Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses increased by 2 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.

In general, what incentives do managers have to make self-serving revenue recognition choices?

37. Apartment building manager reports revenue of $1,350 per month. He was 100% occupied for the year. He pays $70 per month for water & trash for the complex. His insurance was $1,050 for the year. His payment on the building were $8,400 for the year. $4,815 of it was interest. He was $50 in advertising expense for the year. Maintenance totaled for year totaled $925. He will be depreciating the property $2,320 for the year. He is also depreciating a Heat & Air unit at $815 for the year, which he bought and installed this year for the cost of $5,000. He has $5,300 in his business bank account and is holding deposits of $1,300 in escrow. The land is valued at $20,000. The building is valued at 116,000 with the land. Total depreciation on the building has been $25,000. He owns the local printer $65; the plumber, $420 and the local paper $50. He owes $73,500 on the property. Property taxes for the year are $1,725. The owner paid income tax of $12,500 this year.

How much are total annual expenses for the Profit and Loss Statement?

(A) $3,470.00 (B) $12,540.00 (C) $2,935.00 (D) None of the above

Explain why recording transactions as pre-paid expenses and unearned revenue are important. (Think of the greater accounting concept that is followed)

The following is a stem-and leaf display for revenue from a small neighborhood Delicatessen. 50|0 9 51|0 8 9 52|0 0 3 3 9 9 53|1 2 2 3 6 54|2 3 55|1 3 Find the first and third quartiles ands the median for this data. Without calculating, guess at the mean of this data and explain your guess.

Carefully draw the appropriate revenue and cost curves for a profit-maximizing monopolist, which is indifferent between producing and not producing in the short-run. Show the deadweight loss caused by the monopoly. In the long run, will the firm produce more or less? (8 points)

1. Firm X is producing the quantity of output at which marginal revenue equals marginal cost. It is earning

A. a positive economic profit.

B. an economic loss.

C. a normal profit.

D,There is not enough information to answer the question.

2. A perfectly competitive firm will always maximize short-run profits by producing the level of output where the average total cost is minimized.

A.True

B.False

3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal revenue curve and total cost curve are given as follows:

Q=100-4P

TR=25Q-0.25Q²

MR=25-0.5Q

TC=6Q

MC=6

a. (4 points) How much output will James produce?

b. (4 points) What price will James charge per unit of output?

c. (4 points) How much profit will James make?

d. (8 points) If this was a competitive firm. Calculate the profit maximizing price and quantity and compare with price and quantity under monopoly.

e. (6 points) Calculate the amount of deadweight loss incurred because James is a monopolist and not perfectly competitive firm.

If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost, should it produce more, less or the same? Why? What is the profit-maximizing quantity for any firm to produce?