On January 31. Year 3, a company prepaid the US $72, 000 rental fee for a parking lot it leases. The rental fee covered a 3-year period beginning February 1. Year 3. What is the effect of this transaction on the December 31 Year 3, financial statements for each of the following?
Answer(s): B
The US $72, 000 rental fee should be recognized as expense evenly over the 36-month duration of the lease. In Year 3, US $22, 000 should be deferred to current expenses [(US $72, 000 36 months) x 11 months], and US $50, 000 should be deferred as prepaid expense. On January 1. a new landscaping firm. Bandit Co. acquired a fleet of vehicles, all the necessary tools and equipment. and a parking and storage facility. It began operations immediately. It is now the end of the first year of operations, and the first set of year-end financial statements are being prepared decisions have to be made regarding the appropriate accounting and reporting practices for this company. Relevant information for several of these items is described in the following list of transactions and events:At year-end the parking and storage facility that was purchased for US $150.000 has a fair value of US $250.000 The physical flow of inventory is first in, first out, and the cost of materials has risen steadily over the year. To promote sales for the coming year, maintenance contracts were sold in December at very reasonable prices, provided that the customers paid cash. On April 1, the company arranged a US $100, 000 10% bank loan. Interest payments of US $5, 000 are due on October 1 and April 1 of each year during the 5-year term of the loan. During the first year of operations, the company experienced a 5% bad debt rate on credit sales None of the bad debts are expected to be recovered, given that 5% i s the industry average level of bad debts. Total credit sales for the year were U $400, 000. The year-end balance of accounts receivable includes uncollected overdue accounts of US $100, 000. Half of the uncollected overdue amounts are estimated to be uncollectible.
If Bandit Co. uses the <List A> approach to estimate bad debt expense, the estimated bad debt expense will be <List Be.
Answer(s): C
Using the income statement approach, the bad debt expense is determined using a percentage of total credit sales. Thus, bad debt expense is US $20, 000$400, 000 credit sales x 5% estimated bad debt rate).
A project is expected to result in the following adjustments over the next year:· Cash sales increase by US $400, 000.· Expensesexcept depreciation) increase by US $180, 000 · Depreciation increases by US $80, 000.Assume the corporate tax rate is 34%. The total relevant net cash flows during that year are
The increase in pre-tax profit is US $140, 000$400, 000 cash sales increase - $180, 000 nondepreciation expenses increase - $80, 000 depreciation). Thus, taxes will increase by US $47, 600$140, 000 x 34%), and the increase in net cash inflows will be US $172, 400$400, 000 - $180, 000 - $47, 600).
A company had US $30 million in total sales last year and expects US $40 million in total sales this year. Ten percent of each year's sales are on credit that will be paid the following year. The company anticipates the following expenses for this year:· Depreciation of US $5 million.· Labor, materials, taxes, and other expenses of US $51 million. Assume the company begins this year with a zero cash balance. At the end of this year, the company will have a cash deficit of
The cash inflows from last year's credit sales are estimated to be US $3, 000, 000$'', C1, 0C10, 0Ci0 _-: 10%). The cash inflows from this year's sales are expected to be US $36, 000, 000 x 90%), a total cash inflow of US $39, 000, 000 for the current year. Ignoring depreciation, which is a noncash expense, cash outflows are estimated at US $51, 000.000_ Hence, the net cash outflow is anticipated to be US $12.000, 000$39, 000, 000 - $51, 000.000).
The management discussion and analysis section of a company's annual report typically contains
Answer(s): D
The MD&A section addresses capital resources, liquidity, and operating results. Management must also identify trends and discuss significant events and uncertainties_ Thus, the MD&A section typically includes a description of the company's primary business and segments. It reviews the operating results of the company, providing a breakdown of net sales and income by segment. It also contains prospective information on economic trends and market changes, and their potential effects on the company's future performance.
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