If marginal cost exceeds marginal revenue, the firm

A)should reduce its average fixed cost in order to lower its marginal cost.

B)may still be earning a positive accounting profit

C)should increase the level of production to maximize its profit.

D)is most likely to be at a profit-maximizing level of output.

Who is a price taker in a competitive market?

A)both buyers and sellers

B)buyers only

C)sellers only

D)neither buyers nor sellers

For a competitive firm,

A)total cost equals marginal revenue.

B)average revenue equals marginal revenue.

C)total revenue equals average revenue.

D)total revenue equals marginal revenue

In the short-run, a firm's supply curve is equal to the

A)average total cost curve above its marginal cost curve.

B)marginal cost curve above its average total cost curve.

C)average variable cost curve above its marginal cost curve.

D)marginal cost curve above its average variable cost curve.

When marginal revenue equals marginal cost, the firm

A)Should increase the level of production to maximize its profit

B)must be generating positive economic profits

C)should cease producing

D)must be generating positive accounting profits.

Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible

A)total cost of production.

B)fixed cost of production.

C)marginal cost of production.

D)average total cost of production.

At the profit-maximizing level of output,

A)marginal revenue equals average variable cost.

B)marginal revenue equals average total cost.

C)average revenue equals average total cost.

D)marginal revenue equals marginal cost.

If firms are competitive and profit maximizing, the price of a good equals the

A)fixed cost of production.

B)marginal cost of production.

C)average total cost of production.

D)total cost of production.

SMITH Company offers franchises for sale.

It recently agreed a deal with a new Franchisee: JONES COMPANY.

The terms of the deal are as follows:

FRANCHISE FEE PRICE CHARGED TO JONES: CASH $400,000 PLUS NOTE with a Nominal Value of $150,000 and a Present Value (of future cash flows) of $100,000

ALLOCATION OF FRANCHISE FEE PRICE TO SERVICES TO BE PROVIDED BY SMITH TO JONES:

Franchise Fee (for Brand rights/'know how'/exclusive location): 70% of Price Charged to Jones

Training Services: 20% of Price Charged to Jones

Consultancy Fee: 10% of Price Charged to Jones.

The parties met to discuss the terms on 1 September 2018. The deal was finally signed by both parties on 1 January 2019. All services may be assumed to have been provided by 1 April 2019.

Required:

1- Referring only to the Training Services component of the overall, what journal entry should be made by SMITH COMPANY on 1 April 2019?  

Select one:

a. Debit: Service Revenue (Training) $80,000; Credit: Unearned Service Revenue (Training) $80,000

b. None of these answers

c. Debit: Unearned Service Revenue (Training) $80,000; Credit: Service Revenue (Training) $80,000

d. Debit: Unearned Service Revenue (Training) $100,000; Credit Service Revenue (Training) $100,000

e. Debit: Service Revenue (Training) $100,000; Credit: Unearned Service Revenue (Training) $100,000

2- On 31 December 2019, the journal entry for SMITH COMPANY will include which of the following entries? (note: the numerical amounts are not required)   

Select one:

a. Debit: Interest Revenue; Credit Cash;

b. Debit Cash: Credit Consultancy Revenue

c. Debit: Cash: Credit: Unearned Consultancy Revenue

d. Debit: Cash; Credit: Interest Revenue

e. None of these answers

3- On 1 January 2019 the journal entry for SMITH COMPANY will include which ONE of the following?

Select one:

a. Debit: Cash $400,000; Debit: Note Receivable: $150,000

b. None of these answers

c. Debit: Cash $400,000; Debit: Note Receivable: $100,000

d. Debit: Cash $500,000

e. Debit: Unearned Franchise Revenue: $400,000

Suppose that​ Alexx's firm wants to transfer him from its Seattle office to its London​ branch, where he will face different prices and a different cost of living. ​ Alexx, who​ doesn't care about where he​ lives, spends his money on housing and entertainment. Like most​ firms, his employer will pay him an​ after-tax salary in British pounds such that he can buy the same bundle of goods in London that he is currently buying in Seattle.

The figure to the right shows Alexx maximizing utility in Seattle along budget line L1 at Bundle A.

Suppose that entertainment is relatively more expensive than housing in London compared to Seattle. Show that Alexx is better off after his move.

​1.) Use the line drawing tool to draw a new budget line for Alexx that allows him to purchase Bundle A in London​ (at London​ prices). Label this line ​'L2'. ​

2.) Use the​ three-point curved line drawing tool to draw a new indifference curve that indicates his maximized level of utility in London. Label this line ​'I 2​'. ​

3.) Use the point drawing tool to indicate the bundle that maximizes utility for Alexx in London along his new budget line. Label this point​ 'B'.

Carefully follow the instructions above and only draw the required objects.  

Explain the logic behind the following​ statement: "The analysis holds as long as the relative prices differ in the two cities. Whether both​ prices, one​ price, or neither price in London is higher than in Seattle is irrelevant to the​ analysis."

Alexx is better off after his move as long as relative prices differ because

A. his employer gives him additional income until he is equally well off.

B. he can substitute toward the relatively cheaper good.

C. the new budget contraint will be further from the origin than the original budget contraint.

D. he cannot continue to consume Bundle A.

E. all price changes will be​ nominal, with no real changes.

Mr Ahmad is the Chief financial officer for Johan Steel Sdn Bhd (“JSSB”) which is a subsidiary of an Singaporean company based in Port Klang. He has been working with this company since 2008. He is 44 years old and a Malaysian tax resident.

Mr Ahmad provided the following information in his income tax return for the year 2019:

RM

Salary per month                                                                                 15,000

Bonus for the year 2019                                                                     30,000

Service award                                                                                     10,000

Entertainment allowance per month                                                   2,000

Travelling allowance per month                                                         2,500

Leave passage to South Africa for family                                          25,000

Further information provided by the taxpayer for the year 2019 is as follows:

1. Mr Ahmad was given the option to buy 10,000 units of the company’s shares at the price of RM10 per share on 1 June 2019. The market value at that time was RM12 per share. He exercised his option on 21 November 2019 when the price was RM14 per share.

2. He incurred RM12,000 on entertainment expenditure on official duties. The travel allowance is for official duties.

3. The company (“JSSB”) provided a fully furnished bungalow to Mr Ahmad. The rental of

RM12,000 (including RM1,000 for furnishings) was paid for by the company. The company also paid for the gardener to look after the extensive garden.

4. He was provided with a new luxury car costing RM350,000 from the year 2016. JSSB bears the cost of fuel and repairs for Mr Ahmad. The company also provided him with a driver.

5. Mr Ahmad took an interest free loan of RM120,000 from his employer to finance the purchase of his second car. The loan was given from the equity funds of the employer. The interest payable for the loan would have been RM15,000 if it had been borrowed from a Malaysian commercial bank.

6. Mr Ahmad paid RM1,200 as subscription fees to his professional accounting body.

7. The employer paid for Mr Ahmad’s medical bills of RM22,000 when he was admitted to a private hospital.

Required:

Compute the statutory income of Mr Ahmad for the year of assessment 2019.

At the beginning of the school year, Katherine Malloy decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget: Cash balance, September 1 (from a summer job) $6,720 Purchase season football tickets in September 90 Additional entertainment for each month 230 Pay fall semester tuition in September 3,600 Pay rent at the beginning of each month 320 Pay for food each month 180 Pay apartment deposit on September 2 (to be returned December 15) 500 Part-time job earnings each month (net of taxes) 830 a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except an overall cash decrease which should be indicated with a minus sign. KATHERINE MALLOY Cash Budget For the Four Months Ending December 31 September October November December Estimated cash receipts from: Part-time job $ $ $ $ Deposit Total cash receipts $ $ $ $ Estimated cash payments for: Season football tickets $ Additional entertainment $ $ $ Tuition Rent Food Deposit Total cash payments $ $ $ $ Overall cash increase (decrease) $ $ $ $ Cash balance at beginning of month Cash balance at end of month $ $ $ $ Feedback Sometimes an item may be a decrease in one period and an increase in a different period. Review the definitions of static budgets and flexible budgets. What weaknesses are shown by this cash budget? b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets? Static c. Malloy can see that her present plan will not provide sufficient cash. If Malloy did not budget but went ahead with the original plan, she would be $ short at the end of December, with no time left to adjust. Feedback Sometimes an item may be a decrease in one period and an increase in a different period. Review the definitions of static budgets and flexible budgets. What weaknesses are shown by this cash budget?

For 2017, Permtemp reported the following book income statement and balance sheet, excluding the federal income tax expenses, deferred tax assets, and deferred tax liabilities:

Sales $33,000,000

Cost of Goods Sold (22,000,000)
____________
Gross Profit                                                      $11,000,000

Dividend Income 55,000

Tax-exempt Interest Income 15,000
   ____________
Total Income $ 11,070,000

Expenses $  800,000

Bad Debts 625,000

Charitable Contr.    40,000

Interest 455,000

Meals & Entertainment 60,000

Other 4,675,000
_______________

Total Expenses (6,655,000)  
   ___________
Net loss before federal income taxes $4,415,000
============
Cash $2,125,000

Accounts receivable     $3,300,000

Allowance for doubtful     (450,000)                  2,850,000
   _________
Inventory 6,000,000

Fixed Assets $10,000,000

Acc. depr. (1,600,000)                8,400,000

Investment in Corporate Stock 1,000,000

Investment in tax-exempt bonds   50,000
   ___________
Total Assets $20,425,000
===========
Accounts Payable $ 2,120,000

Long-term debt 8,500,000

Common Stock 6,000,000

Retained Earnings 3,805,000
   __________
Total Liabilities and equity $20,425,000
===========

Additional information for 2017:

• Because of limitations, $30,000 of the meals and entertainment expenses will be disallowed for tax purposes.
• Depreciation for tax purposes is $2.45 million under MACRS
• Bad debt expense for tax purposes is $425,000 under the direct writeoff method.
• Ignore the U.S. production activities deduction.
• The corporate tax rate in 2017 was 34%.
• At the end of 2017, Congress reduced the corporate tax rate to 21% effective for 2018.

Required for 2017:

1. Prepare page 1 of the 2017 Form 1120, computing the corporation’s taxable income and tax liability.
2. Determine the corporation’s deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting ASC 740. Because of the enacted tax rate change, deferred assets and liabilities in the end of 2017 will need to be value at 21%. Use the balance sheet information to prepare Schedule L of the 2017 Form 1120.
3. Prepare the 2017 Schedule M-3 for Form 1120.
4. Prepare a schedule that reconciles the corporation’s effective tax rate to the statutory 34% tax rate.  This schedule will need a line to reflect the change in the future tax rate.

1. All of the following are examples of barriers to entry, except:

A: Legal restrictions

B: Many small firms

C: Patents

D: Licenses

2. When demand is inelastic, what can we infer about marginal revenue?

A: Marginal revenue is positive

B: Marginal revenue is constant.

C: Marginal revenue is zero.

D: Marginal revenue is negative.

3. A monopolist will stop producing when:

A: Marginal revenue equals marginal cost.

B: Total revenue exceeds total cost.

C: Marginal revenue is greater than marginal cost.

D: Marginal revenue is less than marginal cost.

4. All of the following are true statements comparing perfectly competitive markets and monopoly markets, except:

A: Monopoly markets produce less output than PC markets.

B: For PC markets MR = MC, and for Monopoly markets MR > MC.

C: For monopoly markets, P > MR, and for PC markets P = MC.

D: Monopoly markets charge a higher price than PC markets.

5. All of the following are conditions that must be met before a firm can exercise price discrimination, except:

A: Demand curve must be downward sloping.

B: At least two distinct groups of consumers with differing elasticities.

C: The firm must be very large in size.

D: The firm must be able to prevent re-sale of the product.

What three conceptual factors affect the decision as to when to recognize revenue.

What are the three revenue recognition alternatives?

Under what circumstances does a company recognize revenue prior to the completion of the earnings process?

Under what circumstances does a company use the percentage of completion method for long term contracts?

How may the departure from the principle of recognizing revenue only at the completion of the earnings process be justified when a company uses the percentage of completion method.

Describe input ad output measures used in the percentage of completion method. Give an example of each.

How does a company account for losses under the two methods of accounting for long term construction contracts?

How does a company classify the following accounts in its financial statements: Construction in Progress, Partial billings, Construction Revenue, and Construction Expense?

Describe the difference between the cost recovery method and the installment method of revenue recognition.

When a contract has multiple elements (multiple deliverables), how does GAAP determine if one of the elements should be considered a separate unit of accounting?

Distinguish between the initial franchise fee and continuing franchise fee. When is each recognized as revenue?

How is revenue recognized for real estate sales?

In a consignment, does consignee or consignor retain title to the property? When is revenue recognized by the consignor? The consignee?

Risky Investor Group is opening an office in​ Portland, Oregon. Fixed monthly costs are office rent ​($ 8500​), depreciation on office furniture ($ 1600), utilities ​($ 2 400​), special telephone lines ​($ 1200​), a connection with an online brokerage service ​($ 2500​), and the salary of a financial planner ​($ 18800​). Variable costs include payments to the financial planner ​(9​% of​ revenue), advertising (11 % of​ revenue), supplies and postage ​(4​% of​ revenue), and usage fees for the telephone lines and computerized brokerage service (6 % of​ revenue).

1. Use the contribution margin ratio approach to compute Risky's break even revenue in dollars. If the average trade leads to $ 1250 in revenue for Risky how many trades must be made to break​ even?

2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of $14,000.

3. Graph Risky​'s CVP relationships. Assume that an average trade leads to $1250 in revenue for Risky. Show the breakeven​ point, the sales revenue line, the fixed cost​ line, the total cost​ line, the operating loss​ area, the operating income​ area, and the sales in units​ (trades) and dollars when monthly operating income of $14000 is earned.

4. Suppose that the average revenue Risky earns increases to $2,500 per trade. Compute the new breakeven point in trades. How does this affect the breakeven​ point?