Revenue and cash receipts journals; accounts receivable subsidiary and general ledgers

Transactions related to revenue and cash receipts completed by Crowne Business Services Co. during the period April 2–30 are as follows:

Required:

1. Insert the following balances in the general ledger as of April 1:

After completing the recording of the transactions in the journals in part 3, total each of the columns of the special journals, and post the individual entries and totals to the general ledger. Insert account balances after the last posting. When posting to the general ledger, post in chronological order. However, if there is more than one entry on the same date, be sure to post transactions from the revenue journal before posting transactions from the cash receipts journal.

If an amount box does not require an entry, leave it blank. In CNOW, Journal pages begin with “J”, Cash Receipts begin with “CR” and Cash Receipts begins with “R”. For example journal/ Cash Receipts/ Cash Receipts, page 1/36/40 respectively. POST. REF. is simply J1, CR36, and R40.

2. Insert the following balances in the accounts receivable subsidiary ledger as of April 1:

After completing the recording of the transactions in the journals in part 3, post to the accounts receivable subsidiary ledger in chronological order, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer's account before recording a cash receipt. If an amount box does not require an entry, leave it blank. In CNOW, Journal pages begin with “J”, Cash Receipts begin with “CR” and Cash Receipts begins with “R”. For example journal/ Cash Receipts/ Cash Receipts, page 1/36/40 respectively. POST. REF. is simply J1, CR36, and R40.

3. Prepare a single-column revenue journal (p. 40) and a cash receipts journal (p. 36). Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees.

4. Using the two special journals and the two-column general journal (p. 1), journalize the transactions for April. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer’s account before recording a cash receipt.

5. Total each of the columns of the special journals and post the individual entries and totals to the general ledger. Insert account balances after the last posting.

If an amount box does not require an entry, leave it blank.

6. What is the sum of the customer balances?
$

Does the sum of the customer balances agree with the accounts receivable controlling account in the general ledger?
   

7. Would an automated system omit postings to a controlling account as performed in step 5 for Accounts Receivable?

Stora Enso is a Finnish pulp and paper manufacturing company. It discloses in its 1999 consolidated Annual Report, the following items:

Excerpted from the Consolidated balance sheet

In the notes to its financial statements, the Stora Enso provides explanations relating to these two items:

Excerpts from the notes

In addition, the company explains in the notes that “associated companies (voting rights between 20% and 50%) are consolidated using the equity method” and “the income statements of foreign subsidiaries are translated into Euros using the average rate for the accounting period. The balance sheets of foreign subsidiaries are translated using the rate prevailing on the balance sheet day.”

Pechiney, a French group operating worldwide in aluminum and packaging materials, discloses in its 1999 Annual Report the following note:

Required

1. A) Using the Stora Enso data

1. Associated companies: explain the computation of the historical cost at year-end and the meaning of each component of this computation.
2. Where will be found, other than in the notes, the carrying value of associated companies at year-end?
3. Other companies: explain the computation of carrying amount at year-end and the meaning of each component of this computation.
4. Double-check the carrying value of other companies at year-end. What is the usefulness to an investor or shareholder of the 1999 figure of €280.4 millions shown both in the balance sheet and in the notes?

1. B) Comparison: notes 12 and 14 in Stora Enso’s annual report and note 7 in Pechiney’s annual report have the same purpose. Compare and contrast the computations and reporting choices made by each company.

industries below high-profit industry and a low-profit industry. From what you know of the structure of your selected industry, use the five forces framework to explain why profitability has been high in one industry and low in the other.

High profit : Pharmaceuticals Low profit :Entertainment

1 Bargaining power of customers

2 Bargaining power of suppliers

3 Threat of new entrants

4 Threat of substitute products

5 competitive rivalry

Walt Disney created the Disney brand from humble beginnings based on his love of drawing and animation. The Walt Disney Company has since expanded successfully into a global entertainment and media brand. Using the internet, research the components that make up the Disney brand and discuss how The Walt Disney Company has expanded its product mix.

Please write personal perspective. Please type it up, because hand writing is sometimes hard to understand

In this week's discussion your are going to be the CEO of a company.  In anticipation of the upcoming quarterly disclosure of profits, you prepare your Board of Directors for the challenge that cost-push inflation having on profits.  Please make yourself CEO of only one of these hypothetical companies.

All America Grocery Inc - We serve communities in the middle of the income market providing low prices for all basic grocery needs. Our modest income consumers expect goods deals on good quality foods.  The Covid-19 pandemic has put upward pressure on the price of everything we sell. We have also experience rising cost in every aspect of our operation as we have to put extra resources in to protecting both our employees and the public. We are both fortunate and unfortunate that the price elasticity of demand for food is .20.  

Very Big US Auto - Very Big US Auto is one of the oldest and one of the largest auto manufacturers of autos in the US.  Very Big US Auto's supply chain is highly dependent components manufactured in China and assembled in the US. Like the US economy the Chinese continue to have major stoppage in production due to Covid-19. Additionally manufacturing facilities like ours must take extra precaution to keep workers safe. Costs are rising we are experiencing rising costs.  Very Big US Auto know that demand is relatively elastic with a price elasticity of demand of 1.2. We also know that the supply of auto is relatively inelastic and all our competitors are facing the same cost increase.

Big Time Entertainment - Big Time Entertainment is a nationwide firm providing movies, arcades and other entertainment venues such as bowling and roller skating. Our operations have been heavily impacted during the Covid-19 pandemic. On reopening we have been faced with a host of regulations that have greatly increased our cost of operation, everything to operating far below our optimal number of patron to higher cost for cleaning and other measure to protect the public and our employees. Price elasticity of demand is 1.6 and we are also face with competitors, online entertainment and gaming, that are not experiencing these cost pressures.

Now explain:

• Is the demand curve for your product relatively elastic, inelastic or unitary elastic?  Demonstrate for your company's product, by how much the quantity demanded will change if you pass on a 10% increase in cost. In other words, show your calculation of the percentage change in the quantity demanded given a 10% change in your price. You must provide a calculations showing the percentage change in quantity demanded.
• Given your company's and price elasticity of demand and the industry supply/competitive environment you face prepare a statement for your board as to the potential impact on profits.   Who will pay the larger share of the cost increases, your firm or your customers?

data

Use R Studio. (you just need to write R code)

year = year state = A code identifying the relevant U.S. state realbeertax = the state tax per gallon of beer sold pc_perinc = personal income per person pop1620 = population ages 16-20 ur1620_r = unemployment rate among people age 16-20 (in percent) ANYBAC26 = number of fatal accidents involving alcohol among people age 26 and up ANYBAC1620 = number of fatal accidents involving alcohol among people age 16-20 NOBAC26 = number of fatal accidents not involving alcohol among people age 26 and up NOBAC1620 = number of fatal accidents not involving alcohol among people age 16-20 mwdef = minimum wage (in 2006 dollars)

1, Create a new variable that is equal to the log of personal income per person (pc_perinc).

2,Note that this dataset includes observations from all states and from all years between 1998 and 2002. For simplicity, let’s focus on one year: 2001. Create a new object consisting of the data only for 2001

3,We now have a cross-sectional dataset that includes several quantitative variables. One question we might ask is, what is the relationship between (the log of) personal income per capita and a state’s minimum wage? Create a graph that would let you evaluate this relationship visually

4, Use R to calculate the correlation between the two variables you plotted in question 5.

Based on Court Case United States v. Bestfoods 113F.3d 572 (1998)

United States v. Bestfoods

113 F.3d 572 (1998)

SOUTER, JUSTICE

The United States brought this action under §107(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) against, among others, respondent CPC International, Inc., the parent corporation of the defunct Ott Chemical Co. (Ott II), for the costs of cleaning up industrial waste generated by Ott II’s chemical plant. Section 107(a)(2) authorizes suits against, among others, “any person who at the time of disposal of any hazardous substance owned or operated any facility.” The trial focused on whether CPC, as a parent corporation, had “owned or operated” Ott II’s plant within the meaning of §107(a)(2). The District Court said that operator liability may attach to a parent corporation both indirectly, when the corporate veil can be pierced under state law, and directly, when the parent has exerted power or influence over its subsidiary by actively participating in, and exercising control over, the subsidiary’s business during a period of hazardous waste disposal. Applying that test, the court held CPC liable because CPC had selected Ott II’s board of directors and populated its executive ranks with CPC officials, and another CPC official had played a significant role in shaping Ott II’s environmental compliance policy.

The Sixth Circuit reversed. Although recognizing that a parent company might be held directly liable under §107(a)(2) if it actually operated its subsidiary’s facility in the stead of the subsidiary, or alongside of it as a joint venturer, that court refused to go further. Rejecting the District Court’s analysis, the Sixth Circuit explained that a parent corporation’s liability for operating a facility ostensibly operated by its subsidiary depends on whether the degree to which the parent controls the subsidiary and the extent and manner of its involvement with the facility amount to the abuse of the corporate form that will warrant piercing the corporate veil and disregarding the separate corporate entities of the parent and subsidiary. Applying Michigan veil-piercing law, the court decided that CPC was not liable for controlling Ott II’s actions, since the two corporations maintained separate personalities and CPC did not utilize the subsidiary form to perpetrate fraud or subvert justice.

Held:

1. When (but only when) the corporate veil may be pierced, a parent corporation may be charged with derivative CERCLA liability for its subsidiary’s actions in operating a polluting facility. It is a general principle of corporate law that a parent corporation (so-called because of control through ownership of another corporation’s stock) is not liable for the acts of its subsidiaries. CERCLA does not purport to reject this bedrock principle, and the Government has indeed made no claim that a corporate parent is liable as an owner or an operator under §107(a)(2) simply because its subsidiary owns or operates a polluting facility. But there is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation’s conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder’s behalf. CERCLA does not purport to rewrite this well-settled rule, either, and against this venerable common-law backdrop, the congressional silence is audible. Cf. Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 266-267. CERCLA’s failure to speak to a matter as fundamental as the liability implications of corporate ownership demands application of the rule that, to abrogate a common-law principle, a statute must speak directly to the question addressed by the common law. United States v. Texas, 507 U.S. 529, 534.

2. A corporate parent that actively participated in, and exercised control over, the operations of its subsidiary’s facility may be held directly liable in its own right under §107(a)(2) as an operator of the facility.

(a) Derivative liability aside, CERCLA does not bar a parent corporation from direct liability for its own actions. Under the plain language of §107(a)(2), any person who operates a polluting facility is directly liable for the costs of cleaning up the pollution, and this is so even if that person is the parent corporation of the facility’s owner. Because the statute does not define the term “operate,” however, it is difficult to define actions sufficient to constitute direct parental “operation.” In the organizational sense obviously intended by CERCLA, to “operate” a facility ordinarily means to direct the workings of, manage, or conduct the affairs of the facility. To sharpen the definition for purposes of CERCLA’s concern with environmental contamination, an operator must manage, direct, or conduct operations specifically related to the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.

(b) The Sixth Circuit correctly rejected the direct liability analysis of the District Court, which mistakenly focused on the relationship between parent and subsidiary, and premised liability on little more than CPC’s ownership of Ott II and its majority control over Ott II’s board of directors. Because direct liability for the parent’s operation of the facility must be kept distinct from derivative liability for the subsidiary’s operation of the facility, the analysis should instead have focused on the relationship between CPC and the facility itself, i.e., on whether CPC “operated” the facility, as evidenced by its direct participation in the facility’s activities. That error was compounded by the District Court’s erroneous assumption that actions of the joint officers and directors were necessarily attributable to CPC, rather than Ott II, contrary to time-honored common-law principles. The District Court’s focus on the relationship between parent and subsidiary (rather than parent and facility), combined with its automatic attribution of the actions of dual officers and directors to CPC, erroneously, even if unintentionally, treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability. The District Court’s analysis created what is in essence a relaxed, CERCLA-specific rule of derivative liability that would banish traditional standards and expectations from the law of CERCLA liability. Such a rule does not arise from congressional silence, and CERCLA’s silence is dispositive.

(c) Nonetheless, the Sixth Circuit erred in limiting direct liability under CERCLA to a parent’s sole or joint venture operation, so as to eliminate any possible finding that CPC is liable as an operator on the facts of this case. The ordinary meaning of the word “operate” in the organizational sense is not limited to those two parental actions, but extends also to situations in which, e.g., joint officers or directors conduct the affairs of the facility on behalf of the parent, or agents of the parent with no position in the subsidiary manage or direct activities at the subsidiary’s facility. Norms of corporate behavior (undisturbed by any CERCLA provision) are crucial reference points, both for determining whether a dual officer or director has served the parent in conducting operations at the facility, and for distinguishing a parental officer’s oversight of a subsidiary from his control over the operation of the subsidiary’s facility. There is, in fact, some evidence that an agent of CPC alone engaged in activities at Ott II’s plant that were eccentric under accepted norms of parental oversight of a subsidiary’s facility: The District Court’s opinion speaks of such an agent who played a conspicuous part in dealing with the toxic risks emanating from the plant’s operation. The findings in this regard are enough to raise an issue of CPC’s operation of the facility, though this Court draws no ultimate conclusion, leaving the issue for the lower courts to reevaluate and resolve in the first instance.

113 F.3d 572, vacated and remanded.

What norms of corporate behavior does the court look to in determining whether an officer or a director is involved in the operation of a facility?

Pleasanton Studios Kersten Brown, the CEO of Pleasanton Studios, is having a tough week – all three of her top management level employees have dropped in with problems. One executive is making questionable decisions, another is threatening to quit, and the third is reporting losses (again). Kersten is hoping to find simple answers to all her difficulties. She is asking you (her accountant) for some advice on how to proceed. Pleasanton Studios owns and operates three decentralized divisions: Entertainment, Streaming, and Parks. Pleasanton Studios has a decentralized organizational structure, where each division is run as an investment center. Division managers meet with the CEO at least once annually to review their performance, where each division manager’s performance is measured by their division’s return on investment (ROI). The division manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital. The Entertainment division manager, John Freeman, was the first to knock on Kersten’s door this morning. Entertainment, Pleasanton Studios’ first endeavor, produces movies for the big screen. Entertainment has been in operation since 1965. Last month, John had mentioned a proposal to build a new animation studio. The build would cost $4,910,000 with an estimated life of 20 years and no salvage value and would allow Entertainment to start producing animated movies. Animated movies were projected to bring in an additional $1,210,000 in revenues each year, but would increase annual production costs by $574,000. John had dropped in to let Kersten know he had decided not to move forward with the animation studio. This surprised Kersten – her quick mental calculation indicated that the studio would have a payback period of 8 years, much shorter than the expected life of the studio. Not entirely sure that her quick assessment was valid, Kersten needed to check with her accountant on the matter. Next to Kersten’s door was the manager of Streaming, which produces short-form (30 minute to one hour) episodes in addition to streaming the movies developed by Entertainment. Customers then buy subscriptions to the service. Run by division manager Reyna Imanah, Streaming was introduced in 2016 and has increased subscriptions by 20% every year since. Reyna’s complaint was that, based on the current bonus payout schedule, John Freeman’s bonus last year was significantly higher than hers. She points to the increasing subscription rates at Streaming, and says that her division is being punished for having opened so recently (her division’s facilities are much more recent than those in Entertainment). She currently has an employment offer from another company at the same base pay rate, and stated that she will accept this offer unless she feels her performance is being appropriately acknowledged and compensated. Kersten needs to look at the relative performance across divisions to determine how to proceed with Reyna. Pleasanton Parks is a theme park based on the movies from Entertainment and the series from Streaming. For many years, it was a popular year-round destination, with characters, rides, and a hotel. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to permanently close that division. Included in the ‘Fixed COGS’ for Parks is an annual $1,650,000 mortgage payment on the land and buildings for the park, which would still need to be paid (as a corporate level cost) if the park is closed and that segment is removed from the financial statements. Incidentally, you recently had a conversation with a Marriott Hotels executive, who would like to expand into the area. If you decided to close Parks, you are fairly certain that you could lease the hotel facilities to Marriott for $650,000 annually. A partial report of this year’s financial results for Pleasanton Studios can be found in Table 1 below. The ‘Selling and admin costs’ listed in Table 1 are directly incurred by each division, and are determined at the beginning of each year (that is, they do not change with increased/decreased production). In addition to the divisional information above, there are $2,000,000 in corporate costs that are currently allocated evenly between the three divisions. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Parks division is closed, the decreased employee base would reduce allocated corporate costs by $500,000. Pleasanton Studios has a cost of capital of 12 percent (and Kersten uses the cost of capital as their required rate of return) and are subject to 32% income taxes. Before she can make any decisions, Kersten needs to evaluate this year’s performance results. She sets off to see you, the company’s accountant, for answers.

Required: Write your response in the form of a 1-2 page memo to Kersten Brown, from the perspective of the company accountant. Be sure to include all the financial analyses to support your conclusions, clearly showing your calculations, at the end of the memo or attached in a separate document. Be sure to address the following points in your memo.

a. Evaluate this year’s performance results for the three divisions. Your financial analysis should include a segmented income statement for Pleasanton Studios, as well as the current annual ROI, residual income and EVA for the three divisions.

b. Evaluate Entertainment’s decision not to invest in the new animation studio (i.e., was the decision appropriate and in the best interests of Pleasanton Studios), including the appropriate financial analyses to support your evaluation.

c. Evaluate the validity of Reyna Imanah’s complaint regarding her evaluated performance. Explain why it is (or is not valid), and what further information would be necessary.

d. Provide a recommendation on whether to close the Parks division, including all necessary financial analyses.