On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2021, costs of $2,000,000 were incurred, with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent, and cash collected was $2,250,000.

In 2022, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2022 billings were $2,750,000, and $2,475,000 cash was collected. The project was completed in 2023 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. This project does not qualify for revenue recognition over time.
  
Required:
1. Calculate the amount of revenue and gross profit or loss to be recognized in each of the three years.
2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred).
2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred).
3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021.
3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022.

Suppose that the demand for curve is QD = 1000-40P, (where QD is the number of gallons of liquor demanded and P is the price per gallon), and the supply curve for liquor is QS =60P (where QS is the number of gallons supplied). For all the questions below, graph and calculate (and label) all intercept, slopes and equilibrium points. a. Compute equilibrium prices and quantities in the absence of the tax. b. In an effort to reduce alcohol consumption, SMU is considering a 40% tax on liquor sold on campus (the tax is levied on consumers). Compute how the tax would affect the price paid by consumers and the price received by producers. c. Calculate the consumer and producer burdens of this tax. d. How much revenue does the tax on consumers (part b) raise for SMU? How much of the revenue comes from consumers, and how much from producers? e. What is the deadweight loss? f. What if SMU instead levies a 40% tax on producers? Redo parts b) and c) for this new tax. g. What happens to consumer and producer burdens if SMU decides to put a price floor of $10.50? Does it matter if the tax is imposed on consumers or producers? Explain.

Jefferson International is trying to choose between the following two mutually exclusive design projects:

The required return is 12 percent.

i) Rank the projects using profitability index (PI) decision rule.

ii) If the company applies the NPV decision rule, which project should it take?

iii) Given your first two answers, which project should the firm accept?

B

Suppose the company is granted a 5-year lease of a land to complete the project. The company is required to restore the land to its former condition after its 5 years tenure. Annual net revenue are expected to be $250,000 for 5 years and the budgeted cost of restoration works is $500,000.

Calculate the MIRR for the project, if positive cash flows are expected to be invested at 10% return and money can be borrowed at 7%.

1. 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:

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,600 plus $32 per job, and the actual mobile lab operating expenses for February were $9,240. The company expected to work 150 jobs in February, but actually worked 156 jobs.

Required:

Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Flight Café prepares in-flight meals for airlines in its kitchen located next to a local airport. The company’s planning budget for July appears below:

In July, 27,000 meals were actually served. The company’s flexible budget for this level of activity appears below:

Required:

1. Calculate the company’s activity variances for July.

ssume the data presented below are from the financial statements of JetBlue and Southwest Airlines.

Required
a. Compute the return on equity ratio for JetBlue and Southwest for 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer%

Southwest Airlines Answer%

Which company earned the higher return for its shareholders?

AnswerSouthwest AirlinesJet Blue Airways

b. Compute the debt-to-equity ratio for each company as of December 31, 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer

Southwest Airlines Answer

Which company relies more on creditor financing?

AnswerSouthwest AirlinesJet Blue Airways

c. For each firm, compute net income as a percentage of revenue in 2013. (Round your answer to one decimal place.)

JetBlue Airways Answer%

Southwest Airlines Answer%

Budweiser is thinking about making wine…

• Expected sales per unit
  • 290,000 bottles sold in the first year
  • Sales revenue declines 10% per year (ie, sales growth = -10%)
• Proposed selling price per bottle = $5.10
• Variable cost per bottle = $2
• Fixed costs = $270K/year in maintenance and labor
• Budweiser also expects to lose $300K pretax per year (revenue net of expenses) from beer sales as people switch from beer to wine
• Working capital necessary = $50K
• Wine-making equipment
  • would cost $750K, plus $50K in modifications required on the assembly line (included in depreciable basis)
  • depreciated 5-year MACRS
• After five years, project ends as everyone realizes Budweiser wine is disgusting
  • all remaining working capital recouped
  • wine-making equipment sold for $400,000
• Tax rate = 30%
• Assume any negative taxes can be treated as an immediate tax credit. (=treat negative taxes as a positive CF.)

• Required return = 10%.

Calculate the NPV and the IRR of the project. Should the company pursue this project?

forecasted income statement for April, when she expects to produce and sell 3,000 meals.

Fixed costs included in this income statement are $4,500 for meal production and $600 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.50 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.

Required:

a. What impact would accepting this special order have on operating profit? (Select option "higher" or "lower", keeping Status Quo as the base. Select "none" if there is no effect.)

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 $ 276 $ 33,130 Technician wages $ 8,100 $ 7,950 Mobile lab operating expenses $ 4,800 $ 31 $ 8,670 Office expenses $ 2,500 $ 4 $ 2,870 Advertising expenses $ 1,560 $ 1,630 Insurance $ 2,880 $ 2,880 Miscellaneous expenses $ 940 $ 2 $ 505 The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,800 plus $31 per job, and the actual mobile lab operating expenses for February were $8,670. The company expected to work 130 jobs in February, but actually worked 140 jobs. Required: Prepare a flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)