For each of the following independent situations, answer the specific revenue concerns (provide authoritative support where appropriate).

1)        Company A enters into a contract on February 1, 2018 to manage rental property for Company B for the next 5 years. Company A will provide all services related to the management of the property and will receive a monthly payment equal to 2% of the gross rentals from the property. Historically, property of this type in this area has averaged an 85% occupancy rate. How should Company A determine the amount and timing of revenue recognition under this contract?

2)        Company A is constructing a high-rise luxury apartment building. The building will contain 80 apartments of similar size and layout. During 2018, Company A receives a deposit of $100,000 from a customer for one of the apartments. The deposit is only refundable if Company A fails to complete the building. Company A expects completion early in 2019. The remainder of the apartment’s sale price ($900,000) is due from the customer at the completion of the building when the customer can take possession. Can Company A recognize revenue in 2018 related to the contract with the customer paying the deposit?

3)        Bakery A has an incentive plan that gives its customers one point for each doughnut purchased. A customer that has accumulated 15 points can receive a free doughnut. During the current year, Bakery A sold 201,600 doughnuts at $1.20 each. Bakery A expects 90% of the points to be redeemed and 105,000 were redeemed in the current year. How much revenue should Bakery A recognize in the current year related to the sale of the doughnuts and the incentive plan?

For each of the following independent situations, answer the specific revenue concerns (provide authoritative support where appropriate).

1)        Company A enters into a contract on February 1, 2018 to manage rental property for Company B for the next 5 years. Company A will provide all services related to the management of the property and will receive a monthly payment equal to 2% of the gross rentals from the property. Historically, property of this type in this area has averaged an 85% occupancy rate. How should Company A determine the amount and timing of revenue recognition under this contract?

2)        Company A is constructing a high-rise luxury apartment building. The building will contain 80 apartments of similar size and layout. During 2018, Company A receives a deposit of $100,000 from a customer for one of the apartments. The deposit is only refundable if Company A fails to complete the building. Company A expects completion early in 2019. The remainder of the apartment’s sale price ($900,000) is due from the customer at the completion of the building when the customer can take possession. Can Company A recognize revenue in 2018 related to the contract with the customer paying the deposit?

3)        Bakery A has an incentive plan that gives its customers one point for each doughnut purchased. A customer that has accumulated 15 points can receive a free doughnut. During the current year, Bakery A sold 201,600 doughnuts at $1.20 each. Bakery A expects 90% of the points to be redeemed and 105,000 were redeemed in the current year. How much revenue should Bakery A recognize in the current year related to the sale of the doughnuts and the incentive plan?

1. Skip Company announced its regular quarterly cash dividend of $0.20 per share. Currently there are one million shares outstanding. (7 points)

Declaration date: October 24, 2006

Ex-dividend date: November 20, 2006

Record date: November 22, 2006

Payment date: December 15, 2006

1. On which date will the stock price change to reflect the value of the dividend?

2. Skips stock price at the end of November is expected to be $20. What is the dividend yield?

3. Suppose that the marginal tax rate on dividend is 15% and the marginal tax rate on capital gain is 10%, how much is the stock price likely to fall?

4. Suppose that the company decides to use the same amount of cash to buy back shares rather than to issue cash dividends. The company will buy back shares at the market price at the end of November. You currently hold 10000 shares, and you decide to sell 1000 shares during the repurchase. What is the percentage ownership after the repurchase?

5. Suppose that the company decides to issue a 10% stock dividend instead of a cash dividend. How much is the stock price likely to fall? Let P’ be the new price after the stock dividend. We know that the number of shares outstanding will increase by a factor of 1.1 after the dividend, but the total value of equity does not change.

3. a) What is vertical integration? How does the scale of a company’s operations affect the vertical integration across value chain activities (2 points)?

b) Provide an example of a publicly-listed company that has vertically integrated across several value chain activities and clearly identify what these value chain activities are (1 point).

For each of the following independent situations, answer the specific revenue concerns (provide authoritative support where appropriate). Use new revenue recognition, ASC 606.

1)        Company A enters into a contract on February 1, 2018 to manage rental property for Company B for the next 5 years. Company A will provide all services related to the management of the property and will receive a monthly payment equal to 2% of the gross rentals from the property. Historically, property of this type in this area has averaged an 85% occupancy rate. How should Company A determine the amount and timing of revenue recognition under this contract?

2)        Company A is constructing a high-rise luxury apartment building. The building will contain 80 apartments of similar size and layout. During 2018, Company A receives a deposit of $100,000 from a customer for one of the apartments. The deposit is only refundable if Company A fails to complete the building. Company A expects completion early in 2019. The remainder of the apartment’s sale price ($900,000) is due from the customer at the completion of the building when the customer can take possession. Can Company A recognize revenue in 2018 related to the contract with the customer paying the deposit?

3)        Bakery A has an incentive plan that gives its customers one point for each doughnut purchased. A customer that has accumulated 15 points can receive a free doughnut. During the current year, Bakery A sold 201,600 doughnuts at $1.20 each. Bakery A expects 90% of the points to be redeemed and 10,500 were redeemed in the current year. How much revenue should Bakery A recognize in the current year related to the sale of the doughnuts and the incentive plan?

Recall again that Rind & Bordia (1996) investigated whether or not drawing a happy face
on customers’ checks increased the amount of tips received by a waitress at an upscale
restaurant on a university campus. During the lunch hour a waitress drew a happy,
smiling face on the checks of a random half of her customers. The remaining half of the
customers received a check with no drawing (18 points).
The tip percentages for the control group (no happy face) are as follows:
45% 39% 36% 34% 34% 33% 31% 31% 30% 30% 28%
28% 28% 27% 27% 25% 23% 22% 21% 21% 20% 18%
8%
The tip percentages for the experimental group (happy face) are as follows:
72% 65% 47% 44% 41% 40% 34% 33% 33% 30% 29%
28% 27% 27% 25% 24% 24% 23% 22% 21% 21% 17%

d. Write null and alternate hypotheses that correspond with your answer to
question #c. If you decided to perform a one-tailed test, make sure and
specify which of the two groups you predict will be higher/lower.

On April 1^st. (X) Co. the trial balance shows the following:

Additional information:

1. Prepaid insurance for 3-years, effective April 1^st.
2. Depreciation for equipment 1,000 per month.
3. Notes payable were signed at the beginning of April. It is 3-Month, 12% -yearly - note.
4. Five customers paid for the company’s 10-month X services package of $1,000 beginning in April. These customers were serviced in April.
5. X services provided other customer but not billed at April 30 totaled $3,000.

Instruction: prepare the adjusting entries for April.

ABC Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes:

Fixed amount per month Variable amount per customer

Revenue $5,000

Payroll cost $50,000 $1,100

Travel expenses $600

Admin expenses $36,000 $500

Other expenses $10,000 $200

When preparing its planning budget, the company estimated that it would serve 60 customers per month; however, during April the company actually served 55 customers.

What amount of net operating income would appear in ABC's static budget for April?

Is there a need to prepare a flexible budget for April? If so, explain why. Further, what amount of net operating income would appear on ABC's flexible budget for April?