Ask Financial Accounting Expert

Assignment

Question 1: Journal Entries and Financial Statements

A friend of yours, Scott Crocker, is the president of Scott's Chocolates Inc. ("Scott's). The company that produces organic chocolates has just completed its first year of operations. The following is the Balance Sheet and other information provided by the bookkeeper:

Scott's Chocolates Inc.
Balance Sheet
Year ended October 31,2005

Account

Debit

Credit

Cash in current account

$ 3,000

 

Cash in Washington State bank (Note 1)

15,000

 

Accounts receivable (Note 2)

27,500

 

Inventory (Note 3)

95,000

 

Equipment (Note 4)

17,000

 

Dividends paid (Note 5)

30,000

 

Short term investments (Note 6)

15,600

 

Accounts payable

 

$ 46,133

Demand loan

 

9,925

Amortization of equipment (Note 4)

 

-

Common Shares, 9500 issued

 

101,667

Income for the first year

 

45,375

Totals

$203,100

$203,100

Additional information:

1. Scott's plans to expand into Washington State. The Food and Drug Branch of the United States Government has requested that $15,000 be placed into a bank account in Seattle for a three year period to cover any potential lawsuits against the company arising from the sale of its products in the USA.

2. Accounts receivable are comprised of the following: The accounts owed by customers from credit sales $23,000 Deposits from customers on sales orders                                                  (10,500)

Amounts advanced to majority shareholder           15,000

3. The inventory is comprised of the following:

Raw materials at cost to the company                   $31,000

Finished product at retail selling price                    64,000

The company usually earns a gross profit of 25% on its products.

4. The equipment was purchased for $16,000 on November 1, 2004. At the end of the year the same equipment was selling for $17,000. The equipment should last for 6 years and be worthless at that time.

5. The Company paid $30,000 to the majority shareholder for management services rendered. Since the payment was made to a shareholder the bookkeeper recorded it as dividends paid.

6. The excess cash received from the initial issue of the common shares was invested in shares of Canadian Oil Sands Inc., a public company whose shares trade on the Toronto Stock Exchange. The market price of the shares at October 31,2005 was $17,500.

7. The company signed an agreement with the local School Board on August 1, 2005 to provide the school district with chocolates for fund raising events equally over the next 10 months commencing September 1, 2005. On October 1, 2005, the Company received a cheque for $20,000 representing payment for the total contract. The total amount was recorded as revenue.

Required:

a) Calculate income for the year after adjusting for any errors based on the additional information provided above. Ignore income taxes.

b) After making any adjustments in part a, prepare a classified Balance Sheet, in good format for Scott's Chocolates Inc at October 31, 2005.

Question 2: Revenue Recognition

Greek Construction Inc. has been selected as the general contractor for construction of the 2010 Olympic Speed Skating Oval in Richmond. The contract has a fixed price of $5,000,000 and construction costs are anticipated at $4,000,000. The controller of the company explained to the Board that they could adopt either the percentage of completion or the completed contract method in accounting for this contract. The Board decided to adopt the percentage of completion method.

Construction on the Oval commenced in April 2006 and the results of the four-year construction period were as follows:

Dec. 31, 2006                     Total costs incurred to date                                            $1,000,000

Estimated additional costs to complete construction $3,000,000

Dec. 31, 2007                     Total costs incurred to date (2003 & 2004)                      $2,750,000

Estimated additional costs to complete construction $2,000,000

Dec. 31, 2008                     Total costs incurred to date (2003 & 2004 & 2005) $3,750,000

Estimated additional costs to complete construction $1,500,000

Dec. 31, 2009                     Total costs incurred to date                                            $5,250,000

Estimated additional costs to complete construction none - construction completed

Required:

a. Calculate the gross income (construction revenue less costs to construct) Peak Co. should recognize each year of the contract assuming it adopts the percentage of completion method for accounting for this contract.

b) Does the adoption of percentage of completion method in accounting for long-term contracts help ensure the financial viability of the project? Discuss.

c) Recognizing revenue at the time of signing a contract is an alternative for revenue recognition that we have discussed in class. Why did the controller of Greek Construction not mention this method to the Board?

Question 3: Accounts Receivable

Video Electronics Inc. is the largest wholesaler of electronic games is Western Canada. Approximately 85% of the company's sales are made on credit and customers have twenty days from the date of sale to remit payment.

The following information is available for the year ended December 31, 2005:

Accounts receivable, gross (1/1/2005)

$1,900,000

Allowance for doubtful accounts (1/1/2005)

75,000

Total sales in 2005

15,000,000

Payments on account received from customers

12,500,000

Write-offs of accounts receivable

125,000

Recoveries of bad debts during the 2005

15,000

Video provides for doubtful accounts using either of the following calculations:

(i) 1% of credit sales for the year, or

(ii) 5% of current receivables and 25% of receivables which are overdue as at year-end.

As at December 31, 2005, 80 % of gross accounts receivable are current.

Required:

(a) Determine the December 31, 2005 balances in "Bad Debts Expense" and

"Allowance for Doubtful Accounts" if the company uses the percentage of credit sales method.

(b) Determine the December 31, 2005 balance of "Allowance for Doubtful Accounts" if the company uses the aging method.)

(c) Is the "Allowance for Doubtful Accounts" going to be adequate as at December 31, 2005 if the company uses the percentage of credit sales method? Fully explain your answer.

Question 4: Temporary Investments

As at December 31, 2004, Kerrisdale Paints Inc. has the following temporary investments:

 

# of shares Cost/Share Market Value/share

Rose

500

$43

$ 34

Dogwood

200

$20

24

During 2005, transactions relating to this portfolio were as follows:

January 25    Received a dividend of $1.10 per share on the shares of Dogwood

April 1          Purchased 200 additional common shares in Rose for $30 per share plus a brokerage fee of $120

October 31   Sold 300 common shares of Rose for $33 per share less a brokerage fee of $198.

On December 31, 2005, the shares of Rose and Dogwood were trading for $34 and $25 respectively. Assume Kerrisdale Paints has always followed the policy of recording its temporary investments at market.

Required:

(a) Discuss whether the CICA's change to valuing marketable securities at market value is consistent with the accounting principles we have discussed in class.

(b) Provide all of the necessary journal entries that would be required for 2005 with respect to temporary investments.

Question 5: Inventory

In January of 2005,Jacob Distributors (Jacob) signed an exclusive marketing agreement for a palm pilot the size of a credit card. The purchasing and selling information for the year is presented below:

 

Units purchased

Price per unit

Purchases

 

 

February 20

1500 units

$190/unit

May 16

1800 units

$200/unit

October 11

3300 units

$220/unit

December 1

1500 units

$180/unit

Sales

Units sold

Selling Price

March 15

1200 units

$350/unit

June 15

2000 units

$375/unit

November 15

3000 units

$345/unit

December 15

1500 units

$325/unit

Required:

(a) Calculate the gross profit margin and gross profit margin ratio for the year ended December 31, 2005 using the LIFO, FIFO and Weighted Average methods. Assume a periodic inventory system is used.

(b) Calculate the value of the inventory on December 31, 2005 using the FIFO method? Why would a company adopt this method in costing its inventory?

(c) On December 15, 2005 your competitor introduced a product that appears to be comparable to the palm pilot you are selling at a retail price of only $150. Discuss whether this will affect your financial statements for December 31, 2005.

(d) One of your closest friends has recently opened a new retail clothing store. He approaches you for advice. "You cannot believe how much of an investment I have in inventory. How should I be monitoring the inventory levels at my new store? I seem to have too little of what I need and too much of what doesn't sell." Briefly respond her concern.

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M92603541
  • Price:- $40

Priced at Now at $40, Verified Solution

Have any Question?


Related Questions in Financial Accounting

Case study - the athletes storerequiredonce you have read

Case Study - The Athletes Store Required: Once you have read through the assignment complete the following tasks in order and produce the following reports Part 1 i. Enter the business information including name, address ...

Scenario assume that a manufacturing company usually pays a

Scenario: Assume that a manufacturing company usually pays a waste company (by the pound to haul away manufacturing waste. Recently, a landfill gas company offered to buy a small portion of the waste for cash, saving the ...

Lease classification considering firm guidance issues

Lease Classification, Considering Firm Guidance (Issues Memo) Facts: Tech Startup Inc. ("Lessee") is entering into a contract with Developer Inc. ("Landlord") to rent Landlord's newly constructed office building located ...

A review of the ledger of oriole company at december 31

A review of the ledger of Oriole Company at December 31, 2017, produces these data pertaining to the preparation of annual adjusting entries. 1. Prepaid Insurance $19,404. The company has separate insurance policies on i ...

Chelsea is expected to pay an annual dividend of 126 a

Chelsea is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth 2.6 percent. What is the cost of equity?

Sweet treats common stock is currently priced at 3672 a

Sweet treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. The dividends have been increasing by 2,2 percent annually and are expected to continue doing ...

Highway express has paid annual dividends of 132 133 138

Highway Express has paid annual dividends of $1.32, $1.33, $1.38, $1.40, and $1.42 over the past five years, respectively. What is the average divided growth rate?

An investment offers 6800 per year with the first payment

An investment offers $6,800 per year, with the first payment occurring one year from now. The required return is 7 percent. a. What would the value be today if the payments occurred for 20 years?  b. What would the value ...

Oil services corp reports the following eps data in its

Oil Services Corp. reports the following EPS data in its 2017 annual report (in million except per share data). Net income $1,827 Earnings per share: Basic $1.56 Diluted $1.54 Weighted average shares outstanding: Basic 1 ...

At the start of 2013 shasta corporation has 15000

At the start of 2013, Shasta Corporation has 15,000 outstanding shares of preferred stock, each with a $60 par value and a cumulative 7% annual dividend. The company also has 28,000 shares of common stock outstanding wit ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As