It is December 26th, 2019. The accounting manager of Admiralty Inc., named Mrs. Kowloon, is getting...
It is December 26th, 2019. The accounting manager of Admiralty Inc., named Mrs. Kowloon, is getting ready to report the company’s net income for the time period of January 1st, 2019 to December 31st, 2019, which she will report on January 1st, 2020 in a meeting with the CEO. Admiralty Inc. is expected to have net income of $525,000 and the CEO was expecting net income of $500,000. The CEO has always said that net income has to be above $500,000 or else no one will get any bonuses.
Mrs. Kowloon knows that Admiralty Inc. has the services of an expert law services firm, Tai Po Associates, which the company was going to hire for $2,000 per hour to get legal advice for a big legal case coming up in February 2020. Tai Po Associates was expected to provide them 100 hours of legal consultation work in January 2020.
Mrs. Kowloon calls up Tai Po Associates and asks a legal team to provide Admiralty Inc. urgent consultation on December 26th for advice. The lawyers of Tai Po Associates were not willing to work on December 26th while recovering from their Christmas party last night. Mrs. Kowloon insists and tells them that the work is urgent and Admiralty Inc. will pay a special “Christmas rate” of $2,500 instead of the regular rate of $2,000 if they work on December 26th. The lawyers of Tai Po Associates immediately recover from last night’s festivities and arrive at the offices of Admiralty Inc. They work for 10 long hours consulting Admiralty Inc. before they go to Lan Kwai Fong to celebrate the higher amount of money they received.
a）In two sentences or less, why did Mrs. Kowloon insist on paying Tai Po Associates extra money? (4 points)
b) Assume Admiralty Inc. performed exactly the same in 2019 as they did in 2020, how much net income would Admiralty Inc. have to earn in 2020 to meet the CEO’s expectations? (3 points)
Homework Answers
a) The company is expected to have a net income of $525,000 whereas the CEO expects it to be $500,000. Since the actual net income is higher than the expected income, Mrs Kowloon is insisting on paying $2500 per hour so that the net income reduces to $500,000 [ 10* 2500 is $25000]
b) The company will have to earn $500,000 to meet the CEO's expectations if performs the same way it did in 2019.
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