Answer:
Explanation:
Bid price - $450,000
Contract cost 2016- $ 180,000
Contract cost in 2017 - $195,000
Gross profit = $75,000
Estimated cost to complete at 2016 - $200,000
Percentage completion in 2016 - 180000/380000* 100 =47 %
Revenue recognized in 2016 - 47% * 450,000 = 211,500
Gross profit = 211,500- 180,000 = 31,500
2017
Revenue recognized - 53% = $238,500
Cost $195,000
Gross profit $43,500
3)Completed contract method -
Income are recognized when contract is completed
2016 - No revenue generated / recorded
2017
Revenue - 450,000
Cost to date - 375,000
Gross profit - 75,000
4) When using the cost recovery method under IFRS , an equal amount of income and revenue is recognized in the early life time of the project
2016
Income - 180000
Cost- 180000
Gross profit - 0
2017
Income -450000
cost 375,000
Gross profit - $75,000
The following transactions apply to Ozark Sales for Year 1:
The business was started when the company received $49,000 from the issue of common stock.
Purchased equipment inventory of $176,500 on account.
Sold equipment for $203,000 cash (not including sales tax).
Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $128,000.
Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 3 percent of sales.
Paid the sales tax to the state agency on $153,000 of the sales.
On September 1, Year 1, borrowed $20,000 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2.
Paid $5,500 for warranty repairs during the year.
Paid operating expenses of $53,500 for the year.
Paid $124,200 of accounts payable.
Recorded accrued interest on the note issued in transaction no. 6.
Prepare the income statement, balance sheet, and statement of cash flows for year 1.
Answer and Explanation:
According to the scenario, The presentation of the each financial statement is presented below:
Income Statement
Particular Amount ($)
Sales 203,000
Less - merchandise cost 128,000
Gross Profit 75,000
Less-Operating expenses paid 53,500
Less-Paid warranty repairs 5,500
Less-Provision for warranty($203,000 ×3%) 6,090
Less-interest expenses($20,000 × 6% × 4 ÷ 12) 400
Net Income 9510
Balance Sheet
Assets Amount ($) Liabilities
& stockholder’s equity Amount ($)
Cash 92,300 Accounts payable
($176,500-$124,200) 52,300
Merchandise
inventory
($176,500-$128,000) 48,500 Sales tax payable
{($203,000 × 7%) - $10,710} 3,500
Warranty payable 6,090
Interest payable 400
Notes payable 20,000
Common stock equity 49,000
Retained earnings 9,510
Total 140,800 Total 140,800
Cash Flow Statement
Particular Amount($)
Cash flow from operating activities:-
Cash receipt from sale 217,210
Less - Paid accounts payable -124,200
Less - Sales tax paid -10,710
Less - Paid warranty repairs -5,500
Less - paid operating expenses -53,500
Total amount of Cash flow from operating activities 23,300
Cash flow from investing activities:-
Cash flow from financing activities:-
Issue of common stock 49,000
Add-Borrowing from local bank 20,000
Total amount of Cash flow from financing activities 69,000
Net increase in cash 92,300
Opening cash balance -
Ending cash balance 92,300
Working note:
Total Cash Amount
Particulars Amount ($)
Amount received from issue of common stock 49,000
Add-Sold equipment $203,000 + ($203,000 × 7%) 217,210
Less-Sales tax paid to the state agency ($153,000 × 7%) 10,710
Add-Borrowed from local bank 20,000
Less-Paid warranty repairs 5,500
Less-Paid operating expenses 53,500
Less-Paid accounts payable 124,200
Net cash 92,300
Retained Earnings
Particulars Amount ($)
Sold equipment 203,000
Less-Merchandise cost 128,000
Less-Paid warranty repairs 5,500
Less-Paid operating expenses 53,500
Less-interest expenses 400
Less-Provision for warranty 6,090
Net Retained earnings 9,510
These are items of the financial statement i.e listed above
In 2010, many high-income countries will be focused on the short-term economic horizon due to aggressive and often controversial steps governments took to jump-start these economies out of severe recession. Considering the economic challenges that result from these policies, which of the following actions would be most advisable?
A. extricate themselves from the recession and the policies adopted in fighting that recessionB. to continue to temporarily disregard the foundations for future long-term growthC. find niches that they are well-suited to fill in the global networks of economic productionD. build upon or copy technologies and industries developed by other technology leaders
Answer:
A. extricate themselves from the recession and the policies adopted in fighting that recession
Explanation:
The United States, Western Europe, and Japan had great financial crisis and deep recession, and suffered from the after-effects of the recession. These effects included increased unemployment rates which could linger for several years. These countries had to focus on the short term rather than the long term. Some of the economies took aggressive and controversial steps by running very big deficit budget as part of expansionary fiscal policy. The countries adopted combination of lower government spending and higher taxes.
The action most advisable would be to
extricate themselves from the recession and the policies adopted in fighting that recession
Kelly Realty loaned money and received the following notes during 2018:Note Date Principal Amount Interest Rate Term(1) Oct. 1 $28,000 6% 1 year(2) Jun. 30 22,000 10% 9 months(3) Sep. 19 14,000 14% 90 daysRequired:1. Determine the maturity date and maturity value of each note.2. Journalize the entries to establish each note Receivable and to record collection of principle and interest at maturity.Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required.(Round to the nearest dollar)
Answer:
Kelly Realty
1. Determination of Maturity Date and Value for each note:
Note Principal Interest Rate Maturity Date Maturity Value
1. $28,000 6% Sept. 30 2019 $29,680
2. $22,000 10% March 31, 2019 $23,650
3. $14,000 14% Dec. 18, 2018 $14,490
b) Journal Entries to record receivables:
October 1:
Debit 6% Notes Receivable $28,000
Credit Cash Account $28,000
June 30:
Debit 10% Notes Receivable $22,000
Credit Cash Account $22,000
Sept 19:
Debit 14% Notes Receivable $14,000
Credit Cash Account $14,000
c) Journal Entries to record collection of principal and interest at maturity:
Sept. 30, 2019:
Debit Cash Account $29,680
Credit Interest on Note $1,680
Credit Notes Receivable $28,000
March 31:
Debit Cash Account $23,650
Credit Interest on Note $1,650
Credit Notes Receivable $22,000
Dec. 18, 2018:
Debit Cash Account $14,490
Credit Interest on Note $490
Credit Notes Receivable $14,000
d) Adjusting Entry:
Dec. 31, 2018:
Debit Interest on Notes Receivable $2,150
Credit Interest on Notes $2,150
Explanation:
a) Note Date Principal Amount Interest Rate Term
(1) Oct. 1 $28,000 6% 1 year
(2) Jun. 30 22,000 10% 9 months
(3) Sep. 19 14,000 14% 90 days
b) Interest on the notes:
Total For 2018
1. 6% of $28,000 = $1,680 $1,680 x 4/12 = $560
2. 10% of $22,000 x 9/12 = $1,650 $1,650 x 6/9 = $1,100
3. 14% of $14,000 x 90/360 = $490 $490 x 90/90 = $490
Total $3,820 $2,150
c) Interests on notes receivable are prorated accordingly.
(a) Consider the production of apple juice. If the supply of apple juice increased, did the marginal cost of
production of apple juice increase or decrease?
(b) Suppose that Sprite and Pepsi are substitutes in production. If the supply of Pepsi increased, did the
price of Sprite increase or decrease?
(c) Suppose that milk and beef are complements in production. If the supply of milk increased, did the
price of beef increase or decrease?
(d) Consider the market for orange juice. If the supply of orange juice stayed constant and the equilibrium
quantity exchanged of orange juice increased, did the demand for orange juice increase or decrease?
(e) Consider the market for grape juice. If the demand for grape juice stayed constant and the equilibrium
price of grape juice increased, did the supply of grape juice increase or decrease?
(f) Consider the market for Kool-Aid. If the demand for Kool-Aid increased and the supply for Kool-Aid
increased, did the equilibrium quantity exchanged increase or decrease?
Answer (a)
An increase in supply of apple juice means there's a decrease in the marginal cost of production.
Explanation: the marginal cost of production is the cost added by producing one additional unit of a product or service. Increasing supply spreads out the fixed cost of production, lowering the marginal cost of producing the next apple juice.
Answer (b)
B. An increase in the supply of Pepsi means there is an increase in price of sprite.
Explanation: increase in supply of Pepsi means there's a reduction in demand of sprite, which can be as a result of a price increase causing customers to shift towards the substitute.
Answer (c)
if the supply of milk increased, then there's a decrease in price of beef.
Explanation: since they are complement goods, an increase in supply of milk means that suppliers are supplying more milk due to an increasing demand of beef as a result of a reduction in the price of beef.
Answer (d)
If the supply of orange juice stayed constant and the equilibrium
quantity exchanged of orange juice increased, then the demand for orange juice increased.
Explanation: Equilibrium quantity is when there is no shortage or surplus of a product in the market. On a plot of demand and supply, the two will intersect at the equilibrium quantity. If the supply is held constant and the value of equilibrium quantity increases, then it means that the demand increased.
Answer (e)
If the demand for grape juice stayed constant and the equilibrium
price of grape juice increased, then the supply of grape juice decreased.
Answer (f)
If the demand for Kool-Aid increased and the supply for Kool-Aid
increased, then the equilibrium quantity exchange increases.
Explanation: since both demand and supply increased, then their point of intersection will increase since there'll be no surplus or lack.
The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera A Price: 300). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model:
NA = 195 - 0.5PA + 0.35PB
NB = 300 + 0.06PA - 0.5PB
Construct a model for the total revenue and implement it on a spreadsheet. Develop two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in increments of $10.
Max profit occurs at Camera A price of $ .
Max profit occurs at Camera B price of $
Answer:
Max Revenue (not necessarily profit) occurs at Camera A price of $380
Max Revenue (not necessarily profit) occurs at Camera B price of $460
Explanation:
Assuming prices varying between $250 to $500 with $10 intervals, the total revenues of camera A are shown below:
Statement showing maximum reveue of Camera A
Price -A 250 260 270 280 290 300 310 320 330 340 350 360 370 380 390 400 410 420 430 440 450 460 470 480 490 500
Price B
250 26875 26390 25785 25060 24215 23250 22165 20960 19635 18190 16625 14940 13135 11210 9165 7000 4715 2310 -215 -2860 -5625 -8510 -11515 -14640 -17885 -21250
260 27500 27040 26460 25760 24940 24000 22940 21760 20460 19040 17500 15840 14060 12160 10140 8000 5740 3360 860 -1760 -4500 -7360 -10340 -13440 -16660 -20000
270 28125 27690 27135 26460 25665 24750 23715 22560 21285 19890 18375 16740 14985 13110 11115 9000 6765 4410 1935 -660 -3375 -6210 -9165 -12240 -15435 -18750
280 28750 28340 27810 27160 26390 25500 24490 23360 22110 20740 19250 17640 15910 14060 12090 10000 7790 5460 3010 440 -2250 -5060 -7990 -11040 -14210 -17500
290 29375 28990 28485 27860 27115 26250 25265 24160 22935 21590 20125 18540 16835 15010 13065 11000 8815 6510 4085 1540 -1125 -3910 -6815 -9840 -12985 -16250
300 30000 29640 29160 28560 27840 27000 26040 24960 23760 22440 21000 19440 17760 15960 14040 12000 9840 7560 5160 2640 0 -2760 -5640 -8640 -11760 -15000
310 30625 30290 29835 29260 28565 27750 26815 25760 24585 23290 21875 20340 18685 16910 15015 13000 10865 8610 6235 3740 1125 -1610 -4465 -7440 -10535 -13750
320 31250 30940 30510 29960 29290 28500 27590 26560 25410 24140 22750 21240 19610 17860 15990 14000 11890 9660 7310 4840 2250 -460 -3290 -6240 -9310 -12500
330 31875 31590 31185 30660 30015 29250 28365 27360 26235 24990 23625 22140 20535 18810 16965 15000 12915 10710 8385 5940 3375 690 -2115 -5040 -8085 -11250
340 32500 32240 31860 31360 30740 30000 29140 28160 27060 25840 24500 23040 21460 19760 17940 16000 13940 11760 9460 7040 4500 1840 -940 -3840 -6860 -10000
350 33125 32890 32535 32060 31465 30750 29915 28960 27885 26690 25375 23940 22385 20710 18915 17000 14965 12810 10535 8140 5625 2990 235 -2640 -5635 -8750
360 33750 33540 33210 32760 32190 31500 30690 29760 28710 27540 26250 24840 23310 21660 19890 18000 15990 13860 11610 9240 6750 4140 1410 -1440 -4410 -7500
370 34375 34190 33885 33460 32915 32250 31465 30560 29535 28390 27125 25740 24235 22610 20865 19000 17015 14910 12685 10340 7875 5290 2585 -240 -3185 -6250
380 35000 34840 34560 34160 33640 33000 32240 31360 30360 29240 28000 26640 25160 23560 21840 20000 18040 15960 13760 11440 9000 6440 3760 960 -1960 -5000
390 35625 35490 35235 34860 34365 33750 33015 32160 31185 30090 28875 27540 26085 24510 22815 21000 19065 17010 14835 12540 10125 7590 4935 2160 -735 -3750
400 36250 36140 35910 35560 35090 34500 33790 32960 32010 30940 29750 28440 27010 25460 23790 22000 20090 18060 15910 13640 11250 8740 6110 3360 490 -2500
410 36875 36790 36585 36260 35815 35250 34565 33760 32835 31790 30625 29340 27935 26410 24765 23000 21115 19110 16985 14740 12375 9890 7285 4560 1715 -1250
420 37500 37440 37260 36960 36540 36000 35340 34560 33660 32640 31500 30240 28860 27360 25740 24000 22140 20160 18060 15840 13500 11040 8460 5760 2940 0
430 38125 38090 37935 37660 37265 36750 36115 35360 34485 33490 32375 31140 29785 28310 26715 25000 23165 21210 19135 16940 14625 12190 9635 6960 4165 1250
440 38750 38740 38610 38360 37990 37500 36890 36160 35310 34340 33250 32040 30710 29260 27690 26000 24190 22260 20210 18040 15750 13340 10810 8160 5390 2500
450 39375 39390 39285 39060 38715 38250 37665 36960 36135 35190 34125 32940 31635 30210 28665 27000 25215 23310 21285 19140 16875 14490 11985 9360 6615 3750
460 40000 40040 39960 39760 39440 39000 38440 37760 36960 36040 35000 33840 32560 31160 29640 28000 26240 24360 22360 20240 18000 15640 13160 10560 7840 5000
470 40625 40690 40635 40460 40165 39750 39215 38560 37785 36890 35875 34740 33485 32110 30615 29000 27265 25410 23435 21340 19125 16790 14335 11760 9065 6250
480 41250 41340 41310 41160 40890 40500 39990 39360 38610 37740 36750 35640 34410 33060 31590 30000 28290 26460 24510 22440 20250 17940 15510 12960 10290 7500
490 41875 41990 41985 41860 41615 41250 40765 40160 39435 38590 37625 36540 35335 34010 32565 31000 29315 27510 25585 23540 21375 19090 16685 14160 11515 8750
500 42500 42640 42660 42560 42340 42000 41540 40960 40260 39440 38500 37440 36260 34960 33540 32000 30340 28560 26660 24640 22500 20240 17860 15360 12740 10000
Max Revenue (not necessarily profit) occurs at Camera A price of $380
Max Revenue (not necessarily profit) occurs at Camera B price of $460
The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $110 per share, and the price of a 3-month call option at an exercise price of $110 is $6.53. a. If the risk-free interest rate is 8% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $110? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Answer:
$3.86
Explanation:
According to the scenario, computation of the given data are as follow:-
Current price of stock (S0) = $110
Call option at exercise price X is $110
Three month call option price (C) = $6.53
Risk free interest rate = 8%
Price of the three month P.U.T.T option (P) = C - S0 + PV (X)
= $6.53 - $140 + $140 ÷ (1+8%)^(3÷12 )
= $6.53 - $140 + $140 ÷ (1+8%)^.25
= $6.53 - $140 + $140 ÷ 1.019427
= $6.53 - $140 + $137.33
= $3.86
Use the following to answer the next 4 questions Suppose gold mining in the US was a perfectly competitive industry with N = 40 firms. Over the years Mr. Barrick purchased the all individual gold mines. The industry is now a monopoly owned by Mr. Barrick $ 70 60 40 30 MC = AC 10 20 30 40 50 60 Q MR 32) The profit Mr. Barrick earns as a monopolist is a. $700 b. $600 c. $900 d. $1000 e. none of the above 33) Before Mr. Barrick monopolized the industry, the total industry output of N = 40 competitive firms was Q = a. 20 b. 30 c. 40 d. 60 e. none of the above 34) After monopolization price per unit increased by a. 20 b. 30 c. 40 d. 60 e. none of the above 35) What is the extent of inefficiency (DWL = loss of total surplus) as a result of monopolization of what used to be a competitive industry? a. 450 b. 400 c. 500 d. 350 e. none of the above
Answer:
32) - Option c i.e., $900.
33) - Option d i.e., 60.
34) - Option d i.e., 60.
35) - Option a i.e., $450.
Explanation:
32) - Mr. Barrick 's income as a corporation is $900.
Then, we apply the formula of profit maximization that is :
[tex]Profit = quantity \times (price - AC)[/tex]
[tex]=30\times(60-30)[/tex]
[tex]=30\times30=900[/tex]
[tex]Profit=\$900[/tex]
33) - While Mr. Barrick controlled the market, the total manufacturing production of N = 40 competitive companies was Q = 60.
In a reasonably marketplace, companies can sell where the marginal cost remains equivalent to the demand curve or that MC remains equivalent to the demand curve at 60.
34) - After the monopoly cost per unit raised by $60.
Price as well as quantity shall be determined by the monopoly where MR = MC. Price is determined mostly on demand curve relating to that same points where MR = MC has been 60 as well and the quantities are determined also on the y-axis that is 30.
35) - [tex]DWL(Dead\;Weight\;Loss) =\frac{1}{2} \times(60-30)\times(60-30)[/tex]
[tex]=\frac{1}{2} \times30\times30[/tex]
[tex]=\frac{1}{2} \times900=450[/tex]
[tex]DWL=\$450[/tex]
The balance sheet of the central bank is
Assets Liabilities
Gov't bonds $5000 Currency $2100
Gold $500 Reserves of commercial banks $3400
The consolidated balance sheet of commercial banks is
Assets Liabilities
Reserves at the central bank $3400 Deposits $14400
Loans $12000 Commercial bonds issued by banks $1000
If the required reserve-deposit ratio is 15%, can commercial banks increase the amount of loans by at least $1000?
A. Yes, by buying back the bonds and depositing the proceeds into the reserve account at the central bank.
B. Yes, by lowering reserves by $1000.
C. No, because the amount of deposits exceeds the amount of loans.
D. Yes, but only if some of the newly issued loans are redeposited to the banks.
E. No, because then the reserve-deposit ratio will fall below 15%.
Answer:
Option (B) is correct.
Explanation:
Given that,
Reserves of commercial banks = $3,400
Required reserve-deposit ratio = 15%
Deposits = $14,400
Required reserve = 15% of Deposits
= 0.15 × $14,400
= $2,160
Excess reserves is the difference between total reserves and required reserves.
Excess reserves = Total reserves - Required reserves
= $3,400 - $2,160
= $1,240
Therefore, the commercial banks can increase the amount of loans by $1,240. So, they can increase the loan amount by at least $1,000 by reducing its reserves by $1,000.
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense
The complete question is:
A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts:
Accounts receivable $349,000 debit
Allowance for uncollectible accounts 660 debit
Net Sales 794,000 credit
All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
Answer:
A debit of $4,764 to Bad Debt Expense
Explanation:
When a company uses the percentage of sales approach to determine its bad debt expense, it uses an estimated percentage of net sales made to calculate it's debt expense.
In this case there was a net sales of $794,000.
Based on experience about 0.6% of sales are usually uncollectible
Estimated debt expense= Percentage loss * Net sales
Estimated debt expense= 0.006 * 794,000
Estimated debt expense= $4,764
The adjusting entry at year end will involve a debit of $4,764 to Bad Debt Expense
On June 15, a US firm is planning to import Mexican caviar worth Pesos 2 million due on July 15 (one month later). The firm decides to hedge its payables position by using September peso futures. The spot rate on June 15 is US$ 0.0630 / peso and the September futures price on June 15 is at $0.0665 per peso. One month late on July 15, the spot rate is $0.0570 / peso while the September futures price is $0.0615 / peso. Assume contract size is 2 million pesos.
Required:
1. What is the gain or loss from the futures hedge?
Answer:
The firm incur a loss of $ 9,000 due to future contract
Explanation:
Let's compute the gain of loss from the future hedge as follows
As the US firm is importing the goods it will have to pay for the value in US dollars
Contract Size = 2,000,000 peso
Spot rate on 15 July = $ 0.0570/ peso
September future price on July 15 = $ 0.0615/ peso
Difference in Spot and Future rate = ( September future price on July 15 - Spot rate on 15 July )
= ( 0.0615 - 0.0570 )
= $ 0.045/ peso
This means that the firm will have to pay additional $ 0.045/ peso for the future contract which is a loss for the US firm
Total Loss = Difference in Spot and Future rate * Contract size
Total loss = 0.045 * 2,000,000
Total loss = $ 9,000
The firm incur a loss of $ 9,000 due to future contract.
The following information pertains to Flaxman Manufacturing Company for March 2018. Assume actual overhead equaled applied overhead. March 1 Inventory balances Raw materials $ 124,500 Work in process 118,800 Finished goods 76,300 March 31 Inventory balances Raw materials $ 85,400 Work in process 145,400 Finished goods 80,100 During March Costs of raw materials purchased $ 118,400 Costs of direct labor 100,800 Costs of manufacturing overhead 61,800 Sales revenues 359,000
Calculate the amount of gross margin on the income statement.
Answer:
Gross Profit $ 69,300
Explanation:
Flaxman Manufacturing Company
Income Statement
Sales revenues 359,000
March 1 Opening Inventory Raw materials $ 124,500
Add Costs of raw materials purchased $ 118,400
Less March 31 Ending Inventory Raw materials $ 85,400
Cost of Materials Used 157,500
Add Costs of direct labor 100,800
Add Costs of manufacturing overhead 61,800
Total Manufacturing Costs 320,100
Add March 1 Opening Work in process 118,800
Cost of Goods Available for Manufacture 438,900
Less March 31 Ending Work in process 145,400
Cost of Goods Manufactured 293,500
Add March 1 Opening Finished goods 76,300
Cost of Goods Available for Sale 369,800
Less March 31 Ending Finished goods 80,100
Cost of Goods Sold (289,700)
Gross Profit 69,300
Gross Margin is also known as gross profit. It is the income before the operating expenses and is obtained by subtracting Cost Of Goods Sold from Sales.We obtain the COGS by doing the above operations.
A banana costs $0.50 and a piece of candy costs $0.25 at the local cafeteria. You have $1.25 in your pocket and you value money. The money-equivalent value (payoff ) you get from eating your first banana is $1.20, and that of each additional banana is half the previous one (the second banana gives you a value of $0.60, the third $0.30, and so on). Similarly the payoff you get from eating your first piece of candy is $0.40, and that of each additional piece is half the previous one ($0.20, $0.10, and so on). Your value from eating bananas is not affected by how many pieces of candy you eat and vice versa.
Required:
a. What is the set of possible actions you can take given your budget of $1.25?
b. Draw the decision tree that is associated with this decision problem.
c. Should you spend all your money at the cafeteria? Justify your answer with a rational choice argument.
Answer:
a. What is the set of possible actions you can take given your budget of $1.25?
bananas candies total utils
0 5 $0.78
1 3 $1.90
2 1 $2.20
b. Draw the decision tree that is associated with this decision problem.
I attached a decision tree on PDF
c. Should you spend all your money at the cafeteria? Justify your answer with a rational choice argument.
Yes, since you can obtain more benefits from purchasing 2 bananas and 1 candy than the money that you have (total benefits $2.20 vs $1.25 in cash).
Explanation:
utility obtained from first banana $1.20, payoff per $ spent = 2.4
utility obtained from second banana $0.60, payoff per $ spent = 1.2
utility obtained from third banana $0.30, payoff per $ spent = 0.6
utility obtained from first candy $0.40, payoff per $ spent = 1.6
utility obtained from second banana $0.20, payoff per $ spent = 0.8
utility obtained from third banana $0.10, payoff per $ spent = 0.4
Kameron Gibson’s bank statement showed a balance of $954.35. Kameron’s checkbook had a balance of $259.60. Check No. 104 for $116.90 and check No. 105 for $19.15 were outstanding. A $721.40 deposit was not on the statement. He has his payroll check electronically deposited to his checking account—the payroll check was for $1,320.30. There was also a $17.50 teller fee and an $22.70 service charge.
Required:
1. Prepare Kameron Gibson’s bank reconciliation. (Input all amounts as positive values. Round your answers to 2 decimal places.)
Answer:
Cash book Reconciled balance: $1,539.7
Kameron's bank balance Reconciled balance: $1,539.7
Explanation:
Kameron Gibson’s bank reconciliation
Kameron's checkbook balance: $259.60
Add Direct deposit: $1,320.30
Balance $1,579.9
Less: Teller fee: $17.50
Service charges: $22.70
Total deduct: $40.2
Reconciled balance: $1,539.7
Kameron's bank balance: $954.35
Add Deposit in transit: $721.40
Balance $1,675.75
Less :Outstanding checks (total)
($116.90+$19.15) $136.05
Reconciled balance: $1,539.7
On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 32 million stock options were granted, exercisable for 32 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $30. The fair value of the 32 million options, estimated by an appropriate option pricing model, is $6 per option. Ensor chooses the option to recognize forfeitures only when they occur.
Ten percent (2.6 million) of the options were forfeited when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the stock’s price jumped unexpectedly to $25 per share.Required:1. When is Ensor’s stock option measurement date?2. Determine the compensation expense for the stock option plan in 2021. (Ignore taxes.)3. Prepare the journal entries to reflect the effect of forfeiture of the stock options on Ensor’s financial statements for 2022 and 2023.5. Prepare the journal entry to account for the exercise of the options in 2025.
Answer:
1. The Ensor's stock measurement date is January 01, 2021
2. Compensation expense for the stock option is $50 million
3. Please see journal entry in the explanation below.
Explanation:
1. It was clearly indicated in the question that on January 1, 2021 , 32 million stock options were granted hence measurement date is ; 1st of January, 2021
2. The fair value per stock option is $6
Therefore, total compensation expenses = $6 × 25 million
= $150 million
Since the options are exerciseable between 01/01/2024 and 01/01/2026
The period for vesting will be 3 years from 01/01/2021 - 31/12/2023
Therefore, the compensation expense for the stock option in year 2021 = Total compensation expense/ Vesting period
= $150 million /3
= $50 million
3. Since 2.6 million(10%) were forfeited, 90% represent the remaining unforfeited. I. e (100%-10%)=90%
In 2022, which is the second year of the vesting period, compensation expense would be;
Compensation expense of 2022 = (Total compensation expense * 90% * the order of the period / Number of period - Compensation expense of
2021
= $150 million *90% *2/3 - $50 million
=$40 million.
In 2023,
Dr Cr
Compensation expense. $40 million
Paid in capital stock options. $40 million
The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $95 is $6.00. a. If the risk-free interest rate is 9% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.).3
Answer:
$ 8.02
Explanation:
Solution
Given that:
The trading narrow range of the CALL corporation = $95
The range stay = 3 months
The price of a 3 month put option with a price exercise = $6.00
Risk free interest rate = 9%
Now
Recall the call put parity equation:
C = P + S - K x (1 + r)-T
= 6 + 95 - 95 x (1 + 9%)-3/12 = $ 8.02
Therefore the price he price of a 3-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money is $ 8.02
Exercise 6A-5 Least-Squares Regression [LO6-11][The following information applies to the questions displayed below.] George Caloz & Frères, located in Grenchen, Switzerland, makes luxury custom watches in small lots. One of the company’s products, a platinum diving watch, goes through an etching process. The company has recorded etching costs as follows over the last six weeks: WeekUnitsTotal Etching Cost1 4 $18 2 3 17 3 8 25 4 6 20 5 7 24 6 2 16 30 $120 For planning purposes, management would like to know the variable etching cost per unit and the total fixed etching cost per week.Exercise 6A-5 Part 33. If the company processes five units next week, what would be the expected total etching cost?
Answer:
George Caloz & Freres
The High - Low method can be used to solve:
The Highest Units and cost = 8 at $25
The Lowest Units and cost = 2 at $16
The difference = 6 units at $9
a) Variable cost = $9/6 = $1.5 per unit
b) Fixed cost at Highest unit produced, is then:
8 x $1.5 + Fixed cost = $25
Fixed cost = $25 = $12 (8 x $1.5) = $13
Check:
At lowest units of production, fixed cost:
Fixed cost = $16 - $3(2x $1.5) = $13
c) If the company processes 5 units next week, the expected total etching costs will be $20.50 (5x $1.5 + $13)
Explanation:
a) Arrangement of the cost data:
Week Units Total Etching Cost
1 4 $18
2 3 $17
3 8 $25
4 6 $20
5 7 $24
6 2 $16
30 $120
b) The High - Low can be used to work out the variable and fixed elements of cost. This method extracts the differences in units and cost to determine the variable cost per unit and the fixed cost.
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 126,000 kilometers during a year, the average operating cost is 13.3 cents per kilometer. If a truck is driven only 84,000 kilometers during a year, the average operating cost increases to 15.5 cents per kilometer. Required:1. Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks.2. Express the variable and fixed costs in the form Y = a + bX.3. If a truck were driven 105,000 kilometers during a year, what total operating cost would you expect to be incurred?
Answer:
Hoi Chong Transport, Ltd.
1. Using high-low method to estimate the variable operating cost per kilometer and the annual fixed operating cost:
High point 126,000Km, cost = $16,758 (13.3 cents x 126,000)
Low point 84,000km, cost = $13,020 (15.5 cents x 84,000)
Difference 42,000km, cost = $3,738
i) Variable Cost per km = $3,738/42,000 = $0.09
ii) Fixed cost using low point = $13,020 - (84,000 x $0.09) = $5,460
2. Variable and fixed costs in the form of Y = a + bX
where Y = total costs
a = fixed cost
b = variable cost
X = kilometers driven
Y = $5,460 + $0.09X
3. Total operating cost (Y), if truck were driven 105,000
Y = $5,460 + $0.09 x 105,000 = $14,910
Explanation:
The high-low method is a technique for determining the variable and fixed elements of total cost. The techniques uses the highest quantity with its total cost and the lowest quantity with its total cost. The resulting cost is the variable cost. Then the variable cost per unit is determined by dividing the cost with the quantity.
Then, the variable cost per unit is superimposed on the formula, Y = a + bX, where Y is the total cost, a is the fixed cost, b is the variable cost, and X is the quantity. Solving for a or fixed cost, gives a = Y - bX.
"Harold and Maude are married and live in a common-law state. Neither has made any taxable gifts and Maude owns (holds title to) all their property. She dies with a taxable estate of $25 million and leaves it all to Harold. He dies several years later, leaving the entire $25 million to their three children. (Refer to Exhibit 25-1 and Exhibit 25-2.)"
Answer:
$5528000
Explanation:
Solution
Given that:
Now,
The 2018 estate tax exemption 11180000$ above that the estate inherited are taxed at 40%.
So,
25000000-11180000 = taxable estate 13820000$
The estate tax due= 13820000*40%
= 5528000$
Note: This is reference from Exhibit 25-1 and Exhibit 25-2.
Longview Hospital performs blood tests in its laboratory. The following standards have been set for each blood test performed:
Standard quantity or hours Standard price or Rate
Direct materials 2.0 plates $2.75 per plate
Direct labor 0.2 hours $15.00 per hour
Variable manufacturing overhead 0.2 hours $7.00 per hour
During May, the laboratory performed 1,500 blood tests. On May 1 there were no direct materials (plates) on hand; after a plate is used for a blood test it is discarded. Variable overhead is assigned to blood tests on the basis of standard direct labor-hours. The following events occurred during May:
• 3,600 plates were purchased for $9,540
• 3,200 plates were used for blood tests
• 340 actual direct labor-hours were worked at a cost of $5,550 The direct materials purchases variance is computed when the materials are purchased.
56/75.The materials price variance for May is: A. $360 F B. $360 U C. $740 F D. $740 U
57/76.The materials quantity variance for May is: A. $1,650 F B. $1,650 U C. $550 U D. $720 F
58/77.The labor rate variance for May is: A. $225 F B. $225 U C. $450 F D. $450 U
59/78.The labor efficiency variance for May is: A. $600 F B. $600 U C. $515 U D. $515 F
60/79.The variable overhead efficiency variance for May is A. $350 F B. $350 U C. $280 U D. $280 F
Answer:
Instructions are below.
Explanation:
Giving the following information:
Standard:
Direct materials 2.0 plates $2.75 per plate
Direct labor 0.2 hours $15.00 per hour
Variable manufacturing overhead 0.2 hours $7.00 per hour
Actual:
1,500 blood tests.
3,600 plates were purchased for $9,540
3,200 plates were used for blood tests
340 actual direct labor-hours were worked for $5,550
1)The materials price variance:
Direct material price variance= (standard price - actual price)*actual quantity
Direct material price variance= (2.75 - 2.65)*3,600= $360 favorable
2) The materials quantity variance:
Direct material quantity variance= (standard quantity - actual quantity)*standard price
Direct material quantity variance= (2*1,500 - 3,200)*2.75
Direct material quantity variance= $550 unfavorable
3) The labor rate variance:
Direct labor rate variance= (Standard Rate - Actual Rate)*Actual Quantity
Direct labor rate variance= (15 - 16.32)*340= $448.8 unfavorable
4) The labor efficiency variance:
Direct labor time (efficiency) variance= (Standard Quantity - Actual Quantity)*standard rate
Direct labor time (efficiency) variance= (1,500*0.2 - 340)*15
Direct labor time (efficiency) variance= $600 unfavorable
5) The variable overhead efficiency variance:
Variable overhead efficiency variance= (Standard Quantity - Actual Quantity)*Standard rate
Variable overhead efficiency variance= (1,500*0.2 - 340)*7
Variable overhead efficiency variance= $280 unfavorable
In April, one of the processing departments at Terada Corporation had beginning work in process inventory of $29,000 and ending work in process inventory of $35,000. During the month, $252,000 of costs were added to production and the cost of units transferred out from the department was $246,000. In the department's cost reconciliation report for April, the total cost to be accounted for under the weighted-average method would be:
Answer:
$281,000
Explanation:
According to the scenario, computation of the given data are as follow:-
Total Cost Under the Weighted Average Method = Cost of Unit Transferred Out from the Department + Ending Work in Process Inventory
= $246,000 + $35,000
= $281,000
According to the analysis, In April the total cost to be accounted under the weighted-average method is $281,000.
Amazon Appliance Company has three installers. Larry earns $355 per week, Curly earns $430 per week, and Moe earns $560 per week. The company's SUTA rate is 5.4%, and the FUTA rate is 6% minus the SUTA. As usual, these taxes are paid on the first $7,000 of each employee's earnings.
A. How much SUTA and FUTA tax does Amazon owe for the first quarter of the year?
B. How much SUTA and FUTA tax does Amazon owe for the second quarter of the year?
Answer:
A. SUTA = $929.07
FUTA = $103.23
B. SUTA = $204.93
FUTA = $22.77
Explanation:
A. First Quarter
52 weeks in a year.
Quarterly therefore there are,
= 52/4
= 13 weeks in a quarter.
In a quarter the employees makes the following,
Larry
= 355 * 13
= $4,615
Curly
= 430 * 13
= $5,590
Moe
= 560 * 13
= $7,280
SUTA Taxes are on first $7,000 so Moe will not pay full 5.4%.
SUTA Taxes
Larry
= 4,615 * 5.4%
= $249.21
Curly
= 5,590 * 5.4%
= $301.86
Moe
= 7,000 * 5.4%
= $378
In total for SUTA,
= 249.21 + 301.86 + 378
= $929.07
For FUTA
Tax is 6% - SUTA so,
= 6% - 5.4%
= 0.6%
Larry
= 4,615 * 0.6%
= $27.69
Curly
= 5,590 * 0.6%
= $33.54
Moe
= 7,000 * 0.6%
= $42
In total for FUTA,
= 27.69 + 33.54 + 42
= $103.23
B. Second Quarter.
Here bear in mind that Moe no longer has to be paid for as he has earned $7,000 in the first quarter.
This leaves just Larry and Curly who have already earned something in the first quarter which should be removed from $7,000 to find out how much they are to pay taxes on.
SUTA Taxes
First $7,000.
Larry has already been paid 4,615 leaving,
= 7,000 - 4,615
= $2,385 is the figure that SUTA and FUTA should be based on.
For Curly
= 7,000 - 5,590
= $1,410 is the figure that SUTA and FUTA should be based on.
Larry SUTA
= 2,385 * 5.4%
= $128.79
Curly SUTA
= 1,410 * 5.4%
= 76.14
Total for SUTA is,
= 128.79 + 76.14
= $204.93
Then FUTA using the same figures.
Larry FUTA
= 2,385 * 0.6%
= $14.31
Curly SUTA
= 1,410 * 0.6%
= $8.46
Total for FUTA is,
= 14.31 + 8.46
= $22.77
In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $1,740,000, and direct materials costs, $600,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,497,400. Actual direct material cost had been assigned to jobs as follows.
Jobs completed and sold $380,000
Jobs in finished goods inventory 74,000
Jobs in work in process inventory 59,000
Total actual direct materials cost $513,000
1. Determine the pre-determined overhead rate for 2017.
2. Enter the overhead costs incurred and the amounts applied during the year using the pre-determined overhead rate and determine whether overhead is overapplied or underapplied.
3. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.
Answer:
1. The pre-determined overhead rate is 290% of direct material cost
2. The overhead is underapplied for $9,700
3. The adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold would be the following:
31 Dec Debit Credit
Cost of goods sold $9,700
Factory overhead $9,700
Explanation:
1. In order to calculate the pre-determined overhead rate for 2017 we have to calculate the following formula:
pre-determined overhead rate=Estimated overhead costs/Estimated direct material costs
pre-determined overhead rate=$1,740,000/$600,000
pre-determined overhead rate=290%
The pre-determined overhead rate is 290% of direct material cost
2. overhead underapplied= $1,497,400-(290%*$513,000)
overhead underapplied=$1,497,400-$1,487,700
overhead underapplied=$9,700
The overhead is underapplied for $9,700
3. The adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold would be the following:
To record allocation of underapplied overhead to cost of goods sold
31 Dec Debit Credit
Cost of goods sold $9,700
Factory overhead $9,700
Waterway Industries purchased equipment in 2019 at a cost of $906000. Two years later it became apparent to Waterway Industries that this equipment had suffered an impairment of value. In early 2021, the book value of the asset is $583000 and it is estimated that the fair value is now only $359000. The entry to record the impairment is
A. Retained Earnings 224000
Accumulated Depreciation—Equipment 224000
B. Loss on Impairment of Equipment 224000
Accumulated Depreciation—Equipment 224000
C. No entry is necessary as a write-off violates the historical cost principle.
D. Retained Earnings 224000
Reserve for Loss on Impairment of Equipment 224000
Answer:
B. Loss on Impairment of Equipment 224000
Accumulated Depreciation—Equipment 224000
Explanation:
The journal entry to record the impairment is shown below:
Impairment loss ($583,000 - $359,000) $224000
To Accumulated depreciation -Equipment $224000
(Being the impairment loss is recorded)
For recording this we debited the impairment loss as it increased the losses and at the same time it decreased the value of the assets so the accumulated depreciation is credited
Complementary and substitute goods
Logan Corp.'s trial balance of income statement accounts for the year ended December 31, 2012 included the following: Sales revenue Cost of goods sold Administrative expenses Loss on disposal of equipment Sales commission expense Interest revenue Freight-out Loss due to earthquake damage Bad debt expense Totals Debit Credit $280,000 $100,000 50.000 18,000 16.000 10,000 6,000 24,000 6,000 $220,000 Other information: Logan's income tax rate is 30%. Finished goods inventory: January 1, 2012 $160,000 December 31, 2012 140,000 On Logan's multiple-step income statement for 2012, Extraordinary loss is
Answer:
Logan Corp
Extraordinary Loss is $24,000.
This includes Loss on Disposal of Equipment totalling $18,000 and Freight-out Loss due to earthquake damage totalling $6,000.
Explanation:
Extraordinary Loss is the business loss resulting from some transactions that are considered to be highly unusual , occur only rarely, and do not result from normal operating activities.
An example of an extraordinary loss is the damage caused by an earthquake and other natural disasters, where their occurrences are uncommon..
But extraordinary loss is no longer stated separately according to US GAAP.
Conner has located a research source that is sponsored by a pharmaceutical company. Based on the sponsorship,
Conner must be careful that the information is not
biased
outdated
free
global
Answer:biased
Explanation:
Consider the following situations for Shocker:
a, On November 28, 2021, Shocker receives a $3,150 payment from a customer for services to be rendered evenly over the next three months. Deferred Revenue is credited.
b. On December 1, 2021, the company pays a local radio station $2,430 for 30 radio ads that were to be aired, 10 per month, throughout December, January, and February. Prepaid Advertising is debited.
c. Employee salaries for the month of December totaling $7,100 will be paid on January 7, 2022.
d. On August 31, 2021, Shocker borrows $61,000 from a local bank. A note is signed with principal and 9% interest to be paid on August 31, 2022.
Required:
1. Record the necessary adjusting entries for Shocker at December 31, 2021. No adjusting entries were made during the year.
Answer:
a.
Dec 31, 2021 Deferred Revenue 1050 Dr
Revenue 1050 Cr
b.
Dec 31, 2021 Advertising Expense 810 Dr
Prepaid Advertising 810 Cr
c.
Dec 31, 2021 Salaries Expense 7100 Dr
Salaries Payable 7100 Cr
d.
Dec 31, 2021 Interest Expense 1830 Dr
Interest Payable 1830 Cr
Explanation:
a.
The revenue is received in advance for December 2021, January and February 2022. At the end of the year, the revenue for December has been earned and will be recorded as revenue and a decrease in liability of deferred revenue.
Revenue December = 3150 / 3 = 1050
b.
The advertisement expenses were paid in advance. On 31 December, the ads for december has been consumed and the expense will be recorded.
Advertising expense december = (2430 / 30) * 10 = 810
c.
The salaries relating to december are accrued and will be paid in January. Thus, an accrual will be recorded against the salaries expense.
d.
The note carries interest that becomes due over the lifetime of the note. The accrual principle matches the revenues and expenses of a particular period. Thus, interest relating to 4 months from September 2021 to December 2021 will be recorded as an expense and a liability in adjusting entry made on 31 december 2021.
Interest expense 2021 = 61000 * 0.09 * 4/12 = 1830
Doyle Company issued $390,000 of 10-year, 8 percent bonds on January 1, Year 2. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $52,500 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 2.
Required:
1. Prepare the income statement, balance sheet, and statement of cash flows for Year 2 and Year 3. (Amounts to be deducted and net loss amount should be indicated with minus sign.)
Answer:
issued $390,000 of 10 year 8% bonds at face value
journal entry
Dr Cash 390,000
Cr Bonds payable 390,000
purchased land that it rents
journal entry
Dr Land 390,000
Cr Cash 390,000
journal entry to record interest payments
Dr Interest expense 31,200
Cr Cash 31,200
journal entry to record collection of lease
Dr Cash 52,500
Cr lease revenue 52,500
Doyle Company
Income statement for years 2 and 3 (they are the same for both)
Total revenue $52,500
- Expenses ($31,200)
Net income $20,400
Doyle Company
Balance Sheet
December 31, Year 2
Assets:
Cash $20,400
Land $390,000
total = $410,400
Liabilities and Equity:
Bonds payable $390,000
Retained earnings $20,400
total = $410,400
Doyle Company
Balance Sheet
December 31, Year 3
Assets:
Cash $40,800
Land $390,000
total = $430,800
Liabilities and Equity:
Bonds payable $390,000
Retained earnings $40,800
total = $430,800
Hair Zone manufactures a brand of hair styling gel. It is considering adding a modified version of the product-a foam that provides stronger hold. Hair Zone's variable costs and prices to wholesalers are: Current hair gel New foam product Unit selling price 2.00 2.25 Unit variable costs 85 1.25 Hair Zone expects to sell 1 million units of the new styling foam in the first year after introduction, but it expects that 60% of those sales will come from buyers who normally purchase Hair Zone's styling gel. Hair Zone estimates that it would sell 1.5 million units of the gel if it did not introduce the foam. If the fixed cost of launching the new foam will be $100,000 d the first year, should Hair Zone add the new product to its line? Why or why not?
Answer:
Should Hair Zone add the new product to its line? Why or why not?
Yes they should, since it would increase their total net income by $210,000.Explanation:
Current hair gel New foam product
Unit selling price $2.00 $2.25
Unit variable costs $0.85 $1.25
expected sales for new foam product 1,000,000 units, but 600,000 units would replace sales from current hair gel
expected sales for current hair gel if new foam is introduced 900,000 units (1,500,000 if no new product is introduced)
Alternative 1 Alternative 2 Differential
no new foam new foam income
total sales revenue $3,000,000 $4,050,000 $1,050,000
total variable costs ($1,275,000) ($2,015,000) ($740,000)
additional fixed costs $0 ($100,000) ($100,000)
total $1,725,000 $1,935,000 $210,000
The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don’t believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which theory best illustrate this wage stickiness scenario?
Answer:
Relative wage coordination argument
Explanation:
Relative wage coordination argument states that even though workers are willing to accept wage cuts due to economic hardships. Wide implementation of wage cuts is hard because workers believe that not everyone will experience wage cuts.
So they will will fight against implementation of wage cuts.
In this scenario Campus Collective company has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages.
Although employees are aware of the hardship they still fight against management on wage cuts because employees are also not sure if other people working their same jobs in the economy are getting reduced wages.