In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate Construction uses the completed contract method of accounting for long-term construction contracts.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a.In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b.In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).
3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.
4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

Question 3:
Sun Consultancy provides special consultancy services to its clients. It started its operation on January 1, 2018. An un-adjusted trial balance as on May 31, 2018 for this firm is given below.
Sun Consultancy
Trial Balance
As on May 31, 2018
Serial # List of Accounts Debit (Rs) Credit (Rs)
1 Cash 97,300
2 Accounts receivable 10,400
3 Office supplies 15,000
4 Prepaid insurance 12,000
5 Furniture 40,000
6 Car 50,000
7 Accumulated depreciation-car 7,600
8 Unearned revenue 1,760
9 Drawings 2,000
10 Capital 150,000
11 Service revenue 37,300
12 Accounts payable 7,600
13 Loan payable 50,000
14 Salaries expense 9,000
15 Depreciation expense 1,560
16 Rent expense 17,000
Total 254,260 254,260

Following additional information is revealed for adjustments at May 31, 2018;
1. Office supplies of Rs 7,600 were consumed during month.
2. Salaries earned by employees for second half of May Rs 9,000 were neither paid not recorded.
3. Rs 2,500 of prepaid insurance was expired during the month but was not recorded.
4. Accounts payable were paid 1/2 during May but no entry was made in the books.
5. Remaining balance of unearned revenue was Rs 1,200 at the end of the month.
6. Cash received Rs 4,400 from account receivable but not recorded.
7. The interest rate on Loan payable is 15% (The Loan was taken out on April 1.)
8. Invoices representing Rs 4,600 of services performed during the month have not been recorded.

REQUIRED
1. Prepare adjusting entries at May 31, 2018.

3. (12) Amazon had a public dispute with the book publisher Hachette regarding its prices for e-books. Amazon was trying convince Hachette to lower their price for e-books, arguing that doing so would benefit both consumers and the publisher; Hachette was refusing to cut their prices, countering that lower prices would hurt both the publisher and their authors. Amazon explained their objectives in terms of price elasticity on their discussion board which they recently discontinued. The full post was e-mailed to the class and is posted on Blackboard.

a.) Amazon states that "For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99." Use this information to calculate the price elasticity of demand for e-books between these two prices. Show your work.

b.) Suppose Amazon was selling 7,000,000 Hachette e-books when the price was $14.99. If their above calculations are correct, how many would they sell after the price is cut to $9.99? What would the total revenue from e-books equal before and after the price cut?

c.) Amazon claims that “e-books are highly price elastic.” If this is the case, then why wouldn't Amazon want to cut prices even further? For example, why not cut the price of e-books to $0.99 instead of $9.99?

d.) Given that Amazon is arguing that cutting e-book prices to $9.99 would benefit Hachette through higher revenue, why do you think Hachette was against this price cut? Hachette obviously did not agree that this price cut would benefit them; but that does not mean they disputed what Amazon was saying. Briefly explain why Hachette may have been against the price cut, even if they did not dispute any of the estimates Amazon gives regarding the price elasticity of demand or revenue expectations.

Market Forms

The following questions address some of the price and output decisions faced by firms other than those found in perfect competition. Some numbers may be rounded.

Questions:

1. Complete Table 1. Summarize your calculations and use Microsoft Excel.
2. Using Excel, draw one graph showing average fixed costs, average variable costs, average total costs, marginal revenue, and marginal costs.
3. Using the data in the table and on your graph, what is the profit maximizing, or loss minimizing level of output? Explain and justify your answers.
4. What is a normal profit? What is an economic profit? Explain your answer using examples. Are normal profits being earned in this example? Are economic profits present for this firm in this example? Explain your answers.
5. Given the data in the table and the graph, how could you determine or identify the optimal plant size?
6. What is the difference between explicit and implicit cost? Explain your answers.
7. How would we determine if a cost is a fixed cost or a variable cost?

Taxes and welfare

Consider the market for commercial fans. The following graph shows the demand and supply for commercial fans before the government imposes any taxes.

First, use the black point (plus symbol) to indicate the equilibrium price and quantity of commercial fans in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.

Before TaxEquilibriumConsumer SurplusProducer Surplus05010015020025030035040045050050454035302520151050PRICE (Dollars per fan)QUANTITY (Fans)DemandSupplyArea: 0

Suppose the government imposes an excise tax on commercial fans. The black line on the following graph shows the tax wedge created by a tax of $20 per fan.

First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss.

After TaxTax RevenueConsumer SurplusProducer SurplusDeadweight Loss05010015020025030035040045050050454035302520151050PRICE (Dollars per fan)QUANTITY (Fans)DemandSupplyTax WedgeArea: 0

Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax.

Note: You can determine the areas of different portions of the graph by selecting the relevant area.

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,700; cost of goods sold, $7,400; selling expenses, $1,420; general and administrative expenses, $920; interest revenue, $190; interest expense, $330. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $340. Schembri also had an unrealized gain of $440 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,500.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $680 in 2021 prior to the sale, and its assets were sold at a gain of $1,640.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $320.
5. Negative foreign currency translation adjustment for the year totaled $360.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 400,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.

1) Recently, McDonald's re-introduced its Szechuan dipping sauce as an option at its restaurants located across the United States. Suppose that the U.S. government considers the Szechuan sauce market as a potential source of government revenue and that the government decides to levy an excise tax on Szechuan dipping sauce of $.80 per unit of sauce. The market clearing price before the excise tax is levied is $1.20 and the equilibrium quantity is 1500 units of Szechuan dipping sauce. After the excise tax is levied the consumer will pay $1.80 and the equilibrium quantity in the market will drop to 1200 units of Szechuan dipping sauce.

a. Given the above information, derive the equations for the supply curve and the demand curve in Szechuan source market.

b. Consider this market prior to the implementation of the excise tax. Calculate the values of Consumer Surplus (CS), Producer Surplus (PS) and Total Surplus (TS) when this market is initially at equilibrium.

c. Now, consider this market after the implementation of the excise tax. Calculate the value of Consumer Surplus with the excise tax (CSt), Producer Surplus with the excise tax (PSt), the tax revenue the government receives from implementing the tax (Tax Revenue), Total Surplus in this market after the excise tax is implemented (TSt) and the Deadweight Loss (DWL) due to the implementation of this excise tax. 2

d. Consider this market after the implementation of the excise tax. Calculate the Consumer Tax Incidence(CTI) and Producer Tax Incidence(PTI) of this excise tax. Which one is larger? If the demand curve became more elastic (eg: if the new demand curve was “flatter” but went through the initial equilibrium point before the excise tax was levied), would consumers pay a higher or lower share of the total taxes collected? What conclusion can you make about the relationship between elasticity and tax incidence?

The following income statement items appeared on the adjusted trial balance of Schembri Manufacturing Corporation for the year ended December 31, 2021 ($ in thousands): sales revenue, $17,900; cost of goods sold, $7,500; selling expenses, $1,430; general and administrative expenses, $930; interest revenue, $200; interest expense, $310. Income taxes have not yet been recorded. The company’s income tax rate is 25% on all items of income or loss. These revenue and expense items appear in the company’s income statement every year. The company’s controller, however, has asked for your help in determining the appropriate treatment of the following nonrecurring transactions that also occurred during 2021 ($ in thousands). All transactions are material in amount.

1. Investments were sold during the year at a loss of $350. Schembri also had an unrealized gain of $460 for the year on investments in debt securities that qualify as components of comprehensive income.
2. One of the company’s factories was closed during the year. Restructuring costs incurred were $1,600.
3. During the year, Schembri completed the sale of one of its operating divisions that qualifies as a component of the entity according to GAAP. The division had incurred a loss from operations of $680 in 2021 prior to the sale, and its assets were sold at a gain of $1,660.
4. In 2021, the company’s accountant discovered that depreciation expense in 2020 for the office building was understated by $330.
5. Negative foreign currency translation adjustment for the year totaled $380.

Required:
1. Prepare Schembri’s single, continuous multiple-step statement of comprehensive income for 2021, including earnings per share disclosures. One million shares of common stock were outstanding at the beginning of the year and an additional 800,000 shares were issued on July 1, 2021.
2. Prepare a separate statement of comprehensive income for 2021.
  

The following transactions apply to Jova Company for Year 1, the first year of operation:

1. Issued $14,000 of common stock for cash.
2. Recognized $214,000 of service revenue earned on account.
3. Collected $166,400 from accounts receivable.
4. Paid $129,000 cash for operating expenses.
5. Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account.

The following transactions apply to Jova for Year 2:

1. Recognized $324,000 of service revenue on account.
2. Collected $339,000 from accounts receivable.
3. Determined that $2,350 of the accounts receivable were uncollectible and wrote them off.
4. Collected $1,200 of an account that had previously been written off.
5. Paid $209,000 cash for operating expenses.
6. Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 1.0 percent of sales on account.

Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.

c-1. Record the Year 1 transactions in general journal form and post them to T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

Journal entry worksheet

• Record entry for issuance of common stock.

Note: Enter debits before credits.

The unadjusted trial balance of

Lady

Ltd. at

October

31​,

2020​,

appears in the solution step below. The adjustment data at

October

31​,

2020​,

is provided.

LOADING...

​(Click the icon to view the​ month-end adjustment​ data.)Requirements

LOADING...

Requirement 1. Using the​ worksheet, prepare the adjusted trial balance of

Lady

Ltd. at

October

31​,

2020.

The unadjusted balances have been entered for you. Key each adjusting entry by letter.

Calculate the adjusted balance of each​ account, and then total the debit and credit columns in the adjusted trial balance. ​(Leave unused cells blank. Round your answers to the nearest whole​ number.)

Choose from any list or enter any number in the input fields and then click Check Answer.

Adjustment data at

October

31​,

2020.