Ian Mathews is a creator of board games. Ian will be selling his most recent game, Radical Rainbows, through his newly formed company, UPR, Inc. UPR was formed in June, 2018. Ian contributed $1,000 to UPR in exchange for 100% of UPR’s voting common stock. Ian has had unprecedented success with the first two games in his most recent game trilogy: unicorns, ponies and rainbows. Ian was looking to finance UPR’s initial production run of the third game, Radical Rainbows at a rate of 7.5% or less.   The best deal offered by several banks had an APR of 8%. That was more than Ian was willing to pay and he felt there were other sources of financing that were less expensive.

As he had done for the first two games in the series: Unstable Unicorns and Perplexed Ponies, Ian turned to Kickstarter to finance the cost of the first production run of Radical Rainbows. Normally, UPR will be selling Radical Rainbows for $50 per game. UPR offered to sell Radical Rainbows to its Kickstarter backers for $45 per game.   The Kickstarter campaign was completed in two days, and on June 1, 2018 UPR received $225,000 in exchange for a promise to deliver 5000 games to its Kickstarter backers on December 1, 2019.  

At a manufacturing cost of $30 per game, UPR will be able to produce 7500 units with the $225,000 raised in the Kickstarter campaign. The 7500 games would be ready for shipment on December 1, 2019.

On June 1, 2018, UPR’s bookkeeper made the following entry to record the receipt of cash:

On December 1, 2019, UPR was able to deliver the 5000 board games to its Kickstarter backers. UPR also sold and delivered the additional 2500 games to other customers for the normal retail price of $50 per game. UPR’s bookkeeper made the following entries to record these transactions:

UPR used the $126,000 in cash available to UPR in December, 2019 to manufacture another 4200 board games. Those games were in finished goods inventory at December 31, 2019 and were sold in January, 2020 for $50 per game

UPR’s Financial Statements at December 31, 2019 and 2018 as prepared by UPR’s bookkeeper showed the following:

*You can assume that the Cash, Inventory, Common Stock and Cost of Goods Sold amounts as shown in both the journal entries and financial statements are correct.

Your analysis of this problem will involve using ASC 606 - Revenue from Contracts with Customers. UPR adopted ASC 606 when Ian formed the company in 2018. UPR has applied ASC 606 incorrectly.

You can assume that a contract is in place and that only one performance obligation exists: the delivery of the board game to the customer. Thus, determining the Transaction Price is the issue that needs to be addressed. The principles for the determining transaction prices can be found in ASC Subtopic 606-10-32-2 through 606-10-32-27. You may also want to refer to the illustrations (examples) contained in ASC 606. A list of the illustrations can be found at ASC Subtopic 606-10-55-93.

QUESTIONS TO BE ANSWERED

You must answer the following questions:

What are the additional entries or correct entries required on the following dates? If the entries made by the bookkeeper are correct, indicate “Bookkeeper made correct entry”. Otherwise use the Journal Entry template to record your answer and then paste into your answer.:

June 1, 2018

December 31, 2018 Adjusting Journal Entry

December 1, 2019

Use the attached Excel Template, show the corrected comparative Balance Sheet and Income Statement at December 31, 2019 and December 31, 2018.   Paste the template into your answer

Using references to ASC 606 explain how your arrived at your answers in 1. And 2. Above.

From the point of view of a potential investor or lender to UPR, do the corrected financial statements or the original financial statements prepared by UPR’s bookkeeper better reflect the economics of UPR during its initial two years in business? Why?                   

Corrected Balance Sheet
12/31/2019 12/31/2018
Cash* $0 $126,000
Inventory - Work in Process* $0 $100,000
Inventory - Finished Goods* $126,000
Total Assets $126,000 $226,000

Deferred Revenue $0
Total Liabilities $0
Common Stock* $1,000 $1,000
Retained Earnings- Accumulated Deficit $125,000
Total Equity $126,000
Total Liablities and Equity $126,000

Corrected Income Statement
Revenues
Cost of Goods Sold $225,000 $0
Gross Profit
Expenses - Interest
Net Income

You can assume that the Cash, Inventory, Common Stock and Cost of Goods Sold amounts as shown in the financial statements are correct. Also, the Balance Sheet at 12/31/2019 as prepated by UPR's bookkeeperis correct.

A producer of various feed additives for cattle conducts a study of the number of days of feedlot time required to bring beef cattle to market weight. Eighteen steers of essentially identical age and weight are purchased and brought to a feedlot. Each steer is fed a diet with a specific combination of antibiotic concentration (1=500mg/day, 2=1000mg/day) and percentage of feed supplement. The beginning weight (kg) of the steers is also recorded The data are as follows:

STEER ANIBIO SUPPLEM TIME

(1a) What are your null and alternative hypotheses? (1b) What test did you conduct to address this question? Why? (1c) Did the data meet the assumption of your test? How did you verify this? If not, how did you deal with this? (1d) Is there a significant relationship between the time to being brought to the feedlot and the protein, antibiotic, and feed supplement? (1e) Which variables are significant in predicting time to market? Did each variable have a positive or negative impact on price?

Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks.   Sales are projected to increase by $200,000 per year if credit is extended to these new customers.  Of the new accounts receivable generated, 6% are projected to be uncollectible.  Additional collection costs are projected to be 5% of incremental sales, and production and selling costs are projected to be 78% of sales.  Your firm expects to pay a total of 30% of its income after expenses in taxes.

1. Compute the incremental income after taxes that would result from these projections:

2. Compute the incremental Return on Sales if these new credit customers are accepted:

If the receivable turnover ratio is expected to be 5 to 1 and no other asset buildup is needed to serve the new customers…

3. Compute the  additional investment in Accounts Receivable
4. Compute the incremental Return on New  Investment

5. If your company requires a 20% Rate of Return on Investment for all proposals, do the numbers suggest that trade credit should be extended to these new customers?  Explain.

At the beginning of the current season on 1 October, the ledger of Hancock’s Pro Shop Pty Ltd showed Cash $5000; Inventory $7000; and Share Capital $12 000. The following transactions occurred during October 2015.

Blossom Hardware Store completed the following merchandising transactions in the month of May. At the beginning of May, Blossoms’ ledger showed Cash of $9,300 and Common Stock of $9,300.

1)Journalize the transactions using a perpetual inventory system

2)Post the transactions to T-accounts. Be sure to enter the beginning cash and common stock balances.

Match the independent entities in the table on the following page with the most likely objective from the list below:

Stewardship

Income tax deferral

Cash flow prediction

Contract compliance

Performance evaluation

If more than one answer applies, provide a brief explanation justifying your response. Explanations are not required otherwise.

Natural gas providers, like Scana Energy, can create switching costs for its product. This means,

a. it is difficult or costly for customers to switch to another seller of the product.

b.it increases its costs by producing several versions of the product so customers can switch between versions.

c.customers will find it more costly to stay with the company than to switch to another seller.

d.it is difficult or costly for the seller to switch to producing a different product.

Internal Controls for Cash Received from Retail Sales Dunn Company operates a retail department store. Most customers pay cash for their purchases. Edwards has asked you to help it design procedures for processing cash received from customers for cash sales. Briefly describe the procedures that should be used in each of the following departments:

a. Retail sales departments

b. Retail sales supervisor

c. Treasurer’s department

d. Controller’s department

*Do not round any answer until your final answer. Round your final answer to the nearest whole dollar. When entering your final answer, do not use commas or $ sign. (Sorry...Canvas is very sensitive and will mark your answer incorrect due to rounding and punctuation.) Due to possible rounding differences, all answer solutions are programmed as acceptable that are +/- 1. For example, if the correct answer is $54,372, all possible answer solutions that would be accepted would be 54,371, 54372, and 54,373.

On January 1, 20x1, ABC rendered services to Smith Corporation and accepted a $200,000, 5 year note. In exchange, Smith agreed to make quarterly payments of P&I at the end of each Mar, Jun, Sept and Dec, with the first payment to be made on March 31, 20x1. An interest rate of 8% is imputed.  

Required: Use the information above to answer the next (4) questions:

1. What is an indifference curve?

   	A.	An inverse demand curve.
   	B.	An exponential supply curve.
   	C.	A curve that shows how people don’t care about certain goods.
   	D.	A curve showing different combinations of goods that represent equally satisfying levels of consumption to an individual.

QUESTION 2

1. The following are properties of an indifference curve:

   	A.	They are bowed outward.
   	B.	Indifference curves for the same individual do not cross.
   	C.	They slope upward.
   	D.	All of the above.

QUESTION 3

1. Producing 1 unit costs $2, 2 units cost $3, 3 units cost $6, and 4 units cost $11. What is the marginal cost of the 4^th unit?

   	A.	$2.75
   	B.	$5
   	C.	$11
   	D.	$22

QUESTION 4

1. How do accountants calculate profit?

   	A.	Average revenue minus variable costs
   	B.	Marginal revenue minus average cost
   	C.	Total revenue minus explicit costs
   	D.	Total revenue minus explicit and implicit costs

QUESTION 5

1. How do economists calculate profit?

   	A.	Total revenue minus total monetary costs.
   	B.	Total revenue minus total costs including opportunity costs.
   	C.	Marginal revenue minus fixed costs.
   	D.	Average revenue minus average cost.