The following accounts appear on the work sheet for Lee’s Bike Shop.

$$\begin{matrix} \text{Store Equipment} & \text{Scott Lee, Capital} & \text{Scott Lee, Withdrawals}\\ \text{Rent Expense} & \text{Advertising Expense} & \text{Maintenance Expense}\\ \text{Service Fees Revenue} & \text{Accts. Rec. - John Langer} & \text{Office Supplies}\\ \text{Accts. Pay.—Rubino Supply} & \text{ } & \text{ }\\ \end{matrix}$$

Use a form similar to the one below in your working papers. Classify each account and use an “X” to indicate whether the account balance is entered in the Debit or the Credit column of the Trial Balance section. The first account is completed as an example.

$$\begin{array}{|c|c|l|} \hline \text{Account Name} & \text{Classification} & \text{Trial Balance}\\ \hline \text{ } & \text{ } & \text{Debit | Credit}\\ \hline \text{Store Equipment} & \text{Asset} & \text{X}\\ \hline \end{array}$$

Paul opened a florist business that marketed tropical flowers as a sole proprietorship. His idea was that by offering flowers that no other local store sold, he could charge high prices and earn a good profit. This may have been a good idea, but his business failed. First, he had only $30,000 to get started, so he was never able to keep many flowers in stock. Although he knew flowers, he didn’t know much about advertising, accounting, or how to direct employees. Even when he put in 80-hour weeks, things didn’t get done on time. When the business failed, he owed$40,000. The bankruptcy court took his house and car to pay his debts. Explain why Paul’s business might have been more successful if it had been organized as a corporation or even a

Gaston Company is considering a capital budgeting project that would require a $2,000,000 investment in equipment with a useful life of five years and no salvage value. The company's tax rate is 30$

$$\begin{matrix} \text{Sales} & \text{ } & \text{\$ 2.800.000}\\ \text{Variable expenses} & \text{ } & \text{1.600.000}\\ \text{Contribution margin} & \text{ } & \text{1.200.000}\\ \text{Fixed expenses:}\\ \text{Advertising, salaries, and other fixed out-of-pocket costs} & \text{\$ 500.000}\\ \text{Depreciation} & \text{400.000}\\ \text{Total fixed expenses} & \text{ } & \text{900.000}\\ \text{Net operating income} & \text{ } & \text{\$ 300.000}\\ \end{matrix}$$

$ Compute the project's net present value.

The following selected transactions were completed by Reuben’s Delivery Service during October:

1. Received cash from owner in exchange for capital stock, $20,000.
2. Purchased supplies for cash,$900.
3. Paid rent for October, $3,000.
4. Paid advertising expense,$2,500.
5. Received cash for providing delivery services, $23,100. 6.Billed customers for delivery services on account,$41,750.
6. Paid creditors on account, $4,500.
7. Received cash from customers on account,$36,200.
8. Determined that the cost of supplies on hand was $175 and$725 of supplies had been used during the month. 10.Paid dividends, $1,000. Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list: a. Increase in an asset, decrease in another asset.

Use the following chart of accounts and journal from the previous exercise.

Cash
Accounts Receivable-G. Stratton
Supplies
Prepaid Insurance
Accounts Payable-Bayside Supplies
Michelle Sullivan, Capital
Michelle Sullivan, Drawing
Sales
Advertising Expense
Miscellaneous Expense
Rent Expense

Transactions:

June 11. Paid cash for rent, $750.00. C4.
     12. Sold services on account to G. Stratton,$800.00. S1.
     16. Received cash from sales, $4,300.00. T16.
     17. Paid cash for postage (Miscellaneous Expense),$37.00. CS.
     19. Received cash on account from G. Stratton, $500.00. R2.
     20. Paid cash to owner as a withdrawal of equity,$1,200.00. C6.

Journalize the transactions continuing on the next blank line of page 1 of the journal. Source documents are abbreviated as follows: check, C; receipt, R; sales invoice, S; calculator tape, T.

The journals and selected ledger accounts for PLD, Inc. are provided in the Working Papers. Post transactions in the general journal to the general ledger and the accounts receivable ledger when each transaction is journalized. Also post any entries in the General columns of the cash receipts journal to the general ledger accounts as transactions are journalized.

The income statement and additional data of Rolling Hills Corporation follow:

$$\begin{array}{c} \textbf{ROLLING HILLS CORPORATION}\\ \text{Income Statement }\\ \text{Year Ended JUne 30, 2016 }\\ \hline \end{array}$$

$$\begin{array}{lr} \text{Sales Revenue}&\$223,000\\ \text{Cost of Goods Sold}&&\underline{107,000}\\ \text{Gross Profit}&&122,000\\ \text{Operating Expenses:}\\ \hspace{15pt}\text{Salaries Expense}&\$46,000\\ \hspace{15pt}\text{Depreciation Expense-Plant Assets}&28,000\\ \hspace{15pt}\text{Advertising Expense}&\underline{11,000}\\ \hspace{15pt}\text{Total Operating Expense}&&\underline{85,000}\\ \text{Operating Income}&&37,000\\ \text{Other Revenues and (Expenses):}\\ \hspace{15pt}\text{Dividence Revenue}&10,500\\ \hspace{15pt}\text{Interest Expense}&\underline{(3,000)}\\ \hspace{15pt}\text{Total Other Revenues and (Expenses)}&&\underline{7,500}\\ \text{Net Income Before Income Taxes}&&44,500\\ \text{Income Tax Expense}&&\underline{8,000}\\ \text{Net Income}&&\underline{\underline{\$36,500}} \end{array}\\$$

a. Collections from customers are $14,000 more than sales. b. Dividend revenue, interest expense, and income tax expense equal their cash amounts. c. Payments to suppliers are the sum of cost of goods sold plus advertising expense. d. Payments to employees are$1,500 more than salaries expense. e. Cash payment for the acquisition of plant assets is $108,000. f. Cash receipts from sale of land total$25,000. g. Cash receipts from issuance of common stock total $31,000. h. Payment of long-term notes payable is$17,000. i. Payment of dividends is $12,000. j. Cash balance at June 30, 2015, was$28,000; at June 30, 2016, it was $24,000. Prepare Rolling Hills Corporation's statement of cash flows for the year ended June 30, 2016. Use the direct method.

Gator Investments provides financial services related to investment selections, retirement planning, and general insurance needs. For the current year, the company reports the following amounts:

$$\begin{array}{lrlr} \text{Advertising expense} & \text{$\$ 33,500$} & \text{Service revenue} & \text{$\$ 127,600$}\\ \text{Buildings} & \text{$150,000$} & \text{Interest expense} & \text{$3,500$}\\ \text{Salaries expense} & \text{$65,100$} & \text{Utilities expense} & \text{$15,500$}\\ \text{Accounts payable} & \text{$6,400$} & \text{Equipment} & \text{$27,000$}\\ \text{Cash} & \text{$5,500$} & \text{Notes payable} & \text{$30,000$}\\ \end{array}$$

In addition, the company had common stock of $100,000 at the beginning of the year and issued an additional$11,000 during the year. The company also had retained earnings of $30,300 at the beginning of the year and paid dividends of$5,200. Required: Prepare the income statement, statement of stockholders' equity, and balance sheet for Gator Investments.

Online subscription services are being investigated by a market researcher. She is especially curious on the factors that influence how many people subscribe to a specific online service. The following sample data on 25 online subscription services are available to her. The notation used is as follows: Sub = Number of subscriptions (in thousands) Web page hits = Average monthly count (in thousands) Adv = Advertising budget of the service (in $hundreds) Price = Average monthly subscription price ($) Web Page

$$\begin{array}{ccccc} \text { Service } & \text { Sub } & \text { Hits } & \text { Adv } & \text { Price } \\ \hline 1 & 37.95 & 588.9 & 13.2 & 35.1 \\ 2 & 37.66 & 585.3 & 13.2 & 34.7 \\ 3 & 37.55 & 566.3 & 19.8 & 34.8 \\ \vdots & \vdots & \vdots & \vdots & \vdots \\ 23 & 38.83 & 629.6 & 22.0 & 35.3 \\ 24 & 38.33 & 680.0 & 24.2 & 34.7 \\ 25 & 40.24 & 651.2 & 33.0 & 35.8 \end{array}$$

Using this, determine the regression equation.

Findlay Testing Inc. provides water testing and maintenance services for owners of hot tubs and swimming pools. During September the following transactions occurred:

Required:

Post the journal entries to the appropriate T-accounts.

$$\begin{array}{c} \text{HAMILTON NEWS ADVERTISING RATES}\\ ~~~~~~~~~~~~~~~~~~\hspace{50pt}\text{Per Column Inch}\\ \end{array}$$

$$\begin{array}{l r r} & & \text{Daily} & \text{Sunday} \\ \text{Noncontract rates} & & \$45.54 & \$55.28\\[10pt] \text{Weekly Contract rates} & & \\ ~~~\text{1 inch} & & 35.57 & 43.52\\ ~~~ \text{2 inches}& & 35.42 & 43.36\\ ~~~ \text{4 inches} & & 35.28 & 43.36\\ ~~~ \text{8 inches} & & 35.15 & 43.07\\ ~~~ \text{16 inches} & & 34.90 & 42.80\\ ~~~ \text{31 inches} & & 34.65 & 42.53\\ ~~~ \text{63 inches} & & 34.40 & 42.26\\ ~~~ \text{94 inches} & & 34.15 & 41.99\\ ~~~ \text{126 inches} & & 33.90 & 41.72\\ ~~~ \text{252 inches} & & 33.65 & 41.46\\ \end{array}$$

Use the table above to find the advertisement cost per run.

Maxson Auto Sales.
Weekly contract for 31 inches.
8-inch daily ad.
What is the cost of the advertisement?

Lilliput, a one-product mail-order firm, buys its product for $60 per unit and sells it for$130 per unit. The sales staff receives a 10% commission on the sale of each unit. Its December income statement follows.

$$\begin{array}{c} \textbf{LILLIPUT COMPANY}\\ \textbf{Income Statement}\\ \textbf{For Month Ended December 31, 2011} \end{array}$$

$$\begin{array}{lrr} \text{Sales}&&\$1,300,000\\ \text{Cost of goods sold}&&\underline{~~~~~~600,000}\\ \text{Gross Profit}&&\$700,000\\ \text{Expenses}\\ \hspace{10pt}\text{Sales commissions (10\\\%)}&&130,000\\ \hspace{10pt}\text{Advertising}&&200,000\\ \hspace{10pt}\text{Store rent}&&24,000\\ \hspace{10pt}\text{Administrative salaries}&&40,000\\ \hspace{10pt}\text{Depreciation}&&50,000\\ \hspace{10pt}\text{Other expenses}&&\underline{~~~~~~~12,000}\\ \hspace{10pt}\text{Total Expenses}&&\underline{~~~~~456,000}\\ \text{Net income}&&\underline{\underline{~~~\$244,000}}\\ \end{array}$$

Management expects December’s results to be repeated in January, February, and March of 2012 without any changes in strategy. Management, however, has an alternative plan. It believes that unit sales will increase at a rate of 10% each month for the next three months (beginning with January) if the item’s selling price is reduced to $115 per unit and advertising expenses are increased by 25% and remain at that level for all three months. The cost of its product will remain at$60 per unit, the sales staff will continue to earn a 10% commission, and the remaining expenses will stay the same.

Required
1. Prepare budgeted income statements for each of the months of January, February, and March that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.

Analysis Component
2. Use the budgeted income statements from part 1 to recommend whether management should implement the proposed changes. Discuss.

In 1998, as an advertising campaign, the Nabisco Company announced a “1000 Chips Challenge,” claiming that every 18-ounce bag of their Chips Ahoy cookies contained at least 1000 chocolate chips. Dedicated Statistics students at the Air Force Academy (no kidding) purchased some randomly selected bags of cookies, and counted the chocolate chips. Some of their data are given below.

$$\left. \begin{array} { c c c } { 1219 } & { 1214 } & { 1087 } & { 1200 } & { 1419 } & { 1121 } & { 1325 } & { 1345 } \\ { 1244 } & { 1258 } & { 1356 } & { 1132 } & { 1191 } & { 1270 } & { 1295 } & { 1135 } \end{array} \right.$$

a) Check the assumptions and conditions for inference. Comment on any concerns you have. b) Create a 95% confidence interval for the average number of chips in bags of Chips Ahoy cookies. c) What does this evidence say about Nabisco’s claim? Use your confidence interval to test an appropriate hypothesis and state your conclusion.

Use the following information for. A local business $\mathrm{A}$ has two competitors, $\mathrm{B}$ and $\mathrm{C}$. No customer patronizes more than one of these businesses at the same time. Initially, the probabilities that a customer patronizes $\mathrm{A}, \mathrm{B}$, or $\mathrm{C}$ are $0 . 2$, $0 . 6$, and $0.2$, respectively. Suppose $\mathrm{A}$ initiates an advertising campaign to improve its business and finds the following transition matrix to describe the effect.

$$\begin{array}{rrrr} \textbf{Last week's customers went to}\\ \\ \textbf{A}\\ \textbf{B}\\ \textbf{C}\\ \end{array} \overset{\textbf{This week's customers go to}}{\overset{\textbf{A} \qquad\textbf{B}\qquad\textbf{C}}{\left[\begin{array}{ccc}{0.7 \quad 0.2 \quad0.1}\\{0.4 \quad 0.4 \quad0.2}\\{0.4 \quad 0.4 \quad0.2} \end{array}\right]}}$$

Find the steady-state vector for this market-that is, the long-range share of the market that each business can expect if the transition matrix holds.