6. Suppose firms in a perfectly competitive industry are experiencing economic profits. One can predict that the:
(a) market price will fall as more firms enter the industry.
(b) market price will rise further to take advantage of profitable opportunities.
(c) market price will stay the same.
(d) number of firms in the industry will not change.
(e) both (a) and (d).
7. When total revenue for a firm is more than the explicit costs:
(a) both accounting profit and economic profit are positive.
(b) accounting profit is positive and economic profit may be positive or negative.
(c) normal profit will be larger than zero.
(d) an economic profit must also occur.
(e) economic profit is negative but normal profit is positive.
8. Which of the following statements is TRUE?
(a) Economic profit is always the same as accounting profit.
(b) Normal profit indicates opportunity cost has been recovered.
(c) Accounting profit includes implicit costs.
(d) Economic profit only includes explicit costs.
(e) When accounting profit is positive, economic profits will always be positive.
9. Pete use to work for a small building company and earned $40,000 per year. He decided to work for himself and bought a fish and chip shop where he generated revenue of $120,000 in the first year. Rental, utility and supply costs for the business were $58,000 in the first year. Pete pays a part time book keeper $12,000 per year. Based on this information, Pete’s economic profit in the first year is:
(a) $80,000
(b) $58,000
(c) $50,000
(d) $28,000
(e) $10,000
10. For a profit maximising firm in a perfectly competitive industry in the short run:
(a) economic profit is always zero.
(b) economic profit may be positive, zero, or negative.
(c) price will be greater than marginal revenue.
(d) price will be less than marginal revenue.
(e) economic profit will never be positive.
In: Economics
Problem 14-16 Behavioral impact of budgeting
Butler Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 15 percent of the excess of actual net income over budgeted net income. The following is French Division’s current year’s performance.
|
Current Year |
|
|
Sales revenue |
$2,000,000 |
|
Cost of goods sold |
1,250,000 |
|
Gross profit |
750,000 |
|
Selling & admin. expenses |
450,000 |
|
Net income |
$ 300,000 |
The president has just received next year’s budget proposal from the vice president in charge of French Division. The proposal budgets a 5 percent increase in sales revenue with an extensive explanation about stiff market competition. The president is puzzled. French has enjoyed revenue growth of around 10 percent for each of the past five years. The president had consistently approved the division’s budget proposals based on 5 percent growth in the past. This time, the president wants to show that he is not a fool. “I will impose a 15 percent revenue increase to teach them a lesson!” the president says to himself smugly.
Assume that cost of goods sold and selling, and administrative expenses remain stable in proportion to sales.
Required
a. Prepare the budgeted income statement based on French Division’s proposal of a 5 percent increase.
b. If growth is actually 10 percent as usual, how much bonus would French Division’s executive officers receive if the president had approved the division’s proposal?
c. Prepare the budgeted income statement based on the 15 percent increase the president imposed.
d. If the actual results turn out to be a 10 percent increase as usual, how much bonus would French Division’s executive officers receive since the president imposed a 15 percent increase?
e. Propose a better budgeting procedure for Butler Corporation.
In: Accounting
During 2020, Tamarisk Company started a construction job with a
contract price of $1,620,000. The job was completed in 2022. The
following information is available.
|
2020 |
2021 |
2022 |
||||
|---|---|---|---|---|---|---|
|
Costs incurred to date |
$373,700 | $749,360 | $1,070,000 | |||
|
Estimated costs to complete |
636,300 | 352,640 | –0– | |||
|
Billings to date |
302,000 | 907,000 | 1,620,000 | |||
|
Collections to date |
268,000 | 815,000 | 1,425,000 |
Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
|
Gross profit recognized in 2020 |
225,700 |
|
|---|---|---|
|
Gross profit recognized in 2021 |
126,540 |
|
|
Gross profit recognized in 2022 |
197,760 |
Prepare all necessary journal entries for 2021.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts. For costs incurred use account Materials, Cash,
Payables.)
|
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|
|
enter an account title to record cost of construction |
enter a debit amount |
enter a credit amount |
|
enter an account title to record cost of construction |
enter a debit amount |
enter a credit amount |
|
(To record cost of construction.) |
||
|
enter an account title to record progress billings |
enter a debit amount |
enter a credit amount |
|
enter an account title to record progress billings |
enter a debit amount |
enter a credit amount |
|
(To record progress billings.) |
||
|
enter an account title to record collections |
enter a debit amount |
enter a credit amount |
|
enter an account title to record collections |
enter a debit amount |
enter a credit amount |
|
(To record collections.) |
||
|
enter an account title to recognize revenue |
enter a debit amount |
enter a credit amount |
|
enter an account title to recognize revenue |
enter a debit amount |
enter a credit amount |
|
enter an account title to recognize revenue |
enter a debit amount |
enter a credit amount |
|
(To recognize revenue.) |
In: Accounting
Beth is a second-grader who sells lemonade on a street corner in
your neighborhood. Each cup of lemonade costs Beth $0.90 to
produce; she has no fixed costs. The reservation prices for the 10
people who walk by Beth's lemonade stand each day are listed in the
following table.
| Person | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|
Reservation price |
$1.50 | $1.40 | $1.30 | $1.20 | $1.10 | $1.00 | $0.90 | $0.80 | $0.70 | $0.60 |
Beth knows the distribution of reservation prices (that is, she
knows that one person is willing to pay $1.50, another $1.40, and
so on), but she does not know any specific individual’s reservation
price.
a. Calculate the marginal revenue of selling an additional cup of
lemonade. (Start by figuring out the price Beth would charge if she
produced only one cup of lemonade, and calculate the total revenue;
then find the price Beth would charge if she sold two cups of
lemonade; and so on.)
Instructions: If you are entering any negative
numbers be sure to include a negative sign (-) in front of those
numbers. Enter your responses rounded to two decimal
places.
| Price | Quantity |
Total revenue ($ per day) |
Marginal revenue ($ per cup) |
| 1.50 | 1 | ||
| 1.40 | 2 | ||
| 1.30 | 3 | ||
| 1.20 | 4 | ||
| 1.10 | 5 | ||
| 1.00 | 6 | ||
| 0.90 | 7 | ||
| 0.80 | 8 | ||
| 0.70 | 9 | ||
| 0.60 | 10 |
b. What is Beth’s profit-maximizing price?
Instructions: Enter your response rounded to two
decimal places.
$ .
c. At that price, what are Beth’s economic profit and total
consumer surplus?
Instructions: Enter your responses rounded to two
decimal places.
Economic profit: $ per day.
Consumer surplus: $ per day.
d. What price should Beth charge if she wants to maximize total
economic surplus?
Instructions: Enter your response rounded to two
decimal places.
Price to maximize total economic surplus: $
In: Economics
The following events apply to Equipment Services Inc. in its
first year of operation:
Required
a. Record the events in T-accounts and determine
the ending account balances.
b. Test the equality of the debit and credit
balances of the T-accounts by preparing a trial balance.
Record the events in T-accounts and determine the ending account balances.
I have filled in some but need help with the remaining. Thanks.
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In: Accounting
1..A pure monopolist will maximize profits by
producing at that output where price and marginal cost are
equal.
A)True
B)False
2..In the long run a pure monopolist will maximize
profits by producing that output at which marginal cost is equal
to:
A)average total cost.
B)marginal revenue.
C)average variable cost.
D)average cost.
3..Which is not true for a monopolistically
competitive industry?
A).Firms tend to operate with excess capacity.
B). Each firm faces a downward-sloping demand curve.
C). These firms earn zero economic profits in the long run.
D). The portion of the marginal-cost curve above the
average-variable-cost curve is the short-run supply curve for the
firm.
4. Price exceeds marginal revenue for the pure
monopolist because the:
law of diminishing returns is inapplicable.
A)demand curve is downsloping.
B)monopolist produces a smaller C)output than would a purely
competitive firm.
D)demand curve lies below the marginal revenue curve.
5. If a monopolist is producing quantity whereas
marginal revenue is equal to $125 and the marginal cost is equal to
$125, the monopolist should:
A)increase production and lower the price to maximize
profits.
B)continue producing at the current price to maximize
profits.
C)decrease production and increase price to maximize profits.
D)increase production and increase price to maximize profits.
E)decrease production and decrease price to maximize profits.
6. The Clayton Act of 1914:
A)outlawed price discrimination, tying contracts, intercorporate
stockholding, and interlocking directorates that lessen
competition.
B)prohibited unfair or deceptive acts or practices in commerce that
tend to reduce competition.
C)outlawed vertical and conglomerate mergers.
D)prohibited one firm from acquiring the assets of another when the
effect was to limit competition.
7. Which of the following is not a barrier to
entry?
A)patents
B)X-inefficiency
C)economies of scale
D)ownership of essential resources
In: Economics
| Income Statement | 2008 | 2009 | ||
| Total Market (lawns professionally treated) | 45,000 | 43,000 | ||
| LR Lawns Treated (unit volume) | 11,000 | 12,000 | ||
| Sales Revenue | $ 860,000 | $ 885,000 | ||
| Memo: Market Share | 24% | 28% | ||
| Memo: Avg. Revenue/Lawn | $ 78 | $ 74 | ||
| Less: Variable Cost of Sales Revenue | ||||
| Chemicals | $ 115,000 | $ 125,000 | ||
| 1099 Workers * | $ 175,000 | $ 182,000 | ||
| Truck Running Costs | $ 40,000 | $ 40,000 | ||
| Total Cost of Sales Revenue | $ 330,000 | $ 347,000 | ||
| = Gross Profit Margin | $ 530,000 | $ 538,000 | ||
| Memo: Gross Profit Margin % | 38% | 39% | ||
| Less: Overhead (Other Operating) Expenses: | ||||
| Salaried Employees | $ 190,000 | $ 180,000 | ||
| Office and Warehouse rent | $ 90,000 | $ 90,000 | ||
| Depreciation of Trucks | $ 30,000 | $ 40,000 | ||
| Advertising | $ 30,000 | $ 40,000 | ||
| Total Overhead Expenses | $ 340,000 | $ 350,000 | ||
| = EBIT (net operating income) | $ 190,000 | $ 188,000 | ||
| less: Interest Expense | $ 23,000 | $ 35,000 | ||
| = Pretax Income (profit) | $ 167,000 | $ 153,000 | ||
| less: Income taxes | $ 40,000 | $ 35,000 | ||
| = Net Income (profit) | $ 127,000 | $ 118,000 | ||
| Memo: Profit Margin % | 15% | 13% | ||
| Balance Sheet | ||||
| Cash | $ 5,000 | $ 5,000 | ||
| Accounts Receivable | $ 25,000 | $ 40,000 | ||
| Inventories | $ 8,000 | $ 9,000 | ||
| = Current Assets | $ 38,000 | $ 54,000 | ||
| Fixed Assets | $ 500,000 | $ 550,000 | ||
| - Accumulated Depreciation | $ 80,000 | $ 120,000 | ||
| = Net Fixed Assets | $ 420,000 | $ 430,000 | ||
| Total Assets | $ 458,000 | $ 484,000 | ||
| Accounts Payable | $ 8,000 | $ 20,000 | ||
| Bank Loans | $ 275,000 | $ 300,000 | ||
| = Total Liabilities | $ 283,000 | $ 320,000 | ||
| Common Stock (Invested capital) | $ 100,000 | $ 100,000 | ||
| Retained Earnings | $ 75,000 | $ 64,000 | ||
| Total Liabilities and Owner's Equity | $ 458,000 | $ 484,000 | ||
| * Workers are paid based upon the number of lawns treated (not hourly). | ||||
Please calculate the following for 2009:
a) Return on Assets:
b) Current Ratio:
c) Debt/Equity Ratio:
d) Cash flow from Operations:
e) Cash flow from Investing Activities:
f) Cash Flow from Financing Activities:
g) Net Change in Cash for the year:
In: Finance
4. The Laffer curve
Governments often place so-called sin taxes on goods or services such as cigarettes, alcohol, and pornography. These kinds of taxes are popular with politicians because they are usually more palatable to voters than income taxes.
To understand the effect of such a tax, consider the monthly market for adult DVDs, which is shown on the following graph.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
012243648607284961081204036322824201612840PRICE (Dollars per DVD)QUANTITY (DVDs)Demand Supply
Graph Input Tool
Market for Adult DVDs | |||||
|---|---|---|---|---|---|
Quantity (DVDs) | |||||
Demand Price (Dollars per DVD) | Supply Price (Dollars per DVD) | ||||
Tax Wedge (Dollars per DVD) | |||||
Suppose the government imposes an $8-per-DVD tax on suppliers.
At this tax amount, the equilibrium quantity of adult DVDs is
DVDs, and the government collects
in tax revenue.
Now calculate the government's tax revenue if it sets a tax of $0, $8, $16, $20, $24, $32, or $40 per DVD. (Hint: To find the equilibrium quantity after the tax, adjust the “Quantity” field until the Tax Wedge equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
Laffer Curve0481216202428323640960864768672576480384288192960TAX REVENUE (Dollars)TAX (Dollars per DVD)
Suppose the government is currently imposing a $24-per-DVD tax on adult DVDs.
True or False: The government can raise its tax revenue by decreasing the per-unit tax on adult DVDs.
True
False
Consider the deadweight loss generated in each of the following cases: no tax, a tax of $16 per DVD, and a tax of $32 per DVD.
On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a triangle is equal to 12×Base×Height12×Base×Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.)
Deadweight Loss0481216202428323640960864768672576480384288192960DEADWEIGHT LOSS (Dollars)TAX (Dollars per DVD)
As the tax per DVD increases, deadweight loss .
In: Economics
On August 1, 2017, the following were the account balances of B&B Repair Services.
| Debit | Credit | |||||
| Cash |
$ 6,040 |
Accumulated Depreciation—Equipment |
$ 600 |
|||
| Accounts Receivable |
2,910 |
Accounts Payable |
2,300 |
|||
| Notes Receivable |
4,000 |
Unearned Service Revenue |
1,260 |
|||
| Supplies |
1,030 |
Salaries and Wages Payable |
1,420 |
|||
| Equipment |
10,000 |
Common Stock |
12,000 |
|||
|
|
Retained Earnings | 6,400 | ||||
| $23,980 | $23,980 |
During August, the following summary transactions were completed.
| Aug. |
1 |
Paid $400 cash for advertising in local newspapers. Advertising flyers will be included with newspapers delivered during August and September. | ||
|
3 |
Paid August rent $380. | |||
|
5 |
Received $1,200 cash from customers in payment of account. | |||
|
10 |
Paid $3,120 for salaries due employees, of which $1,700 is for August and $1,420 is for July salaries payable. | |||
|
12 |
Received $2,800 cash for services performed in August. | |||
|
15 |
Purchased store equipment on account $2,000. | |||
|
20 |
Paid creditors $2,000 of accounts payable due. | |||
|
22 |
Purchased supplies on account $800. | |||
|
25 |
Paid $2,900 cash for employees' salaries. | |||
|
27 |
Billed customers $3,760 for services performed. | |||
|
29 |
Received $780 from customers for services to be performed in the future. |
Adjustment data:
Instructions
(a) Enter the August 1 balances in the ledger accounts. (Use T-accounts.)
(b) Journalize the August transactions.
(c) Post to the ledger accounts. B&B's chart of accounts includes Prepaid Advertising, Interest Receivable, Service Revenue, Interest Revenue, Advertising Expense, Depreciation Expense, Supplies Expense, Salaries and Wages Expense, and Rent Expense.
(d) Prepare a trial balance at August 31.
(e) Journalize and post adjusting entries.
(f) Prepare an adjusted trial balance.
(h) Journalize and post closing entries and complete the closing process.(g) Prepare an income statement and a retained earnings statement for August and a classified balance sheet at August 31.
(i) Prepare a post-closing trial balance at August 31.
In: Accounting
Your friends and you decide to purchase a large tract of forest land in northern Minnesota with the intent of generating income from timber and leasing the hunting rights. Your estimated costs and returns are as follows:
• $1400/acre purchase price of land, paid back in equal yearly installments over 15 years @ 7% annual interest.
• $200/acre site preparation costs incurred immediately.
• $250/acre tree planting costs incurred 1 year after purchase.
• $100/acre forest management costs incurred 3, 4, 5, 6, and 7 years after purchase.
• $50/acre forest management costs incurred 8, 9, and 10 years after purchase.
• Annual hunting lease of $75/acre beginning in years 2 years after purchase and continuing until 15 years after purchase.
• $7/acre annual property taxes, beginning immediately and paid each year you own the land through 15 years after purchase.
• $4,500/acre income from the sale of timber 13 years after purchase.
• $1,200/acre from the sale of your forest land 16 years after purchase.
• Your discount rate is 5.5%.
1-What amount will you have to pay each year for the loan payment associated with purchasing the land?
2-What is the present value of all loan payments?
3-What is the present value of the last loan payment associated with purchasing the forest land?
4-What is the present value of the site preparation costs?
5- What is the present value of the tree planting costs?
6-What is the present value of the $100/acre forest management costs (all years)?
7-What is the present value of the last $50/acre forest management cost?
8-What is the present value of the last $50/acre forest management cost?
9-What is the present value of the last lease payment?
10-What is the present value of all hunting lease revenue?
11-What is the present value of the revenue generated from the timber sale?
12-What is the present value of the revenue generated from the sale of your forest land?
13-What is the present value of the property taxes (all years)?
14-What is the present value of all costs incurred in year 10?
15-What is the present value of all revenue generated in year 2?
16-What is the net present value of all costs incurred and revenue generated in year 6?
In: Finance