Errors and Adjusting Entries Use the following information to record necessary end of period journal entries:

A man came into Cutting Edge on 31 March 2020 to pay for repairs to his mower which he will bring in later. He paid $2,500 cash. The mower was arranged to be delivered to Cutting Edge on 10 April, 2020.

 Repair services of $6,250 were provided on 31 March 2020 but have not yet been recorded in the transactions. Payment has not yet been received.

 Billy-Bob did a count of the stock on hand of Workshop Supplies. He realised that only $5,500 of Workshop Supplies were used in March, instead of $7,000 as recorded on 31 March 2020 (in Practice Set 2).

 Jimmy-James’ last wages payment was on Friday 20 March. The next $1,000 fortnightly payment is on Friday 3 April. Jimmy-James only works Monday to Friday, being 10 days per fortnight.

 Annual insurance of $1,200 was paid on 1 February and recorded in the Prepaid Insurance account.

 From all sources of revenue (Sales Revenue and Service Revenue), $70,730 was cash sales.

 Add any other necessary adjusting entries based on the information provided under the accounting policies and procedures.

Instructions: Using the format provided, identify for each account, including an asterisk for contra accounts:

1.   Whether the account will appear on a balance sheet (B/S), income statement (I/S), or neither (N)

2... Whether the account is an asset (A), liability (L), owners’ equity (OE), revenue (R), expense (E), or other (O)

3.   Whether the account is real or nominal

4.   Whether the account will be “closed” or left “open” at year-end

5.   Whether the account normally has a debit (Dr.) or a credit (Cr.) balance

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                                                           (1)                          (2)                     (3)                 (4)                       (5)

                                                   B/S, I/S, N             A, L, OE,           Real or        Open or             Dr. or

                                                                                     R, E, O            Nominal        Closed                 Cr.

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Example: Cash                                   B/S                          A                      Real                Open                     Dr.

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(a)   Unearned Rent Revenue

(b) Accounts Receivable

(c)    Inventory

(d)   Accounts Payable

(e)   Prepaid Rent

(f)    Mortgage Payable

(g)   Sales

(h)   Cost of Goods Sold

(i)    Dividends

(j)    Dividends Payable

(k)   Interest Receivable

(l)    Wages Expense

(m) Interest Revenue

(n)   Supplies

(o)   Accumulated Depreciation

(p)   Retained Earnings

(q)   Goodwill

(r)    Additional Paid-In Capital

Problem 5-10 Long-term contract; revenue recognition over time [LO5-8, 5-9]

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

Problem 5-10 Part 5

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Florence is considering going into business for herself and has developed the following estimates of monthly costs and revenues to aid her in her decision-making process. She has decided to house the business in a building that she already owns, although she could rent the building to someone else for $1,000 per month. Estimated payments for utilities (electricity, natural gas, water, and telephone) are $475 per month. She will hire one employee at a total cost of $1,100 per month. Inventory is estimated to cost $2,800 per month. Finally, Florence earns $3,000 a month in her current job. (show your calculations)

a) How much monthly revenue would Florence have to take in to earn zero economic profit?

b) Assume that Florence has estimated her monthly revenue to be $9,000. In this case, Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.

c) Assume instead that Florence does not own a building, and that she will have to rent a building for $1,000 per month (all other estimates remain the same). In this case (assuming estimated monthly revenue is still $9,000), Florence would earn an accounting profit (loss) of ________, and an economic profit (loss) of ________.

Required
Use the following information to prepare a multistep income statement and a classified balance sheet for Eller Equipment Co. for Year 1. (Hint: Some of the items will not appear on either statement, and ending retained earnings must be calculated.)

Toyota is considering installing a new production line which is forecasted to start earning $5 million of revenue in the second year of operation. Revenue is projected to decrease at 10% p.a., operating costs are 25% of annual revenue and the production line is kept till the end of year 4, after which it is sold for $2 million. Setting up the production line requires $2 million today and $4 million in the first year. 40% Toyota capital is financed through equity which has a cost of 14% and the creditors are willing to charge 6% less than what the shareholders earn

(a) Draw timeline and set out the cash flows by year

(b) Calculate the required rate of return of this project

(c) What is the IRR of this project? Explain if Toyota should accept this project according to the IRR rule.

(d) What is the NPV of this project? Explain if Toyota should accept this project according to the NPV rule?

(e) If Toyota's credit rating upgrades from A to AA, holding other factors constant, explain

- how this change would affect WACC?

- how the IRR and NPV of the project and the capital budgeting decision made by using IRR approach and NPV approach would be affected

Question 1

If you lower the price of a product by 5% and the volume sold increases by 10%, this is considered _____.

1. inelastic demand
2. elastic demand

Question 2

A negative aspect of selecting unit volume as a pricing objective is that..

1. if price reductions are used to achieve volume objectives, it can sometimes come at the expense of profits
2. production often cannot keep up with demand
3. there are increased carrying costs with extensive inventories
4. it always positively correlates with a sales revenue objective
5. it can create competition between divisions within the organization itself causing conflicts over the allocation of resources

Question 3

Netflix used to charge $14.99 per month for its movie rental service. However, when Blockbuster introduced the same service at $13.99, Netflix dropped its price to $13.99. Netflix most likely made this price reduction in an attempt to...

1. decrease revenue but increase profit

2. increase efficiency
3. increase profit by decreasing revenue
4. maintain market share
5. decrease market share

Question 4

Buyers are more price sensitive when _____.

1. they need the product right away
2. they are more aware of substitutes for the product
3. the product is significantly more distinctive than others on the market
4. the product is a status symbol
5. the expenditure is small relative to their total income

10.An unethical act:

A.Is always illegal as well

B.Is not necessarily illegal

C.Must, at minimum, violate a government regulation

D.Is determined for the accounting profession by the FASB

11.You are an Accountant for a growing tech company and ready for IPO. During year end you are responsible for accruing revenues to prepare the financial statement. Accrual entries are subjective as it’s an estimate of what is anticipated to be received. CEO or company is counting on you to do the “right thing” so to meet analysts’ expectations. If you applied utilitarian method to make your decision which one of the following most closely applies ?

A.Accrue revenue. While it’s technically not proper GAAP accounting, it will benefit the shareholders and CEO.

B.None of the above

C.Accrue revenue because it’s the right thing to do.

D.Don’t accrue revenue because it won’t benefit anyone

12.The AICPA’s Code of Professional Conduct establishes:

A.The rules for resolving technical judgments in achieving a fair presentation of financial statements.

B.The normative rules of ethical behavior that guide professional accountants.

C.The rules of conduct for conducting audits, but no other forms of attestation.

D.The rules of conduct for structuring and conducting audits and other attestation engagements.

The following are selected ledger accounts of Waterway Corporation at December 31, 2017.

Waterway’s effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is $687,300.

Prepare a condensed 2017 income statement for Waterway Corporation. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Drew Corporation's capital structure consists of 50,000 shares of common stock. At December 31, 2019 an analysis of the accounts and discussions with company officials revealed the following information: Sales revenue 1,100,000 Cost of Goods Sold 701,000 Income from operations of discontinued product line 35,000 Loss on disposal of discontinued production line 70,000 Selling expenses 128,000 Cash 60,000 Accounts receivable 90,000 Unrealized gain on available for sale securities 12,000 Common stock 200,000 Accumulated depreciation-machinery 180,000 Dividend revenue 8,000 Inventory, December 31, 2019 125,000 Unearned service revenue 4,400 Interest payable 1,000 Land 370,000 Retained earnings, January 1, 2019 290,000 Interest expense 17,000 Administrative expenses 170,000 Dividends declared 24,000 Allowance for doubtful accounts 5,000 Notes payable (maturity 7/1/20) 200,000 Machinery 450,000 Supplies 40,000 Accounts payable 60,000 Pension loss from minimum pension adjustment 20,000 Overstatement of Depreciation Expense in 2018 32,000 Assume an income tax rate of 25%. Prepare a multiple-step income statement for the year ended December 31st, 2019