ACC301-sol-ch04

ACC301-sol-ch04 - PRACTICE EXERCISES PRACTICE 4-1 FINANCIAL...

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PRACTICE EXERCISES PRACTICE 4 - 1 FINANCIAL CAPITAL MAINTENANCE Net assets, end of period $345,000 Net assets, beginning of period    170,000     Increase in net assets $175,000 Deduct investment by owners    100,000     Income $    75,000     PRACTICE 4 - 2 PHYSICAL CAPITAL MAINTENANCE Net assets, end of period $345,000 Net assets, beginning of period    170,000     Increase in net assets $175,000 Deduct investment by owners    100,000     Income, financial capital maintenance $  75,000 Deduct increase necessary to maintain physical capital                  65,000     Income, physical capital maintenance     10,000     PRACTICE 4 - 3 COMPUTATION OF INCOME USING MATCHING Revenue ($150,000 + $91,000) $241,000 Cost of goods sold ($79,000 + $46,000)   125,000 Income $116,000 The $350,000 in costs incurred in the production of Machines B and D will not yet be  recognized as an expense. This expense is matched and reported in the income statement  in the same year in which the revenue from the sale of the machines is reported. In the  meantime, this $350,000 cost is shown as an asset, Inventory, in the balance sheet. PRACTICE 4 - 4 REVENUE RECOGNITION Cash Collected Amount of or Collectibility Work Revenue to Be Reasonably Assured? Completed? Recognized a. No Yes $           0
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b. Yes No 0 c. Yes Yes   170,000 Total revenue to be recognized this year $170,000
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PRACTICE 4 - 5 EXPENSE RECOGNITION Expense Expense Amount of Recognition to Be Recognized     Cost                  Method            This Year a. $30,000 Direct matching $  30,000 b. 70,000 Immediate recognition 70,000 c. 15,000 Rational allocation 5,000 d. 27,000 Immediate recognition 27,000 e. 45,000 Rational allocation 9,000 f. 50,000 Direct matching              0 Total expense recognized this year $141,000 PRACTICE 4 - 6 SINGLE-STEP INCOME STATEMENT Sales $10,000 Less expenses: Cost of goods sold 6,000 Selling and administrative expense 750 Interest expense     1,100 Income before income taxes $  2,150 Income tax expense     1,200 Net income $     950 PRACTICE 4 - 7 MULTIPLE-STEP INCOME STATEMENT Sales $10,000 Cost of goods sold     6,000 Gross profit $4,000 Operating expenses: Selling and administrative expense       750 Operating income $ 3,250 Interest expense    1,100     Income before income taxes $2,150 Income tax expense    1,200    
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Net income $        950     PRACTICE 4 - 8 COMPUTATION OF GROSS PROFIT Revenues. ................................................ $9,488.8 Cost of sales. ........................................... 5,784.9 Gross profit. ..................................... $3,703.9 Gross profit/Sales = $3,703.9/$9,488.8 = 39.0%
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PRACTICE 4 - 9
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ACC301-sol-ch04 - PRACTICE EXERCISES PRACTICE 4-1 FINANCIAL...

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