Stoscheck Moving Corporation has been in operation since January 1, 2012.. It is now December 31, 2012, the end of the annual accounting period. The company has not done well financially during the first year, although revenue has been fairly good. The three stockholders manage the company, but they have not given much attention to recordkeeping. In view of a serious cash shortage, they have applied to your bank for a $30,000 loan. You requested a complete set of financial statements. The following 2012 annual financial statements were prepared by a clerk and then were given to the bank.

$$\begin{array}{c} \hline \hspace{60pt}\textbf{STOSCHECK MOVING CORP.}\hspace{60pt}\\ \textbf{Balance Sheet}\\ \textbf{At December 31, 2012}\\ \hline \end{array}$$

$$\begin{array}{llr} \underline{\text{Assets}}\\ \hspace{5pt}\text{Cash}&&\$\text{\hspace{15pt}{2,000}}\\ \hspace{5pt}\text{Receivables }&&\text{3,000}\\ \hspace{5pt}\text{Supplies}&&\text{4,000}\\ \hspace{5pt}\text{Equipment}&&\text{40,000}\\ \hspace{5pt}\text{Prepaid insurance}&&\text{6,000}\\ \hspace{5pt}\text{Remaining assets}&&\text{\underline{\hspace{15pt}{27,000}}}\\ \text{Total assets}&&\underline{\underline{\$\hspace{10pt}\text{82,000}}}\\ \\ \text{Liabilities}\\ \hspace{5pt}\text{Accounts payable }&&\$\hspace{10pt}\text{9,000}\\\\ \text{Stockholders' Equity}\\ \hspace{5pt}\text{Contributed capital (10,000 shares outstanding)}&&\text{35,000}\\ \hspace{5pt}\text{Retained earnings}&&\underline{\text{\hspace{10pt}38,000}}\\ \text{Total liabilities and stockholders’ equity}&& \underline{\underline{\$\hspace{5pt}\text{82,000}}}\\\\ \hline \end{array}$$

$$\begin{array}{c} \hline \hspace{10pt}\textbf{STOSCHECK MOVING CORP.}\hspace{10pt}\\ \textbf{Income Statement}\\ \textbf{For the Period Ended December 31, 2012}\\ \hline \end{array}$$

$$\begin{array}{lrr} \text{Transportation revenue}&&\$\hspace{5pt}\text{85,000}\\ \text{Expenses}\\ \hspace{10pt}\text{ Salaries expense}&&\text{17,000}\\ \hspace{10pt}\text{Supplies expense}&&\text{12,000}\\ \hspace{10pt}\text{Other expenses}&&\underline{\hspace{10pt}\text{18,000}}\\ \hspace{20pt}\text{Total expenses}&&\underline{\hspace{10pt}\text{47,000}}\\ \text{Net income}&\hspace{45pt}&\underline{\underline{\$\hspace{5pt}\text{38,000}}}\\\\ \hline \end{array}$$

After briefly reviewing the statements and “looking into the situation,” you requested that the statements be redone (with some expert help) to “incorporate depreciation, accruals, inventory counts, income taxes, and so on.” As a result of a review of the records and supporting documents, the following additional information was developed:

a. The Supplies of $4,000 shown on the balance sheet has not been adjusted for supplies used during 2012. A count of the supplies on hand on December 31, 2012, showed$1,800.

b. The insurance premium paid in 2012 was for years 2012 and 2013. The total insurance premium was debited in full to Prepaid Insurance when paid in 2012 and no adjustment has been made.

c. The equipment cost $40,000 when purchased January 1, 2012. It had an estimated annual depreciation of$8,000. No depreciation has been recorded for 2012.

d. Unpaid (and unrecorded) salaries at December 31, 2012, amounted to $3,200.

e. At December 31, 2012, transportation revenue collected in advance amounted to$7,000. This amount was credited in full to Transportation Revenue when the cash was collected earlier during 2012.

f. The income tax rate is 35 percent.

Required:

1. Record the six adjusting entries required on December 31, 2012, based on the preceding additional information.

2. Recast the preceding statements after taking into account the adjusting entries. You do not need to use classifications on the statements. Suggested form for the solution:

	CHANGES
Items	Amounts Reported	Debit	Credit	Corrected Amounts
(List here each item from the two statements)

Archaeologists are excavating a new Site E. On a number line, the depth of Site E is between the depths of Site A and Site B. What is a possible depth of Site E?

Following is the unadjusted trial balance for Pens Unlimited on December 31, 2017.

$$\begin{array}{c} \textbf{PENS UNLIMITED}\\ \textbf{Unadjusted Trial Balance}\\ \textbf{Year Ended December 31, 2017}\\ \end{array}$$

$$\begin{array}{lcc} \textbf{Account}&\textbf{Debit}&\textbf{Credit}\\[5pt] \text{Cash}&\text{\$\hspace{5pt}8,500}\\ \text{Accounts Receivable}&\text{\hspace{10pt}3,000}\\ \text{Merchandise Inventory}&\text{\hspace{10pt}6,750}\\ \text{Buildings}&\text{\hspace{10pt}5,600}\\ \text{Equipment}&\text{\hspace{10pt}4,000}\\ \text{Accounts Payable}&&\text{\$\hspace{5pt}7,500}\\ \text{Salaries Payable}&&\text{\hspace{10pt}4,250}\\ \text{Common Stock}&&\text{\hspace{10pt}5,000}\\ \text{Dividends}\\ \text{Sales Revenue}&&\underline{\text{\hspace{5pt}20,750}}\\ \text{COGS}&\text{\hspace{10pt}5,400}\\ \text{Salaries Expense}&\underline{\text{\hspace{11pt}4,250}}\\ \textbf{Totals}&\underline{\underline{\text{\$\hspace{1pt}37,500}}}&\underline{\underline{\text{\$\hspace{1pt}37,500}}}\\ \end{array}$$

You are also given the following supplemental information: A pending lawsuit, claiming $4,200 in damages, is considered likely to favor the plaintiff and can be reasonably estimated. Pens Unlimited believes a customer may win a lawsuit for$5,000 in damages, but the outcome is only reasonably possible to occur. Pens Unlimited records warranty estimates on the basis of 2% of annual sales revenue.

B. Construct a balance sheet, for December 31, 2017, from the given unadjusted trial balance, supplemental information, and income statement for Pens Unlimited. Pay particular attention to contingent liabilities.

Write the equation that models the Marketing Expense.

Reread the identified passage. Then, respond to the question that follow.

I'd like you to stop whatever you're doing right now. No, no, I don't mean stop so you can give your full attention to this radio show. Honestly, radio is the perfect medium for multitasking - unless maybe you're using a chainsaw or something. What I mean is Stop. Whatever. You're. Doing. As in, doing with your life. Maybe it's your job. Maybe it's a relationship that's curdled. Maybe there's some dream project you've been working on so long that you can't even remember what got you all heated up about it in the first place. I want to encourage you to just quit. Or at least think about quitting. Why? Well, because everybody else is always saying the opposite. It's become so ingrained that we don't even think about it any more. You know: "A quitter never wins and a winner never quits." You know what I think when I hear people say that? I think: "Are you sure?" ANNOUNCER: From WNYC and APM: American Public Media, this is Freakonomics Radio. Today: "The Upside of Quitting." Here's your host, Stephen Dubner. DUBNER: So I hang out with a lot of economists. (I know, you're envious.) But there are two things they love to talk about that will help us understand quitting. One is called "sunk cost" and the other is "opportunity cost." "Sunk cost" is about the past-it's the time, or money, or sweat equity ${ }^1$ that you've put into something, which makes it hard to abandon. "Opportunity cost" is about the future. It means that for every hour or dollar you spend on one thing, you're giving up the opportunity to spend that hour or dollar on something elsesomething that might make your life better. If only you weren't so worried about the sunk cost. If only you could quit. .. . First, here's someone who made headlines when he quit.

How does the decision to focus an entire radio broadcast on the topic of quitting automatically establish a main idea? Explain.

When determining which social media platform to use for marketing, what should marketing professionals consider?

How many Americans earn a living in careers in marketing?

Describe one experiment that supports the statement that an rRNA and not a protein component of the ribosome catalyzes the peptidyl transferase reaction.

There are 14 marketing firms hiring new graduates. Kate randomly found the recruitment ads of six of these firms and sent them her resume. If three of these marketing firms are in Maryland, what is the probability that Kate did not apply to a marketing firm in Maryland?

In 2013, Lisa Perry opened Lisa’s Jeans Company, a small store that sold designer jeans in a suburban mall. Perry worked 14 hours a day and controlled all aspects of the operation. The company was such a success that in 2014, Perry opened a second store in another mall. Because the new shop needed her attention, she hired a manager for the original store.

During 2014, the new store was successful, but the original store’s performance did not match its performance in 2013. Concerned about this, Perry compared the two years’ results for the original store. Her analysis showed the following:

$$\begin{array}{lrr} & \textbf{2014} & \textbf{2013}\\ \\ \text{Net sales} & \$325,000 & \$350,000\\ \text{Cost of goods sold} & \underline{225,000} & \underline{225,000}\\ \text{Gross margin} & \$100,000 & \$125,000\\ \text{Operating expenses} & \underline{75,000} & \underline{50,000}\\ \text{Income before income taxes} & \$\hspace{5pt}25,000 & \$\hspace{5pt}75,000\\ \end{array}$$

Perry’s analysis also revealed that the cost and the selling price of the jeans were roughly the same in both years, as was the level of operating expenses, except for the new manager’s $25,000 salary. The amount of sales returns and allowances was insignificant in both years.

Studying the situation further, Perry discovered the following about the cost of goods sold.

$$\begin{array}{lrr} & \textbf{2014} & \textbf{ 2013}\\ \\ \text{Purchases} & \$200,000 & \$271,000\\ \text{Total purchases allowances} & 15,000 & 20,000\\ \text{Freight-in} & 19,000 & 27,000\\ \text{Physical inventory, end of year} & 32,000 & 53,000\\ \end{array}$$

Still not satisfied, Perry went through all the individual sales and purchase records for 2014. She found that they were correct, but given the unit purchases and sales during the year, the 2014 ending inventory should have been $57,000. After puzzling over all this information, Perry has come to you for accounting help.

1. Using Perry’s new information, compute the cost of goods sold for 2013 and 2014 and account for the difference in income before income taxes between 2013 and 2014.

2. Suggest at least two reasons for the discrepancy in the 2014 ending inventory. How might Perry improve the management of the original store?

Palermo Inc. purchased 80 percent of the outstanding stock of Salina Ranching Company, located in Australia, on January 1, 20X3. The purchase price in Australian dollars (A$) was A$200,000, and A$40,000 of the differential was allocated to plant and equipment, which is amortized over a 10-year period. The remainder of the differential was attributable to a patent. Palermo Inc. amortizes the patent over 10 years. Salina Ranching's trial balance on December 31, 20X3, in Australian dollars is as follows:$

$$\begin{array}{lrr} & \textbf{Debits} & \textbf{Credits}\\ \\ \text{Cash} & \text{A\$\hspace{5pt}44,100}\\ \text{Accounts Receivable (net)} &72,000\\ \text{Inventory} & 86,000\\ \text{Plant \& Equipment} & 240,000\\ \text{Accumulated Depreciation} && \text{A\$\hspace{5pt}60,000}\\ \text{Accounts Payable} && 53,800\\ \text{Payable to Palermo Inc.} && 10,800\\ \text{Interest Payable} &&3,000\\ \text{12\\\% Bonds Payable} &&100,000\\ \text{Premium on Bonds} &&5,700\\ \text{Common Stock} && 90,000\\ \text{Retained Earnings} &&40,000\\ \text{Sales} && 579,000\\ \text{Cost of Goods Sold} &330,000\\ \text{Depreciation Expense} & 24,000\\ \text{Operating Expenses} & 131,500\\ \text{Interest Expense} & 5,700\\ \text{Dividends Paid} &9,000\\ \hline \text{Total} & \underline{\underline{\text{A\$942,300}}} & \underline{\underline{\text{A\$942,300}}}\\ \end{array}$$

$$**Additional Information** 1. Salina Ranching uses average cost for cost of goods sold. Inventory increased by A\$20,000 during the year. Purchases were made uniformly during 20X3. The ending inventory was acquired at the average exchange rate for the year. 2. Plant and equipment were acquired as follows:$$

$$\begin{array}{lr} \textbf{Date} & \textbf{ Cost } \\ \\ \text{January 20X1} & \text{A\$180,000} \\ \text{January 1, 20X3} & 60,000 \\ \end{array}$$

$3. Plant and equipment are depreciated using the straight-line method and a 10-year life with no residual value.

4. The payable to Palermo is in Australian dollars. Palermo's books show a receivable from Salina Ranching of$6,480.

5. The 10-year bonds were issued on July 1, 20X3, for A$106,000. The premium is amortized on a straight-line basis. The interest is paid on April 1 and October 1.

6. The dividends were declared and paid on April 1.

7. Exchange rates were as follows:

$$\begin{array}{lr} & \textbf{A\$ \hspace{10pt} \$} \\ \text{January 20X1} & 1 = 0.93\\ \text{August 20X1} & 1 = 0.88\\ \text{January 1, 20X3} & 1 = 0.70\\ \text{April 1, 20X3} & 1 = 0.67\\ \text{July 1, 20X3} & 1 = 0.64\\ \text{December 31, 20X3} & 1 = 0.60\\ \text{20X3 average} & 1 = 0.65\\ \end{array}$$

Assume that the Australian dollar (AS) is the functional currency and that Palermo uses the fully adjusted equity method for accounting for its investment in Salina Ranching. A December 31, 20X3, trial balance for Palermo Inc. follows. Use this translated trial balance for completing this problem.

$$\begin{array}{lrr} \textbf{Item} & \textbf{Debit} & \textbf{Credit}\\ \\ \text{Cash} & \$\hspace{10pt}38,000\\ \text{Accounts Receivable (net)} & 140,000\\ \text{Receivable from Salina Ranching} & 6,480\\ \text{Inventory} & 128,000\\ \text{Plant \& Equipment} &500,000\\ \text{Investment in Salina Ranching} & 152,064\\ \text{Cost of Goods Sold} & 600,000\\ \text{Depreciation Expense} & 28,000\\ \text{Operating Expenses} & 204,000\\ \text{Interest Expense} & 2,000\\ \text{Dividends Declared} & 50,000\\ \text{Translation Adjustment} & 22,528\\ \text{Accumulated Depreciation} && \$\hspace{10pt}90,000\\ \text{Accounts Payable} && 60,000\\ \text{Interest Payable} && 2,000\\ \text{Common Stock} &&500,000\\ \text{Retained Earnings, January 1, 20X3} &&179,656\\ \text{Sales} && 1,000,000\\ \text{Income from Subsidiary} &&39,416\\ \hline \text{Total} & \underline{\underline{\$1,871,072}} & \underline{\underline{\$1,871,072}}\\ \end{array}$$

Required

Prepare a set of elimination entries, in general journal form, for the entries required to prepare a comprehensive consolidation worksheet (including other comprehensive income) as of December 31, 20X3.

Kenseth Corporation’s unadjusted trial balance at December 1, 2014, is presented below.

$$\begin{array}{lccc} &\underline{\textbf{Debit}}&\underline{\textbf{Credit}}\\[5pt] \text{Cash}&\text{\$\hspace{14pt}22,000}\\ \text{Accounts Receivable}&\text{\hspace{19pt}36,800}\\ \text{Notes Receivable}&\text{\hspace{19pt}10,000}\\ \text{Interest Receivable}&\text{\hspace{42pt}0}\\ \text{Inventory}&\text{\hspace{19pt}36,200}\\ \text{Prepaid Insurance}&\text{\hspace{24pt}3,600}\\ \text{Land}&\text{\hspace{19pt}20,000}\\ \text{Buildings}&\text{\hspace{14pt}150,000}\\ \text{Equipment}&\text{\hspace{19pt}60,000}\\ \text{Patent}&\text{\hspace{24pt}9,000}\\ \text{Allowance for Doubtful Accounts}&&\text{\$\hspace{27pt}500}\\ \text{Accumulated Depreciation—Buildings}&&\text{\hspace{19pt}50,000}\\ \text{Accumulated Depreciation—Equipment}&&\text{\hspace{19pt}24,000}\\ \text{Accounts Payable}&&\text{\hspace{19pt}27,300}\\ \text{Salaries and Wages Payable}&&\text{\hspace{42pt}0}\\ \text{Notes Payable (due April 30, 2015)}&&\text{\hspace{19pt}11,000}\\ \text{Income Taxes Payable}&&\text{\hspace{42pt}0}\\ \text{Interest Payable}&&\text{\hspace{42pt}0}\\ \text{Notes Payable (due in 2020)}&&\text{\hspace{19pt}35,000}\\ \text{Common Stock}&&\text{\hspace{19pt}50,000}\\ \text{Retained Earnings}&&\text{\hspace{19pt}63,600}\\ \text{Dividends}&\text{\hspace{19pt}12,000}\\ \text{Sales Revenue}&&\text{\hspace{14pt}900,000}\\ \text{Interest Revenue}&&\text{\hspace{42pt}0}\\ \text{Gain on Disposal of Plant Assets}&&\text{\hspace{42pt}0}\\ \text{Bad Debt Expense}&\text{\hspace{42pt}0}\\ \text{Cost of Goods Sold}&\text{\hspace{14pt}630,000}\\ \text{Depreciation Expense}&\text{\hspace{42pt}0}\\ \text{Income Tax Expense}&\text{\hspace{42pt}0}\\ \text{Insurance Expense}&\text{\hspace{42pt}0}\\ \text{Interest Expense}&\text{\hspace{42pt}0}\\ \text{Other Operating Expenses}&\text{\hspace{19pt}61,800}\\ \text{Amortization Expense}&\text{\hspace{42pt}0}\\ \text{Salaries and Wages Expense}&\underline{\text{\hspace{14pt}110,000}}&\underline{\text{\hspace{45pt}}}\\ \text{Total}&\underline{\underline{\text{\$\hspace{1pt}1,161,400}}}&\underline{\underline{\text{\$\hspace{1pt}1,161,400}}}\\ \end{array}$$

The following transactions occurred during December.

Dec.  2 Purchased equipment for $16,000, plus sales taxes of$800 (paid in cash).
      2 Kenseth sold for $3,500 equipment which originally cost$5,000. Accumulated depreciation on this equipment at January 1, 2014, was $1,800; 2014 depreciation prior to the sale of equipment was$825.
     15 Kenseth sold for $5,000 on account inventory that cost$3,500.
     23 Salaries and wages of $6,600 were paid.

Adjustment data:

1. Kenseth estimates that uncollectible accounts receivable at year-end are$4,000.
2. The note receivable is a one-year, 8% note dated April 1, 2014. No interest has been recorded.
3. The balance in prepaid insurance represents payment of a $3,600, 6-month premium on September 1, 2014.
4. The building is being depreciated using the straight-line method over 30 years. The salvage value is$30,000.
5. The equipment owned prior to this year is being depreciated using the straight-line method over 5 years. The salvage value is 10% of cost.
6. The equipment purchased on December 2, 2014, is being depreciated using the straight-line method over 5 years, with a salvage value of $1,800.
7. The patent was acquired on January 1, 2014, and has a useful life of 9 years from that date.
8. Unpaid salaries at December 31, 2014, total$2,200.
9. Both the short-term and long-term notes payable are dated January 1, 2014, and carry a 10% interest rate. All interest is payable in the next 12 months.
10. Income tax expense was $15,000. It was unpaid at December 31.

Instructions

(b) Prepare an adjusted trial balance at December 31, 2014.

Calcium phosphate cement is gaining increasing attention for use in bone repair applications. The article “Short-Fibre Reinforcement of Calcium Phosphate Bone Cement” (J. of Engr. in Med., 2007: 203–211) reported on a study in which polypropylene fibers were used in an attempt to improve fracture behavior. The following data on x = fiber weight (%) and y = compressive strength (MPa) was provided by the article’s authors.

$$\begin{matrix} \text{x} & \text{0.00} & \text{0.00} & \text{0.00} & \text{0.00} & \text{0.00} & \text{1.25} & \text{1.25} & \text{1.25} & \text{1.25}\\ \text{y} & \text{9.94} & \text{11.67} & \text{11.00} & \text{13.44} & \text{9.20} & \text{9.92} & \text{9.79} & \text{10.99} & \text{11.32}\\ \end{matrix}$$

$$\begin{matrix} \text{x} & \text{2.50} & \text{2.50} & \text{2.50} & \text{2.50} & \text{2.50} & \text{5.00} & \text{5.00} & \text{5.00} & \text{5.00}\\ \text{y} & \text{12.29} & \text{8.69} & \text{9.91} & \text{10.45} & \text{10.25} & \text{7.89} & \text{7.61} & \text{8.07} & \text{9.04}\\ \end{matrix}$$

$$\begin{matrix} \text{x} & \text{7.50} & \text{7.50} & \text{7.50} & \text{7.50} & \text{10.00} & \text{10.00} & \text{10.00} & \text{10.00}\\ \text{y} & \text{6.63} & \text{6.43} & \text{7.03} & \text{7.63} & \text{7.35} & \text{6.94} & \text{7.02} & \text{7.67}\\ \end{matrix}$$

a. Fit the simple linear regression model to this data. Then determine the proportion of observed variation in strength that can be attributed to the model relationship between strength and fiber weight. Finally, obtain a point estimate of the standard deviation of $\epsilon$, the random deviation in the model equation. b. The average strength values for the six different levels of fiber weight are 11.05, 10.51, 10.32, 8.15, 6.93, and 7.24, respectively. The cited paper included a figure in which the average strength was regressed against fiber weight. Obtain the equation of this regression line and calculate the corresponding coefficient of determination. Explain the difference between the $r^{2}$ value for this regression and the $r^{2}$ value obtained in (a).

Paula Seale is negotiating the purchase of an extermination firm called Total Pest Control. Seale has been employed by a national pest control service and knows the technical side of the business. However, she knows little about accounting data and financial statements. The sole owner of the firm, Meg Krey, has provided Seale with income statements for the past three years, which show an average net income of $72,000 per year. The latest balance sheet shows total assets of$285,000 and liabilities of $45,000. Seale brings the following matters to your attention and requests advice.

1. Krey is asking$300,000 for the firm. She has told Seale that because the firm has been earning 30% on its investment, the price should be higher than the net assets on the balance sheet (net assets equals total assets minus total liabilities).
2. Seale has noticed no salary for Krey on the income statements, even though she worked halftime in the business. Krey explained that because she had other income, the firm only paid $18.000 in cash dividends to Krey (the sole shareholder). If she purchases the firm, Seale will hire a full-time manager for the firm at an annual salary of$36,000.
3. Krey's tax returns for the past three years report a lower net income for the firm than the amounts shown in the financial statements. Seale is skeptical about the accounting principles used in preparing the financial statements.

REQUIRED

a. How did Krey arrive at the 30% return figure in point 1? If Seale accepts Krey's average annual net income figure of $72,000, what would Seale's percentage return be, assuming that the net income remained at the same level and that the firm was purchased for$300.000?

b. Should the dividend to Krey affect the net income reported in the financial statements? What will Seale's percentage return be if she takes into consideration the $36,000 salary she plans to pay a full-time manager?

c. Could there be legitimate reasons for the difference between net income shown in the financial statements and net income reported on the tax returns. as mentioned in point 3? How might Seale obtain additional assurance about the propriety of the financial statements?