Question

Accounting methods and estimates and their effects on net income. Help! I have included an in-class example.

Accounting Methods & Estimates and Their Effects on Net Income Homework Two different companies were organized to sell gee-gaws to the public. Both companies expect this to be a widely used device with increasing Sales each year. With increased enhancements, each year, they expect the sales price per unit to increase each year. Both companies expect to sell 25,000 units, at a selling price of $1,000 each, during their first year of business. Sales are anticipated to increase by 10% (in units - at a compounded rate) during each of the next two years. At the same time, the selling price per unit will increase by a compounded annual rate of 10%. The same supplier provides the devices to both companies. The cost of the product is 70% of the sales price. Like the sales price, the cost will increase each year. Both companies keep a safety stock equal to 2,000 units at all times. (For example, during the first year each company will purchase 27,000 units - the 25,000 units to be sold plus an additional 2,000 units "just in case. During the second year, 27,500 units will be purchased -2,000 units will remain from the first year.) Service contracts are available with each hardware device. These contracts cover the device top to bottom" for a period of four years. The service contract costs $300, for this period, and the price will remain the same for the first three years of business. One- half of all customers purchase the service contract. Selling & Administrative Expenses (Salaries, Advertising, and et. al.) are budgeted to be $2,000,000 during the first year and grow at a compounded rate of 4%. Plant & Equipment costing $900,000 will be purchased at inception and will be depreciated using the Straight-Line method assuming no salvage value. Using an electronic spreadsheet, please complete a three year Budgeted Income Statement for each of the companies using the following assumptions:

Answer 1

Чел! company Two mon Statement ($) Sean2 2500 ecco 30250000 Service contract 1500,000 24.00 100 wear3 36602seo 339 company lone income Statement ($) year! year2 years sales 25600000 30250000 36602500 & Service Contract 937500 1968750 3163125 Total Revenue 25937500 322187150 39765625 Sales 26.50,000 32650000 390 42500 total Revenue suo 32718750 39-765625 Bod debt Cert of Good sold (1750000 0 211115000 25621750 Cet of Good sold 17500000 2103 Sep 25467750 SUV, Adwin 90000 Selling > Admin 2080 eed 2163200 200000 2080 oct 2163200 Depreciation I 60.000 60000 60000 Depreciation / 90000 900000 90,000 186 Goed 30 6000 1 1599700 Baddaht 1296875 1610988 1985281 Total Exponses 20886875 2495 $938 2918 60231 70 20620000 24481ero 29290650 Net Income 5050625 1262812 9846394 Net Income 5880000 8169000 1070185 Yega2 Year yearl years year year Sowice contract 360x12.507 SeoX1350, 3004B015012 Service Contact 300x1900 360 13750 360*30250/2 | 25 Xyooo X400 xoto F x 2540 174537OVES = 1650000 500, 5 181560p = 1134375 937 $00 210315o + 750017 + 750D +91310 + 93700 I t 163 inso 339 Too + 25000 24,09 eur 1968500 3103125 301504847 = 25621750 4003 2000 2000 30250 849 year? PASENO DATE 2000 2005 2000 30250 847 from the 275004 770 21175000 ( company one - 1156) YearL 27500 2000 91500 Your 2000 27500 2000 27500 770 2000X TO 282508818 25467150 from at the end of after that purchase aty decoxto 25stoy 720= 21055000 2. Socox 100 17500000 As, in the FIFO method, Goods sold is the stocks which is left - the previous years sold. will be 21000 Too 95000 - 2000 250004700 - 1750000 But as per 21Fo, Goods is sold purchase aty Cost of Good sold your 700 - 27000 2000 Casof Good Sold 25000 Company two Opening Stock closing stock Rate (year) owthase Good sold 700100 Soles sales opening stock closing stock Rate purchase Cox of Cost of