# Accounting cases-ch5

```Accounting Texts and Cases 13th ed.
Anthony, Hawkins, &amp; Merchant
Problem 5-1
Problem 5-1
Yzerman Company
Sales
Collections
Jan
Feb
Mar
Apr
May
June
\$ 12,000 \$ 8,000 \$ 13,000 \$ 11,000 \$ 9,000 \$ 13,500
\$ 11,000 \$ 10,000 \$ 11,500 \$ 10,500 \$ 10,500 \$ 9,500
Calculate Gross Margin each month:
a) If revenues are recognized when the sale is made.
b) If the installment method is used.
Assume: Cost of Goods Sold = 65% of sales
Problem 5-1
Formula:
Sales Revenue
Less: Cost of Goods Sold
Gross Margin
Problem 5-1
Yzerman Company
Sales
Collections
Jan
\$ 12,000
\$ 11,000
Feb
\$ 8,000
\$ 10,000
Mar
\$ 13,000
\$ 11,500
Apr
\$ 11,000
\$ 10,500
May
\$ 9,000
\$ 10,500
June
\$ 13,500
\$ 9,500
Assume: Cost of Goods Sold = 65% of sales
a) If revenues are recognized when the sale is made.
Yzerman Company
Jan
Sales
COGS
Gross Margin
\$ 12,000
\$ 7,800
\$ 4,200
Feb
\$ 8,000
\$ 5,200
\$ 2,800
Mar
Apr
\$ 13,000
\$ 8,450
\$ 4,550
\$ 11,000
\$ 7,150
\$ 3,850
May
\$ 9,000
\$ 5,850
\$ 3,150
June
\$ 13,500
\$ 8,775
\$ 4,725
Problem 5-1
Yzerman Company
Sales
Collections
Jan
\$ 12,000
\$ 11,000
Feb
\$ 8,000
\$ 10,000
Mar
\$ 13,000
\$ 11,500
Apr
\$ 11,000
\$ 10,500
May
\$ 9,000
\$ 10,500
June
\$ 13,500
\$ 9,500
Assume: Cost of Goods Sold = 65% of sales
b)
If the installment method is used.
Yzerman Company
Sales
COGS
Gross Margin
Jan
Feb
Mar
Apr
May
\$ 11,000
\$ 7,150
\$ 3,850
\$ 10,000
\$ 6,500
\$ 3,500
\$ 11,500
\$ 7,475
\$ 4,025
\$ 10,500
\$ 6,825
\$ 3,675
\$ 10,500
\$ 6,825
\$ 3,675
June
\$ 9,500
\$ 6,175
\$ 3,325
Problem 5-2
Problem 5-2
Giamatti Construction Company
Project
Construction Period
Fee
Expected Total Cost
Incurred Cost (12/31)
Motel
March Y1 to April Y2
\$ 5,000,000
\$ 4,250,000
\$ 2,550,000
Calculate each year’s income before taxes, including the motel project,
assuming that, excluding the motel project, Giamatti’s income before
taxes will be \$1.25M this year and next year:
a) Completed-contract method
b) Percentage-of-completion method
Problem 5-2
Formula:
Revenue
Less: Expenses
Income
Problem 5-2
Giamatti Construction Company
Year
1
2
Project Costs
Incurred
\$ 2.55M
\$ 1.70M
\$ 4. 25M
Year-End %
Complete
60%
100%
Completed-Contract Method
Revenues Expenses Income
Percentage of Completion Method
Revenues Expenses
Income
0
0
0 \$ 3.00M \$ 2.55M
\$ 5.00M \$ 4.25M \$ 0.75M \$ 2.00M \$ 1.70M
\$ 5.00M \$ 4.25M \$ 0.75M \$ 5.00M \$ 4. 25M
\$ 0.45M
\$ 0.30M
\$ 0.75M
Problem 5-2
a. Income before taxes including the motel project
Giamatti Construction Company
Year
Income before tax w/o
Motel Project:
Motel Project:
Completed Contract
Method
Total
1
2
\$ 1.25M
\$ 1.25M
\$ 0M
\$ 0.75M
\$ 1.25M
\$ 2.00M
Problem 5-2
b. Income before taxes including the motel project
Year
1
2
Giamatti Construction Company
Motel Project:
Income before tax w/o
Percentage of
Motel Project:
Completion Method
\$ 1.25M
\$ 0.45M
\$ 1.25M
\$ 0.30M
Total
\$ 1.70M
\$ 1.55M
Problem 5-4
Problem 5-4
Days AR
Outstanding
Less than 16
16-30
31-45
46-60
61-75
Over 75
Amount
\$ 450,000
\$ 150,000
\$ 75,000
\$ 45,000
\$ 15,000
\$ 15,000
Probability of
Collection
0.99
0.94
0.80
0.65
0.50
0.00
Required:
a) Appropriate balance for the Allowance for Doubtful Accounts on December 31.
b) Presentation of Accounts Receivable on Balance Sheet on December 31.
c) Dollar effect of the year-end bad debt adjustment on the before-tax income for the
year.
Problem 5-4
Days AR
Outstanding
Less than 16
\$ 450,000
Probability of
Collection
0.99
16-30
\$ 150,000
0.94
\$ 9,000
31-45
\$ 75,000
0.80
\$ 15,000
46-60
\$ 45,000
0.65
\$ 15,750
61-75
\$ 15,000
0.50
\$ 7,500
Over 75
\$ 15,000
0.00
Amount
TOTAL / Allowance for Doubtful Accounts Balance:
\$ 4,500
\$ 51,750
a) Appropriate balance for the Allowance for Doubtful Accounts on December 31.
Problem 5-4
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable, net
\$ 735,000
\$ 51,750
\$ 683,250
b) Accounts Receivable on Balance Sheet on December 31.
Problem 5-4
c) Dollar effect of the year-end bad debt adjustment on the before-tax income
for the year.
Problem 5-7
Problem 5-7
Accounts Receivable
Accounts Payable
Allowance for Doubtful Accounts
Accumulated Depreciation
Cash
Common Stock
Cost of goods sold
Depreciation Expense
Goodwill
Interest Payable
Inventory, beginning
Long-term debt (required to be
repaid of \$7,700 per year)
Other expenses
Plant and equipment, at cost
Purchase of inventory
Retained earnings, beginning
Sales (23% were for cash)
\$
Dr
34,650.00
Cr
\$
38,600.00
1,850.00
61,600.00
23,100.00
231,000.00
161,700.00
15,400.00
38,500.00
25,000.00
46,200.00
192,500.00
69,300.00
346,500.00
184,800.00
46,200.00
323,400.00
Problem 5-7
Calculate and interpret the year-end:
a) Quick and current ratios
b) Number of days’ cash on hand.
c) Number of days’ worth of sales represented by
accounts receivable
Problem 5-7
Current Assets
Current Liabilities
Cash
\$ 23,100.00 Accounts Payable
Accounts Receivable
Less: Allowance for Doubtful Accounts
Net Accounts Receivable
34,650.00
1,850.00
46,200.00
184,800.00
Less: Cost of goods sold
161,700.00
Total Current Assets
Current Portion of Long-Term debt
32,800.00
Inventory, beginning
Inventory, end
Interest Payable
Total Current Liabilities
\$ 38,600.00
25,000.00
7,700.00
71,300.00
69,300.00
125,200.00
Monetary
current
assets
55,900
=
a) Quick ratio =
=
Current Liabilities
71,300
0.78
Problem 5-7
Current Assets
Current Liabilities
Cash
\$ 23,100.00 Accounts Payable
Accounts Receivable
Less: Allowance for Doubtful Accounts
Net Accounts Receivable
34,650.00
1,850.00
46,200.00
184,800.00
Less: Cost of goods sold
161,700.00
Total Current Assets
Current Portion of Long-Term debt
32,800.00
Inventory, beginning
Inventory, end
Interest Payable
Total Current Liabilities
\$ 38,600.00
25,000.00
7,700.00
71,300.00
69,300.00
125,200.00
Current
assets
125,200
a) Current ratio =
=
=
Current Liabilities
71,300
1.76
Problem 5-7
Cash
Common Stock
Cost of goods sold
Depreciation Expense
Other expenses
Purchase of inventory
Retained earnings, beginning
Sales (23% were for cash)
Cash
b) Days’ cash =
=
Cash expenses
365
Dr
\$ 23,100.00
Cr
\$
231,000.00
161,700.00
15,400.00
69,300.00
184,800.00
46,200.00
323,400.00
23,100
231,000
365
=
36.5 days
Problem 5-7
Accounts Receivable
Allowance for Doubtful Accounts
Cash
Retained earnings, beginning
Sales (23% were for cash)
c) Days’ receivable =
Receivables
Credit Sales
365
\$
Dr
34,650.00
Cr
1,850.00
23,100.00
46,200.00
323,400.00
=
32,800
249,018
365
= 48
days
```