www.collegeboard.org, and personal.fidelity.com.

This works for both present and future values, so calculating the value of an annuity due involves two steps: (1) Calculate the present or future value as though it were an ordinary annuity and (2) multiply your answer by (1 + r).

Page 165TABLE 6.2 Summary of Annuity and Perpetuity Calculations

PERPETUITIES

We’ve seen that a series of level cash flows can be valued by treating those cash flows as an annuity. An important special case of an annuity arises when the level stream of cash flows continues forever. Such an asset is called a perpetuity because the cash flows are perpetual. Perpetuities are also called consols, particularly in Canada and the United Kingdom. See Example 6.7 for an important example of a perpetuity.

perpetuity An annuity in which the cash flows continue forever.

consol A type of perpetuity.

Because a perpetuity has an infinite number of cash flows, we obviously can’t compute its value by discounting each one. Fortunately, valuing a perpetuity turns out to be the easiest possible case. The present value of a perpetuity is simply:

For example, an investment offers a perpetual cash flow of \$500 every year. The return you require on such an investment is 8 percent. What is the value of this investment? The value of this perpetuity is:

Perpetuity PV = C/r = \$500/.08 = \$6,250

For future reference, Table 6.2 contains a summary of the annuity and perpetuity basic calculations we described. By now, you probably think that you’ll just use online calculators to handle annuity problems. Before you do, see our nearby Work the Web box!

EXAMPLE 6.7 Preferred Stock

Preferred stock (or preference stock) is an important example of a perpetuity. When a corporation sells preferred stock, the buyer is promised a fixed cash dividend every period (usually every quarter) forever. This dividend must be paid before any dividend can be paid to regular stockholders—hence the term preferred.

Suppose the Fellini Co. wants to sell preferred stock at \$100 per share. A similar issue of preferred stock already outstanding has a price of \$40 per share and offers a dividend of \$1 every quarter. What dividend will Fellini have to offer if the preferred stock is going to sell?

Page 166The issue that is already out has a present value of \$40 and a cash flow of \$1 every quarter forever. Because this is a perpetuity:

To be competitive, the new Fellini issue will also have to offer 2.5 percent per quarter; so if the present value is to be \$100, the dividend must be such that:

WORK THE WEB

As we discussed in our previous chapter, many websites have financial calculators. One of these sites is Calculatoredge, which is located at www.calculatoredge.com. Suppose you retire with \$1,500,000 and want to withdraw an equal amount each year for the next 30 years. If you can earn an 8 percent return, how much can you withdraw each year? Here is what Calculatoredge says:

According to the Calculatoredge calculator, the answer is \$123,371.44. How important is it to understand what you are doing? Calculate this one for yourself, and you should get \$133,241.15. Who is right? You are, of course! What’s going on is that Calculatoredge assumes (but does not tell you) that the annuity is in the form of an annuity due, not an ordinary annuity. Recall that with an annuity due, the payments occur at the beginning of the period rather than the end of the period. The moral of the story is clear: Caveat calculator.

Questions

1. Go to the calculator at  www.calculatoredge.com  and find out how much the website says you could withdraw each year if you have \$2,500,000, earn an 8 percent interest rate, and make annual withdrawals for 35 years. How much more are the withdrawals if they are in the form of an ordinary annuity?

2. Suppose you have \$500,000 and want to make withdrawals each month for the next 10 years. The first withdrawal is today and the appropriate interest rate is 9 percent compounded monthly. Using this website, how much are your withdrawals?

Page 167GROWING ANNUITIES AND PERPETUITIES

Annuities commonly have payments that grow over time. Suppose, for example, that we are looking at a lottery payout over a 20-year period. The first payment, made one year from now, will be \$200,000. Every year thereafter, the payment will grow by 5 percent, so the payment in the second year will be \$200,000 × 1.05 = \$210,000. The payment in the third year will be \$210,000 × 1.05 = \$220,500, and so on. What’s the present value if the appropriate discount rate is 11 percent?

If we use the symbol g to represent the growth rate, we can calculate the value of a growing annuity using a modified version of our regular annuity formula:

Plugging in the numbers from our lottery example (and letting g = .05), we get:

There is also a formula for the present value of a growing perpetuity:

In our lottery example, now suppose the payments continue forever. In this case, the present value is:

The notion of a growing perpetuity may seem a little odd because the payments get bigger every period forever; but, as we will see in a later chapter, growing perpetuities play a key role in our analysis of stock prices.

Before we go on, there is one important note about our formulas for growing annuities and perpetuities. In both cases, the cash flow in the formula, C, is the cash flow that is going to occur exactly one period from today.

Concept Questions

6.2a    In general, what is the present value of an annuity of C dollars per period at a discount rate of r per period? The future value?

6.2b   In general, what is the present value of a perpetuity?

6.3 Comparing Rates: The Effect of Compounding

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The next issue we need to discuss has to do with the way interest rates are quoted. This subject causes a fair amount of confusion because rates are quoted in many different ways. Sometimes the way a rate is quoted is the result of tradition, and sometimes it’s the result of legislation. Unfortunately, at times, rates are quoted in deliberately deceptive ways to mislead borrowers and investors. We will discuss these topics in this section.

Page 168EFFECTIVE ANNUAL RATES AND COMPOUNDING

If a rate is quoted as 10 percent compounded semiannually, this means the investment actually pays 5 percent every six months. A natural question then arises: Is 5 percent every six months the same thing as 10 percent per year? It’s easy to see that it is not. If you invest \$1 at 10 percent per year, you will have \$1.10 at the end of the year. If you invest at 5 percent every six months, then you’ll have the future value of \$1 at 5 percent for two periods:

\$1 × 1.052 = \$1.1025

This is \$.0025 more. The reason is simple: Your account was credited with \$1 × .05 = 5 cents in interest after six months. In the following six months, you earned 5 percent on that nickel, for an extra 5 × .05 = .25 cents.

As our example illustrates, 10 percent compounded semiannually is actually equivalent to 10.25 percent per year. Put another way, we would be indifferent between 10 percent compounded semiannually and 10.25 percent compounded annually. Anytime we have compounding during the year, we need to be concerned about what the rate really is.

In our example, the 10 percent is called a stated, or quoted, interest rate. Other names are used as well. The 10.25 percent, which is actually the rate you will earn, is called the effective annual rate (EAR). To compare different investments or interest rates, we will always need to convert to effective rates. Some general procedures for doing this are discussed next.

stated interest rate The interest rate expressed in terms of the interest payment made each period. Also known as the quoted interest rate.

effective annual rate (EAR) The interest rate expressed as if it were compounded once per year.

CALCULATING AND COMPARING EFFECTIVE ANNUAL RATES

To see why it is important to work only with effective rates, suppose you’ve shopped around and come up with the following three rates:

Bank A: 15 percent compounded daily

Bank B: 15.5 percent compounded quarterly

Bank C: 16 percent compounded annually

Which of these is the best if you are thinking of opening a savings account? Which of these is best if they represent loan rates?

To begin, Bank C is offering 16 percent per year. Because there is no compounding during the year, this is the effective rate. Bank B is actually paying .155/4 = .03875 or 3.875 percent per quarter. At this rate, an investment of \$1 for four quarters would grow to:

\$1 × 1.038754 = \$1.1642

The EAR, therefore, is 16.42 percent. For a saver, this is much better than the 16 percent rate Bank C is offering; for a borrower, it’s worse.

Bank A is compounding every day. This may seem a little extreme, but it is common to calculate interest daily. In this case, the daily interest rate is actually:

.15/365 = .000411

This is .0411 percent per day. At this rate, an investment of \$1 for 365 periods would grow to:

\$1 × 1.000411365 = \$1.1618

The EAR is 16.18 percent. This is not as good as Bank B’s 16.42 percent for a saver, and not as good as Bank C’s 16 percent for a borrower.

This example illustrates two things. First, the highest quoted rate is not necessarily the best. Second, compounding during the year can lead to a significant difference between the quoted rate and the effective rate. Remember that the effective rate is what you actually get or what you pay.

Page 169If you look at our examples, you see that we computed the EARs in three steps. We first divided the quoted rate by the number of times that the interest is compounded. We then added 1 to the result and raised it to the power of the number of times the interest is compounded. Finally, we subtracted the 1. If we let m be the number of times the interest is compounded during the year, these steps can be summarized simply as:

For example, suppose you are offered 12 percent compounded monthly. In this case, the interest is compounded 12 times a year; so m is 12. You can calculate the effective rate as:

EXAMPLE 6.8 What’s the EAR?

A bank is offering 12 percent compounded quarterly. If you put \$100 in an account, how much will you have at the end of one year? What’s the EAR? How much will you have at the end of two years?

The bank is effectively offering 12%/4 = 3% every quarter. If you invest \$100 for four periods at 3 percent per period, the future value is:

The EAR is 12.55 percent: \$100 × (1 + .1255) = \$112.55.

We can determine what you would have at the end of two years in two different ways. One way is to recognize that two years is the same as eight quarters. At 3 percent per quarter, after eight quarters, you would have:

\$100 × 1.038 = \$100 × 1.2668 = \$126.68

Alternatively, we could determine the value after two years by using an EAR of 12.55 percent; so after two years you would have:

\$100 × 1.12552 = \$100 × 1.2668 = \$126.68

Thus, the two calculations produce the same answer. This illustrates an important point. Anytime we do a present or future value calculation, the rate we use must be an actual or effective rate. In this case, the actual rate is 3 percent per quarter. The effective annual rate is 12.55 percent. It doesn’t matter which one we use once we know the EAR.

EXAMPLE 6.9 Quoting a Rate

Now that you know how to convert a quoted rate to an EAR, consider going the other way. As a lender, you know you want to actually earn 18 percent on a particular loan. You want to quote a rate that features monthly compounding. What rate do you quote?

Page 170In this case, we know the EAR is 18 percent, and we know this is the result of monthly compounding. Let q stand for the quoted rate. We thus have:

We need to solve this equation for the quoted rate. This calculation is the same as the ones we did to find an unknown interest rate in Chapter 5:

Therefore, the rate you would quote is 16.68 percent, compounded monthly.

EARs AND APRs

Sometimes it’s not altogether clear whether a rate is an effective annual rate. A case in point concerns what is called the annual percentage rate (APR) on a loan. Truth-in-lending laws in the United States require that lenders disclose an APR on virtually all consumer loans. This rate must be displayed on a loan document in a prominent and unambiguous way.2

annual percentage rate (APR) The interest rate charged per period multiplied by the number of periods per year.

Given that an APR must be calculated and displayed, an obvious question arises: Is an APR an effective annual rate? Put another way, if a bank quotes a car loan at 12 percent APR, is the consumer actually paying 12 percent interest? Surprisingly, the answer is no. There is some confusion over this point, which we discuss next.

The confusion over APRs arises because lenders are required by law to compute the APR in a particular way. By law, the APR is simply equal to the interest rate per period multiplied by the number of periods in a year. For example, if a bank is charging 1.2 percent per month on car loans, then the APR that must be reported is 1.2% × 12 = 14.4%. So, an APR is in fact a quoted, or stated, rate in the sense we’ve been discussing. For example, an APR of 12 percent on a loan calling for monthly payments is really 1 percent per month. The EAR on such a loan is thus:

EXAMPLE 6.10 What Rate Are You Paying?

Depending on the issuer, a typical credit card agreement quotes an interest rate of 18 percent APR. Monthly payments are required. What is the actual interest rate you pay on such a credit card?

Page 171Based on our discussion, an APR of 18 percent with monthly payments is really .18/12 = .015 or 1.5 percent per month. The EAR is thus:

This is the rate you actually pay.

It is somewhat ironic that truth-in-lending laws sometimes require lenders to be untruthful about the actual rate on a loan. There are also truth-in-savings laws that require banks and other borrowers to quote an “annual percentage yield,” or APY, on things like savings accounts. To make things a little confusing, an APY is an EAR. As a result, by law, the rates quoted to borrowers (APRs) and those quoted to savers (APYs) are not computed the same way.

There can be a huge difference between the APR and EAR when interest rates are large. For example, consider “payday loans.” Payday loans are short-term loans made to consumers, often for less than two weeks, and are offered by companies such as AmeriCash Advance and National Payday. The loans work like this: You write a check today that is postdated (the date on the check is in the future) and give it to the company. They give you some cash. When the check date arrives, you either go to the store and pay the cash amount of the check, or the company cashes it (or else automatically renews the loan).

For example, in one particular state, Check Into Cash allows you to write a check for \$115 dated 14 days in the future, for which you get \$100 today. So what are the APR and EAR on this arrangement? First, we need to find the interest rate, which we can find by the FV equation as follows:

That doesn’t seem too bad until you remember this is the interest rate for 14 days! The APR of the loan is:

And the EAR for this loan is:

Now that’s an interest rate! Just to see what a difference a small difference in fees can make, Advance America Cash Advance will let you write a check for \$117.50 in exchange for the same \$100 amount. Check for yourself that the APR of this arrangement is 456.25 percent and the EAR is 6,598.65 percent—not a loan we would like to take out!

Page 172TABLE 6.3 Compounding Frequency and Effective Annual Rates

TAKING IT TO THE LIMIT: A NOTE ABOUT CONTINUOUS COMPOUNDING

If you made a deposit in a savings account, how often could your money be compounded during the year? If you think about it, there isn’t really any upper limit. We’ve seen that daily compounding, for example, isn’t a problem. There is no reason to stop here, however. We could compound every hour or minute or second. How high would the EAR get in this case? Table 6.3 illustrates the EARs that result as 10 percent is compounded at shorter and shorter intervals. Notice that the EARs do keep getting larger, but the differences get very small.

As the numbers in Table 6.3 seem to suggest, there is an upper limit to the EAR. If we let q stand for the quoted rate, then, as the number of times the interest is compounded gets extremely large, the EAR approaches:

where e is the number 2.71828 (look for a key labeled “ex” on your calculator). For example, with our 10 percent rate, the highest possible EAR is:

In this case, we say that the money is continuously, or instantaneously, compounded. Interest is being credited the instant it is earned, so the amount of interest grows continuously.

EXAMPLE 6.11 What’s the Law?

At one time, commercial banks and savings and loan associations (S&Ls) were restricted in the interest rates they could offer on savings accounts. Under what was known as Regulation Q, S&Ls were allowed to pay at most 5.5 percent, and banks were not allowed to pay more than 5.25 percent (the idea was to give the S&Ls a competitive advantage; it didn’t work). The law did not say how often these rates could be compounded, however. Under Regulation Q, then, what were the maximum allowed interest rates?

The maximum allowed rates occurred with continuous, or instantaneous, compounding. For the commercial banks, 5.25 percent compounded continuously would be:

This is what banks could actually pay. Check for yourself to see that S&Ls could effectively pay 5.65406 percent.

Page 173

Concept Questions

6.3a    If an interest rate is given as 12 percent compounded daily, what do we call this rate?

6.3b   What is an APR? What is an EAR? Are they the same thing?

6.3c    In general, what is the relationship between a stated interest rate and an effective interest rate? Which is more relevant for financial decisions?

6.3d   What does continuous compounding mean?

6.4 Loan Types and Loan Amortization

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Whenever a lender extends a loan, some provision will be made for repayment of the principal (the original loan amount). A loan might be repaid in equal installments, for example, or it might be repaid in a single lump sum. Because the way that the principal and interest are paid is up to the parties involved, there are actually an unlimited number of possibilities.

In this section, we describe a few forms of repayment that come up quite often, and more complicated forms can usually be built up from these. The three basic types of loans are pure discount loans, interest-only loans, and amortized loans. Working with these loans is a very straightforward application of the present value principles that we have already developed.

PURE DISCOUNT LOANS

The pure discount loan is the simplest form of loan. With such a loan, the borrower receives money today and repays a single lump sum at some time in the future. A one-year, 10 percent pure discount loan, for example, would require the borrower to repay \$1.10 in one year for every dollar borrowed today.

Because a pure discount loan is so simple, we already know how to value one. Suppose a borrower was able to repay \$25,000 in five years. If we, acting as the lender, wanted a 12 percent interest rate on the loan, how much would we be willing to lend? Put another way, what value would we assign today to that \$25,000 to be repaid in five years? Based on our work in Chapter 5, we know the answer is just the present value of \$25,000 at 12 percent for five years:

Pure discount loans are common when the loan term is short—say a year or less. In recent years, they have become increasingly common for much longer periods.

EXAMPLE 6.12 Treasury Bills

When the U.S. government borrows money on a short-term basis (a year or less), it does so by selling what are called Treasury bills, or T-bills for short. A T-bill is a promise by the government to repay a fixed amount at some time in the future—for example, 3 months or 12 months.

Treasury bills are pure discount loans. If a T-bill promises to repay \$10,000 in 12 months, and the market interest rate is 7 percent, how much will the bill sell for in the market?

Because the going rate is 7 percent, the T-bill will sell for the present value of \$10,000 to be repaid in one year at 7 percent:

Present value = \$10,000/1.07 = \$9,345.79

Page 174INTEREST-ONLY LOANS

A second type of loan repayment plan calls for the borrower to pay interest each period and to repay the entire principal (the original loan amount) at some point in the future. Loans with such a repayment plan are called interest-only loans. Notice that if there is just one period, a pure discount loan and an interest-only loan are the same thing.

For example, with a three-year, 10 percent, interest-only loan of \$1,000, the borrower would pay \$1,000 × .10 = \$100 in interest at the end of the first and second years. At the end of the third year, the borrower would return the \$1,000 along with another \$100 in interest for that year. Similarly, a 50-year interest-only loan would call for the borrower to pay interest every year for the next 50 years and then repay the principal. In the extreme, the borrower pays the interest every period forever and never repays any principal. As we discussed earlier in the chapter, the result is a perpetuity.

Most corporate bonds have the general form of an interest-only loan. Because we will be considering bonds in some detail in the next chapter, we will defer further discussion of them for now.

AMORTIZED LOANS

With a pure discount or interest-only loan, the principal is repaid all at once. An alternative is an amortized loan, with which the lender may require the borrower to repay parts of the loan amount over time. The process of providing for a loan to be paid off by making regular principal reductions is called amortizing the loan.

A simple way of amortizing a loan is to have the borrower pay the interest each period plus some fixed amount. This approach is common with medium-term business loans. For example, suppose a business takes out a \$5,000, five-year loan at 9 percent. The loan agreement calls for the borrower to pay the interest on the loan balance each year and to reduce the loan balance each year by \$1,000. Because the loan amount declines by \$1,000 each year, it is fully paid in five years.

In the case we are considering, notice that the total payment will decline each year. The reason is that the loan balance goes down, resulting in a lower interest charge each year, whereas the \$1,000 principal reduction is constant. For example, the interest in the first year will be \$5,000 × .09 = \$450. The total payment will be \$1,000 + 450= \$1,450. In the second year, the loan balance is \$4,000, so the interest is \$4,000 × .09 = \$360, and the total payment is \$1,360. We can calculate the total payment in each of the remaining years by preparing a simple amortization schedule as follows:

Notice that in each year, the interest paid is given by the beginning balance multiplied by the interest rate. Also notice that the beginning balance is given by the ending balance from the previous year.

Probably the most common way of amortizing a loan is to have the borrower make a single, fixed payment every period. Almost all consumer loans (such as car loans) and Page 175mortgages work this way. For example, suppose our five-year, 9 percent, \$5,000 loan was amortized this way. How would the amortization schedule look?

We first need to determine the payment. From our discussion earlier in the chapter, we know that this loan’s cash flows are in the form of an ordinary annuity. In this case, we can solve for the payment as follows:

This gives us:

The borrower will therefore make five equal payments of \$1,285.46. Will this pay off the loan? We will check by filling in an amortization schedule.

In our previous example, we knew the principal reduction each year. We then calculated the interest owed to get the total payment. In this example, we know the total payment. We will thus calculate the interest and then subtract it from the total payment to calculate the principal portion in each payment.

In the first year, the interest is \$450, as we calculated before. Because the total payment is \$1,285.46, the principal paid in the first year must be:

Principal paid = \$1,285.46 − 450 = \$835.46

The ending loan balance is thus:

Ending balance = \$5,000 − 835.46 = \$4,164.54

The interest in the second year is \$4,164.54 × .09 = \$374.81, and the loan balance declines by \$1,285.46 − 374.81 = \$910.65. We can summarize all of the relevant calculations in the following schedule:

Because the loan balance declines to zero, the five equal payments do pay off the loan. Notice that the interest paid declines each period. This isn’t surprising because the loan balance is going down. Given that the total payment is fixed, the principal paid must be rising each period.

If you compare the two loan amortizations in this section, you will see that the total interest is greater for the equal total payment case: \$1,427.31 versus \$1,350. The reason for this is that the loan is repaid more slowly early on, so the interest is somewhat higher. This doesn’t mean that one loan is better than the other; it simply means that one is effectively paid off faster than the other. For example, the principal reduction in the first year is \$835.46 in the equal total payment case as compared to \$1,000 in the first case. Many web-sites offer loan amortization schedules. See our nearby Work the Web box for an example.

Page 176

WORK THE WEB

Preparing an amortization table is one of the more tedious time value of money applications. Using a spreadsheet makes it relatively easy, but there are also websites available that will prepare an amortization schedule very quickly and simply. One such site is www.bankrate.com. This site has a mortgage calculator for home loans, but the same calculations apply to most other types of loans such as car loans and student loans. Suppose you graduate with a student loan of \$25,000 and will repay the loan over the next 10 years at 6.8 percent. What are your monthly payments? Using the calculator we get:

Try this example yourself and click the “Show/Recalculate Amortization Table” button. You will find that your first payment will consist of \$146.03 in principal and \$141.67 in interest. Over the life of the loan you will pay a total of \$9,524 in interest.

Questions

1. Suppose you take out a 30-year mortgage for \$250,000 at an interest rate of 6.8 percent. Use this website to construct an amortization table for the loan. What are the interest payment and principal amounts in the 110th payment? How much in total interest will you pay over the life of the loan?

2. You take out a 30-year mortgage for \$275,000 at an interest rate of 7.3 percent. How much will you pay in interest over the life of this loan? Now assume you pay an extra \$100 per month on this loan. How much is your total interest now? How much sooner will the mortgage be paid off?

We will close this chapter with an example that may be of particular relevance. Federal Stafford loans are an important source of financing for many college students, helping to cover the cost of tuition, books, new cars, condominiums, and many other things. Sometimes students do not seem to fully realize that Stafford loans have a serious drawback: They must be repaid in monthly installments, usually beginning six months after the student leaves school.

Some Stafford loans are subsidized, meaning that the interest does not begin to accrue until repayment begins (this is a good thing). If you are a dependent undergraduate student under this particular option, the total debt you can run up is, at most, \$23,000. The interest rate in 2014–2015 is 4.66 percent, or 4.66/12 = .3883 percent per month. Under the “standard repayment plan,” the loans are amortized over 10 years (subject to a minimum payment of \$50).

Page 177Suppose you max out borrowing under this program. Beginning six months after you graduate (or otherwise depart the ivory tower), what will your monthly payment be? How much will you owe after making payments for four years?

Given our earlier discussions, see if you don’t agree that your monthly payment assuming a \$23,000 total loan is \$240.15 per month. Also, as explained in Example 6.13, after making payments for four years, you still owe the present value of the remaining payments. There are 120 payments in all. After you make 48 of them (the first four years), you have 72 to go. By now, it should be easy for you to verify that the present value of \$240.15 per month for 72 months at .3883 percent per month is about \$15,058, so you still have a long way to go.

EXAMPLE 6.13 Partial Amortization, or “Bite the Bullet”

A common arrangement in real estate lending might call for a 5-year loan with, say, a 15-year amortization. What this means is that the borrower makes a payment every month of a fixed amount based on a 15-year amortization. However, after 60 months, the borrower makes a single, much larger payment called a “balloon” or “bullet” to pay off the loan. Because the monthly payments don’t fully pay off the loan, the loan is said to be partially amortized.

Suppose we have a \$100,000 commercial mortgage with a 12 percent APR and a 20-year (240-month) amortization. Further suppose the mortgage has a five-year balloon. What will the monthly payment be? How big will the balloon payment be?

The monthly payment can be calculated based on an ordinary annuity with a present value of \$100,000. There are 240 payments, and the interest rate is 1 percent per month. The payment is:

Now, there is an easy way and a hard way to determine the balloon payment. The hard way is to actually amortize the loan for 60 months to see what the balance is at that time. The easy way is to recognize that after 60 months, we have a 240 − 60 = 180-month loan. The payment is still \$1,101.09 per month, and the interest rate is still 1 percent per month. The loan balance is thus the present value of the remaining payments:

The balloon payment is a substantial \$91,744. Why is it so large? To get an idea, consider the first payment on the mortgage. The interest in the first month is \$100,000 × .01 = \$1,000. Your payment is \$1,101.09, so the loan balance declines by only \$101.09. Because the loan balance declines so slowly, the cumulative “pay down” over five years is not great.

Of course, it is possible to rack up much larger debts. According to the Association of American Medical Colleges, medical students who borrowed to attend medical school and graduated in 2013 had an average student loan balance of \$169,901. Ouch! In fact, it was reported that Federal Reserve Chairman Ben Bernanke’s son was on track to graduate with over \$400,000 in student loans, although that included his undergraduate degree as well. How long will it take the average student to pay off her medical school loans?

Page 178

Loan amortization is a common spreadsheet application. To illustrate, we will set up the problem that we examined earlier: a five-year, \$5,000, 9 percent loan with constant payments. Our spreadsheet looks like this:

Let’s say she makes a monthly payment of \$1,200, and the loan has an interest rate of 7 percent per year, or .5833 percent per month. See if you agree that it will take about 301 months, or about 25 years, to pay off the loan. Maybe MD really stands for “mucho debt”!

Concept Questions

6.4a   What is a pure discount loan? An interest-only loan?

6.4b   What does it mean to amortize a loan?

6.4c   What is a balloon payment? How do you determine its value?

Page 179

6.5    Summary and Conclusions

This chapter rounded out your understanding of fundamental concepts related to the time value of money and discounted cash flow valuation. Several important topics were covered:

1. There are two ways of calculating present and future values when there are multiple cash flows. Both approaches are straightforward extensions of our earlier analysis of single cash flows.

2. A series of constant cash flows that arrive or are paid at the end of each period is called an ordinary annuity, and we described some useful shortcuts for determining the present and future values of annuities.

3. Interest rates can be quoted in a variety of ways. For financial decisions, it is important that any rates being compared be first converted to effective rates. The relationship between a quoted rate, such as an annual percentage rate (APR), and an effective annual rate (EAR) is given by:

EAR = [1 + (Quoted rate/m)]m − 1

where m is the number of times during the year the money is compounded or, equivalently, the number of payments during the year.

4. Many loans are annuities. The process of providing for a loan to be paid off gradually is called amortizing the loan, and we discussed how amortization schedules are prepared and interpreted.

The principles developed in this chapter will figure prominently in the chapters to come. The reason for this is that most investments, whether they involve real assets or financial assets, can be analyzed using the discounted cash flow (DCF) approach. As a result, the DCF approach is broadly applicable and widely used in practice. For example, the next two chapters show how to value bonds and stocks using an extension of the techniques presented in this chapter. Before going on, therefore, you might want to do some of the problems that follow.

CONNECT TO FINANCE

Do you use Connect Finance to practice what you learn? If you don’t, you should – we can help you master the topics presented in this material. Log on to connect.mheducation.com to learn more!

Can you answer the following Connect Quiz questions?

 Section 6.1 Two years ago, you opened an investment account and deposited \$5,000. One year ago, you added another \$2,000 to the account. Today, you are making a final deposit of \$7,500. How much will you have in this account three years from today if you earn a 14 percent rate of return? Section 6.2 A stream of equal payments that occur at the beginning of each month for one year is called a(n) __________. Section 6.3 Your credit card charges interest of 1.2 percent per month. What is the annual percentage rate? Section 6.4 What type of loan is repaid in a single lump sum?

Page 180

CHAPTER REVIEW AND SELF-TEST PROBLEMS

6.1   Present Values with Multiple Cash Flows A first-round draft choice quarterback has been signed to a three-year, \$25 million contract. The details provide for an immediate cash bonus of \$2 million. The player is to receive \$5 million in salary at the end of the first year, \$8 million the next, and \$10 million at the end of the last year. Assuming a 15 percent discount rate, is this package worth \$25 million? If not, how much is it worth?

6.2   Future Value with Multiple Cash Flows You plan to make a series of deposits in an individual retirement account. You will deposit \$1,000 today, \$2,000 in two years, and \$2,000 in five years. If you withdraw \$1,500 in three years and \$1,000 in seven years, assuming no withdrawal penalties, how much will you have after eight years if the interest rate is 7 percent? What is the present value of these cash flows?

6.3   Annuity Present Value You are looking into an investment that will pay you \$12,000 per year for the next 10 years. If you require a 15 percent return, what is the most you would pay for this investment?

6.4   APR versus EAR The going rate on student loans is quoted as 8 percent APR. The terms of the loans call for monthly payments. What is the effective annual rate (EAR) on such a student loan?

6.5   It’s the Principal That Matters Suppose you borrow \$10,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14 percent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan?

6.6   Just a Little Bit Each Month You’ve recently finished your MBA at the Darnit School. Naturally, you must purchase a new BMW immediately. The car costs about \$21,000. The bank quotes an interest rate of 15 percent APR for a 72-month loan with a 10 percent down payment. You plan on trading the car in for a new one in two years. What will your monthly payment be? What is the effective interest rate on the loan? What will the loan balance be when you trade the car in?

ANSWERS TO CHAPTER REVIEW AND SELF-TEST PROBLEMS

6.1   Obviously, the package is not worth \$25 million because the payments are spread out over three years. The bonus is paid today, so it’s worth \$2 million. The present values for the three subsequent salary payments are:

The package is worth a total of \$18.9721 million.

6.2   We will calculate the future values for each of the cash flows separately and then add them up. Notice that we treat the withdrawals as negative cash flows:

Page 181This value includes a small rounding error.

To calculate the present value, we could discount each cash flow back to the present or we could discount back a single year at a time. However, because we already know that the future value in eight years is \$3,995.91, the easy way to get the PV is just to discount this amount back eight years:

We again ignore a small rounding error. For practice, you can verify that this is what you get if you discount each cash flow back separately.

6.3   The most you would be willing to pay is the present value of \$12,000 per year for 10 years at a 15 percent discount rate. The cash flows here are in ordinary annuity form, so the relevant present value factor is:

The present value of the 10 cash flows is thus:

This is the most you would pay.

6.4   A rate of 8 percent APR with monthly payments is actually 8%/12 = .67% per month. The EAR is thus:

6.5   We first need to calculate the annual payment. With a present value of \$10,000, an interest rate of 14 percent, and a term of five years, the payment can be determined from:

Therefore, the payment is \$10,000/3.4331 = \$2,912.84 (actually, it’s \$2,912.8355; this will create some small rounding errors in the following schedule). We can now prepare the amortization schedule as follows:

Page 1826.6   The cash flows on the car loan are in annuity form, so we need to find only the payment. The interest rate is 15%/12 = 1.25% per month, and there are 72 months. The first thing we need is the annuity factor for 72 periods at 1.25 percent per period:

The present value is the amount we finance. With a 10 percent down payment, we will be borrowing 90 percent of \$21,000, or \$18,900. To find the payment, we need to solve for C:

Rearranging things a bit, we have:

Your payment is just under \$400 per month.

The actual interest rate on this loan is 1.25 percent per month. Based on our work in the chapter, we can calculate the effective annual rate as:

EAR = (1.0125)12 − 1 = 16.08%

The effective rate is about one point higher than the quoted rate.

To determine the loan balance in two years, we could amortize the loan to see what the balance is at that time. This would be fairly tedious to do by hand. Using the information already determined in this problem, we can instead simply calculate the present value of the remaining payments. After two years, we have made 24 payments, so there are 72 − 24 = 48 payments left. What is the present value of 48 monthly payments of \$399.64 at 1.25 percent per month? The relevant annuity factor is:

The present value is thus:

Present value = \$399.64 × 35.9315 = \$14,359.66

You will owe about \$14,360 on the loan in two years.

CONCEPTS REVIEW AND CRITICAL THINKING QUESTIONS

1.   Annuity Factors [LO1] There are four pieces to an annuity present value. What are they?

2.   Annuity Period [LO1] As you increase the length of time involved, what happens to the present value of an annuity? What happens to the future value?

Page 1833.   Interest Rates [LO1] What happens to the future value of an annuity if you increase the rate r? What happens to the present value?

4.   Present Value [LO1] What do you think about the Tri-State Megabucks lottery discussed in the chapter advertising a \$500,000 prize when the lump sum option is \$250,000? Is it deceptive advertising?

5.   Present Value [LO1] If you were an athlete negotiating a contract, would you want a big signing bonus payable immediately and smaller payments in the future, or vice versa? How about looking at it from the team’s perspective?

6.   Present Value [LO1] Suppose two athletes sign 10-year contracts for \$80 million. In one case, we’re told that the \$80 million will be paid in 10 equal installments. In the other case, we’re told that the \$80 million will be paid in 10 installments, but the installments will increase by 5 percent per year. Who got the better deal?

7.   APR and EAR [LO4] Should lending laws be changed to require lenders to report EARs instead of APRs? Why or why not?

8.   Time Value [LO1] On subsidized Stafford loans, a common source of financial aid for college students, interest does not begin to accrue until repayment begins. Who receives a bigger subsidy, a freshman or a senior? Explain. In words, how would you go about valuing the subsidy on a subsidized Stafford loan?

9.   Time Value [LO1] Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and unsubsidized Stafford loans are repaid out of future income. Given this, do you see a possible objection to having two types?

10.   Time Value [LO1] A viatical settlement is a lump sum of money given to a terminally ill individual in exchange for his life insurance policy. When the insured person dies, the purchaser receives the payout from the life insurance policy. What factors determine the value of the viatical settlement? Do you think such settlements are ethical? Why or why not?

11.   Perpetuity Values [LO1] What happens to the future value of a perpetuity if interest rates increase? What if interest rates decrease?

12.   Loans and Interest Rates [LO4] In the chapter, we gave several examples of so-called payday loans. As you saw, the interest rates on these loans can be extremely high and are even called predatory by some. Do you think such high interest loans are ethical? Why or why not?

BASIC

(Questions 1–28)

1.   Present Value and Multiple Cash Flows [LO1] Huggins Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24 percent?

2.    Present Value and Multiple Cash Flows [LO1] Investment X offers to pay you \$4,700 per year for eight years, whereas Investment Y offers to pay you \$6,700 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?

Page 184 3.   Future Value and Multiple Cash Flows [LO1] Cannonier, Inc., has identified an investment project with the following cash flows. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future value at a discount rate of 11 percent? At 24 percent?

4.   Calculating Annuity Present Value [LO1] An investment offers \$5,500 per year for 15 years, with the first payment occurring one year from now. If the required return is 6 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever?

5.   Calculating Annuity Cash Flows [LO1] If you put up \$38,000 today in exchange for a 5.8 percent, 15-year annuity, what will the annual cash flow be?

6.   Calculating Annuity Values [LO1] Your company will generate \$57,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 7.8 percent, what is the present value of the savings?

7.   Calculating Annuity Values [LO1] If you deposit \$4,000 at the end of each of the next 20 years into an account paying 9.7 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years?

8.   Calculating Annuity Values [LO1] You want to have \$50,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.2 percent interest, what amount must you deposit each year?

9.   Calculating Annuity Values [LO2] Dinero Bank offers you a five-year loan for \$50,000 at an annual interest rate of 7.5 percent. What will your annual loan payment be?

10.   Calculating Perpetuity Values [LO1] The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs \$40,000 per year forever. If the required return on this investment is 5.1 percent, how much will you pay for the policy?

11.   Calculating Perpetuity Values [LO1] In the previous problem, suppose a sales associate told you the policy costs \$650,000. At what interest rate would this be a fair deal?

12.   Calculating EAR [LO4] Find the EAR in each of the following cases:

13.   Calculating APR [LO4] Find the APR, or stated rate, in each of the following cases:

Page 185 14.   Calculating EAR [LO4] First National Bank charges 12.4 percent compounded monthly on its business loans. First United Bank charges 12.7 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

15.   Calculating APR [LO4] Tai Credit Corp. wants to earn an effective annual return on its consumer loans of 16.5 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower.

16.   Calculating Future Values [LO1] What is the future value of \$2,400 in 17 years assuming an interest rate of 7.9 percent compounded semiannually?

17.   Calculating Future Values [LO1] Fowler Credit Bank is offering 6.7 percent compounded daily on its savings accounts. If you deposit \$7,000 today, how much will you have in the account in 5 years? In 10 years? In 20 years?

18.   Calculating Present Values [LO1] An investment will pay you \$65,000 in 10 years. If the appropriate discount rate is 7 percent compounded daily, what is the present value?

19.   EAR versus APR [LO4] Big Dom’s Pawn Shop charges an interest rate of 32 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. What rate should the shop report? What is the effective annual rate?

20.   Calculating Loan Payments [LO2, 4] You want to buy a new sports coupe for \$79,500, and the finance office at the dealership has quoted you an APR of 5.8 percent for a 60-month loan to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?

21.   Calculating Number of Periods [LO3] One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of \$500 per month. You will charge 1.5 percent per month interest on the overdue balance. If the current balance is \$18,000, how long will it take for the account to be paid off?

22.   Calculating EAR [LO4] Friendly’s Quick Loans, Inc., offers you “three for four or 1 knock on your door.” This means you get \$3 today and repay \$4 when you get your paycheck in one week (or else). What’s the effective annual return Friendly’s earns on this lending business? If you were brave enough to ask, what APR would Friendly’s say you were paying?

23.   Valuing Perpetuities [LO1] Live Forever Life Insurance Co. is selling a perpetuity contract that pays \$1,400 monthly. The contract currently sells for \$215,000. What is the monthly return on this investment vehicle? What is the APR? The effective annual return?

24.   Calculating Annuity Future Values [LO1] You are planning to make monthly deposits of \$450 into a retirement account that pays 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 30 years?

25.   Calculating Annuity Future Values [LO1] In the previous problem, suppose you make \$5,400 annual deposits into the same retirement account. How large will your account balance be in 30 years?

26.   Calculating Annuity Present Values [LO1] Beginning three months from now, you want to be able to withdraw \$2,200 each quarter from your bank account to cover college expenses over the next four years. If the account pays .43 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years?

Page 18627.   Discounted Cash Flow Analysis [LO1] If the appropriate discount rate for the following cash flows is 9 percent compounded quarterly, what is the present value of the cash flows?

28.   Discounted Cash Flow Analysis [LO1] If the appropriate discount rate for the following cash flows is 6.18 percent per year, what is the present value of the cash flows?

INTERMEDIATE

(Questions 29–56)

29.   Simple Interest versus Compound Interest [LO4] First Simple Bank pays 7.5 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 10 years?

30.   Calculating EAR [LO4] You are looking at an investment that has an effective annual rate of 12.5 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

31.   Calculating Interest Expense [LO2] You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .5 percent per year, compounded monthly for the first six months, increasing thereafter to 18.5 percent compounded monthly. Assuming you transfer the \$7,000 balance from your existing credit card and make no subsequent payments, how much interest will you owe at the end of the first year?

32.   Calculating Annuities [LO1] You are planning to save for retirement over the next 30 years. To do this, you will invest \$850 per month in a stock account and \$350 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account with a return of 5 percent. How much can you withdraw each month from your account assuming a 25-year withdrawal period?

33.   Calculating Future Values [LO1] You have an investment that will pay you .74 percent per month. How much will you have per dollar invested in one year? In two years?

34.   Calculating Annuity Payments [LO1] You want to be a millionaire when you retire in 40 years. How much do you have to save each month if you can earn an annual return of 10.5 percent? How much do you have to save each month if you wait 10 years before you begin your deposits? 20 years?

35.   Calculating Rates of Return [LO2] Suppose an investment offers to triple your money in 12 months (don’t believe it). What rate of return per quarter are you being offered?

Page 18736.   Comparing Cash Flow Streams [LO1] You’ve just joined the investment banking firm of Dewey, Cheatum, and Howe. They’ve offered you two different salary arrangements. You can have \$75,000 per year for the next two years, or you can have \$64,000 per year for the next two years, along with a \$20,000 signing bonus today. The bonus is paid immediately, and the salary is paid in equal amounts at the end of each month. If the interest rate is 7 percent compounded monthly, which do you prefer?

37.   Growing Annuity [LO1] You have just won the lottery and will receive \$1,500,000 in one year. You will receive payments for 30 years, and the payments will increase by 2.5 percent per year. If the appropriate discount rate is 7 percent, what is the present value of your winnings?

38.   Growing Annuity [LO1] Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of \$50,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next year. You have decided that one year from today you will begin depositing 9 percent of your annual salary in an account that will earn 10 percent per year. Your salary will increase at 3 percent per year throughout your career. How much money will you have on the date of your retirement 40 years from today?

39.   Present Value and Interest Rates [LO1] What is the relationship between the value of an annuity and the level of interest rates? Suppose you just bought a 13-year annuity of \$7,500 per year at the current interest rate of 10 percent per year. What happens to the value of your investment if interest rates suddenly drop to 5 percent? What if interest rates suddenly rise to 15 percent?

40.   Calculating the Number of Payments [LO2] You’re prepared to make monthly payments of \$190, beginning at the end of this month, into an account that pays 7 percent interest compounded monthly. How many payments will you have made when your account balance reaches \$20,000?

41.   Calculating Annuity Present Values [LO2] You want to borrow \$89,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of \$1,850, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?

42.   Calculating Loan Payments [LO2] You need a 30-year, fixed-rate mortgage to buy a new home for \$240,000. Your mortgage bank will lend you the money at an APR of 5.25 percent for this 360-month loan. However, you can afford monthly payments of only \$975, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at \$975?

43.   Present and Future Values [LO1] The present value of the following cash flow stream is \$6,200 when discounted at 9 percent annually. What is the value of the missing cash flow?

44.   Calculating Present Values [LO1] You just won the TVM Lottery. You will receive \$1 million today plus another 10 annual payments that increase by \$450,000 per year. Page 188Thus, in one year, you receive \$1.45 million. In two years, you get \$1.9 million, and so on. If the appropriate interest rate is 7 percent, what is the present value of your winnings?

45.   EAR versus APR [LO4] You have just purchased a new warehouse. To finance the purchase, you’ve arranged for a 30-year mortgage loan for 80 percent of the \$2,700,000 purchase price. The monthly payment on this loan will be \$13,400. What is the APR on this loan? The EAR?

46.   Present Value and Break-Even Interest [LO1] Consider a firm with a contract to sell an asset for \$157,000 four years from now. The asset costs \$91,700 to produce today. Given a relevant discount rate of 13 percent per year, will the firm make a profit on this asset? At what rate does the firm just break even?

47.   Present Value and Multiple Cash Flows [LO1] What is the value today of \$3,500 per year, at a discount rate of 9 percent, if the first payment is received 6 years from today and the last payment is received 20 years from today?

48.   Variable Interest Rates [LO1] A 15-year annuity pays \$1,340 per month, and payments are made at the end of each month. If the interest rate is 10 percent compounded monthly for the first seven years, and 6 percent compounded monthly thereafter, what is the present value of the annuity?

49.   Comparing Cash Flow Streams [LO1] You have your choice of two investment accounts. Investment A is a 13-year annuity that features end-of-month \$1,100 payments and has an interest rate of 7.5 percent compounded monthly. Investment B is a 7 percent continuously compounded lump sum investment, also good for 13 years. How much money would you need to invest in B today for it to be worth as much as Investment A 13 years from now?

50.   Calculating Present Value of a Perpetuity [LO1] Given an interest rate of 4.1 percent per year, what is the value at date t = 7 of a perpetual stream of \$5,200 payments that begins at date t = 15?

51.   Calculating EAR [LO4] A local finance company quotes an interest rate of 16.5 percent on one-year loans. So, if you borrow \$25,000, the interest for the year will be \$4,125. Because you must repay a total of \$29,125 in one year, the finance company requires you to pay \$29,125/12, or \$2,427.08, per month over the next 12 months. Is the interest rate on this loan 16.5 percent? What rate would legally have to be quoted? What is the effective annual rate?

52.   Calculating Present Values [LO1] A five-year annuity of ten \$7,100 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 8 percent compounded monthly, what is the value of this annuity five years from now? What is the value three years from now? What is the current value of the annuity?

53.   Calculating Annuities Due [LO1] Suppose you are going to receive \$15,800 per year for five years. The appropriate interest rate is 7.9 percent.

a.   What is the present value of the payments if they are in the form of an ordinary annuity? What is the present value if the payments are an annuity due?

b.   Suppose you plan to invest the payments for five years. What is the future value if the payments are an ordinary annuity? What if the payments are an annuity due?

c.   Which has the highest present value, the ordinary annuity or annuity due? Which has the highest future value? Will this always be true?

54.   Calculating Annuities Due [LO1] You want to buy a new sports car from Muscle Motors for \$68,000. The contract is in the form of a 60-month annuity due at an APR of 6.4 percent. What will your monthly payment be?

Page 18955.   Amortization with Equal Payments [LO3] Prepare an amortization schedule for a five-year loan of \$67,500. The interest rate is 7 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan?

56.   Amortization with Equal Principal Payments [LO3] Rework Problem 55 assuming that the loan agreement calls for a principal reduction of \$13,500 every year instead of equal annual payments.

CHALLENGE

(Questions 57–80)

57.   Calculating Annuity Values [LO1] Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of \$20,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of \$375,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of \$2,000,000 to his nephew Frodo. He can afford to save \$2,500 per month for the next 10 years. If he can earn an EAR of 10 percent before he retires and an EAR of 7 percent after he retires, how much will he have to save each month in Years 11 through 30?

58.   Calculating Annuity Values [LO1] After deciding to buy a new car, you can either lease the car or purchase it on a three-year loan. The car you wish to buy costs \$32,000. The dealer has a special leasing arrangement where you pay \$1,200 today and \$469 per month for the next three years. If you purchase the car, you will pay it off in monthly payments over the next three years at an APR of 6 percent. You believe you will be able to sell the car for \$19,000 in three years. Should you buy or lease the car? What break-even resale price in three years would make you indifferent between buying and leasing?

59.   Calculating Annuity Values [LO1] An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure:

All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a \$10 million signing bonus payable today and a contract value increase of \$2,000,000. He also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 4.8 percent compounded daily, what is the amount of his quarterly check? Assume 365 days in a year.

60.   Discount Interest Loans [LO4] This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow \$25,000 for one year. The interest rate is 13.4 percent. You and the lender agree that the interest on the loan will be .134 × \$25,000 = \$3,350. So the lender deducts this interest amount from the loan up front and gives you \$21,650. In this case, we say that the discount is \$3,350. What’s wrong here?

Page 19061.   Calculating Annuity Values [LO1] You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (a) The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been \$43,000 and \$46,000, respectively. (b) The present value of five years’ future salary. You assume the salary will be \$51,000 per year. (c) \$150,000 for pain and suffering. (d) \$20,000 for court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an 8 percent EAR, what is the size of the settlement? If you were the plaintiff, would you like to see a higher or lower interest rate?

62.   Calculating EAR with Points [LO4] You are looking at a one-year loan of \$10,000. The interest rate is quoted as 8 percent plus two points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay 2 points to the lender up front and repay the loan later with 8 percent interest. What rate would you actually be paying here?

63.   Calculating EAR with Points [LO4] The interest rate on a one-year loan is quoted as 12 percent plus 3 points (see the previous problem). What is the EAR? Is your answer affected by the loan amount?

64.   Calculating Interest Rates [LO2] You are buying a house and will borrow \$200,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4 percent. Alternatively, she tells you that you can “buy down” the interest rate to 3.75 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate?

65.   Calculating Interest Rates [LO2] In the previous problem, suppose that you believe that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now?

66.   EAR versus APR [LO4] Two banks in the area offer 30-year, \$230,000 mortgages at 4.8 percent and charge a \$3,900 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied, whereas that charged by I.M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is rejected be included in calculating the APR, but this is not required with nonrefundable fees (presumably because refundable fees are part of the loan rather than a fee). What are the EARs on these two loans? What are the APRs?

67.   Calculating EAR with Add-On Interest [LO4] This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “\$1,000 Instant Credit! 16.5% Simple Interest! Three Years to Pay! Low, Low Monthly Payments!” You’re not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract, so you ask the manager for clarification.

Judy explains that if you borrow \$1,000 for three years at 16.5 percent interest, in three years you will owe:

\$1,000 × 1.1653 = \$1,000 × 1.58117 = \$1,581.17

Page 191Now, Judy recognizes that coming up with \$1,581.17 all at once might be a strain, so she lets you make “low, low monthly payments” of \$1,581.17/36 = \$43.92 per month, even though this is extra bookkeeping work for her.

Is the interest rate on this loan 16.5 percent? Why or why not? What is the APR on this loan? What is the EAR? Why do you think this is called add-on interest?

68.   Calculating Annuity Payments [LO1] This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw \$105,000 from her savings account on each birthday for 20 years following her retirement; the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 7 percent interest per year. She wants to make equal annual payments on each birthday into the account established at the credit union for her retirement fund.

a.   If she starts making these deposits on her 36th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement?

b.   Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum payment on her 35th birthday to cover her retirement needs. What amount does she have to deposit?

c.   Suppose your friend’s employer will contribute \$3,500 to the account every year as part of the company’s profit-sharing plan. In addition, your friend expects a \$175,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. What amount must she deposit annually now to be able to make the desired withdrawals at retirement?

69.   Calculating the Number of Periods [LO2] Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your \$12,000 balance from your current credit card, which charges an annual rate of 18.6 percent, to a new credit card charging a rate of 9.2 percent. How much faster could you pay the loan off by making your planned monthly payments of \$225 with the new card? What if there was a 2 percent fee charged on any balances transferred?

70.   Future Value and Multiple Cash Flows [LO1] An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child’s birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company:

After the child’s sixth birthday, no more payments are made. When the child reaches age 65, he or she receives \$150,000. If the relevant interest rate is 9 percent for the first six years and 6 percent for all subsequent years, is the policy worth buying?

71.   Calculating a Balloon Payment [LO2] You have just arranged for a \$1,950,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR Page 192of 5.2 percent, and it calls for monthly payments over the next 30 years. However, the loan has an eight-year balloon payment, meaning that the loan must be paid off then. How big will the balloon payment be?

72.   Calculating Interest Rates [LO4] A financial planning service offers a college savings program. The plan calls for you to make six annual payments of \$15,000 each, with the first payment occurring today, your child’s 12th birthday. Beginning on your child’s 18th birthday, the plan will provide \$32,000 per year for four years. What return is this investment offering?

73.   Break-Even Investment Returns [LO4] Your financial planner offers you two different investment plans. Plan X is a \$30,000 annual perpetuity. Plan Y is a 15-year, \$35,000 annual annuity. Both plans will make their first payment one year from today. At what discount rate would you be indifferent between these two plans?

74.   Perpetual Cash Flows [LO1] What is the value of an investment that pays \$25,000 every other year forever, if the first payment occurs one year from today and the discount rate is 8 percent compounded daily? What is the value today if the first payment occurs four years from today?

75.   Ordinary Annuities and Annuities Due [LO1] As discussed in the text, an annuity due is identical to an ordinary annuity except that the periodic payments occur at the beginning of each period and not at the end of the period. Show that the relationship between the value of an ordinary annuity and the value of an otherwise equivalent annuity due is:

Annuity due value = Ordinary annuity value × (1 + r)

Show this for both present and future values.

76.   Calculating Growing Annuities [LO1] You have 40 years left until retirement and want to retire with \$5 million. Your salary is paid annually, and you will receive \$50,000 at the end of the current year. Your salary will increase at 3 percent per year, and you can earn an annual return of 9 percent on the money you invest. If you save a constant percentage of your salary, what percentage of your salary must you save each year?

77.   Calculating EAR [LO4] A check-cashing store is in the business of making personal loans to walk-up customers. The store makes only one-week loans at 7.5 percent interest per week.

a.   What APR must the store report to its customers? What EAR are customers actually paying?

b.   Now suppose the store makes one-week loans at 7.5 percent discount interest per week (see Problem 60). What’s the APR now? The EAR?

c.   The check-cashing store also makes one-month add-on interest loans at 7.5 percent discount interest per week. Thus if you borrow \$100 for one month (four weeks), the interest will be (\$100 × 1.0754) − 100 = \$33.55. Because this is discount interest, your net loan proceeds today will be \$66.45. You must then repay the store \$100 at the end of the month. To help you out, though, the store lets you pay off this \$100 in installments of \$25 per week. What is the APR of this loan? What is the EAR?

78.   Present Value of a Growing Perpetuity [LO1] What is the equation for the present value of a growing perpetuity with a payment of C one period from today if the payments grow by C each period?

79.   Rule of 72 [LO4] Earlier, we discussed the Rule of 72, a useful approximation for many interest rates and periods for the time it takes a lump sum to double in value. Page 193For a 10 percent interest rate, show that the “Rule of 73” is slightly better. For what rate is the Rule of 72 exact? (Hint:Use the Solver function in Excel.)

80.   Rule of 69.3 [LO4] A corollary to the Rule of 72 is the Rule of 69.3. The Rule of 69.3 is exactly correct except for rounding when interest rates are compounded continuously. Prove the Rule of 69.3 for continuously compounded interest.

EXCEL MASTER-IT! PROBLEM

This is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals:

Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund.

a.  If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?

b.  Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments, she has decided to make one lump sum deposit today to cover her retirement needs. What amount does she have to deposit today?

c.  Suppose your friend’s employer will contribute to the account each year as part of the company’s profit sharing plan. In addition, your friend expects a distribution from a family trust 20 years from now. What amount must she deposit annually now to be able to make the desired withdrawals at retirement?

MINICASE

The MBA Decision

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is \$53,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree Page 194requires two years of full-time enrollment at the university. The annual tuition is \$58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost \$2,000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about \$87,000 per year, with a \$10,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated one-year program, with a tuition cost of \$75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost \$4,200. Ben thinks that he will receive an offer of \$78,000 per year upon graduation, with an \$8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost \$3,000 per year, payable at the beginning of the year. Ben has also found that both schools offer graduate housing. His room and board expenses will decrease by \$4,000 per year at either school he attends. The appropriate discount rate is 5.5 percent.

QUESTIONS

1.  How does Ben’s age affect his decision to get an MBA?

2.  What other, perhaps nonquantifiable, factors affect Ben’s decision to get an MBA?

3.  Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?

4.  Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5.  What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

6.  Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision?

__________

1Financial calculators rely on trial and error to find the answer. That’s why they sometimes appear to be “ thinking” before coming up with the answer. Actually, it is possible to directly solve for r if there are fewer than five periods, but it’s usually not worth the trouble.

2By law, lenders are required to report the APR on all consumer loans. In this text, we compute the APR as the interest rate per period multiplied by the number of periods in a year. According to federal law, the APR is a measure of the cost of consumer credit expressed as a yearly rate, and it includes interest and certain noninterest charges and fees. In practice, the APR can be much higher than the interest rate on the loan if the lender charges substantial fees that must be included in the federally mandated APR calculation.

Categories

## running the disk cleanup utility is a quick way to ________.

CSIT 105 Exam 1

1)

Being ________ means being familiar enough with computers that you understand their capabilities and limitations.      (1 point)

technology literate

computer competent

computer savvy

computer literate

2)

Unwanted or junk e-mail is called ________.         (1 point)

spam

spyware

software

3)

The process of searching huge amounts of data with the hope of finding a pattern is called ________.          (1 point)

data retrieval

data searching

data mining

data warehousing

4)

The technology called QR codes stands for ________.      (1 point)

quick response

quiet response

quick reaction

5)

One potential application of ________ is to provide sight to the blind.    (1 point)

VeriChips

biomedical chip implants

RFID tags

patient simulators

6)

Which of the following is an example of data mining?      (1 point)

An Excel spreadsheet listing all employees and their annual salaries in a random order

A printout of all sales taken from the register at the end of the day

Raw data from questionnaires given at the mall

Amazon providing you with a list of books you might enjoy

7)

The difference between people with access to computers and the Internet and those without this access is known as the ________.        (1 point)

digital divide

Web divide

Internet divide

8)

Which of the following software can best be used to help create digital art?      (1 point)

Microsoft Word

Microsoft Excel

9)

________ is the gathering together of groups of people using online tools to connect and exchange ideas.     (1 point)

Affective computing

Collaborative consumption

Information technology

Social networking

10)

The crisis-mapping tool ________ can collect information to make instantly and publicly available for use in emergencies.   (1 point)

The Witness Project

data mining

Marahabaa

Ushahidi

11)

Analyzing computer systems to gather potential legal evidence is ________.      (1 point)

computer detectives

forensics detectives

computer forensics

computer enforcement

12)

Joining together as a group to use a specific product more efficiently is called ________.        (1 point)

creative surplus

collaborative consumption

social networking

affective computing

13)

Affective computing is ________.    (1 point)

being able to recognize human fingerprints

speaking human language

computing that relates to emotions

performing calculations faster than humans

14)

What’s the best type of computer for a sales rep who travels extensively and often needs to take notes and show product spec pages to clients in their offices, but has no need for high-performance graphics?(1 point)

All-In-One PC

Tablet PC

PC Notebook

15)

Which of the following is the best reason why somebody might choose a Mac Book Pro?        (1 point)

Needs a portable system with Internet access.

Needs access to a portable system that can be used to present PowerPoint Presentations.

Needs a portable system with high-performance graphical capabilities.

16)

Which of the following is not a computer peripheral?      (1 point)

Printer

Motherboard

Keyboard and mouse

17)

Which of the following is your computer’s main memory that holds programs, data, and instructions currently in use for quick access by the processor?    (1 point)

RAM

USB Flash

ROM

18)

Computers use the ________ language consisting of 0s and 1s.    (1 point)

symbol

system

binary

byte

19)

Which of the following is the largest unit of measure for the size of a computer file?   (1 point)

Petabyte

Megabyte

Gigabyte

Terabyte

20)

Any part of the computer that you can touch is called ________.            (1 point)

software

hardware

operating system

input

21)

The term “bit” is short for ________.         (1 point)

megabyte

binary digit

binary number

binary language

22)

What type of computer is the Apple iPad?(1 point)

Netbook

Tablet computer

Notebook

Tablet PC

23)

The ________ contains the central electronic components of the computer.       (1 point)

system unit

peripheral unit

input unit

motherboard

24)

In binary language, each letter of the alphabet, each number, and each special character is made up of a unique combination of ________.    (1 point)

eight characters

eight kilobytes

eight bits

eight bytes

25)

A keyboard and mouse are examples of ________ devices.          (1 point)

storage

output

input

processing

26)

Apple developed ________ Mouse, which is the first multitouch wireless mouse.          (1 point)

Taboo

Magic

Trick

Touch

27)

________ is the abbreviation for the place in the computer where the programs and data the computer is currently using are stored.   (1 point)

CPU

ROM

RAM

USB

28)

RAM is a ________ storage location.          (1 point)

nonvolatile

permanent

network

volatile

29)

Large, expensive computers that support many users simultaneously are called ________.     (1 point)

powercomputers

mainframes

supercomputers

maxicomputers

30)

________ is the applied science concerned with designing and arranging machines and furniture so that people use so that the people using them aren’t subjected to an uncomfortable or unsafe experience.            (1 point)

Occupational safety

Positioning

Ergonomics

Repetitive strain prevention

31)

Which tool would you use in Internet Explorer to return to the page you just viewed?            (1 point)

Refresh

Press ENTER

The Back button

32)

How would you reply to an e-mail you’ve received that has multiple recipients, all of whom you would like to see your reply?          (1 point)

Click Forward

33)

Facebook and YouTube are considered to be ________ Web sites.         (1 point)

social networking

phishing

e-commerce

34)

A computer connected to the Internet that asks for data is a ________.(1 point)

client

backbone

client/server network

server

35)

Podcasts enable you to ________.    (1 point)

post journal entries on the Web

edit video files over the Web

communicate with friends in real time

36)

The unique identification number assigned to your computer when you connect to the Internet is known by all of the following, EXCEPT ________.         (1 point)

dotted period

dotted decimal

37)

Using the Web to communicate and share information with our friends and others is known as ________.  (1 point)

friend networking

e-mailing

instant messaging

social networking

38)

All of the following are examples of multimedia, EXCEPT ________.   (1 point)

graphics

text

MP3 music files

streaming video

39)

All of the following are tips for professional e-mail etiquette, EXCEPT ________.       (1 point)

include a meaningful subject line

use abbreviations such as “u”, “r”, and “BRB” to keep the e-mail message shorter

be concise and to the point

use spell-checker and proofread before sending

40)

The “s” in “https” stands for ________.    (1 point)

secure socket line

secure socket lock

secure socket layer

41)

A ________ is a Web site where anyone can add, remove, or edit its content.    (1 point)

wiki

blog

webcast

podcast

42)

The unique address for a particular Web site is the ________.    (1 point)

protocol

domain name

URL

path

43)

Podcasts deliver their content using ________.      (1 point)

iTunes

Aggregator

Really Simple Syndication

44)

A subset of e-commerce that uses social networks to assist in marketing and purchasing products is known as ________.       (1 point)

social shopping

social commerce

social enterprise

45)

Match the following terms to their definition:        (5 points)

 Terms Definitions WWW an application program used to view the Web browser electronic communication Internet a tool used to locate information on the Web search engine a large network of networks e-mail the means of accessing information over the Internet

46)

Which tool would you use if you wanted to trim a half-inch from the left side of a digital photograph? (1 point)

Crop

Resize

Trim

47)

Where would you find answers to common questions about a product?            (1 point)

FAQs

Sitemap

48)

Where would you go to see how much RAM is installed on your computer?     (1 point)

Right-click the C: drive in Windows Explorer and click Properties.

In the System section of the Control Panel.

In the Help and Support window.

49)

Software refers to a set of instructions that tells the computer what to do. These instruction sets are called ________.       (1 point)

databases

devices

programs

peripherals

50)

The general software you use to do tasks at home, school, or work is known as ________ software.(1 point)

commercial

application

open source

system

51)

______ software is the software that helps run the computer and coordinate instructions between the computer and the hardware devices.          (1 point)

Application

System

Backup

Recovery

52)

The cell address C5 indicates that the cell ________.         (1 point)

contains a label value of “C5”

is at column C, row 5 of the worksheet

is used in a formula involving the value “C5”

is at row C, column 5 of the worksheet

53)

In a spreadsheet, equations that use addition, subtraction, multiplication, and division operators, as well as values and cell references are called ________.      (1 point)

functions

calculations

formulas

values

54)

The appropriate software to use for creating research papers is ________.       (1 point)

database software

word processing software

presentation software

55)

The type of software that is best used to create a simple budget is ________.     (1 point)

database software

word processing software

presentation software

56)

________ software helps you manage e-mail, contacts, calendars, and tasks in one place.        (1 point)

Personal information manager

Database

Word processing

57)

QuickBooks and Peachtree are examples of ________ software.(1 point)

accounting

course management

gaming

educational

58)

Software that does “back office” operations and processing functions such as billing, production, inventory management, and human resources management is called ________.     (1 point)

enterprise resource planning software

accounting software

customer relationship management software

project management software

59)

All of the following are types of multimedia and entertainment software, EXCEPT ________.          (1 point)

digital audio software

productivity software

gaming software

drawing software

60)

Computer-aided design software is used primarily by ________.            (1 point)

airline pilots to navigate

game makers to create games

engineers to create models

61)

The ________ is(are) the group of programs that controls how your computer functions.       (1 point)

application software

utility programs

operating system

user interface

62)

The ________ of the operating system enables the user to communicate with the computer system.(1 point)

window

user interface

modem

63)

Which of the following was the first widely used operating system installed in personal computers?  (1 point)

Symbian OS

Microsoft Windows

MS-DOS

Linux

64)

Robotic cameras used by television stations for sports events require a ________ operating system.   (1 point)

multiuser

real-time

65)

Which of the following operating systems is used primarily with mainframes as a network operating system?            (1 point)

Symbian OS

Windows Vista

Mac OS

UNIX

66)

More than 50% of smartphones use an operating system developed by ________.       (1 point)

Apple

Symbian

Microsoft

67)

Which of the following is the first step in the boot process?         (1 point)

The OS is loaded into RAM.

The BIOS is activated by turning on the computer.

The BIOS checks that all devices are in place.

Configuration and customization settings are checked.

68)

The basic input/output system is stored on a ________ chip.        (1 point)

CMOS

CPU

ROM

RAM

69)

Which of the following does NOT occur during the power-on self-test?(1 point)

The video card and video memory are tested.

The BIOS is identified.

Memory is tested.

The OS is moved into RAM.

70)

Errors in computer software are called ________.            (1 point)

spiders

bugs

insects

ants

71)

The location of a file is specified by its ________.  (1 point)

file type

file extension

drive letter

file path

72)

The process of optimizing RAM storage by borrowing hard drive space is called ________.   (1 point)

page file

thrashing

virtual memory

swap file

73)

Which of the following types of programs help manage system resources such as the hard drive?     (1 point)

Productivity software

Application software

Utility programs

Application programming interfaces

74)

You can use the Windows ________ to check on a nonresponsive program.      (1 point)

System Restore

Explorer

Backup utility

75)

Which utility takes out redundancies in a file to reduce the file size?      (1 point)

File Compression

Error-Checking

Disk Cleanup

System Restore

76)

The rule of thumb that predicts that CPU capacity will double every two years is called ________.   (1 point)

Intel’s Law

Express Rule

Moore’s Law

CPU Rule

77)

The dominant system processors on the market are made by ________.            (1 point)

Apple

Intel

Microsoft

AMD

78)

Which of the following activities is carried out by the arithmetic logic unit (ALU)?      (1 point)

Creation of virtual memory

Completion of all arithmetic calculations

Coordination of all other computer components

79)

All of the following are part of the machine cycle, EXCEPT ________.(1 point)

fetch

encode

store

execute

80)

The CPU consists of which two parts?       (1 point)

The control unit and the arithmetic logic unit

The control unit and the front side bus

The arithmetic logic unit and the front side bus

The control unit and cache memory

81)

Running the CPU at a faster speed than the manufacturer recommends is called ________.  (1 point)

fetching

clock speed

overclocking

82)

The amount of RAM recommended for most systems today is measured in ________.            (1 point)

KB

gigahertz

megahertz

GB

83)

RAM is an example of ________ storage.   (1 point)

permanent

nonvolatile

volatile

mobile

84)

A ________ uses electronic memory and has no motors or moving parts.           (1 point)

mechanical hard drive

solid state drive

digital video disc

Blu-ray disc

85)

Running the Disk Defragmenter utility will ________.     (1 point)

detect and remove spyware

make the hard drive work more efficiently

clear out temporary Internet files

86)

Running the Disk Cleanup utility is a quick way to ________.     (1 point)

remove spyware programs

clear out unnecessary files

87)

Video cards include their own RAM.          (1 point)

true

false

88)

You can add unlimited RAM to any computer.     (1 point)

false

true

89)

Accessing data from the hard drive to send to the CPU is faster than accessing data from RAM.      (1 point)

false

true

90)

Solid state drives have no platters or motors.         (1 point)

false

true

91)

The ________ computer had no keyboard or monitor and used switches on the front of it to enter data using 0s and 1s.        (1 point)

TRS-80

Apple II

Commodore PET

Altair

92)

The ________ was the first portable computer.     (1 point)

IBM PC

Osborne

Apple Macintosh

Commodore PET

93)

What programming language revolutionized the software industry because beginning students could learn it easily?(1 point)

ALGOL

COBOL

FORTRAN

BASIC

94)

Released in 1984, the Apple Macintosh was the first computer brought to market that used a graphical user interface (GUI).         (1 point)

false

true

95)

A compiler is a program that translates computer language instructions into English language.         (1 point)

false

true

96)

Match the following issues with the appropriate example:           (5 points)

 Issues Examples cyberbullying protection afforded to creators of intellectual property amoral behavior the study of the general nature of morals and the specific moral choices made by individuals copyright not conforming to a set of approved behavioral standards unethical behavior having no sense of right and wrong and no interest in the moral consequences ethics harassing people by electronic means
Categories

## Chapter 9 – Graphic Design

1. Typography → A concise visual announcement that provide information through the integrated design of typographic and pictorial imagery CORRECT: This is false.

It should be Typography → art and technique of composing print material from letterform (font type).

2. Serifs → Another name for letter form CORRECT: This is false. It should be Serifs → short lines with pointed ends or feet at the base of the type.

3. Fonts → An identifying mark based on letterforms combined with pictorial elements CORRECT: This is false.

It should be Fonts → Another name for letter form.

4. Graphic Design → without serifs

CORRECT: This is false.

It should be Graphic Design → Process of working with words and pictures to enhance visual communication, the goal is to get us to do something.

5. Logo → An identifying mark based on letterforms combined with pictorial elements

CORRECT: This is true.

6. Medieval manuscripts → Black letter typefaces

CORRECT: This is true.

7. Roman type → Non-Italic typesetting

CORRECT: This is true.

8. Poster → A concise visual announcement that provide information through the integrated design of typographic and pictorial imagery

CORRECT: This is true.

9. Sans serif → short lines with pointed ends or feet at the base of the type

CORRECT: This is false.

It should be Sans serif → without serifs.

1. short lines with pointed ends or feet at the base of the type

a. Logo

b. CORRECT: Serifs

c. Fonts

d. Sans serif

art and technique of composing print material from letterform (font type)

a. Logo

b. Fonts

c. CORRECT: Typography

d. Poster

A concise visual announcement that provide information through the integrated design of typographic and pictorial imagery

a. CORRECT: Poster

b. Logo

c. Fonts

d. Serifs

An identifying mark based on letterforms combined with pictorial elements

a. Serifs

b. Poster

c. CORRECT: Logo

d. Fonts

Black letter typefaces

a. Roman type

b. CORRECT: Medieval manuscripts

c. Serifs

d. Sans serif

Another name for letter form

a. Logo

b. CORRECT: Fonts

c. Serifs

d. Poster

without serifs

a. Fonts

b. CORRECT: Sans serif

c. Poster

d. Serifs

Process of working with words and pictures to enhance visual communication, the goal is to get us to do something

a. Poster

b. CORRECT: Graphic Design

c. Sans serif

d. Roman type

Non-Italic typesetting

a. Fonts

b. Poster

c. CORRECT: Roman type

d. Logo

Edition: 8

 4 Henry Dreyfuss developed a system of ______________ symbols.Correct Answer:universal 10 __________________ is best known as the illustrator of Saturday Evening Post.Your Answer:Rockwell 9 A(n) _____________ is a picture or decoration created to enhance written material.Correct Answer:illustration

Categories

## a culture is unavoidably shaped and reflected by the language its members speak. this concept is

PART 1

1. Norman and Fredrick seem to argue all the time. Coworkers describe

the two as hotheads, but recognize that the two men seem to like

sparring and are very close friends. Their conflict style is best

described as [4 pts.]

A.   nonintimate-aggressive.

B.   nonintimate-nonaggressive.

C.   intimate-aggressive.

D.   intimate-nonaggressive.

2. Rhonda complains to Collin that she’s tired of their weekend routine.

Irritated, Collin snaps back that he’s tired of her complaining. Their

conflict pattern reflects which of the following conflict styles? [4 pts.]

A.   complimentary

B.   symmetrical

C.   tangential

D.   conditional

3. Almost all messages have [4 pts.]

A.   a content dimension.

B.   a relational dimension.

C.   both content and relational dimensions.

D.   no dimensions unless the communicators intend them to.

4. Skillful, integrated communicators are characterized by [4 pts.]

A.   a conscious focus on communicating effectively.

B.   a greater degree of sociability.

C.   communicating competently without needing to think constantly about how to behave.

D.   exposure to a wide range of communication styles.

E.   others helping them out.

5. Maslow’s hierarchy of needs is important to the study of interpersonal

communication because [4 pts.]

A.   we all have needs.

B.   we can’t understand our needs without communication.

C.   communication is usually necessary to meet each level of need.

D.   communication was Maslow’s greatest need.

E.   the need for communication is the sixth “hidden” need.

6. Some of the characteristics that make relationships more interpersonal

than impersonal are [4 pts.]

A.   frequency and proximity of communication.

B.   quantity over quality.

C.   how important the content of talk is to both of you.

D.   uniqueness, irreplaceability, and interdependence.

7. Effective communicators have been found to [4 pts.]

A.   have a consistent set of five behaviors they can call up at will.

B.   have a wide range of behaviors from which to choose.

C.   exhibit behaviors that are predictable by their partners.

D.   exhibit unique behaviors more often than less effective communicators.

E.   frequently rehearse about 20 behaviors until they get them right for any interaction.

8. Identity and communication are related in that we [4 pts.]

A.   gain an idea of who we are from the way others communicate with us.

B.   are drawn to communicators who test and challenge our identity.

C.   find others’ identities become our own through communication.

D.   control communication with our identity.

9. Which of the following is a channel for communication [4 pts.]

A.   touching

B.   writing

C.   gesturing

D.   talking

E.   all of the above

10. Relational dimensions of a message [4 pts.]

A.   are all that matter.

B.   make statements about how the parties feel toward one another.

C.   are usually expressed verbally rather than nonverbally.

D.   none of the above.

11. A self-fulfilling prophecy is [4 pts.]

A.   an accurate prediction about another’s behavior, based on background knowledge.

B.   a prediction about one’s own behavior, based on past experience.

C.   a prediction which affects the outcome of one’s own or another’s behavior.

D.   a mistaken prediction which fails to occur.

12. People who have low self-esteem [4 pts.]

A.   are likely to approve of others.

B.   perform well when being watched.

C.   work harder for critical people.

D.   expect to be rejected by others.

Instruction: NOTE: I am aware that both B and C are duplicate responses.

13. People who have high self-esteem [4 pts.]

A.   expect to be accepted by others.

B.   have less of a need to work hard for people who demand high standards.

C.   have less of a need to work hard for people who demand high standards.

D.   are unable to defend themselves against negative comments.

E.   don’t perform well when being watched.

14. To qualify as self-disclosure, a statement must [4 pts.]

A.   involve feelings.

B.   be intentional, significant, and not otherwise known.

C.   be reciprocated by the same type of statement from a partner.

D.   involve intimate information.

E.   be shared privately.

15. An intimate relationship [4 pts.]

A.   may only exhibit one or two dimensions.

B.   can be achieved by sharing activities.

C.   can be created through exchanging important feelings.

D.   can come from exchanging ideas.

E.   all of these answer are correct.

16. Which of the following is most likely to account for your tendency to

overlook the faults of your new romantic partner [4 pts.]

A.   gender roles

B.   occupational roles

C.   relational roles

D.   cultural roles

17. The Pillow Method is designed to [4 pts.]

B.   settle a dispute.

C.   minimize an issue.

D.   gain insight into another’s viewpoint.

E.   punctuate the cause and effect of an argument.

18. In a low-context language culture, you will notice [4 pts.]

A.   indirect expression of opinions.

C.   less reliance on explicit verbal messages.

D.   self-expression valued.

19. When we study semantic rules, we learn that [4 pts.]

A.   words mean a lot in and of themselves.

B.   understanding occurs as a result of users agreeing on the same meanings for words.

C.   words typically can be interpreted in only one way.

D.   meanings rest more in words than in the people who use them.

20. In cultures that stress formality in language, [4 pts.]

A.   using correct grammar is most important.

B.   language use defines social position.

C.   the people talk less.

D.   there are fewer real friendships.

21. A culture is unavoidably shaped and reflected by the language its

members speak. This concept [4 pts.]

A.   high-context culture.

B.   low-context culture.

C.   cultural anthropology.

D.   linguistic relativism.

E.   cognitive determinism.

22. The nonverbal researchers cited in your text claim that, when we

consider the actual meaning involved in communication situations, verbal messages [4 pts.]

A.   carry less meaning than nonverbal ones.

B.   carry more meaning than nonverbal ones.

C.   aren’t really listened to.

D.   are too full of nonverbal signals.

E.   define the communication situation.

23. Nonverbally, women _____________________ more than men. [4 pts.]

A.   make less eye contact

B.   smile less

C.   are less vocally expressive

D.   use more head, hand and arm gestures

E.   require more personal space

24. Studies of nonverbal posture behaviors have found that [4 pts.]

A.   we are generally unaware of posture.

B.   different facial expressions help posture interpretation.

C.   we should use unambiguous postural cues.

D.   tension and relaxation of muscles can indicate status differences.

E.   posture is not important to body image.

25. Your roommate gives the appearance of listening to you, but you can

tell from her responses that her mind is elsewhere. You could call

her listening style in this instance [4 pts.]

A.   stage hogging.

B.   insulated listening.

C.   pseudolistening.

D.   defensive listening.

E.   ambushing.

26. Which of the following is the best helping paraphrase response to the

following statements? “I can’t stand that class! The lectures are a

waste of time, and the tests are full of nitpicking questions. I’m not

learning anything.” [4 pts.]

A.   “Sounds like you’re fed up with the class.”

B.   “Sounds like you’re thinking about dropping the class.”

C.   “Sounds like the class has nit-picking tests and is a waste of time.”

D.   “Sounds like you resent spending so much time on information you don’t consider useful.”

E.   “Sounds like you’re fed up with school.”

27. “I think that the reason you’re so confused is that you’re trying to

make everyone else happy and forgetting your own happiness.” This

statement is what type of listening response? [4 pts.]

A.   supporting

C.   questioning

D.   paraphrasing

E.   analyzing

28. “I’m worried that you won’t follow through on your commitment” is

an example of self-disclosure at which of the following levels [4 pts.]

A.   cliche

B.   fact

C.   feeling

D.   opinion

E.   interpretation

29. “Why don’t you go ahead and visit your friends without me this

weekend. I’ll stick around and catch up on my studies.” This

statement typifies which relational stage? [4 pts.]

A.   integrating

B.   differentiating

C.   bonding

D.   terminating

E.   intensifying

30. Which of the following does the text offer as a guideline for

expressing emotions [4 pts.]

A.   The sooner a feeling is shared, the better.

B.   Try to avoid sharing negative feelings whenever possible.

C.   Share multiple feelings when appropriate.

D.   Let others know that they have caused you to feel a certain way.

E.       Try to avoid getting too emotional.

PART 2

1.   In interpersonal relationships, the rule is: The more self-disclosure the better.

A.    True

B.   False

2.   Couples are happiest when their levels of openness are roughly equal.

A.    True

B.   False

3.   The sensory data we receive are the same for all of us; perceptual differences occur only after we begin to process those data.

A.    True

B.   False

4.   Of the communication models described in your text, the linear model most accurately describes the interpersonal communication process.

A.    True

B.   False

5.   Just because we have revealed many different kinds of facts to another doesn’t mean that we have an intimate relationship.

A.    True

B.   False

6.   An older professor who forgets what it was like to be a student when he teaches is an example of how differing environments in the classroom can make understanding difficult.

A.    True

B.   False

7.   When we self-disclose to strangers, it is usually for reciprocity or impression formation.

A.    True

B.   False

8.   Since we are the ones who experience reality, we have a complete idea of what that reality is.

A.    True

B.   False

9.   Luckily, communication from others does not affect our self-concept.

A.    True

B.   False

10.   Just as judges instruct juries to disregard some statements made in court, we can reverse or erase the effects of communication interactions in everyday life.

A.    True

B.   False

11.   The text says that “counting to ten” applies to win-win problem solving.

A.    True

B.   False

12.   We are not communicating when we remain silent.

A.    True

B.   False

13.   Opinions of family members or teachers early in your life have little impact on the formation of your self-concept.

A.    True

B.    False

14.   All communication behavior is aimed at making impressions.

A.    True

B.    False

15.   Emotional expression is the only way to develop close relationships.

A.    True

B.   False

16.   Managing your identity can be useful when you are meeting someone at a party for the first time.

A.    True

B.    False

17.   Research has shown that mediated communication has had an overall negative effect on interpersonal relationships.

A.    True

B.   False

18.   Communication, as the term is used in your text, consists only of messages that a sender deliberately conveys.

A.    True

B.   False

19.   People with high self-esteem tend to disapprove of others more than people with low self-esteem.

A.    True

B.   False

20.   Fortunately, just knowing about a communication skill makes us able to put it into practice.

A.    True

B.    False

Categories

## Windows ProDiscover Forensics Lab

This lab is a replacement for the EnCase lab (122) for students who have been unable to access EnCase through RLES. In order to do this lab, you will need to download and install ProDiscover Basic (make sure to pick 32-bit or 64-bit depending on your version of Windows) from this URL: http://www.techpathways.com/desktopdefault.aspx?tabindex=8&tabid=14 (scroll down until you see the download links at the bottom of the page). You will also need to download a copy of the image files for this lab, 123img.zip. These image files are distributed under the GPL and were originally created by Brian Carrier.

Instructions appear as bullet points, questions are numbered and bolded.

### Instructions & Questions

• Start ProDiscover Basic.
• Create a new project for this laboratory. Give it a unique number and name.
• Click the “Action” menu then generate “OS Info”. This adds some information about the image to the report, which you can view at any time during your examination by clicking on “View” then “Report”.
1. What is the file system of this image file?
2. What is the volume name?
• Go to “Cluster View” and click on the image.
1. How many clusters are used on this image file?
• Go to “Content View” and click on the image.
1. List all the Deleted files recovered by ProDiscover in a table – and calculate the MD5 hash value for each deleted file.
2. Is there anything special about any of the files?
• ProDiscover will use the time zone setting of your examiner workstation if no time zone is set for the evidence. When you acquire a computer as evidence it is important to make note of the computer’s time and time zone, especially if you need to correlate evidence from different time zones (never assume the time or time zone on a computer is correct.)
1. Where does the Time Zone information reside in a Windows system?
• Set the timezone by clicking on File, then Preferences. The timezone should be US Central Time in this particular case (the image file has been extracted from a computer in that timezone although it is not an image of the system partition so there is no way to find the computer’s actual timezone from the image itself).
1. What is the latest file creation time on the image?
2. Which files are resident files? Hint: you can right-click on a file and say “Show Cluster Numbers” to see the cluster/s in which the file is stored – you can do this for the \$MFT of the disk image to see which clusters are allocated to the \$MFT.
• Add the second image to the case – “123img2.dd”
• Go to the “Content View” and click “All Files”.
• Go to the “View” menu and select “Gallery View”.
1. Which files display a thumbnail in Gallery View?
2. Are there any files with mismatching file extensions? If so, which ones? Identify their types according to their extension versus their actual type and explain how you have identified the actual type.
• Disable Gallery View.
• Extract all JPEG files from the image by selecting each of them. You will be prompted to add a comment about the file for the report. Record “JPEG file” and whether the file has been hidden, deleted, mislabelled or is in any other way special.
• Right-click on a file and click “Copy All Selected Files”. Save them in a temporary directory on your computer.
1. Paste each JPEG file from your temporary directory into your submission document as an embedded image.
2. Do you think you have identified every JPEG file in the image? Hint: You can search for the JPEG file header by clicking on “Search”, selecting “Hex” and searching for the pattern FFD8. Do any files contain the pattern which do not appear in your temporary directory? If so, which ones?
3. Create a table for all files on the second image, listing each file’s name and MD5 hash value.

Your answers to all questions should be stored in a LibreOffice document, Word document or PDF, and uploaded to Dropbox in the “EnCase Lab” folder as this exercise replaces the EnCase lab.

Categories

## united healthcare student resources sacm

2016-2017 Student Health Plan provided by Saudi Arabian Cultural

Mission (SACM)

Student Guide

16COL3547 Version Date: March 10, 2017

UnitedHealthcare remains committed to supporting students to ensure they can achieve their academic goals, and we are uniquely qualifi ed to meet that commitment.

Our nationwide networks are robust and highly competitive, our innovative eligibility and administrative systems are built specifi cally to support student health benefi t plans and our employees are dedicated to the needs of the schools and their students.

Within this guide, you will fi nd valuable information about the services available to you. Please note that Medical and Dental services are separate from each other. We recommend you become familiar with this guide and the corresponding resources for medical and dental to learn about your plan and how to use your benefi ts.

INTEGRITY

COMPASSION

RELATIONSHIPS

INNOVATION

PERFORMANCE

Contents UHC at a Glance 3 Welcome to UHCSR 4

Your Medical Coverage – PPO Plan 5 My Account and Access your Medical ID Card 8 Find a Medical Health Care Provider 9 Which provider should I see? 9 Defi nitions 10 Global Emergency Services 12 Telemedicine by HealthiestYou 12 Hospitalization Pre-Admission Notifi cation 13 Submit a Claim for Member Reimbursement 14 How to reach UHC for Medical Information 15

Your Dental Coverage 16 Access your Dental ID Card 17 How to Find a Dental Health Care Provider 17 How to reach UHC for Dental Information 17

Your Vision Coverage 18 ID Card for Vision Benefi ts 19 How to Find a Vision Care Provider 19 How to reach UHC for Vision Information 19

 Medical, Mental Health and Dental Provider Search

 Pharmacy Locator

 Benefi t Information  Details on your medical and dental benefi ts

 SACM Student Guide

 Helpful Information  Create Account Guide

 Network Medical Provider Search

 Dental Provider Search

 View Current Coverage

 View Personal Information

 View Claims Information

 Submit Accident Details

 Personal Representative Appointment (for authorizing someone to act on your behalf in matters of your benefi t plan)

 HealthiestYou

 UHC Dental

 Message Center  My Messages

 My Documents

(See page 8 for details about creating My Account)

UHC at a Glance Where to fi nd helpful information

1-866-808-8461 Monday–Friday

7:00AM–7:00PM CST

www.uhcsr.com/SACM

Use it to access your benefi t information, including locating a provider, viewing claims, and other features of your My Account page.

3

Welcome to UnitedHealthcare StudentResources (UHCSR)

UHCSR is the dedicated student health division of UnitedHealthcare (UHC). UHCSR will be your fi rst point of contact for all questions. Below is where to fi nd helpful information.

Provider Search

You can search for health care preferred providers online at our website www.uhcsr.com/SACM or on your mobile device with our free UHCSR Mobile App.

Benefi t Information

You can fi nd your Student Guide and other helpful information regarding the available services as well as general health information and FAQs at www.uhcsr.com/SACM.

Account Information

4

Your Medical Coverage – PPO Plan A generous health benefit plan is provided by SACM for its students and their dependents. SACM students are covered at 100% for Preferred Provider In-Network care. The UHC network is one of America’s largest health care networks, with over 800,000 network providers. For questions pertaining to your medical benefits, call Customer Service at 1-866-808-8461.

Your medical plan includes:  Doctor office visits and preventive care (routine

physicals, immunizations, cancer screenings)  Diagnostic lab and radiology tests  Vision care  Pharmacy coverage  Inpatient and outpatient care

 Mental health services  Home health care  Maternity care  Short-term rehabilitation (physical, occupational

and speech therapy)  Emergency and urgent care

Your full summary of benefits is listed below. The benefits are provided by your plan sponsor (SACM) and are subject to change by SACM. A complete description of your benefits and any limitations and exclusions are provided in the SACM Benefits Booklet, Plan Number 2016-1965-1/2.

Eligibility Provisions  Students  Any sponsored Saudi national enrolled in a scholarly program in the United States pursuant to a

valid student visa issued by the United States  Diplomat or Staff  Any sponsored Saudi national in the United States on a valid visa serving as a Diplomat or Staff of

the Saudi Government is eligible to be enrolled in the plan.  Dependents  Dependents of insureds that are in an Eligible Class are also eligible to be covered under the plan.  Plan Features  Preferred Provider  Out‐of‐Network Provider  Maximum Benefit  No Overall Maximum Dollar Limit (Per Covered Person, Per Plan Year)  Deductible   \$0 ( Per Covered Person, Per Plan Year )  \$10,000 ( Per Covered Person, Per Plan Year )  Coinsurance  100% except as noted below  20% except as noted below  Notes on your Benefits Plan

The Preferred Provider network for this Plan is UnitedHealthcare Choice Plus PPO.

If care is received from a Preferred Provider any Covered Medical Expenses will be paid at the Preferred Provider level of Benefits.  If a  Preferred Provider is not available in the Network Area, Benefits will be paid at the level of Benefits shown as Preferred Provider Benefits.  If  the Covered Medical Expense is incurred due to a Medical Emergency, Benefits will be paid at the Preferred Provider level of Benefits.  Covered  Medical Expense incurred at a Preferred Provider facility by an Out‐of‐Network Provider will be paid at the Preferred Provider level of Benefits.  In all other situations, reduced or lower Benefits will be provided when an Out‐of‐Network provider is used.

Benefits will be reimbursed at one hundred percent (100%) of billed charges under the following circumstances:  1) All Covered Medical  Expenses for services rendered in Saudi Arabia; and 2) Covered Medical Expenses when due to a Medical Emergency occurring in any  country outside of the United States. The Plan Deductible will not apply.

The Benefits payable are as defined in and subject to all provisions of the Benefits Booklet and any endorsements thereto. Benefits are subject  to the Plan Maximum Benefit unless otherwise specifically stated.  Benefits will be paid up to the maximum Benefit for each service as  scheduled below.  All Benefit maximums are combined Preferred Provider and Out‐of‐Network unless otherwise specifically stated.

Plan Payments  Inpatient  Preferred Provider  Out‐of‐Network Provider  Room & Board:  Preferred Allowance  Usual and Customary Charges  (Includes guest bed and meal trays for adult accompanying a minor while confined as an Inpatient.)  Intensive Care:  Preferred Allowance  Usual and Customary Charges  Hospital Miscellaneous Expense:  Preferred Allowance  Usual and Customary Charges  Routine Newborn Care:  Paid as any other Sickness  Paid as any other Sickness  Surgery:  Preferred Allowance  Usual and Customary Charges  (If two or more procedures are performed through the same incision or in immediate succession at the same operative session, the  maximum amount paid will not exceed 50% of the second procedure and 50% of all subsequent procedure.)   Assistant Surgeon Fees:  Preferred Allowance  Usual and Customary Charges  Anesthetist Services:  Preferred Allowance  Usual and Customary Charges  Registered Nurse’s Services:  Preferred Allowance  Usual and Customary Charges  Physician’s Visits:  Preferred Allowance  Usual and Customary Charges  Pre‐admission Testing:  Preferred Allowance  Usual and Customary Charges

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Outpatient  Preferred Provider  Out‐of‐Network Provider  Surgery:  Preferred Allowance  Usual and Customary Charges  (If two or more procedures are performed through the same incision or in immediate succession at the same operative session, the  maximum amount paid will not exceed 50% of the second procedure and 50% of all subsequent procedure.)   Day Surgery Miscellaneous:  Preferred Allowance  Usual and Customary Charges  (Day Surgery Miscellaneous charges are based on the Outpatient Surgical Facility Charge Index.)  Assistant Surgeon Fees:  Preferred Allowance  Usual and Customary Charges  Anesthetist Services:  Preferred Allowance  Usual and Customary Charges  Physician’s Visits:  Preferred Allowance  Usual and Customary Charges  Physiotherapy:  Preferred Allowance  Usual and Customary Charges  (12 visits maximum (Per Plan Year))  Medical Emergency Expenses:  Preferred Allowance

\$100 Copay per visit  Usual and Customary Charges   \$100 Deductible per visit

(The Copay/per visit Deductible will be waived if admitted to the Hospital.)  (Benefits include the use of the Emergency Room for a non‐emergency Injury or Sickness.)  Diagnostic X‐ray Services:  Preferred Allowance  Usual and Customary Charges  Radiation Therapy:  Preferred Allowance  Usual and Customary Charges  Laboratory Procedures:  Preferred Allowance  Usual and Customary Charges  Tests & Procedures:  Preferred Allowance  Usual and Customary Charges  Injections:  Preferred Allowance  Usual and Customary Charges  Chemotherapy:  Preferred Allowance  Usual and Customary Charges  Prescription Drugs:  Ancillary Charge applies when  prescription is dispensed from a  higher tier at the Covered Person’s  request and a chemically equivalent  prescription drug is available at a  lower tier.

UnitedHealthcare Pharmacy (UHCP)  \$0 Copay per prescription for Tier 1  \$0 Copay per prescription for Tier 2   \$0 Copay per prescription for Tier 3  up to a 31 day supply per prescription plus any  Ancillary Charge  (Mail order Prescription Drugs through UHCP with a  \$0 Copay per prescription plus any Ancillary Charge  up to a 90 day supply per prescription.)

Usual and Customary Charges

Other  Preferred Provider  Out‐of‐Network Provider  Ambulance Services:  Preferred Allowance  Usual and Customary Charges  Durable Medical Equipment:  Preferred Allowance  Usual and Customary Charges  Consultant Physician Fees:  Preferred Allowance  Usual and Customary Charges  Dental Treatment:  Preferred Allowance  Usual and Customary Charges  (Includes benefits for Injury to Sound, Natural Teeth, and treatment of cleft lip and cleft palate only.)  Mental Illness Treatment:  Paid as any other Sickness Paid as any other Sickness  Substance Use Disorder Treatment:  Paid as any other Sickness Paid as any other Sickness  Maternity:  Paid as any other Sickness  Paid as any other Sickness  Complications of Pregnancy:  Paid as any other Sickness  Paid as any other Sickness  Preventive Care Services:  Preferred Allowance  Usual and Customary Charges  (Routine Children Physicals: Includes all services given in connection with the exam. Limited to 7 exams in the first 12 months of life, 3 exams in the  second 12 months of life, 3 exams in the third 12 months of life, and 1 exam per calendar year thereafter up to age 18.)  (Routine Adult Physical Exams: Includes all services given in connection with the exam.  Limited to 1 exam per calendar year for adults age 18 and over.)  (Routine Gynecological Exams: Includes all services given in connection with the exam. Limited to 1 exam and pap smear per calendar year.)  (Mammograms:  Unlimited)  (Prostate Specific Antigen (PSA):  Limited to 1 PSA test per calendar year for males age 40 and over.)  (Digital Rectal Exam (DRE):  Limited to 1 DRE per calendar year for males age 40 and over.)  (Cancer Screening:  Limited to 1 flexible sigmoidoscopy and double barium contrast every 5 years.  Limited to 1 colonoscopy every 10 years for adults age  50 and over.)  (Fecal Occult Blood Test:  Limited to 1 per calendar year.)  (Testing for Tuberculosis.)  Reconstructive Breast Surgery  Following Mastectomy:

Paid as any other Sickness  Paid as any other Sickness

Diabetes Services:  Paid as any other Sickness  Paid as any other Sickness  Home Health Care:  Preferred Allowance  Usual and Customary Charges  (Unlimited visits per Policy Year.)  Hospice Care:  Preferred Allowance  Usual and Customary Charges  (Inpatient: 30 days lifetime maximum.  Outpatient: \$10,000 lifetime maximum.)

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Other (continued)  Preferred Provider  Out‐of‐Network Provider  Inpatient Rehabilitation Facility:  Preferred Allowance  Usual and Customary Charges  Skilled Nursing Facility:  Preferred Allowance  Usual and Customary Charges  Urgent Care Center:  Preferred Allowance   Usual and Customary Charges   Hospital Outpatient Facility or Clinic:  Preferred Allowance  Usual and Customary Charges  Approved Clinical Trials:  Paid as any other Sickness  Paid as any other Sickness  Transplantation Services:  Paid as any other Sickness  Paid as any other Sickness  Acupuncture in Lieu of Anesthesia:  Paid as any other Sickness  Paid as any other Sickness  Hearing Aids:  Preferred Allowance  Usual and Customary Charges  (\$3,500 maximum (Per Plan Year). A written prescription is required).  Infertility Services:  Preferred Allowance  Usual and Customary Charges  Medical Foods:  (A written prescription is required.)

Preferred Allowance  Usual and Customary Charges

Ostomy Supplies:  Preferred Allowance  Usual and Customary Charges  TMJ Disorder:  Preferred Allowance  Usual and Customary Charges  (\$5,000 maximum (Per Plan Year))  Repatriation:  Benefits provided by UnitedHealthcare Global

or reimbursed by SACM  Benefits provided by UnitedHealthcare Global  or reimbursed by SACM

Medical Evacuation:  Benefits provided by UnitedHealthcare Global  Benefits provided by UnitedHealthcare Global  Other:  Note Below  Note Below  Spinal Disorder Treatment: Preferred Allowance / Usual and Customary Charges – (Caused by or related a biochemical or nerve disorders of the  spine. Unlimited visits per Plan Year.)  Ear Piercing provided in the Physician’s office for Females age 10 and under: Preferred Allowance / Usual  and Customary Charges.  Treatment for Congenital Defects and Pre‐mature Born Babies: Preferred Allowance / Usual and Customary Charges.   Braille Machines: Preferred Allowance / Usual and Customary Charges (\$700 maximum per Plan Year.). Sickle Cell Anemia Testing During  Pregnancy:  Preferred Allowance/Usual and Customary Charges. Obesity Treatment: Paid as any other Sickness / Paid as any other sickness. Routine Hearing Exams:  Preferred Allowance  Usual and Customary Charges  (Includes one audiometric routine exam per Plan Year.)

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Continuously enrolled SACM members were mailed a new UHCSR medical ID card in December 2016 to the U.S. mailing address that we have on file. If you’re a new member, you should receive your medical card sometime in January 2017.

• View coverage details

• View or print your medical ID card

• Review Message Center electronic notifications

• Check Claim status and Explanations of Benefits (EOB)

• Review claims letters

• Search for a preferred provider

• Provide accident details or Personal Representative Appointment

• Review your personal information – if we don’t have your U. S. mailing address, be sure to update it in the SACM Database, through the Ministry of Higher Education student portal/ Safeer as soon as possible.

Creating your My Account is easy!

Visit www.uhcsr.com/SACM and click the Create an Account link

Follow the onscreen prompts – you’ll need your First and Last Name, Date of Birth and your Saudi National ID.

You will receive a return email with a pin that you will use to verify your account and create a password. Your password must have 8-12 characters and include at least three of the following: an uppercase character, a lowercase character, a numeric character (0-9), and a special character (e.g., *, ~, \$, etc.).

Œ 

Ž

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How to Find a Medical Health Care Provider Choose a UnitedHealthcare medical provider to help maximize health care dollars and lower out-of-pocket costs. Use the UHCSR Mobile App or go to www.uhcsr.com/SACM. Click the links under “Search for a Provider”. Or call Customer Service at 866-808-8461.

1. Access your SACM Welcome page at www.uhcsr.com/SACM

2. In the Search for a Provider section click the Medical – UHC Choice Plus link

3. Click Change Location and specify a ZIP code or city/state to narrow down the location. Click OK.

4. In the Search box, specify Doctor Name or Specialty, Facility Name, Clinic Name, or Medical Group Name. Click SEARCH. • You may also click the Find Health Care by Category buttons below the Search box to search by

People, Places, Tests and Imaging, Services and Treatments or Care by Condition.

5. Follow the prompts to further refi ne your search criteria. • The search results will indicate the providers’ address, phone number and other details.

Which provider should I see? Sometimes it may be diffi cult to decide if a sudden illness or injury needs immediate emergency care. Choosing the right health setting – Primary Care Physician, Urgent Care, or Emergency Room is important; knowing which provider to see, depending on the medical situation, can save you time and money.

Primary Care Physician When you or a loved one is hurt, you want the best care. Your primary care physician knows you and your health history. He or she can access your medical records. And, he or she can provide you follow-up care or refer you to specialists. If it’s not urgent, it’s usually best to go to your own physician’s offi ce.

Urgent Care Sometimes you may need care fast. But, your Primary Care Physician may be unavailable. You may want to try an urgent care center. They can treat many minor ailments. Chances are, you won’t have to wait as long as at an emergency room. You may pay less, too.

An urgent care center can help with: • Sprains & Strains • Minor broken bones (example: fi nger) • Minor infections • Small cuts • Sore throats • Rashes

Emergency Rooms You may be tempted to go to an emergency room (ER). But, this may not be the best choice. At the ER, true emergencies are treated fi rst. Other cases must wait–sometimes for hours. And, it may cost you more.

Go to an ER for: • Heavy bleeding • Large open wounds • Sudden change in vision • Chest pain • Sudden weakness or trouble talking • Major burns • Severe head and spinal injuries • Diffi culty breathing • Major broken bones

9

Defi nitions Below, you will fi nd a defi nition of what’s considered a medical emergency for the purpose of plan benefi ts in addition to other relevant terms that will help you navigate your benefi t plan.

ANCILLARY CHARGE means a charge, in addition to the Copayment and/or Coinsurance, that the Covered Person is required to pay when a covered Prescription Drug Product is dispensed at the Covered Person’s or the Physician’s request, when a Chemically Equivalent Prescription Drug Product is available on a lower tier. For Prescription Drug Products from Network Pharmacies, the Ancillary Charge is calculated as the difference between the Prescription Drug Cost or MAC list price for Network Pharmacies for the Prescription Drug Product on the higher tier, and the Prescription Drug Cost or MAC list price of the Chemically Equivalent Prescription Drug Product available on the lower tier.

BENEFITS means Plan payments for Covered Medical Expenses, subject to the terms and conditions of the Plan and any Addendums and/or Amendments.

CLAIMS ADMINISTRATOR OR ADMINISTRATOR means United HealthCare Services, Inc., and its affi liates, which provide certain claim administration services for the Plan.

COINSURANCE means the percentage of Covered Medical Expenses that you must pay.

COPAY/COPAYMENT means a specifi ed dollar amount that the Covered Person is required to pay for certain Covered Medical Expenses.

COVERED MEDICAL EXPENSES means reasonable charges which are: 1) not in excess of Usual and Customary Charges; 2) not in excess of the Preferred Allowance when the Plan includes Preferred Provider Benefi ts and the charges are received from a Preferred Provider; 3) not in excess of the maximum Benefi t amount payable per service as specifi ed in the Schedule of Benefi ts; 4) made for services and supplies not excluded under the Plan; 5) made for services and supplies which are a Medical Necessity; 6) made for services included in the Schedule of Benefi ts; and 7) in excess of the amount stated as a Deductible, if any.

DEDUCTIBLE means if an amount is stated in the Schedule of Benefi ts or any other section of this Plan as a deductible, it shall mean an amount to be subtracted from the amount or amounts otherwise payable as Covered Medical Expenses before payment of any Benefi t is made. The deductible will apply as specifi ed in the Schedule of Benefi ts.

ELECTIVE SURGERY OR ELECTIVE TREATMENT means those health care services or supplies that do not meet the health care need for a Sickness or Injury. Elective surgery or elective treatment includes any service, treatment or supplies that: 1) are deemed by the Plan Sponsor to be research or experimental; or 2) are not recognized and generally accepted medical practices in the United States.

HOSPITAL means a licensed or properly accredited general hospital which: 1) is open at all times; 2) is operated primarily and continuously for the treatment of and surgery for sick and injured persons as inpatients; 3) is under the supervision of a staff of one or more legally qualifi ed Physicians available at all times; 4) continuously provides on the premises 24 hour nursing service by Registered Nurses; 5) provides organized facilities for diagnosis and major surgery on the premises; and 6) is not primarily a clinic, nursing, rest or convalescent home. Hospital also means a licensed alcohol and drug abuse rehabilitation facility and a mental hospital. Alcohol rehabilitation facilities and mental hospitals are not required to provide organized facilities for major surgery on the premises or on a prearranged basis.

10

INJURY means bodily injury which is all of the following: 1) directly and independently caused by specifi c accidental contact with another body or object. 2) unrelated to any pathological, functional, or structural disorder. 3) a source of loss. 4) treated by a Physician within 30 days after the date of accident. 5) sustained while the Covered Person is covered under this Plan.

All injuries sustained in one accident, including all related conditions and recurrent symptoms of these injuries will be considered one injury. Injury does not include loss which results wholly or in part, directly or indirectly, from disease or other bodily infi rmity. Covered Medical Expenses incurred as a result of an injury that occurred prior to this Plan’s Effective Date will be considered a Sickness under this Plan.

MEDICAL EMERGENCY means the occurrence of a sudden, serious and unexpected Sickness or Injury. In the absence of immediate medical attention, a reasonable person could believe this condition would result in any of the following:

1) Death. 2) Placement of the Covered Person’s health in jeopardy. 3) Serious impairment of bodily functions. 4) Serious dysfunction of any body organ or part. 5) In the case of a pregnant woman, serious jeopardy to the health of the fetus.

Expenses incurred for “Medical Emergency” will be paid only for Sickness or Injury which fulfi lls the above conditions. These expenses will not be paid for minor Injuries or minor Sicknesses.

NETWORK AREA means the 50 mile radius around the local school campus the Covered Person is attending.

OUT OF NETWORK means those providers who have not agreed to any prearranged fee schedules. Covered Persons may incur signifi cant out-of-pocket expenses with these providers. Charges in excess of the amount paid by the Plan are the Covered Person’s responsibility.

PLAN means The Saudi Arabian Cultural Mission Student Health Plan.

PLAN ADMINISTRATOR means The Saudi Arabian Cultural Mission or its designee.

PLAN SPONSOR means The Saudi Arabian Cultural Mission.

PREFERRED PROVIDER means the Physicians, Hospitals and other health care providers who have contracted to provide specifi c medical care at negotiated prices. The Plan offers the network of Preferred Providers which is known as: UnitedHealthcare Choice Plus PPO. The availability of specifi c providers is subject to change without notice. Covered Persons should always confi rm that a Preferred Provider is participating at the time services are required by calling the Administrator at 1-800-767-0700 and/or by asking the provider when making an appointment for services.

SICKNESS means sickness or disease of the Covered Person which causes loss while the Covered Person is covered under this Plan. All related conditions and recurrent symptoms of the same or a similar condition will be considered one sickness. Covered Medical Expenses incurred as a result of an Injury that occurred prior to this Plan’s Effective Date will be considered a sickness under this Plan.

URGENT CARE CENTER means a facility that provides treatment required to prevent serious deterioration of the Covered Person’s health as a result of an unforeseen Sickness, Injury, or the onset of acute or severe symptoms.

USUAL AND CUSTOMARY CHARGES means the lesser of the actual charge or a reasonable charge which is: 1) usual and customary when compared with the charges made for similar services and supplies; and 2) made to persons having similar medical conditions in the locality where service is rendered. The Administrator uses data from FAIR Health, Inc. valued at the 75th percentile to determine Usual and Customary Charges. No payment will be made under this Plan for any expenses incurred which in the judgment of the Administrator are in excess of Usual and Customary Charges.

11

Global Emergency Services Your global emergency services benefi t through UnitedHealthcare Global is a comprehensive program that provides 24/7 medical and travel assistance to participants who call their Emergency Response Center. A multilingual case manager takes the call and immediately provides assistance. Participants can even call the Emergency Response Center before traveling to get a pre-trip destination report that covers subjects like health and security risks, immunization and vaccination recommendations, crime, culture, weather, and so much more.

Foreign national students studying in the US – You’re eligible for services for the duration of your studies while traveling 100 miles or more from your campus in the US and traveling outside of your home country. You have access to doctors, hospitals, pharmacies, and certain other services when faced with a travel or medical emergency while outside the US.

One phone call to UnitedHealthcare Global connects you to:

 Medical Assistance Services  Medical Evacuation and Repatriation Services  Security and Natural Disaster Evacuation Services  Worldwide Destination Intelligence  Travel Assistance Services  Experienced crisis management professionals  A global network of over 41,000 pre-qualifi ed medical providers

Please visit www.uhcsr.com/UHCGlobal for the UnitedHealthcare Global brochure which includes service descriptions and program conditions and limitations. To access services, call or email:

Toll-free within the US: 1-877-294-2038 Collect outside the US: 1-410-453-6330 Email: assistance@uhcglobal.com

Telehealth with HealthiestYou We’ve partnered with HealthiestYou to provide you with round-the-clock access to board-certifi ed physicians. SACM members* can connect with a physician via phone and/or video chat** using this nationwide telehealth service. During a physician consult, you will be able to speak to a physician for diagnosis and treatment of many different acute illnesses.

Healthiest You also offers notifi cations via smart phone app – students may receive a notifi cation when they arrive at an Emergency Room or Urgent Care Center. This notifi cation will serve to remind you of your telehealth benefi t that allows you to speak to a doctor without having to sit in a waiting room.

*When services are obtained during the policy effective dates. Non-SACM members will be charged a \$40 consultation fee.

**Telephone services and/or video chat availability is determined by state requirements.

To access services:

Toll-free within the US: 1-855-777-4856 Web: www.telehealth4sacm.com

12

Hospitalization Pre-Admission Notifi cation UnitedHealthcare should be notifi ed of all Hospital admissions:

• Pre-notifi cation of medical non-emergency hospitalizations: The patient, Physician or Hospital should call the phone number on the covered person’s ID card at least fi ve working days prior to a planned admission.

• Notifi cation of medical emergency hospitalizations: The patient, patient’s representative, Physician or Hospital should call the phone number on the covered person’s ID card within two working days of an emergency admission.

UnitedHealthcare is open for Pre-Admission Notifi cation calls from 8:00 a.m. to 6:00 p.m. C.S.T., Monday through Friday. Calls may be left on the Customer Service Department’s voice mail after hours.

Note: Failure to follow the notifi cation procedures will not affect benefi ts otherwise payable under the policy; however, pre-notifi cation is not a guarantee that benefi ts will be paid.

13

Submit a Claim for Member Reimbursement Use this procedure to be reimbursed for medical claims you paid to out-of-network providers in the U.S. or for care outside the U.S.:

• A claim form is not required.

• All documentation submitted must be legible.

• Provide a copy of the front and back of your ID card as well as the patient information, if different than the primary insured member.

• Medical claims bills must include Provider name, address and phone number, diagnosis code (nature of illness), procedure code (service performed), service date, and cost.

• For prescription claims, provide your receipt or computer printout from the Pharmacy which in- cludes patient name, doctors name, medicine name, date dispensed, quantity, and purchase price.

• Valid proof of payment must also be submitted with your claims, otherwise there may be a delay in claim reimbursement. See below for a list of requirements.

• Mail the claim to the address or below. Be sure to keep a copy for your records.

Valid Proof of Payment: Please submit the following as proof of payment.

• Medical bills and perscriptions paid in cash: ◦ Verification of cash payments detailed on provider letterhead and signed by the Provider.

• Medical bills and perscriptions paid by check: ◦ Copy of front and back of cancelled check

• Medical bills and perscriptions paid with a credit card: ◦ Copy of the credit card statement showing payment for the services billed

Mail Claims to the Claims Administrator: UnitedHealthcare StudentResources P.O. Box 809025 Dallas, TX 75380-9025

Phone: 866-808-8461 or ATT Access Code + 866-808-8335 (outside the U.S.) eMail: sacmcustomerservice@uhcsr.com

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How to reach UHC for Medical Information

Our live Customer Service Representatives can be reached Monday through Friday from 7am- 7pm Central Standard Time. After hours, calls are directed to our Interactive Voice Recognition automated system which allows you to check claim status and coverage dates.

Customer Service may also be contacted via e-mail for claims at claims@uhcsr.com or for general Customer Service inquiries at sacmcustomerservice@uhcsr.com. Our e-mail team responds to all inquiries within two business days. Correspondence received during business hours is replied to within 3 hours or less.

Customer Service 1-866-808-8461 ATT Access Code + 866-808-8335 (from outside the U.S.)

Mailing Address UnitedHealthcare StudentResources P.O. Box 809025 Dallas, TX 75380-9025

Email sacmcustomerservice@uhcsr.com claims@uhcsr.com

Website www.uhcsr.com/SACM

15

Account Information

Welcome to UHC Dental A generous dental benefi t plan is provided by SACM for its students and their dependents for care sought inside the U.S. with In-Network providers. SACM students are covered at 100% for In-Network care. The UnitedHealthcare Dental network has over 385,000 dental access points for our members.

Plan Features Deduc ble \$0/\$0 Annual Max \$2000 Life me Ortho Max \$2000

Plan Payments Diagnos c Service Preferred Provider Periodic Oral Evalua on 100% Radiographs 100% Lab and Other Diagnos c Tests 100%

Preven ve Services Preferred Provider Dental Prophylaxis (Cleaning) 100% Fluoride Treatment 100% Sealants 100% Space Maintainers 100%

Basic Services Preferred Provider Restora ons (Amalgams or Composite) 100% Emergency Treatment/General Services 100% Simple Extrac ons 100% Oral Surgery (incl. surgical extrac ons) 100% Periodon cs & Endodon cs 100%

Major Services Preferred Provider Inlays/Onlays/Crowns 100% Dentures and Removable Prosthe cs 100% Fixed Par al Dentures (Bridges) 100%

Orthodon c Services Preferred Provider Orthodon a 100%

Note: There is no out of network dental benefi t.

Did you know?

When SACM members receive dental services from a network dentist, the dentist submits the claim and is paid directly by UHC Dental.

16

Access your Dental ID Card Your benefi t plan includes Dental benefi ts administered by UHC Dental. If you are a new SACM member, you will receive a dental ID card in the mail. Continuously enrolled SACM members will use the dental ID card initially sent with their 2015 plan materials.

If you do not receive your Dental ID Card in the mail, please review your Personal Information in your UHCSR My Account to verify the information we have in our system. If we don’t have your U. S. mailing address, be sure to update it in the SACM Database, through the Ministry of Higher Education student portal/Safeer as soon as possible. You will not be able to access your Dental ID Card online until we have a U.S. mailing address on fi le.

Upon receipt of your Dental ID Card, please go to www.myuhc.com and register so that you can access your Dental benefi ts, locate a dentist, request a replacement or print a temporary Dental ID Card. You may also access this link within UHCSR My Account on the ID Card and Dental Plan pages.

How to Find a Dental Health Care Provider Your plan includes in-network Dental administered through UHC Dental. You will need to select an In-Network Dental provider to ensure that your dental claims are paid with no cost to you.

1. Go to www.uhcsr.com/SACM 2. In the Search for a Provider section, select the Dental – National Options PPO link 3. Select Location, Dentist Name or Practice Name to begin your search 4. Complete your search criteria and click Search 5. The Search results will indicate the provider’s address, phone number and other details 6. You may also print, email or export your search results

You may also search for dental providers through your UHCSR My Account or at www.myuhc.com. Note: you will need your dental ID card to register at www.myuhc.com.

How to reach UHC for Dental Information Our live Customer Service Representatives can be reached Monday through Friday from 7am-10pm Central Standard Time.

Customer Service 1-877-881-8825

Website www.myuhc.com

17

Account Information

Welcome to UHC Vision UnitedHealthcare has been trusted for more than 50 years to deliver affordable, innovative vision care solutions through experienced, customer-focused people and the nation’s most accessible, diversifi ed vision care network.

In-network, covered-in-full benefi ts (up to the plan allowance and after applicable copay) include a com- prehensive exam, eye glasses with standard single vision, lined bifocal, lined trifocal, or lenticular lenses, standard scratch-resistant coating* and the frame, or contact lenses in lieu of eyeglasses.

Benefi t Frequency Comprehensive Exam(s) Once per calendar year Spectacle Lenses Once per two calendar years Frames Once per two calendar years Contact Lenses in Lieu of Eyeglasses Once per two calendar years

In-Network Services Copays Exams \$0 Materials \$0 Vision Care Supplies 100% up to \$200 maximum to be used towards the purchase of eye glass lenses, frames, and contact lenses every two calendar years

your order use promo code myVision to get the special price discount.

*On all orders processed through a company owned and contracted Lab network.

Did you know?

When SACM members receive vision services from a network provider, the provider submits the claim and is paid directly by UHC.

18

ID Card for Vision Benefi ts

In order to take advantage of these vision benefi ts, simply show your medical ID card to your vision provider. No separate vision ID card is necessary.

How to Find a Vision Care Provider Your plan includes in-network vision care administered through UHC. You will need to select an In-Network vision care provider to ensure that your vision claims are paid with no cost to you.

1. Go to www.myuhcvision.com

2. The provider link is on the left side of the page, at the bottom

 You do not need to register to fi nd a provider

3. Complete your search criteria and click Search

4. The Search results will indicate the provider’s address, phone number and other details

How to reach UHC for Vision Information Our live Customer Service Representatives can be reached Monday through Friday from 7am-10pm Central Standard Time.

Customer Service 1-866-808-8461

Website www.myuhcvision.com

19

Categories

## the principal difference between variable costing and absorption costing centers on:

True / False Questions

 1 Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.    True    False
 2 Under absorption costing, fixed manufacturing overhead is treated as a product cost.    True    False
 3 Under variable costing, variable production costs are not treated as product costs.    True    False
 4 Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.    True    False
 5 The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.    True    False
 6 Direct materials is considered to be a product cost under variable costing but not absorption costing.    True    False
 7 Under absorption costing, fixed manufacturing overhead cost is not included in product cost.    True    False
 8 Under variable costing, product cost does not contain any fixed manufacturing overhead cost.    True    False
 9 Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.    True    FalseMultiple/Choice
 10 Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.    True    False
 11 The principal difference between variable costing and absorption costing centers on:    A. whether variable manufacturing costs should be included in product costs.B. whether fixed manufacturing costs should be included in product costs.C. whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs.D. whether selling and administrative costs should be included in product costs.
 12 Under absorption costing, fixed manufacturing overhead costs:   A. are deferred in inventory when production exceeds sales.B. are always treated as period costs.C. are released from inventory when production exceeds sales.D. are ignored.
 13 Under variable costing, fixed manufacturing overhead is:   A. carried in a liability account.B. carried in an asset account.C. ignored.D. expensed as a period cost.
 14 Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?   A. fixed manufacturing overhead costB. fixed selling and administrative expenseC. variable selling and administrative expenseD. variable manufacturing overhead cost
 15 The term gross margin is used in reports prepared using:   A. both absorption costing and variable costing.B. absorption costing but not variable costing.C. variable costing but not absorption costing.D. neither variable costing nor absorption costing.
 16 When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:   A. tend to fluctuate in the same direction as fluctuations in the number of units produced.B. tend to remain constant.C. tend to fluctuate in the opposite direction as fluctuations in the number of units produced.D. fluctuate without any relation to the number of units produced.
 17 George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:   A. be equal to the net operating income under variable costing.B. be greater than the net operating income under variable costing.C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.D. be equal to the net operating income under variable costing less total fixed manufacturing costs.
 18 When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:   A. less than net operating income reported under variable costing.B. greater than net operating income reported under variable costing.C. equal to net operating income reported under variable costing.D. higher or lower because no generalization can be made.
 19 Routit Corporation had the following sales and production for the past four years: Year 1Year 2Year 3Year 4Production in units5,0006,0005,0005,000Sales in units4,0005,0005,0007,000Selling price per unit, variable cost per unit, and total fixed cost are the same each year. There were no beginning inventories in Year 1. Which of the following statements is correct?    A. Under variable costing, net operating income for Year 3 and Year 4 would be the same.B. Under variable costing, net operating income for Year 2 and Year 3 would be the same.C. Variable costing net income would exceed absorption costing net income in Year 1.D. Absorption costing net income would exceed variable costing net income in Year 4.
 20 If a cost is a common cost of the segments on a segmented income statement, the cost should:    A. be allocated to the segments on the basis of segment sales.B. not be allocated to the segments.C. excluded from the income statement.D. treated as a product cost rather than as a period cost.
 21 A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur?   A. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement.B. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.C. the sum total of the individual stores’ segment margins in each sales territory will be equal to the segment margin for the sales territory.D. the sum total of the sales territory segment margins will equal the total net operating income for the entire company.
 22 Managers will often allocate common fixed expenses to business segments because:   A. this is required by law.B. not allocating these costs will lead to bad decisions.C. they believe this practice will ensure that the company’s common fixed expenses are covered.D. they do not want the sum of the business segment margins to equal the net operating income for the company.
 23 When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:   A. Common fixed expenses ÷ Unit CMB. Common fixed expenses ÷ Segment CM ratioC. Traceable fixed expenses ÷ Unit CMD. Traceable fixed expenses ÷ Segment CM ratio
 24 When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to:   A. (Allocated fixed expenses + Traceable fixed expenses) ÷ Overall CM ratioB. (Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratioC. (Non-traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratioD. (Traceable fixed expenses) ÷ Overall CM ratio
 25 Sharron Inc., which produces a single product, has provided the following data for its most recent month of operations:Number of units produced3,000Variable costs per unit:     Direct materials\$91    Direct labor\$13    Variable manufacturing overhead\$7    Variable selling and administrative expense\$6Fixed costs:     Fixed manufacturing overhead\$237,000    Fixed selling and administrative expense\$165,000There were no beginning or ending inventories. The variable costing unit product cost was:    A. \$111 per unitB. \$190 per unitC. \$117 per unitD. \$110 per unit
Categories

## which of the following companies would be best served by a plantwide overhead rate?

The purchase of raw materials on account in a process costing system is recorded with a:

Debit to Purchases and credit to Cash.

Debit to Purchases and a credit to Accounts Payable.

Debit to Raw Materials Inventory and a credit to Accounts Payable.

Debit to Accounts Payable and a credit to Raw Materials Inventory.

Debit to Goods in Process Inventory and a credit to Accounts Payable
Which of the following companies would be best served by a plantwide overhead rate?

A company which manufactures many different products and whose operations are an equal mix of labor and mechanized work.

A company which manufactures few products and whose operations are labor intensive.

A company which manufactures many different products and whose operations are highly mechanized.

A company whose products use overhead resources in very different ways.

A and D are both situations where a plantwide overhead rate would be the best choice.
Which of the following is(are) true?

Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.

The departmental overhead rate is not usually based on measures closely related to production volume.

The departmental overhead rate is most accurate in assigning overhead costs that are not driven by production volume.

Allocated overhead costs will be the same no matter which allocation method is used.

When cost analysts are able to logically trace cost objects to costs, costing accuracy is improved.
Large aircraft manufacturers such as McDonnell Douglas normally use:

Job order costing.

Process costing.

Mixed costing.

Full costing.

Simple costing.
The cost object(s) of the plantwide overhead rate method is(are):

The unit of product.

The production departments of the company.

The production activities of the company.

Manufacturing cost pools.

Any of the above can be a cost object when using the plantwide overhead rate method.
Which one of the following statements is not true?

Total fixed costs remain the same regardless of volume.

Total variable costs change with volume.

Total variable costs decrease as the volume increases.

Fixed costs per unit increase as the volume decreases.

Variable costs per unit remain the same regardless of the volume.
A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing \$20,000?

\$ 5,000.

\$ 16,000.

\$ 25,000.

\$125,000.

\$250,000.
A cost that remains the same in total even when volume of activity varies is a:

Fixed cost.

Curvilinear cost.

Variable cost.

Step-wise variable cost.

Standard cost.
Job order costing systems normally use:

Periodic inventory systems.

Perpetual inventory systems.

Real inventory systems.

General inventory systems.

All of the above.
A job order cost accounting system would best fit the needs of a company that makes:

Shoes and apparel.

Paint.

Cement.

Custom machinery.

Pencils and erasers.
A method of assigning overhead costs to a product using a single overhead rate is:

Activity-based costing.

To compute an equivalent unit of production, one must be able to reasonably estimate:

The percentage of completion.

Units completed.

Units started and completed.

Direct labor cost.

Materials cost.
A cost that remains constant over a limited range of volume, but increases by a lump sum when volume increases beyond a maximum amount, is a(n):

Step-wise cost.

Fixed cost.

Curvilinear cost.

Incremental cost.

Opportunity cost.
The Goods in Process Inventory account for the AB Corp. follows: The cost of units transferred to finished goods is:

\$ 97,000.

\$105,900.

\$ 88,100.

\$ 95,200.

\$92,500
A company’s overhead rate is 60% of direct labor cost. Using the following incomplete accounts, determine the cost of direct materials used.

\$106,400.

\$113,120.

\$ 30,240.

\$211,680.

\$324,800.
K Company estimates that overhead costs for the next year will be \$2,900,000 for indirect labor and \$800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, what is the company’s plantwide overhead rate?

\$.02 per direct labor hour.

\$46.25 per direct labor hour.

\$36.25 per direct labor hour.

\$10 per direct labor hour.

\$.10 per direct labor hour.
A company’s normal operating range, which excludes extremely high and low volumes that are not likely to occur, is called the:

Margin of safety.

Contribution range.

Break-even point.

Relevant range.

High-low point.
A mixed cost:

Requires the future outlay of cash and is relevant for future decision making.

Does not change with changes in the volume of activity within the relevant range.

Is directly traceable to a cost object.

Contains a combination of fixed costs and variable costs.

Has already been incurred and cannot be avoided so it is irrelevant for decision making.
The three major cost components of a manufactured product are:

Indirect labor, indirect materials, and miscellaneous factory expenses.

Direct materials, direct labor, and factory overhead.

Differential costs, opportunity costs, and sunk costs.

Products that have been completed and are ready to be sold by the manufacturer are called:

Finished goods inventory.

Goods in process inventory.

Raw materials inventory.

Cost of goods sold.

Factory supplies.
A cost that changes in proportion to changes in volume of activity is a(n):

Differential cost.

Fixed cost.

Incremental cost.

Variable cost.

Product cost.
A cost that changes in proportion to changes in volume of activity is a(n):

Differential cost.

Fixed cost.

Incremental cost.

Variable cost.

Product cost.
The Machining Department started the current month with a beginning goods in process inventory of \$10,000. During the month, it was assigned the following costs: direct materials, \$76,000; direct labor, \$24,000; and factory overhead, 50% of direct labor cost. Also, inventory with a cost of \$109,000 was transferred out of the department to the next phase in the process. The ending balance of the Goods in Process Inventory account for the Machining Department is:

\$ 13,000.

\$ 56,000.

\$ 59,000.

\$110,000.

\$165,000.
A job cost sheet shows information about each of the following items except:

The direct labor costs assigned to the job.

The name of the customer.

The costs incurred by the marketing department in selling the job.

The overhead costs assigned to the job.

The direct materials costs assigned to the job.
Which of the following characteristics applies to process cost accounting and not to job order cost accounting?

Use of a predetermined overhead rate.

Identifiable lots of production.

Equivalent units of production.

Labor time ticket for each employee.

Use of a single Goods in Process account.
Medlar Corp. maintains a Web-based general ledger. Overhead is applied on the basis of direct labor costs. Its bookkeeper accidentally deleted most of the entries that had been recorded for January. A printout of the general ledger (in T-account form) showed the following:

AnswersA review of the prior year’s financial statements, the current year’s budget, and January’s source documents produced the following information:
(1) Accounts Payable are used for raw material purchases only. January purchases were \$49,000.
(2) Factory overhead costs for January were \$17,000 none of which is indirect materials.
(3) The January 1 balance for finished goods inventory was \$10,000.
(4) There was a single job in process at January 31 with a cost of \$2,000 for direct materials and \$1,500 for direct labor.
(5) Total cost of goods manufactured for January was \$90,000.
(6) All direct laborers earn the same rate (\$13/hour). During January, 2,500 direct labor hours were worked.
(7) The predetermined overhead allocation rate is based on direct labor costs. Budgeted (expected) overhead for the year is \$195,000 and budgeted (expected) direct labor is \$390,000.
Write in the missing amounts a through o above in the T-accounts above.Use the following information to prepare the manufacturing statement for Forsythe Company for the month ended June 30:

Joseph Co. has three products A, B, and C, and its fixed costs are \$69,000. The sales mix for its products are 3 units of A, 4 units of B, and 1 unit of C. Information about the three products follows: (a) Calculate the company’s break-even point in composite units and sales dollars.
(b) Calculate the number of units of each individual product to be sold at the break-even point.
Break-even point in composite units =
Break-even point in sales dollars =
(b) At break-even point:
Prepare the required general journal entries to record the following transactions for the Bell Company.
(a.) Purchased \$40,000 of raw materials on account.
(b.) Used \$12,000 of direct materials in the Mixing Department, and \$17,000 of direct materials in the Assembly Department.
(c.) Used \$5,000 of indirect materials. Answers below

Identify items a, b, and c in the cost-volume-profit graph shown below.
Match the following terms 1 to 7 with the definitions a through g.
________ (1) Equivalent units of production.
________ (2) Job order cost accounting system
________ (3) Hybrid manufacturing system
________ (4) Process manufacturing system
________ (5) Process cost accounting system
________ (6) Materials consumption report
____ ____ (7) Process cost summary
(a) Costing system to determine the cost of producing each job or job lot.
(b) Document that summarizes the materials a department uses during a reporting period; replaces materials requisition.
(c) Report of costs charged to a department, its equivalent units of production achieved, even the costs assigned to its output.
(d) A manufacturing system that contains features of both process and job order systems.
(e) Number of units that would be completed if all effort during a period had been applied to units that were started and finished.
(f) System of assigning direct materials, direct labor, and overhead to specific processes; total costs associated with each process are then divided by the number of units. passing through that process to determine cost per equivalent unit.
(g) Process of products in a continuous flow of steps.

Categories

## a relief print created out of a sheet of linoleum is called ________.

1- When Heinz introduced their new green ketchup this, seemingly simple, color change caused a record low in sales. (Points : 1)

True

False

2. Iconography is: (Points : 1)

The meaning we get from what we see.

The symbolic meaning of signs, subjects and images.

A major element in visual media such as film and video.

Any mark on the picture plane that gives the illusion of the “third dimension”, also called “depth”.

3. Color is a property of light, not an object in itself. (Points : 1)

True

False

4. Raphael’s The School of Athens provides the viewer with the illusion of the three-dimensional world on a two-dimensional surface by the use of: (Points : 1)

linear perspective

symmetrical balance

the golden mean

cross hatching

5. Value in the “art sense” of this chapter refers to the: (Points : 1)

lightness and darkness of surfaces

brightness and dullness of surfaces

foreground and background

quality or “value” according to the individual viewing it

6. The method of creating the illusion of depth on a 2-D surface through the appearance of converging parallel lines and one or more vanishing points is called_______. (Points : 1)

atmospheric perspective

chiaroscuro

linear perspective

picture plane

7. Any one of us can look at any image, from any time period, and fully understand the iconography presented, by simply thinking about the details we see. (Points : 1)

True

False

8. According to your text, _________ is the easiest and most basic technique to visually imply “depth” on a two-dimensional surface. (Points : 1)

implied motion

linear perspective I think this one is correct

overlapping

9. Some artists try to express theories of “passing time” in their work. It can be argued that both the Aztec Calendar and Aitken’s “Sleepwalkers” are examples of the expression of “passing time”. (Points : 1)

True

False

10. This image, from a pro sports team, is a good example of complimentary colors used in “real life”. It could be argued that these colors are chosen because, when placed next to each other, they give each other intesity that seems to “vibrate” and attract attention. (Points : 1)

True

False

1. Global Warning, the graphic design poster by Chaz Maviyane-Davies, presents an issue of

concern for the artist as well as the global population. This work is an example of art as a

vehicle for:

(a) communicating information

(b) personal expression

(c) social causes

(d) all of the above

2. This artist, who made Rocket to the Moon, paid tribute to the richness of the African-American

experience through art.

(a) Romare Bearden

(b) Barnet Newman

(c) Felix González-Torres

(d) Chaz Maviyane-Davies

3. The symbolic meaning of visual signs and imagery is called: (Points : 1)

content

form

iconography

aesthetics

4. Alexander Calder is the first artist to: (Points : 1)

use the elements of “chiaroscurro” as a major element of art.

use the element of “electric light” as a major part of art.

use the element of “motion” as a major part of art.

None of these are the correct answer for what Alexander Calder added to the world of “art”.

5. In trying to interpret an image iconographically, with special consideration to time and place of creation, you must also pay attention to identification of significant _____________. (Points : 1)

colors

subjects

forms

all of the above

6. In art, “medium” refers to: (Points : 1)

the material used for artwork

the size of a painting in between small and large

a particular material, along with its accompanying technique

7. James Hampton, the artist who created Throne of the Third Heaven of the Nation’s Millennium General Assembly (figure 33), did not have any professional art training. This type of artist is often recognized as a _______ artist. (Points : 1)

Tukutuku

Constructivist

Naive/Untrained

Nonconforming

8. In Lee Friedlander’s work “Bismark, North Dakota” (2002), we see an example of how: (Points : 1)

figure-ground reversal interlocks light and dark forms.

the image of poles, railings and their shadows, appear as a variety of visual lines.

plant and bird forms create a sense of “mass”.

shapes, light and color combine to create the illusion of depth.

9. The realistic manner in which William Harnett painted A Smoke Backstage is called: (Points : 1)

visual relativism

nonrepresentational

painterly

trompe l’oeil

10. When studying an image for form alone, the text advises you (the viewer) to: (Points : 1)

look at the image upside

hold up your hands and fingers to form a square; then look through that square to focus on various parts of the image

step back from the image to notice the largest shapes

none of the above

1. The specific area our eyes are drawn to

CORRECT: focal point

2. provides diversity – acts to counteract unity

a. CORRECT: Variety

the juxtaposition of strongly dissimilar elements

a. CORRECT: contrast

to draw our attention to an area

CORRECT: Emphasis

Near or exact matching of left and right sides of a 3 dimensional form (or 2 dimens composition)

a. CORRECT: Symmetrical Balance

the appearance or condition of oneness

a. CORRECT: Unity

Left and right sides are not the same

a. CORRECT: Asymmetrical Balance

refers to any kind of movement or structure of dominant and subordinate elements in sequence.

a. CORRECT: rhythm

7 True/False Questions

1. Balance → the size relation of one thing to another CORRECT: This is false.

It should be Balance → the achievement of equilibrium in which acting influences are held in check by opposing forces.

2. proportion → the size relationship of parts to a whole CORRECT: This is true.

3. subordination → the size relationship of parts to a whole CORRECT: This is false.

It should be subordination → create neutral areas of lesser interest that keep us from being distracted fro the areas of emphasis.

4. format → the juxtaposition of strongly dissimilar elements CORRECT: This is false.

It should be format → size and shape of a 2 dimensional picture plane.

5. Pattern → provides diversity – acts to counteract unity CORRECT: This is false.

It should be Pattern → refers to a repetitive ordering of design elements.

6. scale → the achievement of equilibrium in which acting influences are held in check by opposing forces.

CORRECT: This is false.

It should be scale → the size relation of one thing to another.

7. directional forces → The specific area our eyes are drawn to CORRECT: This is false. It should be directional forces → influence the way we look at a work of art – paths for the eye to follow.

1. Going Home illustrates this artist’s skillful use of abstraction, unity and variety.

(a) Jacob Lawrence

(b) Pieter de Hooch

(c) Suzuki Haranobu

(d) Edgar Degas

Page Ref: 60

2. Claus Oldenburg’s and Coosje van Bruggen’s art, as seen in Shuttlecocks, affects us immediately by its:

(a) symbolism

(b) scale

(c) iconography

(d) color

Page Ref: 72

3. The balance in Jockeys Before the Race, by the artist Edgar Degas, is:

(a) symmetrical

(b) asymmetrical

(c) isometric

(d) repetitive

Page Ref: 66

4. Large Reclining Nude is the final result of this artist’s long process of planning and rearranging the design of the composition.

(a) Henri Matisse

(b) Pablo Picasso

(c) Beverly Pepper

(d) Nicolas Poussin

Page Ref: 755. Ogata Korin’s Cranes is a good example of the principle of:

(a) insistent rhythm

(b) emphasis and focal point

(c) rhythm and repetition

(d) emphasis and contrast

Page Ref: 71

6. The result of the process of arranging, selecting and ordering is called the:

(a) purpose

(b) design

(c) emphasis

(d) direction

Page Ref: 59

7. _______ refers to size relationships between parts of a whole.

(a) probability

(b) scale

(c) proportion

(d) chiaroscuro

Page Ref: 72

8. The term “format” refers to the size and shape of a _______ picture plane.

(a) three-dimensional

(b) formal

(c) proportioned

(d) two-dimensional

Page Ref: 73

9. In _______ balance, the two sides of a composition on either side of an imaginary vertical

dividing line correspond to one another in size, shape, and placement of form.

(a) informal

(b) symmetrical

(c) asymmetrical

Page Ref: 63

10. The juxtaposition of strongly dissimilar elements is referred to as _______.

(a) contrast

(b) asymmetry

(c) hierarchy

(d) composition

Page Ref: 69

11. The organization of visual elements in a work of art is referred to as _______.

(a) the composition

(b) the proportion

(c) the design

(d) the balance

Page Ref: 5912. Which of the following occurs when equal forms, masses, or elements balance one another?

(a) asymmetrical balance

(c) symmetrical balance

(d) bilateral symmetry

Page Ref: 63

13. _______ is the appearance or condition of oneness in a work of art.

(a) Rhythm

(b) Emphasis

(c) Balance

(d) Unity

Page Ref: 59

14. Repetition of similar elements in a work of art creates the illusion of:

(a) shape

(b) color

(c) rhythm

(d) line

Page Ref: 69

What is wet media?

Media used that are not dry such as oil paint, water paint, acrylic etc.

1. drawing one set of hatching over another in a different direction so that the lines cross it suggest shadows or darker areas

a. Contour hatching

b. Cartoon

c. CORRECT: Cross-hatching

d. Hatching

a set of parallel curved lines that suggest a volume in space

a. Tooth

b. Cross-hatching

c. Hatching

d. CORRECT: Contour hatching

the process of drawing from observation (looking at something) this provides an accurate detail sketch

a. CORRECT: Direct Observation

b. Fixation

c. Purpose of Drawing

d. Projective Drawing

degree of roughness presented in drawing papers –> gives texture to drawing

a. INCORRECT: Hatching

b. Fixation

c. CORRECT: Tooth

d. Cartoon

A light, liquid varnish sprayed over finished charcoal or pastel drawing to prevent smudging. Used to “fix” charcoal or pastel on paper

a. Cartoon

b. CORRECT: Fixation

c. Tooth

d. Hatching

A sequential art form based in drawing. Important based on its subject matter

a. Projective Drawing

b. CORRECT: Graphic novels/ comics

c. Cross-hatching

d. Contour hatching

A preliminary sketch. A drawing created as a full scale working drawing used as a model for a fresco painting, mural, or tapestry

a. CORRECT: Cartoon

b. Fixation

c. Tooth

d. Hatching

Type of tool: conte, crayon, pastel charcoal

a. Purpose of Drawing

b. CORRECT: Dry Drawing Media

c. Hatching

d. Projective Drawing

A technique used in drawing and linear form of printmaking, lines are placed in parallel series to darken the value of an area

a. Cartoon

b. INCORRECT: Cross-hatching

c. Tooth

d. CORRECT: Hatching

Media that uses black and/or colored inks. Has washes which is ink thinned with water/ thin transparent layer ink paint

a. CORRECT: Wet/ liquid drawing techniques

b. Purpose of Drawing

c. Projective Drawing

d. Dry Drawing Media

1. A notion, sketch, or record of something seen, remembered, or imagined 2. As a preparation for another large, complex work such as a sculpture, building, etc. 3. Complete work of art

a. CORRECT: Purpose of Drawing

b. Projective Drawing

c. INCORRECT: Cross-hatching

d. Direct Observation

the process of drawing from indirect observation and drawing from imagination or memory

a. Contour hatching

b. CORRECT: Projective Drawing

c. Direct Observation

d. INCORRECT: Purpose of Drawing

1. Pigment Binder/Medium Vehicle

a. Casein

b. Pigment

c. CORRECT: 3 components of paint

d. Impasto

Painting techniques that apples pigments thickly so brush or palette knife marks are visible

a. Gesso

b. Fresco

c. INCORRECT: Casein

d. CORRECT: Impasto

Primary layer of paint that’s applied to surface that about to be painted. This created a uniform surface

a. Oil

b. Size

c. Pigment

d. CORRECT: Primer

Material that mixed with pigment to hold the pigment particles together without dissolving them. This allows pigment to attach to the surface as well

a. Primer

b. Pigment

c. Fresco

d. CORRECT: Binder/medium

Pigments mixed with water and applied to plaster support (wall or ceiling) Pigment dry to become apart of the wall or surface. Plaster must be damp. Work on small areas at a time

a. INCORRECT: Gesso

b. Tempera

c. CORRECT: True Fresco

d. Fresco

Pigments suspended in a binder of hot wax.  Pigment is mixes with wax and resin and burned in. Advantages: creates a texture surface and won’t harm paper

a. CORRECT: Encaustic

b. INCORRECT: Impasto

c. Acrylic

d. Casein

Glazing Impasto Airbrush

a. Pigment

b. Binder/medium

c. CORRECT: Painting techniques

d. Gouache

Binder: water-soluble gum Vehicle: water Advantages: transparent and portable

a. Vehicle

b. CORRECT: Water Color

c. Acrylic

d. Fresco

Physical material that provides a base to sustain a 2D work of art

a. Gesso

b. Primer

c. Tempera

d. CORRECT: Support

type of tempera where milk protein is used as a binder in opaque water based paint

a. CORRECT: Casein

b. INCORRECT: Encaustic

c. Oil

d. Size

Used in oil painting, a thin transparent layer brushed over another layer to show through as substance enriched its color. This can be color, transparant, or opaque

a. Gesso

b. INCORRECT: Size

c. CORRECT: Glaze

d. Gouache

Liquid that aids in spreading of paint and holds the pigment and binder together

a. Gouache

b. CORRECT: Vehicle

c. Oil

d. Size

powered color agents

a. Impasto

b. CORRECT: Pigment

c. Primer

d. Size

a small-scale paint sprayer that allows artist to control fine mist of paint

a. Acrylic

b. Primer

c. Pigment

d. CORRECT: Airbrush

Binder: Clear synthetic resin  Advantages: tough, flexible, waterproof, fast-drying

a. Casein

b. INCORRECT: Oil

c. Encaustic

d. CORRECT: Acrylic

type of tempera that has a mixture of glue and chalk thinned with water and applied as a ground before painting with oil or egg tempera

a. Oil

b. Fresco

c. CORRECT: Gesso

d. INCORRECT: Glaze

An opaque (cloudy), water soluble paint like water color. A watercolor to which opaque white has been added

a. Glaze

b. CORRECT: Gouache

c. Fresco

d. Vehicle

Pigments suspended in water(vehicle) and applied to damp lime plaster surface(binder). Pigments dry and become apart of the plaster wall Advantages: large scale and survives for centuries

a. INCORRECT: Primer

b. Impasto

c. CORRECT: Fresco

d. Gesso

Pigment + oil  Advantages: dries slowly, multiple layer can be added, sections can be reworked

a. CORRECT: Oil

b. INCORRECT: Gesso

c. Primer

d. Size

Water base paint Binder=egg yolk

a. Support

b. Primer

c. CORRECT: Tempera

d. Size

Protects surface from deteriorating of paint Used of wax, glue, clay as fillers for porous material (paper, canvas, wall surface)

a. CORRECT: Size

b. Primer

c. Oil

d. INCORRECT: Glaze

1. (Woodcut, wood engraving and linocut) Artist carves away the negative space

a. Etching

b. CORRECT: Relief

c. Print

d. Tusche

Produced in quantities called limited editions

a. Artists Proofs

b. Print

c. CORRECT: Original Prints

d. Printmaking

A planographic printmaking technique based on dislike of water and oil. No cutting needed. The image is drawing with a grease crayon or painted with tusche on stone or a aluminum plate The surface is chemically treated and dampened so that ink will be accepted where crayon and tusche are used

a. Engraving

b. Linocut

c. Matrix

d. CORRECT: Lithography

Relief Intaglio Lithography Screenprinting

a. Wood engraving

b. CORRECT: Categories of Printmaking

c. INCORRECT: Printmaking

d. Original Prints

In lithography, waxy liquid used used to draw/paint images on lithographic stone or plate

a. Matrix

b. CORRECT: Tusche

c. Relief

d. Woodcut

Type Intaglio: fine lines are scratched directly into metal plate with a steel needle. Scratches raise a ridge(Burr) that takes in the ink. Acid-free method

a. Print

b. INCORRECT: Linocut

c. CORRECT: Drypoint

d. Aquatint

Type of relief process: artist cuts away negative space from block of linoleum leaving raised areas to take ink for printing

a. Woodcut

b. CORRECT: Linocut

c. Drypoint

d. Print

Original prints

a. INCORRECT: Artists Proofs

b. Original Prints

c. CORRECT: Multiple originals

d. Wood engraving

total number of prints made and approved by artist and a limited number of multiple originals of a single design in any medium

a. CORRECT: Edition

b. Etching

c. Relief

d. Registration

Block of metal, wood, stone, other material that an artist works to create a print

a. Print

b. Intaglio

c. Relief

d. CORRECT: Matrix

*A technique where stencils are applied to fabric stretched across frame.Paint or ink is forced with a squeegee through the unblocked portions of the screen onto the paper or surface beneath.  *A sheet of paper, cardboard, or metal with a design cut out. Painting or stamping over the sheet prints the design on a surface

a. INCORRECT: Photo screen

b. Categories of Printmaking

c. CORRECT: Silkscreen, stencil, screenprinting

d. Original Prints

A method of relief printing in wood. It’s made with less denser wood which required engraving tool

a. CORRECT: Wood engraving

b. INCORRECT: Woodcut

c. Engraving

d. Printmaking

Number of impressions that will be made in total. This number will be written in each approved impressions/number of impressions within the edition 6/50

a. Edition

b. INCORRECT: Intaglio

c. Registration

d. CORRECT: Limited Edition

Type Intaglio: a metal plate is first coated with acid-resistance wax, then scratched to expose metal where lines are desired. Lines are more relaxed and irregular.(No Answer)

a. Edition

b. CORRECT: Etching

c. Print

d. Engraving

In color printmaking, the process of aligning to impressions of blocks or plates on the same sheet of paper

a. CORRECT: Registration

b. INCORRECT: Edition

c. Printmaking

d. Engraving

A/P – satisfactory, best quality that artists puts aside for portfolio(No Answer)

a. Edition

b. Registration

c. CORRECT: Artists Proofs

d. Original Prints

a. CORRECT: The Wave Color woodblock print

b. Categories of Printmaking

c. Woodcut

d. Original Prints

A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it

a. Drypoint

b. INCORRECT: Relief

c. CORRECT: Print

d. Aquatint

Process for creating multiple copies of an image

a. Intaglio

b. Print

c. CORRECT: Printmaking

d. INCORRECT: Engraving

Type Intaglio: value areas rather than lines are etched on the printing plate. Powdered resin is sprinkled on plate, and immersed in an acid bath. Acid bites around the resin particles, creating a rough surface that holds the ink(No Answer)

a. CORRECT: Aquatint

b. Print

c. Edition

d. Drypoint

Type Intaglio: grooves are cut into metal or wood surface with a sharp cutting tool–burin. Lines are more smooth and parallel.

a. Wood engraving

b. CORRECT: Engraving

c. INCORRECT: Etching

d. Print

A variations of silkscreen in which the stencil is prepared by transferring a photo graph to the stencil

a. Tusche

b. Linocut

c. CORRECT: Photo screen

d. Woodcut

Type of relief made from a plank of soft wood. In order to obtain multiple colos of matrix, artist prepares multiple matrixes( one for each color)(No Answer)

a. CORRECT: Woodcut

b. Print

c. Linocut

d. Tusche

Techniques in which lines and areas that are recessed below the surface of printing plate is inked Engraving Etching Aquatint Drypoint

a. CORRECT: Intaglio

b. Linocut

c. Edition

d. Matrix

1. Edition → Type Intaglio: a metal plate is first coated with acid-resistance wax, then scratched to expose metal where lines are desired. Lines are more relaxed and irregular.

INCORRECT: This is false, but you marked it true.

It should be Edition → total number of prints made and approved by artist and a limited number of multiple originals of a single design in any medium.

2. Photo screen → A variations of silkscreen in which the stencil is prepared by transferring a photo graph to the stencil

CORRECT: This is true.

3. Print → Type Intaglio: fine lines are scratched directly into metal plate with a steel needle. Scratches raise a ridge(Burr) that takes in the ink. Acid-free method

INCORRECT: This is false, but you marked it true.

It should be Print → A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it.

4. Registration → In color printmaking, the process of aligning to impressions of blocks or plates on the same sheet of paper

CORRECT: This is true.

5. Artists Proofs → Produced in quantities called limited editions

INCORRECT: This is false, but you marked it true.

It should be Artists Proofs → A/P – satisfactory, best quality that artists puts aside for portfolio.

6. Tusche → A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it

INCORRECT: This is false, but you marked it true.

It should be Tusche → In lithography, waxy liquid used used to draw/paint images on lithographic stone or plate.

7. The Wave Color woodblock print →

CORRECT: This is true.

8. Relief → (Woodcut, wood engraving and linocut) Artist carves away the negative space

CORRECT: This is true.

9. Wood engraving → A method of relief printing in wood. It’s made with less denser wood which required engraving tool

INCORRECT: This is true, but you marked it false.

10. Limited Edition → Number of impressions that will be made in total. This number will be written in each approved impressions/number of impressions within the edition 6/50

CORRECT: This is true.

11. Matrix → Block of metal, wood, stone, other material that an artist works to create a print

INCORRECT: This is true, but you marked it false.

12. Aquatint → A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it

INCORRECT: This is false, but you marked it true.

It should be Aquatint → Type Intaglio: value areas rather than lines are etched on the printing plate. Powdered resin is sprinkled on plate, and immersed in an acid bath. Acid bites around the resin particles, creating a rough surface that holds the ink.

13. Original Prints → A/P – satisfactory, best quality that artists puts aside for portfolio

INCORRECT: This is false, but you marked it true.

It should be Original Prints → Produced in quantities called limited editions.

14. Lithography → Type of relief process: artist cuts away negative space from block of linoleum leaving raised areas to take ink for printing

INCORRECT: This is false, but you marked it true.

It should be Lithography → A planographic printmaking technique based on dislike of water and oil. No cutting needed. The image is drawing with a grease crayon or painted with tusche on stone or a aluminum plate The surface is chemically treated and dampened so that ink will be accepted where crayon and tusche are used.

15. Etching → Type Intaglio: grooves are cut into metal or wood surface with a sharp cutting tool–burin. Lines are more smooth and parallel.

INCORRECT: This is false, but you marked it true.

It should be Etching → Type Intaglio: a metal plate is first coated with acid-resistance wax, then scratched to expose metal where lines are desired. Lines are more relaxed and irregular..

16. Categories of Printmaking → Process for creating multiple copies of an image

INCORRECT: This is false, but you marked it true.

It should be Categories of Printmaking → Relief Intaglio Lithography Screenprinting.

17. Drypoint → A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it

CORRECT: This is false.

It should be Drypoint → Type Intaglio: fine lines are scratched directly into metal plate with a steel needle. Scratches raise a ridge(Burr) that takes in the ink. Acid-free method.

18. Linocut → Type of relief process: artist cuts away negative space from block of linoleum leaving raised areas to take ink for printing

INCORRECT: This is true, but you marked it false.

19. Multiple originals → Original prints

CORRECT: This is true.

20. Engraving → Type Intaglio: grooves are cut into metal or wood surface with a sharp cutting tool–burin. Lines are more smooth and parallel.

CORRECT: This is true.

21. Intaglio → Block of metal, wood, stone, other material that an artist works to create a print

INCORRECT: This is false, but you marked it true.

It should be Intaglio → Techniques in which lines and areas that are recessed below the surface of printing plate is inked Engraving Etching Aquatint Drypoint.

22. Silkscreen, stencil, screenprinting → *A technique where stencils are applied to fabric stretched across frame.Paint or ink is forced with a squeegee through the unblocked portions of the screen onto the paper or surface beneath.  *A sheet of paper, cardboard, or metal with a design cut out. Painting or stamping over the sheet prints the design on a surface

INCORRECT: This is true, but you marked it false.

23. Printmaking → A multiple original impression made from a plate, stone, wood block, or screen. They are made in editions: each printed numbered and signed by the artist. If approves it, he/she will sign it and if disapproves, he/she will destroy it

CORRECT: This is false.

It should be Printmaking → Process for creating multiple copies of an image.

24. Woodcut → Type of relief made from a plank of soft wood. In order to obtain multiple colos of matrix, artist prepares multiple matrixes( one for each color)

INCORRECT: This is true, but you marked it false.

Categories

## pstat 109 ucsb

Problem 1

Panera Bread has a daily breakfast special in which the customer may choose

One item from each of the following groups:

 Breakfast Sandwich Accompaniments Juice egg and ham breakfast potatoes orange egg and bacon apple slices cranberry tomato and cheese fresh fruit cup tomato pastry apple grape

a. How many different breakfast specials are possible?

b. How many different breakfast specials without meat are possible?

c. Suppose Mike only wants to order two different types of juice from the list above and

is currently undecided as to which juices he’ll order. How many possible juice pairs

are available to him?

Problem 2

Consider the following events in the toss of a single die:

A. Observe an odd number.

B. Observe a 1 or 2.

Are A and B independent events?

Problem 3

An advertising executive is studying television viewing habits of married men

and women during prime time hours. On the basis of past viewing records, the executive has determined that during prime time, husbands are watching television 60% of the time. It has also been determined that when the husband is watching television, 40% of the time the wife is also watching. When the husband is not watching television, 30% of the time the wife is watching television. Find the probability that

a. the wife is watching television in prime time.

b. if the wife is watching television, the husband is also watching television.

Categories

## information systems infrastructure: evolution and trends

Discussion1:

The Significance of Information Systems infrastructure is coming over last few years even though it is present in early 60’s. It helps in identifying the trends that the business Information System for Company management (ISFM) has been a key factor in developing the Business and the ISFM will adapt the changes quickly that are happening recently in market. As the name itself implies information, so the collection of data from various sources is very important and how we are storing and using it effectively is important to consider.

Evolution and Trends:

The name Information systems came into existence along with technology and it’s products (Liang, Chen, 2019). The Evolution of Information System has started early in 1960 in the account management Area. As this is important in every organization it became easy to start and develop with account management as the requirements are well documented and it is organized by the rules and regulations that everyone should follow. After developing the account management everyone in the company especially the members in administrative department found that there is need to have some more software tools for billing, invoices etc. In the early 70’s Material Requirements Planning (MRP) came up which uses the approach for creating the material plant from three fundamental blocks and helps to reduce the time and increase the quality in delivery. MRP II comes in 80’s and Enterprise Resource Planning (ERP) it came up with the evolution of inventory management in 50’s (Gil Gomez, 2009). mcomerce is trending in the information systems in a level such that strategies and activities that is managed by the companies and it is trending now. It has a power to change the existing way the business is handled in a more efficient way. ERP is having a great future a head and it is planning to extend it’s availability in other companies as well with minimum license cost, implementation cost so that more software will be available in the market and that can be used extensively in the market.

Discussion2

Information technology and its applications are evolving dramatically high in the last few years. The base of the information system infrastructure is the database, a network accessed, software and hardware related to the management system. ISI needs a lot of planning and maintenance of data in order to keep it safe and simple. Data should be arranged in a way that systems can be used for future development purpose.

Evolution:

Considering the part of the evolution of ISI, it started with the first computer evidence in the market. Gradually, systems were enhancing with the properties and improvements in the field. The very first application was implemented in the field of account in 1960. Changes were made as per the required functionality and new versions were evolved like MRP, MRP 2, ERP and ERP2 etc. ERP allows to combine all the important functionalities into one and known as “Unique Data”. Later In the decades, all the management activities were managed under the one server and then used along with the customers.

Trends:

As per the changing trend, services related to information will be brought in to control the data for further uses at a personal level or organizational level. This process is cost-effective and well accessible by the users. Information related processes like planning and operating, maintaining the information can be taken care by the services. Security of the systems will be taken care well in advance by the called services. These services can help systems to identify threats and viruses or any other unethical activities performed by the user.

As per the topics discussed, it relates to the information systems and its application. Also, how the trend is changing with the requirements and enhancements are visible in the systems. The information was very useful in terms of topic and clarification.

Categories

## in the ______________, households receive goods and services and pay firms for them.

Question

Question 1 1 / 1 point

Macroeconomic topics do not usually include:

a) the profit maximizing decisions of an individual manufacturer.

b) economic growth.

c) the rate of inflation.

d) the rate of unemployment.

Question 2 1 / 1 point

When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being:

a) low inflation

b) balanced budget

c) prudent monetary policy

d) assuring competition between firms

Question 3 1 / 1 point

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

a) the division of labor

b) households

d) unemployed people

Question 4 0 / 1 point

In the ______________, households receive goods and services and pay firms for them.

a) goods and services market

b) labor market

c) financial capital market

d) savings market

Question 5 1 / 1 point

Which of the following is included in the calculated Gross Domestic Product?

a) Farmer Freddie sells his second tractor to his son.

b) Suzanne buys a love seat and chair for \$85 at the yard sale on the corner.

c) A local ice cream store sells \$17,000 worth of cones and sundaes on July 1.

d) Mr. Farkle buys a used lawn mower from his neighbor, Mr. Sparkle.

Question 6 1 / 1 point

_______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.

a) Inflation

c) Economic growth

d) Education

Question 7 1 / 1 point

GDP does not directly include:

a) the value of final goods and services produced, but not sold, during a period.

b) the value of services rendered during a period.

c) the value of intermediate goods sold during a period.

d) the value of goods produced domestically and sold abroad.

Question 8 1 / 1 point

A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:

a) expansion, trough, recession, peak

b) trough, expansion, recession, peak

c) contraction, recession, expansion, boom

d) expansion, peak, recession, trough

Question 9 1 / 1 point

Ethiopia has a GDP of \$8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of \$9 billion (measured in U.S. dollars) and a population of 4 million. Calculate per capita GDP for each country.

a) Ethiopia = \$145.00 Costa Rica = \$2250.00

b) Ethiopia = \$1450.00 Costa Rica = \$22,500.00

c) Ethiopia = \$14.50 Costa Rica = \$225.00

d) Ethiopia = \$14.50 Costa Rica = \$2250.00

Question 10 1 / 1 point

Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker’s GDP will be approximately ___________ that of Country Able.

a) one-half

b) one-fourth

c) triple

d) double

Question 11 1 / 1 point

Increased investment alone will guarantee economic growth.

a) This is a true statement, because growth occurs only with savings.

b) This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology.

c) This is a false statement, because an economy must rely on capital injections from abroad.

d) This is a true statement, because money is the only resource needed for growth.

Question 12 1 / 1 point

Some recent economic research has suggested that African countries’ economic growth may have been limited by __________________ .

a) population

b) geography and climate

c) government interventionism

d) technological challenges

Question 13 1 / 1 point

A nation’s prosperity is sometimes measured in terms of ___________.

a) GNP

Correct Response

b) GDP per capita

c) GDP

d) economic output

Question 14 1 / 1 point

A university student who is enrolled in school fulltime and not seeking employment is considered:

a) underemployed.

b) unemployable, and not counted in official statistics.

c) out of the labor force.

d) employed in leisure.

Question 15 1 / 1 point

The unemployment rate may overestimate the true extent of unemployment if:

a) many part-time employees would like to work fulltime, but are unable to get the additional work.

b) many people who claim to be unemployed actually work in the underground economy.

c) people falsely claim that they are actively seeking work in order to receive unemployment benefits.

d) either B) or C) occurs.

Question 16 1 / 1 point

A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:

a) structurally unemployed.

b) underemployed.

c) cyclically unemployed.

d) frictionally unemployed.

Question 17 0 / 1 point

The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer’s true cost of living, because it doesn’t take into account that the person can substitute between goods according to changes in their relative prices.

a) overstate

b) stabilize

c) reduce

d) understate

Question 18 1 / 1 point

When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________.

a) COLAed

b) indexed

c) semi-indexed

Question 19 1 / 1 point

Alex wants to measure the nominal 1998 GDP of \$993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be?

a) \$2,063 billion

b) \$835 billion

c) \$430 billion

d) \$2,449 billion

Question 20 1 / 1 point

If the price index moves from 107 to 110, the rate of inflation is:

a) 30%

b) 2.8%

c) 3%

d) 28%

Quiz 2

Question 1 1 / 1 point

The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports.

a) employment effect; discouraging; encouraging

b) interest rate effect; encouraging; discouraging

c) wealth effect; encouraging; discouraging

d) foreign price effect; discouraging; encouraging

Question 2 0 / 1 point

If Keynes’ law applies during economic contractions and Say’s law applies during economic expansion, how will the three goals of macroeconomics be affected?

a) the economy will face genuine limits to how much can be produced

b) institutional and market structures will connect factors of production

c) trade-offs and connections may differ in the short run and the long run

d) determinates of total supply for the economy will be traded-off

Question 3 0 / 1 point

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

a) the maximum potential GDP will be exceeded.

b) higher profits will induce expanded production.

c) increase in quantity produced won’t be large.

d) a majority of industries will start running into limits.

Question 4 0 / 1 point

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

a) potential GDP

b) AS curve

c) aggregate supply

d) GDP deflator

Question 5 0 / 1 point

Referring to the above diagram, which of the following is a true statement?

a) Macroeconomic policy will be needed to address rising inflation.

b) The equilibrium in the economy is at a level of output above full employment.

c) There is sufficient aggregate demand to cause inflationary pressures.

d) There is insufficient aggregate demand to reach full employment.

Question 6 0 / 1 point

The equilibrium quantity of labor and the equilibrium wage level decrease when:

a) labor demand shifts to the right, if wages are flexible.

b) labor supply shifts to the left, if wages are flexible.

c) labor demand shifts to the left, if wages are flexible.

d) labor supply shifts to the right, if wages are flexible.

Question 7 0 / 1 point

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a) a major trading partner’s economic slowdown

b) a decrease in interest rates

c) a decrease in a major trading partners export prices

d) an increase in domestic investment

Question 8 0 / 1 point

The equilibrium quantity of labor and the equilibrium wage increase when:

a) labor supply shifts to the right, if wages are flexible.

b) labor supply shifts to the left, if wages are flexible.

c) labor demand shifts to the left, if wages are flexible.

d) labor demand shifts to the right, if wages are flexible.

Question 9 0 / 1 point

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

a) 141.70

b) 147.62

c) 147.48

d) 144.41

Question 10 1 / 1 point

Refer to the graph shown below. This graph illustrates a:

a) Phillips Curve.

b) Keneyesian Curve.

c) Neoclassical Curve.

d) Labor Demand Curve.

Question 11 0 / 1 point

If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from:

a) the debit card company’s M1 funds.

b) the debit card company’s M2 funds.

c) her M2 funds.

d) her M1 funds.

Question 12 0 / 1 point

If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then:

a) both the money multiplier and the supply of money in the economy will decrease.

b) both the money multiplier and the supply of money in the economy will increase.

c) the money multiplier will increase and the supply of money in the economy will decrease.

d) the money multiplier will decrease and the supply of money in the economy will increase.

Question 13 0 / 1 point

If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from:

a) his M1 funds.

b) his M2 funds.

c) the credit card company’s M1 funds.

d) the credit card company’s M2 funds.

Question 14 0 / 1 point

Stealth bank has deposits of \$700 million. It holds reserves of \$20 million and has purchased government bonds worth \$350 million. The banks loans, if sold at current market value, would be worth \$600 million. What is the total value of Stealth bank’s assets?

Incorrect Response

a) \$1.7 billion

b) \$470 million

c) \$1.3 billion

d) \$970 million

Question 15 0 / 1 point

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

a) wage levels

b) aggregate demand

c) price levels

d) aggregate supply

Question 16 0 / 1 point

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

a) government focuses more on recession and cyclical unemployment

b) upward trend of potential GDP determines the rate of inflation

c) standard of living is ultimately determined by long-term growth

d) price and wage stickiness is reasonable in the short run

Question 17 0 / 1 point

The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank’s policy prohibits it from holding excess reserves. If the central bank sells \$25 million in bonds to Southern Bank which of the following will result?

a) the money supply in the economy decreases

b) decrease in Southern’s bond assets by \$25 million

c) increase in Southern’s loan assets of \$25 million

d) Southern’s net worth increases by \$25 million

Question 18 0 / 1 point

When the central bank lowers the reserve requirement on deposits:

a) the money supply and interest rates increase.

b) the money supply decreases and interest rates increase.

c) the money supply and interest rates decrease.

d) the money supply increases and interest rates decrease.

Question 19 0 / 1 point

When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following:

a) a expansionary monetary policy.

b) a contractionary monetary policy.

c) a loose monetary policy.

d) a quantitative easing policy.

Question 20 0 / 1 point

If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will:

a)  reduce both unemployment and inflation.

b) reduce unemployment, but increase inflation.

c) reduce unemployment, but have little effect on inflation.

d) have no effect on both unemployment and inflation.

Categories

## csun onesearch

SECOND

The list:

1.      The effects of watching television for young children are detrimental to language development. 2.      The number of siblings and their position in the family in terms of birth effects language development.

5.      Exposing the child in the first five years of life to classical music like Bach and Beethoven is beneficial for cognitive and/or language development. 6.      The more you talk to a child in the first five years, the better cognitive and/or language development will be. 7.      Children who are read to (or who read) have better imagery and/or language development than children who watch Television. 8.      A plentiful diet of sugar based cereals, soft drinks, pastries, cookies, and/or fast foods, is developmentally detrimental to a child’s ability to sustain attention. 9.      Reading to a child every day (even an infant) is beneficial for language development. 10.     A baby, who immediately after birth is allowed to remain with the mother rather than being immediately put in a nursery, will demonstrate more vocalization in later months. 11.     Babies who are not touched will perish at worst or have diminished brain development at best. 12.     Children who watch Television spend less time reading or drawing than children who don’t. 13.     Children with stay-at-home moms (or dads) have better language development than those having parents who both work away from the home. 14.     Sustained middle ear infections among children from birth to 5 years will have a detrimental effect on language development. 15.     Learning to read and play music facilitates attention (focused, sustained, selective, alternating and dual). 16.     For the normal baby, being exposed to two, three or more languages is simultaneously is a good policy for language development.

(Please note that you don’t have to prove the hypotheses one way or the other.  Just discuss them as you see fit.  Excluding the first, you may address all references to one Topic, or use separate topics for each reference)

Categories

## Description

In recent times, upheavals in society have energized a tremendous demand for authentic leadership. The destruction on 9/11, corporate scandals at companies like WorldCom and Enron, and massive failures in the banking industry have all created fear and uncertainty. People feel apprehensive and insecure about what is going on around them, and as a result, they long for bona fide leadership they can trust and for leaders who are honest and good. People’s demands for trustworthy leadership make the study of authentic leadership timely and worthwhile.

In addition to the public’s interest, authentic leadership has been intriguing to researchers: It was identified earlier in transformational leadership research but never fully articulated (Bass, 1990; Bass & Steidlmeier, 1999; Burns, 1978; Howell & Avolio, 1993). Furthermore, practitioners had developed approaches to authentic leadership that were not evidence based, and so needed further clarification and testing. In attempts to more fully explore authentic leadership, researchers set out to identify the parameters of authentic leadership and more clearly conceptualize it, efforts that continue today.

Character and Purpose

On the surface, authentic leadership appears easy to define. In actuality, it is a complex process that is difficult to characterize. Among leadership scholars, there is no single accepted definition of authentic leadership. Instead, there are multiple definitions, each written from a different viewpoint and with a different emphasis (Chan, 2005).

One of those viewpoints is the intrapersonal perspective, which focuses closely on the leader and what goes on within the leader. It incorporates the leader’s self-knowledge, self-regulation, and self-concept. In Shamir and Eilam’s (2005) description of the intrapersonal approach, they suggest that authentic leaders exhibit genuine leadership, lead from conviction, and are originals, not copies. This perspective emphasizes a leader’s life experiences and the meaning he or she attaches to those experiences as being critical to the development of the authentic leader.

A second way of defining authentic leadership is as an interpersonal process. This perspective outlines authentic leadership as relational, created by leaders and followers together (Eagly, 2005). It results not from the leader’s efforts alone, but also from the response of followers. Authenticity emerges from the interactions between leaders and followers. It is a reciprocal process because leaders affect followers and followers affect leaders.

Finally, authentic leadership can be defined from a developmental perspective, which is exemplified in the work of Avolio and his associates (Avolio & Gardner, 2005; Gardner, Avolio, & Walumbwa, 2005; Walumbwa, Avolio, Gardner, Wernsing, & Peterson, 2008). This perspective, which underpins the approaches to authentic leadership discussed in the following section, views authentic leadership as something that can be nurtured in a leader, rather than as a fixed trait. Authentic leadership develops in people over a lifetime and can be triggered by major life events, such as a severe illness or a new career.

Taking a developmental approach, Walumbwa et al. (2008) conceptualized authentic leadership as a pattern of leader behavior that develops from and is grounded in the leader’s positive psychological qualities and strong ethics. They suggest that authentic leadership is composed of four distinct but related components: self-awareness, internalized moral perspective, balanced processing, and relational transparency (Avolio, Walumbwa, & Weber, 2009). Over a lifetime, authentic leaders learn and develop each of these four types of behavior.

Building Authenticity

Formulations about authentic leadership can be differentiated into two areas: (1) the practical approach, which evolved from real-life examples and training and development literature; and (2) the theoretical approach, which is based on findings from social science research. Both approaches offer interesting insights about the complex process of authentic leadership.

#### Practical Approach

Books and programs about authentic leadership are popular today; people are interested in the basics of this type of leadership. Specifically, they want to know the “how to” steps to become an authentic leader. In this section, we will discuss Bill George’s authentic leadership approach (2003).

##### Bill George’s Authentic Leadership Approach.

The authentic leadership approach developed by George (2003; George & Sims, 2007) focuses on the characteristics of authentic leaders. George describes, in a practical way, the essential qualities of authentic leadership and how individuals can develop these qualities if they want to become authentic leaders.

Based on his experience as a corporate executive and through interviews with a diverse sample of 125 successful leaders, George found that authentic leaders have a genuine desire to serve others, they know themselves, and they feel free to lead from their core values. Specifically, authentic leaders demonstrate five basic characteristics: (1) They understand their purpose, (2) they have strong values about the right thing to do, (3) they establish trusting relationships with others, (4) they demonstrate self-discipline and act on their values, and (5) they are passionate about their mission (i.e., act from their heart) (Figure 9.1; George, 2003).

Figure 9.1 illustrates five dimensions of authentic leadership identified by George: purpose, values, relationships, self-discipline, and heart. The figure also illustrates each of the related characteristics—passion, behavior, connectedness, consistency, and compassion—that individuals need to develop to become authentic leaders.

In his interviews, George found that authentic leaders have a real sense of purpose. They know what they are about and where they are going. In addition to knowing their purpose, authentic leaders are inspired and intrinsically motivated about their goals. They are passionate individuals who have a deep-seated interest in what they are doing and truly care about their work.

A good example of an authentic leader who exhibited passion about his goals was Terry Fox, a cancer survivor, whose leg was amputated after it was overcome by bone cancer. Using a special leg prosthesis, Terry attempted to run across Canada, from the Atlantic to the Pacific, to raise awareness and money for cancer research. Although he died before he finished his run, his courage and passion affected the lives of millions of people. He also accomplished his goals to increase cancer awareness and to raise money for cancer research. Today, the Terry Fox Foundation is going strong and has raised more than \$400 million (Canadian) for cancer research (www.terryfox.org). Of the dimensions and characteristics in Figure 9.1, Terry Fox clearly demonstrated purpose and passion in his leadership.

SOURCE: From Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value by Bill George, copyright © 2003. Reproduced with permission of John Wiley & Sons, Inc.

Authentic leaders understand their own values and behave toward others based on these values. Stated another way, George suggests that authentic leaders know their “True North.” They have a clear idea of who they are, where they are going, and what the right thing is to do. When tested in difficult situations, authentic leaders do not compromise their values, but rather use those situations to strengthen their values.

An example of a leader with a strong set of values is Nobel Peace Prize Laureate Nelson Mandela. Mandela was a deeply moral man with a strong conscience. While fighting to abolish apartheid in South Africa, he was unyielding in his pursuit of justice and equality for all. When he was in prison and offered early release in exchange for denouncing his viewpoint, he chose to remain incarcerated rather than compromise his position. Nelson Mandela knew who he was at his core. He knew his values, and his leadership reflected those values.

A third characteristic of authentic leadership in the George approach is strong relationships. Authentic leaders have the capacity to open themselves up and establish a connection with others. They are willing to share their own story with others and listen to others’ stories. Through mutual disclosure, leaders and followers develop a sense of trust and closeness.

George argued that people today want to have access to their leaders and they want their leaders to be open with them. In a sense, people are asking leaders to soften the boundary around their leadership role and to be more transparent. People want to have a trusting relationship with their leaders. In exchange, people are willing to give leaders greater loyalty and commitment.

As we discussed in Chapter 7 (leader–member exchange theory), effective leader–follower relationships are marked by high-quality communication in which leaders and followers demonstrate a high degree of mutual trust, respect, and obligation toward each other. Leaders and followers are tied together in productive ways that go beyond the stereotypical leader–follower relationship. This results in strong leader–member relationships, greater understanding, and higher productivity.

Self-discipline is another dimension of authentic leadership, and is the quality that helps leaders to reach their goals. Self-discipline gives leaders focus and determination. When leaders establish objectives and standards of excellence, self-discipline helps them to reach these goals and to keep everyone accountable. Furthermore, self-discipline gives authentic leaders the energy to carry out their work in accordance with their values.

Like long-distance runners, authentic leaders with self-discipline are able to stay focused on their goals. They are able to listen to their inner compass and can discipline themselves to move forward, even in challenging circumstances. In stressful times, self-discipline allows authentic leaders to remain cool, calm, and consistent. Because disciplined leaders are predictable in their behavior, other people know what to expect and find it easier to communicate with them. When the leader is self-directed and “on course,” it gives other people a sense of security.

Last, the George approach identifies compassion and heart as important aspects of authentic leadership. Compassion refers to being sensitive to the plight of others, opening one’s self to others, and being willing to help them. George (2003, p. 40) argued that as leaders develop compassion, they learn to be authentic. Leaders can develop compassion by getting to know others’ life stories, doing community service projects, being involved with other racial or ethnic groups, or traveling to developing countries (George, 2003). These activities increase the leader’s sensitivity to other cultures, backgrounds, and living situations.

In summary, George’s authentic leadership approach highlights five important features of authentic leaders. Collectively, these features provide a practical picture of what people need to do to become authentic in their leadership. Authentic leadership is a lifelong developmental process, which is formed and informed by each individual’s life story.

#### Theoretical Approach

Although still in its initial stages of development, a theory of authentic leadership is emerging in social science literature. In this section, we identify the basic components of authentic leadership and describe how these components are related to one another.

##### Background to the Theoretical Approach.

Although people’s interest in “authenticity” is probably timeless, research on authentic leadership is very recent, with the first article appearing in 2003. The primary catalyst for this research was a leadership summit at the University of Nebraska. This summit was sponsored by the Gallup Leadership Institute, and focused on the nature of authentic leadership and its development. From the summit, two sets of publications emerged: (1) a special issue of Leadership Quarterly in the summer of 2005, and (2) Monographs in Leadership and Management,titled “Authentic Leadership Theory and Process: Origins, Effects and Development,” also published in 2005. Prior to the summit, Luthans and Avolio (2003) published an article on authentic leadership development and positive organizational scholarship. The article also helped to ignite this area of research.

Authenticity and Brand

Interest in authentic leadership increased during a time in which there was a great deal of societal upheaval and instability in the United States. The attacks of 9/11, widespread corporate corruption, and a troubled economy all created a sense of uncertainty and anxiety in people about leadership. Widespread unethical and ineffective leadership necessitated the need for more humane, constructive leadership that served the common good (Fry & Whittington, 2005; Luthans & Avolio, 2003).

In addition, researchers felt the need to extend the work of Bass (1990) and Bass and Steidlmeier (1999) regarding the meaning of authentic transformational leadership. There was a need to operationalize the meaning of authentic leadership and create a theoretical framework to explain it. To develop a theory of authentic leadership, researchers drew from the fields of leadership, positive organizational scholarship, and ethics (Cooper, Scandura, & Schriesheim, 2005; Gardner et al., 2005).

A major challenge confronting researchers in developing a theory was to define the construct and identify its characteristics. As we discussed earlier in the chapter, authentic leadership has been defined in multiple ways, with each definition emphasizing a different aspect of the process. For this chapter, we have selected the definition set forth in an article by Walumbwa et al. (2008), who defined authentic leadership as “a pattern of leader behavior that draws upon and promotes both positive psychological capacities and a positive ethical climate, to foster greater self-awareness, an internalized moral perspective, balanced processing of information, and relational transparency on the part of leaders working with followers, fostering positive self-development” (p. 94). Although complex, this definition captures the current thinking of scholars regarding the phenomenon of authentic leadership and how it works.

In the research literature, different models have been developed to illustrate the process of authentic leadership. Gardner et al. (2005) created a model that frames authentic leadership around the developmental processes of leader and follower self-awareness and self-regulation. Ilies, Morgeson, and Nahrgang (2005) constructed a multicomponent model that discusses the impact of authenticity on leaders’ and followers’ happiness and well-being. In contrast, Luthans and Avolio (2003) formulated a model that explains authentic leadership as a developmental process. In this chapter, we will present a basic model of authentic leadership that is derived from the research literature that focuses on the core components of authentic leadership. Our discussion will focus on authentic leadership as a process.

Fostering Authenticity

CEOs and Positive Psychology

In an effort to further our understanding of authentic leadership, Walumbwa and associates (2008) conducted a comprehensive review of the literature and interviewed groups of content experts in the field to determine what components constituted authentic leadership and to develop a valid measure of this construct. Their research identified four components: self-awareness, internalized moral perspective, balanced processing, and relational transparency (Figure 9.2). Together, these four components form the foundation for a theory of authentic leadership.

Self-awareness refers to the personal insights of the leader. It is not an end in itself but a process in which individuals understand themselves, including their strengths and weaknesses, and the impact they have on others. Self-awareness includes reflecting on your core values, identity, emotions, motives, and goals, and coming to grips with who you really are at the deepest level. In addition, it includes being aware of and trusting your own feelings (Kernis, 2003). When leaders know themselves and have a clear sense of who they are and what they stand for, they have a strong anchor for their decisions and actions (Gardner et al., 2005). Other people see leaders who have greater self-awareness as more authentic.

SOURCE: Adapted from Luthans, F., & Avolio, B. J. (2003). Authentic leadership development. In K. S. Cameron, J. E. Dutton, & R. E. Quinn (Eds.), Positive organizational scholarship (pp. 241–258). San Francisco: Berrett-Koehler; and Gardner, W. L., Avolio, B. J., Luthans, F., May, D. R., & Walumbwa, F. O. (2005). “Can you see the real me?” A self-based model of authentic leader and follower development. Leadership Quarterly, 16, 343–372.

Authenticity and Identity

Internalized moral perspective refers to a self-regulatory process whereby individuals use their internal moral standards and values to guide their behavior rather than allow outside pressures to control them (e.g., group or societal pressure). It is a self-regulatory process because people have control over the extent to which they allow others to influence them. Others see leaders with an internalized moral perspective as authentic because their actions are consistent with their expressed beliefs and morals.

Balanced processing is also a self-regulatory behavior. It refers to an individual’s ability to analyze information objectively and explore other people’s opinions before making a decision. It also means avoiding favoritism about certain issues and remaining unbiased. Balanced processing includes soliciting viewpoints from those who disagree with you and fully considering their positions before taking your own action. Leaders with balanced processing are seen as authentic because they are open about their own perspectives, but are also objective in considering others’ perspectives.

Relational transparency refers to being open and honest in presenting one’s true self to others. It is self-regulatory because individuals can control their transparency with others. Relational transparency occurs when individuals share their core feelings, motives, and inclinations with others in an appropriate manner (Kernis, 2003). It includes the individuals showing both positive and negative aspects of themselves to others. In short, relational transparency is about communicating openly and being real in relationships with others.

Fundamentally, authentic leadership comprises the above four factors—self-awareness, internalized moral perspective, balanced processing, and relational transparency. These factors form the basis for authentic leadership.

##### Factors That Influence Authentic Leadership.

There are other factors such as positive psychological capacities, moral reasoning, and critical life events that influence authentic leadership (Figure 9.2).

The four key positive psychological attributes that have an impact on authentic leadership—confidence, hope, optimism, and resilience—have been drawn from the fields of positive psychology and positive organizational behavior (Table 9.1; Luthans & Avolio, 2003). Positive attributes predispose or enhance a leader’s capacity to develop the components of authentic leadership discussed in the previous section. Each of these attributes has a trait-like and a state-like quality. They are trait-like because they may characterize a relatively fixed aspect of someone’s personality that has been evident throughout his or her life (e.g., extraversion), and they are state-like because, with training or coaching, individuals are capable of developing or changing their characteristics.

SOURCE: Luthans, F., & Avolio, B. J. (2003). Authentic leadership development. In K. S. Cameron, J. E. Dutton, & R. E. Quinn (Eds.), Positive organizational scholarship (pp. 241–258). San Francisco: Berrett-Koehler.

Confidence refers to having self-efficacy—the belief that one has the ability to successfully accomplish a specified task. Leaders who have confidence are more likely to be motivated to succeed, to be persistent when obstacles arise, and to welcome a challenge (Bandura, 1997; Luthans & Avolio, 2003). Hope is a positive motivational state based on willpower and goal planning (Luthans & Avolio, 2003). Authentic leaders with hope have goals they know can be accomplished; their hope inspires followers to trust them and believe in their goals. Optimism refers to the cognitive process of viewing situations from a positive light and having favorable expectations about the future. Leaders with optimism are positive about their capabilities and the outcomes they can achieve. They approach life with a sense of abundance rather than scarcity (Covey, 1990). Resilience is the capacity to recover from and adjust to adverse situations. It includes the ability to positively adapt to hardships and suffering. During difficult times, resilient people are able to bounce back from challenging situations and feel strengthened and more resourceful as a result of them (Sutcliffe & Vogus, 2003).

Moral reasoning is another factor that can influence authentic leadership (Figure 9.2). It is the capacity to make ethical decisions about issues of right or wrong and good or bad. Developing the capacity for moral reasoning is a lifelong process. Higher levels of moral reasoning make it possible for the authentic leader to make decisions that transcend individual differences and align individuals toward a common goal. They enable leaders to be selfless and make judgments that serve the greater good of the group, organization, or community. Moral reasoning capacity also enables authentic leaders to use this ability to promote justice and achieve what is right for a community.

A final factor related to authentic leadership is critical life events (Figure 9.2). Critical events are major events that shape people’s lives. They can be positive events, like receiving an unexpected promotion, having a child, or reading an important book; or they can be negative events, like being diagnosed with cancer, getting a negative year-end evaluation, or having a loved one die. Critical life events act as catalysts for change. Shamir and Eilam (2005) argued that authentic leadership rests heavily on the insights people attach to their life experiences. When leaders tell their life stories, they gain greater self-knowledge, more clarity about who they are, and a better understanding of their role. By understanding their own life experiences, leaders become more authentic.

Critical life events also stimulate growth in individuals and help them become stronger leaders (Luthans & Avolio, 2003). For example, Howard Schultz (founder and CEO of Starbucks) tells a story about when he was little: His father, who was a delivery driver, fell and was hurt on the job. His father did not have health insurance or worker’s compensation. Seeing the problems that resulted from his father’s difficulties, when Schultz built Starbucks he provided comprehensive health insurance for employees who worked as few as 20 hours a week. Schultz’s style of leadership was triggered by his childhood experience.

As the theory of authentic leadership develops further, other antecedent factors that influence the process may be identified. To date, however, it is positive psychological capacities, moral reasoning capacities, and critical life events that have been identified as factors that are influential in a person’s ability to become an authentic leader.

## How Does Authentic Leadership Theory Work?

In this chapter, we have discussed authentic leadership from a practical and theoretical perspective. Both perspectives describe authentic leadership as a developmental process that forms in leaders over time; however, both perspectives provide different descriptions for how authentic leadership works.

Authenticity

The practical approach provides prescriptions for how to be authentic and how to develop authentic leadership. For example, the George approach (2003) focuses on five characteristics leaders should develop to become authentic leaders. More specifically, George advocates that leaders become more purposeful, value centered, relational, self-disciplined, and compassionate. The essence of authentic leadership is being a leader who strongly demonstrates these five qualities.

Rather than simple prescriptions, the theoretical approach describes what authentic leadership is and what accounts for it. From this perspective, authentic leadership works because leaders demonstrate self-awareness, an internalized moral perspective, balanced processing, and relational transparency. Leaders develop these attributes through a lifelong process that is often influenced by critical life events. In addition, the literature suggests that positive psychological characteristics and moral reasoning have a significant impact on authentic leaders.

Authentic leadership is a complex process that emphasizes the development of qualities that help leaders to be perceived as trustworthy and believable by their followers. The leader’s job is to learn to develop these qualities and apply them to the common good as he or she serves others.

## Strengths

Although it is in its early stages of development, the authentic leadership approach has several strengths. First, it fulfills an expressed need for trustworthy leadership in society. During the past 20 years, failures in public and private leadership have created distrust in people. Authentic leadership helps to fill a void and provides an answer to people who are searching for good and sound leadership in an uncertain world.

Second, authentic leadership provides broad guidelines for individuals who want to become authentic leaders. Both the practical and theoretical approaches clearly point to what leaders should do to become authentic leaders. Social science literature emphasizes that it is important for leaders to have self-awareness, an internalized moral perspective, balanced processing, and relational transparency to be authentic. Taken together, these approaches provide a map for becoming an authentic leader.

Third, similar to transformational and servant leadership, authentic leadership has an explicit moral dimension. Underlying both the practical and theoretical approaches is the idea that authenticity requires leaders to do what is “right” and “good” for their followers and society. Authentic leaders understand their own values, place followers’ needs above their own, and work with followers to align their interests in order to create a greater common good.

Authenticity Framework

Fourth, authentic leadership emphasizes that authentic values and behaviors can be developed in leaders over time. Authentic leadership is not an attribute that only some people exhibit: Everyone can develop authenticity and learn to be more authentic. For example, leaders can learn to become more aware and transparent, or they can learn to be more relational and other-directed. Leaders can also develop moral reasoning capacities. Furthermore, Luthans and Avolio (2003) contended that leaders could learn to develop positive psychological capacities such as confidence, hope, optimism, and resilience, and could use these to create a positive organizational climate. They contended that there are many ways that leaders can learn to become authentic leaders over a lifetime.

Finally, authentic leadership can be measured using the Authentic Leadership Questionnaire (ALQ). The ALQ is a validated, theory-based instrument comprising 16 items that measure four factors of authentic leadership (Avolio et al., 2009; Walumbwa et al., 2008). As research moves forward in refining authentic leadership theory, it is valuable to have an established instrument of this construct that is theory-based and can be used to measure authentic leadership in future research.

## Criticisms

Authentic leadership is still in the formative stages of development, and a number of questions still need to be addressed about the theory. First, the concepts and ideas presented in George’s practical approach are not fully substantiated. While the practical approach is interesting and offers insight on authentic leadership, it is not built on a broad empirical base, nor has it been tested for validity. Without research support, the ideas set forth in the practical approach should be treated cautiously as explanations of the authentic leadership process.

Second, the moral component of authentic leadership is not fully explained. Whereas authentic leadership implies that leaders are motivated by higher-order end values such as justice and community, the way that these values function to influence authentic leadership is not clear. For example, how are a leader’s values related to a leader’s self-awareness? Or, what is the path or underlying process through which moral values affect other components of authentic leadership? In its present form, authentic leadership does not offer thorough answers to these questions.

Third, researchers have questioned whether positive psychological capacities should be included as components of authentic leadership. Although there is an interest in the social sciences to study positive human potential and the best of the human condition (Cameron, Dutton, & Quinn, 2003), the rationale for including positive psychological capacities as an inherent part of authentic leadership has not been clearly explained by researchers. In addition, some have argued that the inclusion of positive leader capacities in authentic leadership broadens the construct of authentic leadership too much and makes it difficult to measure (Cooper et al., 2005). At this point in the development of research on authentic leadership, the role of positive psychological capacities in authentic leadership theory needs further clarification.

Finally, it is not clear how authentic leadership results in positive organizational outcomes. Given that it is a new area of research, it is not unexpected that there are few data on outcomes, but these data are necessary to substantiate the value of the theory. Although authentic leadership is intuitively appealing on the surface, questions remain about whether this approach is effective, in what contexts it is effective, and whether authentic leadership results in productive outcomes. Relatedly, it is also not clear in the research whether authentic leadership is sufficient to achieve organizational goals. For example, can an authentic leader who is disorganized and lacking in technical competence be an effective leader? Authenticity is important and valuable to good leadership, but how authenticity relates to effective leadership is unknown. Clearly, future research should be conducted to explore how authentic leadership is related to organizational outcomes.

## Application

Because authentic leadership is still in the early phase of its development, there has been little research on strategies that people can use to develop or enhance authentic leadership behaviors. While there are prescriptions set forth in the practical approach, there is little evidence-based research on whether these prescriptions or how-to strategies actually increase authentic leadership behavior.

In spite of the lack of intervention research, there are common themes from the authentic leadership literature that may be applicable to organizational or practice settings. One theme common to all of the formulations of authentic leadership is that people have the capacity to learn to be authentic leaders. In their original work on authentic leadership, Luthans and Avolio (2003) constructed a model of authentic leadership development. Conceptualizing it as a lifelong learning process, they argued that authentic leadership is a process that can be developed over time. This suggests that human resource departments may be able to foster authentic leadership behaviors in employees who move into leadership positions.

Another theme that can be applied to organizations is the overriding goal of authentic leaders to try to do the “right” thing, to be honest with themselves and others, and to work for the common good. Authentic leadership can have a positive impact in organizations. For example, Cianci, Hannah, Roberts, and Tsakumis (2014) investigated the impact of authentic leadership on followers’ morality. Based on the responses of 118 MBA students, they found that authentic leaders significantly inhibited followers from making unethical choices in the face of temptation. Authentic leadership appears to be a critical contextual factor that morally strengthens followers. Cianci et al. suggest that the four components of authentic leadership (i.e., self-awareness, internalized moral perspective, balanced processing, and relational transparency) should be developed in organizational leadership to increase ethical organizational behavior.

Last, authentic leadership is shaped and reformed by critical life events that act as triggers to growth and greater authenticity. Being sensitive to these events and using them as springboards to growth may be relevant to many people who are interested in becoming leaders who are more authentic.

## Case Studies

The following section provides three case studies (Cases 9.1, 9.2, and 9.3) of individuals who demonstrate authentic leadership. The first case is about Sally Helgesen, author of The Female Advantage: Women’s Ways of Leadership (1990). The second case is about Greg Mortenson and how his mission to promote schools and peace in Pakistan and Afghanistan came under fire when he was accused of lying and financial impropriety. The final case is about Betty Ford, former First Lady of the United States, and her work in the areas of breast cancer awareness and substance abuse treatment. At the end of each of the cases, questions are provided to help you analyze the case using ideas from authentic leadership.

## Case 9.1

### Am I Really a Leader?

Sally Helgesen was born in the small Midwestern town of Saint Cloud, Minnesota. Her mother was a housewife who later taught English, and her father was a college professor of speech. After attending a local state college, where she majored in English and comparative religion, Sally spread her wings and moved to New York, inspired by the classic film Breakfast at Tiffany’s.

Sally found work as a writer, first in advertising and then as an assistant to a columnist at the then-influential Village Voice. She contributed freelance articles to magazines such as Harper’s, Glamour, Vogue, Fortune, and Inside Sports. She also returned to school, completing a degree in classics at Hunter College and taking language courses at the city graduate center in preparation for a PhD in comparative religion. She envisioned herself as a college professor, but also enjoyed freelancing. She felt a strong dichotomy within her, part quiet scholar and part footloose dreamer. The conflict bothered her, and she wondered how she would resolve it. Choosing to be a writer—actually declaring herself to be one—seemed scary, grandiose, and fraudulent.

Then one day, while walking on a New York side street in the rain, Sally saw an adventuresome black cat running beside her. It reminded her of Holly Golightly’s cat in Breakfast at Tiffany’s, an emblem in the movie for Holly’s dreamy temperament and rootlessness. It made her realize how much the freedom and independence offered by her “temporary” career as a writer suited her temperament. Sally told the cat she was a writer—she’d never been able to say the words before—and decided she was going to commit to full-time writing, at least for a time. When she saw the opportunity to cover a prominent murder trial in Fort Worth, Texas, she took it.

While covering the trial, Sally became intrigued with the culture of Texas, and decided she wanted to write a book on the role of independent oil producers in shaping the region. Doing so required a huge expenditure of time and money, and for almost a year Sally lived out of the trunk of her car, staying with friends in remote regions all over Texas. It was lonely and hard and exhilarating, but Sally was determined to see the project through. When the book, Wildcatters (1981), was published, it achieved little recognition, but Sally felt an enormous increase in confidence and commitment as a result of having finished the book. It strengthened her conviction that, for better or worse, she was a writer.

Sally moved back to New York and continued to write articles and search around for another book. She also began writing speeches for the CEO at a Fortune 500 company. She loved the work, and particularly enjoyed being an observer of office politics, even though she did not perceive herself to be a part of them. Sally viewed her role as being an “outsider looking in,” an observer of the culture. She sometimes felt like an actor in a play about an office, but this detachment made her feel professional rather than fraudulent.

As a speechwriter, Sally spent a lot of time interviewing people in the companies she worked for. Doing so made her realize that men and women often approach their work in fundamentally different ways. She also became convinced that many of the skills and attitudes women brought to their work were increasingly appropriate for the ways in which organizations were changing, and that women had certain advantages as a result. She also noticed that the unique perspectives of women were seldom valued by CEOs or other organizational leaders, who could have benefited if they had better understood and been more attentive to what women had to offer.

These observations inspired Sally to write another book. In 1988, she signed a contract with a major publisher to write a book on what women had to contribute to organizations. Until then, almost everything written about women at work focused on how they needed to change and adapt. Sally felt strongly that if women were encouraged to emphasize the negative, they would miss a historic opportunity to help lead organizations in a time of change. The time was right for this message, and The Female Advantage: Women’s Ways of Leadership (1990) became very successful, topping a number of best-seller charts and remaining steadily in print for nearly 20 years. The book’s prominence resulted in numerous speaking and consulting opportunities, and Sally began traveling the world delivering seminars and working with a variety of clients.

This acclaim and visibility were somewhat daunting to Sally. While she recognized the value of her book, she also knew that she was not a social scientist with a body of theoretical data on women’s issues. She saw herself as an author rather than an expert, and the old questions about fraudulence that she had dealt with in her early years in New York began to reassert themselves in a different form. Was she really being authentic? Could she take on the mantle of leadership and all it entailed? In short, she wondered if she could be the leader that people seemed to expect.

The path Sally took to answer these questions was simply to present herself for who she was. She was Sally Helgesen, an outsider looking in, a skilled and imaginative observer of current issues. For Sally, the path to leadership did not manifest itself in a step-by-step process. Sally’s leadership began with her own journey of finding herself and accepting her personal authenticity. Through this self-awareness, she grew to trust her own expertise as a writer with a keen eye for current trends in organizational life.

Sally continues to be an internationally recognized consultant and speaker on contemporary issues, and has published five books. She remains uncertain about whether she will finish her degree in comparative religion and become a college professor, but always keeps in mind the career of I. F. Stone, an influential political writer in the 1950s and 1960s who went back to school and got an advanced degree in classics at the age of 75.

#### Questions

1. Learning about one’s self is an essential step in becoming an authentic leader. What role did self-awareness play in Sally Helgesen’s story of leadership?

2. How would you describe the authenticity of Sally Helgesen’s leadership?

3. At the end of the case, Sally Helgesen is described as taking on the “mantle of leadership.” Was this important for her leadership? How is taking on the mantle of leadership related to a leader’s authenticity? Does every leader reach a point in his or her career where embracing the leadership role is essential?

## Case 9.2

(The previous edition of this book includes a case study outlining Greg Mortenson’s creation of the Central Asia Institute and highlighting his authentic leadership qualities in more detail. For an additional perspective on Mortenson, you can access the original case study at www.sagepub.com/northouse6e .)

By 2011, there were few people who had never heard of Greg Mortenson. He was the subject of two best-selling books, Three Cups of Tea (2006, with David O. Relin) and Stones Into Schools (2009), which told how the former emergency trauma room nurse had become a hero who built schools in rural areas of Afghanistan and Pakistan.

His story was phenomenal: Lost and sick after attempting to scale K2, Greg was nursed back to health by the villagers of remote Korphe, Afghanistan. Greg promised to build the village a school, a monumental effort that took him three years as he learned to raise money, navigate the foreign culture, and build a bridge above a 60-foot-deep chasm. His success led him to create the Central Asia Institute (CAI), a nonprofit organization that “empowers communities of Central Asia through literacy and education, especially for girls, promotes peace through education, and conveys the importance of these activities globally.” By 2011, the CAI had successfully established or supported more than 170 schools in Pakistan and Afghanistan, and helped to educate more than 68,000 students (CAI, 2011a).

Greg’s story seemed too good to be true. In April 2011, television news show 60 Minutes and author Jon Krakauer alleged that it was. 60 Minutes accused Greg of misusing money and benefitting excessively from the CAI. The show’s reporter visited schools the CAI had built overseas and claimed that he could not find six of the schools and that others were abandoned. The show featured an interview with Krakauer, who claimed Greg had fabricated parts of his best-selling book, Three Cups of Tea. When 60 Minutes approached Greg for comment at a book signing, he refused to talk to the program.

The next day, Krakauer (Into Thin Air [1997] and Under the Banner of Heaven [2003]) published a short online book, Three Cups of Deceit (2011), in which he claimed Greg lied many times in Three Cups of Tea, starting with his initial tale of being in Korphe.

Greg and the CAI were caught in a firestorm of media and public scrutiny. An investigation into the alleged financial improprieties was launched by Montana’s attorney general (the CAI is based in Bozeman), and two Montana legislators filed a \$5 million class action lawsuit claiming Greg fooled 4 million people into buying his books.

Greg withdrew from the public eye. The day the 60 Minutes program aired, he posted a letter on the CAI website saying he stood by his books and claiming the news show “paints a distorted picture using inaccurate information, innuendo and a microscopic focus on one year’s (2009) IRS 990 financial, and a few points in the book Three Cups of Tea that occurred almost 18 years ago” (CAI, 2011b). Many criticized the organization’s founder for not more aggressively defending himself.

What many people did not know, however, was that two days before the 60 Minutes segment appeared, Greg had been diagnosed with a hole and a large aneurysm in his heart and was scheduled for open-heart surgery in the next few months. Meanwhile, the CAI worked to ensure its transparency by posting its tax returns and a master list of projects and their status. The report documented 210 schools, with 17 of those receiving “full support” from the CAI, which includes teachers’ salaries, supplies, books, and furniture and monitoring by CAI contractors (Flandro, 2011).

The attorney general investigation concluded in 2012 and determined that Greg as well as CAI board members had mismanaged the CAI, and that Greg had personally profited from it. In a settlement, Greg agreed to pay \$1 million to the CAI for expenses he incurred that were deemed as personal. The attorney general’s conclusions did not address the allegations that Mortenson fabricated parts of his book. While he continues to be a CAI employee, Greg is not allowed to have any financial oversight for the organization or sit on its board of directors (Flandro, 2012).

Despite the controversy and subsequent finding of wrongdoing, former CAI board member Andrew Marcus hopes the public will consider what Greg and the organization have accomplished.

“It’s hard to imagine anyone who’s done more for education in that part of the world,” Marcus has said. “It took a real human being to do that” (Flandro, 2011).

#### Questions

2. In the chapter, we discussed moral reasoning and transparency as components of authentic leadership. Do you think Greg exhibited these components as part his leadership?

3. How was Greg’s response to the allegations against him characteristic of an authentic leader?

4. How did the outcome of the investigation affect the authenticity of Greg Mortenson’s leadership?

## Case 9.3

Betty Ford admits that August 9, 1974, the day her husband was sworn in as the 38th President of the United States, was “the saddest day of my life” (Ford, 1978, p. 1).

Elizabeth Bloomer Ford was many things—a former professional dancer and dance teacher, the mother of four nearly grown children, the wife of 13-term U.S. Congressman Gerald “Jerry” R. Ford who was looking forward to their retirement—but she never saw being the country’s First Lady as her destiny.

As she held the Bible her husband’s hand rested on while he took the oath of office, Betty began a journey in which she would become many more things: a breast cancer survivor, an outspoken advocate of women’s rights, a recovering alcoholic and addict, and cofounder and president of the Betty Ford Center, a nonprofit treatment center for substance abuse.

The Fords’ path to the White House began in October 1973, when Jerry was tapped to replace then-U.S. Vice President Spiro Agnew who had resigned. After only 9 months in that role, Jerry became the U.S. President after Richard M. Nixon left office amidst the Watergate scandal.

In her first days as the First Lady, Betty became known for her openness and candor. At the time, women were actively fighting for equal rights in the workplace and in society. Less than half of American women were employed outside the home, and women’s earnings were only 38% of their male counterparts’ (Spraggins, 2005). Betty raised a number of eyebrows in her first press conference, when she spoke out in support of abortion rights, women in politics, and the Equal Rights Amendment.

Betty hadn’t even been in the White House a month when she was diagnosed with breast cancer. She again broke with social conventions and spoke openly about the diagnosis and treatment for a disease that was not widely discussed in public. With her cooperation, Newsweek magazine printed a complete account of her surgery and treatment, which included a radical mastectomy. This openness helped raise awareness of breast cancer screening and treatment options and created an atmosphere of support and comfort for other women fighting the disease.

“Lying in the hospital, thinking of all those women going for cancer checkups because of me, I’d come to recognize more clearly the power of the woman in the White House,” she said in her first autobiography, The Times of My Life. “Not my power, but the power of the position, a power which could be used to help” (Ford, 1978, p. 194).

After her recuperation, Betty made good use of that newfound power. She openly supported and lobbied for passage of the Equal Rights Amendment, a bill that would ensure that “equality of rights under the law shall not be denied or abridged by the United States or by any state on account of sex” (Francis, 2009).

In an interview with 60 Minutes, Betty drew the ire of many conservatives when she candidly shared her views on the provocative issues of abortion rights, premarital sex, and marijuana use. After the interview aired, public opinion of Betty plummeted, but her popularity quickly rebounded, and within months her approval rating had climbed to 75%.

At the same time, Betty was busy with the duties of First Lady, entertaining dignitaries and heads of state from countries across the globe. In 1975 she began actively campaigning for her husband for the 1976 presidential election, inspiring buttons that read “Vote for Betty’s Husband.” Ford lost the election to Jimmy Carter and, because he was suffering from laryngitis, Betty stepped into the spotlight to read Jerry’s concession speech to the country, congratulating Carter on his victory. Betty’s time as First Lady ended in January 1977, and the Fords retired to Rancho Mirage, California, and Vail, Colorado.

A little more than a year later, at the age of 60, Betty began another personal battle: overcoming alcoholism and an addiction to prescription medicine. Betty had a 14-year dependence on painkillers for chronic neck spasms, arthritis, and a pinched nerve, but refused to admit she was addicted to alcohol. After checking into the Long Beach Naval Hospital’s Alcohol and Drug Rehabilitation Service, she found the strength to face her demons and, again, went public with her struggles.

“I have found that I am not only addicted to the medications I’ve been taking for my arthritis, but also to alcohol,” she wrote in a statement released to the public. “I expect this treatment and fellowship to be a solution for my problems and I embrace it not only for me but for all the others who are here to participate” (Ford, 1978, p. 285).

Betty Ford found recovering from addiction was particularly daunting at a time when most treatment centers were geared toward treating men. “The female alcoholic has more emotional problems, more health problems, more parenting problems, makes more suicide attempts, than the alcoholic man,” Betty explained in her second autobiography, Betty, a Glad Awakening (Ford, 1987, p. 129).

For this reason, Betty helped to establish the nonprofit Betty Ford Center in 1982 in Rancho Mirage. The center splits its space equally between male and female patients, but the treatment is gender specific with programs for the entire family system affected by addiction. The center’s success has attracted celebrities as well as everyday people including middle-class moms, executives, college students, and laborers. Betty’s activism in the field of recovery earned her the Presidential Medal of Freedom in 1991 and the Congressional Medal of Honor in 1999.

Speaking at an alumni reunion of Betty Ford Center patients, Betty said, “I’m really proud of this center. And I’m really grateful for my own recovery, because with my recovery, I was able to help some other people come forward and address their own addictions. And I don’t think there’s anything as wonderful in life as being able to help someone else” (Ford, 1987, p. 217).

#### Questions

1. How would you describe Betty Ford’s leadership? In what ways could her leadership be described as authentic?

2. How did critical life events play a role in the development of her leadership?

3. Is there a clear moral dimension to Betty Ford’s leadership? In what way is her leadership about serving the common good? Discuss.

4. As we discussed in the chapter, self-awareness and transparency are associated with authentic leadership. How does Betty Ford exhibit these qualities?

Although still in its early phases of development, the Authentic Leadership Questionnaire (ALQ) was created by Walumbwa and associates (2008) to explore and validate the assumptions of authentic leadership. It is a 16-item instrument that measures four factors of authentic leadership: self-awareness, internalized moral perspective, balanced processing, and relational transparency. Based on samples in China, Kenya, and the United States, Walumbwa and associates validated the dimensions of the instrument and found it positively related to outcomes such as organizational citizenship, organizational commitment, and satisfaction with supervisor and performance. To obtain this instrument, contact Mind Garden, Inc., in Menlo Park, California, or visit www.mindgarden.com.

Instructions: This questionnaire contains items about different dimensions of authentic leadership. There are no right or wrong responses, so please answer honestly. Use the following scale when responding to each statement by writing the number from the scale below that you feel most accurately characterizes your response to the statement.

## Scoring

1. Sum the responses on items 1, 5, 9, and 13 (self-awareness).

2. Sum the responses on items 2, 6, 10, and 14 (internalized moral perspective).

3. Sum the responses on items 3, 7, 11, and 15 (balanced processing).

4. Sum the responses on items 4, 8, 12, and 16 (relational transparency).

## Total Scores

Self-Awareness: ______

Internalized Moral Perspective: _____

Balanced Processing: _____

Relational Transparency: _____

## Scoring Interpretation

This self-assessment questionnaire is designed to measure your authentic leadership by assessing four components of the process: self-awareness, internalized moral perspective, balanced processing, and relational transparency. By comparing your scores on each of these components, you can determine which are your stronger and which are your weaker components in each category. You can interpret your authentic leadership scores using the following guideline: high = 16–20 and low = 15 and below. Scores in the upper range indicate stronger authentic leadership, whereas scores in the lower range indicate weaker authentic leadership.

## Summary

As a result of leadership failures in the public and private sectors, authentic leadership is emerging in response to societal demands for genuine, trustworthy, and good leadership. Authentic leadership describes leadership that is transparent, morally grounded, and responsive to people’s needs and values. Even though authentic leadership is still in the early stages of development, the study of authentic leadership is timely and worthwhile, offering hope to people who long for true leadership.

Although there is no single accepted definition of authentic leadership, it can be conceptualized intrapersonally, developmentally, and interpersonally. The intrapersonal perspective focuses on the leader and the leader’s knowledge, self-regulation, and self-concept. The interpersonal perspective claims that authentic leadership is a collective process, created by leaders and followers together. The developmental perspective emphasizes major components of authentic leadership that develop over a lifetime and are triggered by major life events.

The practical approach to authentic leadership provides basic “how to” steps to become an authentic leader. George’s approach (2003) identifies five basic dimensions of authentic leadership and the corresponding behavioral characteristics individuals need to develop to become authentic leaders.

In the social science literature, a theoretical approach to authentic leadership is emerging. Drawing from the fields of leadership, positive organizational scholarship, and ethics, researchers have identified four major components of authentic leadership: self-awareness, internalized moral perspective, balanced processing, and relational transparency.

In addition, researchers have found that authentic leadership is influenced by a leader’s positive psychological capacities, moral reasoning, and critical life events.

Authentic leadership has several positive features. First, it provides an answer to people who are searching for good and sound leadership in an uncertain world. Second, authentic leadership is prescriptive and provides a great deal of information about how leaders can learn to become authentic. Third, it has an explicit moral dimension that asserts that leaders need to do what is “right” and “good” for their followers and society. Fourth, it is framed as a process that is developed by leaders over time rather than as a fixed trait. Last, authentic leadership can be measured with a theory-based instrument.

There are also negative features to authentic leadership. First, the ideas set forth in the practical approach need to be treated cautiously because they have not been fully substantiated by research. Second, the moral component of authentic leadership is not fully explained. For example, it does not describe how values such as justice and community are related to authentic leadership. Third, the rationale for including positive psychological capacities as an inherent part of a model of authentic leadership has not been fully explicated. Finally, there is a lack of evidence regarding the effectiveness of authentic leadership and how it is related to positive organizational outcomes.

In summary, authentic leadership is a new and exciting area of research, which holds a great deal of promise. As more research is conducted on authentic leadership, a clearer picture will emerge about the true nature of the process and the assumptions and principles that it encompasses.

Sharpen your skills with SAGE edge at  edge.sagepub.com/northouse7e

## References

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Categories

## which of the following statements is true about ethics?

Assistnace with Quiz

QUESTION 1

1.  Which of the following statements is true about ethical decision making in ?

 A. It is limited to the type of major corporate decisions with social consequences. B. It should rely on the personal values and principles of the individuals involved C. It involves significant general policy issues that affect entire organizations. D. Every employee, except workers in a process-oriented organization, will be faced with an issue that will require ethical decision making.

4 points

QUESTION 2

1.  Which of the following best describes a business stakeholder?

 A. Anyone who affects or is affected by decisions made within a firm. B. Anyone who has acquired significant shareholding in a firm. C. Anyone with a controlling interest in a firm. D. Minority shareholders in a business entity.A corporatestakeholderis a person or group who can affect or be affected by the actions of abusiness. Internalstakeholdersare groups within abusinessor people who work directly within thebusiness, such as employees, owners, and investors.

4 points

QUESTION 3

1.  The aspect ethics that examines business institutions from a social rather than an individual perspective is referred to as:

 A. institutionalized ethical responsibility. B. corporate cultural responsibility. C. decision making for social responsibility. D. institutional morality.

4 points

QUESTION 4

1.  Kathy, your best friend and , asks you to help her with a challenging ethical predicament. Which of the following would be your first step in the decision making ?

 A. Identifying the ethical issue B. Considering the available alternatives C. Determining the facts of the situation D. Making the decision1  Identify a problem or opportunity2  Step 1:Identify the decision to be made.You realize that a decision must be made. You then go through an internal process of trying to define clearly the nature of the decision you must make.

4 points

QUESTION 5

1.  Which of the following statements reflects the concept of normative myopia?

 A. “I was so involved in our debate that I missed the red light. We need to limit our conversations in the car.” B. “I may have exaggerated the features of the product to get this sale. You knew how important this deal was for me.” C. “Brad met with an accident because he was drunk while driving. I hope he has learnt his lesson.” D. “I never expected Draco to steal from me; he has been my friend for so long.”

4 points

QUESTION 6

1.  In the ethical decision-making process, once we have examined the facts and identified the ethical issues involved, we should next:

 A. make the decision. B. consider the available alternatives. C. identify stakeholders. D. monitor and learn from the outcomes.

4 points

QUESTION 7

1.  Which of the following explains the term “satisficing?”

 A. Considering limited alternatives while making decisions. B. Selecting the alternative that meets minimum decision criteria. C. Following simplified decision rules. D. Selecting the alternative simply because it is the easy way out.

4 points

QUESTION 8

1.  Ethical reasoning falls into three major categories. Identify them.

 A. Utility, virtue, and values B. Universal rights, values, and moral principles C. Personal character, consequences, and principles D. Universal rights, cultural norms, and mores

4 points

QUESTION 9

1.  The study of various character traits that can contribute to, or obstruct, a happy and meaningful human life is part of:

 A. philosophical ethics. B. virtue ethics. C. deontological ethics. D. utilitarianism.

4 points

QUESTION 10

1.  Utilitarianism has been called a(n):

 A. consequentialist approach to ethics. B. behavioral approach to ethics. C. commonsensical approach to ethics. D. intuitive approach to ethics.

4 points

QUESTION 11

1.  Which of the following traditions would support child labor because it produces better overall consequences than the available alternatives?

 A. Virtue ethics B. Deontological ethics C. Utilitarianism D. Classicism

4 points

QUESTION 12

1.  Economists that view profit maximization as a central idea to corporate social responsibility are following the:

 A. Kantian framework of ethics. B. utilitarian framework of ethics. C. deontological framework of ethics. D. virtue-based framework of ethics.

4 points

QUESTION 13

1.  Which of the following is true about corporate culture?

 A. Corporate cultures shape the people of the organization, without getting affected by them. B. Corporate cultures are generally static, but can be changed by voluntary action of the top managers. C. Corporate cultures can hinder individuals in making the “right” decisions. D. Corporate Cultures cannot hinder individuals in making the “right” decisions.

4 points

QUESTION 14

1.  Which of the following statements is true about ethical corporate cultures?

 A. Ethical organizational culture cannot have a direct impact on the bottom line. B. If attended to and supported, a strong ethical culture can serve as a deterrent to stakeholder damage. C. Even if ignored, organizational culture could reinforce a perception that “anything goes,” and “any way to a better bottom line is acceptable,” building long-term sustainability. D. The responsibility for creating and sustaining ethical corporate cultures rests on law enforcement agencies.

4 points

QUESTION 15

1.  Which of the following is true about corporate culture?

 A. An integrity-based culture is one that reinforces a particular set of rules. B. A compliance culture is only as strong and as precise as the rules that workers are expected to follow. C. Values-based organizations do not include a compliance structure. D. A values-based culture emphasizes obedience to the rules as the primary responsibility of ethics.

4 points

QUESTION 16

1.  Which of the following involves the disclosure of unethical or illegal activities to someone who is in a position to take action to prevent or punish the wrongdoing?

 A. Gentrification B. Redlining C. Whistleblowing D. Flyposting

4 points

QUESTION 17

1.  The law has created a form of business that limits the liability of individuals for the risks involved in business activities. Identify the form of business.

 A. Corporation B. Partnership C. Limited partnership D. Proprietorship

4 points

QUESTION 18

1.  Which of the following is true about the economic model of CSR?

 A. It holds that businesses should not only pursue profits, but it should also do its part for environment sustainability. B. It has its roots in the Kantian tradition of ethics. C. According to this model, profit is a direct measure of how well a business firm is meeting society’s expectations. D. It holds that social goals should be at the heart of a firm’s mission.

4 points

QUESTION 19

1.  “Just as individuals have no ethical obligation to contribute to charity or to do volunteer work in their community, business has no ethical obligations to serve wider social goods. But, just as charity is a good thing and something that we all want to encourage, business should be encouraged to contribute to society in ways that go beyond the narrow obligations of law and economics.” Identify the model of CSR that reflects this line of thought.

 A. Integrative model B. Stakeholder theory C. Philanthropic model D. Social Web model
Categories

Categories

## instrumental music that has some literary or pictorial association is called _____.

MUSC130/MUS110 Final ___________________________________________(name and #)

(Place the correct letter in the blank with the definition.)

1._____is the line, or tune, in music

2._____is what moves music forward in time.

3._____marked off in measures organizes the beats (the basic units) in music.

4._____describes the vertical events in music, or how they sound together.

5._____The tonic is the central tone around which a melody and its harmonies are built; this principle of organization is called

6._____is created by an unstable, or discordant, combination of tones.

7._____occurs with a resolution of dissonance, producing a stable or restful sound.

8._____single- voiced music without accompaniment

9._____many- voiced, one line set against another.

10._____ common in songs, features repeated music for each stanza of text.

11._____ is the rate of speed, or pace, of the music.

12._____describes the volume, or how loud (forte) or soft (piano) the music is played

13._____tone color

14._____The voice ranges

15._____Choral groups with no accompaniment.

A.Consonance B.Dissonance C.Dynamics  D.Harmony E.Melody   F.Meter G.Monophony

H.Polyphony I.Rhythm J.Soprano, Alto, Tenor and Bass K.Strophic form  L.Tempo

M.Timbre  N.Tonality   O.A cappella

Answer for True or F for False (write clearly!)

16._____ Romantic music is characterized by order, objectivity, and harmonious proportion.

17._____ Haydn, Mozart, Beethoven, were members of the Parisian school

18._____ The Classical melody is singable and lyrical

19._____All Classical music-making revolved around public ticket sales

20._____During the Classical period, women did not hold court positions as musicians and teachers

21._____The Romantic Period is the golden age of chamber music

22._____The string quartet consists of 2 violins, viola, cello and basso continuo

23._____Beethoven worked under the patronage of the Esterházy court.

24._____Mozart was a child prodigy who started to write music before the age of five.

25._____The French Revolution destroyed the middle- class

26._____The Industrial Revolution spurred many technical advances in musical instruments

27._____ Classical composers used nationalistic, folkloric, and exotic subjects.

28._____ Romantic composers used richly expressive harmony, and broad, expanded forms.

29._____During the Romantic Period, women musicians excelled as performers, teachers, composers, music patrons

30._____The Lied is French for solo voice and piano

31._____Absolute instrumental music depicts a literary or pictorial association

32._____Political unrest throughout Europe stimulated schools of nationalistic composers

33._____Dates for the Classical Period are 450-1450

34._____Dates for the Romantic Period are 1750-1820

35._____The idée fixe was used by Berlioz

Place the correct letter in the blank space.

36.____1450-1600

37. ____1600–1750

38.____ 476–1450

39.____ A-B-A-C-A

40.____a “2/4” rhythmic feel instead of “3/4”.

41.____a shorthand that allowed the performer to improvise the chords.

42.____Baroque Keyboard Instruments

43.____chamber sonata for small setting

44.____church sonata

45.____contrapuntal composition with single theme

46.____divided the octave into 12 equal parts.

47.____earliest polyphony 48.____texts added to upper voices of organum 49.____The fixed melody based on the chant that was the lower voice of organum 50.____featured solo song with instrumental accompaniment 51.____Golden age of a cappella style 52.____highly emotional and lyrical opera songs 53.____large sung drama combining vocal, instrumental music acting, scenery and costumes 54.____large work for soloists, chorus, and orchestra, without scenery, biblical theme 55.____moves plot and action of opera forward 56.____music notation by square notes on four-line staff

57.____Musical pictoralization with text.

58.____musically pictoralized without text.

59.____orchestra alternates with solo violin

60.____ostinato descending bass line

61.____overture, allemande, courante, sarabande, hornpipe, minuet, gigue

62.____part of the Lutheran church service.

63.____performed on a royal barge

64.____Secular vocal composition for three to eight voices

65.____solo instrument with accompanying instrumental group

67.____text or scripts of the opera

68.____The bass part often played by two instruments

69.____The emotional and dynamic union of text and music

70. ____sacred vocal monophony, nonmetric , sung in Latin from Middle Ages.

A.aria B. basso continuo C. Cantata D. Cremona violin makers E. doctrine of the affections F. duple meter G. equal temperament tuning system H. figured bass I. Fugue J. Gregorian chant K. ground bass L. libretto M. monody N. neumes

O. Opera P. Oratorio Q. orchestral ritornello R. Organ, harpsichord, and clavichord S. Organum T. Motet U. Cantus Firmus V. program musicW. recitative X. Renaissance dates Y. Renaissance Style Z. Rondo Form 1. Solo concerto

2. Sonata da camera  3. Sonata da chiesa  4. The Baroque dates 5. The Baroque Suite 6. The Madrigal 7. The Middle Ages dates 8. Water Music  9. word painting

(Place the correct letter in the blank with the definition.)

71.___was the international counterpart to a French movement. 72.___A relevant break from the Romantic Movement that included Impressionism, Expressionism, Neoclassicism. 73.___a return to an earlier era of detached, objective style of music. Absolute music.74.___The writers and publishers of Popular music in New York City at the turn of the twentieth century. 75.___the mixture of popular and serious idioms and away for the strictness of Modernism 76. ___Total abandonment of  key center. 77.___certain elements are left up to the performer. 78.___Contemporary musical style featuring the repetition of short melodic, rhythmic, and harmonic patterns with little variation. 79.___ technology standard that allows networking of computers with electronic musical instruments. 80.___Late-nineteenth-century piano style created by African Americans, characterized by highly syncopated melodies.81.___was a French movement developed by painters 82.___used natural sounds recorded on magnetic tape as a new medium for composition. 83.____had its origins in rhythm and blues, country- western, pop and gospel 84.____drew elements from African traditions and Western popular and art music. 85.___The diverse artistic trends of the early twentieth century were a reaction against __?

A.Atonality B. Chance Music  C. Impressionism   D. Expressionism   E. MIDI F. Minimalist  G. Neoclassical  H. Postmodernist I. Ragtime J. Tin Pan Alley    K. Modernism L.Musique concrète M. Romanticism N. Jazz O. Rock

(Listening test will be in class. Place the correct letter in the order played)

86.____ 87.____

88.____

89.____

90.____

91. ____

92.____

93.____

94.____

95. ____

96.____

97.____

98.____

99.____

100.____

B. Bach: Contrapunctus   (Fugue)

C. Beethoven: Symphony No. 5      (Classical Symphony)

D. Bernstein: Tonight Quintet (Musical Theater)

E. Copland: Appalachian Spring, (American Ballet)

F. Debussy: Prelude to “The Afternoon of a Faun”   (Impressionism)

G. Handel: Messiah,       (Oratorio)

H. Hildegard of Bingen: Alleluia, O virga mediatrix     (Plainchant)

I. Holiday: Billie’s Blues    (Blues)

J. Joplin: Maple Leaf Rag  (Piano Rag)

K. Schoenberg: Pierrot lunaire, (Expressionism)

L. Stravinsky: The Rite of Spring   (Modernism)

M. Strayhorn/Ellington: Take the A Train     (Big Band Jazz)

N. Wagner: Die Walküre, (German Opera)

O. Williams: Imperial March (Movie Score)

Categories

## data related to the inventories of costco medical supply are presented below:

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

•             43 units at \$97

•             74 units at \$71

•             175 units at \$61

Sales for the year totaled 268 units, leaving 24 units on hand at the end of the year.

Ending inventory using the average cost method is (Do not round unit cost calculation. Round your final answer to the nearest whole dollar amount):

\$1,652.

\$2,328.

\$1,464.

\$1,514.

Top of Form

Nu Company reported the following pretax data for its first year of operations.

 Net sales 2,810 Cost of goods available for sale 2,310 Operating expenses 780 Effective tax rate 30% Ending inventories: If LIFO is elected 970 If FIFO is elected 1,130

What is Nu’s net income if it elects LIFO?

\$690.

\$850.

\$595.

\$483.

Bottom of Form

 Nueva Company reported the following pretax data for its first year of operations.
 Net sales 7,400 Cost of goods available for sale 5,650 Operating expenses 1,578 Effective tax rate 40% Ending inventories: If LIFO is elected 634 If FIFO is elected 809
 What is Nueva’s net income if it elects FIFO? (Round your intermediate and final answer to the nearest whole dollar amount.)

\$806.

\$484.

\$981.

\$589.

 Thompson TV and Appliance reported the following in its 2016 financial statements:
 2016 Sales \$437,000 Cost of goods sold: Inventory, January 1 73,000 Net purchases 333,000 Goods available for sale 406,000 Inventory, December 31 87,000 Cost of goods sold 319,000 Gross profit \$118,000
 Thompson’s 2016 gross profit ratio is (Round your answer to the nearest whole percentage):

24%.

26%.

27%.

None of these is correct.

Top of Form

 Anthony Thomas Candies (ATC) reported the following financial data for 2016 and 2015:
 2016 2015 Sales \$315,000 \$295,000 Sales returns and allowances 7,500 5,500 Net sales \$307,500 \$289,500 Cost of goods sold: Inventory, January 1 47,000 31,000 Net purchases 138,000 129,000 Goods available for sale 185,000 160,000 Inventory, December 31 60,000 47,000 Cost of goods sold 125,000 113,000 Gross profit \$182,500 \$176,500
 ATC’s gross profit ratio in 2016 is (Round your answer to one decimal place e.g., .123 as 12.3%):

59.3%.

60.1%.

56.2%.

None of these is correct.

Bottom of Form

Top of Form

 Anthony Thomas Candies (ATC) reported the following financial data for 2016 and 2015:
 2016 2015 Sales \$306,000 \$288,000 Sales returns and allowances 8,100 5,000 Net sales \$297,900 \$283,000 Cost of goods sold: Inventory, January 1 62,000 18,000 Net purchases 139,000 142,000 Goods available for sale 201,000 160,000 Inventory, December 31 62,000 62,000 Cost of goods sold 139,000 98,000 Gross profit \$158,900 \$185,000
 The average days inventory for ATC for 2016 is (Round intermediate calculations to two decimal places. Round your final answer to a whole number):

rev: 11_19_2015_QC_CS-33523

223 days.

163 days.

Less than 100 days.

213 days.

Bottom of Form

 On January 1, 2016, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was \$115,000. The 2016 ending inventory, valued at year-end costs, was \$150,800. The relative cost index for this inventory in 2016 was 1.16. Assume that Badger’s 2017 ending inventory, valued at year-end costs, was \$164,700 and that the relative cost index for this inventory in 2016 was 1.22.
 Suppose that Badger’s 2018 ending inventory, valued at year-end costs, was \$167,500 and that the relative cost index for this inventory in 2018 was 1.25. What inventory balance would Badger report on its 12/31/18 balance sheet?

\$134,000

\$137,280

\$167,500

None of these answer choices is correct.

Top of Form

 Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2016, when it had an inventory of \$864,000. Its inventory as of December 31, 2016, was \$897,000 at year-end costs and the cost index was 1.15. What was DVL inventory on December 31, 2016?

780,000

864,000

897,000

993,600

Bottom of Form

Top of Form

 Data related to the inventories of Costco Medical Supply are presented below:
 SurgicalEquipment SurgicalSupplies RehabEquipment RehabSupplies Selling price \$268 \$134 \$351 \$158 Cost 153 131 251 155 Costs to sell 26 17 23 10
 In applying the lower of cost and net realizable value rule, the inventory of surgical supplies would be valued at:

\$99.

\$131.

\$77.

\$117.

Bottom of Form

Top of Form

 Data related to the inventories of Costco Medical Supply are presented below:
 SurgicalEquipment SurgicalSupplies RehabEquipment RehabSupplies Selling price \$264 \$134 \$324 \$150 Cost 165 106 288 148 Costs to sell 15 9 28 9
 In applying the lower of cost and net realizable value rule, the inventory of rehab equipment would be valued at:

\$267.

\$296.

\$288.

\$215.

Bottom of Form

 Data related to the inventories of Costco Medical Supply are presented below:
 SurgicalEquipment SurgicalSupplies RehabEquipment RehabSupplies Selling price \$266 \$123 \$357 \$161 Cost 164 100 251 162 Costs to sell 24 13 25 6
 In applying the lower of cost and net realizable value rule, the inventory of rehab supplies would be valued at:

\$162.

\$107.

\$158.

\$155.

 Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:
 Skis Boots Apparel Supplies Selling price \$165,000 \$142,000 \$119,000 \$77,000 Cost 139,000 140,000 83,300 50,050 Replacement cost 111,000 115,000 103,300 46,050 Sales commission 10% 10% 10% 10%
 In applying the lower of cost and net realizable value rule, the inventory of boots would be valued at:

\$127,800.

\$92,300.

\$115,000.

\$140,000.

Top of Form

 On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:
 Sales, January 1 through July 8 \$694,000 Inventory, January 1 136,000 Purchases, January 1 through July 8 644,000 Gross profit ratio 25%
 What is the estimated inventory on July 8 immediately prior to the fire?

\$161,000.

\$260,100.

\$520,500.

\$259,500.

Top of Form

 Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost \$20.80 was marked up \$13.00, marked down for a sale by \$5.40 and then had a markdown cancellation of \$3.30. The latest selling price is:

\$35.70.

\$26.20.

\$31.70.

\$37.10.

 Data below for the year ended December 31, 2016, relates to Houdini Inc. Houdini started business January 1, 2016, and uses the LIFO retail method to estimate ending inventory.
 Cost Retail Beginning inventory \$76,000 \$115,000 Net purchases 362,610 530,000 Net markups 31,000 Net markdown 51,000 Net sales 474,000

Estimated ending inventory at cost is (Do not round intermediate calculations):

\$101,596.

\$106,486.

\$110,770.

None of these answer choices are correct.

Top of Form

 Willie Nelson’s Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
 Cost Retail Beginning inventory \$48,000 \$65,000 Net purchases 156,000 219,000 Net markups 20,000 Net markdowns 37,000 Net sales 222,000
 The conventional cost-to-retail percentage (rounded) is:

76.4%.

67.1%.

84.3%.

71.8%.

Bottom of Form

Top of Form

 Willie Nelson’s Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
 Cost Retail Beginning inventory \$32,000 \$69,000 Net purchases 151,000 201,000 Net markups 30,000 Net markdowns 35,000 Net sales 220,000
 To the nearest thousand, estimated ending inventory using the conventional retail method is (Do not round intermediate calculations):

\$40,000.

\$28,000.

\$27,000.

\$12,000.

Bottom of Form

Top of Form

 Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by \$31,000, and its ending inventory on December 31 was understated by \$17,000. In addition, a purchase of merchandise costing \$21,700 was incorrectly recorded as a \$2,170 purchase. None of these errors were discovered until the next year. As a result, Poppy’s cost of goods sold for this year was:

Overstated by \$33,530.

Overstated by \$5,530.

Understated by \$50,530.

Understated by \$33,530.

Bottom of Form

 On July 10, 2016, Johnson Corporation signed a purchase commitment to purchase inventory for \$360,000 on or before February 15, 2017. The company’s fiscal year-end is December 31. The contract was exercised on February 1, 2017 and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was \$368,000. The market price of the inventory on December 31, 2016, was \$332,000. The company uses a perpetual inventory system.
 How much loss on purchase commitment will Johnson recognize in 2016?

\$8,000.

\$28,000.

\$36,000.

None.

 On July 10, 2016, Johnson Corporation signed a purchase commitment to purchase inventory for \$214,000 on or before February 15, 2017. The company’s fiscal year-end is December 31. The contract was exercised on February 1, 2017, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was \$224,000. The market price of the inventory on December 31, 2016, was \$187,000. The company uses a perpetual inventory system.
 At what amount will Johnson record the inventory purchased on February 1, 2017?

\$197,000

\$187,000

\$224,000

\$214,000

Top of Form

 Haskell Corporation has determined its year-end inventory on a FIFO basis to be \$803,000. Information pertaining to that inventory is as follows:
 Selling price \$832,000 Costs to sell 44,000 Replacement cost 774,000
 What should be the reported value of Haskell’s inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS)?

\$709,000.

\$774,000.

\$788,000.

\$803,000.

Bottom of Form

Bottom of Form

Bottom of Form

Top of Form

Bottom of Form

Categories

## why is efficiency one of the primary goals when sending routine messages?

After studying this chapter, you should be able to do the following:

LO7.1 Apply principles for writing effective emails.

LO7.2 Explain how to handle emotion effectively in online communications.

LO7.3 Describe strategies for managing digital message overload.

LO7.4 Explain characteristics of the emerging Social Age.

LO7.5 Apply principles of effective social media use in professional settings.

LO7.6 Build a credible online reputation.

LO7.7 Describe the ethical use of social media for work.

Learning Objectives

Email and Social Media for Business Communication

C h

a p

t er

S ev

en

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WHY DOES T HIS MATTER?

? TABLE 7.1

Most Effective Communication Channels for Coordinating Work

Professionals

1. Scheduled meetings

2. Email

3. Landline phone

4. Cell phone

5. File sharing

6. Informal conversations

7. Texting

8. Instant messaging

9. Private messages on social networking platforms

10. Group messages on social networking platforms

89

84

75

72

57

45

41

29

15

12

Source: Peter W. Cardon, Melvin Washington, Ephraim A. Okoro, Bryan Marshall, and Nipul Patel, “Cross-Generational Perspectives on How Mobile Phone Use for Texting and Calling Infl uences Work Outcomes and Work Relationships,” pre- sented at the Association for Business Communication Southeast Conference, Charleston, South Carolina, April 1, 2011. Note: Percentages based on the number of business professionals who rated communication channel as effective or extremely effective in their current jobs.

Hear Pete Cardon explain why this

matters.

bit.ly.com/CardonWhy7

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178 Part Three Principles for Business Messages

Chapter Case: Communicating with Emails and Social Media at the Prestigio Hotel

Who’s Involved

Andrea Garcia, general manager

Nancy Jeffreys, director of marketing

Jeff Anderton, marketing assistant

Barbara Brookshire, director of conventions

Marketing Team

Situation 1

Situation 2

Situation 3

Barbara Uses Emails with Clients to Establish Terms Barbara leads efforts to negotiate contract terms for conferences. Generally, representatives of busi- nesses and other organizations contact Barbara by phone or email. After an initial phone consulta- tion and an on-site visit with potential clients, Barbara handles most of the marketing and negotiation by email. Before a deal is done, she typically sends and receives 20 emails with any given client to respond to questions and concerns and to finalize terms of the agreement.

Nancy and Kip Handle a Delicate Situation by Email Nancy, the director of marketing, and Kip, a marketing associate, recently had a conflict that gener- ated hard feelings. Nancy harshly criticized Kip for making what she believed were unauthorized

refunds to some business travelers. Kip thought Nancy was unjustified. After several months of not working well together, they aired their grievances to one another. Nevertheless, Kip still had some unresolved issues and decided to send a quick email to Nancy expressing his feelings about the conversation.

The Marketing Team Adopts Social Media for Team Communication The entire marketing team has recently started using enterprise social software (which functions in many ways like Facebook but is customized for use within an organization). The team is using blogs, wikis, and other tools to follow up with one another related to action items agreed on in meetings, discuss ongoing projects and campaigns, and update one another about their accomplishments.

manage emails to show professionalism and

increase her likelihood of success with prospects?

(See the section on creating effective emails.)

Task 3 How will the marketing

team use social media to work more efficiently together?

(See “Internal Communication Tools for the Social Age.”)

Task 2 How will Kip compose an email in an emotionally charged situation? How

will Nancy respond? (See the “Manage Emotion and Maintain Civility”

section.)

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Email and Social Media for Business Communication Chapter Seven 179

Creating Effective Emails Email communication is the primary form of written business communication. Most analysts expect it to be the primary tool for at least the next five to ten years in most companies. 7 Some forward-thinking companies are increasingly adopting social net- working platforms (SNPs) for employee communication (discussed later); however, even in companies that adopt these SNPs, employees will continue to use private elec- tronic messages within these platforms, which function nearly identically to emails. Furthermore, many of your colleagues, clients, and other contacts will likely prefer to use email systems for many years to come.

Writing effective emails involves applying the principles of writing style that we discussed in Chapters 5 and 6. It also involves adapting to the unique characteristics of email. In this section, we explain basic principles for using emails effectively, includ- ing the basic components that ensure ease of reading. Then, we focus on managing emotion and maintaining civility in electronic communications.

Use Email for the Right Purposes Email is easy and convenient. Before quickly sending out an email, however, consider whether it is the best communication channel for your work purposes.

Since emails are not rich—meaning lacking in virtually all verbal and nonverbal cues associated with face-to-face communication and lacking immediate feedback— they are best suited for routine, task-oriented, fact-based, and nonsensitive messages. 8 Communication specialist Alan Murray, in a Wall Street Journal article called “Should I Use Email?” explained:

To avoid miscommunication, we suggest a simple rule: Email can be used effectively as a means to pass on straight facts, or to provide praise and encouragement. But it shouldn’t be used to chastise, scold, or deliver bad news. If the message you are delivering is a discouraging one, it’s best to deliver it in person. 9

Email communication has few constraints (low cost, little coordination) and high control (the writer can think them out carefully, and they provide a permanent record). Yet because it is not a rich form of communication, it is rarely appropriate for sensitive or emotional communication tasks. It is also inefficient for facilitating discussions.

Provide a Short, Descriptive Subject Line Message recipients make im- mediate judgments about the importance of a message based on the subject line. If it is not clear and compelling, recipients may not open the message right away. Further- more, when business professionals search for prior email messages, they often scan the subject lines in their in-boxes. Without a descriptive subject line, they may miss the message. Good subject lines are generally five to ten words long. By contrast, poor sub- jects are either too short (1 or 2 words) and thus nondescriptive or too long (12 words or longer) and thus difficult to process. Fundamentally, subject lines frame your entire message; they serve the same role that headlines do in newspapers and magazines.

Keep Your Message Brief Yet Complete Get to the point within three or four sentences, and keep your paragraphs about half the size of those in business

LO7.1 Apply principles for writing effective emails.

Principles of Effective Emails

• Use for the right purposes.

• Show respect for time.

• Protect privacy and confidentiality.

• Respond promptly. • Maintain

professionalism and appropriate formality.

• Manage emotion effectively.

• Avoid distractions.

Components of Effective Emails

• Subject line • Greeting* • Message • Closing* • Signature block* • Attachments* * optional

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180 Part Three Principles for Business Messages

documents—ideally 30 to 50 words long. Consider placing the most critical informa- tion at the beginning so readers gather the most relevant information immediately. This is an important strategy, since most people are so inundated with messages that they often pay more attention to the beginning, skimming or skipping latter portions. This is especially important as business professionals increasingly use mobile devices.

Clearly Identify Expected Actions Most emails are intended to spur ac- tion. Effective emails contain specific and clear requests so that recipients know ex- actly how to respond. In many cases, you can place these directions in the subject line for greatest clarity.

Provide a Descriptive Signature Block Signature blocks should provide clear contact information. This allows recipients to easily contact you through richer communication channels if needed. It also enhances your professional image.

Use Attachments Wisely Attachments allow business professionals to share files that do not display effectively in an email window. Messages that are more than several paragraphs long are typically appropriate as attachments. Also, pictures and other graphics, spreadsheets, databases, and many other types of files are nearly al- ways more appropriate as attachments. However, be careful about sending attachments that are too large, since they may fill others’ email boxes.

Show Respect for Others’ Time Since email communication is so convenient, some people overuse and even abuse it. With business professionals sending and receiving hundreds of emails each week, they often experience information overload and email fatigue. Every time you write an email, you might want to envision your colleagues and clients who are receiving them. Imagine their time pressures and the line of emails awaiting their response. Assume they will likely have low tolerance for poorly written, sloppy, unclear emails.

Nondescriptive subject line

Nondescriptive document name

Poorly spaced, cluttered text

Unprofessional tagline

FIGURE 7.1

Less-Effective Email

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Email and Social Media for Business Communication Chapter Seven 181

Clear, detailed subject line

Clearly labeled document

Pleasant opening

Complete, professional signature line

Pleasant closing

Numbered format leads to rapid processing of information

References to details and specific locations in the attachment lead to rapid and complete processing

FIGURE 7.2

More-Effective Email

In the business world, where time pressures can be overwhelming, you can engen- der goodwill by writing emails that are professional, relevant, easy to read, and other- oriented. To show your respect for others when sending email, consider the following advice.

Select Message Recipients Carefully Before sending an email, think about the workload you are creating for your colleagues or other message recipients. Not only do they commit time to reading your email, but they also often interrupt an- other work task to do so. If you are requesting information or action, your colleagues are further committed in terms of time. So, make sure the email is necessary and rel- evant for each of your message recipients.

Provide Timelines and Options If you use email to coordinate tasks with deadlines, provide detailed information about time frames and your availabilities. If you are setting up appointments, make sure you have provided several options. By

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182 Part Three Principles for Business Messages

clearly providing timelines and schedules, you minimize the number of emails needed to coordinate your efforts, thus saving time. By providing options, you show respect for your colleagues’ schedules.

Be Careful about Using the Priority Flag You will routinely make re- quests of others that are time-sensitive. If you too often set the priority flag on such emails, your colleagues may become annoyed, perceiving you as pushy. In fact, some business professionals are more likely to ignore emails when the priority flag is set. If you need something urgently, mention it politely in the subject line or use a rich com- munication channel such as a phone call to gain buy-in.

Let Others Know When You Will Take Longer Than Anticipated to Respond or Take Action If you can’t respond to a request made in an email, reply immediately and explain how soon you can respond in full. You might use phrases such as “I will respond to your email by next Tuesday,” or “I can take care of this by the end of next week.”

Avoid Contributing to Confusing and Repetitive Email Chains Email chains are groups of emails that are sent back and forth among a group of people. As the number of messages and people involved in an email chain increases, confusion can build. Consider the following complaint of a business professional:

One of my biggest pet peeves has to do with forwards. My company will often send out a corporate email to the all-hands list, then a program manager will forward that email to the same all-hands list “in case you didn’t get this,” then the department head will forward the same email back to the same all-hands list “in case you didn’t get this.” Often another layer or two of management feels compelled to forward the same email down to their organizational levels for the same reason. I’m not exaggerating when I say that I often have to delete the same email five or six times! Please, if you’re in the habit of forwarding announcements for “FYI” reasons, pay attention to which lists you’re forwarding to and which people are already on those lists. 10

Three features contribute to email chains: forward, copy, and reply to all . The for- ward feature allows you to send any message you receive to others with the click of the mouse. As always, make sure that those you are forwarding the message to need to see the email. Also, consider whether the original sender would consider it appropriate for you to forward the email to others; after all, he or she did not place those people on the original email. Similarly, many business professionals consider use of the blind carbon copy feature a breach of privacy. Furthermore, the ease of forwarding and copying can create other problems. Once you send an email, you have no control over whether oth- ers will forward it, and to whom, which leads to a good standard articulated by Tony DiRomualdo, strategy and IT researcher: “Don’t say anything you would not want the entire planet to read at some point.” 11

Many business professionals use the copy feature liberally to let everyone in a de- partment or work unit in on the conversation. Of course, one of your goals is transpar- ency, allowing others in your relevant work group to know how decisions are being made. But copying too many people can lead to information overload. Furthermore, copying too many people on an email can dilute responsibility. When five or six people receive an email about accomplishing a specific task, uncertainty may arise about ex- actly who is supposed to do what. The more people you copy, the less likely you will get a response. Also, some people perceive copying a direct supervisor or boss on emails between peers as a subtle power play. 12

The reply to all feature can contribute to confusing email chains in many of the same ways as the forward and copy features. In an email conversation of more than four or five people, various message recipients can lose track of the sequence of messages or miss some messages altogether. Reply email chains become especially confusing when

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Email and Social Media for Business Communication Chapter Seven 183

some colleagues are using just the reply feature whereas others are using the reply to all feature. One advantage of team blogs and wikis in the workplaces is that they remove some of the inefficiencies and confusion of email chains by placing messages and shared content in a central location rather than in various, separate email boxes.

Protect Privacy and Confidentiality Be careful about not spreading—purposely or inadvertently—sensitive or confidential information. Since emails are so convenient to send, even the rare mistake in an ad- dress line can result in damaging professional consequences. Consider, for example, that eight out of ten marketing and advertising executives say they have made mistakes via email, such as sending job offers to the wrong people or revealing confidential salary information to the entire company. 13 Double-checking that you have placed the correct people in the address line before you hit the send button is a worthwhile habit that requires just a few extra moments.

Respond Promptly Most business professionals expect fast responses to emails. Of course, what seems like a quick response to one person seems like a delayed response to another. One re- cent study of business professionals found that nearly all business professionals expect an email response within one day (see Figure 7.3 ). 14 Younger professionals are more likely to expect a response immediately. The majority of business professionals in all age groups expect a response within one to two hours. If you choose not to check your email more than a few times a day (a strategy recommended later in the chapter), let others know how soon to expect replies.

Maintain Professionalism and Appropriate Formality Email communication is typically considered fairly formal. Many business profes- sionals are particularly sensitive to “sloppy” email. Management consultant Beverly Langford reported what thousands of business leaders have observed about an overly casual attitude toward email use:

Many people seem to forget that email is, in fact, written communication, and, consequently, treat it much less carefully. Workplace email messages often contain terse and offhand remarks and project a flippant attitude that is sometimes excessive, even bordering on the unprofessional. Those who write the emails often seem to be overlooking how their

FIGURE 7.3

Appropriate Response Time to Emails Source: Peter W. Cardon, Melvin Washington, Ephraim A. Okoro, Bryan Marshall, and Nipul Patel, “Cross-Generational Perspectives on How Mobile Phone Use for Texting and Calling Influences Work Outcomes and Work Relationships,” presented at the Association for Business Com- munication Southeast Conference , Charleston, South Carolina, April 1, 2011.

31–40

21–30

41–50A g

e G

ro up

51–65

0 25 50 75 100

Immediately Within 1 hour Within 2 hours Within a day

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184 Part Three Principles for Business Messages

message is coming across to the receiver. Further, when composing emails, many people don’t seem to be nearly as concerned with structure and correctness as they would be when putting something on paper. This . . . is ironic because often many more people see an email than would ever see a hard copy of a memo or letter because it’s so easy for the recipient to forward an email to anyone he or she chooses. 15

Unfortunately, since so many more people can potentially see an email than would ever see a hard copy of a message, having high standards is even more important. In the past few years, a preference has emerged for less formal, stuffy writing. Still, you’ll want to achieve a balance between formality and the friendliness associated with casual writing. Generally, you are better off erring on the side of too much formality as opposed to too much casualness. Consider the following recommendations.

Avoid Indications That You View Email as Casual Communication Certain casual ways of writing and formatting appear unprofessional—for example, using all lowercase letters or nonstandard spelling (i.e., hey barbara, how r u ), using excessive formatting (i.e., flashy background colors, unusual fonts), providing extra- neous information in the signature line (i.e., favorite quotations), and typing in all caps (IMPLIES ANGER). Humor and sarcasm, too, can be misinterpreted in digital com- munications, even among close colleagues. Furthermore, even when considered funny, it can draw attention away from your central message.

Apply the Same Standards of Spelling, Punctuation, and For- matting You Would for Other Written Documents Carefully review your message for typos, spelling, punctuation, or grammatical problems before send- ing it. For important messages, consider first composing with word processing soft- ware. This will help you apply a higher level of seriousness. In addition, you’ll be able to use spell-check and grammar-check features that are more reliable than those within email systems. Finally, you can ensure that you do not inadvertently send the message without making sure it is polished and complete.

Use Greetings and Names Although not technically required, consider using short greetings and the names of your message recipients. As one of Dale Carnegie’s most famous pieces of networking advice goes, “A person’s name is to that person the sweetest most important sound in any language.” 16 This advice applies to most communication situations, including emails. People leave out names in emails for several reasons. Some professionals view the use of greetings and names as exces- sively formal, resembling letters. Other professionals view emails as the equivalent of memos. In fact, the layout of most emails—with a recipient line, sender line, and subject line—resembles memos. Traditionally, the format for memos calls for omitting a personal greeting and name.

In a recent study, a communication researcher was given access to the emails in two organizations. One was a low-morale organization and one was a high-morale organization. She found that the presence or absence of greetings and names at the beginning of emails was a strong indicator of company climate (see Figure 7.4 ). 17 In the low-morale organization, just 20 percent of the emails contained greetings, and just 36 percent contained names. By contrast, in the high-morale organization, 58 percent contained greetings, and 78 percent contained names. The same trend was shown in closings. In the low-morale organization, just 23 percent of the emails contained a po- lite closing and a name compared to 73 percent in the high-morale organization.

The conventions of using greetings and names are sometimes dropped as an email chain emerges and functions much like a conversation. Typically, feelers (those with the strongest people-orientation) show a stronger preference for greetings and names. If you’re having an ongoing email exchange with a feeler and you notice that he or she is using a formal greeting in each email, consider reciprocating. On the other hand, if you’re a feeler and like to see greetings and names in every email but your colleagues

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Email and Social Media for Business Communication Chapter Seven 185

are not doing so, avoid getting hung up on it. Assume that they view emails much like memos or that they view excessive use of greetings and names in back-and-forth email chains as repetitive and unnecessary.

Manage Emotion and Maintain Civility Many managers cite the lack of emotion in emails as positive. They see email as a channel that allows the exchange of messages in minimal form—objective, task-based, and straightforward. As one manager explained, “With email I find myself answering without all the kindness necessary to keep people happy with their job.” 18

Yet, avoiding emotion entirely, even for task-based messages, is nearly impossible. Business professionals often want to invoke some emotion—perhaps enthusiasm or a sense of urgency. Even when senders intend to convey a relatively nonemotional mes- sage, recipients may experience an emotional reaction.

In the absence of face-to-face communications, emails tend to elicit either the neu- trality effect or the negativity effect. The neutrality effect means that recipients are more likely to perceive messages with an intended positive emotion as neutral. That is, the sender may wish to express enthusiasm about an event, but the receiver decodes the information without “hearing” the enthusiasm. 19 The negativity effect means that recipients are more likely to perceive messages that are intended as neutral as nega- tive. 20 The effects of emotional inaccuracy due to the neutrality and negativity effects can lead to conflict escalation, confusion, and anxiety. 21 Expert business communica- tors remain aware of these tendencies.

Two characteristics of asynchronous electronic communications can lead to feel- ings of anger and frustration more so than in face-to-face communications. First, peo- ple often feel comfortable writing things they would not say in person. In some cases, this sense of online freedom leads to flames, which are emails or other digital commu- nications with “hostile intentions characterized by words of profanity, obscenity, and insults that inflict harm to a person or an organization.” 22

The second aspect of asynchronous electronic communications that can lead to anger and frustration is cyber silence, which is nonresponse to emails and other com- munications. During the nonresponse stage, message senders often misattribute expla- nations for the silence. They sometimes wonder if message recipients are purposely avoiding or even ignoring them. 23 As the length of time between messages increases, they often experience more frustration and anger. 24

As a message sender, grant the benefit of the doubt to your recipients when re- sponses take longer than you expected. Instead of getting frustrated, consider giving them a phone call. Keep in mind that they may have different expectations about a

LO7.2 Explain how to handle emotion effectively in online communications.

FIGURE 7.4

Use of Email Greetings and Names in a Low-Morale and a High-Morale Organization Source: Data from Joan Waldvogel, “Greetings and Closings in Workplace Email,” Journal of Computer-Mediated Communication 12, no. 2 (2007).

75

50

25

0 No

Greeting Greeting

Word Only

59

17

5 5

21 25

15

53

Name Only

Greeting Word + Name

P er

ce nt

ag e

of E

m ai

ls

Low-morale organization High-morale organization

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186 Part Three Principles for Business Messages

reasonable time frame to respond to your email. If they routinely take longer than you expect, politely mention that you would appreciate quicker responses.

In Chapter 2, we discussed the importance of civility. Civility is likewise important in electronic communication. Cyber incivility is the violation of respect and consid- eration in an online environment based on workplace norms. Research has shown that “fast-paced, high-tech interactions may add to incivility, as people believe that they do not have time to be ‘nice’ and that impersonal contacts [such as electronic communica- tions] do not require courteous interaction.” 25

Shockingly, recent research shows that 91 percent of employees reported experienc- ing either active or passive cyber incivility from supervisors in the workplace. 26 Active incivility involves direct forms of disrespect (i.e., being condescending, demeaning, saying something hurtful). Passive incivility involves indirect forms of disrespect (i.e., using emails for time-sensitive messages, not acknowledging receipt of emails, not re- plying to emails). Cyber incivility has been shown to lead to lower job satisfaction and organizational commitment. Active incivility was the most damaging. In Figure 7.5 , you can see a summary of this research. One interesting finding was that male and female supervisors engaged in different types of incivility. Male supervisors were far more likely to engage in active incivility, whereas female supervisors were far more likely to engage in passive incivility.

FIGURE 7.5

Active and Passive Incivility from Supervisors Source: Vivien K.G. Lim and Thompson S.H. Teo, “Mind Your E-manners: Impact of Cyber Incivility on Employees’ Work Attitude and Behavior,” Information & Management 46 (2009): 419–425. Copyright © 2009, with permission from Elsevier.

1009080706050403020100

Active and Passive Incivility through Emails of Supervisors (Percentage of Employees Who Stated Their Current Supervisor Had Engaged in

Email Incivility)

Put you down or was condescending to you in some way through emails.

Active Email Incivility

Passive Email Incivility

Said something hurtful to you through emails.

Used emails to say negative things about you that he/she wouldn’t say to you face-to-face.

Used emails for time-sensitive messages.

Not replying to your emails at all.

Did not acknowledge receipt of your emails.

Used emails for discussions that would require face-to-face dialogue.

Female supervisors Male supervisors

22% 60%

23% 59%

26% 58%

28% 62%

80% 40%

40% 84%

85%

86%

1009080706050403020100

42%

44%

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Email and Social Media for Business Communication Chapter Seven 187

Inevitably, you will be the target of what you consider uncivil electronic commu- nications. In nearly all situations, your goal should be to avoid escalation. You can take several steps to constructively address uncivil emails: reinterpretation, relaxation, and defusing. Reinterpretation involves adjusting your initial perceptions by making more objective, more fact-based, and less personal judgments and evaluations. When people are distressed, they often make extreme, subjective, and overly personal judg- ments. By reinterpreting the event, you allow yourself to take the communication less personally. This is easier said than done. Many people engage in relaxation techniques to help constructively reinterpret the event. Relaxation involves releasing and over- coming anger and frustration so that you can make a more rational and less emotional response. People use a variety of methods to alleviate the physiological impact of anger, including counting to ten, taking time-outs, engaging in deep breathing, and looking for the humor in the situation. 27

In the opening case, you learned that Kip was frustrated with his direct supervisor, Nancy. Kip, perhaps unwisely, fired off an angry email (see the bottom message in Figure 7.6 ), and Nancy responded (the top message in Figure 7.6 ). Whether he was correct or not about Nancy’s approach to guest service is somewhat beside the point. Email is rarely an effective communication channel to air complaints or to discuss emotionally charged issues. Figure 7.7 presents a more-effective response from Nancy to this exchange.

Defusing involves avoiding escalation and removing tension to focus on work ob- jectives. You can take several steps to defuse the situation when you receive an uncivil email. First, focus on task-related facts and issues in your reply. Second, focus on shared objectives and agreements. Third, express interest in arranging a time to meet in person. If this is not possible, attempt a richer channel of communication such as a phone call or web meeting with video. Defusing the situation with an immediate email is only part of the process in restoring or perhaps even strengthening a working relationship. A follow-up meeting is nearly always essential to renew cooperation on shared work efforts.

You will often need to respond to electronic messages that you feel are unfair or inappropriate. Notice how Nancy escalates the problem in the less-effective re- sponse by writing in an impersonal, defensive, and confrontational manner. By con- trast, notice how she defuses the situation in the more-effective response by avoiding defensiveness, focusing on shared interests, and arranging for a time to meet face- to-face. Your ability to defuse uncivil electronic communications during your career will pay off in many ways: It will help your colleagues and teams stay on task and perform better; it will help you develop a reputation for constructively resolving dif- ferences; and it will lead to more satisfying work experiences. The ability to defuse such situations requires high emotional intelligence, especially in self-awareness and self-management.

Manage Your Emails to Avoid Distractions Constantly checking incoming messages—emails, texts, IMs, and various messages through social networking platforms—or simply hearing message alerts distracts busi- ness professionals from concentrating on the tasks at hand. As you are bombarded with incoming messages, your productivity decreases for two reasons: You are distracted from your immediate tasks and you try to multitask.

Interruptions from digital messages, or e-interruptions, are extremely costly to your performance. One recent study found that the average worker loses 2.1 hours per day due to interruptions. Many of these distractions are email and other incom- ing messages. Many business professionals check their email every five minutes, which amounts to 96 e-interruptions in an eight-hour day. Distractions impact your performance for much longer than the few moments you take to acknowledge and respond to incoming messages. A Microsoft study found that it takes 15 minutes

LO7.3 Describe strategies for managing digital message overload.

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188 Part Three Principles for Business Messages

on average to refocus after an interruption. Furthermore, these disruptions have been shown to reduce attention spans, increase stress, and even reduce creativity. The cost to companies is enormous. Intel estimates that large companies lose about \$1 billion per year because of email overload. Not surprisingly, many major compa- nies such as Google, Microsoft, IBM, and Intel have joined the Information Over- load Research Group (iorgforum.org), which is devoted to finding solutions to such problems. 28

Many business professionals erroneously assume they can respond immediately to all incoming messages and focus sufficiently on work tasks. This is simply not the case. A University of Michigan study found that productivity drops by up to 40 percent when people try to do two or more things at once. A variety of research about the brain shows that it is not hardwired to multitask effectively. 29

In most business positions, however, you need to respond to others as soon as pos- sible. This places you in a delicate balancing act; how can you stay responsive to others

FIGURE 7.6

Less-Effective Response to an Angry Email

Impersonal. Leaves out greeting and name.

Defensive/attacking. Focuses on defending rather than understanding Kip’s point of view.

Confrontational. Immediately creates a me- versus-you approach with the phrase “we need to talk.”

Accusatory. Kip lays blame on Nancy in every regard. The repeated use of you- voice increases the accusatory tone.

Re: Issues

Jeffreys, Nancy

Cc: Barbara Brookshire

Thanksgiving. I thought we had a productive conversation but you obviously

were not candid. How can we make any progress if you’re not honest? Also,

please empty your voice mail. I tried reaching you several times only to get

From: Kip Yamada [kipyamada@prestigiohotels.com] Sent: Saturday, November 23 9:54 PM To: Nancy Jeffreys [njeffreys@prestigiohotels.com] Cc: Barbara Brookshire [bbrookshire@prestigiohotels.com]

Subject: Issues

Nancy, our conversation really wasn’t fair. I appreciate you striking up the

conversation but you caught me off guard. I know your goal was good – to

get us working together more effectively. But, in the spirit of compromise, I

was not as forthright as I should have been. You are really hurting our

business because you’re not focusing on our customers. Our guests come

to me all the time and complain about your unfair treatment. Even some of

the employees mention how you are not really listening to our guests when

they make complaints. I think the big issue we need to focus on is customer

service, not whether I have authorization to make refunds. Kip

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Email and Social Media for Business Communication Chapter Seven 189

yet focus enough to achieve peak performance in your work tasks? Consider the fol- lowing guidelines: 30

● Check digital messages just two to four times each day at designated times . Unless your job calls for it (or your boss demands it!), you should never check your mes- sages more than every 45 minutes. Consider taking interruption-free periods during the day exclusively devoted to email. For example, you might schedule 30 minutes to an hour at 11 a.m. and 3 p.m. each day to communicate via email and other online tools.

● Turn off message alerts . Over the course of a day, these alerts can distract you and reduce your focus.

● Use rich channels such as face – to-face and phone conversations to accomplish a task completely . Back-and-forth email chains and other sets of asynchronous digital messages may repeatedly draw attention away from tasks at hand. As appropriate, use rich, synchronous communication to take care of the matter immediately so that distractions do not compound themselves.

● Reply immediately only to urgent messages . When you reply immediately to non- urgent messages, you set a precedent. Others form an expectation that you can be interrupted at any time for any matter.

Cordial and personal. Uses  Kip’s name and extends  warm wishes.

Validating. Compliments  Kip on his attention to guest  satisfaction.

Inviting. Asks for Kip’s input  in terms of ideas and people  who should be included in a  decision-making process.

Nondefensive. Nancy makes it  clear that making “business  sense” is an important part of  the discussion. She does so  without sounding defensive or  intimidating (she is in the  position of a superior).

Focus on rich communication.  Nancy temporarily defuses the  situation by email but realizes  these issues require rich  communication. She identifies  a meeting as the next step in  the process.

Meeting to Improve Our Response to Guest Complaints

Jeffreys, Nancy

Cc: Barbara Brookshire

Hello Kip,

I’m sorry to hear that you did not think our conversation was fair. You’re

right – I didn’t give you any chance ahead of time to gather your thoughts.

I do appreciate your enthusiasm for treating our guests fairly.

When we’re both back in the office, let’s set up a time to discuss how to

manage guest complaints. Would you be willing to come up with your ideas

for managing what you consider the three most common guest complaints?

When we meet, I’d also like to discuss how we track our responses to guest

complaints and whether our responses make business sense.

Would you like to include anyone else in our meeting? Do you think the entire marketing team should participate in this discussion?

Happy Thanksgiving!

Nancy

FIGURE 7.7

More-Effective Response to Defuse an Angry Email

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190 Part Three Principles for Business Messages

● Avoid unnecessarily lengthening an email chain . You can shorten email chains by placing statements such as “no reply necessary” in the subject line. You can also shorten email chains by not sending messages such as “got it” or “thanks.” At the same time, make sure you don’t abruptly end an email chain when others would appreciate a reply. For example, some business professionals appreciate short notes of gratitude and confirmation.

● Use automatic messages to help people know when you’re unavailable . Set up au- tomatic messages to let people know when you are out of the office for more than one day.

Many relatively inexpensive, Internet-based communication tools used in business— social networking, blogs, wikis, discussion forums—are driving profound changes in how people connect and collaborate in the workplace. These changes are so profound that workplace culture is moving into a new era: from the Information Age to the Social Age (see Figure 7.8 ). The Social Age is an era in which people engage in net- worked communication, collaborate across boundaries, and solve problems commu- nally. 31 However, even though the communication technologies that have paved the way for the Social Age are changing rapidly (in months and years), workplace culture is relatively slow to change (in years and decades). So, as you read this section, keep in mind that cultural norms and values more significantly influence the impact of social media in the workplace than do its technical capabilities.

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Chapter 8 TEST document:

PROBLEM #1 – 22 points

Greenview Food Store developed the following information in recording its bank statement for the month of March 20XX.

Balance per books on March 31   \$     829

Balance per bank on March 31     \$  7,030

1)    Checks written in March but still outstanding, \$5,200.

2)    Checks written in February but still outstanding, \$1,200.

3)    Deposits of March 30 and 31 not yet recorded by bank, \$3,100.

4)    NSF check of customer returned by bank, \$400.

5)    Check #210 for \$675 was correctly issued and paid by the bank but incorrectly entered in the cash payments  journal as payment on account for \$657, for payment to a creditor.

6)    Bank service charge for March was \$31.

7)    A payment on account was incorrectly entered into the cash payments journal and posted to the accounts payable subsidiary ledger for \$854 when check #318 was correctly prepared for \$584. The check cleared the bank in March.

8)    The bank collected a note receivable for the company for \$3,000 plus \$80 interest.

Instructions:

a)    Prepare a bank reconciliation for the Greenview Food Store for the month of March 31, 20XX.

b)    Journalize the adjusting entries for Greenview Food Store on March 31, 20XX.

Bank Reconciliation:

Journal Entries:

 General Journal Date Description Debit Credit

PROBLEM  #2 – 18 points

Jenrob Company completed the following selected transactions during January 20XX.

January 1            Established a petty cash fund of \$500

15 The cash sales for the day per the register tape were \$3,018.

The actual cash received from cash sales were \$3,011.

31 Petty cash on hand was \$123. Replenished the petty cash fund for the following

disbursements:

Jan  2 Office supplies, \$45

10 Postage due on letter, \$29 (Miscellaneous Expense)

14 Office supplies, \$56.

17 Postage stamps, \$42 (Office Supplies).

20 Express charges on merchandise sold, \$136 (Delivery Expense).

22 Repair to desk, \$63 (Miscellaneous Expense).

30 Office supplies, \$12.

31            The cash sales for the day per the register tape were \$2,812.

The actual cash received from cash sales were \$2,822.

31            Decreased the petty cash fund by \$100.

 General Journal Date Description Debit Credit

What is the balance in the cash short/over account (DR or CR & \$ amount)? Is it a revenue or an expense?

Balance in Cash Short/Over? ______________________________

Revenue or Expense? ____________________________________

Categories

## the trial balance columns of the worksheet for lampert roofing at march 31, 2017, are as follows.

CHAPTER 4

Completing the Accounting Cycle

ASSIGNMENT CLASSIFICATION TABLE

 Learning Objectives Questions BriefExercises Do It! Exercises AProblems BProblems *1. Prepare a worksheet. 1, 2, 3, 4, 5 1, 2, 3 1 1, 2, 3, 5, 6 1A, 2A, 3A,4A, 5A 1B, 2B, 3B,4B, 5B *2. Explain the process of closing the books. 6, 7, 11, 12 4, 5, 6 2 4, 7, 8, 11, 19 1A, 2A, 3A,4A, 5A 1B, 2B, 3B,4B, 5B *3. Describe the content and purpose of a post-closing trial balance. 8, 9 7 4, 7, 8 1A, 2A, 3A,4A, 5A 1B, 2B, 3B,4B, 5B *4. State the required steps in the accounting cycle. 10, 11, 12 8 10, 19 5A 5B *5. Explain the approaches to preparing correcting entries. 13 9 12, 13 6A *6. Identify the sections of a classified balance sheet. 14, 15, 16,17, 18, 19 10, 11 3, 4 3, 9, 14, 15, 16, 17 1A, 2A, 3A,4A, 5A 1B, 2B, 3B,4B, 5B *7. Prepare reversing entries. 10, 20, 21 12 18, 19

*Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter.

ASSIGNMENT CHARACTERISTICS TABLE

 ProblemNumber Description DifficultyLevel Time Allotted (min.) 1A Prepare worksheet, financial statements, and adjusting and closing entries. Simple 40–50 2A Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance. Moderate 50–60 3A Prepare financial statements, closing entries, and post-closing trial balance. Moderate 40–50 4A Complete worksheet; prepare classified balancesheet, entries, and post-closing trial balance. Moderate 50–60 5A Complete all steps in accounting cycle. Complex 70–90 6A Analyze errors and prepare correcting entries and trial balance. Moderate 40–50 1B Prepare worksheet, financial statements, and adjusting and closing entries. Simple 40–50 2B Complete worksheet; prepare financial statements,closing entries, and post-closing trial balance. Moderate 50–60 3B Prepare financial statements, closing entries, and post-closing trial balance. Moderate 40–50 4B Complete worksheet; prepare classified balancesheet, entries, and post-closing trial balance. Moderate 50–60 5B Complete all steps in accounting cycle. Complex 70–90 Comprehensive Problem: Chapters 2 to 4

WEYGANDT ACCOUNTING PRINCIPLES 11E

CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

 Number LO BT Difficulty Time (min.) BE1 1 K Simple 2–4 BE2 1 AN Moderate 6–8 BE3 1 C Simple 3–5 BE4 2 AP Simple 3–5 BE5 2 AP Simple 4–6 BE6 2 AP Simple 6–8 BE7 3 C Simple 2–4 BE8 4 K Simple 3–5 BE9 5 AN Moderate 4–6 BE10 6 AP Simple 4–6 BE11 6 C Simple 3–5 BE12 7 AN Moderate 4–6 DI1 1 C Simple 4–6 DI2 2 AP Simple 2–4 DI3 6 AP Simple 6–8 DI4 6 C Simple 4–6 EX1 1 AP Simple 12–15 EX2 1 AP Simple 10–12 EX3 1, 6 AP Simple 12–15 EX4 2, 3 AP Simple 12–15 EX5 1 AN Simple 10–12 EX6 1 AN Moderate 12–15 EX7 2, 3 AP Simple 8–10 EX8 2, 3 AP Simple 10–12 EX9 6 AP Simple 12–15 EX10 4 C Simple 3–5 EX11 2 AP Simple 6–8 EX12 5 AN Moderate 8–10 EX13 5 AN Moderate 4–6 EX14 6 AP Moderate 10–12 EX15 6 C Simple 5–8 EX16 6 AP Simple 8–10

COMPLETING THE ACCOUNTING CYCLE (Continued)

 Number LO BT Difficulty Time (min.) EX17 6 AP Simple 12–15 EX18 7 AN Moderate 5–7 EX19 2, 4, 7 AN Moderate 10–12 P1A 1-3, 6 AN Simple 40–50 P2A 1-3, 6 AP Moderate 50–60 P3A 1-3, 6 AP Moderate 40–50 P4A 1-3, 6 AN Moderate 50–60 P5A 1-4, 6 AN Complex 70–90 P6A 5 AN Moderate 40–50 P1B 1-3, 6 AN Simple 40–50 P2B 1-3, 6 AP Moderate 50–60 P3B 1-3, 6 AP Moderate 40–50 P4B 1-3, 6 AN Moderate 50–60 P5B 1-4, 6 AN Complex 70–90 BYP1 6 AN Simple 10–12 BYP2 6 AN Simple 8–10 BYP3 6 AN Simple 8–10 BYP4 — E Simple 10–12 BYP5 6 AN Moderate 15–20 BYP6 4 C Simple 15–20 BYP7 — E Moderate 10–15 BYP8 6 AP Moderate 12–16 BYP9 — AP Moderate 10–15

1. No. A worksheet is not a permanent accounting record. The use of a worksheet is an optional step in the accounting cycle.

2. The worksheet is merely a device used to make it easier to prepare adjusting entries and the financial statements.

3. The amount shown in the adjusted trial balance column for an account equals the account balance in the ledger after adjusting entries have been journalized and posted.

4. The net income of \$12,000 will appear in the income statement debit column and the balance sheet credit column. A net loss will appear in the income statement credit column and the balance sheet debit column.

5. Formal financial statements are needed because the columnar data are not properly arranged and classified for statement purposes. For example, a drawing account is listed with assets.

6. (1) (Dr) Individual revenue accounts and (Cr) Income Summary.

(2) (Dr) Income Summary and (Cr) Individual expense accounts.

(3) (Dr) Income Summary and (Cr) Owner’s Capital (for net income).

(4) (Dr) Owner’s Capital and (Cr) Owner’s Drawings.

7. Income Summary is a temporary account that is used in the closing process. The account is debited for expenses and credited for revenues. The difference, either net income or net loss, is then closed to the owner’s capital account.

8. The post-closing trial balance contains only balance sheet accounts. Its purpose is to prove the equality of the permanent account balances that are carried forward into the next accounting period.

9. The accounts that will not appear in the post-closing trial balance are Depreciation Expense; Owner’s Drawing; and Service Revenue.

10. A reversing entry is the exact opposite, both in amount and in account titles, of an adjusting entry and is made at the beginning of the new accounting period. Reversing entries are an optional step in the accounting cycle.

11. The steps that involve journalizing are: (1) journalize the transactions, (2) journalize the adjusting entries, and (3) journalize the closing entries.

12. The three trial balances are the: (1) trial balance, (2) adjusted trial balance, and (3) post-closing trial balance.

13. Correcting entries differ from adjusting entries because they: (1) are not a required part of the accounting cycle, (2) may be made at any time, and (3) may affect any combination of accounts.

Questions Chapter 4 (Continued)

*14. The standard classifications in a balance sheet are:

 Assets Liabilities and Owner’s Equity Current Assets Current Liabilities Long-term Investments Long-term Liabilities Property, Plant, and Equipment Owner’s Equity Intangible Assets

*15. The operating cycle of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

*16. Current assets are assets that a company expects to convert to cash or use up in one year. Some companies use a period longer than one year to classify assets and liabilities as current because they have an operating cycle longer than one year. Companies usually list current assets in the order in which they expect to convert them into cash.

*17. Long-term investments are generally investments in stocks and bonds of other companies that are normally held for many years. Property, plant, and equipment are assets with relatively long useful lives that a company is currently using in operating the business.

*18. (a) The owner’s equity section for a corporation is called stockholders’ equity.

(b) The two accounts and the purpose of each are: (1) Common stock is used to record invest​ments of assets in the business by the owners (stockholders). (2) Retained earnings is used to record net income retained in the business.

*19.. Apple’s current liabilities at September 24, 2011 and September 25, 2010 were \$27,970 million and \$20,722 million respectively. Apple’s current liabilities were significantly lower than its current assets in both years.

*20. After reversing entries have been made, the balances will be Interest Payable, zero balance; Interest Expense, a credit balance.

*21. (a) Jan. 10 Salaries and Wages Expense 8,000

Cash 8,000

Because of the January 1 reversing entry that credited Salaries and Wages Expense for \$3,500, Salaries and Wages Expense will have a debit balance of \$4,500 which equals the expense for the current period.

(b) Jan. 10 Salaries and Wages Payable 3,500

Salaries and Wages Expense 4,500

Cash 8,000

Note that Salaries and Wages Expense will again have a debit balance of \$4,500.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 4-1

The steps in using a worksheet are performed in the following sequence: (1) prepare a trial balance on the worksheet, (2) enter adjustment data, (3) enter adjusted balances, (4) extend adjusted balances to appropriate statement columns and (5) total the statement columns, compute net income (loss), and complete the worksheet. Filling in the blanks, the answers are 1, 3, 4, 5, 2.

The solution to BRIEF EXERCISE 4-2 is on page 4-9.

BRIEF EXERCISE 4-3

 Income Statement Balance Sheet Account Dr. Cr. Dr. Cr. Accumulated Depreciation X Depreciation Expense X Owner’s Capital X Owner’s Drawings X Service Revenue X Supplies X Accounts Payable X

BRIEF EXERCISE 4-4

Dec. 31 Service Revenue 50,000

Income Summary 50,000

31 Income Summary 34,000

Salaries and Wages Expense 27,000

Supplies Expense 7,000

31 Income Summary 16,000

Owner’s Capital 16,000

31 Owner’s Capital 2,000

Owner’s Drawings 2,000

BRIEF EXERCISE 4-5

 Salaries and Wages Expense Income Summary Service Revenue Bal. 27,000 (2) 27,000 (2) 34,000 (1) 50,000 (1) 50,000 Bal. 50,000 (3) 16,000 50,000 50,000
 Supplies Expense Owner’s Capital Owner’s Drawings Bal. 7,000 (2) 7,000 (4) 2,000 Bal. 30,000 Bal. 2,000 (4) 2,000 (3) 16,000 Bal. 44,000

BRIEF EXERCISE 4-6

July 31 Service Revenue 16,400

Income Summary 16,400

31 Income Summary 10,700

Salaries and Wages Expense 8,200

Maintenance and Repairs Expense 2,500

Service Revenue

 Date Explanation Ref. Debit Credit Balance 7/31 Balance 16,400 16,400 7/31 Closing entry 16,400 0

Salaries and Wages Expense

 Date Explanation Ref. Debit Credit Balance 7/31 Balance 8,200 8,200 7/31 Closing entry 8,200 0

BRIEF EXERCISE 4-6 (Continued)

Maintenance and Repairs Expense

 Date Explanation Ref. Debit Credit Balance 7/31 Balance 2,500 2,500 7/31 Closing entry 2,500 0

BRIEF EXERCISE 4-7

The accounts that will appear in the post-closing trial balance are:

Accumulated Depreciation

Owner’s Capital

Supplies

Accounts Payable

BRIEF EXERCISE 4-8

The proper sequencing of the required steps in the accounting cycle is as follows:

2. Journalize the transactions.

3. Post to ledger accounts.

4. Prepare a trial balance.

5. Journalize and post adjusting entries.

6. Prepare an adjusted trial balance.

7. Prepare financial statements.

8. Journalize and post closing entries.

9. Prepare a post-closing trial balance.

Filling in the blanks, the answers are 4, 2, 8, 7, 5, 3, 9, 6, 1.

BRIEF EXERCISE 4-9

1. Service Revenue 870

Accounts Receivable 870

2. Accounts Payable (\$1,750 – \$1,570) 180

Supplies 180

BRIEF EXERCISE 4-10

HAMIDI COMPANY

Partial Balance Sheet

Current assets

Cash \$ 4,100

Debt investments 6,700

Accounts receivable 12,500

Supplies 5,200

Prepaid insurance 3,600

Total current assets \$32,100

BRIEF EXERCISE 4-11

 CL Accounts payable CL Income taxes payable CA Accounts receivable LTI Debt investments (long-term) PPE Accum. depreciation—buildings PPE Land PPE Buildings CA Inventory CA Cash IA Patents IA Copyrights CA Supplies

*BRIEF EXERCISE 4-12

Nov. 1 Salaries and Wages Payable 2,100

Salaries and Wages Expense 2,100

The balances after posting the reversing entry are Salaries and Wages Expense (Cr.) \$2,100 and Salaries and Wages Payable \$0.

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 4-1

Income statement debit column—Utilities Expense

Income statement credit column—Service Revenue

Balance sheet debit column—Accounts Receivable

Balance sheet credit column—Notes Payable; Accumulated Depreciation; Owner’s Capital

DO IT! 4-2

Dec. 31 Income Summary 41,000

Owner’s Capital 41,000

Dec. 31 Owner’s Capital 22,000

Owner’s Drawings 22,000

DO IT! 4-3

RYAN COMPANY

Partial Balance Sheet

Current assets

Cash \$4,300

Debt investments 1,200

Accounts receivable 4,300

Inventory   2,900

Total current assets \$12,700

Long-term investments

Stock investments 6,500

Property, plant and equipment

Equipment 21,700

Less: Accumulated depreciation   5,700   16,000

Total assets \$35,200

DO IT! 4-4

 NA Interest revenue OE Owner’s capital CL Utilities payable PPE Accumulated depreciation—equipment CL Accounts payable PPE Equipment CA Supplies NA Salaries and wages expense LTL Bonds payable LTI Debt investments (long-term) IA Goodwill CL Unearned rent revenue

SOLUTIONS TO EXERCISES

### NANDURI COMPANY

#### Worksheet

For the Month Ended June 30, 2014

 Account Titles Trial Balance Adjustments Adj. Trial Balance Income Statement Balance Sheet Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cash 2,320 2,320 2,320 Accounts Receivable 2,440 2,440 2,440 Supplies 1,880 (a) 1,380 500 500 Accounts Payable 1,120 1,120 1,120 Unearned Service Revenue 240 (b) 140 100 100 Owner’s Capital 3,600 3,600 3,600 Service Revenue 2,400 (b) 140 2,540 2,540 Salaries and Wages Expense 560 (c) 210 770 770 Miscellaneous Expense 160 160 160 Totals 7,360 7,360 Supplies Expense (a) 1,380 1,380 1,380 Salaries and Wages Payable (c) 210 210 210 Totals 1,730 1,730 7,570 7,570 2,310 2,540 5,260 5,030 Net Income 230 230 Totals 2,540 2,540 5,260 5,260

EXERCISE 4-2

DESOUSA COMPANY

(Partial) Worksheet

For the Month Ended April 30, 2014

 Adjusted Trial Balance Income Statement Balance Sheet Account Titles Dr. Cr. Dr. Cr. Dr. Cr. Cash 10,000 10,000 Accounts Receivable 7,840 7,840 Prepaid Rent 2,280 2,280 Equipment 23,050 23,050 Accum. Depreciation    Equipment 4,921 4,921 Notes Payable 5,700 5,700 Accounts Payable 4,920 4,920 Owner’s Capital 27,960 27,960 Owner’s Drawings 3,650 3,650 Service Revenue 15,590 15,590 Salaries and Wages    Expense 10,840 10,840 Rent Expense 760 760 Depreciation Expense 671 671 Interest Expense 57 57 Interest Payable 57 57 Totals 59,148 59,148 12,328 15,590 46,820 43,558 Net Income 3,262 3,262 Totals 15,590 15,590 46,820 46,820

EXERCISE 4-3

DESOUSA COMPANY

Income Statement

For the Month Ended April 30, 2014

Revenues

Service revenue \$15,590

Expenses

Salaries and wages expense \$10,840

Rent expense 760

Depreciation expense 671

Interest expense 57

Total expenses 12,328

Net income \$ 3,262

DESOUSA COMPANY

Owner’s Equity Statement

For the Month Ended April 30, 2014

Owner’s Capital, April 1 \$27,960

31,222

Less: Drawings 3,650

Owner’s Capital, April 30 \$27,572

DESOUSA COMPANY

Balance Sheet

April 30, 2014

Assets

Current assets

Cash \$10,000

Accounts receivable 7,840

Prepaid rent 2,280

Total current assets \$20,120

Property, plant, and equipment

Equipment 23,050

Less: Accumulated depreciation—equipment 4,921 18,129

Total assets \$38,249

EXERCISE 4-3 (Continued)

DESOUSA COMPANY

Balance Sheet (Continued)

April 30, 2014

Liabilities and Owner’s Equity

Current liabilities

Notes payable \$5,700

Accounts payable 4,920

Interest payable 57

Total current liabilities \$10,677

Owner’s equity

Owner’s capital 27,572

Total liabilities and owner’s equity \$38,249

EXERCISE 4-4

(a) Apr. 30 Service Revenue 15,590

Income Summary 15,590

30 Income Summary 12,328

Salaries and Wages Expense 10,840

Rent Expense 760

Depreciation Expense 671

Interest Expense 57

30 Income Summary 3,262

Owner’s Capital 3,262

30 Owner’s Capital 3,650

Owner’s Drawings 3,650

(b)

 Income Summary Owner’s Capital (2) 12,328 (1) 15,590 (4) 3,650 Bal. 27,960 (3) 3,262 (3) 3,262 15,590 15,590 Bal. 27,572

EXERCISE 4-4 (Continued)

(c) DESOUSA COMPANY

Post-Closing Trial Balance

April 30, 2014

 Debit Credit

Cash \$10,000

Accounts Receivable 7,840

Prepaid Rent 2,280

Equipment 23,050

Accumulated Depreciation—Equipment \$ 4,921

Notes Payable 5,700

Accounts Payable 4,920

Interest Payable 57

Owner’s Capital               27,572

\$43,170 \$43,170

EXERCISE 4-5

(a) Accounts Receivable 1,100

Service Revenue 1,100

Insurance Expense 300

Prepaid Insurance 300

Depreciation Expense 900

Accumulated Depreciation—Equipment 900

Salaries and Wages Expense 500

Salaries and Wages Payable 500

EXERCISE 4-5 (Continued)

 (b) Income Statement Balance Sheet Dr. Cr. Dr. Cr. Accounts Receivable X Prepaid Insurance X Accum. Depreciation—Equip. X Salaries and Wages Payable X Service Revenue X Salaries and Wages    Expense X Insurance Expense X Depreciation Expense X

EXERCISE 4-6

(a) Accounts Receivable—\$25,000 (\$34,000 – \$9,000).

Supplies—\$2,500 (\$7,000 – \$4,500).

Accumulated Depreciation—Equipment—\$22,000 (\$12,000 + \$10,000).

Insurance Expense—\$6,000 (\$26,000 – \$20,000).

Salaries and Wages Expense—\$43,400 (\$49,000 – \$5,600).

(b) Accounts Receivable 9,000

Service Revenue 9,000

Insurance Expense 6,000

Prepaid Insurance 6,000

Supplies Expense 4,500

Supplies 4,500

Depreciation Expense 10,000

Accumulated Depreciation—Equipment 10,000

Salaries and Wages Expense 5,600

Salaries and Wages Payable 5,600

EXERCISE 4-7

(a) Service Revenue 4,300

Income Summary 4,300

Income Summary 3,500

Salaries and Wages Expense 1,344

Miscellaneous Expense 256

Supplies Expense 1,900

Income Summary 800

Owner’s Capital 800

Owner’s Capital 628

Owner’s Drawings 628

(b) KAY MAGILL COMPANY

Post-Closing Trial Balance

June 30, 2014

 Account Titles Debit Credit

Cash \$3,712

Accounts Receivable 3,904

Supplies 480

Accounts Payable \$1,556

Salaries and Wages Payable 448

Unearned Service Revenue 160

Owner’s Capital             5,932

\$8,096 \$8,096

EXERCISE 4-8

(a)

General Journal J15

 Date Account Titles Ref. Debit Credit July 31 Service Revenue 400 64,000 Rent Revenue 429 6,500 Income Summary 350 70,500 31 Income Summary 350 78,600 Salaries and Wages Expense 726 55,700 Utilities Expense 732 14,900 Depreciation Expense 711 8,000 31 Owner’s Capital 301 8,100 Income Summary 350 8,100 31 Owner’s Capital 301 16,000 Owner’s Drawings 306 16,000

(b)

Owner’s Capital No. 301

 Date Explanation Ref. Debit Credit Balance July 31 Balance 45,200 31 Close net loss J15 8,100 37,100 31 Close drawing J15 16,000 21,100

Income Summary No. 350

 Date Explanation Ref. Debit Credit Balance July 31 Close revenue J15 70,500 70,500 31 Close expenses J15 78,600 (8,100) 31 Close net loss J15 8,100 0

EXERCISE 4-8 (Continued)

(c) PLEVIN COMPANY

Post-Closing Trial Balance

July 31, 2014

 Debit Credit

Cash \$9,840

Accounts Receivable 8,780

Equipment 15,900

Accumulated Depreciation—Equipment \$ 7,400

Accounts Payable 4,220

Unearned Rent Revenue 1,800

Owner’s Capital               21,100

\$34,520 \$34,520

EXERCISE 4-9

(a) PLEVIN COMPANY

Income Statement

For the Year Ended July 31, 2014

Revenues

Service revenue \$64,000

Rent revenue 6,500

Total revenues \$70,500

Expenses

Salaries and wages expense 55,700

Utilities expense 14,900

Depreciation expense 8,000

Total expenses 78,600

Net loss (\$ 8,100)

EXERCISE 4-9 (Continued)

PLEVIN COMPANY

Owner’s Equity Statement

For the Year Ended July 31, 2014

Owner’s Capital, August 1, 2013 \$45,200

Less: Net loss \$ 8,100

Drawings 16,000 24,100

Owner’s Capital, July 31, 2014 \$21,100

(b) PLEVIN COMPANY

Balance Sheet

July 31, 2014

Assets

Current assets

Cash \$9,840

Accounts receivable 8,780

Total current assets \$18,620

Property, plant, and equipment

Equipment 15,900

Less: Accumulated depreciation 7,400 8,500

Total assets \$27,120

Liabilities and Owner’s Equity

Current liabilities

Accounts payable \$4,220

Unearned rent revenue 1,800

Total current liabilities \$ 6,020

Owner’s equity

Owner’s Capital 21,100

Total liabilities and owner’s equity \$27,120

EXERCISE 4-10

1. False “Analyze business transactions” is the first step in the accounting cycle.

2. False. Reversing entries are an optional step in the accounting cycle.

3. True.

4. True.

5. True.

6. False. Steps 1–3 may occur daily in the accounting cycle. Steps 4–7 are performed on a periodic basis. Steps 8 and 9 are usually prepared only at the end of a company’s annual accounting period.

7. False. The step of “journalize the transactions” occurs before the step of “post to the ledger accounts.”

8. False. Closing entries are prepared after financial statements are prepared.

EXERCISE 4-11

(a) June 30 Service Revenue 18,100

Income Summary 18,100

30 Income Summary 13,100

Salaries and Wages Expense 8,800

Supplies Expense 1,300

Rent Expense 3,000

30 Income Summary 5,000

Owner’s Capital 5,000

30 Owner’s Capital 2,500

Owner’s Drawings 2,500

(b)

 Income Summary June 30 13,100 June 30 18,100 June 30 5,000 18,100 18,100

EXERCISE 4-12

(a) 1. Cash 700

Equipment 700

Salaries and Wages Expense 700

Cash 700

2. Service Revenue 100

Cash 100

Cash 1,000

Accounts Receivable 1,000

3. Accounts Payable 670

Equipment 670

Equipment 760

Accounts Payable 760

(b) 1. Salaries and Wages Expense 700

Equipment 700

2. Service Revenue 100

Cash 900

Accounts Receivable 1,000

3. Equipment 90

Accounts Payable 90

EXERCISE 4-13

1. Accounts Payable (\$840 – \$480) 360

Cash 360

2. Supplies 560

Equipment 56

Accounts Payable 504

3. Owner’s Drawings 500

Salaries and Wages Expense 500

EXERCISE 4-14

(a) MARTELL BOWLING ALLEY

Balance Sheet

December 31, 2014

Assets

Current assets

Cash \$18,040

Accounts receivable 14,520

Prepaid insurance 4,680

Total current assets \$ 37,240

Property, plant, and equipment

Land 67,000

Buildings \$128,800

Less: Acc. depr.—buildings 42,600 86,200

Equipment 62,400

Less: Acc. depr.—equipment 18,720 43,680 196,880

Total assets \$234,120

EXERCISE 4-14 (Continued)

MARTELL BOWLING ALLEY

Balance Sheet (Continued)

December 31, 2014

Liabilities and Owner’s Equity

Current liabilities

Notes payable(due 2015) \$22,000

Accounts payable 12,300

Interest payable 2,600

Total current liabilities \$ 36,900

Long-term liabilities

Notes payable 75,780

Total liabilities 112,680

Owner’s equity

Owner’s capital (\$115,000 + \$6,440*) 121,440

Total liabilities and owner’s equity \$234,120

*Net income = \$17,180 – \$780 – \$7,360 – \$2,600 = \$6,440

(b) Current assets exceed current liabilities by only \$340 (\$37,240 – \$36,900). However, approximately 50% of current assets are in the form of cash. The company’s liquidity appears to be reasonably good, but some caution is needed.

EXERCISE 4-15

 CL Accounts payable PPE Accumulated depreciation–equipment CA Accounts receivable PPE Buildings CA Cash PPE Land OE Owner’s capital LTL Notes payable (due in 2 years) IA Patents CA Supplies CL Salaries and wages payable PPE Equipment CA Inventory CA Prepaid expenses CA Stock investments

EXERCISE 4-16

D. GYGI COMPANY

Balance Sheet

December 31, 2014

(in thousands)

Assets

Current assets

Cash \$ 2,668

Short-term investments 3,690

Accounts receivable 1,696

Inventory 1,256

Prepaid insurance 880

Total current assets \$10,190

Long-term investments 264

Property, plant, and equipment

Equipment 11,500

Less: Accumulated depreciation—

equipment (5,655) 5,845

Total assets \$16,299

Liabilities and Owner’s Equity

Current liabilities

Notes payable (due in 2015) \$ 500

Accounts payable 1,444

Total current liabilities \$ 1,944

Long-term liabilities

Long-term debt 1,000

Notes payable 400

Total long-term liabilities 1,400

Total liabilities 3,344

Owner’s equity

Owner’s capital   12,955

Total liabilities and owner’s equity \$16,299

EXERCISE 4-17

(a)

NORSTED COMPANY

Income Statement

For the Year Ended July 31, 2014

Revenues

Service revenue \$62,000

Rent revenue 8,500

Total revenues \$70,500

Expenses

Salaries and wages expense 51,700

Utilities expense 22,600

Depreciation expense 4,000

Total expense 78,300

Net loss \$ (7,800)

NORSTED COMPANY

Owner’s Equity Statement

For the Year Ended July 31, 2014

Owner’s Capital, August 1, 2013 \$51,200

Less: Net loss \$7,800

Drawings 3,000 10,800

Owner’s Capital, July 31, 2014 \$40,400

EXERCISE 4-17 (Continued)

(b)

NORSTED COMPANY

Balance Sheet

July 31, 2014

Assets

Current assets

Cash \$14,200

Accounts receivable 9,780

Total current assets \$23,980

Property, plant, and equipment

Equipment 30,400

Less: Accumulated depreciation—

equipment 6,000 24,400

Total assets \$48,380

Liabilities and Owner’s Equity

Current liabilities

Accounts payable \$4,100

Salaries and wages payable 2,080

Total current liabilities \$ 6,180

Long-term liabilities

Notes payable 1,800

Total liabilities 7,980

Owner’s equity

Owner’s capital   40,400

Total liabilities and owner’s equity \$48,380

*EXERCISE 4-18

(a) Dec. 31 Salaries and Wages Expense

(\$12,000 X 2/5) 4,800

Salaries and Wages Payable 4,800

Jan. 6 Salaries and Wages Payable 4,800

Salaries and Wages Expense

(\$12,000 X 3/5) 7,200

Cash 12,000

(b) Dec. 31 Salaries and Wages Expense 4,800

Salaries and Wages Payable 4,800

Jan. 1 Salaries and Wages Payable 4,800

Salaries and Wages Expense 4,800

Jan. 6 Salaries and Wages Expense 12,000

Cash 12,000

*EXERCISE 4-19

(a) Dec. 31 Service Revenue 92,500

Income Summary 92,500

31 Income Summary 8,300

Interest Expense 8,300

(b) Jan. 1 Service Revenue 5,000

Accounts Receivable 5,000

1 Interest Payable 2,000

Interest Expense 2,000

*EXERCISE 4-19 (Continued)

(c) & (e)

 Accounts Receivable Dec. 31 Balance *19,500 31 Adjusting 5,000 24,500 Jan. 1 Reversing 5,000

*(\$24,500 – \$5,000)

 Service Revenue Dec. 31 Closing 92,500 Dec. 31 Balance 87,500* 31 Adjusting 5,000 92,500 92,500 Jan. 1 Reversing 5,000 Jan. 10 5,000

*(\$92,500 – \$5,000)

 Interest Payable Dec. 31 Adjusting 2,000 Jan. 1 Reversing 2,000
 Interest Expense Dec. 31 Balance *6,300 Dec. 31 Closing 8,300 31 Adjusting 2,000 . 8,300 8,300 Jan. 15 3,000 Jan. 1 Reversing 2,000

*(\$8,300 – \$2,000)

(d) (1)

Jan. 10 Cash 5,000

Service Revenue 5,000

(2)

15 Interest Expense 3,000

Cash 3,000

PROBLEM 4-1A (Continued)

(b) LAMPERT ROOFING

Income Statement

For the Month Ended March 31, 2014

Revenues

Service revenue \$6,640

Expenses

Salaries and wages expense \$2,000

Supplies expense 1,450

Miscellaneous expense 400

Depreciation expense 250

Total expenses 4,100

Net income \$2,540

LAMPERT ROOFING

Owner’s Equity Statement

For the Month Ended March 31, 2014

Owner’s Capital, March 1 \$ 2,900

Investments 10,000

15,440

Less: Drawings 1,100

Owner’s Capital, March 31 \$14,340

LAMPERT ROOFING

Balance Sheet

March 31, 2014

Assets

Current assets

Cash \$4,500

Accounts receivable 3,200

Supplies 550

Total current assets \$ 8,250

Property, plant, and equipment

Equipment 11,000

Less: Accum. depreciation—equipment 1,500 9,500

Total assets \$17,750

PROBLEM 4-1A (Continued)

LAMPERT ROOFING

Balance Sheet (Continued)

March 31, 2014

Liabilities and Owner’s Equity

Current liabilities

Accounts payable \$2,500

Salaries and wages payable 700

Unearned service revenue 210

Total current liabilities \$ 3,410

Owner’s equity

Owner’s capital 14,340

Total liabilities and owner’s equity \$17,750

(c) Mar. 31 Supplies Expense 1,450

Supplies 1,450

31 Depreciation Expense 250

Accumulated Depreciation—

Equipment 250

31 Unearned Service Revenue 340

Service Revenue 340

31 Salaries and Wages Expense 700

Salaries and Wages Payable 700

(d) Mar. 31 Service Revenue 6,640

Income Summary 6,640

31 Income Summary 4,100

Salaries and Wages Expense 2,000

Supplies Expense 1,450

Depreciation Expense 250

Miscellaneous Expense 400

31 Income Summary 2,540

Owner’s Capital 2,540

31 Owner’s Capital 1,100

Owner’s Drawing 1,100

 PROBLEM 4-2A

(a) ALSHWER COMPANY

Partial Worksheet

For the Year Ended December 31, 2014

 Account AdjustedTrial Balance IncomeStatement BalanceSheet No. Titles Dr. Cr. Dr. Cr. Dr. Cr. 101 Cash 5,300 5,300 112 Accounts Receivable 10,800 10,800 126 Supplies 1,500 1,500 130 Prepaid Insurance 2,000 2,000 157 Equipment 27,000 27,000 158 Acc. Depr.—Equip. 5,600 5,600 200 Notes Payable 15,000 15,000 201 Accounts Payable 6,100 6,100 212 Salaries and Wages    Payable 2,400 2,400 230 Interest Payable 600 600 301 Owner’s Capital 13,000 13,000 306 Owner’s Drawings 7,000 7,000 400 Service Revenue 61,000 61,000 610 Advertising Expense 8,400 8,400 631 Supplies Expense 4,000 4,000 711 Depreciation Expense 5,600 5,600 722 Insurance Expense 3,500 3,500 726 Salaries and Wages    Expense 28,000 28,000 905 Interest Expense 600 600 Totals 103,700 103,700 50,100 61,000 53,600 42,700 Net Income 10,900 10,900 Totals 61,000 61,000 53,600 53,600

PROBLEM 4-2A (Continued)

(b) ALSHWER COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Service revenue \$61,000

Expenses

Salaries and wages expense \$28,000

Depreciation expense 5,600

Supplies expense 4,000

Insurance expense 3,500

Interest expense 600

Total expenses 50,100

Net income \$10,900

ALSHWER COMPANY

Owner’s Equity Statement

For the Year Ended December 31, 2014

Owner’s Capital, January 1 \$13,000

23,900

Less: Drawings 7,000

Owner’s Capital, December 31 \$16,900

PROBLEM 4-2A (Continued)

ALSHWER COMPANY

Balance Sheet

December 31, 2014

Assets

Current assets

Cash \$ 5,300

Accounts receivable 10,800

Supplies 1,500

Prepaid insurance 2,000

Total current assets \$19,600

Property, plant, and equipment

Equipment 27,000

Less: Accumulated depreciation—

equipment 5,600 21,400

Total assets \$41,000

Liabilities and Owner’s Equity

Current liabilities

Notes payable \$5,000

Accounts payable 6,100

Salaries and wages payable 2,400

Interest payable 600

Total current liabilities \$14,100

Long-term liabilities

Notes payable 10,000

Total liabilities 24,100

Owner’s equity

Owner’s capital 16,900

Total liabilities and owner’s equity \$41,000

PROBLEM 4-2A (Continued)

(c)

General Journal J14

 Date Account Titles and Explanation Ref. Debit Credit Dec. 31 Service Revenue 400 61,000 Income Summary 350 61,000 31 Income Summary 350 50,100 Advertising Expense 610 8,400 Supplies Expense 631 4,000 Depreciation Expense 711 5,600 Insurance Expense 722 3,500 Salaries and Wages Expense 726 28,000 Interest Expense 905 600 31 Income Summary 350 10,900 Owner’s Capital 301 10,900 31 Owner’s Capital 301 7,000 Owner’s Drawings 306 7,000

(d)

Owner’s Capital No. 301

 Date Explanation Ref. Debit Credit Balance Jan. 1 Balance  13,000 13,000 Dec. 31 Closing entry J14 10,900 23,900 31 Closing entry J14 7,000 16,900

Owner’s Drawings No. 306

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  7,000 7,000 31 Closing entry J14 7,000 0

PROBLEM 4-2A (Continued)

Income Summary No. 350

 Date Explanation Ref. Debit Credit Balance Dec. 31 Closing entry J14 61,000 61,000 31 Closing entry J14 50,100 10,900 31 Closing entry J14 10,900 0

Service Revenue No. 400

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  61,000 61,000 31 Closing entry J14 61,000 0

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  8,400 8,400 31 Closing entry J14 8,400 0

Supplies Expense No. 631

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  4,000 4,000 31 Closing entry J14 4,000 0

Depreciation Expense No. 711

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  5,600 5,600 31 Closing entry J14 5,600 0

Insurance Expense No. 722

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  3,500 3,500 31 Closing entry J14 3,500 0

PROBLEM 4-2A (Continued)

Salaries and Wages Expense No. 726

 Date Explanation Ref. Debit Credit Dec. 31 Balance  28,000 28,000 31 Closing entry J14 28,000 0

Interest Expense No. 905

 Date Explanation Ref. Debit Credit Balance Dec. 31 Balance  600 600 31 Closing entry J14 600 0

(e) ALSHWER COMPANY

Post-Closing Trial Balance

December 31, 2014

 Debit Credit

Cash \$ 5,300

Accounts Receivable 10,800

Supplies 1,500

Prepaid Insurance 2,000

Equipment 27,000

Accumulated Depreciation—

Equipment \$ 5,600

Notes Payable 15,000

Accounts Payable 6,100

Salaries and Wages Payable 2,400

Interest Payable 600

Owner’s Capital               16,900

Totals \$46,600 \$46,600

 PROBLEM 4-3A

(a) FLEMING COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Service revenue \$60,000

Expenses

Salaries and wages expense \$30,000

Depreciation expense 3,100

Insurance expense 1,800

Maintenance and repairs expense 1,600

Utilities expense 1,400

Total expenses 37,900

Net income \$22,100

FLEMING COMPANY

Owner’s Equity Statement

For the Year Ended December 31, 2014

Owner’s Capital, January 1 \$19,500

41,600

Less: Drawings 11,000

Owner’s Capital, December 31 \$30,600

FLEMING COMPANY

Balance Sheet

December 31, 2014

Assets

Current assets

Cash \$8,900

Accounts receivable 10,800

Prepaid insurance 2,800

Total current assets \$22,500

Property, plant, and equipment

Equipment 24,000

Less: Accumulated depreciation—

equipment 4,500 19,500

Total assets \$42,000

PROBLEM 4-3A (Continued)

FLEMING COMPANY

Balance Sheet (Continued)

December 31, 2014

Liabilities and Owner’s Equity

Current liabilities

Accounts payable \$9,000

Salaries and wages payable 2,400

Total current liabilities \$11,400

Owner’s equity

Owner’s capital 30,600

Total liabilities and owner’s

equity \$42,000

(b)

General Journal

 Date Account Titles and Explanation Ref. Debit Credit Dec. 31 Service Revenue 400 60,000 Income Summary 350 60,000 31 Income Summary 350 37,900 Maintenance and Repairs   Expense 622 1,600 Depreciation Expense 711 3,100 Insurance Expense 722 1,800 Salaries and Wages Expense 726 30,000 Utilities Expense 732 1,400 31 Income Summary 350 22,100 Owner’s Capital 301 22,100 31 Owner’s Capital 301 11,000 Owner’s Drawings 306 11,000

PROBLEM 4-3A (Continued)

(c)

 Owner’s Capital No. 301 12/31 11,000 1/1 Bal. 19,500 12/31 22,100 12/31 Bal. 30,600
 Owner’s Drawings No. 306 12/31 Bal. 11,000 12/31 11,000
 Income Summary No. 350 12/31 37,900 12/31 60,000 12/31 22,100 60,000 60,000
 Service Revenue No. 400 12/31 60,000 12/31 Bal. 60,000
 Maintenance and Repairs               Expense No. 622 12/31 Bal. 1,600 12/31 1,600
 Depreciation Expense No. 711 12/31 Bal. 3,100 12/31 3,100
 Insurance Expense No. 722 12/31 Bal. 1,800 12/31 1,800
 Salaries and WagesExpense No. 726 12/31 Bal. 30,000 12/31 30,000
 Utilities Expense No. 732 12/31 Bal. 1,400 12/31 1,400

(d) FLEMING COMPANY

Post-Closing Trial Balance

December 31, 2014

 Debit Credit

Cash \$8,900

Accounts Receivable 10,800

Prepaid Insurance 2,800

Equipment 24,000

Accumulated Depreciation—Equipment \$ 4,500

Accounts Payable 9,000

Salaries and Wages Payable 2,400

Owner’s Capital               30,600

Totals \$46,500 \$46,500

PROBLEM 4-4A (Continued)

(b) JARMUZ MANAGEMENT SERVICES

Balance Sheet

December 31, 2014

Assets

Current assets

Cash \$13,800

Accounts receivable 28,300

Prepaid insurance 2,400

Total current assets \$ 44,500

Property, plant, and equipment

Land 67,000

Buildings \$127,000

Less: Accumulated

depreciation—buildings 3,000 124,000

Equipment 59,000

Less: Accumulated

depreciation—equipment 3,600 55,400 246,400

Total assets \$290,900

Liabilities and Owner’s Equity

Current liabilities

Mortgage payable (due in 2015) \$30,000

Accounts payable 12,500

Interest payable 10,000

Unearned rent revenue 1,500

Total current liabilities \$ 54,000

Long-term liabilities

Mortgage payable 90,000

Total liabilities 144,000

Owner’s equity

Owner’s capital

(\$144,000 + \$24,900 – \$22,000) 146,900

Total liabilities and owner’s equity \$290,900

PROBLEM 4-4A (Continued)

(c) Dec. 31 Insurance Expense 1,200

Prepaid Insurance 1,200

31 Depreciation Expense 6,600

Accumulated Depreciation—

Buildings 3,000

Accumulated Depreciation—

Equipment 3,600

31 Unearned Rent Revenue 4,500

Rent Revenue 4,500

31 Interest Expense 10,000

Interest Payable 10,000

(d) Dec. 31 Service Revenue 90,700

Rent Revenue 33,500

Income Summary 124,200

31 Income Summary 99,300

Salaries and Wages Expense 42,000

Interest Expense 10,000

Utilities Expense 19,000

Depreciation Expense 6,600

Insurance Expense 1,200

31 Income Summary 24,900

Owner’s Capital 24,900

31 Owner’s Capital 22,000

Owner’s Drawings 22,000

PROBLEM 4-4A (Continued)

(e) JARMUZ MANAGEMENT SERVICES

Post-Closing Trial Balance

December 31, 2014

 Debit Credit

Cash \$ 13,800

Accounts Receivable 28,300

Prepaid Insurance 2,400

Land 67,000

Buildings 127,000

Accumulated Depreciation—Buildings \$ 3,000

Equipment 59,000

Accumulated Depreciation—Equipment 3,600

Accounts Payable 12,500

Interest Payable 10,000

Unearned Rent Revenue 1,500

Mortgage Payable 120,000

Owner’s Capital                 146,900

\$297,500 \$297,500

 PROBLEM 4-5A

(a)