Bristow Ent Fin Ch3a

Bristow Ent Fin Ch3a - Chapter 3 MANANGING PROFIT AND...

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Chapter 3 MANANGING PROFIT AND FINANCIAL STATEMENTS
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2 Sales $ 5,000,000 - Cost of Goods Sold - 3,500,000 Gross Profit = $ 1,500,000 - General & Administrative - 250,000 - Selling Expense - 250,000 - Depreciation Expense - 500,000 Pre-Tax Profit = $ 500,000 - Tax - 200,000 Net Income = $ 300,000 TROJAN CO. LTD.
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3 MANAGING THE INCOME STATEMENT
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4 Using the data in Trojan Co. Ltd., let’s see what can be done to get rid of the Net Income of $300,000. TROJAN CO. LTD.
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5 When you ship, you create a receivable Percentage of Completion Completed Contract method is no longer OK Installment method When you receive all the money up front, but you must provide service over time. When you receive only a small portion of the price and the balance over time. WAYS TO REPORT SALES
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Revenue recognition criteria according to US GAAP US SEC's SAB 101 states that revenue generally is realized or realizable and earned when all of the following criteria are met: Persuasive evidence of an arrangement exists; Delivery has occurred or services have been rendered; The seller's price to the buyer is fixed or determinable; and Collectability is reasonably assured
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7 The SEC reports that with high tech firms of today, one way they “play games” with Net Income is through Sales. (Capitalizing expenses is still probably the most common way, however.) WAYS TO REPORT SALES
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8 DETAIL OF COST OF GOODS SOLD Direct Labor $ 1,500,000 Cost of Materials + 1,500,000 Factory Overhead + 500,000 Cost of Goods Sold $ 3,500,000
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9 COST OF MATERIALS Beginning Inventory $ 1,500,000 + Purchases + 1,500,000 - Ending Inventory - 1,500,000 Equals: Cost of Materials $ 1,500,000
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10 INVENTORY ADJUSTMENTS Before After Beginning Inventory $ 1,500,000 $ 1,500,000 + Purchases + 1,500,000 + 1,500,000 - Ending Inventory - 1,500,000 - 1,000,000 Equals: Cost of Materials $ 1,500,000 $ 2,000,000
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11 ADJUSTED COST OF GOODS SOLD Direct Labor $ 1,500,000 $ 1,500,000 + Cost of Materials + 1,500,000 + 2,000,000 + Factory Overhead + 500,000 + 500,000 Equals: Cost of Goods Sold $ 3,500,000 $ 4,000,000
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12 OLD NEW ADJUSTED INCOME STATEMENT
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This note was uploaded on 02/11/2012 for the course BUAD 497 taught by Professor Degravel during the Spring '07 term at USC.

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Bristow Ent Fin Ch3a - Chapter 3 MANANGING PROFIT AND...

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