Lucy Rose works at the College of Fort Worth and is paid $12 per hour for a 40-hour work-week and time-and-a-half for hours above 40.

Requirements

1. Compute Rose's gross pay for working 60 hours during the first week of February.
2. Rose is single, and her income tax withholding is 15% of total pay. Rose's only payroll deductions are payroll taxes. Compute Rose's net (take-home) pay for the week. Assume Rose's earnings to date are less than the OASDI limit.
3. Journalize the accrual of wages expense and the payment related to the employment of Lucy Rose.

For each company, calculate the missing amount.

$$\begin{matrix} \text{Company} & \text{Sales Revenue} & \text{Cost of Goods Sold} & \text{Gross Profit} & \text{Operating Expenses} & \text{Net Income}\\ \hline \text{Lennon} & \text{$\$ 18,000$} & \text{(a)} & \text{$\$ 8,000$} & \text{$\$ 3,500$} & \text{$\$ 4,500$}\\ \text{Harrison} & \text{$20,000$} & \text{$\$ 11,000$} & \text{(b)} & \text{$6,000$} & \text{$3,000$}\\ \text{McCartney} & \text{$13,000$} & \text{$9,000$} & \text{$4,000$} & \text{(c)} & \text{$1,500$}\\ \text{Starr} & \text{$16,000$} & \text{$6,000$} & \text{$10,000$} & \text{$6,500$} & \text{(d)}\\ \end{matrix}$$

A building owner is evaluating the following alternatives for leasing space in an office building for the next five years:

Net lease with steps. Rent will be 15 dollars per square foot the first year and will increase by 1.50 dollars per square foot each year until the end of the lease. All operating expenses will be paid by the tenant. Net lease with CPI adjustments. The rent will be 16 dollars per square foot the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 3 percent per year. Gross lease. Rent will be 30 dollars per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be 9 dollars during the first year and increase by 1 dollar per year thereafter. Gross lease with expense stop and CPI adjustment. Rent will be 22 dollars the first year and increase by the full amount of any change in the CPI after the first year with an expense stop at 9 dollars per square foot. The CPI and operating expenses are assumed to change by the same amount as outlined above.

Calculate the effective rent to the owner (after expenses) for each lease alternative using a 10 percent discount rate. How would you rank the alternatives in terms of risk to the property owner?

Considering the both answers, how would you compare the four alternatives?

Listed below are eight technical accounting terms introduced in this chapter.

$$\begin{array}{lll}\text { Retail method } & \text { FIFO method } & \text { Lower-of-cost-or-market } \\ \text { Gross profit method } & \text { LIFO method } & \text { Specific identification } \\ \text { Flow assumption } & \text { Average-cost method } & \end{array}$$

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms.
b. The only flow assumption in which all units of merchandise are assigned the same per-unit cost.

Prepare a balance sheet and a common-sized balance sheet from the following information.

$$\begin{array}{lrr} \text{Cash}&\text{\$\hspace{15pt}30,000}\\ \text{Account receivable}&\text{63,800}\\ \text{Accounts payable}&\text{52,500}\\ \text{Short-term notes payable}&\text{11,000}\\ \text{Inventories}&\text{66,000}\\ \text{Gross fixed assets}&\text{1,061,000}\\ \text{Accumulated depreciation}\hspace{10pt}&\text{86,000}\\ \text{Long-term debt}&\text{210,000}\\ \text{Common stock}&\text{480,000}\\ \text{Other assets}&\text{25,000}\\ \text{Retained earnings}&\text{?}\\ \end{array}$$

The table below shows the gross domestic product, or GDP (in trillions of dollars), for 2012 through 2019.

$$\begin{array}{|c|c|c|c|c|} \hline \text { Year } & 2012 & 2013 & 2014 & 2015 \\ \hline \text { GDP } & 16.2 & 16.8 & 17.5 & 18.2 \\ \hline \end{array}$$

$$\begin{array}{|c|c|c|c|c|} \hline \text { Year } & 2016 & 2017 & 2018 & 2019 \\ \hline \text { GDP } & 18.7 & 19.5 & 20.6 & 21.4 \\ \hline \end{array}$$

Use a graphing utility to plot the data and graph the model. Compare the data with the model.

Extend the income statement for Miss Muffins' Bakery to include a vertical analysis for $2012$ and for $2013$.

$$\begin{array}{} \text{Miss Muffins' Bakery}\\ \text{Vertical Analysis of Income Statement for the Months Ending}\\ \text{July 31, 2012 and July 31, 2013}\end{array}$$

$$\begin{array}{} &2013& \begin{array}{}\text{Percent of}\\\text{Net Sales}\end{array}& 2012& \begin{array}{}\text{Percent of}\\\text{Net Sales}\end{array}\end{array}$$

$$\begin{aligned} &\text{Gross sales} \\ &\text{Returns and allowances} \\ &\text{Net Sales} &\qquad \underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\ &&\quad \underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\ &\text{Cost of beginning inventory}\\ &\text{Cost of purchases}\\ &\text{Cost of ending inventory} &\underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\ &\text{Cost of goods sold}&\underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\ &\text{Gross Proft}\\ &\text{Total perating Expenses}&\quad \underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\ &\text{Net income}&\quad \underline{\qquad\qquad} \qquad\qquad\quad \underline{\qquad\qquad} \\\\ \end{aligned}$$

Maria sees the growth of her business for the upcoming year as being tied to the gross domestic product (GDP). She believes that her business will grow (or contract) at the rate of $5 \%, 4.5 \%, 3 \%$, $0 \%$, or $-0.5 \%$ per year if the GDP grows (or contracts) at the rate of between $2 \%$ and $2.5 \%$, between $1.5 \%$ and $2 \%$, between $1 \%$ and $1.5 \%$, between $0 \%$ and $1 \%$, and between $-1 \%$ and $0 \%$, respectively. Maria has decided to assign probabilities of $.12, .24, .40, .20$, and $.04$, respectively, to these outcomes. At what rate does Maria expect her business to grow next year?

Jackson Company had 400 units in beginning inventory at a cost of $20 each. Jackson’s 2019 purchases were:

$$\begin{array}{lc} \textbf{Date}&\textbf{Purchases}\\\hline \text{Feb. 21}& \text{5,200 units at \$24 each}\\ \text{July 15} &\text{4,800 units at \$28 each}\\ \text{Sept. 30}& \text{8,500 units at \$30 each}\\ \end{array}$$

Jackson uses a periodic inventory system and sold 18,500 units at $50 each during 2019.

Required:

Prepare income statements through gross margin using each of the costing methods in Requirement 1.

The following three identical units of Item P401C are purchased during April:

$$\begin{array}{lllcr} & & \text { Item Beta } & \text { Units } & \text { Cost } \\ \hline \text { April } & 2 & \text { Purchase } & 1 & \$ 100 \\ & 15 & \text { Purchase } & 1 & 120 \\ & 20 & \text { Purchase } & \underline{1} & \underline{140} \\ & \text { Total } & & \underline{3} & \$ 360 \\ \hline & \text { Average cost per unit } & & & \$ 120 \\ \hline \hline \end{array}$$

Assume that one unit is sold on April 27 for $300.Determine the gross profit for April and ending inventory on April 30 using the last-in, first-out (LIFO)

The income statement and additional data of Value World, Inc., follow:

Value World, Inc. Income Statement Year Ended June 30, 2016

$$\begin{aligned} &\begin{array}{|l|r|r|} \hline \text { Revenues: }\\ \hline \text { Sales revenue } & \$ 275,000 & \\ \hline \text { Dividend revenue } & 8,500 & \$ 283,500 \\ \hline \text { Expenses: } & & \\ \hline \text { Cost of goods sold } & 110,000 & \\ \hline \text { Salary expense } & 60,000 & \\ \hline \text { Depreciation expense } & 22,000 & \\ \hline \text { Advertising expense } & 13,000 & \\ \hline \text { Interest expense } & 2,200 & \\ \hline \text { Income tax expense } & 8,000 & 215,200 \\ \hline \text { Net income } & & \$ 8,300 \\ \hline \end{array} \end{aligned}$$

Additional data:

a. Collections from customers are $12,000 less than sales.
b. Payments to suppliers are$2,300 less than the sum of cost of goods sold plus advertising expense.
c. Payments to employees are $1,500 more than salary expense.
d. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
e. Acquisition of plant assets is$210,000. Of this amount, $110,000 is paid in cash and$100,000 by signing a long-term note payable.
f. Proceeds from sale of land total $29,000.
g. Proceeds from issuance of common stock total$31,000.
h. Payment of a long-term note payable is $17,000.
i. Payment of dividends is$12,500.
j. Cash balance, June 30, 2015, was $25,000.

1. Prepare Value World, Inc.’s, statement of cash flows and accompanying schedule of noncash investing and financing activities. Report operating activities by the direct method.

2. Evaluate Value World’s cash flows for the year. In your evaluation, mention all three categories of cash flows and give the reason for your evaluation.

Choose the best answer. The net primary productivity of an ecosystem is $1\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{m}^{2} / \mathrm{year},$ and the energy needed by the producers for their own respiration is $1.5\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{year}.$ The gross primary productivity of such an ecosystem would be (a) $0.5\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{year}.$ (b) $1.5\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{year}.$ (c) $2.0\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{year}.$ (d) $2.5\ \mathrm{kg}\ \mathrm{C} / \mathrm{m}^{2} / \mathrm{year}.$

The Playa Company has the following information in its records. Certain data have been intentionally omitted ($in thousands).$

$$\begin{array}{lrrr} & 2021 & 2022 & 2023 \\ \hline \text { Beginning inventory } & ? & ? & 225 \\ \text { Cost of goods sold } & 627 & 621 & ? \\ \text { Ending inventory } & ? & 225 & 216 \\ \text { Cost of goods available for sale } & 876 & ? & 800 \\ \text { Purchases (gross) } & 630 & ? & 585 \\ \text { Purchase discounts } & 18 & 15 & ? \\ \text { Purchase returns } & 24 & 30 & 14 \\ \text { Freight-in } & 13 & 32 & 16 \end{array}$$

$

Determine the missing numbers. Show computations where appropriate.

Key figures for Apple and Google follow.

Required

1. Compute common-size percents for each of the companies using the data provided. Round percents to one decimal.
2. If Google decided to pay a dividend, would retained earnings as a percent of total assets increase or decrease?
3. Which company has a higher gross margin ratio on sales?