1. Details of Prepaid Insurance are shown in the account:

Callaway prepays insurance on March 31 each year. At December 31, $600 is still prepaid.

b. Callaway pays employees each Friday. The amount of the weekly payroll is $6,000 for a 5-day work week. The current accounting period ends on Wednesday.

c. Callaway has a note receivable. During the current year, Callaway has earned accrued interest revenue of $500 that it will collect next year.

d. The beginning balance of supplies was $2,600. During the year, Callaway purchased supplies costing $6,100, and at December 31 supplies on hand total $2,100.

e. Callaway is providing services for Manatee Investments, and the owner of Manatee paid Callaway $12,000 as the annual service fee. Callaway recorded this amount as Unearned Service Revenue. Callaway estimates that it has earned one-third of the total fee during the current year.

f. Depreciation for the current year includes Office Furniture, $1,000 and Equipment, $2,700. Make a compound entry.

Assume the following situation for PepsiCo Inc.: PepsiCo ended 20X3 with cash of $200 million. At December 31, 20X3, Bob Detmer, the CFO of PepsiCo, is preparing the budget for 20X4. During 20X4, Detmer expects PepsiCo to collect $26,400 million from customers and $80 million from interest earned on investments. PepsiCo expects to pay $12,500 million for its inventories and $5,400 million for operating expenses. To remain competitive, PepsiCo plans to spend $2,200 million to upgrade production facilities and an additional $350 million to acquire other companies. PepsiCo also plans to sell older assets for approximately $300 million and to collect $220 million of this amount in cash. PepsiCo is budgeting dividend payments of $550 million during the year. Finally, the company is scheduled to pay off $1,200 million of long-term debt plus the $6,600 million of current liabilities left over from 20X3. Because of the growth planned for 20X4, Detmer budgets the need for a minimum cash balance of $300 million.

Required

1. How much must PepsiCo borrow during 20X4 to keep its cash balance from falling below $330 million? Prepare the 20X4 cash budget to answer this important question.

Interpreting an Income Statement – Microsoft Corporation”s 2002 annual report included the following income statement information.

Required Ratios often are used to assess changes in financial statement information over time. Use Microsoft”s income statements to answer the following questions. Express your answers as percentages.

A. What was the ratio of net income to net revenues each year?

B. What was the ratio of cost of revenues (cost of goods sold) to net revenues each year?

C. What was the ratio of operating expenses to net revenues each year?

D. What was the percentage change in net income between 2000 and 2001, and between 2001 and 2002? (Hint: Divide the increase in net income from 2000 and 2001 by the net income for 2000.)

E. Did Microsoft”s operating results improve between 2000 and 2001? Between 2001 and 2002? Explain your answers.

Reading and Interpreting a Balance Sheet – A recent balance sheet for Walt Disney Company is provided below.

Note: Slight modifications have been made to the format of the statement to simplify the presentation.

Required Respond to the following questions.

A. Do you agree that Disney”s balance sheet is both classified and comparative? Explain why or why not.

B. At year-end 2001, what percentage of total assets was composed of current assets? Had this percentage increased or decreased since year-end 2000?

C. What was Disney”s amount of working capital at year-end 2001? Did it change significantly from year-end 2000?

D. Compute the working capital ratio at year-end 2001 and year-end 2000. Did it improve or deteriorate between 2000 and 2001?

E. Film and television costs is the amount paid to produce movies or television shows.

Explain why it appears in two places on the balance sheet.

F. What were the amounts of total assets, total liabilities, and stockholders” equity at yearend 2001 and year-end 2000?

G. Did Disney”s overall financial position improve between 2000 and 2001? Explain.

Interpreting an Income Statement – A recent Consolidated Statement of Income for the Coca-Cola Company and Subsidiaries is presented below.

Required

A. What is the amount of cost of goods sold for 1999, 2000, and 2001? What kinds of costs are included in cost of goods sold?

B. What does gross profit represent? Calculate gross profit as a percentage of net operating revenues for each year. What do you observe?

C. How does gross profit differ from operating income?

D. Is Coca-Cola more profitable in 2001 than in 1999? Explain.

Jenny didn”t study very hard when she took accounting because she thought she would never use it on the job at Tech-Noid Company. Yesterday, after preparing all end-of-the-month adjusting entries, the company”s accountant became ill. The company asked Jenny to finish the job by preparing the financial statements. The owner needs the statements tomorrow to present to his banker. Jenny is having trouble getting the balance sheet to balance.

(a) Help Jenny by making a list of the five account categories that are printed in bold-face type on the balance sheet. Leave three lines between each category listed. For each category, write the names of Tech-Noid”s accounts that should be reported under it on the balance sheet. (b) Determine the correct balance sheet amounts for:

1. total current assets

2. total noncurrent assets

3. total assets

4. total current liabilities

5. total long-term liabilities

6. total stockholders” equity

7. total liabilities and equity

Evaluating the Results of an Organization’s Transformation Process – SoftwareSolutions.com has been in business for several years and is publicly traded on a major U.S. stock exchange. It is an Internet wholesaler of a variety of commercial software applications. On January 1, 2004, the company’s balance sheet appeared as follows (all amounts are in thousands of dollars):

During the first quarter of the current year (January, February, March), the following events occurred.

A. New office furniture costing $500 was purchased on the last day of March. This was to be used in a new sales office that was scheduled to open April 1. The office furniture was paid for in cash.

B. Wages and salaries totaling $3,200 were paid. Of this amount, 20% was to liquidate wages payable that arose in the fourth quarter of the previous year. The company has a policy of not making wage or salary advances to employees.

C. All accounts receivable outstanding at January 1 were collected.

D. The company’s advertising agency billed the firm $1,000 for a campaign that had run during the current quarter. The company is planning to pay the bill during April.

E. Sales totaling $18,000 were made to customers. Of these sales, 60% was collected during the first quarter, and the balance is expected to be collected during the next quarter. The goods that were sold had cost the company $13,000 when they were purchased.

F. Dividends were declared and paid to stockholders in the amount of $1,500.

G. Inventory (software programs) costing $10,500 was purchased, of which 10% was paid for by the end of the quarter.

H. A 3-year, $4,000, 12% loan was obtained from a local bank on the last day of the quarter.

I. New shares of stock were sold by the company for $2,000 in cash.

J. A new 3-year lease agreement was signed and executed. The lease required that a $900 monthly rental be paid in advance for the first 2 quarters of the current year. (Total paid is $5,400 = $900 × 6 months.)

K. The accountants calculated that depreciation totaling $350 should be recorded for the quarter for the firm’s buildings and equipment.

L. The land that had been held for plant expansion was sold for $9,000.

Required:

Prepare any summary documents you believe might help management (or interested external parties) better understand the effectiveness or efficiency of the firm’s first quarter transformation process. Did the company have a satisfactory first quarter?

Industry demand function: Q = 14 – ½P + 0.001(Income). Marginal Cost

is fixed and equal to $16. Fixed costs = $0. You are uncertain about the level of

income. Your statistics department believes that there are 4 reasonable probable

income levels with the following probabilities. 10% chance income is 80,000; 50%

chance income is 60,000; 30% chance income is 50,000; and 10% chance income is

30,000.

a. Calculate the appropriate value to use for income in your analysis. Explain why

you choose to use that level of income.

b. Assume this industry is a monopoly; determine the optimal price, corresponding

level of sales and total profit earned by the monopolist. Show your work.

c. In the unlikely event that the highest possible income ($80,000) is realized how

much profit has the monopoly missed out on by underproducing?

d. If this industry was perfectly competitive, what would be the industry wide price

and output level? How do you know? At this price how much profit would there

be in the industry? (For this part use the income you calculated in part a)

e. What is the dead weight loss associated with monopoly. If you can’t calculate the

exact value, show the area on a graph. (Remember MC is fixed and equal to 16)

Bonus: Repeat parts b and e assuming the industry is a Cournot oligopoly.

An income statement for Delta Air Lines, Inc., for a recent fiscal year is provided below:

Note: Modifications have been made to the statement to simplify the presentation. Use this income statement to answer the following questions:

a. What was Delta”s primary source of revenue?

b. What percentage of Delta”s revenue came from this source?

c. What were its largest expenses?

d. How much revenue did Delta earn from transporting passengers?

e. How much revenue did it earn from operating activities other than transporting passengers?

f. How much revenue did it earn from nonoperating activities?

g. How much operating income did Delta earn (or lose)?

h. How much expense did it incur for nonoperating activities?

i. Approximately how many shares of stock did Delta have outstanding during the year?

j. How much profit or loss did Delta report during the fiscal year?