Intermediate 2 Terry Part #4: RevenuesTo practice correcting the financial statements for different revenue recognition situations. (See Topic Guides IFO 4 and 23).Terry determined early in its history that it was more effective for them to build their own specialized production equipment than for them to share their proprietary production data with a construction company. While this process leads to a larger upfront cost for new equipment, the special production methods used by the company have earned much more than the initial extra outlay.While the company has historically kept this production process in-house, they have recently been approached by a local university with a request to provide a set of machinery that the university can use to produce their own specialty bags. Since many members of Terry’s Board of Directors (and several large shareholders) are alumni of this university, Terry’s management has decided that they will go through with the sale of a three machine system to the university.As part of the deal, Terry’s management has insisted that the university also purchase a 3-year maintenance contract (which will begin as soon as the last machine is installed). This requirement will allow Terry’s engineers and machinists to take care of the equipment, reducing the chance of losing their competitive advantage. The total contract price for the machines and the maintenance contract is $760,000.As part of the contract, both parties have agreed that the university will have the right to return the equipment if they are not satisfied with the performance of the machines. Terry will also provide an additional refund for the maintenance contract if the company returns the equipment within the next few years.While Terry has never sold its equipment before, machinery for making bags can be purchased from many other companies. In addition, many of those companies also provide service contracts to care for the machines they sell. Other versions of the machines typically sell for $190,000; $180,000; and $300,000. A 3-year maintenance contract sells, on average, for $151,000.By the end of 2020, Terry had installed the first and third machines and the university has paid $492,000. Terry’s management team anticipates that the final machine will be installed in January of 2021, and the maintenance contract will begin immediately after the final installation. The university will pay the balance of the contract once the last one is installed
1.2.3.4.Critical Thinking5.6.Hints:1.2.Assignment:Calculate each of the three (3) ratios beforeyou make any adjustments.Make any necessary changes to the financial statements.Make sure that you include only the amount the client has paid!After rounding, if the sum of your percentages doesn't equal 100% (if it gives you 99% or 101%), then manually adjust the smallest percentage up or down so that you have a total of 100%Make the appropriate journal entries, if any, to account for the installation of the machines (including any necessary changes to income tax expense) and the first payment by the university. Assume that the first machine cost Terry $152,000, the second $162,000, and the third $210,000. The average cost of the maintenance contract is $45,000. Terry’s work building these machines has already been appropriately recorded in inventory. Please see the hints for rounding instructions for these calculations
Solution:
Income Statement
Particulars | Machine-1 | Machine-2 | Machine-3 | Maintenace | Total Amount |
Sale Price ($) | 760000 | ||||
Less: | |||||
Cost ($) | 152000 | 162000 | 210000 | 45000 | 569000 |
Net Profit | 38000 | 18000 | 90000 | 106000 | 191000 |
Total Expected Profit | 191000 |
Ratio Analysis:
Net Profit Ratio = Net Profi/Net Sale*100
191000/760000*100 = 25.13%
Expenses Ratio =
1. Expenses Ratio = Total Cost/Net Sale*100
569000/760000*100 = 74.87%
Assumption:
It is assumed that Terry will receive its all pending payment from the university after installation of last machine.
Intermediate 2 Terry Part #4: RevenuesTo practice correcting the financial statements for different revenue recognition situations....
Terry determined early in its history that it was more effective for them to build their own specialized production equipment than for them to share their proprietary production data with a construction company. While this process leads to a larger upfront cost for new equipment, the special production methods used by the company have earned much more than the initial extra outlay. While the company has historically kept this production process in-house, they have recently been approached by a local...
Intermediate 2 Terry Part #2: Chapter 18 Goal: To practice correcting the financial statements for different revenue recognition situations. (See Topic Guides IFO 4 and 23). Information: Terry determined early in its history that it was more effective for them to build their own specialized production equipment than for them to share their proprietary production data with a construction company. While this process leads to a larger upfront cost for new equipment, the special production methods used by the company...
Make the appropriate journal entries, if any, to account for the installation of the machines (including any necessary changes to income tax expense) and the first payment by the university. Assume that the first machine cost Terry $132,000, the second $117,000, and the third $210,000. The average cost of the maintenance contract is $22,000. Terry’s work building these machines has already been appropriately recorded in inventory. Information: Terry determined early in its history that it was more effective for them...
Make the appropriate journal entries, if any, to account for the installation of the machines (including any necessary changes to income tax expense) and the first payment by the university. Assume that the first machine cost Terry $132,000, the second $117,000, and the third $210,000. The average cost of the maintenance contract is $22,000. Terry’s work building these machines has already been appropriately recorded in inventory. Information: Terry determined early in its history that it was more effective for them...
Information: Terry has three main classifications of employees: management, designers, and production workers. In order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit pension if they remain with the company until their retirement. Terry’s management team has been provided with a 401(k) (despite numerous complaints from the management team that they also deserve a pension). Since the production team traditionally turns over very quickly with little adverse effect on the company, Terry...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit pension if they remain with the company until their retirement. Terry’s management team has been provided with a 401(k) (despite numerous complaints from the management team that they also deserve a pension). Since the production team traditionally turns over very quickly with little adverse effect on the company, Terry does...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit pension if they remain with the company until their retirement. Terry’s management team has been provided with a 401(k) (despite numerous complaints from the management team that they also deserve a pension). Since the production team traditionally turns over very quickly with little adverse effect on the company, Terry does...
****Only Need 6 & 7 answered **** Terry has three main classifications of employees: management, designers, and production workers. In order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit pension if they remain with the company until their retirement. Terry’s management team has been provided with a 401(k) (despite numerous complaints from the management team that they also deserve a pension). Since the production team traditionally turns over very quickly with little...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit pension if they remain with the company until their retirement. Terry’s management team has been provided with a 401(k) (despite numerous complaints from the management team that they also deserve a pension). Since the production team traditionally turns over very quickly with little adverse effect on the company, Terry does...
nce obligation(s) would ho egb 0 nitie AP4-2A (Revenue recognition) TreeHold Corp. designs and builds custom harvesting equipment for logging companies across Canada. The company, which is publicly traded, has a May 31 year end. On February 18, 2020, TreeHold signed a contract with Coastal Harvesting Ltd, to design and build 25 custom harvesters that can harvest wood at the steep grades found along much of the Pacific coast timber stands included in Coastal's harvesting leases. The following events took...