1. Unearned revenue

a.is recorded when services have been performed for the customer.

b.is recorded in an asset account (other than cash) when cash is received.

c.represents future revenue.

d.All of these choices are correct.

2. The adjusting entry to record accrued expenses includes a

a.credit to an expense account.

b.debit to an expense account.

c.credit to an asset account.

d.debit to a liability account.

3. The adjusting entry to record accrued expenses

a.is the same journal entry as recording expenses on account.

b.differs from the journal entry to record an expense payable on account.

c.includes a credit to an expense account.

d.includes a debit to a payable account.

Problem 1: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Market demand function: Q = 200 - 2P (direct form, which shows Q as a function of P) Market demand function in the indirect form: P = 100 – 0.5Q (indirect form because it shows P as a function of Q). Marginal revenue function: MR = 100 – Q (Notice that the slope of the MR function is twice the slope of the inverse demand function). Total Cost function: TC = 5Q Average Cost function: AC = (TC/Q) = 5 Marginal Cost function: MC = 5 [Note that whenever marginal cost is a constant number, MC will always be equal to AC.]

(a) Plot the demand and marginal revenue functions given. Plot the marginal cost and average cost information given.

(b) Find the output level that will be produced by a profit maximizing monopolist in a market equilibrium. Label it QM.

(c) Once you have found the monopolist’s profit maximizing quantity, find the price the monopolist will charge in the market. Label it PM.

(d) Find the numerical value of the total revenue earned by the monopolist at QM. Label the area on your graph.

(e) Find the numerical value of the total cost earned by the monopolist at QM. Label the area on your graph.

(f) Find the numerical value of the profit earned by the monopolist at QM. Label the area on your graph.

(g) Can you identify the area of the market consumer surplus at QM? Label the area of your graph. (Note you have to read the textbook chapter15 before doing this part. If you do not remember what is consumer surplus, take a quick look at chapter 7.?

(h) Label the producer surplus earned by the monopolist at QM.

(i) You are given the inverse demand function and the marginal cost value. Can you find the total industry output that would have been produced if this industry had been a perfectly competitive industry (instead of being a monopoly)? Label the perfectly competitive level of industry output on your graph as QC.

(j) Label the total market consumer surplus in the case of a perfectly competitive industry. Can you identify the area that shows the difference in consumer surplus amount between the monopoly industry and the perfectly competitive industry?

(k) Label the total market producer surplus in the case of a perfectly competitive industry. Can you identify the area that shows the difference in producer surplus amount between the monopoly industry and the perfectly competitive industry?

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:

Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5

a) suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?

b) suppose that a tax of $5 for each unit produced is imposed by state government. What is the price maximizing price?

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 ; MR = 100-Q ; TC = 5Q ; MC = 5

a) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?

b) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price?

c) Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?

Case A: Revenue Recognition for Products

Smooth Blend, Inc., a calendar year company, produces several blends of whiskey. Maturing whiskey is stored for 3 years in a large, dark aromatic warehouse owned by Smooth Blend. Smooth Blend sells the whiskey to Distributor Company at the beginning of the aging process (January 1, 2011). Distributor Company will pick up the whiskey at the end of the aging process (December 31, 2013) and take it to its facilities for bottling. Distributor Company pays the full purchase price to Smooth Blend on January 1, 2011 to protect itself against price increases.

1. When should Smooth Blend recognize revenue? Why?
2. Would your answer change
   1. If the quality control manager of Distributor Company had the right to taste the whiskey on December 31, 2013 and receive a full refund if not satisfied with the quality of the liquor?
   2. If there was no right of return but Smooth Blend promised to help Distributor Company attract customers?
   3. If Smooth Blend acquired a fixed price option from Distributor Company to repurchase the whiskey in 6 months?
3. How would your answer change if Smooth Blend sold the whiskey to Friendly Bank, agrees to oversee the aging process on the bank’s behalf, and acquires a fixed price forward from Friendly Bank to repurchase the whiskey in 6 months?

Case A: Revenue Recognition for Products

Smooth Blend, Inc., a calendar year company, produces several blends of whiskey. Maturing whiskey is stored for 3 years in a large, dark aromatic warehouse owned by Smooth Blend. Smooth Blend sells the whiskey to Distributor Company at the beginning of the aging process (January 1, 2011). Distributor Company will pick up the whiskey at the end of the aging process (December 31, 2013) and take it to its facilities for bottling. Distributor Company pays the full purchase price to Smooth Blend on January 1, 2011 to protect itself against price increases.

1. When should Smooth Blend recognize revenue? Why?
2. Would your answer change
   1. If the quality control manager of Distributor Company had the right to taste the whiskey on December 31, 2013 and receive a full refund if not satisfied with the quality of the liquor?
   2. If there was no right of return but Smooth Blend promised to help Distributor Company attract customers?
   3. If Smooth Blend acquired a fixed price option from Distributor Company to repurchase the whiskey in 6 months?
3. How would your answer change if Smooth Blend sold the whiskey to Friendly Bank, agrees to oversee the aging process on the bank’s behalf, and acquires a fixed price forward from Friendly Bank to repurchase the whiskey in 6 months?

1. Capital leases are most similar to

A. mortgage notes.

B. unearned revenue.

C. accounts payable.

D. regular notes payable.

2. A three-month note dated June 12 will mature on

A. September 12.

B. September 1.

C. June 12.

D. September 30.

3. Renaud, Inc. has credit sales of $85,000 for the period. The balance in Allowance for Doubtful Accounts is a debit of $817. If Renaud uses the aging method to estimate uncollectible accounts and an aging of accounts receivable reflected an estimated amount of uncollectible accounts of $6,342, what is the credit to Allowance for Doubtful Accounts?

A. $4,250

B. $6,342

C. $5,525

D. $7,159

4. Outstanding checks are

A. added to the bank balance.

B. subtracted from the bank balance.

C. added to the book balance.

D. subtracted from the book balance.

5. Which of the following would be included in the cost of land?

A. Fencing

B. Unpaid property taxes

C. Required paving

D. In-ground sprinkler systems

Liabilities include all of the following except:

A monopolist faces the following demand curve, marginal revenue, total cost curve and marginal cost curve for its product: Q = 200 - 2P ; MR = 100 - Q ; TC = 5Q ; MC = 5

a) What level of output maximizes total revenue?. b) What is the profit maximizing level of output?. c) What is the profit maximizing price?. d) How much profit does the monopolist earn? e) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output? f) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price? g) Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?