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BalanceSheetasofDecember3
Assets
2011 2010
Cash $ 785,000 $ 675,000
Short-term investmentsincashequivalents $ 75,000 $ 15,000
AccountsRec. $ 455,000 $ 525,000
AllowanceforBadDebt $ (25,000) $ (105,000)
Inventory $ 975,000 $ 775,000
CurrentAssets $ 2,265,000 $ 1,885,000
Equipment $ 5,000,000 $ 5,000,000
Accum.Depreciation $ (2,000,000) $ (1,500,000)
LTNotesReceivable $ 285,000 $ –
Land $ 1,450,000 $ 1,450,000
Non-CurrentAssets $ 4,735,000 $ 4,950,000
TotalAssets $ 7,000,000 $ 6,835,000
Liabilities
AccountsPayable
$ 450,000
$ 570,000
WagesPayable
$ 150,000
$ 185,000
DividendsPayable $ 155,000 $ 135,000
CurrentLiabilities
$ 755,000
$ 890,000
LTNotes Payable
$ 1,250,000
$ 1,250,000
TotalLi
abilities
$ 2,005,000
$ 2,140,000
StockholdersEquity
ContributedCapital
$ 3,000,000
$ 3,000,000
Retained Earnings $ 1,995,000 $ 1,695,000
Total LiabilitiesandEquity $ 7,000,000 $ 6,835,000 2
Prior Years income statement account balances
2011 2010
Sales, net $2,435,000 $2,500,000
COGS $ 850,000 $780,000
Wages Expense $ 565,000 $785,000
Interest Income $ 52,000 $56,000
Interest Expense $ 56,250 $56,250
Bad Debt Expense $ 60,750 $45,000
Depreciation Expense $ 500,000 $500,000
2012information(thefollowingeventsoccurred during2012)
1. Thecompany sells/2 ofits landfor$2,000,000.
2. Thecompany collected$425,000fromcustomersrelated tolastyearscreditsales.
3. Thecompany paid theoutstanding accountspayable balance.
4. Thecompany purchasedadditionalinventoryatacostof$1,000,000withterms2/10, n/30.Subsequently, thecompany paidhalfwithinthediscountperiod andtheremainderwasoutstanding astheendoftheyear(12/31/2012).Thecompany accountsfordiscountsusingthegrossmethod.
5. Customers purchasedyourproductsthroughouttheyear.Totalsalesfortheyearwere$2,950,000.Thiscostofthis inventory, was$1,500,000andyouuseaperpetualinventory system.
i. Customers paidyou45%incashandtheremainder wasonaccount.
ii. Thecredit salesweresoldwithterm2/10/,n/30andpaymentwasreceived withinthediscount periodfor
50percent ofthesecreditsales.Theremainderwasoutstandingasoftheendof the year.Thecompany accountsfordiscountsusingthegrossmethod.
6. Wageexpenses for theyear,thruDec.15thwere$550,000.Thisamount waspaidinfullaswastheoutstandingWages
Payablebalance fromthebeginning of theyear.
7. WagesearnedbetweenDec.l5tandDec31stwere$75,000. ThecompanywifipaythisamountonJan7t,h,2013.
8. Acustomerthatpreviouslyboughtyourproduct onaccounthasfiledforbankruptcy.Heowedyou$10,000.Youexpectto collect$0.
9. Tocalculatedepreciation expensefortheyear,assumethattheequipment waspurchased5yearsago(i.e.,thisisthefifth yearthatyourcompany hasusedtheequipment). Yourcompany usesstraight-linedepreciation. Calculateandrecord DepreciationExpense.(hint:youcanfigureouttheamount evenwithoutthesalvagevalue).
10. Thecompany purchasedanewmanufacturingplant(property)for$650,000cash.Managementestimatesthesalvagevalue tobe$20,000andthattheplantwillhaveausefullifeof10years.Duringacquisitionanddispositionyearsthecompany takes1/2years depreciation.
11. Outstandingdividendspayable fromthebeginning of theyearwerepaidwithcash.
12. Acustomer paysyou$1,250,000forworkthatyouwillstart inJan13.
13. Thelong-termNotesReceivableof$285,000pays8percent interestannuallyon12/31.
14. Youdeclare dividendsof$100,000to bepaidnextyear.
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15. Youpaytheinterest owedforthelong-termnotepayable(hint:youcanfigureouttheamount).
16. OnApril1,2012,youcontract withBuiltInaHurry,Inc.tohavenewheadquarters constructed (abuilding foryourown use,notforresale). Construction beginsonMay1,2012anditisestimatedthattheprojectwouldbecompletedonApril1,
2013. Thebuilding willbeconstructedonlandyoualready own.Theestimatedcostofconstruction ofthenewbuildingis
$4,500,000andBuiltInAHurry,Inc.requires paymentsonthefollowingdates:
May1,2012
August1,2012
November1,2012
Date PaymentAmount
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800,000
1,500,000
Ajjril1,2013 1,750,000
Inordertofinance theproject,onApril1,2012,yousigna2-yearconstructionloanfor$2,000,000at12%interest paid annu3llyonApril1STheloanisissuedatpar(nodiscount orpremium).(hint: thisisaninterestcapitalizationproblem).
17.
2012
Costsincurredduringtheyear
$800,000
CustomerBillingsduringtheyear
$750,000
Paymentsfromcustomer
$500,000
Estimitedcoststo complete
$2,400,000
18.
19.
During2012,youmade$100,000ofinstallment sales,whichareappropriatelyaccounted forusingtheinstallmentsales method.Thecostoftheinstallmentsaleswas$75,000.During2012,youcollected$20,000relatedtotheseinstallmentsales (thisisinadditiontoamountcollectedfromcustomersindicatedinitems2and4fromabove).
Yourcompany signsa3-year,$4,000,000contract withacustomertobuildasupper widget!TheCFOofthecompany estimatesthatthetotalcostsofbuildingthewidgetwillbe$3,200,000anddeterminesthatthepercentage ofcompletion methodis appropriate forthistransaction. Detailsofthecontract for2012areprovidedbelow.
Attheendoftheyear,theexecutive teamis concernedthattheplantpurchasedearlyintheyearfor$650,000mightbe impaired.Atthetimetheplantwaspurchased management thoughtthattheproducts producedintheplantwouldbein highdemand. Subsequentlyitwaslearnedthattheproducts themselvescausebizarre moodswingsandresultin uncontrollable laughter, which has severely decreased the demand for the products. The executive team now estimates that total cash flows to be generated by selling the products manufactured in the plant(not discounted to present value) are $350,000 and the fair value of the plant is $200,000.
