answer question #7 The Glory Mountain State Ski Area The Glory Mountain State Ski Area – owned and managed by a state public authority - expects to attract 292,500 skier days during the coming ski season. A skier day represents one skier at the mountain for one day. In addition to a $2,000,000 per year subsidy provided by the state, Glory currently earns its revenue from three sources: lift ticket sales, ski lessons, and food sales in the mountain’s lodges. Forty-five percent of the customers come to the mountain on weekends and pay an average of $60 per day to ski. The remaining 55 percent of the skiers come during the week and pay an average of $45 per day for a lift ticket. On average, 10 percent of the people who visit Glory take ski lessons. An average person taking lessons pays $80 for each lesson. Management also estimates that each skier spends an average of $4 per day on food. Food costs average 40 percent of total food revenue. Glory’s central management staff is paid $1,800,000 per year. The remainder of Glory’s staff is seasonal and is paid on an hourly basis. The table below shows the number of employees by job title, the number of days they work on average, their hourly wages, and the number of hours they work each day. Only ski instructors and patrol costs vary with skier days. Benefits add 30 percent to direct salary costs for all workers including management. Equipment costs and usage are also shown in the table below. For equipment, number refers to the number of pieces of equipment. Equipment costs depend on the number of days the area is open during the season. The hourly fuel cost represents the cost of fuel to operate the equipment for each hour they are open. Number Days Worked Hours Worked Hourly Wage Instructors & Ski Patrol 275 100 7 $20.00 Lift Attendants, Maintenance & Grooming 140 130 10 $18.00 Kitchen Staff 50 130 8 $12.00 Equipment & Fuel Costs 60 130 6 $65.00 Insurance costs are $15,000 per day for each of the 130 days the area expects to be open. Energy costs are $2,240,000 per year and are based on the number of days the area is open. Neither energy nor insurance costs vary based on skier days. Question 1: You are the Glory Mountain State Ski Area’s finance manager. Area Manager Dan Finn has asked you to prepare a base operating budget for the ski area for the coming fiscal year and to show the impact a 5 percent reduction in the number of skier days would have on Glory’s operating results. In planning for the next season, the State Regional Development Authority, which manages the state’s five ski areas, is considering installing a 15-megawatt wind turbine at the top of Glory Mountain. If they do, the ski area will reduce its energy bill by almost 25 percent or $560,000 per year for the next 15 years. It will cost Glory $4,100,000 to complete the environmental assessments, do the necessary engineering studies, and install the turbine. In addition, the ski area will have to invest $750,000 at the end of the seventh year to overhaul the bearings and replace some time-critical components. For depreciation purposes, the wind turbine has a useful life of 10 years with no residual value. Glory uses straight-line depreciation. Question 2: The state uses an 8 percent cost of capital for its ski areas. Based on purely financial analysis, should the state install the turbine? In addition, the snowmaking equipment in the Bear Mountain section of Glory Mountain has been in service for nearly 15 years and has reached the end of its useful life. It will have to be replaced before the next ski season. Management has narrowed its decision down to two options: Big Mouth Snow Guns with a useful life of 15 years and the Whisper Quiet Snowmaking System with a useful life of 10 years. The Big Mouth system will cost Glory $850,000 to acquire and $35,000 per year to operate, while the Whisper Quiet system would only cost $600,000 and $50,000 per year to operate. If the Big Mouth equipment is chosen, there will be no change in Glory’s other operating costs. If the Whisper Quiet system is purchased, Glory’s annual fuel and equipment costs will increase by $15,000. Regardless of the option Glory chooses, the snowmaking system chosen will be depreciated over ten years with an assumed 5 percent residual value. Glory uses straight-line depreciation. Question 3: Based on Glory’s 8 percent cost of capital, which system should management choose? Glory Mountain has never offered any type of day care for younger children of skiing families. Given the changing demographics of its patrons, Dan Finn thinks that the Mountain needs to offer those services. Erika Fossett, Glory’s director of operations, has worked up a proposal for what she is calling the Glory Kids’ Center. She wants it to provide combined day care and ski lessons for children between the ages of 3 and 7. The center would be run by a director who will earn $60,000 per year plus benefits. For every 10 children using the Kids’ Center, the center will employ one full-time instructor. That instructor will provide both day care and skiing instruction. Each instructor will earn $25 per hour including benefits. The center will provide 8 hours of care per day. Instructors will only be paid for the hours the children are at the center. The children are fed lunch and a snack at a cost of $10 per child per day. Supplies for activities the children will be engaged in when they are not skiing will cost an average of $10 per child. Glory plans to charge $70 per day per child. Question 4: As Glory’s finance manager, you have been asked to evaluate the fiscal feasibility of running Glory Kids’ Center. Your first question is how many children will have to be at the center on an average day for it to be profitable on a stand-alone basis. Erika Fossett believes that the Kids’ Center will add 6 percent to overall skier days, and families with children between 3 and 7 will account for 10 percent of total skier days including the expected increase in volume. On average, families with children between 3 and 7 will enroll .25 children in the center each day they ski. She expects to employ an average of 6 instructors each day the ski area is open. Question 5: Prepare a special-purpose budget for the Glory Kids’ Center. Do not include the incremental lift ticket revenue from the expected increase in the volume of skier days in your estimate. After completing these analyses, Dan Finn asks you to update the budget to include the impact of installing the wind turbine, replacing the snowmaking equipment and operating the Glory Kids’ Center. In addition, Glory will have to issue a $6,000,000 bond to finance the acquisition of the equipment. The coupon rate on the bond will be 5 percent. It will require Glory to pay interest every six months and to repay the full $6 million of principal in 20 years. The bonds will be issued on the first day of Glory’s fiscal year, and all equipment will be put in service that same day. Question 6: Using the base budget from Question 1 as a starting point, prepare a revised budget for Glory that incorporates all of these initiatives. At the end of the season, bad weather caused the mountain to be open for only 115 days with an average of 2,600 people per day and an average price per lift ticket of $50.50. Question 7: Starting with the revised budget, calculate the following lift ticket revenue variances and indicate whether they were favorable or unfavorable. Be sure to add up the flexible (partial) variances and check to make sure that sum equals the total variance. a. Glory’s total lift ticket revenue variance for the ski season b. the portion of the lift ticket revenue variance that was due to volume of days c. the portion of the lift ticket revenue variance that was due to quantity of skiers per day d. the portion of the lift ticket revenue variance that was due to price

1. The Balance Sheet provides information about _____________, ____________ and ______________.
2. Cash paid this is owed to an individual reduces a _____________ account.
3. Supplies purchases increase a _____________ account and reduces a ____________ account.
4. Complete the following table:

5. Which of the following is not a Liability?

1. Money owed to bank
2. Cash borrowed from a friend
3. Money borrowed from bank to buy building
4. Money paid to purchase stock investments

6. Finish the equation: _______________ - ________________= Net Income.
7. Which of the following statements is false?
   1. When assets decrease, it is a credit.
   2. When liabilities decrease, it is a debit.
   3. When expenses increase it is a credit.
   4. When revenues decrease, it is a debit

8. Which of the following statements is true?

1. When you receive a loan from the bank, you increase an asset account.
2. When you pay cash to buy supplies, you increase a liability account.
3. When you purchase investments, you increase a revenue account.
4. When you pay back the loan from the bank, you increase a liability account.

9. Identify the following accounts as an Asset, Liability, Revenue or Expense

1. Salaries Payable
2. Fees earned from providing tax services
3. Advertising Bill
4. Long-term debt
5. Accrued Revenue
6. Prepaid Rent
7. Land
8. Supplies used during the month
1. Notes Receivable
10. Inventory
11. Cash
50. Vehicles
1000. Cash paid for a bill that is not yet due
14. Payment received from customer
15. Fees paid to bank

10. Which of the following is not a current asset?
    1. Cash
    2. Accounts payable
    3. Inventory
    4. Property, plant, and equipment
11. What is the entry on the balance sheet when a company borrows a bank loan of $1,000?
    1. $1,000 credit in current liabilities; $1,000 debit in current assets
    2. $1,000 credit in current liabilities; $1,000 debit in non-current assets
    3. $1,000 credit in non-current liabilities; $1,000 debit in current assets
    4. $1,000 credit in non-current liabilities; $1,000 debit in non-current assets
12. What happens to the balance sheet when a company makes sales of $500, of which $300 is paid in cash and $200 is sold on credit?
    1. $300 debit in cash; $200 debit in accounts receivable
    2. $300 credit in cash; $200 credit in accounts receivable
    3. $300 debit in cash; $200 debit in accounts payable
    4. $300 credit in cash; $200 credit in accounts payable

13. What happens to the balance sheet when a company pays salaries of $5,000?
    1. $5,000 credit in cash; $5,000 debit in accounts payable

2. $5,000 credit in cash; $5,000 debit in equity

3. $5,000 debit in cash; $5,000 credit in equity

4. $5,000 credit in cash; $5,000 debit in accounts receivable

14. If at the end of the month, the liabilities total $18,000, and equity totals $32,000, then what must be the total of the assets?  

1. $14,000
2. $18,000  
3. $32,000  
4. $50,000  
5. None of the above

15. The total assets and total liabilities of a firm are reported on which of the following?  

1. Income statement  
2. Balance sheet  
3. Statement of cash flows  
4. Statement of owner's equity  
5. None of the above

answer question #6 The Glory Mountain State Ski Area The Glory Mountain State Ski Area – owned and managed by a state public authority - expects to attract 292,500 skier days during the coming ski season. A skier day represents one skier at the mountain for one day. In addition to a $2,000,000 per year subsidy provided by the state, Glory currently earns its revenue from three sources: lift ticket sales, ski lessons, and food sales in the mountain’s lodges. Forty-five percent of the customers come to the mountain on weekends and pay an average of $60 per day to ski. The remaining 55 percent of the skiers come during the week and pay an average of $45 per day for a lift ticket. On average, 10 percent of the people who visit Glory take ski lessons. An average person taking lessons pays $80 for each lesson. Management also estimates that each skier spends an average of $4 per day on food. Food costs average 40 percent of total food revenue. Glory’s central management staff is paid $1,800,000 per year. The remainder of Glory’s staff is seasonal and is paid on an hourly basis. The table below shows the number of employees by job title, the number of days they work on average, their hourly wages, and the number of hours they work each day. Only ski instructors and patrol costs vary with skier days. Benefits add 30 percent to direct salary costs for all workers including management. Equipment costs and usage are also shown in the table below. For equipment, number refers to the number of pieces of equipment. Equipment costs depend on the number of days the area is open during the season. The hourly fuel cost represents the cost of fuel to operate the equipment for each hour they are open. Number Days Worked Hours Worked Hourly Wage Instructors & Ski Patrol 275 100 7 $20.00 Lift Attendants, Maintenance & Grooming 140 130 10 $18.00 Kitchen Staff 50 130 8 $12.00 Equipment & Fuel Costs 60 130 6 $65.00 Insurance costs are $15,000 per day for each of the 130 days the area expects to be open. Energy costs are $2,240,000 per year and are based on the number of days the area is open. Neither energy nor insurance costs vary based on skier days. Question 1: You are the Glory Mountain State Ski Area’s finance manager. Area Manager Dan Finn has asked you to prepare a base operating budget for the ski area for the coming fiscal year and to show the impact a 5 percent reduction in the number of skier days would have on Glory’s operating results. In planning for the next season, the State Regional Development Authority, which manages the state’s five ski areas, is considering installing a 15-megawatt wind turbine at the top of Glory Mountain. If they do, the ski area will reduce its energy bill by almost 25 percent or $560,000 per year for the next 15 years. It will cost Glory $4,100,000 to complete the environmental assessments, do the necessary engineering studies, and install the turbine. In addition, the ski area will have to invest $750,000 at the end of the seventh year to overhaul the bearings and replace some time-critical components. For depreciation purposes, the wind turbine has a useful life of 10 years with no residual value. Glory uses straight-line depreciation. Question 2: The state uses an 8 percent cost of capital for its ski areas. Based on purely financial analysis, should the state install the turbine? In addition, the snowmaking equipment in the Bear Mountain section of Glory Mountain has been in service for nearly 15 years and has reached the end of its useful life. It will have to be replaced before the next ski season. Management has narrowed its decision down to two options: Big Mouth Snow Guns with a useful life of 15 years and the Whisper Quiet Snowmaking System with a useful life of 10 years. The Big Mouth system will cost Glory $850,000 to acquire and $35,000 per year to operate, while the Whisper Quiet system would only cost $600,000 and $50,000 per year to operate. If the Big Mouth equipment is chosen, there will be no change in Glory’s other operating costs. If the Whisper Quiet system is purchased, Glory’s annual fuel and equipment costs will increase by $15,000. Regardless of the option Glory chooses, the snowmaking system chosen will be depreciated over ten years with an assumed 5 percent residual value. Glory uses straight-line depreciation. Question 3: Based on Glory’s 8 percent cost of capital, which system should management choose? Glory Mountain has never offered any type of day care for younger children of skiing families. Given the changing demographics of its patrons, Dan Finn thinks that the Mountain needs to offer those services. Erika Fossett, Glory’s director of operations, has worked up a proposal for what she is calling the Glory Kids’ Center. She wants it to provide combined day care and ski lessons for children between the ages of 3 and 7. The center would be run by a director who will earn $60,000 per year plus benefits. For every 10 children using the Kids’ Center, the center will employ one full-time instructor. That instructor will provide both day care and skiing instruction. Each instructor will earn $25 per hour including benefits. The center will provide 8 hours of care per day. Instructors will only be paid for the hours the children are at the center. The children are fed lunch and a snack at a cost of $10 per child per day. Supplies for activities the children will be engaged in when they are not skiing will cost an average of $10 per child. Glory plans to charge $70 per day per child. Question 4: As Glory’s finance manager, you have been asked to evaluate the fiscal feasibility of running Glory Kids’ Center. Your first question is how many children will have to be at the center on an average day for it to be profitable on a stand-alone basis. Erika Fossett believes that the Kids’ Center will add 6 percent to overall skier days, and families with children between 3 and 7 will account for 10 percent of total skier days including the expected increase in volume. On average, families with children between 3 and 7 will enroll .25 children in the center each day they ski. She expects to employ an average of 6 instructors each day the ski area is open. Question 5: Prepare a special-purpose budget for the Glory Kids’ Center. Do not include the incremental lift ticket revenue from the expected increase in the volume of skier days in your estimate. After completing these analyses, Dan Finn asks you to update the budget to include the impact of installing the wind turbine, replacing the snowmaking equipment and operating the Glory Kids’ Center. In addition, Glory will have to issue a $6,000,000 bond to finance the acquisition of the equipment. The coupon rate on the bond will be 5 percent. It will require Glory to pay interest every six months and to repay the full $6 million of principal in 20 years. The bonds will be issued on the first day of Glory’s fiscal year, and all equipment will be put in service that same day. Question 6: Using the base budget from Question 1 as a starting point, prepare a revised budget for Glory that incorporates all of these initiatives. At the end of the season, bad weather caused the mountain to be open for only 115 days with an average of 2,600 people per day and an average price per lift ticket of $50.50. Question 7: Starting with the revised budget, calculate the following lift ticket revenue variances and indicate whether they were favorable or unfavorable. Be sure to add up the flexible (partial) variances and check to make sure that sum equals the total variance. a. Glory’s total lift ticket revenue variance for the ski season b. the portion of the lift ticket revenue variance that was due to volume of days c. the portion of the lift ticket revenue variance that was due to quantity of skiers per day d. the portion of the lift ticket revenue variance that was due to price

answer question #5 The Glory Mountain State Ski Area The Glory Mountain State Ski Area – owned and managed by a state public authority - expects to attract 292,500 skier days during the coming ski season. A skier day represents one skier at the mountain for one day. In addition to a $2,000,000 per year subsidy provided by the state, Glory currently earns its revenue from three sources: lift ticket sales, ski lessons, and food sales in the mountain’s lodges. Forty-five percent of the customers come to the mountain on weekends and pay an average of $60 per day to ski. The remaining 55 percent of the skiers come during the week and pay an average of $45 per day for a lift ticket. On average, 10 percent of the people who visit Glory take ski lessons. An average person taking lessons pays $80 for each lesson. Management also estimates that each skier spends an average of $4 per day on food. Food costs average 40 percent of total food revenue. Glory’s central management staff is paid $1,800,000 per year. The remainder of Glory’s staff is seasonal and is paid on an hourly basis. The table below shows the number of employees by job title, the number of days they work on average, their hourly wages, and the number of hours they work each day. Only ski instructors and patrol costs vary with skier days. Benefits add 30 percent to direct salary costs for all workers including management. Equipment costs and usage are also shown in the table below. For equipment, number refers to the number of pieces of equipment. Equipment costs depend on the number of days the area is open during the season. The hourly fuel cost represents the cost of fuel to operate the equipment for each hour they are open. Number Days Worked Hours Worked Hourly Wage Instructors & Ski Patrol 275 100 7 $20.00 Lift Attendants, Maintenance & Grooming 140 130 10 $18.00 Kitchen Staff 50 130 8 $12.00 Equipment & Fuel Costs 60 130 6 $65.00 Insurance costs are $15,000 per day for each of the 130 days the area expects to be open. Energy costs are $2,240,000 per year and are based on the number of days the area is open. Neither energy nor insurance costs vary based on skier days. Question 1: You are the Glory Mountain State Ski Area’s finance manager. Area Manager Dan Finn has asked you to prepare a base operating budget for the ski area for the coming fiscal year and to show the impact a 5 percent reduction in the number of skier days would have on Glory’s operating results. In planning for the next season, the State Regional Development Authority, which manages the state’s five ski areas, is considering installing a 15-megawatt wind turbine at the top of Glory Mountain. If they do, the ski area will reduce its energy bill by almost 25 percent or $560,000 per year for the next 15 years. It will cost Glory $4,100,000 to complete the environmental assessments, do the necessary engineering studies, and install the turbine. In addition, the ski area will have to invest $750,000 at the end of the seventh year to overhaul the bearings and replace some time-critical components. For depreciation purposes, the wind turbine has a useful life of 10 years with no residual value. Glory uses straight-line depreciation. Question 2: The state uses an 8 percent cost of capital for its ski areas. Based on purely financial analysis, should the state install the turbine? In addition, the snowmaking equipment in the Bear Mountain section of Glory Mountain has been in service for nearly 15 years and has reached the end of its useful life. It will have to be replaced before the next ski season. Management has narrowed its decision down to two options: Big Mouth Snow Guns with a useful life of 15 years and the Whisper Quiet Snowmaking System with a useful life of 10 years. The Big Mouth system will cost Glory $850,000 to acquire and $35,000 per year to operate, while the Whisper Quiet system would only cost $600,000 and $50,000 per year to operate. If the Big Mouth equipment is chosen, there will be no change in Glory’s other operating costs. If the Whisper Quiet system is purchased, Glory’s annual fuel and equipment costs will increase by $15,000. Regardless of the option Glory chooses, the snowmaking system chosen will be depreciated over ten years with an assumed 5 percent residual value. Glory uses straight-line depreciation. Question 3: Based on Glory’s 8 percent cost of capital, which system should management choose? Glory Mountain has never offered any type of day care for younger children of skiing families. Given the changing demographics of its patrons, Dan Finn thinks that the Mountain needs to offer those services. Erika Fossett, Glory’s director of operations, has worked up a proposal for what she is calling the Glory Kids’ Center. She wants it to provide combined day care and ski lessons for children between the ages of 3 and 7. The center would be run by a director who will earn $60,000 per year plus benefits. For every 10 children using the Kids’ Center, the center will employ one full-time instructor. That instructor will provide both day care and skiing instruction. Each instructor will earn $25 per hour including benefits. The center will provide 8 hours of care per day. Instructors will only be paid for the hours the children are at the center. The children are fed lunch and a snack at a cost of $10 per child per day. Supplies for activities the children will be engaged in when they are not skiing will cost an average of $10 per child. Glory plans to charge $70 per day per child. Question 4: As Glory’s finance manager, you have been asked to evaluate the fiscal feasibility of running Glory Kids’ Center. Your first question is how many children will have to be at the center on an average day for it to be profitable on a stand-alone basis. Erika Fossett believes that the Kids’ Center will add 6 percent to overall skier days, and families with children between 3 and 7 will account for 10 percent of total skier days including the expected increase in volume. On average, families with children between 3 and 7 will enroll .25 children in the center each day they ski. She expects to employ an average of 6 instructors each day the ski area is open. Question 5: Prepare a special-purpose budget for the Glory Kids’ Center. Do not include the incremental lift ticket revenue from the expected increase in the volume of skier days in your estimate. After completing these analyses, Dan Finn asks you to update the budget to include the impact of installing the wind turbine, replacing the snowmaking equipment and operating the Glory Kids’ Center. In addition, Glory will have to issue a $6,000,000 bond to finance the acquisition of the equipment. The coupon rate on the bond will be 5 percent. It will require Glory to pay interest every six months and to repay the full $6 million of principal in 20 years. The bonds will be issued on the first day of Glory’s fiscal year, and all equipment will be put in service that same day. Question 6: Using the base budget from Question 1 as a starting point, prepare a revised budget for Glory that incorporates all of these initiatives. At the end of the season, bad weather caused the mountain to be open for only 115 days with an average of 2,600 people per day and an average price per lift ticket of $50.50. Question 7: Starting with the revised budget, calculate the following lift ticket revenue variances and indicate whether they were favorable or unfavorable. Be sure to add up the flexible (partial) variances and check to make sure that sum equals the total variance. a. Glory’s total lift ticket revenue variance for the ski season b. the portion of the lift ticket revenue variance that was due to volume of days c. the portion of the lift ticket revenue variance that was due to quantity of skiers per day d. the portion of the lift ticket revenue variance that was due to price

Below is a table with four different scenarios for a taxpayer who opts to sell several different types of stock throughout the year. Assume that all ordinary income for the taxpayer is taxed at a flat tax rate of 22%. In contrast, his long-term capital gains tax rate is 15%. His only income outside the transactions with the stock is $100,000 or ordinary income from his salary. (Assume the tax year is 2020).

a. What is the total amount of taxes saved during the current year because of the capital losses in Scenario 1?

b. What is the additional amount of tax due the taxpayer must pay in total this year because of the capital gains in Scenario 2?

c. What is the total change in tax due for the taxpayer because of the gains and losses in Scenario 3?

d. What is the total change in tax due for the taxpayer because of the gains and losses in Scenario 4?

QUESTION 21

Listed below are seven errors or problems that might occur in the processing of cash transactions. Evaluate each possible error and cite an internal control principle that would reduce the probability of the error occurring. If no internal control principle would correct the problem, write ‘none’. If you think more than one internal control principle is appropriate, list all principles that apply.

Possible Errors or Problems:

1. An employee steals the cash collected from a customer for an account receivable and conceals this theft by issuing a credit memorandum indicating that the customer returned the merchandise.

2. A small fire destroys three days’ worth of cash receipts.

3. The official designated to sign cheques is able to steal blank cheques and issue them without fear of detection.

4. A sales person, when serving customers, often rings up a sale for less than the actual amount and then keeps the additional cash collected from the customer.

5. Three cashiers use one cash register drawer and the cash in the drawer is often short of the balance kept on hand.

6. Each cashier counts their own register drawer each day and verbally reports the results to the supervisor.

7. Cashiers with over five years’ experience are not required to take holidays.

QUESTION 12 (Show all workings)

As at 1 July 2014, Mehta Company had a debit balance in their Accounts Receivable Control account of $35,820 and a credit balance in their Allowance for Doubtful Debts account of $7,190.

On 3 October 2014, the business wrote off the account of Rue Pty Ltd for $3,040 after receiving written confirmation that the customer was declared bankrupt.

Required:

1. Prepare the necessary journal entry to write-off the account of Rue Pty Ltd (ignore any GST effects).

At the end of the year, 30 June 2015, Mehta Company needs to estimate and account for future bad debts. Net credit sales for the year were $821,000 and analysis of previous bad debts indicates that 1.5% of net credit sales will prove uncollectable.

Required:

2. Prepare the necessary journal entry at 30 June 2015.

3. Identify the methods for accounting for bad debts and briefly explain how each works.

1. Assets total $100,000 and liabilities total $20,000. What is the equity of the business?  
   1. $800  
   2. $8,000  
   3. $80,000  
   4. $88,000
   5. None of the above
2. If during the accounting period the assets decreased by $10,000, and equity increased by $2,000, then how did liabilities change?  

1. Increased by $12,000  
2. Increased by $8,000  
3. Decreased by $12,000
4. Decreased by $8,000  
5. Decreased by $6,000

3. If during the accounting period the assets increased by $14,000, and equity increased by $4,000, then how did liabilities change?  

1. Increased by $10,000  
2. Increased by $4,000  
3. Decreased by $4,000
4. Decreased by $10,000  
5. Decreased by $18,000

4. Purchasing equipment on account will have what effect on the accounting equation?  

1. Increase in equipment and a decrease in equity  
2. Increase in equipment and an increase in equity  
3. Increase in equipment and an increase in liabilities  
4. Increase in equipment and a decrease in liabilities  
5. None of the above

5. Services rendered for which cash has not yet been received will have what effect on the components of the accounting equation?  

1. Increase in accounts receivable and a decrease in equity  
2. Increase in accounts receivable and an increase in equity  
3. Decrease in accounts receivable and an increase in equity  
4. Increase in fees earned and a decrease in equity  
5. Decrease in accounts receivable and a decrease in equity

6. Problem #1 Professor Quark opens his own company, Electronic Tutorial Services, and completes the following transactions in June:

• 6/1 Quark invests $12,000 into the business.
• 6/3 Purchased $1,800 of equipment on account.
• 6/4 Paid $360 for a two-year insurance policy.
• 6/6 Purchased office supplies for cash, $300.
• 6/9 Purchased a new computer for $7,500. Paid $1,500 cash agreed to pay the remainder in 30 days.
• 6/10 Billed student Fiona Smith $40 for tutorial services that were performed.
• 6/14 Paid for the equipment purchased on June 3rd.
• 6/25 Received $35 cash from student Bert Bantrum for tutorial services performed.
• 6/30 Student billed on June 10 pays the amount due to Quark.
• 6/30 Quark withdraws $500 for personal use.

Required: Prepare the journal entries to record these transactions. How much cash did Professor Quark have at the end of June?

7. Problem #2 Maria Sanchez started the Merry Mowers lawncare business. She began operations on May 1st and completed the following transactions, which included her initial investment of $8,000 cash. After these transactions, the ledger included the following accounts with normal balances.

• Cash $ 9,440     
• Office Supplies 500        
• Equipment 3,000     
• Accounts Payable 500        
• Notes Payable 2,000     
• Maria Sanchez, Capital 8,000     
• Lawncare Revenue 3,200     
• Gas and Oil Expense 210        

Required: Prepare a balance sheet and income statement for this business at the end of May.

8. Problem #3 Below are accounts listed for September for PC Partners, a company that installs/repairs home computers for customers. The business is owned by Ed Connor. The accounts are listed in alphabetical order. For the month of September, prepare an income statement and a balance sheet.

ACCOUNT BALANCE

Accounts Payable 4,200

Accounts Receivable 8,480

Advertising expense 420

Capital (Ed Connor) at 08/31/04 56,000

Cash 35,460

Entertainment Expense 600

Equipment 15,700

Installation Revenue 15,600

Miscellaneous Revenue 800

Photocopying Expense 150

Rent Expense 1,300

Repair Revenue 8,650

Supplies 8,400

Truck 8,500

Unearned Revenue 760

9. At the end of the accounting period, the business had $4,500 of office supplies on hand. At the beginning of the period, the amount of supplies on hand was $3,000. If the business purchased $12,000 of office supplies during the year, what amount of office supplies were used during year?

1. $16,500  
2. $14,250  
3. $10,500  
4. $ 9,750  
5. None of the above

10. Zach LLP wrote a check to pay an advertising bill for services for the next month. What is the entry?
    1. Debit – Loan Note Payable, Credit – Cash
    2. Debit – Cash, Credit – Account Payable
    3. Debit – Prepaid Advertising, Credit – Cash
    4. Debit – Cash, Credit – Advertising Expense

Stellar manufactures and sells swimsuits for $40.00 each. The estimated income statement for 2017 is as follows:

Sales: $2,000,000, Variable costs: 1,090,000, contribution margin: 910,000. Fixed costs: 765,000. Pretax earnings: 145,000

1.Compute the contribution margin per swimsuit and the number of swimsuits that must be sold to break even. (Round contribution margin per swimsuit to 2 decimal places, e.g. 15.25 and break even swimsuits to 0 decimal places, e.g. 125.)

2.What is the margin of safety in the number of swimsuits?
3.Compute the contribution margin ratio and the breakeven point in revenues. (Round contribution margin ratio to 3 decimal places, e.g. 0.256 and breakeven point to 0 decimal places, e.g. 125.)

4.What is the margin of safety in revenues? (Round answer to 0 decimal places, e.g. 125.)

5.Suppose next year’s revenue estimate is $200,000 higher. What would be the estimated pretax earnings?

6.Assume a tax rate of 30%. How many swimsuits must be sold to earn after-tax earnings of $180,000? (Round answer to 0 decimal places, e.g. 125.)

Explain the difference between a training set and a testing set. Why do we need to differentiate them? Can the same set be used for both purposes? Why or why not? explain with your own words please

Lowell Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2020.

Lowell has a labor contract that calls for a wage increase to $10 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.

Lowell expects to begin the year with 16,350 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month’s sales, plus 50% of the second following month’s sales.

Prepare a production budget for Lowell Company by month and for the first quarter of the year.

eTextbook and Media

Prepare a direct labor budget for Lowell Company by month and for the first quarter of the year. The direct labor budget should include direct labor hours. (Round Direct labor hours per unit answers to 1 decimal place, e.g. 52.7.)

Mesmerizing Marketers (MM) is a marketing company that offers a variety of marketing offerings to its customers. Specifically:

• MM will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent MM’s charges for these items when MM sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings.

• If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion).

• If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to MM.

Stone, a customer, approaches MM with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with MM that is based on MM’s unsigned quote to Stone on November 30, 20X5, for one TV commercial, one app, and a Facebook page. The agreement creates enforceable rights and obligations pursuant to MM’s customary business practices. None of these items can be redirected by MM to another customer. MM performed a credit check on Stone and has determined that Stone has the intention and ability to pay MM for fulfilling its portion of the contract. Stone is required to pay MM for performance completed to date if Stone cancels the contract with MM for reasons other than MM’s failure to perform under the contract as promised.

Stone makes a payment on November 30, 20X5, in the amount of $750K pursuant to the agreement. From the date of the quote, it takes MM six months to develop and produce the TV commercial, two weeks to complete the Facebook page, and three months to complete a fully functioning app. MM does not think that the app will be downloaded 500K times in the first month because Stone’s customer base does not quickly accept newly developed technology. On the basis of its experience with similar technology, MM has determined that it takes over three months for Stone’s users to begin to download its apps.

Required

MM’s CFO is trying to understand the new revenue recognition model and has asked you to explain how MM would account for the above scenario under the new standard.

1. How should MM account for the above offering with Stone under the new revenue recognition model?

2. How would your conclusions change if: a. The app sold to Stone is actually downloaded more than 500K times in the first month?

Pronghorn produces one single product, a small reading tablet, and sells it at $100 per unit. Its current annual sales are $200,000. Its annual fixed costs include factory rent, $38,000; depreciation expense; equipment, $10,000; utilities, $18,000; insurance, $8,000. Its variable costs include materials, $30 per unit, and direct labour, $40 per unit. Pronghorn’s income tax rate is 20%.

1.What is the contribution margin per unit?

2.What is the contribution margin ratio?

3.How many units must Pronghorn sell to break even?

4.If Pronghorn would like to earn a profit after tax of $11,000, what should the sales be? At this sales level, what is the degree of operating leverage? What is the margin of safety in unit?

5.If Pronghorn would like to earn a profit after tax that is 8% of sales, what should the sales be? How many units does Pronghorn need to increase from the current sales level?

Whitelands, Inc. had $100 of cash and shareholders’ equity as the result of its initial sale of stock on January 1, 2012. During its first month of operations, Whitelands had the following operating transactions:

Required:
Record the journal entries for the above transactions.
Present Whitelands’ income statement for January 2014.
Report Whitelands’ balance sheet on January 31, 2014.
Close the revenue and expense accounts to retained earnings.