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1. Before the business begins, you will take $5,000 cash from your savings account to invest in the business. You will protect yourself by organizing as a corporation, with yourself as the only stockholder.

2. Before the business begins, it will buy a computer, printer, and software package that together cost $5,800. Your parents have agreed to lend the business $5,800 cash so that the business can pay for the equipment and software. The business plans to repay your parents on January 31, 2016. Your parents do not expect any interest.

3. Starting January 1, 2015, the business will charge $50 per hour for design work and bill clients as each job is completed. You expect that by December 31, 2015, the end of the fiscal year, 60% of clients will have paid the business in cash. You expect that the rest will pay by January 31, 2016.

4. The business will hire an assistant to help with general office work. The assistant will earn $20 per hour and will work exactly the same hours that you work. The assistant will be paid for each month's work on the fifth day of the month following the month when the work is done. For the sake of simplicity, treat the assistant as an independent contractor rather than an employee. This means that you do not have to worry about withholding or matching payroll taxes. Assume that hours worked in December, 2015 are expected to total 10% (round to nearest whole hour) of the total hours for the year.

5. On March 1, the business will pay cash of $2,400 for a one-year liability insurance policy.

6. Since this is a new business, you think that it is important to advertise. The business will buy $300 of newspaper advertising each month. All payments for advertising costs will be made in the following month. (For example, January advertising expense will be paid for in February).

7. The business will purchase office supplies for cash of $2,800 in January, 2015

8. A dividend of $1,000 will be declared and paid before year end.

ASSETS = LIABILITIES + STOCKHOLDERS EQUITY

Cash			Accounts Payable				Common Stock						Sales
5000	15462 2400 3300 2400 1000			300				5000						25770
													Wages Expense
													17180
Accounts Receivable			Wages Payable				Retained Earnings
10000				1718
													Insurance Expense
													2000
													Advertising Expense
Office Supplies			Notes Payable				Dividends						3600
2800	1000			5800			1000
													Supplies Expense
													1000
Prepaid Insurance
2400	2000												Depreciation Expense
													1450
Equipment
5800
Accumulated Depreciation

Record the expected adjusting entries in the T-Accounts for the following:

A1) It is expected that the equipment and software purchased in 2) will be used for four years, after which time they will be worthless. The business uses the straight-line method of depreciation.

A2) Record the insurance that has been used up during the year.

A3) It is expected that office supplies will be used up at the rate at the rate of $2.00 per hour worked, with the remaining amount still on hand at year-end.

Hours To Be Worked (higher of (B) or (C) above)	859
	Per Hour	Total
Revenue
Variable expenses
Wages Expense
Supplies Expense
Total variable expenses
Contribution margin
Fixed expenses
Total fixed expenses
Operating income
1. How many hours of work will it take to break even?
2. What is your margin of safety in hours?
3. What is the percentage increase in total contribution margin if hours increase 20%?
4.Calculate the the company's operating leverage factor.
5. What is the percentage increase in operating income if hours to be worked increase 20%?

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