Journal entries for the following scenarios:

In an economy, the supply of labour is given by S = 10 + 200Wn, where S is the quantity supplied of labour (hours of work), and Wn is the after-tax wage rate (net wage). Assume that the before-tax wage rate is fixed at $10.

a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%.

b) Calculate the net wage elasticity of labour supply at each of the tax rates. Is the tax revenue positively or negatively related to the net wage elasticity? (1.5 marks)

c) What does the relationship between the tax rate and the tax revenue resemble? What is the tax rate that generates the highest level of tax revenue? (1.5 marks).

1. In an economy, the supply of labour is given by S = 10 + 200Wn, where S is the quantity supplied of labour (hours of work), and Wn is the after-tax wage rate (net wage). Assume that the before-tax wage rate is fixed at $10.

   1. a) Find the quantity supplied of labour and the total tax revenue at the following tax rates: 15%, 30%, 50%, 70%, and 80%.

   2. b) Calculate the net wage elasticity of labour supply at each of the tax rates. Is the tax revenue positively or negatively related to the net wage elasticity? (1.5 marks)

   3. c) What does the relationship between the tax rate and the tax revenue resemble? What is the tax rate that generates the highest level of tax revenue? (1.5 marks).

1) On October 1 of Year 1, the company made a $50,000 cash loan to another company. The interest rate on the loan is 13%. No cash payments will be collected on the loan until September 30 of Year 2. Which ONE of the following would be included in the ADJUSTING journal entry necessary on December 31 with respect to this loan?

A) DEBIT to Interest Revenue for $6,500

B) CREDIT to Interest Revenue for $4,875

C) CREDIT to Interest Revenue for $1,625

D) CREDIT to Interest Revenue for $6,500

E) DEBIT to Interest Revenue for $4,875

F) DEBIT to Interest Revenue for $1,625

2) On June 1, the company paid $1,200 in advance for 12 months of rent, with the rental period beginning on June 1. This $1,200 was recorded as Rent Expense. [Yes, they did it wrong, but we have to work with what they did.] As of the end of the year, no entry has yet been made to adjust the amount initially (incorrectly) recorded. -- Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31?

A) DEBIT to CASH for $700

B) CREDIT to PREPAID RENT for $500

C) DEBIT to RENT EXPENSE for $500

D) DEBIT to PREPAID RENT for $500

E) DEBIT to PREPAID RENT for $700

F) DEBIT to RENT EXPENSE for $700

Crovo Corporation uses customers served as its measure of activity. During December, the company budgeted for 42,000 customers, but actually served 44,000 customers. The company has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

Actual results for December:

Houston Company’s balance sheet includes the amounts shown below. Analysis of the company’s records reveals the following transactions during 2019, the company’s first year of operations: Cash received from customers, recorded as service revenue $217,650

Purchase of supplies for cash, expensed        $ 19,000

Cash paid for salaries, expensed         $ 85,400 At year-end, supplies on hand total $5,300, employees have earned $8,000 but have not yet been paid, and on the last day of the fiscal year, customers paid deposits of $8,700 for future promotions (this is included in total cash received from customers above)   Accounts receivable increased by $33,000. Credit sales for the period were $415,000. What was the amount of cash that was collected from accounts receivable? Wages payable decreased by $12,500. Cash paid for wages in the period was $222,000. What was wage expense for the period? Unearned revenue increased by $13,100. Cash received for unrecorded revenue in the period was $43,700. How much unearned revenue was recorded as revenue during the period? Prepaid insurance increased by $28,400. Cash paid for prepaid insurance policies during the period was $121,000. What was insurance expense for the period?

Required: Determine the ending balance for service revenue, supplies expense and salary expense

The December 31, 2021, adjusted trial balance for the Blueboy Cheese Corporation is presented below.

1-a. Prepare an income statement for the year ended December 31, 2021.
1-b. Prepare a classified balance sheet as of December 31, 2021.
2. Prepare the necessary closing entries at December 31, 2021.

I need help with figuring out the categories for closing the accounts. I cannot find income summary on my drop down categories.

Here are my categories :

• No journal entry required
• Accounts payable
• Accounts receivable
• Accrued Liabilities
• Accumulated depreciation
• Advertising expense
• Buildings
• Cash
• Common stock
• Cost of goods sold
• Deferred rent revenue
• Deferred sales revenue
• Deferred service revenue
• Depreciation expense
• Dividends
• Equipment
• Gain on sale of investments
• Insurance expense
• Interest expense
• Interest payable
• Interest receivable
• Interest revenue
• Inventory
• Land
• Maintenance expense
• Miscellaneous expense
• Notes payable
• Notes receivable
• Office equipment
• Prepaid advertising
• Prepaid insurance
• Prepaid rent
• Rent expense
• Rent revenue
• Retained earnings
• Salaries expense
• Salaries payable
• Sales revenue
• Service revenue
• Supplies
• Supplies expense
• Utilities expense
• Utilities payable

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $55 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31. 2018 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $62 million. 31 Received semiannual interest of $2.2 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $36 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $48 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $80 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U. S. Treasury bonds for $6.1 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $54 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale. 23 Sold the Treasury bonds for $6.6 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $29.00 per share and $15.50 per share for the NXS Corporation common. The fair values of the bond investments were $61.2 million for Household Plastics Corporation and $17.2 million for Holistic Entertainment Enterprises. 2019 Jan. 7 Sold the NXS Corporation common shares for $49 million. Prepare the appropriate journal entry for each transaction or event.

1.Record the purchase of 2 million preferred shares of Millwork Ventures Company for $62 million.

2. Record the receipt of semiannual interest of $2.2 million from the Kansas Abstractors bonds

3, Record the purchase of 10% bonds of Holistic Entertainment Enterprises at their $36 million face value.

4. Record the entry to adjust to fair value on the date of sale of the Kansas Abstractor bonds.

5. Record the sale of the investment in Kansas Abstractors bonds.

6. Record the purchase of 12% bonds of Household Plastics Corporation at their $80 million face value.

7. Record the purchase of U.S. Treasury bonds for $6.1 million.

8. Record the purchase of 4 million common shares of NXS Corporation for $54 million.

9. Record the entry to adjust to fair value on the date of sale of the U.S. Treasury bonds.

10. Record the sale of the Treasury bonds for $6.6 million.

11. Record the receipt of cash dividends of $3 million from the Millwork Ventures Company preferred shares.

12. Record the accrued interest.

13. Record the entry to adjust to fair value for the Millwork Ventures preferred stock.

14.Record the entry to adjust to fair value for the NXS Corporation common shares

15.Record the entry to adjust to fair value on the date of sale of the NXS Corporation common shares.

16. Record the sale of the NXS Corporation common shares for $49 million

UTStarcom is a global leader in the manufacture, integration, and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The following excerpt was obtained from the 2004 10-K of UTStarcom, Inc., which reported material weaknesses in the company’s internal controls. In describing the company’s remediation efforts, the company stated that “planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated cost of sales.”

These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the company’s fourth-quarter 2004 financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes but which did not result in any adjustments to the company’s fourth-quarter 2004 financial statements. If unremediated, these material weaknesses have the potential of misstating revenue in future financial periods. The company’s planned remediation measures include the following:

• “The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.”

• “In March 2005, the Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in the United States and, in April 2005, the Company conducted a similar seminar in China. Starting in May 2005, the Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.”

• “At the end of 2004, the Company began requiring centralized retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.”

  1. What features of this case should have indicated to the auditor a potentially heightened risk of fraudulent financial reporting?

  2. Using the previous disclosures as a starting point, identify challenges regarding internal controls that a company may face in doing business internationally.

  3. The company had disclosed its planned remediation efforts for 2004. How might the auditor have used that information in planning the 2005 audit?

  4. Considering potential analytical procedures relevant to the revenue cycle, identify analytics that the auditor might use in 2005 to provide evidence that the problems detected in 2004 have been remedied.

  5. Considering potential substantive tests of revenue, identify procedures that might be applied in 2005 to provide evidence that the problems detected in 2004 have been remedied.

Consider the example below, how would you account for the revenue from a contract for HMM11 products? How would you account for the revenue from a contract for HMM12 products?

Early in the redesign of HMM12, Bills recognized that the decision for HBP to host the software would affect how revenues were recognized from sales of the new product. For HMM11, the client hosted the software on its servers and was responsible for all maintenance and operating costs. Although HBP offered to fix any software bugs, there was no contractual obligation to provide updates/point releases. As a result, the full value of any multi-year licensing contracts was recognized as revenue when the software was delivered.

If the client chose to have HMM11 software hosted on HBP’s server, the contract specified that the client would pay HBP an upfront licensing fee and a separate hosting fee (equivalent to about 10% of the licensing fee) at the time the contract was signed. In the majority of contracts, the client paid a nonrefundable licensing fee. Some clients negotiated a Termination for Convenience (TFC) clause. Since the underlying product was not updated and clients had the option of hosting the software on their systems or on HBP systems (incurring a separate hosting fee), HBP recorded the full value of the licensing fees as revenue at the beginning of the contract period. In contrast, hosting fees were recorded as deferred revenues and recognized as revenue ratably over the life of the contract (terms were 1, 2, or 3 years).

The new business model for HMM12 eliminated the option for clients to host HMM software and introduced an ongoing obligation for HBP. Clients would continue to pay an upfront licensing fee, but since only HBP could host the software there was no separate hosting fee. The license fee gave the client access to the software, the hosting, and any future improvement releases over the contract period. Accordingly, the contract was analogous to a subscription, rather than an outright sale.

For accounting purposes, HBP was required to record the upfront license fee as deferred revenue on its balance sheet. At the end of each accounting period, it would recognize a portion of the deferred revenue as earned revenue in the income statement. For example, if a client paid $360,000 for a 3-year (i.e., 36-month) license period, at the time of the contract HBP would record the $360,000 as deferred revenue (a liability) and cash (an asset) on the balance sheet. At the end of the first quarter (i.e., 3- months), HBP would recognize $30,000 (i.e., $360,000 divided by 36 months times 3 months) as earned revenue with a corresponding $30,000 subtracted from the deferred revenue liability.