In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. The addition would have two primary benefits: to eliminate the need to purchase shortwood from an outside supplier and create the opportunity to sell shortwood on the open market as a new market for Worldwide Paper Company (WPC). The new woodyard would allow the Blue Ridge Mill not only to reduce its operating costs but also to increase its revenues. The proposed woodyard utilized new technology that allowed tree-length logs, called longwood, to be processed directly, whereas the current process required shortwood, which had to be purchased from the Shenandoah Mill. This nearby mill, owned by a competitor, had excess capacity that allowed it to produce more shortwood than it needed for its own pulp production. The excess was sold to several different mills, including the Blue Ridge Mill. Thus adding the new longwood equipment would mean that Prescott would no longer need to use the Shenandoah Mill as a shortwood supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the shortwood market. The question for Prescott was whether these expected benefits were enough to justify the $18 million capital outlay plus the incremental investment in working capital over the six-year life of the investment.

Construction would start within a few months, and the investment outlay would be spent over two calendar years: $16 million in 2007 and the remaining $2 million in 2008. When the new woodyard began operating in 2008, it would significantly reduce the operating costs of the mill. These operating savings would come mostly from the difference in the cost of producing shortwood on-site versus buying it on the open market and were estimated to be $2.0 million for 2008 and $3.5 million per year thereafter.

Prescott also planned on taking advantage of the excess production capacity afforded by the new facility by selling shortwood on the open market as soon as possible. For 2008, he expected to show revenues of approximately $4 million, as the facility came on-line and began to break into the new market. He expected shortwood sales to reach $10 million in 2009 and continue at the $10 million level through 2013. Prescott estimated that the cost of goods sold (before including depreciation expenses) would be 75% of revenues, and SG&A would be 5% of revenues.

In addition to the capital outlay of $18 million, the increased revenues would necessitate higher levels of inventories and accounts receivable. The total working capital would average 10% of annual revenues. Therefore the amount of working capital investment each year would equal 10% of incremental sales for the year. At the end of the life of the equipment, in 2013, all the net working capital on the books would be recoverable at cost, whereas only 10% or $1.8 million (before taxes) of the capital investment would be recoverable.

Taxes would be paid at a 40% rate, and depreciation was calculated on a straight-line basis over the six-year life, with zero salvage. WPC accountants had told Prescott that depreciation charges could not begin until 2008, when all the $18 million had been spent, and the machinery was in service.

You have been approached by Prescott with a request to evaluate the project. If the required rate of return is 9.65%, what are the payback period, profitability index, net present value, and internal rate of return for the investment project? Should WPC implement the investment project?

A national study shows that in 2006 the average price of gasoline was $2.51 per gallon. The population standard deviation was shown to be $0.61. A 2007 random study of 81 Maryland gas stations showed the average price of gasoline per gallon to be $2.73. Is there significant evidence to suggest that the average price of a gallon of gasoline is more in Maryland in 2007? Test at the 10% significance level.

In December 2006, Bob Prescott, the controller for the Blue Ridge Mill, was considering the addition of a new on-site longwood woodyard. The addition would have two primary benefits: to eliminate the need to purchase shortwood from an outside supplier and create the opportunity to sell shortwood on the open market as a new market for Worldwide Paper Company (WPC). The new woodyard would allow the Blue Ridge Mill not only to reduce its operating costs but also to increase its revenues. The proposed woodyard utilized new technology that allowed tree-length logs, called longwood, to be processed directly, whereas the current process required shortwood, which had to be purchased from the Shenandoah Mill. This nearby mill, owned by a competitor, had excess capacity that allowed it to produce more shortwood than it needed for its own pulp production. The excess was sold to several different mills, including the Blue Ridge Mill. Thus adding the new longwood equipment would mean that Prescott would no longer need to use the Shenandoah Mill as a shortwood supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the shortwood market. The question for Prescott was whether these expected benefits were enough to justify the $18 million capital outlay plus the incremental investment in working capital over the six-year life of the investment. Construction would start within a few months, and the investment outlay would be spent over two calendar years: $16 million in 2007 and the remaining $2 million in 2008. When the new woodyard began operating in 2008, it would significantly reduce the operating costs of the mill. These operating savings would come mostly from the difference in the cost of producing shortwood on-site versus buying it on the open market and were estimated to be $2.0 million for 2008 and $3.5 million per year thereafter. Prescott also planned on taking advantage of the excess production capacity afforded by the new facility by selling shortwood on the open market as soon as possible. For 2008, he expected to show revenues of approximately $4 million, as the facility came on-line and began to break into the new market. He expected shortwood sales to reach $10 million in 2009 and continue at the $10 million level through 2013. Prescott estimated that the cost of goods sold (before including depreciation expenses) would be 75% of revenues, and SG&A would be 5% of revenues. In addition to the capital outlay of $18 million, the increased revenues would necessitate higher levels of inventories and accounts receivable. The total working capital would average 10% of annual revenues. Therefore the amount of working capital investment each year would equal 10% of incremental sales for the year. At the end of the life of the equipment, in 2013, all the net working capital on the books would be recoverable at cost, whereas only 10% or $1.8 million (before taxes) of the capital investment would be recoverable. Taxes would be paid at a 40% rate, and depreciation was calculated on a straight-line basis over the six-year life, with zero salvage. WPC accountants had told Prescott that depreciation charges could not begin until 2008, when all the $18 million had been spent, and the machinery was in service. You have been approached by Prescott with a request to evaluate the project. If the required rate of return is 9.65%, what are the payback period, profitability index, net present value, and internal rate of return for the investment project? Should WPC implement the investment project?

5. There are two kinds of third-party payers; private insurers or public insurers. Describe the two and give examples of each.

7. Understand the similarities and differences between different reimbursement methods, such as fee-for-service reimbursement and capitation.

8. Explain the difference between cash accounting and accrual accounting. How are the revenue recognition and matching principles related?

9. What is the difference between operating and net income?

Journalize the March transactions. Use only accounts from the company's chart of accounts, which are cash, accounts receivable, prepaid insurance, equipment, accumulated depreciation-equipment, accounts payable, salaries payable, unearned service revenue, common stock, retained earnings, dividends, income summary, service revenue, salaries expense, utilities expense, insurance expense and depreciation expense. Omit journal entry descriptions.

Mar. 2 Stockholders invested $68,500 cash in the business in exchange for common stock of the corporation.

Mar. 3 Purchased equipement for $42,800 cash.

Mar. 6 Purchased a $2,700 1-year insurance policy on account.

Mar. 19 Sold 100 coupon books for $150 each in cash. Each book contains coupons that enable the holder to play one round of miniature golf or to hit one bucket of golf balls

Mar. 20 Received the month's utility bill for $780.

Mar. 25 Paid a $600 cash dividend.

Mar. 30 Performed golf services totaling $8,000 for customers on account.

31 1/12th of the insurance policy expired.

31 Equipment is depreciated at 1/10th of cost with no salvage value

31 36 coupon books were redeemed by customers during the month.

31 Accrued salaries are $2,230

[hint: totals = $101,490 for adjusted trial balance]

Journalize the March transactions. Use only accounts from the company's chart of accounts, which are cash, accounts receivable, prepaid insurance, equipment, accumulated depreciation-equipment, accounts payable, salaries payable, unearned service revenue, common stock, retained earnings, dividends, income summary, service revenue, salaries expense, utilities expense, insurance expense and depreciation expense. Omit journal entry descriptions.

Mar. 2 Stockholders invested $68,500 cash in the business in exchange for common stock of the corporation.

Mar. 3 Purchased equipement for $42,800 cash.

Mar. 6 Purchased a $2,700 1-year insurance policy on account.

Mar. 19 Sold 100 coupon books for $150 each in cash. Each book contains coupons that enable the holder to play one round of miniature golf or to hit one bucket of golf balls

Mar. 20 Received the month's utility bill for $780.

Mar. 25 Paid a $600 cash dividend.

Mar. 30 Performed golf services totaling $8,000 for customers on account.

31 1/12th of the insurance policy expired.

31 Equipment is depreciated at 1/10th of cost with no salvage value

31 36 coupon books were redeemed by customers during the month.

31 Accrued salaries are $2,230

[hint: totals = $101,490 for adjusted trial balance]

As an audit supervisor in an international public accounting firm, you are in charge of the audit of several firms with 31 March year-ends. The financial statements of these firms are prepared in compliance with U.S GAAP, and are expected to be authorized for issue in early June 2017. Your audit juniors on the job have approached you for advice on the following case:

Auto Arrow (AA) does not maintain a proper accounting system. A main bulk of its existing source documents were destroyed in a fire. Based on available records and contacts with its customers and also with reference to its 2015/2016 financial statements, it managed to provide the following information for the 2016/2017 financial year:

A additional information

1. Sales returns during the year amounted to $6,000.
2. Cash received from its customers = $920,000 of which $50,000 related to an advance payment made by Customer L for goods to be delivered in the financial year 2017/2018.
3. $30,000 of Bad Debt Expense is recognized in the financial year 2016/2017 profit and loss.

The accountant is unsure of how to determine the gross sales revenue for the year. Assume all sales are on credit.

Required: Determine the gross sales revenue for the financial year 2016/2017.

Question 2:

On September 30, 2017, the Radison Avenue Incorporated post-closing trial balance was as follows. The company adjusts its accounts monthly.

During October, the following transactions were completed:

Paid $2,300 to employees for salaries due, of which $1,800 is for September salaries payable and $500 for October

Issued common shares for $4,800

Received $11,200 cash from customers in payment of accounts

Received $12,700 cash for services performed in October Purchased supplies on account, $675

Paid creditors $3,200 of accounts payable due

Paid October rent, $550

Paid salaries, $2,150

Performed services on account, $3,200

Paid a cash dividend, $600

Received $1,350 from customers for services to be provided in the future

Adjustment data for the month:

1. Accrued salaries payable are $1,100

2. Unearned revenue of $850 was earned during the month

3. Income tax payable is estimated to be $600

Required:

In good format, and making whatever assumption you feel appropriate, prepare an accrual-based Income Statement and Statement of Financial Position (Balance Sheet) for the month ending October 2017.

Problem 7-9 Dixie Showtime Movie Theaters, Inc., owns and operates a chain of cinemas in several markets in the southern U.S. The owners would like to estimate weekly gross revenue as a function of advertising expenditures.

Data for a sample of eight markets for a recent week follow. Market Weekly Gross Revenue ($100s) Television Advertising ($100s) Newspaper Advertising ($100s) Mobile 102.5 5.1 1.6 Shreveport 52.7 3.2 3 Jackson 75.8 4 1.5 Birmingham 127.8 4.3 4 Little Rock 137.8 3.5 4.3 Biloxi 101.4 3.6 2.3 New Orleans 237.8 5 8.4 Baton Rouge 219.6 6.9 5.8

(a) Use the data to develop an estimated regression with the amount of television advertising as the independent variable. Let x represent the amount of television advertising. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300) = + x Test for a significant relationship between television advertising and weekly gross revenue at the 0.05 level of significance. What is the interpretation of this relationship? The input in the box below will not be graded, but may be reviewed and considered by your instructor.

(b) How much of the variation in the sample values of weekly gross revenue does the model in part (a) explain? If required, round your answer to two decimal places. %

(c) Use the data to develop an estimated regression equation with both television advertising and newspaper advertising as the independent variables. Let x1 represent the amount of television advertising. Let x2 represent the amount of newspaper advertising. If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank. (Example: -300) = + x1 + x2 Test whether each of the regression parameters β0, β1, and β2 is equal to zero at a 0.05 level of significance. What are the correct interpretations of the estimated regression parameters? Are these interpretations reasonable?

(d) How much of the variation in the sample values of weekly gross revenue does the model in part (c) explain? If required, round your answer to two decimal places. % (e) Given the results in part (a) and part (c), what should your next step be? Explain. (f) What are the managerial implications of these results?