Questions
Operating exposure. ​ Copy-Cat, Inc. has signed a deal to make vintage Nissan​ 240-Z sports cars...

Operating exposure. ​ Copy-Cat, Inc. has signed a deal to make vintage Nissan​ 240-Z sports cars for the next three years. The company will build the cars in Japan and ship them to the United States for sale. The current indirect rate is ¥114.0659 per dollar. The anticipated inflation rate for parts and labor in Japan is 2.4​%over the next three​ years, and the anticipated overall inflation rate for Japan is 3.4​%over the next three years. The expected overall inflation rate in the United States is 4.7% over the next three years. ​ (The stated rates are on an annual​ basis.) If​ Copy-Cat plans to sell 600 cars a year at an initial price of $40,000 and the cost of production is ¥4,076,500​, what is the annual profit in dollars for​ Copy-Cat? Assume it takes one year for production and all sales revenues and production costs occur at the end of the year. Is this profit rising or falling each​ year? ​ Why?

What is the expected sales revenue per car in dollars for​Copy-Cat in year​ 1?

​$ (Round to the nearest​ cent.)

What is the expected sales revenue per car in dollars for​Copy-Cat in year​ 2?

​$​(Round to the nearest​ cent.)

What is the expected sales revenue per car in dollars for​Copy-Cat in year​ 3?

​$​(Round to the nearest​ cent.)

What is the expected production cost per car in dollars for​Copy-Cat in year​ 1?

​$(Round to the nearest​ cent.)

What is the expected production cost per car in dollars for​Copy-Cat in year​ 2?

​$​(Round to the nearest​ cent.)

What is the expected production cost per car in dollars for​Copy-Cat in year​ 3?

​$(Round to the nearest​ cent.)

What is the expected profit in dollars for​ Copy-Cat in year​ 1? Enter a negative number for a loss.

​$​(Round to the nearest​ dollar.)

What is the expected profit in dollars for​ Copy-Cat in year​ 2? Enter a negative number for a loss.

​$​(Round to the nearest​ dollar.)

What is the expected profit in dollars for​ Copy-Cat in year​ 3? Enter a negative number for a loss.

​$(Round to the nearest​ dollar.)

Will these new anticipated inflation rates affect the production of vintage​ 240-Zs? ​ Why?  ​(Select the best​ response.)

A. The profit​ (loss) is rising​ (falling) each year as the revenue is growing at a higher inflation rate than the production costs despite the weakening yen against the dollar.

B. The profit​ (loss) is falling​ (rising) each year as the revenue is growing at a higher inflation rate than the production costs despite the weakening yen against the dollar.

C. The profit​ (loss) is falling​ (rising) each year as the yen is weakening against the dollar despite different inflation rates in the two countries.

D. The profit​ (loss) is rising​ (falling) as the revenue is growing at a higher inflation rate than the production costs and the weakening yen against the dollar allows for the production costs to fall even more.

In: Accounting

CREATE THE JANUARY 31, 2018 UNADJUSTED TRIAL BALANCE FOR THE FOLLOWING JOURNAL EQUATIONS a. 1/1/18 Office...

CREATE THE JANUARY 31, 2018 UNADJUSTED TRIAL BALANCE FOR THE FOLLOWING JOURNAL EQUATIONS
a. 1/1/18 Office Supplies 350
         Accounts Payable 350
To record on credit payment for office supplies
b. 1/1/18 Prepaid Insurance 1800
         Cash 1800
To record purchase of 24-month insurance for cash
c. 1/1/18 Computer Equipment 2100
         Accounts Payable 2100
To record purache of computer equipment
d. 1/5/18 Merchandise Inventory 1275
         Accounts Payable 1275
To record purchase of merchandis for resale
e. 1/8/18 Accounts Payble 2100
        Sales Discount 42
        Cash 2058
To record full payment for computer equipment
f. 1/10/18 Accounts Payable 350
        Cash 350
To record full payment for office supplies
g. 1/12/18 Unearned Revenue 5000
        Sales Revenue 5000
To record delivery of interior layout
h. 1/14/18 Accounts Receivable 18,500
         Sales Revenue 18,500
To record project completed and billed to customer
i. 1/16/18 Wages Expense 4225
Payroll taxes expense 1055
        Cash 5280
To record wage and tax payment
j. 1/18/18 Cash 30
        Office Supplies 30
To record refund of items returned from Jan. 1
k. 1/20/18 Cash 5000
        Accounts Receivable 5000
To record payment of work
l. 1/24/18 Cash 275
        Sales Revenue 275
To record sale of side table
m. 1/26/18 Accounts Payable 200
       Merchandise Inventory 200
To record inventory returned to supplier
n. 1/30/18 Cash 9250
       Accounts Receivable 9250
To record partial payment for invoice on Jan. 14
january 1, 2018 Beginning Balances
Description Debit Credit
Cash    95,349.00
Accounts Receivable       7,250.00
Inventory       4,898.00
Prepaid Insurance       3,250.00
Prepaid Rent       1,750.00
Building
Computers & Software       2,740.00
Accumulated Dep Comp              411.00
Furniture & Fixtures       5,775.00
Accumulated Dep F&F              619.00
Land
Machinery & Equipment
Accumulated Dep M&E
Accounts Payable          1,600.00
Payroll Tax Payable          1,055.00
Sales Tax Payable              250.00
Unearned Revenue          5,000.00
Line of Credit
Notes Payable
Wages Payable          4,225.00
Peters, J., Capital          1,000.00
Peters, M., Capital          1,000.00
Retained Earnings    105,852.00
Designing Revenue
Furnishing Sales
Cost of Goods Sold
Vendor Compensation
Contract Labor Expense
Materials Expense
Supplies Expense
Wages Expense
Depreciation Expense
Insurance Expense
Office Rent Expense
Office Supplies Expense
Payroll Tax Expense
Postage Expense
Small Tools Expense

In: Accounting

Fragrant sold $4,000 worth of perfume to customers, of which 90% paid in cash and the...

Fragrant sold $4,000 worth of perfume to customers, of which 90% paid in cash and the rest still owe. The cost of the perfume was $1,000 as has not been paid yet. All other operating costs incurred, totaling $1,200, have been paid. How much does accrual basis income differ from cash basis income?: *

A) They are the same.

B) Accrual basis income is $600 lower than cash basis income.

C) Accrual basis income is $600 higher than cash basis income.

D) Accrual basis income is $1,000 lower than cash basis income.

E) Accrual basis income is $1,000 higher than cash basis income.

2. Lavish Interiors Magazine sells 24-month subscriptions for $60 each. Whenever customers buy a subscription, Lavish debits cash and credits unearned subscription revenue. During the month of November, the magazine collected $60,000 for new subscriptions beginning in December. If Lavish fails to record an adjusting entry pertaining to these subscriptions on December 31st, how would the financial statements be affected?: *

A) No adjusting entry is required at December 31st.

B) Revenue will be overstated by $2,500.

C) Revenue will be understated by $2,500.

D) Revenue will be overstated by $60,000.

E) Revenue will be understated by $60,000.

3. Blades Inc. sold off the roller skate segment of its business during the year, incurring a $125,000 loss on the sale of the segment’s assets and recognizing $15,000 of profit for the partial period that the roller skate segment operated during the year. The applicable tax rate is 30%. What is the amount reported as discontinued operations after the subtotal “Income from Continuing Operations?”: *

A) Loss on discontinued operation $125,000

B) Loss on discontinued operation $87,500

C) Loss on discontinued operation $110,000

D) Loss on discontinued operation $77,000

E) Gain on discontinued operations $4,500

4. Solar Inc.’s 20X1’s results are shown below. What would “Income Before Taxes” on the multiple-step Income Statement be for the Year Ended 20X1?

Sales, net of returns and allowances

$300,000

Cost of Goods Sold

$100,000

Salaries and Wages Expense

$50,000

Interest Revenue

$1,000

Loss on sale of long term assets

$5,000

Interest Expense

$5,000

Loss from Change in Accounting Principle, net of tax

$1,000

Income Tax Expense

$30,000

Occupancy Expense

$60,000

: *

A) $91,000

B) $90,000

C) $86,000

D) $56,000

E) $55,000

5. Prepaid Insurance was $10,000 at the beginning of the period and $5,000 at the end of the period. Insurance expense in the Income Statement for the period was $47,000. What is the adjustment to Net Income in the indirect method on the Cash Flow Statement because of the rent transactions for the period?: *

A) Increase Net Income by $5,000

B) Increase Net Income by $10,000

C) Increase Net Income by $15,000

D) Decrease Net Income by $5,000

E) Decrease Net Income by $10,000

In: Accounting

For each transaction, (1) analyze the transaction using the accounting equation, (2) record the transaction in...

For each transaction, (1) analyze the transaction using the accounting equation, (2) record the transaction in journal entry form, and (3) post the entry using T-accounts to represent ledger accounts. Use the following (partial) chart of accounts—account numbers in parentheses: Cash (101); Accounts Receivable (106); Office Supplies (124); Trucks (153); Equipment (167); Accounts Payable (201); Unearned Landscaping Revenue (236); D. Tyler, Capital (301); D. Tyler, Withdrawals (302); Landscaping Revenue (403); Wages Expense (601), and Landscaping Expense (696).

  1. On May 15, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $78,000 in cash along with equipment having a $38,000 value.
  2. On May 21, Elegant Lawns purchases office supplies on credit for $440.
  3. On May 25, Elegant Lawns receives $8,600 cash for performing landscaping services.
  4. On May 30, Elegant Lawns receives $1,800 cash in advance of providing landscaping services to a customer.

For each of the above transaction, analyze the transaction using the accounting equation. (Enter total amounts only.)
Assets = Liabilities + Equity
a. = +
b. = +
c. = +
d. = +

For each of the above transaction, record the transaction in journal entry form. Use the following (partial) chart of accounts—account numbers in parentheses: Cash (101); Accounts Receivable (106); Office Supplies (124); Trucks (153); Equipment (167); Accounts Payable (201); Unearned Landscaping Revenue (236); D. Tyler, Capital (301); D. Tyler, Withdrawals (302); Landscaping Revenue (403); Wages Expense (601), and Landscaping Expense (696).

  • On May 15, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $78,000 in cash along with equipment having a $38,000 value.
  • On May 21, Elegant Lawns purchases office supplies on credit for $440.
  • On May 25, Elegant Lawns receives $8,600 cash for performing landscaping services.
  • On May 30, Elegant Lawns receives $1,800 cash in advance of providing landscaping services to a customer.

Note: Enter debits before credits.
Date General Journal Debit Credit
May 15

Post the entry using T-accounts to represent ledger accounts. (TIP: For right side T-account entries you must use a right side date selection. For left side T-account entries you must use a left side date selection.)
Cash 101 Office Supplies 124
Date Amount Date Amount Date Amount Date Amount
End. bal. End. bal.
Equipment 167 Accounts Payable 201
Date Amount Date Amount Date Amount Date Amount
End. bal. End. bal.
Unearned Landscaping Revenue 236 D. Tyler, Capital 301
Date Amount Date Amount Date Amount Date Amount
End. bal. End. bal.
Landscaping Revenue 403
Date Amount Date Amount
End. bal.

In: Accounting

The Marginal Principle states, “Increase the level of activity as long as its marginal benefit exceeds...

The Marginal Principle states, “Increase the level of activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.” The Widget Factory makes and sells widgets in a perfectly competitive market, operating in the short term. Fixed cost per widget is $4 Labor costs is $23 per worker (Variable cost per worker) Widgets sell for $13 each (Revenue price per unit) Workers 10 11 12 13 14 15 16 17 Output 6 30 41 46 50 53 55 56 Suggestion:

It is helpful to first put your data into a table, and then create the graph. Refer to chapters 5 and 6 for examples of tables and for the MC, MR and ATC formulas. Using the data from above:. Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level?

Repeat #1, but alter your data by increasing labor costs to $28 (due to higher wage rate, higher costs of benefits, etc.). Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level?

Repeat #1, but alter your data by increasing fixed costs to $6 (due to higher rent, energy, taxes, material costs, etc.) Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level?

Repeat #1, but raise the price of the product to $15. Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level?

Repeat #1, but lower the price of the product to $10. Graph the Marginal Cost (MC), the Marginal Revenue (MR), and the Average Total Cost (ATC). What level of output will the firm select, and how many employees will be hired? What is the economic profit at this level of output, and what is the economic profit at output levels slightly above and slightly below this level? State a general observation about the number of employees who will need to be hired in the 1-5 scenarios.

In: Economics

Cuneo Company’s income statements for the last 3 years are as follows: Cuneo Company Income Statements...

Cuneo Company’s income statements for the last 3 years are as follows:

Cuneo Company

Income Statements

For the Years 1, 2, and 3

1

Year 1

Year 2

Year 3

2

Sales

$1,000,000.00

$1,200,000.00

$1,700,000.00

3

Less: Cost of goods sold

(700,000.00)

(700,000.00)

(1,000,000.00)

4

Gross margin

$300,000.00

$500,000.00

$700,000.00

5

Less operating expenses:

6

Selling expenses

(150,000.00)

(220,000.00)

(250,000.00)

7

Administrative expenses

(50,000.00)

(60,000.00)

(120,000.00)

8

Operating income

$100,000.00

$220,000.00

$330,000.00

9

Less:

10

Interest expense

(25,000.00)

(25,000.00)

(25,000.00)

11

Income before taxes

$75,000.00

$195,000.00

$305,000.00
Required:
1. Prepare a common-size income statement for Year 1 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.)
2. Prepare a common-size income statement for Year 2 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.)
3. Prepare a common-size income statement for Year 3 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.)

1. Prepare a common-size income statement for Year 1 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.)

Cuneo Company

Income Statement

For Year 1

1

Year 1

Percent of Sales in Year 1

2

3

4

5

6

7

8

9

10

11

2. Prepare a common-size income statement for Year 2 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.)

Cuneo Company

Income Statement

For Year 2

1

Year 2

Percent of Sales in Year 2

2

3

4

5

6

7

8

9

10

11

3. Prepare a common-size income statement for Year 3 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.)

Cuneo Company

Income Statement

For Year 3

1

Year 3

Percent of Sales in Year 3

2

3

4

5

6

7

8

9

10

11

In: Accounting

Use the following information to answer the next two questions: Shindo Inc. purchased land owned by...

Use the following information to answer the next two questions:
Shindo Inc. purchased land owned by Buffet, Inc. for $375,000 by giving a 300-day, 16% note payable.
1. The journal entry would include a debit to which type of account?
A. Asset
B. Liability
C. Owners’ Equity
D. Revenue
E. Expense
2. The journal entry would include a credit to which type of account?
A. Asset
B. Liability
C. Owners’ Equity
D. Revenue
E. Expense

3. A balance sheet is designed to show:
A. How much a business is worth.
B. The profitability of the business during the current year.
C. The amount of Dividends paid to shareholders since the business started operations.
D. The cost of replacing the assets and of paying off the liabilities at December 31.
E. None of the above.
4. The accountant for the Thomas Company forgot to make an adjusting entry to record accrued interest payable for the current year. The effect of this error would be:
A. An overstatement of net income and an understatement of liabilities.
B. An overstatement of assets offset by an understatement of owner’s equity.
C. An overstatement of assets, net income, and owner’s equity.
D. An overstatement of assets and of net income and an understatement of owner’s equity.
E. None of the above.
5. All the following accounts normally have credit balances except:
A. Fees Revenue
B. Common Stock
C. Prepaid Rent
D. Common Stock
E. None of the above
6. Closing entries never involve posting a credit to the:
A. Income Summary account.
B. Unearned Revenue account.
C. Retained Earnings account
D. Depreciation Expense account.
E. None of the above.
7. The CPA firm auditing Gable Company found that net income had been overstated. Which of the following errors could be the cause?
A. No entry made to record purchase of land for cash on the last day of the year.
B. Failure to record dividends declared and paid for the period.
C. Failure to record payment in cash of accounts payable on the last day of the year.
D. Failure to make an adjusting entry to record revenue which had been earned but not yet billed to customers.
E. None of the above.
8. The purpose of adjusting entries is to:
A. Update the balance in Common Stock.
B. Record certain revenue and expenses that are not properly measured in the course of recording daily routine transactions.
C. Update the balance in the Cash account.
D. Close all temporary accounts.
E. None of the above.
9. Depreciation expense may be described best as the:
A. Decline in the market value of an asset during the period.
B. Systematic allocation of the cost of long-lived assets to expense.
C. Cash payments made during the period on loans used to finance the purchase of assets such as buildings and equipment.
D. Cash being set aside each period to provide for the replacement of long-lived assets, such as buildings and equipment.
E. None of the above.

In: Accounting

income statements and balance sheets follow for Microsoft Corporation. Refer to these financial statements to answer...

income statements and balance sheets follow for Microsoft Corporation. Refer to these financial statements to answer the requirements. (non-operating items are red-marked)

MICROSOFT CORPORATION

Income Statements

For the years ended June 30,

(in millions)

2016

2015

Revenue

     Product

$61,502

$75,956

     Service

23,818

17,624

Total revenue

85,320

93,580

Cost of revenue

     Product

17,880

21,410

     Service and other

14,900

11,628

Total cost of revenue

32,780

33,038

Gross margin

52,540

60,542

Research and development

11,988

12,046

Sales and marketing

14,697

15,713

General and administrative

4,563

4,611

Impairment, integration, and restructuring

   1,110

10,011

Operating income

20,182

18,161

Other income (expense), net

(431)

346

Income before taxes

19,751

18,507

Provision for income taxes

   2,953

6,314

Net income

$16,798

$ 12,193

  

MICROSOFT CORPORATION

Balance Sheet

As of June 30,

(in millions)

2016

2015

Current assets:

   Cash and cash equivalents

$    6,510

$    5,595

   Short-term investments

106,730

90,931

   Accounts receivable, net

18,277

17,908

   Inventories

2,251

2,902

   Other current assets

     5,892

5,461

Total current assets

139,660

122,797

Property and equipment, net

18,356

14,731

Equity and other investments

10,431

12,053

Goodwill

17,872

16,939

Intangible assets, net

3,733

4,835

Other long-term assets

     3,642

3,117

Total assets

$193,694

$174,472

Current liabilities:

   Accounts payable

$    6,898

$     6,591

   Short-term debt

12,904

4,985

   Current portion of long-term debt

0

2,499

   Accrued compensation

5,264

5,096

   Income taxes

580

606

   Short-term unearned revenue

27,468

23,223

   Other current liabilities

     6,243

6,647

Total current liabilities

59,357

49,647

Long-term debt

40,783

27,808

Long-term unearned revenue

6,441

2,095

Deferred income taxes

1,476

1,295

Other long-term liabilities

   13,640

13,544

Total liabilities

121,697

94,389

Stockholders' equity:

   Common stock and paid-in capital

68,178

68,465

   Retained earnings

2,282

9,096

   Accumulated other comprehensive income

      1,537

2,522

Total stockholders' equity

    71,997

80,083

Total liabilities and stockholders' equity

$193,694

$ 174,472

Required:

Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years.

Compute net operating assets (NOA) for 2016 and 2015. Assume Equity and other investments are operating assets.

Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $26,720 million in 2014.

Compute return on equity (ROE) for 2016 and 2015. (Stockholders’ equity in 2014 is $89,784 million.)

What is nonoperating return component of ROE for 2016 and 2015?

Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

In: Accounting

1.Assume that the cost formula for one of a company’s variable expenses is $5.00 per unit....

1.Assume that the cost formula for one of a company’s variable expenses is $5.00 per unit. The company’s planned level of activity was 2,000 units and its actual level of activity was 2,200 units. The actual amount of this expense was $10,040. The spending variance for this expense is:

  • $960 F.

  • $1,560 F.

  • $2,520 U.

  • $2,520 F

2.Assume the sales budget for April and May is 46,000 units and 48,000 units, respectively. The production budget for the same two months is 43,000 units and 44,000 units, respectively. Each unit of finished goods required 4 pounds of raw materials. The company always maintains raw materials inventory equal to 25% of the following months production needs. If the company pays $2.75 per pound of raw material, then what is the estimated cost of raw material purchases for April?

  • $478,750

  • $475,750

  • $475,000

  • $481,500

3.Assume that a company’s budgeted revenue per unit is $50. The company’s planned level of activity was 2,000 units and its actual level of activity was 2,200 units. Its actual revenue was $103,400. The company’s revenue variance is:

  • $6,600 U.

  • $6,600 F.

  • $4,600 F.

  • $4,600 U.

4.Assume the sales budget for April and May is 42,000 units and 44,000 units, respectively. The production budget for the same two months is 39,000 units and 40,000 units, respectively. Each unit of finished goods required 4 pounds of raw materials. The company always maintains raw materials inventory equal to 30% of the following month's production needs. How many pounds of raw material need to be purchased in April?

  • 159,200

  • 157,200

  • 156,600

  • 161,100

5.Assume a company’s budgeted unit sales and its required production in units for April are 92,000 units and 90,000 units, respectively. The direct labor-hours required per unit is 1.50 hours. The company’s total budgeted direct labor cost for April is $1,957,500. What is the budgeted direct labor wage rate per hour for April?

  • $14.50

  • $19.07

  • $18.40

  • $14.18

6.Assume the following (1) sales = $200,000, (2) unit sales = 10,000, (3) the contribution margin ratio = 37%, and (4) net operating income = $10,000. Given these four assumptions, which of the following is true?

  • The variable expense per unit = $7.40

  • The total fixed expenses = $126,000

  • The total contribution margin = $74,000

  • The break-even point is 8,077 units

7.Assume that a company’s planned level of activity was 2,000 units and its actual level of activity was 2,100 units. The revenue variance was $1,200 unfavorable and the revenue activity variance was $7,400 unfavorable. What budgeted revenue per unit does the company use for creating its planning and flexible budgets?

  • $74 per unit

  • $70 per unit

  • $64 per unit

  • $40 per unit

In: Accounting

Financial Accounting for MBAs 7th Edition. P5-48 (page 5-43) Target Corporation reported total sales of $73,785...

Financial Accounting for MBAs 7th Edition. P5-48 (page 5-43)

Target Corporation reported total sales of $73,785 million in 2015, $72,618 million in 2014, and $71,279 million in 2013. In 2015, cost of sales was $51,997 million.

The revenue recognition footnote from Target’s 2015 annual report includes the following:

  • Our retail stores generally record revenue at the point of sale.
  • Digital channel sales include shipping revenue and are recorded upon delivery to the guest.
  • Total revenues do not include sales tax because we are a pass-through conduit for collecting and remitting sales taxes.
  • Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales.
  • Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as “breakage.” Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented.
  • Guests receive a 5 percent discount on virtually all purchases and receive free shipping at Tar-get.com when they use their REDcard. These discounts associated with loyalty programs are included as reductions in sales in our Consolidated Statements of Operations and were $1,067 million, $943 million, and $833 million in 2015, 2014, and 2013, respectively

Gift Card Information: $millions

Gift card balance May 1..................$198

New gift cards sold..........................148

Gift cards redeemed.......................(172)

Gift card balance May 31................$174

1. Use the financial statement effects template to record retail sales of $1,000 in a state with a sales-tax rate of 8%. For this question, assume 10% of all merchandise sold is returned within 90 days.

2. Use the financial statement effects template to record the following transaction: On March 4, an internet customer places an order for $2,000 and pays online with a credit card (which is equivalent to cash for accounting purposes). The goods are shipped from the warehouse on March 6, and FedEx confirms delivery on March 7. Ignore shipping costs, sales tax, and returns.

3. Use the financial statement effects template to record the gift card activity during May. Ignore sales tax and returns. Details are on page 1.

4. Determine the amount of revenue Target collected from customers who used their loyalty card (REDcard™) for 2013 to 2015. What proportion of total revenues comes from REDcard™ customers each year? Does the loyalty program seem to be working? Explain.

In: Accounting