Memo 1

To:                       Pricing Manager, Tri-State Region

From:                  Regional Vice President, Tri-State Region

Re:                       Revenue from EPIX

We recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we would like to potentially increase our revenue from our subscriber base. Currently we have about 15,059 subscribers, generating monthly revenue of $146,823.

Some have suggested we should cut price, as customers tend to be fairly price sensitive for add-on packages. However, in this case, if we lower price for our new subscribers; we really need to cut it to all of our existing subscribers as well. I have some concerns that lowering price will be counter-productive.

The marketing department calculated some subscription levels at various price points in this region, and I need you to perform the analysis. Specifically, I want you to estimate the price sensitivity of customers at the current price. Please address the following questions: (1) If we lower the price, do you think this is likely to lead to higher revenue, and (2) how much potential revenue can we generate and how low should we go with our price?

Thanks for your help.

Gulf Greetings is a holding company based in Dubai has started its operations in Oman in January 1, 2020. It has 2 branches in Oman – Muscat and Ibra. The bookkeeper of the Ibra branch has caused the following errors in the books of the branch.
i. Purchase of merchandise inventory for OMR 500 cash has not been posted in Cash Account.
ii. Sales Return Account was overcast by OMR 100.
iii. Sales revenue of OMR 12,000 earned is credited to Service Revenue Account.
iv. Wages Expense Account was balanced with OMR 600 short.
v. A balance of OMR 1,800 in Interest Revenue Account is carried forward to next page
as OMR 180.
vi. Prepaid rent of OMR 100 is not recorded.
vii. Purchase of building OMR 100,000 is debited to Repairs and Maintenance Account.
viii. A service revenue of OMR 500 received in advance is recorded as Service Revenue
Account.
ix. OMR 1,234 paid for the rent expenses is recorded with an amount of OMR 1,324.
x. Depreciation expense of OMR 250 on building is recorded twice.
Question – 5:
a. For each of the above errors, you are required to; i. Identify the type of error and
ii. Rectifytheerrors.
b. Will the following errors affect the profitability of a company? Explain.
i. Error of Principle
ii. Error of Commission
iii. Error of Partial Omission

Percentage-of-Completion and Completed Contract Methods

Philbrick Company signed a three-year contract to provide sales training to the employees of Elliot Company. The contract price is $1,200 per employee and the estimated number of employees to be trained is 400. The expected number to be trained in each year and the expected training costs follow.

Required

For each year, compute the revenue, expense, and gross profit reported assuming revenue is recognized using the following method.
(Do not round until your final answers. Round your answers to two decimal places.)

1. Percentage-of-completion method, where percentage-of-completion is determined by the number of employees trained.

2. Percentage-of-completion method, where percentage-of-completion is determined by the costs incurred.

3. Completed contract method.

You are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current salary. You look into opening a small grocery store. Suppose that the store has annual costs of $160,000 for labor, $50,000 for rent, and $30,000 for equipment. There is a one-half probability that revenues will be $210,000 and a one-half probability that revenues will be $400,000.

Instructions: For all parts, enter a loss as a negative number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. In the low-revenue situation, what will your accounting profit or loss be?

In the high-revenue situation, what will your accounting profit or loss be?

b. On average, how much do you expect your revenue to be?

Your accounting profit?

Your economic profit?

Will you quit your job and try your hand at being an entrepreneur?

   (Click to select)  No  Yes

c. Suppose the government imposes a 25 percent tax on accounting profits. This tax is only levied if a firm is earning positive accounting profits. What will your after-tax accounting profit be in the low-revenue case?

In the high-revenue case?

What will your average after-tax accounting profit be?

What about your average after-tax economic profit?

Will you now want to quit your job and try your hand at being an entrepreneur?

Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,400 pounds of oysters in August. The company’s flexible budget for August appears below:

The actual results for August appear below:

Required:

Calculate the company’s revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Assume this week is the end of 2018. It has been a wonderful year-end for you because your business Computer Servicing and Networking Business was doing great! But don't forget that you need to complete adjusting entities on Dec 31, 2018. Please give me one each example of two types of adjusting entries:

1. Deferred accounts

2. Accrued accounts

Please feel free to read the text books, but make sure you use transactions of your own company. For example:

1. Deferred expenses- Unearned Revenue

Scenario: I own a catering service. On Dec 16, 2018 one of my clients came to my office and asked me to provide the catering service on his birthday party for the next 30 days. He knew I would be very busy then, so he paid me $1,000 in advance. Deal! Here I need to record an entry on Dec 16 and adjust it on Dec 31. (Only entries, no ledgers needed)

Date Accounts and Explanation     Debit    Credit Dec. 16 Cash     1,000            Unearned Revenue    1,000 Collected cash for future services

Date Accounts and Explanation     Debit    Credit Dec. 31 Unearned Revenue    500            Service Revenue     500 To record service revenue earned that was collected in advance

Background Getswift Ltd (“Getswift”) is a newly listed company involved that provides a software distribution solution. The board has heard that a new revenue standard has been issued and as none of the board has a financial background, they are unsure what it means for them. They have heard though that the impact of the new standard on most businesses will be significant. As a result, they have engaged your consultancy firm to provide them with a letter of advice to explain the impact that the new standard will have on the income recognition of Getswift. REQUIRED You are required to provide a letter of advice to the board of Getswift explaining the requirements of the new revenue standard with a focus on how it will impact their particular revenue recognition. In addition, you are required to write a short transmittal email enclosing the letter of advice. Important Additional Information ? You are expected to research this company and gain an understanding of what they do so that you understand the nature of their revenue. The 2016/2017 annual report should be used as a starting point but you are expected to go further than this. ? This assessment requires much more than copying the requirements from the new standard and those students that just do this will be marked poorly. The majority of the marks will be for the application of the standard to Getswift’s revenue sources. Therefore, you need an understanding of what they do. ? The language of your letter of advice should be tailored to the audience and their level of financial literacy.

The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM, Inc. Many of these companies often act as intermediaries between the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of transaction has been controversial.

Assume that Overstock.com sold you a product for $200 that cost $150. The company’s profit on the transaction clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold (the gross method), or should it recognize only the $50 in gross profit (the net method) as commission revenue?

Required:
1. Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). What is the specific nine-digit Codification citation (XXX-XX-XX-XX) that indicates what an entity assesses to determine whether the nature of its promise is to act as a principal or agent?

2-a. What indicators does the Codification list that suggest an entity is a principal?

2-b. Determine the specific nine-digit Codification citation (XXX-XX-XX-XX).

3. Using EDGAR (www.sec.gov), access Alphabet, Inc.’s 2017 10-K. Locate the disclosure note that discusses the company’s revenue recognition policy with respect to ads placed on Goggle Network Members' properties.

4. Do you agree with Alphabet’s reasoning with respect to choosing whether it reports revenue gross versus net with respect to these advertising services? Indicate “yes” or “no,” and explain.

The unadjusted trial balance as of December 31, 2018, for the Bagley Consulting Company appears below. December 31 is the company’s fiscal year-end.

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, $1,150.
4. Accrued salaries and wages at year-end, $850.
5. Deferred rent revenue at year-end should be $400.

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.

The unadjusted trial balance as of December 31, 2018, for the Bagley Consulting Company appears below. December 31 is the company’s fiscal year-end.

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, $1,400.

Accrued salaries and wages at year-end, $1,100.

Deferred rent revenue at year-end should be $650.

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.