E4.1 (LO 1, 3) The trial balance columns of the worksheet for Dixon Company at June 30, 2020, are as follows.
Dixon Company
Worksheet
For the Month Ended June 30, 2020
Trial Balance
Account Titles Dr. Cr.
Cash 2,320
Accounts Receivable 2,440
Supplies 1,880
Accounts Payable 1,120
Unearned Service Revenue 240
Owner’s Capital 3,600
Service Revenue 2,400
Salaries and Wages Expense 560
Miscellaneous Expense 160
7,360 7,360
Other data:
1. A physical count reveals $500 of supplies on hand.
2. $100 of the unearned revenue is still unearned at month-end.
3. Accrued salaries are $210.
Instructions Enter the trial balance on a worksheet and complete the worksheet.
In: Accounting
In this simple insurance model, a company has a
monopoly over a small market. There are 100K potential customers
with a low risk profile, 60K potential customers with a medium risk
profile, and 10K potential customers with a high risk
profile. A person’s risk profile is important as it
determines how much insurance is worth to the customer and how much
money the customer will cost on average to the insurance company.
The following table summarizes the estimates put together by the
company:
Low risk profile
Medium risk profile
High risk profile
Number of potential customers
100,000
60,000
10,000
Expected expense per customer
$2K
$6K
$14K
Maximal price the customer is
ready to pay for insurance
$3K
$7K
$15K
Remark: Explaining where these numbers come from would
require a subtler model that describes the risk covered by the
insurance policy. While there is no need to do this for the purpose
of this exercise, notice though how the maximal price a customer is
ready to pay is always larger than the expected expense the
insurance company would incur for that customer. This is the case,
for instance, if potential customers are risk averse while the
insurance company is risk neutral.
QUESTIONS:
(a) What is the average cost per customer
if the insurance company insures all 170K potential
customers?
(b) The number computed in (a) is thus the
minimal price the company would need to charge to make it
profitable to serve everyone. Assume here that customers know their
risk profile. Would all potential customers want to buy insurance
at that price?
(c) Suppose the insurance company chooses the price at
which it sells its policy. Consider a classic case of asymmetric
information: customers know their risk profile, but the insurance
company cannot identify the risk profile of its potential
customers. By deciding to sell at a price $p, all customers with a
maximal price larger or equal to $p will buy the policy (and the
firm must incur the expected expense associated to its customers,
that is, it cannot renege on the terms of its policy). At which
price will the insurance company sell its policies (assuming it
aims to maximize profit)? What is the profit it realizes?
Hint: The company will always charge the maximal price
customers of some risk profile are ready to pay. So it will charge
either $3K (in which case customers of all risk profiles will buy
the policy), or $7K (in which case only customers with medium to
high risk will buy the policy), or $15K (in which case only high
risk customers will buy the policy). What scenario gives the best
profit?
Remark: This question illustrates well the concept of
adverse selection. Notice how customers who are ready to pay more
for the policy are also more costly to the insurance
company.
(d) Suppose now the company can identify
each potential customer’s risk profile (e.g. by doing a thorough
physical exam in case of some medical insurance). To maximize
profit, at what price will it sell its policy to low risk
customers, at what price will it sell its policy to medium risk
customers, and at what price will it sell its policy to high risk
customers? What is the total profit in this case, and how does it
compare to profit in (c)? This should illustrate the substantial
loss in profit that asymmetric information can generate.
In: Economics
In: Accounting
On November 30, Petrov Co. has $147,700 of accounts receivable
and uses the perpetual inventory system.
| Dec. | 4 | Sold $5,345 of merchandise (that had cost $3,421) to customers on credit, terms n/30. | ||
| 9 | Sold $20,678 of accounts receivable to Main Bank. Main charges a 10% factoring fee. | |||
| 17 | Received $2,940 cash from customers in payment on their accounts. | |||
| 27 | Borrowed $11,816 cash from Main Bank, pledging $15,361 of accounts receivable as security for the loan. |
(1) Prepare journal entries to record the above
transactions.
(2) Which transaction would most likely require a
note to the financial statements?
In: Accounting
1.-Given are five observations for two variables, x and y.
|
xi |
1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
|
yi |
4 | 7 | 4 | 10 | 15 |
(d) Develop the estimated regression equation by computing the values of b0 and b1 using b1 =(Σ(xi − x)(yi − y))/Σ(xi − x)2 and b0 = y − b1x.
(e)Use the estimated regression equation to predict the value of y when x = 2.
2.-Companies in the U.S. car rental market vary greatly in terms of the size of the fleet, the number of locations, and annual revenue. In 2011, Hertz had 320,000 cars in service and annual revenue of approximately $4.2 billion. Suppose the following data show the number of cars in service (1,000s) and the annual revenue ($ millions) for six smaller car rental companies.
| Company | Cars (1,000s) |
Revenue ($ millions) |
|---|---|---|
| Company A | 11.5 | 118 |
| Company B | 10.0 | 135 |
| Company C | 9.0 | 100 |
| Company D | 5.5 | 37 |
| Company E | 4.2 | 42 |
| Company F | 3.3 | 30 |
(c) Use the least squares method to develop the estimated regression equation that can be used to predict annual revenue (in $ millions) given the number of cars in service (in 1,000s). (Round your numerical values to three decimal places.)
ŷ =_____
(d) For every additional car placed in service, estimate how much annual revenue will change (in dollars). (Round your answer to the nearest integer.)
Annual revenue will increase by $ ___ , for every additional car placed in service.
(e) A particular rental company has 6,000 cars in service. Use the estimated regression equation developed in part (c) to predict annual revenue (in $ millions) for this company. (Round your answer to the nearest integer.)
$ __ million
In: Statistics and Probability
In: Statistics and Probability
The company the team chose is Alphabet formally Google, and competitor is Yahoo
You are a senior manager for the highly successful regional CPA firm of Fine, Dee, Evah, Dense, LLP (Fine). Since its inception nearly 30 years ago, Fine's audit practice has exclusively consisted of auditing private and not-for-profit organizations. Recently, the partners have been considering an opportunity to audit a publically-traded company for the company your team has selected.
The primary reason Fine has not heretofore ventured into auditing public-traded companies is because of the potential risk and legal liability associated with auditing public companies. However, Fine has been a bit stagnant, business-wise, for the past few years, and some of the older and more risk adverse partners are beginning to retire. Consequently, the lure of the often-lucrative and prestigious opportunity to audit a public company has become to hard to resist, so the partners have decided to pursue the chance to audit this company.
On a beautiful early-september morning you are called into the senior partner's office and told you and your team have been selected to lead the first-ever effort to audit a public-traded company for Fine. You are honored, but also know auditing a public company is a bit more tricky and complicated than auditing private and not-for-profit organizations. Fortunately, the senior partner had considerable experience early in his career with another firm in auditing public companies and told you he would be with you all the way. Relieved, you asked him what he wanted you to do. He tossed you the most recent Form 10-K of the company you selected and gave you the following assignments:
Review and discuss the Form 10-K for the company you
have selected.
Create a report that will have 4 Sections.
Section 1. Initial Risk Assessment
Hint: The business and risk information is usually found in the first part of the risks, do not simply restate what is in the Form 10-K. Think like a senior manager at a CPA firm-what accounts (cash, A/R, Inventory,etc.) might be the most potentially risky and Why? For example an airline might not have the same inventory considerations found with a retail outlet like Wal-Mart.
Describe the following issues:
Ethics and legal Issues
1. The ETHICS and sophistication of top management and cultures where the company operates.
2. Have there been significant auditing or accounting issues raised in the recent past?
3. Did they have disputes with their previous audit
firm?
4. IS this company or industry particularly susceptible to lawsuits
or other legal proceedings?
Evaluate the regulatory and compliance and
requirements of this company.
1. The compliance requirements of this company.
2. is it subject to a high-level of governmental regulation?
3. Are employees unionized? Are they generally compliant with Sarbanes-Oxley and other regulatory rules?
Section 2. Analytical Procedures
Based on Table 8-1 Examples of Planning Analytical Procedures and the sections on Analytical Procedures, select three ratios ( current, ratio, Inventory turnover, debt to equity, return on assets). calculate these ratios for the most recent year and compare the results.
Write a 350 to 525 word analysis of your findings
Section 3. Materiality and Risk
The senior partner wants to confirm your understanding
of key concept.
Summarize each concept 90 to 175 words each.
materiality
misstatement
audit risk
audit risk model
inherent risk.
relationship of risk to audit evidence
In: Accounting
On December 31, 2019, Mills Manufacturing Ltd. had a $197,000 balance in its Accounts Receivable and a $10,400 balance in its Allowance for Doubtful Accounts. During 2020, the company made total sales of $858,000, of which $225,000 were cash sales. By the end of the year, Mills had received payments of $552,000 from its customers on account. The company also wrote off as uncollectible $13,300 of its receivables when it learned that these customers had declared bankruptcy. The company was subsequently able to recover $5,700 from one of these customers. (Note that this amount is not included in the cash collections noted above.) Management estimates that bad debts expense will be 3% of its credit sales.
1. Prepare the journal entries to record all the 2020 transactions, including the adjustment for bad debts expense at year end.
2. Show how the accounts receivable section of the statement of financial position at December 31, 2020, would be presented.
3. What amount of bad debts expense would appear in the statement of income for the year ended December 31, 2020?
In: Accounting
1. Provide a general historic description of the predominant source and use of funds for thrifts.
2. Provide a general historic description of the predominant source and use of funds for pension plans.
3. Explain why/how contributions to mutual funds are often considered riskier than contributions to pension funds.
4. How do the customers of a finance company differ from the customers of banks generally?
In: Finance
You manage a cable company that offers 2 channels - NBC and Fox. You face 2 types of customers (type A and type B) and there are 100 customers of each type. Their respective values for each channel are:
| Type A | Type B | |
| NBC | $10 | $15 |
| Fox | $3 | $7 |
Suppose that you sell each channel separately. You should set a price of $_____ for NBC and a price of $______ for Fox.
In: Economics