P21-1 Determining Type of Lease and Subsequent Accounting
On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay $70,000 annually at the beginning of each year under the non-cancelable lease. Superior Equipment Company, the lessor, agrees to pay all executor costs, estimated to be $3,450 per year. The cost and also fair value of the equipment is 305,000. Its estimated life is 10 years. The estimated residual value at the end of five years is $64,000 and is not guaranteed by Alice; at the end of 10 years, it is $5,000. There is no bargain purchase option in the lease or any agreement to transfer ownership at the end of the lease to the lessee. The implicit interest rate is 12%. During 2010, Superior Equipment pays property taxes of $650, maintenance costs of $1,600, and insurance of $1,200. There are no important uncertainties surrounding the amount of un-reimbursable costs yet to be incurred by the lessor. Straight-line depreciation is considered the appropriate method both companies.
REQUIRED:
1.Identify the type of lease involved for Alice Company and Superior Equipment Company and give reasons for your classifications.
2.Prepare appropriate journal entries for 2010 for the lessee and lessor.
3.If the residual value at the end of five years is guaranteed by Alice, identify the type of lease. Prepare journal entries for 2010 and 2011 for the lessee and lessor. Also prepare the journal entries for the lessee and the lessor when the lessee pays the guaranteed residual value.
Click here for the solution: On January 1, 2010, the Alice Company leases equipment for five years, agreeing to pay $70,000 annually at the beginning of each year under the non-cancelable lease
Showing posts with label under. Show all posts
Showing posts with label under. Show all posts
Tuesday, April 12, 2016
Sunday, September 27, 2015
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance. Total retained earnings is $250,000 and total paid in capital is $500,000.
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Tuesday, September 15, 2015
Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
PR14-1A Three different plans for financing a $10,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income
10%bonds= Plan1= blank, Plan2=blank, Plan3=$5,000,000
Preferred 10% stock,$40par Plan1=blank Plan2=$5,000,000 Plane3=2,500,000
Common stock,$10par= Plan1=$10,000,000 Plan2=5,000,000 Plan3=2,500,000
Total=Plan1=10,000,000 Plan2=10,000,000 Plan3=10,000,000
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is 950,000.
3. Discuss advantages and disadvantages of each plan.
Click here for the solution: Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
10%bonds= Plan1= blank, Plan2=blank, Plan3=$5,000,000
Preferred 10% stock,$40par Plan1=blank Plan2=$5,000,000 Plane3=2,500,000
Common stock,$10par= Plan1=$10,000,000 Plan2=5,000,000 Plan3=2,500,000
Total=Plan1=10,000,000 Plan2=10,000,000 Plan3=10,000,000
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is 950,000.
3. Discuss advantages and disadvantages of each plan.
Click here for the solution: Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
Thursday, September 10, 2015
Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934
Auditing P 5-28 (ALL PARTS)
Part 1
Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs performed the annual audit for the year ended December 31, 2009, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow’s financial statements. During 2009, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the company’s 2009 audit report. Mitchell & Moss’s audit was deficient; if they had complied with auditing standards, the embezzlement, nor can their conduct. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.
Required: Answer the following questions setting forth reasons for any conclusions stated.
a. What liability to Thaxton if any, does Mitchell & Moss have under the Securities Exchange Act of 1934?
b. What theory or theories of liability, if any, are available to Whitlow & Company’s customers and shareholders under common law?
Part 2
Jackson is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of $1 million of common stock of Clarion Corporation. Numerous meetings were held between management and the investor group. Detailed financial and other information was supplied to the participants. Upon the eve of completion of the placement, it was aborted when one major investor withdrew. Clarion than decided to offer $2.5 million of Clarion common stock to the public pursuant to the registration requirements of the Securities Act of 1933. Jackson subscribed to $300,000 of the Clarion public stock offering. Nine months later, Clarion’s earnings dropped significantly and as a result, the stock dropped 20% beneath the offering price. In addition, the Dow Jones Industrial Average was down 10% from the time of the offering.
Jackson sold her shares as a loss of $60,000 and seeks to hold all parties liable who participated in the public offering, including Clarion’s CPA firm of Allen, Dunn, and Rose. Although the audit was performed to conformity with auditing standards, there were some relatively minor misstatements. The financial statements of Clarion Corporation, which were part of the registration statement, contained minor misleading facts. It is believed by Clarion and Allen, Dunn, and Rose that Jackson’s asserted claim is without merit.
Required: Answer the following questions setting forth reasons for any conclusions stated.
a. If Jackson sues under the Securities Act of 1933, what will be the basis of her claim?
b. What are the probable defenses that might be asserted by Allen, Dunn, and Rose in light of these facts?
Click here for the solution: Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934
Part 1
Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs performed the annual audit for the year ended December 31, 2009, and rendered an unqualified opinion, which was filed with the SEC along with Whitlow’s financial statements. During 2009, Charles, the president of Whitlow & Company, engaged in a huge embezzlement scheme that eventually bankrupted the firm. As a result, substantial losses were suffered by customers and shareholders of Whitlow & Company, including Thaxton, who had recently purchased several shares of stock of Whitlow & Company after reviewing the company’s 2009 audit report. Mitchell & Moss’s audit was deficient; if they had complied with auditing standards, the embezzlement, nor can their conduct. However, Mitchell & Moss had no knowledge of the embezzlement, nor can their conduct be categorized as reckless.
Required: Answer the following questions setting forth reasons for any conclusions stated.
a. What liability to Thaxton if any, does Mitchell & Moss have under the Securities Exchange Act of 1934?
b. What theory or theories of liability, if any, are available to Whitlow & Company’s customers and shareholders under common law?
Part 2
Jackson is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of $1 million of common stock of Clarion Corporation. Numerous meetings were held between management and the investor group. Detailed financial and other information was supplied to the participants. Upon the eve of completion of the placement, it was aborted when one major investor withdrew. Clarion than decided to offer $2.5 million of Clarion common stock to the public pursuant to the registration requirements of the Securities Act of 1933. Jackson subscribed to $300,000 of the Clarion public stock offering. Nine months later, Clarion’s earnings dropped significantly and as a result, the stock dropped 20% beneath the offering price. In addition, the Dow Jones Industrial Average was down 10% from the time of the offering.
Jackson sold her shares as a loss of $60,000 and seeks to hold all parties liable who participated in the public offering, including Clarion’s CPA firm of Allen, Dunn, and Rose. Although the audit was performed to conformity with auditing standards, there were some relatively minor misstatements. The financial statements of Clarion Corporation, which were part of the registration statement, contained minor misleading facts. It is believed by Clarion and Allen, Dunn, and Rose that Jackson’s asserted claim is without merit.
Required: Answer the following questions setting forth reasons for any conclusions stated.
a. If Jackson sues under the Securities Act of 1933, what will be the basis of her claim?
b. What are the probable defenses that might be asserted by Allen, Dunn, and Rose in light of these facts?
Click here for the solution: Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934
Monday, August 17, 2015
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
P 13-7 Various liabilities
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:
a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP
The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission
MULTIPLE CHOICE
1. The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission
2. The control principle related to NOT having the same person authorize and pay for goods is known as
3. Maximum benefit from independent internal verification is obtained when
4. Allowing only designated personnel to handle cash receipts is an example of
5. Storing cash in a company safe is an application of which internal control principle?
6. Reconciling the bank statement monthly is an example of
7. A voucher system is a series of prescribed control procedures
8. The size of the petty cash fund is dependent on
9. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a
10. A check returned by the bank marked “NSF” means
11. A bank reconciliation should be prepared
12. Deposits in transit
13. When making a payment from the petty cash fund for postage stamps, the following journal entry is made
14. A bank may issue a credit memorandum for
15. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of
16. Interest is usually associated with
17. Which of the following would require a compound journal entry?
18. If a company fails to record estimated bad debts expense
19. The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the
20. An aging of a company’s accounts receivables indicates that $9,000 are estimated to be uncollectable. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a
21. A reasonable amount of uncollectible accounts is evidence
22. Bad debt Expense is reported on the income statement as
23. Two bases for estimating uncollectible accounts are
24. Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8000 debit before adjustment, what is the amount of bad debts expense for that period?
25. The sale of receivables by a business
26. A company regularly sales its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables
27. The interest on a $2,000, 6%, 90 day note receivable is
28. A note receivable is a negotiable instrument which
29. When a note is accepted to settle an open account, Notes receivables is debited for the note’s
30. Which of the following are also called trade receivables?
Click here for the solution: The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission
1. The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission
2. The control principle related to NOT having the same person authorize and pay for goods is known as
3. Maximum benefit from independent internal verification is obtained when
4. Allowing only designated personnel to handle cash receipts is an example of
5. Storing cash in a company safe is an application of which internal control principle?
6. Reconciling the bank statement monthly is an example of
7. A voucher system is a series of prescribed control procedures
8. The size of the petty cash fund is dependent on
9. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a
10. A check returned by the bank marked “NSF” means
11. A bank reconciliation should be prepared
12. Deposits in transit
13. When making a payment from the petty cash fund for postage stamps, the following journal entry is made
14. A bank may issue a credit memorandum for
15. Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of
16. Interest is usually associated with
17. Which of the following would require a compound journal entry?
18. If a company fails to record estimated bad debts expense
19. The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the
20. An aging of a company’s accounts receivables indicates that $9,000 are estimated to be uncollectable. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a
21. A reasonable amount of uncollectible accounts is evidence
22. Bad debt Expense is reported on the income statement as
23. Two bases for estimating uncollectible accounts are
24. Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is $8000 debit before adjustment, what is the amount of bad debts expense for that period?
25. The sale of receivables by a business
26. A company regularly sales its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables
27. The interest on a $2,000, 6%, 90 day note receivable is
28. A note receivable is a negotiable instrument which
29. When a note is accepted to settle an open account, Notes receivables is debited for the note’s
30. Which of the following are also called trade receivables?
Click here for the solution: The Sarbanes-Oxley Act requires that all US corporations under the jurisdiction of the Securities and Exchange Commission
Saturday, August 15, 2015
You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
E9-24 (Dollar-Value LIFO Retail) You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method.
Cost Retail
Inventory on January 1, 2010 $222,000 $300,000
Purchases 364,800 480,000
Increase in price level for year 9%
Instructions
Compute the cost of the inventory on December 31, 2010, assuming that the inventory at retail is (a) $294,300 and (b) $359,700.
Click here for the solution: You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
Cost Retail
Inventory on January 1, 2010 $222,000 $300,000
Purchases 364,800 480,000
Increase in price level for year 9%
Instructions
Compute the cost of the inventory on December 31, 2010, assuming that the inventory at retail is (a) $294,300 and (b) $359,700.
Click here for the solution: You assemble the following information for Dillon Department Store, which computes its inventory under the dollar-value LIFO method
Saturday, August 1, 2015
In 2010, Steinrotter Construction Corp. began construction work under a 3-year contract
E18-5 (Analysis of Percentage-of-Completion Financial Statements) In 2010, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2010, follow.
Balance Sheet
Accounts receivable-construction contract billings $18,000
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2010 $19,500
Instructions
(a) How much cash was collected in 2010 on this contract?
(b) What was the initial estimated total income before tax on this contract?
Click here for the solution: In 2010, Steinrotter Construction Corp. began construction work under a 3-year contract
Balance Sheet
Accounts receivable-construction contract billings $18,000
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2010 $19,500
Instructions
(a) How much cash was collected in 2010 on this contract?
(b) What was the initial estimated total income before tax on this contract?
Click here for the solution: In 2010, Steinrotter Construction Corp. began construction work under a 3-year contract
Sunday, July 26, 2015
Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year. On August 18, 1990, shortly before the start of the school year, Cantu hand-delivered to her supervisor a letter of resignation, effective August 17, 1990. In this letter, Cantu requested that her final paycheck be forwarded to an address in McAllen, Texas, some 50 miles from the San Benito office where she tendered the resignation. The San Benito superintendent of schools, the only official authorized to accept resignations on behalf of the school district, received Cantu’s resignation on Monday, August 20. The superintendent wrote a letter accepting Cantu’s resignation the same day and deposited the letter, properly stamped and addressed, in the mail at approximately 5:15 PM that afternoon. At about 8:00 AM the next morning, August 21, Cantu hand-delivered to the superintendent’s office a letter withdrawing her resignation. This letter contained a San Benito return address. In response, the superintendent hand-delivered that same day a copy of his letter mailed the previous day to inform Cantu that her resignation had been accepted and could not be withdrawn. The dispute was taken to the state commissioner of education, who concluded that the school district’s refusal to honor Cantu’s contract was lawful, because the school district’s acceptance of Cantu’s resignation was effective when mailed, which resulted in the formation of an agreement to rescind Cantu’s employment contract. Cantu argued that the mailbox rule should not apply because her offer was made in person and the superintendent was not authorized to accept by using mail. Is this a good argument?
Click here for the solution: Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Click here for the solution: Cantu was hired as a special education teacher by the San Benito Consolidated Independent School District under a one-year contract for the 1990–91 school year
Saturday, July 25, 2015
Jackson Industries has borrowed $125,000 under a line-of-credit agreement
E16–4 Jackson Industries has borrowed $125,000 under a line-of-credit agreement. While the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires a 20% compensating balance. The stated interest rate on the borrowed funds is 10%. What is the effective annual rate of interest on the line of credit?
Click here for the solution: Jackson Industries has borrowed $125,000 under a line-of-credit agreement
Click here for the solution: Jackson Industries has borrowed $125,000 under a line-of-credit agreement
Wednesday, July 15, 2015
Howell Auto Parts is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement
Lease versus purchase decision (LO4) Howell Auto Parts is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement. If the company purchases the asset, the cost will be $10,000. It can borrow funds for four years at 12 percent interest. The firm will use the three-year MACRS depreciation category (with the associated four-year write-off). Assume a tax rate of 35 percent.
The other alternative is to sign two operating leases, one with payments of $2,600 for the first two years, and the other with payments of $4,600 for the last two years. In your analysis, round all values to the nearest dollar.
a. Compute the aftertax cost of the leases for the four years.
b. Compute the annual payment for the loan (round to the nearest dollar).
c. Compute the amortization schedule for the loan. (Disregard a small difference from a zero balance at the end of the loan due to rounding.)
d. Determine the depreciation schedule (see Table 12–9).
e. Compute the aftertax cost of the borrow–purchase alternative.
f. Compute the present value of the aftertax cost of the two alternatives. Use a discount rate of 8 percent.
g. Which alternative should be selected, based on minimizing the present value of aftertax costs?
Click here for the solution: Howell Auto Parts is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement
The other alternative is to sign two operating leases, one with payments of $2,600 for the first two years, and the other with payments of $4,600 for the last two years. In your analysis, round all values to the nearest dollar.
a. Compute the aftertax cost of the leases for the four years.
b. Compute the annual payment for the loan (round to the nearest dollar).
c. Compute the amortization schedule for the loan. (Disregard a small difference from a zero balance at the end of the loan due to rounding.)
d. Determine the depreciation schedule (see Table 12–9).
e. Compute the aftertax cost of the borrow–purchase alternative.
f. Compute the present value of the aftertax cost of the two alternatives. Use a discount rate of 8 percent.
g. Which alternative should be selected, based on minimizing the present value of aftertax costs?
Click here for the solution: Howell Auto Parts is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement
Tuesday, July 7, 2015
Compute the effective cost of not taking the cash discount under the following trade credit terms
Problem 4: Compute the effective cost of not taking the cash discount under the following trade credit terms:
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40
Problem 5: What conclusions can you make about credit terms from reviewing your answers to Problem 4?
Click here for the solution: Compute the effective cost of not taking the cash discount under the following trade credit terms
a. 2/10 net 40
b. 2/10 net 50
c. 3/10 net 50
d. 2/20 net 40
Problem 5: What conclusions can you make about credit terms from reviewing your answers to Problem 4?
Click here for the solution: Compute the effective cost of not taking the cash discount under the following trade credit terms
Wednesday, June 17, 2015
(Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract
ACC 421 Week 3
Exercise 18-5 (E18-5) (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
Instructions
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract?
Click here for the solution: (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract
Exercise 18-5 (E18-5) (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Beth Botsford uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2007, follow.
Balance Sheet
Accounts receivable—construction contract billings $21,500
Construction in progress $65,000
Less: Contract billings 61,500
Cost of uncompleted contract in excess of billings 3,500
Income Statement
Income (before tax) on the contract recognized in 2007 $18,200
Instructions
(a) How much cash was collected in 2007 on this contract?
(b) What was the initial estimated total income before tax on this contract?
Click here for the solution: (Analysis of Percentage-of-Completion Financial Statements) In 2007, Beth Botsford Construction Corp. began construction work under a 3-year contract
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