FACC 220 Study Guide - Real Estate Broker, Polycarbonate, Smart People

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lilacferret171

11 Apr 2012

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There are three types of bonds bid bonds, performance bonds and payment bonds. Bonds guarantee that the contractor holding the bond will perform a specified obligation or face financial penalties. A bid bond guarantees the owner that the principal will honor its bid and will sign all contract documents if awarded the contract. Therefore this will help john find a contractor that meets his requirements with regards to both finance and time constraints. The second is performance bonds, this guarantees john that the contractor will complete the contract according to its terms including price and time. The final is the labor and materials bonds which insure that the contractor will pay subcontractors and suppliers all amounts due. If the contractor does not fulfill the requirements set in any of the bonds then john will be guaranteed any monetary loss up to the amount of the bond.

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The Leslie City sold bonds in the amount of$5,000,000 to finance the construction of a

public health center. The bonds are serial bonds and were sold at par on July 1, 2005 the first day of a fiscal year. Shortly thereafter a construction contract in the amount of $4,500,000 was signed and the contractor commenced work. By year-end the contractor had been paid in full for all billings to date amounting to $2,000,000.

Required:

Prepare in general journal form all journal entries that should have been made during the fiscal year ended June 30, 2006 to record the above information in the capital projects fund (including closing entry).

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In July 2012, the six adult cast members of the hit TV show Modem family filed a joint lawsuit against Twenty-century fox Television in an attempt to vid their contracts. The lawsuit claimed that their contracts were illegal, in that the contracts broke California 7 year rule. The 7-year rule stipulates that contracts regarding personal service may not span longer than seven years. Yet the actor's contracts guaranteed their service from 2009 to 2016. A great incentive for the actors to file the lawsuit was to increase the amount they each were paid an episode, which for most of them was $65,000 an episode. If a contract is illegal, may it be voided even if the actors knowingly signed to the terms of the contract? How do you think the judge should have decided this case, and why?

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If two contractors sign a contract with a client where they have a mutual responsibility to deliver a job with a particular quality and within a specified period. The two contractors do not have separately identifiable job responsibilities, though. Upon delivery of work, an independent committee evaluates work quality. If the work meets high-quality indicators, the contractors receive $8 million in fees, which they split equally between them. The cost of producing high-quality work is $3 million for each. So the profits that each makes is $1 million if the work meets the high-quality standard.

If one contractor shirks, he/she does not bear any cost. But, this conduct results in low quality work and their fees become $4 million, which they also divide equally. The person that shirks ends up with a payoff of $2 million (costs are 0). The person that does not shirk bears the cost of completing the work at a lower quality. His/her payoff is a loss of $1 million. If both shirk, the client does not impose penalties or sue for damages, etc. Neither receives any fees and each contractor's payoff is 0.

Construct the payoff matrix that fits this scenario.

What is the dominant strategy for each contractor?

What is the Nash equilibrium of this game?

For the scenario, answer the following:

a. If the two contractors sign a contract that imposes a penalty on the contractor that shirks compensating his/her partner in case of shirking, what is the minimum penalty needed to guarantee delivery of high-quality work from both contractors? What if enforcement is not certain and the penalty may not be enforced with certainty?

b. Is such a contract legal? How is it different from a contract among oligopolists to fix price?

c. What does this scenario imply about the efficiency-enhancing role that courts play in protecting legal transactions in a market economy?

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FACC 220 Study Guide - Real Estate Broker, Polycarbonate, Smart People

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