AFM123 Midterm: Ch 1 Midterm Questions.doc
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| Rohr Training Services (RTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clientsâ offices on the clientsâ equipment. The only major expense RTS incurs is instructor salaries; it pays instructors $4,000 per course taught. RTS recently agreed to offer a course of instruction to the employees of Basemera Incorporated at a price of $600 per student. Basemera estimated that 20 students would attend the course. |
| Required - What is listed in correct. BOLD and no numbers listed in the box is what I need help with |
| Part 1: |
| a. | Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost? | ||||
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| b. | Determine the profit, assuming that 20 students attend the course. | ||||
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| c-1. | Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). | ||||||
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| c-2. | What is the percentage change in profitability? | |||||||
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| d-1. | Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). | ||||||
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| d-2. | What is the percentage change in profitability? | |||||||
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| Part 2: |
| The instructor has offered to teach the course for a percentage of tuition fees. Specifically, she wants $360 per person attending the class. Assume that the tuition fee remains at $600 per student. |
| f. | Is the cost of instruction a fixed or a variable cost? | ||||
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| g. | Determine the profit, assuming that 20 students take the course. | ||||||
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| h-1. | Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). | ||||||
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| h-2. | What is the percentage change in profitability? | |||||||
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| i-1. | Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). | ||||||||
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| i-2. | What is the percentage change in profitability? |
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| Part 3: |
| RTS sells a workbook with printed material unique to each course to each student who attends the course. Any workbooks that are not sold must be destroyed. Prior to the first class, RTS printed 20 copies of the books based on the clientâs estimate of the number of people who would attend the course. Each workbook costs $30 and is sold to course participants for $50. This cost includes a royalty fee paid to the author and the cost of duplication. |
| k. | Calculate the workbook cost in total and per student, assuming that 18, 20, or 22 students attempt to attend the course. (Round "Cost per student" answers to 2 decimal places.) |
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| l. | Classify the cost of workbooks as fixed or variable relative to the number of students attending the course. | ||||
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1. Anne purchased an annuity from an insurance company that promised to pay her $33,000 per year for the next ten years. Anne paid $226,050 for the annuity, and in exchange she will receive $330,000 over the term of the annuity.
Amount to be included: ?
2. b.How much income will Anne recognize over the term of the annuity?
Income recognized?
3. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
a. Phil won $585 in the scratch-off state lottery. There is no state income tax.
Amount to be included?
4. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
b. Ted won a compact car worth $17,800 in a TV game show. Ted plans to sell the car next year.
Amount to be included?
5. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
c. Al Bore won the Nobel Peace Prize of $742,500 this year. Rather than take the prize, Al designated that the entire award should go to Weatherhead Charity, a tax-exempt organization.
Amount to be included?
6. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
d. Jerry was awarded $4,375 from his employer, Acme Toons, when he was selected most handsome employee for Valentineâs Day this year.
Amount to babe included?
7. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
e. Ellen won a $1,210 cash prize in a school essay contest. The school is a tax-exempt entity, and Ellen plans to use the funds to pay her college education.
Amount to be included?
8. For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)
f. Gene won $435 in the office March Madness pool.
Amount to be included?
9. For each of the following situations, indicate how much the taxpayer is required to include in gross income: (Leave no answer blank. Enter zero if applicable.)
a. Steve was awarded a $7,600 scholarship to attend State Law School. The scholarship pays Steve's tuition and fees.
Amount to be included?
10. For each of the following situations, indicate how much the taxpayer is required to include in gross income: (Leave no answer blank. Enter zero if applicable.)
b. Hal was awarded a $15,600 scholarship to attend State Hotel School. All scholarship students must work 35 hours per week at the School residency during the term.
Amount to be included?
11. Irene is disabled and receives payments from a number of sources. The interest payments are from bonds that Irene purchased over past years and a disability insurance policy that Irene purchased herself.
| Interest, bonds issued by City of Austin, Texas | $ | 3,050 |
| Social Security benefits | 9,650 | |
| Interest, U.S. Treasury bills | 2,050 | |
| Interest, bonds issued by Ford Motor Company | 1,250 | |
| Interest, bonds issued by City of Quebec, Canada | 1,330 | |
| Disability insurance benefits | 22,400 | |
| Distributions from qualified pension plan | 8,100 | |
Calculate Ireneâs gross income.
Gross income?
| The City of Pfeiffer starts the year of 2015 with the General Fund and an enterprise fund. The General Fund has two activities: education and parks/recreation. For convenience, assume that the General Fund holds $123,000 cash and a new school building costing $1 million. The city utilizes straight-line depreciation. The building has a 20-year life and no salvage value. The enterprise fund has $62,000 cash and a new $600,000 civic auditorium with a 30-year life and no salvage value. The enterprise fund monitors just one activity, the rental of the civic auditorium for entertainment and other cultural affairs. |
| The following transactions for the city take place during 2015. Assume that the cityâs fiscal year ends on December 31. |
| a. | Decides to build a municipal park and transfers $70,000 into a capital projects fund and immediately expends $20,000 for a piece of land. The creation of this fund and this transfer were made by the highest level of government authority. |
| b. | Borrows $110,000 cash on a long-term bond for use in creating the new municipal park. |
| c. | Assesses property taxes on the first day of the year. The assessment, which is immediately enforceable, totals $600,000. Of this amount, $510,000 will be collected during 2015 and another $50,000 is expected in the first month of 2016. The remainder is expected about halfway through 2016. |
| d. | Constructs a building in the park in (b) for $80,000 cash so that local citizens can play basketball and other sports. It is put into service on July 1 and should last 10 years with no salvage value. |
| e. | Builds a sidewalk around the new park for $10,000 cash and puts it into service on July 1. It should last for 10 years, but the city plans to keep it up to a predetermined quality level so that it will last almost indefinitely. |
| f. | Opens the park and charges an entrance fee of only a token amount so that it records the park, therefore, in the General Fund. Collections during this first year total $8,000. |
| g. | Buys a new parking deck for $200,000, paying $20,000 cash and signing a long-term note for the rest. The parking deck, which is to go into operation on July 1, is across the street from the civic auditorium and is considered part of that activity. It has a 20-year life and no salvage value. |
| h. | Receives a $100,000 cash grant for the city school system that must be spent for school lunches for the poor. Appropriate spending of these funds is viewed as an eligibility requirement of this grant. During the current year, $37,000 of the amount received was properly spent. |
| i. | Charges students in the school system a total fee of $6,000 for books and the like. Of this amount, 90 percent is collected during 2015 with the remainder expected to be collected in the first few weeks of 2016. |
| j. | Buys school supplies for $22,000 cash and uses $17,000 of them. The General Fund uses the purchases method. |
| k. | Receives a painting by a local artist to be displayed in the local school. It qualifies as a work of art, and officials have chosen not to capitalize it. The painting has a value of $80,000. It is viewed as inexhaustible. |
| l. | Transfers $20,000 cash from the General Fund to the Enterprise Fund as a capital contribution. |
| m. | Orders a school bus for $99,000. |
| n. | Receives the school bus and pays an actual cost of $102,000. The bus is put into operation on October 1 and should last for five years with no salvage value. |
| o. | Pays salaries of $240,000 to school teachers. In addition, owes and will pay $30,000 during the first two weeks of 2016. Vacations worth $23,000 have also been earned but will not be taken until July 2016. |
| p. | Pays salaries of $42,000 to city auditorium workers. In addition, owes and will pay $3,000 in the first two weeks of 2016. Vacations worth $5,000 have also been earned but will not be taken until July 2016. |
| q. | Charges customers $130,000 for the rental of the civic auditorium. Of this balance, collected $110,000 in cash and will collect the remainder in April 2016. |
| r. | Pays $9,000 maintenance charges for the building and sidewalk in (d) and (e). |
| s. | Pays $14,000 on the bond in (b) on the last day of 2015: $5,000 principal and $9,000 interest. |
| t. | Accrues interest of $13,000 on the note in (g) as of the end of 2015, an amount that it will |
| u. | Assumes that a museum that operates within the city is a component unit that will be discretely presented. The museum reports to city officials that it had $42,000 of direct expenses this past year and $50,000 in revenues from admission charges. The only assets that it had at year-end were cash of $24,000, building (net of depreciation) of $300,000, and a long-term liability of $210,000. |
| Prepare the 2015 fund financial statements for the governmental funds and the proprietary funds. A statement of cash flows is not required. Assume that âavailableâ is defined as within 60 days and that all funds are major. The General Fund is used for debt repayment. Assume that major funds are labeled as âSpecial Revenue Fundâ and âCapital Projects Fundâ. (Amounts to be deducted should be indicated by a minus sign.) |
