Assume that the A division of Harrold Corporation experienced the following transactions during the year ended December 31, 2013: a. Suppose division A supplied copy services for a customer for the discounted price of $250,000. Under normal conditions, it would have provided these services for $295,000. Other revenues totaled $57,000. b. Salaries cost the division $29,000 to provide these services. The division had to pay employees overtime occasionally. Ordinarily the salary cost for these services would have been $17,900. c. All other expenses, excluding income taxes, totaled $242,000 for the year. Income tax expense was 34% of income before tax. d. The A division has two operating subdivisions: basic retail and special contracts. Each subdivision is accounted for separately to indicate how well each is performing. However, the A division combines the statements of all subdivisions to show results for the A division as a whole. e. Inflation affects the amounts that the A division must pay for copy machines. To show the effects of inflation, net income would drop by $1,000. f. If the A division were to go out of business, the sale of its assets would bring in $125,000 in cash. Requirements 1. Prepare the A division’s income statement for the year ended December 31, 2013. 2. For items a through f, explain the accounting concept, assumption, or principle that provides guidance in accounting for the item. State how you have applied the concept, assumption, or principle in preparing the income statement.
> Show the impact of business transactions on the accounting equation; analyze the impact of business transactions on accounts) The following amounts summarize the financial position of Davis Resources on May 31, 2012: During June, 2012, the business com
> The trial balance of FamousSpecialties, Inc., follows: Rachel Sill, your best friend, is considering making an investment in Famous Specialties, Inc.Rachel seeks your advice in interpreting the company’s information. Specifically, she
> During the first month of operations (October 2012), SelfMusic Services Corporation completed the following selected transactions: a. The business received cash of $25,000 and a building valued at $51,000. The corporationissued common stock to the stockh
> During the first month of operations, Cloutier Heating and Air Conditioning, Inc., completed the followingtransactions: Mar 2 Cloutier received $37,000 cash and issued common stockto the stockholders. 3 Purchased supplies, $300, and equipment, $3,000, on
> During December, Desimone Auction Co.completed the following transactions: Dec 1 Desimone received $23,000 cash and issued common stockto the stockholders. 5 Paid monthly rent, $1,900. 9 Paid $7,000 cash and signed a $28,000 note payable topurchase land
> Carlson RealEstate Co. experienced the following events during the organizing phase and its first month ofoperations. Some of the events were personal for the stockholders and did not affect the business.Others were transactions of the business. Nov 4 Co
> The following amountssummarize the financial position of Martin Resources, Inc., on May 31, 2012: During June 2012, Martin Resources completed these transactions: a. The business received cash of $9,000 and issued common stock. b. Performed services fo
> The trial balance of DormanSpecialties, Inc., follows. Abby Ricardo, your best friend, is considering investing in Dorman Specialties, Inc. Abby seeksyour advice in interpreting this information. Specifically, she asks how to use this trial balance toc
> Bigtex, a new company, completed these transactions. What will Bigtex’s total assetsequal? 1. Stockholders invested $45,000 cash and inventory worth $22,000. 2. Sales on account, $11,000. a. $56,000 b. $59,000 c. $45,000 d. $78,000
> Use the information from the journal entries of Chocolate Passion, Inc., to answer the following questions: Requirements 1. Start with Accounts Receivable’s beginning balance ($35,000), and then post to the Accounts Receivable T-accou
> Use the data from Exercise 4-32B to make the journal entries that Neal should record on January 31 to update his Cash account. Include an explanation for each entry. In Exercise 4-32B Evan Neal operates a roller skating center. He has just received the
> Use the data from Exercise 4-21A to make the journal entries that White should record on November 30 to update his Cash account. Include an explanation for each entry. In Exercise 4-21A Frank White operates a roller skating center. He has just received
> During its first year of operations, Chocolate Passion, Inc., had sales of $361,000, all on account. Industry experience suggests that Chocolate Passion’s uncollectibles will amount to 2% of credit sales. At December 31, 2012, accounts receivable total $
> Frank White operates a roller skating center. He has just received the monthly bank statement at November 30 from Citizen National Bank, and the statement shows an ending balance of $570. Listed on the statement are an EFT rent collection of $335, a serv
> D. J. Harris’ checkbook lists the following: The January bank statement shows Requirement Prepare Harris’ bank reconciliation at January 31. Date Check No. Item Check Deposit Balance 1/1 $ 530 4 622 Moe's Cafe
> The following items appear on a bank reconciliation: 1. __ Service charge 2. __ Book error: We debited Cash for $100. The correct debit was $1,000. 3. __ NSF check 4. __ Bank collection of a note receivable on our behalf 5. __ Deposits in transit 6. __ B
> Billy Flack served as executive director of Downtown Columbia, an organization created to revitalize Columbia, South Carolina. Over the course of 11 years, Flack embezzled $444,000. How did Flack do it? By depositing subscriber cash receipts in his own b
> The following situations describe two cash payment situations and two cash receipt situations. In each pair, one set of internal controls is better than the other. Evaluate the internal controls in each situation as strong or weak, and give the reason fo
> Identify the internal control weakness in the following situations. State how the person can hurt the company. a. John Munson works as a security guard at VALID parking in Denver. Munson has a master key to the cash box where customers pay for parking. E
> Grace Rocker, an accountant for Dill Limited, discovers that her supervisor, Bob Doon, made several errors last year. Overall, the errors overstated the company’s net income by 20%. It is not clear whether the errors were deliberate or accidental. What s
> Cooper Apple Growers (CAG) is a major food cooperative. Suppose CAG begins 2011 with cash of $8 million. CAG estimates cash receipts during 2011 will total $103 million. Planned payments will total $86 million. To meet daily cash needs next year, CAG mus
> Briefly explain how a cash budget works and what it accomplishes with its last few lines of data.
> Answer the following questions about internal control over cash payments: 1. Payment by check carries three controls over cash. What are they? 2. Suppose a purchasing agent receives the goods that he purchases and also approves payment for the goods. How
> As a recent college graduate, you land your first job in the customer collections department of City Publishing. ZekePitt, the manager, asked you to propose a system to ensure that cash received from customers by mail is handled properly. Draft a short m
> All-Star Advertising creates, plans, and handles advertising needs in the Tri-State area.Recently, All-Star had to replace an inexperienced office worker in charge of bookkeeping becauseof some serious mistakes that had been uncovered in the accounting r
> A year out of college, you have $10,000 to invest. A friend has started Grand Prize Unlimited, Inc., and she asks you to invest in her company. You obtain the company’s financial statements, which are summarized at the end of the first
> Two businesses, Blue Skies Corp. and Open Road, Inc., have sought business loansfrom you. To decide whether to make the loans, you have requested their balance sheets. Requirement Using only these balance sheets, to which entity would you be more comfo
> Refer to the data inExercises 1-24A and 1-25A. In Exercises 1-24A and 1-25A Assume the Dogan Copy Center ended the month of July 2012 with these data: Requirement Prepare the statement of cash flows of Dogan Copy Center, Inc., for the month ended July
> This exercise should be used with Exercise 1-21A. Refer to the data of Mary Burke Banking Company in Exercise 1-21A. In Exercise 1-21A Amounts of the assets and liabilities of Mary Burke Banking Company, as of August 31, 2012, are given as follows. Also
> Swit, Inc.’s comparative balance sheet at January 31, 2013, and 2012, reports the following (in millions): Requirements: Three situations about Swit’s issuance of stock and payment of dividends during the year endedJ
> Assume the Dogan Copy Center ended the month of July 2012 with these data: Requirement: Prepare the income statement and the statement of retained earnings of Dogan Copy Center, Inc., for the month ended July 31, 2012. Payments of cash: Acquisition
> Glass, Inc., began 2012 with $83,000 in cash. During 2012, Glass earned net income of $430,000, and adjustments to reconcile net income to net cash provided by operations totaled $75,000, a positive amount. Investing activities used cash of $420,000, and
> Most, Inc.’s comparative balance sheet at January 31, 2013, and 2012, reports the following (in millions): Requirements: Three situations about Most’s issuance of stock and payment of dividends during the year ended
> Coffee Shop Doughnuts has current assets of $280 million; property, plant, and equipment of $430 million; and other assets totaling $170 million. Current liabilities are $170 million and long term liabilities total $300 million. Requirements: 1. Use the
> You are studying frantically for an accounting exam tomorrow. You are having difficulty in this course, and the grade you make on this exam can make the difference between receiving a final grade of B or C. If you receive a C, it will lower your grade po
> Summarized versions of Sanchez Corporation’s financial statements follow for two recent years. Requirement Complete Sanchez Corporation’s financial statements by determining the missing amounts denoted by the letters
> The following data come from the financial statements of The Water Fun Company at the year ended May 31, 2013 (in millions). Requirements 1. Prepare a cash flow statement for the year ended May 31, 2013. Not all the items given appear on the cash flow
> The assets and liabilities of Post Fir as of December 31, 2012, and revenues and expenses for the year ended on that date follow. Beginning retained earnings was $114,000, and dividends totaled $36,000 for the year. Requirements 1. Prepare the income
> Reva Hamlet is a realtor. She organized her business as a corporation on September 16, 2013. The business received $90,000 from Hamlet and issued common stock. Consider these facts as of September 30, 2013. a. Hamlet has $20,000 in her personal bank acco
> The manager of Salem News, Inc., prepared the company’s balance sheet as of April 30, 2012, while the accountant was ill. The balance sheet contains numerous errors. In particular, the manager knew that the balance sheet should balance,
> Compute the missing amount (?) for each company—amounts in millions. Which company has the ▶ Highest net income? ▶ Highest percent of net income to revenues? Topaz Corp. Loiselle Co. Berger Inc.
> Assume that the A division of Truett Corporation experienced the following transactions during the year ended December 31, 2013: a. Suppose division A supplied copy services for a customer for the discounted price of $260,000. Under normal conditions, it
> Summarized versions of Nachos Corporation’s financial statements are given for two recent years. Requirement Determine the missing amounts denoted by the letters. 2012 2011 (In Thousands) $ k Income Statement Revenues. $15,500 Cos
> Compute the missing amount in the accounting equation for each company (amounts in billions): Which company appears to have the strongest financial position? Explain your reasoning. Assets Liabilities Owners' Equity Fresh Produce $ ? $20 $17 Margie
> The following data come from the financial statements of The Big Wave Company for the year ended May 31, 2013 (in millions): Requirements 1. Prepare a cash flow statement for the year ended May 31, 2013. Not all items given appear on the cash flow stat
> The assets and liabilities of Post Oak, Inc., as of December 31, 2012, and revenues and expenses for the year ended on that date follow. Beginning retained earnings was $114,000, and dividends totaled $37,000 for the year. Requirements 1. Prepare the
> Carla Hilton is a realtor. She organized the business as a corporation on December 16, 2013. The business received $55,000 cash from Hilton and issued common stock. Consider the following facts as of December 31, 2013. a. Hilton has $16,000 in her person
> The manager of Image Maker, Inc., prepared the company’s balance sheet as of March 31, 2012, while the accountant was ill. The balance sheet contains numerous errors. In particular, the manager knew that the balance sheet should balance
> Compute the missing amount (?) for each company—amounts in millions At the end of the year, which company has the ▶ Highest net income? ▶ Highest percent of net income to revenues? Ruby Corp. La
> The stockholders’ equity of Verkovsky Company at the beginning and end of 2012 totaled $21,000 and $23,000, respectively. Assets at the beginning of 2012 were $25,000. If the liabilities of Verkovsky Company increased by $12,000 in 2012, how much were to
> Refer to the data in Exercises 1-36B and 1-37B. In Exercises 1-36B and 1-37B Assume a Croyden Copy Center ended the month of July 2013 with these data: / Requirement Prepare the statement of cash flows of Croyden Copy Center, Inc., for the month ended
> Refer to the data in Exercise 1-36B. In Exercise 1-36B Assume a Croyden Copy Center ended the month of July 2013 with these data: / Requirement Prepare the balance sheet of Croyden Copy Center, Inc., at July 31, 2013.
> Assume a Croyden Copy Center ended the month of July 2013 with these data: / Requirement Prepare the income statement and the statement of retained earnings of Croyden Copy Center, Inc., for the month ended July 31, 2013.
> This and similar cases in succeeding chapters are based on the consolidated financial statements of Amazon.com, Inc. As you work with Amazon.com, Inc., throughout this course, you will develop the ability to use the financial statements of actual compani
> What components of GDP (if any) would each of the following transactions affect? Explain. a. A family buys a new refrigerator. b. Aunt Jane buys a new house. c. Ford sells a Mustang from its inventory. d. You buy a pizza. e. California repaves Highway 10
> One day, Barry the Barber, Inc., collects $400 for haircuts. Over this day, his equipment depreciates in value by $50. Of the remaining $350, Barry sends $30 to the government in sales taxes, takes home $220 in wages, and retains $100 in his business to
> The participation of women in the U.S. labor force has risen dramatically since 1970. a. How do you think this rise affected GDP? b. Now imagine a measure of well-being that includes time spent working in the home and taking leisure. How would the change
> A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread. a. What is GDP i
> Consider the following data on U.S. GDP: a. What was the growth rate of nominal GDP between 2002 and 2012? (Hint: The growth rate of a variable X over an N-year period is calculated as 100 × [(Xfinal/Xinitial) 1/N − 1].)
> Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1
> Below are some data from the land of milk and honey. a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2013 as the base year. b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2014 and 2015 fro
> A person who buys a life insurance policy pays a certain amount per year and receives for his family a much larger payment in the event of his death. Would you expect buyers of life insurance to have higher or lower death rates than the average person? H
> Describe the ultimatum game. What outcome from this game would conventional economic theory predict? Do experiments confirm this prediction? Explain.
> The government is considering two ways to help the needy: giving them cash or giving them free meals at soup kitchens. a. Give an argument, based on the standard theory of the rational consumer, for giving cash. b. Give an argument, based on asymmetric i
> State whether each of the following statements is true or false. Explain your answers. a. “All Giffen goods are inferior goods.” b. “All inferior goods are Giffen goods.”
> Define signaling and screening and give an example of each.
> Five roommates are planning to spend the weekend in their dorm room watching movies, and they are debating how many movies to watch. Here is their willingness to pay: Buying a DVD costs $15, which the roommates split equally, so each pays $3 per movie.
> Three friends are choosing a TV show to watch. Here are their preferences: a. If the three friends try using a Borda count to make their choice, what would happen? b. Monica suggests a vote by majority rule. She proposes that first they choose between
> Three friends are choosing a restaurant for dinner. Here are their preferences: a. If the three friends use a Borda count to make their decision, where do they go to eat? b. On their way to their chosen restaurant, they see that the Mexican and French
> What is moral hazard? List three things an employer might do to reduce the severity of this problem.
> Some AIDS activists believe that health insurance companies should not be allowed to ask applicant if they are infected with the HIV virus that causes AIDS. Would this rule help or hurt those who are HIV-positive? Would it help or hurt those who are not
> A case study in this chapter describes how a boyfriend can signal his love to a girlfriend by giving an appropriate gift. Do you think saying “I love you” can also serve as a signal? Why or why not?
> Suppose that the Live-Long-and-Prosper Health Insurance Company charges $5,000 annually for a family insurance policy. The company’s president suggests that the company raise the annual price to $6,000 to increase its profits. If the firm followed this s
> Each of the following situations involves moral hazard. In each case, identify the principal and the agent and explain why there is asymmetric information. How does the action described reduce the problem of moral hazard? a. Landlords require tenants to
> When recording devices were first invented more than 100 years ago, musicians could suddenly supply their music to large audiences at low cost. How do you suppose this development affected the income of the best musicians? How do you suppose it affected
> Jim buys only milk and cookies. a. In year 1, Jim earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Jim’s budget constraint. b. Now suppose that all prices increase by 10 percent in year 2 and that Jim’s salary increases by 10 perc
> This chapter discusses the importance of economic mobility. a. What policies might the government pursue to increase economic mobility within a generation? b. What policies might the government pursue to increase economic mobility across generations? c.
> What does the poverty rate measure? Describe three potential problems in interpreting the measured poverty rate.
> List three policies aimed at helping the poor, and discuss the pros and cons of each.
> Table 3 shows that the percentage of children in families with income below the poverty line far exceeds the percentage of the elderly in such families. How might the allocation of government money across different social programs have contributed to thi
> The nation of Ectenia has twenty competitive apple orchards, which sell apples at the world price of $2 per apple. The following equations describe the production function and the marginal product of labor in each orchard: Q = 100L − L2 MPL = 100 − 2L
> Define compensating differential and give an example.Give two reasons why more educated workers earn more than less educated workers.
> What conditions lead to highly compensated superstars? Would you expect to see superstars in dentistry? In music? Explain.
> Give three reasons a worker’s wage might be above the level that balances supply and demand.
> Pam earns more than Pauline. Someone proposes taxing Pam to supplement Pauline’s income. How would a utilitarian, a liberal, and a libertarian each evaluate this proposal?
> This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are oligopolists in the market for the inputs they buy. a. If sellers who are oligopolists try to increase the pr
> Consider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are as follows: a. What is the dominant strategy for the United States? For Mexico? Explain. b
> A basic finding of labor economics is that workers who have more experience in the labor force are paid more than workers who have less experience (holding constant the amount of formal education). Why might this be so? Some studies have also found that
> A minimum-wage law distorts the market for low-wage labor. To reduce this distortion, some economists advocate a two-tiered minimum-wage system, with a regular minimum wage for adult workers and a lower, “subminimum” wage for teenage workers. Give two r
> Consider two of the income security programs in the United States: TANF and the EITC. a. When a woman with children and very low income earns an extra dollar, she receives less in TANF benefits. What do you think is the effect of this feature of TANF on
> At some colleges and universities, economics professors receive higher salaries than professors in some other fields. a. Why might this be true? b. Some other colleges and universities have a policy of paying equal salaries to professors in all fields. A
> Define marginal product of labor and value of the marginal product of labor.Describe how a competitive, profit-maximizing firm decides how many workers to hire.
> What determines the income of the owners of land and capital?How would an increase in the quantity of capital affect the incomes of those who already own capital? How would it affect the incomes of workers?
> How does an immigration of workers affect labor supply, labor demand, the marginal product of labor, and the equilibrium wage?
> Explain how the wage can adjust to balance the supply and demand for labor while simultaneously equaling the value of the marginal product of labor.
> Give two examples of events that could shift the supply of labor, and explain why they do so.
> Synergy and Dynaco are the only two firms in a specific high-tech industry. They face the following payoff matrix as they decide upon the size of their research budget: a. Does Synergy have a dominant strategy? Explain. b. Does Dynaco have a dominant s
> Your enterprising uncle opens a sandwich shop that employs seven people. The employees are paid $6 per hour, and a sandwich sells for $3. If your uncle is maximizing his profit, what is the value of the marginal product of the last worker he hired? What
> College students sometimes work as summer interns for private firms or the government. Many of these positions pay little or nothing. a. What is the opportunity cost of taking such a job? b. Explain why students are willing to take these jobs. c. If you
> Give two examples of events that could shift the demand for labor, and explain why they do so.
