Balance Sheet as of December 3
Assets 2011 2010
Cash $ 785,000 $ 675,000
Short-term investments in cash equivalents $ 75,000 $ 15,000
Accounts Rec. $ 455,000 $ 525,000
Allowance for Bad Debt $ (25,000) $ (105,000)
Inventory $ 975,000 $ 775,000
Current Assets $ 2,265,000 $ 1,885,000
Equipment $ 5,000,000 $ 5,000,000
Accum. Depreciation $ (2,000,000) $ (1,500,000)
LT Notes Receivable $ 285,000 $ -
Land $ 1,450,000 $ 1,450,000
Non-Current Assets $ 4,735,000 $ 4,950,000
Total Assets $ 7,000,000 $ 6,835,000
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Liabilities
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Accounts Payable
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$ 450,000
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$ 570,000
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Wages Payable
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$ 150,000
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$ 185,000
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Dividends Payable $ 155,000 $ 135,000
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Current Liabilities
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$ 755,000
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$ 890,000
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LT Notes Payable
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$ 1,250,000
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$ 1,250,000
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Total Li
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abilities
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$ 2,005,000
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$ 2,140,000
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Stockholders Equity
Contributed Capital
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$ 3,000,000
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$ 3,000,000
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Retained Earnings $ 1,995,000 $ 1,695,000
Total Liabilities and Equity $ 7,000,000 $ 6,835,000 2
Prior Year's 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
2012 information (the following events occurred during 2012)
1. The company sells '/2 of its land for $2,000,000.
2. The company collected $425,000 from customers related to last year's credit sales.
3. The company paid the outstanding accounts payable balance.
4. The company purchased additional inventory at a cost of $1,000,000 with terms 2/10, n/30. Subsequently, the company paid half within the discount period and the remainder was outstanding as the end of the year (12/31/2012). The company accounts for discounts using the gross method.
5. Customers purchased your products throughout the year. Total sales for the year were $2,950,000. This cost of this inventory, was $1,500,000 and you use a perpetual inventory system.
i. Customers paid you 45% in cash and the remainder was on account.
ii. The credit sales were sold with term 2/10/, n/30 and payment was received within the discount period for
50 percent of these credit sales. The remainder was outstanding as of the end of the year. The company accounts for discounts using the gross method.
6. Wage expenses for the year, thru Dec. 15th were $550,000. This amount was paid in full as was the outstanding Wages
Payable balance from the beginning of the year.
7. Wages earned between Dec. l5t and Dec 31st were $75,000. The company wifi pay this amount on Jan 7t,h ,2013.
8. A customer that previously bought your product on account has filed for bankruptcy. He owed you $10,000. You expect to collect $0.
9. To calculate depreciation expense for the year, assume that the equipment was purchased 5 years ago (i.e., this is the fifth year that your company has used the equipment). Your company uses straight-line depreciation. Calculate and record Depreciation Expense. (hint: you can figure out the amount even without the salvage value).
10. The company purchased a new manufacturing plant (property) for $650,000 cash. Management estimates the salvage value to be $20,000 and that the plant will have a useful life of 10 years. During acquisition and disposition years the company takes 1/2 year's depreciation.
11. Outstanding dividends payable from the beginning of the year were paid with cash.
12. A customer pays you $1,250,000 for work that you will start in Jan '13.
13. The long-term Notes Receivable of $285,000 pays 8 percent interest annually on 12/31.
14. You declare dividends of$100,000 to be paid next year.
15. You pay the interest owed for the long-term note payable (hint: you can figure out the amount).
16. On April 1, 2012, you contract with Built In a Hurry, Inc. to have new headquarters constructed (a building for your own use, not for resale). Construction begins on May 1, 2012 and it is estimated that the project would be completed on April 1,
2013. The building will be constructed on land you already own. The estimated cost of construction of the new building is
$4,500,000 and Built In A Hurry, Inc. requires payments on the following dates:
May 1, 2012
August 1, 2012
November 1, 2012Ajjril 1, 2013
Date Payment Amount
$450,000
800,000
1,500,000
1,750,000
In order to finance the project, on April 1, 2012, you sign a 2-year construction loan for $2,000,000 at 12% interest paid annu3lly on April 1S The loan is issued at par (no discount or premium). (hint: this is an interest capitalization problem).
17. During 2012, you made $100,000 of installment sales, which are appropriately accounted for using the installment sales method. The cost of the installment sales was $75,000. During 2012, you collected $20,000 related to these installment sales (this is in addition to amount collected from customers indicated in items 2 and 4 from above).
18. Your company signs a 3-year, $4,000,000 contract with a customer to build a supper widget! The CFO of the company estimates that the total costs of building the widget will be $3,200,000 and determines that the percentage of completion method is appropriate for this transaction. Details of the contract for 2012 are provided below.
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2012
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Costs incurred during the year
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$800,000
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Customer Billings during the year
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$750,000
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Payments from customer
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$500,000
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Estimited costs to complete
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$2,400,000
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19.At the end of the year, the executive team is concerned that the plant purchased early in the year for $650,000 might be impaired. At the time the plant was purchased management thought that the products produced in the plant would be in high demand. Subsequently it was learned that the products themselves cause bizarre mood swings and result in 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.