State whether the following statements are TRUE or FALSE. Give the reason, If a statement is true, explain why; if it is false, identify the mistake and try to correct it. Use the diagram for explanation if needed. (NOTE: Marks are based on your reasoning, not only for T/F marking)
(i). Change in quantity demanded and change in demand are the same things.
(ii). If the demand curve for good A is flatter, and if the demand curve for good B is highly
steeper, then for any same amount of price change for both goods, the total revenue for good A
will be more than total revenue for good B.
(iii). When the price ceiling and price flooring are imposed than both consumer and producer surplus
are Maximized.
(iv). The value of elasticity does not change along the demand curve when it vertical or horizontal.
(v). From a budget line, the change in real income is only affected due to change in nominal income,
keeping other things constant.
(vi). When marginal cost is above average total cost, average total cost must be falling.
In: Economics
Suppose you have to decide whether selling an old machine or keeping it with a major overhaul:
A) Selling the machine at time zero for $750,000 with zero book value and paying the tax of 40%.
B) Keeping the machine, which requires a major overhaul cost of $1,000,000 at time zero. The overhaul cost is depreciable from time 0 to year 5 (over six years) based on MACRS 5-year life depreciation with the half year convention (table A-1 at IRS (https://www.irs.gov/publications/p946)). In this case machine can produce and generate equal annual revenue for five years (year 1 to 5) and salvage value of the machine will be $250,000 with zero book value at the end of year 5. The operating cost of the machine will be $400,000 per year from year 1 to year 5.
Calculate the minimum annual revenue that machine has to generate to break-even the selling with NPV of keeping the machine. Consider 40% income tax rate and after-tax minimum ROR of 16%.
In: Finance
QUESTION 4
Part IV:
Background
On January 10, KH sold a mixer it purchased from MU for $80 cash
and delivered it to a customer. KH has a 45-day return policy under
which a customer can exchange a product for another product of the
same type, quality, condition and price. The exchange policy
requires that all returned products must be like new. Based on
extensive historical experience, KH estimates that 2% of its
products will be exchanged by customers for another product of the
same price, condition, quality and type. KH estimates the cost of
recovering any products will be insignificant. KH does not record
any potential volume discounts until they are
earned.
Requirements
► Prepare a detailed explanation
of each of the five steps of revenue recognition. Record all
initial accounting entries for MU for January 10 based on guidance
on revenue recognition in ASC 606. Include references to the
guidance to support your proposed accounting. Show any calculations
you make to support your journal entries.
In: Accounting
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves.
Furthermore, suppose that a representative firm’s total revenue is given by the equation TR = q.p; where q is the quantity of output produced by the firm and p the market price (=P).
The market demand for this product is given by the equation P = 5000 – 9Q where Q is the market quantity.
In addition you are told that the market supply curve is given by the equation P = 1000 + Q.
a. What is the equilibrium quantity and price in this market given this information?
b. The firm’s MC equation based upon its TC equation is MC = 5q + 4. Given this information and your answer in part (a), what is the firm’s profit maximizing level of production, total revenue, total cost and profit at this market equilibrium?
Is this a short-run or long-run equilibrium? Explain your answer.
c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?
In: Economics
Barkers, Inc. had the following selected accounts in its unadjusted trial balance:
Accounts receivable $176,000
Prepaid rent 54,000
Prepaid insurance 24,000
Equipment 300,000
Accumulated depreciation-equipment 30,000
Unearned service revenue 24,000
Salary expense 130,000
Additional data:
One-third of the revenue received in advance has been earned by December 31, 2017.
The prepaid insurance represents three years’ premium on a policy providing coverage starting October 1, 2017.
Since the last payday, employees have earned an additional $2,000 which has not yet been paid or recorded.
The equipment has an estimated life of 6 years and no expected value at the end of its life. (Prepare the entry for depreciation expense.)
Services performed but unbilled and uncollected at year end amount to $5,000.
The prepaid rent relates to one year of rent beginning on September 1, 2017.
REQUIRED: Prepare the necessary year-end adjusting entries as of December 31, 2017
In: Accounting
Dragon’s Fire Pty Ltd enters into three contracts in the same week with Red Hot Equipment Pty Ltd who have agreed to pay the total of $726 000 (GST inclusive). Red Hot Equipment Pty Ltd pay the total in full on 7 August 2021. The details for the three contracts are as follows:
| Date of Contract | Description | Contract Price (GST Exc) | Stand Alone Selling Price (GST Exc) |
| 1/1/2021 | Construction of Outdoor wood heaters | $600,000 | $320,000 |
| 3/1/2021 | Renovation of existing wood heaters owned by the client | $40,000 | $140,000 |
| 5/1/2021 | Construction of new model of wood heater to be used inside | $40,000 | $200,000 |
Required:
Apply the five-step process for revenue recognition in regards to the contract with Red Hot Equipment Pty Ltd. Discuss how Dragon’s Fire shall recognise the revenue from the contract. Please list each of the five steps and show any calculations.
In: Accounting
Red Canyon T-shirt Company operates a chain of T-shirt shops in the southwestern United States. The sales manager has provided a sales forecast for the coming year, along with the following information: Quarter 1-49000, Quarter 2-78000, Quarter 3- 39000 Quarter 478000 Budgeted Unit Sales. Each T-shirt is expected to sell for $24. The purchasing manager buys the T-shirts for $10 each. The company needs to have enough T-shirts on hand at the end of each quarter to fill 34 percent of the next quarter’s sales demand. Selling and administrative expenses are budgeted at $98,000 per quarter plus 14 percent of total sales revenue. Required: 1. Determine budgeted sales revenue for each quarter. 2. Determine budgeted cost of merchandise purchased for each quarter. 3. Determine budgeted cost of good sold for each quarter. 4. Determine selling and administrative expenses for each quarter. 5. Complete the budgeted income statement for each quarter.
In: Accounting
The company’s bookkeeper prepared the following balances from the company's accounting records for the month ended October 31, 2019:
|
Retained Earnings, 10/1/19 |
508,000 |
Prepaid Insurance |
50,000 |
|
Cash |
37,000 |
Contributed Capital |
400,000 |
|
Accounts Payable |
95,000 |
Accounts Receivable |
70,000 |
|
Sales Revenue Dividends |
560,000 3,000 |
Interest Income Interest Expense |
1,000 2,000 |
|
Supplies |
18,000 |
Utilities Expense |
5,000 |
|
Cost of Goods Sold |
300,000 |
Wage Expense |
50,000 |
|
Land Buildings Equipment Accumulated Depreciation Depreciation Expense |
650,000 1,000,000 450,000 800,000 15,000 |
Income Tax Expense Advertising Expense Unearned Revenue Insurance Expense Wages Payable |
22,000 7,000 56,000 10,000 14,000 |
|
Notes Payable |
630,000 |
||
|
Inventory |
375,000 |
Using good form, prepare a: 1) single-step income statement; 2) statement of retained earnings; and 3) balance sheet for ORV Winery for the month of October. Include appropriate headings for all financial statements.
In: Accounting
Make versus buy
You make refrigerators. Currently, you manufacture compressors for
your refrigerators in-house. An outside supplier has offered to
sell you equivalent compressors at a wholesale price of $105 per
unit. You need 1,000 compressors per month. The internal production
costs per compressor are as follows:
| cost per unit | |
| direct materials | $40 |
| direct labor | $40 |
| variable overhead | $20 |
| fixed overhead | $30 |
| total | $130 |
If you outsource the production of compressors (the buy
option) in the short term, how will this choice affect your costs
and profit?
First, compute variable costs under MAKE versus BUY:
| MAKE | BUY | |
| unit VC | ||
| total VC |
If you outsource (BUY), the incremental revenue, costs, and profit
are:
| how much each amount changes if you outsource | |
| Incremental revenue | |
| Incremental VC | |
| Incremental CM | |
| Incremental FC | |
| Incremental profit |
Enter negative amounts with a minus sign, i.e., -1,000 not ($1,000).
In: Accounting
AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:
| Fixed Component per Month |
Variable Component per Job |
Actual Total for February |
|||||||
| Revenue | $ | 277 | $ | 36,030 | |||||
| Technician wages | $ | 8,500 | $ | 8,350 | |||||
| Mobile lab operating expenses | $ | 4,500 | $ | 31 | $ | 8,680 | |||
| Office expenses | $ | 2,800 | $ | 3 | $ | 3,070 | |||
| Advertising expenses | $ | 1,610 | $ | 1,680 | |||||
| Insurance | $ | 2,880 | $ | 2,880 | |||||
| Miscellaneous expenses | $ | 950 | $ | 2 | $ | 535 | |||
The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,500 plus $31 per job, and the actual mobile lab operating expenses for February were $8,680. The company expected to work 140 jobs in February, but actually worked 146 jobs.
Required:
Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February
In: Accounting