Analysis of Revenue Growth & Sustainability

Johnson Company had the following account balances at the end of the most recent fiscal year: Cash: $4,300, Accounts Receivable: $1,200, Supplies: $200, Accounts Payable: $700, S. Johnson, Capital: $2,900, S. Johnson, Drawing: $300, Fees Income: $4,900, Rent Expense: $1,300, Advertising Expense: $1,000, Supplies Expense: $200. Assuming that these were the only accounts used by Johnson Company during the year, for which of the following steps in the closing process would a compound entry be necessary?

• Step 1: Transfer Revenue Account Balances

• Step 2: Transfer Expense Account Balances

• Step 3: Transfer Net Income or Net Loss to Owner’s Equity

• Step 4: Transfer the Drawing Account Balance to Capital

1. Suppose that total fixed costs are 600.000.000 $, margin of safety is 500 tons, and breakeven amount is 1.500 tons. What would be the profit?

a) 100.000.000 $

b) 200.000.000 $

c) 300.000.000 $

d) 400.000.000 $

e) Other:

2. A company has a total fixed cost of 500.000 $ and produced 1.000.000 $ of profit this year. What would be the profit amount had the company increased its sales volume by 10%?

a) 1.100.000 $

b) 1.150.000 $

c) 1.200.000 $

d) 1.250.000 $

e) Other:

3. Suppose that depreciation expense is 3.000.000 $ and profit is 15.000.000 $. Contribution margin percentage is 60%. Breakeven revenue is 25.000.000 $. Under these conditions, what would be the $ amount of margin of safety?

a) 10.000.000 $

b) 15.000.000 $

c) 20.000.000 $

d) 25.000.000 $

e) Other:

Question Set 1. Samsung is considering different R&D paths for the upcoming year’s release. The four strategies (along with changing nothing) under consideration are:

• Decrease Depth: Decrease the depth of the phones without affecting other specs
• More Battery Power: Increase battery capacity of phones by 6%
• Mixed: Combine above two strategies somehow
• No Change: Do not change anything, buyers seem content

The outcomes of the possible strategies (in millions of dollars) depend on how the competitors behave. Samsung considers four different outcomes, which are not shared, say A, B, C and D. Negative values indicate loss for Samsung and positive values indicates possible profits.

For the following questions, you will use Excel to identify the best strategy according to various criteria. You only need to perform the necessary calculations to show which one is best. For example, the first question is for maximax. You need to set up formulas to find the maximum payoff for each strategy and to then find the highest value among them. However, once you have calculated that highest value, you can just type in the corresponding strategy without any further Excel calculations.

1. What would be Samsung’s decision using the maximax criterion? (3pts)

2. What would be Samsung’s decision using the maximin criterion? (3pts)

3. What would be Samsung’s decision using the Laplace criterion? (3pts)

4. What would be Samsung’s decision using the minimax regret criterion? It is helpful to construct a regret table for this problem. (6pts)

Question Set 2. This question set uses the table of outcomes from Question Set 1 for Samsung’s strategies. Assume that the probabilities for scenarios are:

• P(A) = 0.15
• P(B) = 0.20
• P(C) = 0.40
• P(D) = 0.25

1. What decision will maximize Samsung’s expected monetary value? (9pts)

2. What is the expected value of perfect information? (6pts)

Question Set 3. This question set uses the metropolitan model for facility location decisions. Each demand source has a weight indicating the volume of sales it is expected to generate. Using the demand data and five potential locations on the following page:

1. Find the sum of weighted metropolitan model distances for each of the five locations. Be sure the calculations are shown for each location’s sum of distances. (8pts)

2. As evidenced by having the smallest weighted sum of distances, which location is best? (2pts)

On the income statement of a merchandising company, interest income and interest expense are reported:

Select one:

A. As part of cost of goods sold

B. As separate items of other income and expense below the net operating income or loss

C. By showing interest income as additional sales revenue and interest expense as an operating expense

D. By offsetting interest income and interest expense and showing the excess as an operating revenue or expense

On December 31, 2019, Opgenorth Company listed the following items in its adjusted trial balance:

Additional data:

1. Seven thousand shares of common stock have been outstanding the entire year.
2. The income tax rate is 30% on all items of income.

Required:

1. Prepare a 2019 multiple-step income statement. Round earnings per share to two decimal places.

2. Prepare a 2019 single-step income statement. Round earnings per share to two decimal places.

3. Prepare a 2019 statement of comprehensive income.

A partial adjusted trial balance of Swifty Company at January 31, 2017, shows the following. SWIFTY COMPANY ADJUSTED TRIAL BALANCE JANUARY 31, 2017 Debit Credit Supplies $920 Prepaid Insurance 3,720 Salaries and Wages Payable $1,020 Unearned Service Revenue 970 Supplies Expense 950 Insurance Expense 620 Salaries and Wages Expense 2,020 Service Revenue 2,220 Answer the following questions, assuming the year begins January 1.

If the amount in Supplies Expense is the January 31 adjusting entry, and $850 of supplies was purchased in January, what was the balance in Supplies on January 1? Beginning balance of supplies $ =

If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium?

Total premium $ =

When was the policy purchased? The policy was purchased on .

If $2,720 of salaries was paid in January, what was the balance in Salaries and Wages Payable at December 31, 2016? Beginning balance of salaries and wages payable $ =

If $1,820 was received in January for services performed in January, what was the balance in Unearned Service Revenue at December 31, 2016? Assume that there are no accounts receivable. Beginning balance of unearned service revenue $ =

Exercise 6-1

Umatilla Bank and Trust is considering giving Blossom Company a loan. Before doing so, it decides that further discussions with Blossom Company’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $250,820. Discussions with the accountant reveal the following. 1. Blossom Company sold goods costing $54,230 to Hemlock Company FOB shipping point on December 28. The goods are not expected to reach Hemlock until January 12. The goods were not included in the physical inventory because they were not in the warehouse. 2. The physical count of the inventory did not include goods costing $91,590 that were shipped to Blossom Company FOB destination on December 27 and were still in transit at year-end. 3. Blossom Company received goods costing $24,420 on January 2. The goods were shipped FOB shipping point on December 26 by Yanice Co. The goods were not included in the physical count. 4. Blossom Company sold goods costing $56,030 to Ehler of Canada FOB destination on December 30. The goods were received in Canada on January 8. They were not included in Blossom Company physical inventory. 5. Blossom Company received goods costing $39,190 on January 2 that were shipped FOB destination on December 29. The shipment was a rush order that was supposed to arrive December 31. This purchase was included in the ending inventory of $250,820. Determine the correct inventory amount on December 31. The correct inventory amount on December 31 $Enter a dollar amount

CircuitTown commenced a gift card program in January 2021 and sold $11,900 of gift cards in January, $19,450 in February, and $20,850 in March 2021 before discontinuing further gift card sales. During 2021, gift card redemptions were $8,100 for the January gift cards sold, $4,600 for the February cards, and $6,100 for the March cards. CircuitTown considers gift cards to be “broken” (not redeemable) 10 months after sale.

Required:
1. How much revenue will CircuitTown recognize with respect to January gift card sales during 2021?
2. Prepare journal entries to record the sale of January gift cards, the redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards.
3. How much revenue will CircuitTown recognize with respect to March gift card sales during 2021?
4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2021?

How much revenue will CircuitTown recognize with respect to January gift card and March gift card sales during 2021? What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2021?