1. Suppose that depreciation expense is 3.000.000 $ and profit is 15.000.000 $. Contribution margin percentage is 60%. Breakeven revenue is 25.000.000 $. Under these conditions, what would be the profit margin?

a) 30%

b) 40%

c) 50%

d) 60%

e) Other:

2. Suppose that total fixed costs are 800.000 $ and the contribution margin percentage is 40%. What would be the degree of operating leverage in case a sales revenue of 3.000.000 $ is generated?

a) 2

b) 3

c) 4

d) 5

e) Other:

3. Suppose that total fixed costs are 800.000 $ and the contribution margin percentage is 40%. What would be the profit in case a sales revenue of 3.000.000 $ is generated?

a) 200.000 $

b) 300.000 $

c) 400.000 $

d) 500.000 $

e) Other:

In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of freedom d.f. not in the Student's t table, use the closest d.f. that is smaller. In some situations, this choice of d.f. may increase the P-value by a small amount and therefore produce a slightly more "conservative" answer.

Are America's top chief executive officers (CEOs) really worth all that money? One way to answer this question is to look at row B, the annual company percentage increase in revenue, versus row A, the CEO's annual percentage salary increase in that same company. Suppose a random sample of companies yielded the following data:

Do these data indicate that the population mean percentage increase in corporate revenue (row B) is different from the population mean percentage increase in CEO salary? Use a 5% level of significance. Solve the problem using the critical region method of testing. (Let d = B − A. Round your answers to three decimal places.)

Interpret your conclusion in the context of the application.

Fail to reject the null hypothesis, there is insufficient evidence to claim a difference in population mean percentage increases for corporate revenue and CEO salary.Reject the null hypothesis, there is insufficient evidence to claim a difference in population mean percentage increases for corporate revenue and CEO salary.    Reject the null hypothesis, there is sufficient evidence to claim a difference in population mean percentage increases for corporate revenue and CEO salary.Fail to reject the null hypothesis, there is sufficient evidence to claim a difference in population mean percentage increases for corporate revenue and CEO salary.

Hollywood Studios Audit China Box Office Figures

According to the 2017 video, an audit found that Chinese theaters were shortchanging Hollywood movie studios. These studios have been releasing major blockbusters with both storylines and characters that are meant to specifically target Chinese audiences. In fact, studios depend on these overseas audiences to save critically slammed blockbusters.

Auditors at PriceWaterhouseCoopers (PwC) found that about 9% of ticket revenues were unreported or skimmed and that this amounted to at least $40 million in revenue for the six major studios.

Issues noted in the audit resulting in missing revenue included: Sales listed as concessions, incorrect audience numbers, and screenings that were completely unreported.

This was part of an investigation on behalf of the Motion Picture of America Association (MPAA). The auditors examined the 29 biggest blockbuster movies released in China in 2016 and looked at 125 screen locations run by 27 different movie chains.

At the time of the video and the report, the U.S. motion picture industry was renegotiating a revenue sharing agreement with China, since the original five-year agreement ended. At question were the push by Hollywood to have more market access, as well as the Chinese to boost product from their growing movie industry.

The investigation was only a sample of screens. In fact, China has the largest number of screens in the world, numbering about 43,000.

Prior to renegotiating the WTO agreement on revenue sharing, U.S. studios officially grossed $1.87 Billion and took home $470 M.

According to the textbook, revenue recognition is more problematic with respect to audit inherent risks in some industries, as compared to others. Would this be the case in the movies industry in China? Why?

Revenue recognition in Chinese movie theaters is also problematic with respect to audit control risks. Why?

The following information is from Bluff Run Golf Courses. The company runs three courses and the July income statement for each course is as follows:

A. Calculate the operating income percentage for each of the courses. Round your percentages to one decimal place.

B.

1. Perform a vertical analysis for each course. Round your percentages to one decimal place.

2. Based on a vertical analysis of each course, which accounts would you want to investigate further?

C. Which method of analysis (using a dollar value or percentage) is most relevant and/or useful? Why?

1.

Which of the following is a shortcoming of the balance sheet?

A. Most assets being recorded at their original purchase price instead of their market value

B. Most assets being recorded at their market value instead of their original purchase price

C. Inclusion of a company’s organically grown intangible assets (e.g., the brand value for Apple) on its balance sheet

D. None of the above is a shortcoming of balance sheet

2.

If you bought a piece of property 20 years ago for $100,000 and it is now worth $500,000, how would you record the property asset on a balance sheet?

A. As $400,000

B. As $100,000

C. As $500,000

D. As $300,000

3.

Why is EPS (Earnings Per Share) so important to potential investors?

a. It shows investors how small their share will be relative to the other investors

b. It shows investors companies' after tax earnings

c. It shows investors the percentage return they can get on their investment

d. It shows investors what a company gets to keep for every $1 of sales it makes

4.

When Walmart generates assets through selling products to its customers (through doing business), the source of that asset is called:

a. Revenue

b. Liability

c. Owner’s Equity

d. Paid-in-Capital

5.

When Walmart buys inventory and it promises its suppliers that it will pay them in the future, it records the amount it owes as_____________ on its balance sheet:

a. Unearned revenue

b. Short-term borrowing

c. Accounts payable

d. No entry is required for an amount owed until a cash payment is made

6.

How does an airline report the money you pay when you have purchased a plane ticket, but have not yet taken the flight?

A. As realized revenue

B. As revenue

C. As deferred revenue

D. As unearned revenue

Suppose that a price-setting firm has the following total revenue and total cost functions:

R(q) = 10.75q – 0.1875q2 and C(q) = 75 + 0.07q + 0.035q2 .

This firm faces downward sloping demand and marginal revenue curves. Marginal revenue and marginal cost are given by

?? ??
= ??(?) = 10.75 – 0.375? and    ?? ??
= ??(?) = 0.07 + 0.07?,

respectively.

a. Using the marginal revenue function given above, find an expression for the firm’s demand curve
as a function of q. I.e., D(q) = p = ??? b. What is the firm’s profit maximizing output level? I.e., ??? ??? ?: ?(?) = ?(?) −?(?).
c. Since the firm is a price setter, rather than a price taker, what price will it need to set in order to
achieve the profit maximizing output level from b. above?
d. Using the answers you found in b. and c. above, what is the firm’s total revenue? e. Using the results you found above, find the firm’s inverse demand function. I.e., D-1(p) = q = ???
f. Using the results you found from b., c., and e. above, what is the price elasticity of demand (i.e., ε
= ? ?
∙ ?? ?? ) at the firm’s profit maximizing output level? Is the profit maximizing output level in the
elastic range or is it the inelastic range of the firm’s demand curve? In which of the two ranges
should we expect a price setter to operate?
g. Use the open source “Graph” software (version 4.4.2 downloadable at http://www.padowan.dk/)
to plot the total revenue function, the cost function and the profit (π = TR – TC) function. Print
copies of your graphs and attach them to this quiz or email them to [email protected]. If you
prefer some other graphing software, such as https://www.desmos.com/calculator, use it rather
than Graph.

Imagine that you are an economist working with Augustin Cournot during the 1840’s. You have decided to diversify and start a business selling Cockroach Cluster candy bars. Unfortunately for you, Mr. Cournot gets wind of your idea and decides that he would like to start his own business in order to capture some of the Cockroach revenue for himself. Now you find yourself in a simple game of price competition. Assume that each of you has a fixed cost of $500, which must be paid regardless of how many candy bars you sell. The two of you must compete in price given that you can charge a price of either $3, $2, or $1. At a price of $3, 250 candy bars are sold for a total revenue of $750 dollars. At a price of $2, 500 bars are sold for a total revenue of $1000. At a price of $1, 1000 bars will be sold for a total revenue of $1000. Total revenue is calculated by multiplying the price at which the product sold times the total quantity that was sold at that price. Now, if both of you charge the same price, then you will split the sales evenly between the two of you. But, if one of you undercuts the other, then the person with the cheapest price captures all of the sales in the market. Depending on the chosen price and the information provided above, firms earn profits, which can be derived by subtracting the fixed cost from the total revenue. For simplicity, let us assume that Mr. Cournot has named his company The Rizzo Chocolate Factory (TRCF) and you have chosen to name your company The Spring Surprise Candy Company (SSCC).
a. Set up the game using the normal / strategic form.
b. Are there any strictly -dominated strategies? If so, is there an I.E.S.D.S. equilibrium?

PART A (MAX 500 words in total)

Effective 2019, the new accounting standard on leasing, AASB16 Leases, will replace the existing leases standard, AASB117. It will remove the classification of leases that has been used for decades and which divides leases into operating and financial leases from the perspective of lessees. The new standard requires leases that were formerly known as operating leases (and were kept off balance sheet) to be recognised for balance sheet proposes (both an asset and a liability will be recognised).

Required:

Evaluate how total assets, total liability and equity would be affected by the new accounting standard on leasing from the perspective of lessees. (5 marks)

The changed standard means that leases with a short-term (e.g., several months) will appear on a balance sheet of lessees, as will leases with a long-term (e.g., multiple years). Discuss whether this new approach is consistent or inconsistent with the definitions of assets and liabilities included within the IASB Conceptual Framework. (5 marks)

PART B (MAX 500 words in total)

Microsoft historically followed the practice of recognizing 25% of revenue from its Windows software over three or four years as it promises future upgrades and add-ons. With the launch of Vista in 2008, it changed the policy to record most of the revenue in the period in which the software was sold. In the third quarter for fiscal year 2008, Microsoft reported an increase in earnings of 65%. The increase came from sales of the new Vista program and also from the acceleration in revenue recognition.

Required:

Critically evaluate the revenue recognition policy adopted by Microsoft in accordance with AASB15 Revenue from Contracts with Customers. (5 marks)

Explain the decision of management to change the revenue recognition policy in terms of the debt hypothesis of Positive Accounting Theory. (5 marks)

Vertical Analysis of Income Statement

The following comparative income statement (in thousands of dollars) for two recent fiscal years was adapted from the annual report of Speedway Motorsports, Inc. (TRK), owner and operator of several major motor speedways, such as the Atlanta, Texas, and Las Vegas Motor Speedways.

a. Prepare a comparative income statement for these two years in vertical form, stating each item as a percent of revenues. (Note: Due to rounding, amounts may not total 100%).

Round your percentages to one decimal place.

1. A nondiscriminating monopolist earning positive short-run economic profit determines that its current marginal cost is $15 and its current marginal revenue is $20. To maximize profit, a firm should

2.

A monopolist maximizes profit at the quantity where the slope of its total revenue curve equals the slope of its total cost curve.

3.

A monopolist's demand curve

4.

A monopolist faces an upward-sloping marginal cost curve. Its profit-maximizing quantity will be

5.

A monopolist maximizes total revenue at the quantity where marginal revenue equals zero.

6.

A natural monopoly results when a firm has

7.

A monopolist has no supply curve because

8.

A profit-maximizing monopolist

9.

A monopolist is

10.

A monopolist's marginal revenue curve is flatter than its demand curve.

11.

A monopolist's supply curve is the portion of its marginal cost curve above average variable cost.

12.

A perfectly discriminating monopolist converts every dollar of producer surplus into economic profit.

13.

A monopolist's demand curve is

14.

A firm facing a downward-sloping demand curve sells 50 units of output at $10 each. The firm's marginal revenue is

15.

A natural monopoly is based on economies of scale.

16.

A monopolist's short-run supply curve is

17.

A monopolist maximizes profit at the quantity where its total revenue curve equals total cost.

18.

A monopolist price discriminates by

19.

A monopolist that engages in perfect price discrimination

20.

A monopolist has complete control over both price and quantity of output.

21.

The demand curve facing a monopolist

22.

A major fruit juice manufacturer failed in its attempt to engage in price discrimination between students and all other consumers. What is a possible explanation for this failure?

23.

A monopolist

24.

A price searcher is any firm that has no control over price and must accept the market price as given.

25.

A monopolist earning short-run economic profit determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit?