(Cost Function for Expedia) Expedia provides travel services on the Internet

3-34 Cost Function for Expedia

Expedia provides travel services on the Internet. 2002 was an important year for Expedia as it reported positive operating income after three years of operating losses. In the first quarter of 2001, Expedia reported an operating loss of $19 million on sales revenue of $57 million. In the first quarter of 2002, sales revenue had more than doubled to $116 million, and Expedia had operating income of $18 million. Assume that fixed costs were the same in 2002 as in 2001.

1. Compute the operating expenses for Expedia in the first quarter of 2001. In the first quarter of 2002.

2. Determine the cost function for Expedia, that is, the total fixed cost and the variable cost as a percentage of sales revenue. Use the same form as equation (1) on page 100.

3. Explain how Expedia’s operating income could increase by $37 million with an increase in sales of $59 million, while it had an operating loss of $19 million on its $57 million of sales in the first quarter of 01

Click here for the solution: (Cost Function for Expedia) Expedia provides travel services on the Internet

On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel

Problem 4-2A Applying The Accounting Cycle

On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel. The following transactions occurred during the company’s first month:
April 1 Stafford invested $20,000 cash and computer equipment worth $40,000 in the business.
2 Rented furnished office space by paying $1,700 cash for the first month’s (April) rent.
3 Purchased $1,100 of office supplies for cash.
10 Paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
14 Paid $1,800 cash for two weeks’ salaries earned by employees.
24 Collected $7,900 cash on commissions from airlines on tickets obtained for customers.
28 Paid another $1,800 cash for two weeks’ salaries earned by employees.
29 Paid $250 cash for minor repairs to the company’s computer.
30 Paid $650 cash for this month’s telephone bill.
30 Stafford withdrew $1,500 cash for personal use.

The company’s chart of accounts follows:

Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30.
4. Use the following information to journalize and post adjusting entries for the month:
a. Two-thirds of one month’s insurance coverage has expired.
b. At the end of the month, $700 of office supplies are still available.
c. This month’s depreciation on the computer equipment is $600.
d. Employees earned $320 of unpaid and unrecorded salaries as of month-end.
e. The company earned $1,650 of commissions that are not yet billed at month-end.
5. Prepare the income statement and the statement of owner’s equity for the month of April and the balance sheet at April 30, 2005.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.
7. Prepare a post-closing trial balance.

Check (3) Unadj. trial balance totals, $67,900
(4a) Dr. Insurance Expense, $200
(5) Net income, $1,830; Capital (4/30/2005), $60,330; Total assets, $60,650
(7) P-C trial balance totals, $61,250

Click here for the solution: On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel