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In regard to this week’s forum post and the information presented this week, General Motors better known as GM is a corporation that has been around for years. In order to be successful like GM, they have established a foot hold in over 26 countries selling its product in over 150 different countries. This will allow them to maximize profits. The term profit maximization refers to an organizations ability to sell products, services, and or goods so they can achieve a marginal revenue that is equal to the marginal cost when the value of that marginal cost increases. Corporations are in the business of making as much profit as possible, this can be achieved by two different concepts of profit maximization and revenue maximization (Cromwell, 2019).

            As for General Motors, a company that understands profit and revenue, in order to maximize its profits, they have to understand how to utilize the Profit Maximization Rule. This rule states that GM needs to designate a specific level of output where the Marginal Cost (MC) is equal to the Marginal Revenue (MR). From there the marginal cost curve will begin to rise, the most important detail of this procedure is that the marginal cost, it must be equal to the marginal revenue to see the curve elevate. Marginal cost can be defined as the increase in cost by which one or more items are produced. Marginal revenue is the change in total revenue, this is dictated by the change in rate of sales the company has. In order for GM to maximize their profit they will have to take the total revenue minus the total cost to achieve their total profit. Future more the profit maximization will occur at the period of time when the total cost and the total revenue is at the largest point away from each other (Agarwal, 2019).

            For example, if GM laid out one specific item on a spreadsheet, where the company labels their output (0-5), then variable cost, fixed cost, total cost, and marginal cost. In order to see a profit, they might have to reach output number 5 in order to see a profit. In fact when they bring in to account the other outlaying factors of their item, they might be making a profit at output number 2 or 3 because at output 5 this is where they were maximizing profit knowing at Output 2 and 3 the profit was minimal but not maximin (Clifford, 2014). For as long as GM has been around, it’s important for them to be able to increase their output. With increased output they will see an increase in their revenue over the cost associated with production (Principles of Management Economics, n.d.). It’s also important for GM to keep in mind the importance of quality of their product and services, if their product and service quality diminish then their profit will be affected in a negative way affecting the maximization profit curve.

The unadjusted trial balance as of December 31, 2021, for the Bagley Consulting Company appears below. December 31 is the company’s reporting year-end.

Information necessary to prepare the year-end adjusting entries appears below.

1. The buildings have an estimated useful life of 50 years with no salvage value. The company uses the straight-line depreciation method.
2. The office equipment is depreciated at 10 percent of original cost per year.
3. Prepaid insurance expired during the year, $1,650.
4. Accrued salaries at year-end, $1,300.
5. Deferred rent revenue at year-end should be $850.

Required:
1. From the trial balance and information given, prepare adjusting entries.
2. Post the beginning balances and adjusting entries into the appropriate T-accounts.
3. Prepare an adjusted trial balance.
4. Prepare closing entries.
5. Prepare a post-closing trial balance.

From the trial balance and information given, prepare adjusting entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• The buildings have an estimated useful life of 50 years with no salvage value. The company uses the straight-line depreciation method.

• The office equipment is depreciated at 10 percent of original cost per year.
• Prepaid insurance expired during the year, $1,650.
• Accrued salaries at year-end, $1,300.
• Deferred rent revenue at year-end should be $850.

Prepare closing entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Close the revenue accounts using Retained Earnings.
• Close the expense accounts using Retained Earnings.

Prepare a post-closing trial balance.

find the values missing from the table below, and then create two (2) graphs for an individual price-taking firm that produces t-shirts, utilizing both the Marginal Revenue/Marginal Cost approach and the Total Revenue/Total Cost approach.

The graphs should depict the effect of a change in consumer demographics that increases demand for hairnets and increases the market price to $24.

1. Create a graph (Graph 1) showing the starting conditions using the Marginal Revenue/Marginal Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for marginal cost, average total cost, average variable cost, demand, and marginal revenue.
• Do NOT include curves for total revenue, total cost, or total variable cost on this graph.

2. Create a graph (Graph 2) next to your first graph showing the starting conditions using the Total Revenue/Total Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for total cost and total revenue.
• Do NOT include curves for marginal cost, average total cost, average variable cost, demand, or marginal revenue on this graph.

3. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Marginal Revenue/Marginal Cost Approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and market price on your graph.

4. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and initial Total Revenue and Total Cost at that quantity.

5. On Graph 1, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

6. On Graph 2, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

7. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the new profit-maximizing quantity and market price.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and market price on your graph.

8. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the new profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and new Total Revenue and/or Total Cost at that quantity.

find the values missing from the table below, and then create two (2) graphs for an individual price-taking firm that produces t-shirts, utilizing both the Marginal Revenue/Marginal Cost approach and the Total Revenue/Total Cost approach.

The graphs should depict the effect of a change in consumer demographics that increases demand for hairnets and increases the market price to $24.

1. Create a graph (Graph 1) showing the starting conditions using the Marginal Revenue/Marginal Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for marginal cost, average total cost, average variable cost, demand, and marginal revenue.
• Do NOT include curves for total revenue, total cost, or total variable cost on this graph.

2. Create a graph (Graph 2) next to your first graph showing the starting conditions using the Total Revenue/Total Cost approach; correctly label all axes, curves, points, prices, and quantities.

• This graph must include curves for total cost and total revenue.
• Do NOT include curves for marginal cost, average total cost, average variable cost, demand, or marginal revenue on this graph.

3. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Marginal Revenue/Marginal Cost Approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and market price on your graph.

4. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the original profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the original profit-maximizing (or loss-minimizing) quantity and initial Total Revenue and Total Cost at that quantity.

5. On Graph 1, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

6. On Graph 2, shift the relevant curve(s) from the change in consumer demographics.

• Ensure you clearly label which curve(s) is/are the original and which curve(s) are new.

7. Calculate and indicate on Graph 1 the firm’s economic profit/loss at the new profit-maximizing quantity and market price.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and market price on your graph.

8. Calculate and indicate on Graph 2 the firm’s economic profit/loss at the new profit-maximizing quantity and market price using the Total Revenue/Total Cost approach.

• Ensure you clearly indicate the new profit-maximizing (or loss-minimizing) quantity and new Total Revenue and/or Total Cost at that quantity.

Case 5.0: Incentives in the Firm – Compensating the CEO

Let’s work through an incentive concept and problem. “Moral hazard” problems arise when someone – the “principal” – hires an agent to do something, but the agent has an incentive to do something else. For example, firm owners may want their management team to maximize profits, but maximizing profits is hard, time-consuming work that could interfere with the management team’s preference for playing golf. If top management simply receives a salary, the problem is aggravated because the managers may not be motivated to satisfy the owners, and the owners can’t easily monitor management activity to know if they’re really doing a good job. The problem is resolved in large part if the owners tie most or all of management compensation to firm profits, as income is often a pretty good motivator (although some golf nuts will still pause for a while over this one.) We can set up a scenario to explore this incentive issue further, and this problem will also help fix in our minds the difference between maximizing revenue and maximizing profit.

A small firm faces an inverse demand function of P = 100 - Q. Its total cost function is given by TC = .5Q².   (You should see right away that marginal revenue is thus MR = 100 – 2Q, and it also happens that marginal cost is just MC = Q. Both MR and MC are the first derivatives of total revenue and total cost. And a quick comment on MC: unlike some marginal cost functions we’ve seen, this one is not constant, because marginal cost is getting $1 higher with each additional unit of output.)

The Chief Executive Officer will manage the firm, choosing output and price. Currently, the CEO is negotiating an incentive-based contract with the shareholders of the company. The CEO has proposed that she get 20% of the total revenue brought in by the firm. The shareholders' representative has counter-offered that 10% of total revenue be given to the CEO. (Hint: basing compensation on revenue will motivate revenue maximization rather than profit maximization!)

1.    How much income will each plan generate for the CEO and for the shareholders, respectively? (Hint: since both plans create incentives for the CEO to maximize revenue rather than profit, you should not set MR = MC at this point. BIG hint: revenue is maximized when selling an additional unit won’t increase your revenue, or in math terms, when MR = 0.)

CEO’s proposal: she keeps 20% of TR.

Owners’ proposal: CEO keeps 10% of TR.

2.    Suppose you are asked to mediate in the negotiations. Can you propose an incentive-based compensation scheme for the CEO that both parties are likely to accept, assuming everyone would like to maximize their income?

Your proposal:

Demonstration that everyone is better off than under their own proposal and thus should accept your proposal:

3.    Now thinking even more shrewdly: what’s the maximum price you could charge for your consulting services and still leave everyone better off?

Notes Receivable Entries

The following data relate to notes receivable and interest for Owens Co., a financial services company. (All notes are dated as of the day they are received.) Assume 360 days in a year.

Mar. 8. Received a $90,000, 6%, 60-day note on account.
31. Received a $9,600, 7%, 90-day note on account.
May 7. Received $90,900 on note of March 8.
16. Received a $67,200, 8%, 90-day note on account.
June 11. Received a $42,000, 9%, 30-day note on account.
29. Received $9,768 on note of March 31.
July 26. Received $42,315 on note of June 11.
Aug. 4. Received a $3,600, 10%, 30-day note on account.
14. Received $68,544 on note of May 16.
Dec. 2. Received $3,630 on note of August 4.

Required:

Journalize the entries to record the transactions. For a compound transactions, if an amount box does not require an entry, leave it blank.

Mar. 8

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable

Mar. 31

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable

May 7

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Interest Revenue
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Payable
Interest Receivable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Payable
Interest Receivable
Interest Revenue

May 16

Accounts Receivable
Bad Debt Expense
Cash
Interest Revenue
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Bad Debt Expense
Cash
Interest Revenue
Notes Receivable

June 11

Accounts Receivable
Bad Debt Expense
Cash
Interest Revenue
Notes Payable
Notes Receivable

Accounts Receivable
Bad Debt Expense
Cash
Interest Revenue
Notes Payable
Notes Receivable

June 29

Accounts Payable
Accounts Receivable
Cash
Interest Expense
Interest Revenue
Notes Receivable

Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable
Unearned Interest

Accounts Receivable
Allowance for Doubtful Accounts
Cash
Interest Expense
Interest Receivable
Interest Revenue

July 26

Accounts Receivable
Bad Debt Expense
Cash
Interest Receivable
Interest Revenue
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Receivable
Interest Revenue
Unearned Interest

Aug. 4

Accounts Receivable
Bad Debt Expense
Cash
Notes Payable
Notes Receivable
Sales

Accounts Payable
Accounts Receivable
Cash
Interest Revenue
Notes Receivable
Sales

Aug. 14

Accounts Payable
Accounts Receivable
Cash
Interest Payable
Interest Receivable
Notes Receivable

Accounts Receivable
Allowance for Doubtful Accounts
Cash
Interest Receivable
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Payable
Interest Receivable
Interest Revenue

Dec. 2

Accounts Payable
Accounts Receivable
Bad Debt Expense
Cash
Interest Revenue
Notes Receivable

Accounts Receivable
Allowance for Doubtful Accounts
Cash
Interest Receivable
Notes Payable
Notes Receivable

Accounts Payable
Accounts Receivable
Cash
Interest Payable
Interest Receivable
Interest Revenue

A not-for-profit organization receives a restricted gift. When and in which type of fund should it recognize the revenue? When and in which type of fund should it recognize the related expense? What is the reason for the apparent inconsistencies between the fund types in which the revenue and expenses are reported?

1- Clever Computers has a five-day work week and pays the office staff $3,050 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for

a.$610.

b.$3,050.

c.$1,220.

d.$2,440.

2-

A month-end review of work performed during the month at an accounting firm for tax clients indicates there are a total of 50 tax returns completed for which customers owe $196 each. They remain unbilled at the end of the period. The adjusting journal entry should include a

a.credit to Cash for $9,800.

b.debit to Cash for $9,800.

c.credit to Tax Preparation Revenue for $9,800.

d.debit to Tax Preparation Revenue for $9,800.

3- The cash payment for accrued revenues occurs __________ the adjusting entry to record the accrued revenue.

a.before

b.after

c.at the same time

d.concurrently with

4- Barry Company received $8,000 full payment in advance for services that are 60% complete at the end of the period. The adjusting entry will

a.debit Service Revenue for $4,800 and credit Unearned Revenue for $4,800.

b.debit Unearned Revenue for $4,800 and credit Service Revenue for $4,800.

c.debit Unearned Revenue for $8,000 and credit Service Revenue for $8,000.

d.debit Cash for $4,800 and credit Service Revenue for $4,800.

5- When recording an adjusting entry for a prepaid expense,

a.an asset account is debited.

b.a liability account is debited.

c.an expense account is credited.

d.an asset account is credited.

6-

If an entry to adjust unearned rent and rent revenue is not recorded at the end of the period, Rent Revenue and Net Income on the income statement will be

a.understated.

b.overstated.

c.unaffected because these items are not on the income statement.

d.unaffected because the omitted entry affects two accounts that cancel each other out.

7-

The accumulated depreciation account is called a(n)

a.contra asset account.

b.prepaid asset account.

c.expense account.

d.liability account.

8-

The accumulated depreciation account is called a(n)

a.contra asset account.

b.prepaid asset account.

c.expense account.

d.liability account.

9-

If an entry to adjust depreciation is not recorded at the end of the period, Depreciation Expense on the income statement will be

a.understated.

b.overstated.

c.unaffected because Depreciation Expense is reported on the balance sheet, not on the income statement.

d.unaffected because the omitted entry affects two accounts that cancel each other out

10 -

If the beginning balance of the Accumulated Depreciation—Equipment account is $10,000 and an adjusting journal entry for depreciation on the equipment for $2,500 is omitted at the end of the period, Accumulated Depreciation on the income statement will

a.be understated by $2,500.

b.be overstated by $2,500.

c.be overstated by $10,000.

d.not be impacted because Accumulated Depreciation is reported on the balance sheet.

11-

If an adjustment for $7,500 in accrued revenues is omitted, how will this affect the financial statements?

a.Net income will be understated by $7,500.

b.Net income will be overstated by $7,500.

c.There will be no effect on the financial statements.

d.Accounts Receivable will be overstated by $7,500.

12-

If the following adjusting entry is omitted, what effect will it have on the financial statements?

a.Revenues will be overstated by $1,900.

b.Revenues will be understated by $1,900.

c.There will be no effect on liabilities.

d.There will be no effect on net income.

13-

An adjusting entry debiting Supplies Expense and crediting Supplies is an example of adjusting a(n)

a.prepaid expense.

b.accrued expense.

c.deferred revenue.

d.prepaid revenue.

14-

The adjusted trial balance is prepared

a.to determine the net income or loss.

b.to verify the equality of total debit and credit balances.

c.to determine whether the balance sheet is in balance.

d.for all of these reasons.

15 -

Once the adjusted trial balance is balanced, it can be used to prepare

a.the income statement, the statement of owner's equity, and the classified balance sheet.

b.the classified balance sheet only.

c.the classified balance sheet and the income statement only.

d.None of these financial statements are prepared with the adjusted trial balance.

16 -

The adjusted trial balance

a.does not have a date.

b.is at a specific date.

c.is for a period of time.

d.None of these choices are correct.

Q1: A new cream that advertises that it can reduce wrinkles and improve skin was subject to a recent study. A sample of 56 women over the age of 50 used the new cream for 6 months. Of those 56 women, 30 of them reported skin improvement(as judged by a dermatologist). Is this evidence that the cream will improve the skin of more than 40% of women over the age of 50? Test using α=0.01.

(a) Test statistic: z=

(b) Critical Value: z∗=

(c) The final conclusion is

A. We can reject the null hypothesis that p=0.4 and accept that p>0.4. That is, the cream can improve the skin of more than 40% of women over 50.
B. There is not sufficient evidence to reject the null hypothesis that p=0.4. That is, there is not sufficient evidence to reject that the cream can improve the skin of more than 40% of women over 50.

Q2: A newspaper conducted a statewide survey concerning the 1998 race for state senator. The newspaper took a SRS of n=1300 registered voters and found that 670 would vote for the Republican candidate. Let pp represent the proportion of registered voters in the state who would vote for the Republican candidate.
We test

H0:p=.50
Ha:p>.50

(a) What is the z-statistic for this test?  

(b) What is the P-value of the test?