Take a look at this financial plan for an EcoFriendly cleaning product. Do these financial assumptions make sense? If not, what financial assumptions would you make?

Financial Plan. According to Gallup News website 39% of people are buying green products in east coast of America. We are assuming that 39% in Boston are interested buying green products. The total population in Boston is 673,184, which means that 262,541 are buying green products. We want to reach 1% of the customers within 6 months. We are assuming that we can sell 1000 units in the first month and we will sell 15,249 units by year one as a short term objective. The total start cost is $56,500 and the total funds are $81,000 ending with $24,500 cash. We get $60,000 loan from one member's father and we contribute $7,000 each. Total fixed cost in the first year is $9,550 each month, and $17,470 each month in the second year. We are assuming that we will sell 1000 units in the first month because there are some cleaning companies in Boston that use green products only, and they will try our products. The total revenue in the first month is $4255 with $1000 product cost. By the end of the first month we end up with a negative net income of ($-6,759). We start making profit when the sales unit increases in month six. By the end of the year we are assuming that we will sell 15,249 units with $171,963 revenue, and total cost of good sold of $40,199. Our net income will be $11,596 in first year. Second year, we increase marketing budget and hire more employees to reach $331,614 total revenue. By the end of year 2 our net income will be $39,063 and $72,322 on year 3. We maintain a positive cash flow to service during the first six months where our net income is negative. After six month our cash flow increases because we assuming that we will have a positive net income by six month. There are money companies in the market selling the same products we have and that means that the demand for green products is increasing. Our business makes sense because there are customers buying cleaning products and we are adding the value to customers by providing green cleaning products at a competitive price.

Mac’s Motel opened for business on May 1, 2017. Its trial balance before adjustment on May 31 is as follows. MAC’S MOTEL Trial Balance May 31, 2017 Account Number Debit Credit 101 Cash $ 3,500 126 Supplies 2,080 130 Prepaid Insurance 2,400 140 Land 12,000 141 Buildings 60,000 149 Equipment 15,000 201 Accounts Payable $ 4,800 208 Unearned Rent Revenue 3,300 275 Mortgage Payable 40,000 301 Owner’s Capital 41,380 429 Rent Revenue 10,300 610 Advertising Expense 600 726 Salaries and Wages Expense 3,300 732 Utilities Expense 900 $99,780 $99,780 In addition to those accounts listed on the trial balance, the chart of accounts for Mac’s Motel also contains the following accounts and account numbers: No. 142 Accumulated Depreciation—Buildings, No. 150 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 619 Depreciation Expense, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense. Other data: 1. Prepaid insurance is a 1-year policy starting May 1, 2017. 2. A count of supplies shows $750 of unused supplies on May 31. 3. Annual depreciation is $3,000 on the buildings and $1,500 on equipment. 4. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.) 5. Two-thirds of the unearned rent revenue has been earned. 6. Salaries of $750 are accrued and unpaid at May 31. Instructions (a) Journalize the adjusting entries on May 31. (b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Use J1 as the posting reference.) (c) Prepare an adjusted trial balance on May 31. (d) Prepare an income statement and an owner’s equity statement for the month of May and a balance sheet at May 31.

Instructions (a) Journalize the adjusting entries on May 31. (b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Use J1 as the posting reference.) (c) Prepare an adjusted trial balance on May 31. (d) Prepare an income statement and an owner’s equity statement for the month of May and a balance sheet at May 31.

Question 8

For each of the following independent situations and from the information below record the adjusting entry (and only the adjusting entry – do not record the original transaction or opening balance) in the General Journal, being as precise with your account titles as possible, e.g. not using “supplies” but “supplies expense” or “supplies on hand”. Please ignore GST. All calculations are to be worked out on a monthly (not daily) basis.

Note: alternative versions of some of the questions are included. You are expected to know how to record both as you may be examined on either the question or the alternative version.

Required: Record the Adjusting Entries

Emma Auditors is conducting the audit on Swan Productions. It is normal practice not bill or invoice the client until the audit is completed. By the end of the financial year 43 hours have been spent on the audit. The average rate is $370 per hour. Record the adjusting entry for Emma Auditors.

(Alternative: record the adjusting entry for Swan Productions)

Jon Ltd. invested $40,000 in a term deposit at Murray River Bank on 1 May 2017. Interest is received after one year and interest rates are 6%. Record the adjusting entry for Jon Ltd. when their financial year ends on 30 November 2017.
(Alternative: record the adjusting entry for Murray River Bank)

On 1 March 2017, Andrew Ltd. accepts a $15,000, five percent, ten month note receivable. Record the adjusting entry for Andrew Ltd. when their financial year ends on 30 June 2017.

At Lola Industries salaries are paid and recorded weekly at the end of the week late on a Saturday evening for all work performed up to and including Saturday evening. The weekly salary bill is $36,000 for a six-day working week (Mon – Sat). Lola’s accounting period ends on Tuesday evening. Record the adjusting entry.

Fernando borrowed $120,000 from Eastpac Bank on 1 February 2017. Interest is paid after six months and interest rates are 8%. Record the adjusting entry for Fernando on 30 April 2017.
(Alternative: record the adjusting entry for Eastpac Bank on 30 April)

Electricity expenses average $2,400 per year. The Electricity meter was last read exactly three months ago. The bill was received 2 months ago and paid last month. The financial year ends today. Record the adjusting entry for the three months ended today.

Cheryl Ltd. records uncollectible receivables using the allowance method, calculating the amount of the adjustment using the percentage of receivables approach. At the end of the financial year the balance of the Accounts Receivable account of Cheryl Ltd. is $78,000 debit, the balance of the Allowance for Bad Debts account is $1,000 credit and estimates that 2% of its receivables balance will be uncollectible. Record the adjusting entry. (Alternative: record the adjusting entry assuming the balance of the Allowance for Bad Debts account is $1,000 debit)

(Alternative: record the adjusting entry using the percentage of sales approach, assuming net credit Sales Revenue was $78,000 and 2% of credit sales revenue will not be collected)

7

When supplies are purchased by Rebecca they were recorded as an asset. Calculations after an end of period stock-take revealed a closing stock (balance) of $2,000. There was an opening balance of $3,000 and during the period $8,000 of supplies were purchased. Record the adjusting entry.

(Alternative: record the adjusting entry assuming the supplies were recorded as an expense when purchased.)

Evgeniya pays her insurance of $24,000 annually in early September. The insurance policy covers all her claims from 12.01 a.m. on September 1. Insurance is recorded as an expense when paid and the financial year ends on December 31. Record Evgeniya’s adjusting entry for the four months ended December 31.

(Alternative: record the adjusting entry assuming the insurance was recorded as a prepayment (asset) when paid.)
(Alternative: record the adjusting entry from the perspective of the insurance company assuming the insurance was recorded as a liability when received.)

(Alternative: record the adjusting entry from the perspective of the insurance company assuming the insurance was recorded as revenue when received.)

On 1 March, Raechel’s Rockclimbing Ltd. paid $1,200 to the local rockclimbing magazine for a one-page advertisement for Raechel’s rockclimbing skills courses. The advertisements will run each month for the next 12 months. Raechel’s Rockclimbing Ltd. initially recorded the advertising as a prepayment (asset). Record the adjusting entry for Raechel’s Rockclimbing Ltd. for the month of March.

(Alternative: record the adjusting entry assuming the advertising was recorded as an expense when paid.)
(Alternative: record the adjusting entry from the perspective of the magazine company assuming the advertising was recorded as a liability when received.)

(Alternative: record the adjusting entry from the perspective of the magazine company assuming the advertising was recorded as revenue when received.)

When office photocopying paper is purchased it is recorded as an expense. An end of period stock-take (count) revealed a closing balance of $3,000. There was an opening balance of $1,000 and during the period $5,000 of photocopying paper was purchased. Record the adjusting entry.

(Alternative: record the adjusting entry assuming the photocopying paper was recorded as an asset when purchased.)

James Limited received rent on the first day of November 2016, a total of $70,200 in advance for twelve months commencing on that day and records it as revenue. Record the adjusting entry for the year ending June 30, 2017 for James Limited.
(Alternative: record the adjusting entry assuming the rent was recorded as a liability when received.)

(Alternative: record the adjusting entry from the perspective of the tenant assuming the rent was recorded as an asset when paid.)
(Alternative: record the adjusting entry from the perspective of the tenant assuming the rent was recorded as an expense when paid.)

Kristina Construction received $500,000 in August 2016 for a new building project and recorded this initial cash receipt as a liability. The project is 75% complete at financial year-end. Record the adjusting entry for financial year ending June 30, 2017 for Kristina.

(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as revenue when received.)

8

A tennis club offered a special rate for upfront annual memberships at the start of the season. If patrons paid their 12 months’ fees in advance they only had to pay $1,200. The tennis club recorded the fees received as “Membership Revenue”, and 300 people signed up. At the end of the financial year the tennis club had been operational for 3 months. Record the adjusting entry for the tennis club.

(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as a liability when received.)

Nelson owns a cruise ship and leased it for 8 years receiving $9.6 million (the entire lease amount) at the commencement of the lease. Nelson recorded the receipt of the money as Unearned Rent Revenue. Record the adjusting entry when his first financial year ends two months after the lease commenced.

(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as revenue when received.)

On 1 September 2013, Stephen Services purchased a new digital SLR camera for $18,500. The depreciation charge for the camera is $3,000 per year. Record the adjusting entry for depreciation for the financial year ending 30 June 2017.
(Alternative: record the adjusting entry assuming the camera was purchased on 1 September 2016.)

(Alternative: record the adjusting entry assuming the depreciation charge was $350 per month and the camera was purchased on 1 September 2013.)
(Alternative: record the adjusting entry assuming the depreciation charge was $350 per month and the camera was purchased on 1 September 2016.)

CASE STUDY 1 : SHORT?TERM GOALS : Tanya is 19 years old and has been working as a retail assistant for 2 years. She earns $33 800 per year in salary after tax. Because her family lives in a country town, Tanya had to leave home to find employment and learn to look after herself and her finances. She shares a flat with two friends. Her weekly payments on average are: rent $150; public transport fares $50; food $140; utility bills $50; mobile/internet phone $30; clothing $50; and entertainment $60. She also makes sure that she is saving some of her income and for the past 2 years has arranged for an automatic debit of $400 per month from her bank account into a managed fund. The amount accumulated in the fund comprises the original $2000 she was given for her seventeenth birthday to start the fund when she left home and contributions and earnings of $8000, making a total sum of about $10 000. The managed fund is a balanced fund. Any money left over after expenses and investment is kept in her bank account, which totals $1000. Tanya’s main goal is to buy a car in the next 6 months if she can afford it. She will use some money in her managed fund if she has to, but hopes to buy a car valued at about $13 000 plus insurance of $750 p.a.

QUESTIONS

1 Clearly state Tanya’s short?term goal.

2 How would a financial counsellor help Tanya to determine whether she may be on target to meet her goal?

3 Suppose the retail store proposes to reduce Tanya’s hours and her annual pay will decrease to $31 000 p.a. How will this affect her living costs and savings target?

4 What advice might a financial counsellor give to Tanya in such circumstances? Is there any other advice you may offer to help her achieve her goal?

5 What are the three main investment risks that Tanya faces given her short?term goal?

2. You are designing a puzzle video game that requires fast reaction skills. Note that games such as this can be used in medical settings as methods of psychological and mental assessment, and do not only have uses for entertainment.

You are creating a game where players are supposed to do a simple task, but the simple task changes when the background colour of the game changes, which happens unpredictably. There are four possible background colours, where players are told that each one is associated with a specific described task for them to complete. One round of the game consists of each background colour appearing once in a random order (for example, red, green, blue, yellow). The length of time that a background colour lasts before it changes has an Exponential distribution with parameter λ, but you have not decided on the value of λ yet. If Ti is the length of time that the ith background colour lasts, then Ti ∼ Exp(λ).

(a) Recall that one ‘round’ of the game consists of all four background colours appearing once each. First, define a new random variable for the length of time that a round lasts, and express it in terms of the Ti random variables. Second, state the distribution of the new random variable in terms of λ. Third, suggest a value for λ such that the expected length of time for a single round would be 12 seconds.

(b) If this game was being used in a medical setting to assess mental attentiveness or reaction time, then there might be worry that a single round of the game would be a poor assessment of the desired trait in the patient. Collecting more information would be better, and it might also be better to vary the order that the coloured backgrounds appear. You decide that the game will have multiple rounds, and there will be one round for every single possible order that the four colours can appear in (i.e., there will be one ‘red, green, blue, yellow’ round, one ‘green, red, yellow, blue’ round, etc.). In between each round, there will be 2 seconds of black screen time to offer a moment for the patient to gather themselves. Calculate the expected length of a whole game from start to finish, using your suggested λ from Part (a). Do not include any black screen time before the first round or after the last round.

2. You are designing a puzzle video game that requires fast reaction skills. Note that games such as this can be used in medical settings as methods of psychological and mental assessment, and do not only have uses for entertainment.

You are creating a game where players are supposed to do a simple task, but the simple task changes when the background colour of the game changes, which happens unpredictably. There are four possible background colours, where players are told that each one is associated with a specific described task for them to complete. One round of the game consists of each background colour appearing once in a random order (for example, red, green, blue, yellow). The length of time that a background colour lasts before it changes has an Exponential distribution with parameter λ, but you have not decided on the value of λ yet. If Ti is the length of time that the ith background colour lasts, then Ti ∼ Exp(λ).

(a) Recall that one ‘round’ of the game consists of all four background colours appearing once each. First, define a new random variable for the length of time that a round lasts, and express it in terms of the Ti random variables. Second, state the distribution of the new random variable in terms of λ. Third, suggest a value for λ such that the expected length of time for a single round would be 12 seconds.

(b) If this game was being used in a medical setting to assess mental attentiveness or reaction time, then there might be worry that a single round of the game would be a poor assessment of the desired trait in the patient. Collecting more information would be better, and it might also be better to vary the order that the coloured backgrounds appear. You decide that the game will have multiple rounds, and there will be one round for every single possible order that the four colours can appear in (i.e., there will be one ‘red, green, blue, yellow’ round, one ‘green, red, yellow, blue’ round, etc.). In between each round, there will be 2 seconds of black screen time to offer a moment for the patient to gather themselves. Calculate the expected length of a whole game from start to finish, using your suggested λ from Part (a). Do not include any black screen time before the first round or after the last round.

1. Anystate Auto Insurance Company took a random sample of 376 insurance claims paid out during a 1-year period. The average claim paid was $1560. Assume σ = $242.

Find a 0.90 confidence interval for the mean claim payment. (Round your answers to two decimal places.)

Find a 0.99 confidence interval for the mean claim payment. (Round your answers to two decimal places.)

2.Three experiments investigating the relation between need for cognitive closure and persuasion were performed. Part of the study involved administering a "need for closure scale" to a group of students enrolled in an introductory psychology course. The "need for closure scale" has scores ranging from 101 to 201. For the 78 students in the highest quartile of the distribution, the mean score was x = 178.10. Assume a population standard deviation of  σ = 7.93. These students were all classified as high on their need for closure. Assume that the 78 students represent a random sample of all students who are classified as high on their need for closure. How large a sample is needed if we wish to be 99% confident that the sample mean score is within 1.8 points of the population mean score for students who are high on the need for closure? (Round your answer up to the nearest whole number.)

3.Many people consider their smart phone to be essential! Communication, news, Internet, entertainment, photos, and just keeping current are all conveniently possible with a smart phone. However, the battery better be charged or the phone is useless. Battery life of course depends on the frequency, duration, and type of use. One study involving heavy use of the phones showed the mean of the battery life to be 12.25 hours with a standard deviation of 2.4 hours. Then the battery needs to be recharged. Assume the battery life between charges is normally distributed.

(a) Find the probability that with heavy use, the battery life exceeds 13 hours. (Round your answer to four decimal places.)


(b) You are planning your recharging schedule so that the probability your phone will die is no more than 5%. After how many hours should you plan to recharge your phone? (Round your answer to the nearest tenth of an hour.)
hours

Barry Yellen, CPA, is a sole practitioner. The largest audit client in his office is Rooster Sportswear. Rooster is a privately owned company in Chicken Heights, Idaho, with a 12-person board of directors. Barry is in the process of auditing Rooster's financial statements for the year ended December 31, 2019. He just discovered a related-party transaction that has him worried. For one thing, the relationship has existed for the past two years, but Barry did not discover it. What's just as troubling is that the client hid it from him. Rooster bought out Hen Sportswear two years ago but still operates it as a separate entity, and since then has systematically failed to disclose to the private investors related-party transactions involving the CEO of Rooster, Frank Footer. It seems that Footer is borrowing money from Hen and is deeply in debt to the CEO of that company, who is his brother-in-law. Also, Hen has hired relatives of Footer, most of whom are unqualified for their jobs, and pays them an above-market salary. This has been hidden from Barry as well. Barry was informed by an anonymous tipster that Rooster operates a secret off-balance-sheet cash account to pay for cash bonuses to senior officers, travel and entertainment expenses, an apartment rental for Footer, and cash and noncash gifts to local government officials to "grease the wheels" when permits need to be expedited in favor of Rooster. Barry doesn't know what to make of it, because he is too focused right now on the related-party transactions with Hen Sportswear. Barry is in the process of questioning Hans Burger, CPA, who is the CFO of Rooster, about these transactions. Burger explains that he had raised these issues with Footer but was instructed in no uncertain terms to leave them alone. He did just that. Burger told Barry he needed this job and wouldn't jeopardize it out of a sense of "ethics." Barry is in his office back at the firm and reflecting on how best to handle this matter.

Questions

2. What are related-party transactions? Why are related-party transactions a particularly sensitive area? What do you think Barry should do with respect to audit obligations for these transactions?

Read the information below and then complete the 2018 Schedule A.

John and Julia are married and have two children. John works as a graphic designer for a design firm and Julia is a massage therapist. They own a vacation home in Colorado that is used 30% for personal purposes (assume it is used 70% as a rental property and the income and expenses related to the rental have been accounted). During the year they receive $600 in reimbursements from their medical plan and report $5,500 of investment income (included in AGI). They contributed stock, with a fair market value of $3,000, which they acquired in 2005 at a cost of $1,700 to Ohlone College. Their gambling winnings for the year were $1,000 and are included in their adjusted gross income. Their adjusted gross income for the year is $98,000 and they provide you with the following data:

Automobile insurance $ 1,450 / Homeowners insurance 625

Life insurance 1,000 / Disability insurance 375

Health insurance premiums (paid on an after tax basis) 1,600

Country club dues 1,800 / Health club dues 750

Hospital 5,000 / Doctor 1,275

Massage Therapists (they pay to receive messages, not related to Julia’s job) 700

Dentists 3,750 / Prescription drugs 275

Over-the-counter drugs 460 / State taxes withheld 8,475

Property taxes (ad valorem) 400 / Investment interest 1,600

Mortgage interest (primary residence) 6,850

Real estate taxes (primary residence) 2,240

Mortgage interest (vacation residence - unallocated) 2,700

Real estate taxes (vacation residence - unallocated) 1,350

Charitable contributions (cash; they have receipts) 7,750

Charitable contribution (clothes at FMV) 100

Subscriptions to investment journals 175

Dues to professional organizations 375

Tax prep fees 600 / Investment advice 525

Parking at work 190 / Safe-deposit box 75

Gambling losses 650

Unreimbursed employee business expenses (the full amounts paid and unreimbursed):

Airfare 500 / Lodging 450

Meals 290 / Entertainment 280

Incidentals 250

1. How many personal and dependency exemptions will they receive?

2. The box by 5a should be checked. T F

3. The box by 8a should be checked. T F

4. The box on line 18 should be checked. T F

Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that percentage was used when Lionel prepared the following budgeted income statement for the fiscal year ending June 30, 2019:

Since the completion of the income statement, Lionel has learned that its sales agents are requiring a 5% increase in their commission rate (to 23%) for the upcoming year. As a result, Lionel’s president has decided to investigate the possibility of hiring its own sales staff in place of the network of sales agents and has asked Alan Chen, Lionel’s controller, to gather information on the costs associated with this change.

Alan estimates that Lionel must hire eight salespeople to cover the current market area, at an average annual payroll cost for each employee of $80,000, including fringe benefits expense. Travel and entertainment expenses is expected to total $760,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $230,000. In addition to their salaries, the eight salespeople will each earn commissions at the rate of 10% of sales. The president believes that Lionel also should increase its advertising budget by $660,000 if the eight salespeople are hired.

Required

1. Determine Lionel’s breakeven point (operating profit = 0) in sales dollars for the fiscal year ending June 30, 2019, if the company hires its own sales force and increases its advertising costs. Prove this by constructing a contribution income statement.

2. If Lionel continues to sell through its network of sales agents and pays the higher commission rate, determine the estimated volume in sales dollars that would be required to generate the operating profit as projected in the budgeted income statement.