Principal Skinner Company produces gourmet cheeses. Selected results from the most current year were as follows:

Sales Revenue: $3,500,000

Operating Income: $560,000

Assets 1/1: $5,000,000

Assets 12/31: $5,800,000

Current Liabilities 12/31: $925,000

Long-term Liabilities 12/31: $3,050,000

Production Manager Marge Simpson is considering investing in the purchase of a new fermenting station that will increase the plant’s production capacity. Based on her research, Marge thinks the station would cost $2,200,000 and would increase sales revenue by $1,750,000 and operating income by $450,000.


Required:
1. Calculate Principle Skinner’s current sales margin, asset turnover, and return on investment.

2. Calculate Principle Skinner’s sales margin, asset turnover, and return on investment assuming the company purchases the new fermentation station.

3. Assume Marge’s annual bonus is based on the company’s return on investment. Would Marge support the purchase of the new fermenting station? Why or why not?

Go to sec.gov and click on “Filings”; you will see a drop-down box. Click on “Company Filings Search.” In the Fast Search box (right side), type in USB to get the SEC filings for U.S. Bancorp. Find the most recently filed 10K (interactive data), and then click on “financial statements.” From here you can open the firm’s Consolidated Balance Sheet and the Consolidated Statement of Income. Notice that you can access 2 to 3 years of data. Compute the following ratios for as many years as you can, showing your numerator and denominator, as well as the ratio result:

Return on equity

Return on assets

Net interest margin

Net noninterest margin

Earnings spread

Net operating margin

Net profit margin (use net income/total revenue)

Tax management efficiency ratio

Expense control efficiency ratio

Asset utilization ratio (total revenue/total assets)

Equity multiplier (total assets/total stockholders’ equity).

Complete the following:

1. In terms of efficiency, what justifies subsidies for R&D in renewable energy? What justifies subsidies for electricity generation from renewable energy? (Response can be in list form here.)

2. What is the first-best policy instrument to mitigate climate change in the energy industry? How does the performance of subsidies for renewable energy compare with the first-best policy? (Response can be in list form here.)

3. How does emissions trading (cap-and-trade) work and what is the benefit of its approach?

4. Explain the reason for revenue decoupling and how it works. (Hint: Explain how revenue decoupling is a deviation from traditional rate-of-return/cost-of-service regulation).

5. Deregulation of electricity markets leads to different electricity prices on different days and at different times of a day. Using a supply-demand diagram, explain why electricity prices tend to be volatile under such pricing. (Hint: how would you characterize the price elasticity of supply and demand at peak periods?)

Stivason Clinic uses client-visits as its measure of volume. During June, the clinic budgeted for 3360 client-visits, but it actually received 3362 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for April. All costs are mixed costs.

Data used in budgeting:

Fixed amount Variable amount per client visit

Revenue 25.45

Personnel expense 22555 8.72

Medical supplies exp. 586 4.93

Administration exp. 10182 1.18

Actual results:

Revenue 84171

Personnel expense 51046   

Medical supplies exp. 14705

Administration exp. 12725

1.Calculate the sales price variance (absolute value, whole number).

2. Sales volume variance (absolute value, whole number):

3.Personnel variance (absolute value, whole number):

2. P_a = ? $/oz. (Answer to 3 significant digits.)

3.U_b = ? oz / unit. (Answer to 3 significant digits.)

Neubert Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During December, the company budgeted for 5,300 units, but its actual level of activity was 5,340 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

Actual results for December:

The net operating income in the flexible budget for December would be closest to:

Garrison 16e Rechecks 2018-06-07

Multiple Choice

$16,430

$16,994

$11,795

$11,974

Natty Limited sells custom made jewellery which are sold with a 3 year warranty. The estimated warranty cost, based on experience, is 3% of sales the year after the sale, 2% of sales the second year after the sale and 1% of sales the third year after the sale. The company’s total sales for 2019 were $1.2 million. Actual warranty work were performed in 2019 for a cost of $47,000. The opening balance in the Warranty Liability account as of January 1, 2019 was $60,000.

Required:

a. Prepare the journal entries for the warranty accrual and the actual warranty incurred for 2019 using the Expense Method.

b. What is the amount of the Warranty Liability to be reported on the Balance Sheet as at December 31, 2019 based on the Expense method?

c. NOW assume the Revenue Method. Of the $1.2 million sale, $200,000 represented warranty. $47,000 was incurred in 2019 for warranty work. Prepare the journal entries to record the sale of jewellery, actual warranty work incurred and revenue to be recognized in 2019?

1. Joey Ltd is entering into a contract to sell Motor vehicle spare parts to Rachel Ltd for $25 000. The agreement allows Rachel Ltd to pay for these goods by three equal instalments of $6 500 and the balance remaining payable in the final instalment, the first instalment being required on delivery and the remainder to be paid every 4 months over the coming year. The Motor Vehicle spare parts are delivered to Rachel Ltd on 1 March 2020. Johnson Ltd determine that an appropriate discount rate for interest on this transaction is 7% per annum. The agreement stipulates that the interest revenue is due and payable when each repayment is due.

Narrations are required for this question.

Add rows to the answer tables if necessary.

Required

1. Complete the table below to determine the interest component of the payments.                                              
2. Give the journal entries to record the revenue. Note that giving the correct dates of your journal entries is essential.            

Universal Foods issued 12% bonds, dated January 1, with a face amount of $195 million on January 1, 2021 to Wang Communications. The bonds mature on December 31, 2035 (15 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31.

(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. to 3.

Prepare the journal entries to record the purchase of the bonds by Wang Communications on January 1, 2021, interest revenue on June 30, 2021 and interest revenue on December 31, 2028. (Round final answers to the nearest whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the investment in bonds on January 1, 2021.
• Record the interest on June 30, 2021.
• Record the interest on December 31, 2028.

Universal Foods issued 12% bonds, dated January 1, with a face amount of $195 million on January 1, 2021 to Wang Communications. The bonds mature on December 31, 2035 (15 years). The market rate of interest for similar issues was 14%. Interest is paid semiannually on June 30 and December 31.

(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. to 3.

Prepare the journal entries to record the purchase of the bonds by Wang Communications on January 1, 2021, interest revenue on June 30, 2021 and interest revenue on December 31, 2028. (Round final answers to the nearest whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the investment in bonds on January 1, 2021.
• Record the interest on June 30, 2021.
• Record the interest on December 31, 2028.