Lorena likes to play golf. The number of times per year that she plays depends on both the price of playing a round of golf as well as Lorena’s income and the cost of other types of entertainment—in particular, how much it costs to go see a movie instead of playing golf. The three demand schedules in the table below show how many rounds of golf per year Lorena will demand at each price under three different scenarios. In scenario D₁, Lorena’s income is $80,000 per year and movies cost $15 each. In scenario D₂, Lorena’s income is also $80,000 per year, but the price of seeing a movie rises to $17. And in scenario D₃, Lorena’s income goes up to $100,000 per year, while movies cost $17.

Instructions: Round your answers to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. Using the data under D₁ and D₂, calculate the cross elasticity of Lorena’s demand for golf at all three prices. (To do this, apply the midpoints approach to the cross elasticity of demand.)     

At $60, cross elasticity =    .     

At $45, cross elasticity =  .     

At $30, cross elasticity =  .     

Is the cross elasticity the same at all three prices?       (Click to select)  Yes  No  .     

Are movies and golf substitute goods, complementary goods, or independent goods?       (Click to select)  Independent goods  Substitute goods  Complementary goods  .

b. Using the data under D₂ and D₃, calculate the income elasticity of Lorena’s demand for golf at all three prices. (To do this, apply the midpoints approach to the income elasticity of demand.)     

At $60, income elasticity of demand =  .     

At $45, income elasticity of demand =  .     

At $30, income elasticity of demand =  .     

Is the income elasticity the same at all three prices?       (Click to select)  Yes  No  .     

Is golf an inferior good?       (Click to select)  Yes  No  , it is  (Click to select)  an inferior good  a normal good  .

University Backpacks (Part 1)
You are the owner-manager of University Backpacks, a company that you started this year (20X1). The company sells backpacks to students attending several local colleges in the area. Your company sells two types of backpacks: those for transporting laptop computers and smaller ones not intended for laptop storage. The latter type comes in two styles, with dividers and zippered pockets and without. All back-packs carry the unique logos of the colleges in the community. For this right, University Backpacks pays a licensing fee on a percentage-of-sales basis. You order only enough inventory to meet immediate sales, so there is no inventory at year end. Few alterations or adjustments are made to the backpacks received from your wholesaler. However, in addition to affixing the local college emblems, customers sometimes request special stitching or the addition of extra patches to meet their own unique tastes. During its first year of business, University Backpacks sold 3,800 backpacks (almost evenly split between laptop and non-laptop styles) and reported the following operating results:
University Backpacks

Actual Income Statement

For the Year Ended December 31, 20X1

Sales $152,000
Cost of Sales 113,256

Gross Profit $38,744
Expenses:

Advertising 5,000
Licensing fee 6,200

Depreciation 2,500
Insurance 2,700

Miscellaneous 1,688
Payroll Taxes (on owner’s salary) 2,000

Owner’s Salary 20,000

Storage 1,000
Income Taxes (Refund) (2,503)

Telephone 2,500
Travel and Entertainment 3,500

Total Expenses 44,585
Net Loss $(5,841)

1. Review the above income statement (prepared in accordance with generally accepted accounting principles) and determine which costs are fixed and which are variable.
2. Using the information provided above and in the income statement, answer the following questions: a. What is the contribution margin per unit? b. What is the breakeven point in units? c. What is the contribution margin ratio? d. What is the breakeven point in sales dollars? e. How many units must be sold to produce a target profit of $25,000? f. How many dollars of sales must be generated to produce a target profit of $25,000? g. What is the margin of safety with a target profit of $25,000?

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 $770,000 for the year, and the annual cost of hiring a sales manager and sales secretary will be $235,000. 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 $670,000 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.

P18.1  Anthony Ltd. began business on January 1, 2019. At December 31, 2019, it had a $58,500 balance in the Deferred Tax Liability account that pertains to property, plant, and equipment acquired on July 1, 2019 at a cost of $900,000. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8—20% asset for tax purposes. Anthony's income before income tax for 2020 was $60,000. Anthony Ltd. follows IFRS.

The following items caused the only differences between accounting income before income tax and taxable income in 2020.

1. In 2020, the company paid $56,250 for rent; of this amount, $18,750 was expensed in 2020. The other $37,500 will be expensed equally over the 2021 and 2022 accounting periods. The full $56,250 was deducted for tax purposes in 2020.
2. Anthony Ltd. pays $9,000 a year for a membership in a local golf club for the company's president.
3. Anthony Ltd. now offers a one-year warranty on all its merchandise sold. Warranty expenses for 2020 were $9,000. Cash payments in 2020 for warranty repairs were $4,500.
4. Meals and entertainment expenses (only 50% of which are ever tax deductible) were $12,000 for 2020.
5. The maximum allowable CCA was taken in 2020. There were no asset disposals for 2020. Assume the PPE is considered “eligible equipment” for purposes of the Accelerated Investment Incentive (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate).

Income tax rates have not changed since the company began operations.

Instructions

a. Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2020.

b. Calculate income tax payable for 2020.

c. Prepare the journal entries to record income taxes for 2020.

d. Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income tax.”

e. Indicate how deferred taxes should be presented on the December 31, 2020 SFP.

f. How would your response to parts (a) to (e) change if Anthony reported under ASPE?

Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott's CPA practice is located at 678 Third Street, Riverside, CA 92860. Scott’s income statement for the year shows the following: Income Statement Scott Butterfield, CPA Income Statement 12/31/2017 Current Period Prior Period 1/1/2017 to 12/31/2017 1/1/2016 to 12/31/2016 REVENUES Tax Services $276,400 $72,154 Accounting Services 27,640 50,256 Other Consulting Services 60,808 7,690 TOTAL REVENUES 364,848 130,100 COST OF SERVICES Salaries 55,280 29,400 Payroll Taxes 2,387 2,275 Supplies 300 1,225 TOTAL COST OF SERVICES 57,967 32,900 GROSS PROFIT (LOSS) 306,881 97,200 OPERATING EXPENSES Advertising and Promotion 2,000 – Business Licenses and Permits 620 250 Charitable Contributions 400 250 Continuing Education 1,500 – Dues and Subscriptions 1,640 3,500 Insurance 16,584 870 Meals and Entertainment 12,438 5,400 Office Expense 5,528 – Postage and Delivery 85 – Printing and Reproduction 2,764 – Office Rent 8,292 13,800 Travel 11,056 750 Utilities 3,317 2,724 TOTAL OPERATING EXPENSES 66,224 27,544 NET INCOME (LOSS) $240,657 $69,656 Scott also mentioned the following: The expenses for dues and subscriptions were his country club membership dues for the year. The charitable contributions were made to a political action committee. Scott does not generate income from the sale of goods and therefore does not record supplies and wages as part of cost of goods sold. Scott placed a business auto in service on January 1, 2014 and drove it 7,234 miles for business, 4,340 miles for commuting, and 8,681 miles for nonbusiness purposes. His wife has a car for personal use. Complete Schedule C for Scott showing Scott's net income from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to the nearest dollar.

Creating a Balance Sheet based on the information below:

A couple, Timmy and Jenny have come to see you regarding their financial situation. Timmy works for a consulting firm earning $80,000 per annum (take home pay of $2286.47 per fortnight after tax and other deductions). Jenny is currently a stay home mother taking care of their one-year-old child, which saves them in child care expenses of $450 per week. Before having the baby, Jenny worked as an early childhood teacher earning $45,000 per year ($1401.00 after tax and other deductions). They know that money has been tight and they have only saved $3,000 in a current account.

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Timmy and Jenny have provided the following information to you:  

- The couple are currently renting a house which is costing them $450 per week.

-They have two cell phones each on $40 per month plans

- Power bills estimated to be $150 per month

- Internet and phone plan cost them $70 per month

- They spend about $150 per week on incidental expenses like clothing and entertainment

- Food costs them about $150 per week

- Timmy buses to work with his monthly bus pass costing $120 per month

- The couple also have a car that they have just bought for $15,000 with a 5-year loan at 14.75%. The car comes with costs of $287.75 per year for registration and needs two warrants of fitness per year costing $60 each

- They spend $25 per week on petrol

- The car is now worth $12,000

- In terms of debt, they have $7,000 of personal loan which they pay 151.67 per month.

- They also recently replaced some household appliances and so have hire purchase debt of $4,600 which is costing them $150 per fortnight in repayments for the next 3 years

- Both the personal and hire purchase have interest rates of 22.5%

- The value of their household items, including their hire purchase items is $15,000

- Timmy has accumulated $1750 in his Rabosaver (a type of saving account) fund account.

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Based on the above information, calculate:

1) Timmy and Jenny's Asset, Liability, and Net Worth (Balance Sheet)

Creating a Balance Sheet based on the information below:

A couple, Timmy and Jenny have come to see you regarding their financial situation. Timmy works for a consulting firm earning $80,000 per annum (take home pay of $2286.47 per fortnight after tax and other deductions). Jenny is currently a stay home mother taking care of their one-year-old child, which saves them in child care expenses of $450 per week. Before having the baby, Jenny worked as an early childhood teacher earning $45,000 per year ($1401.00 after tax and other deductions). They know that money has been tight and they have only saved $3,000 in a current account.

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Timmy and Jenny have provided the following information to you:  

- The couple are currently renting a house which is costing them $450 per week.

-They have two cell phones each on $40 per month plans

- Power bills estimated to be $150 per month

- Internet and phone plan cost them $70 per month

- They spend about $150 per week on incidental expenses like clothing and entertainment

- Food costs them about $150 per week

- Timmy buses to work with his monthly bus pass costing $120 per month

- The couple also have a car that they have just bought for $15,000 with a 5-year loan at 14.75%. The car comes with costs of $287.75 per year for registration and needs two warrants of fitness per year costing $60 each

- They spend $25 per week on petrol

- The car is now worth $12,000

- In terms of debt, they have $7,000 of personal loan which they pay 151.67 per month.

- They also recently replaced some household appliances and so have hire purchase debt of $4,600 which is costing them $150 per fortnight in repayments for the next 3 years

- Both the personal and hire purchase have interest rates of 22.5%

- The value of their household items, including their hire purchase items is $15,000

- Timmy has accumulated $1750 in his Rabosaver (a type of saving account) fund account.

-------------------------

Based on the above information, calculate:

1) Timmy and Jenny's Asset, Liability, and Net Worth (Balance Sheet)

Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics (Mobile) Division both sell electronic equipment, primarily for video and audio entertainment. Home focuses on home and personal equipment; Mobile focuses on components for automobile and other, nonresidential equipment. Home produces an audio player that it can sell to the outside market for $72 per unit. The outside market can absorb up to 90,000 units per year. These units require 3 direct labor-hours each.

If Home modifies the units with an additional hour of labor time, it can sell them to Mobile for $81 per unit. Mobile will accept up to 78,000 of these units per year.

If Mobile does not obtain 78,000 units from Home, it purchases them for $84 each from the outside. Mobile incurs $36 of additional labor and other out-of-pocket costs to convert the player into one that fits in the dashboard and integrates with the automobile’s audio system. The units can be sold to the outside market for $203 each.

Home estimates that its total costs are $1,080,000 for fixed costs, $14.40 per direct labor-hour, and $7.20 per audio player for materials and other variable costs besides direct labor. Its capacity is limited to 375,000 direct labor-hours per year.

Required:

Determine the following:

a. Total contribution margin to Home if it sells 90,000 units outside. (Do not round intermediate calculations.)

b. Total contribution margin to Home if it sells 78,000 units to Mobile. (Do not round intermediate calculations.)

(c) & (d). The costs to be considered in determining the optimal company policy for sales by Home.

The annual contributions and costs for Home and Mobile under the optimal policy.