Question
In: Accounting
Scenario: BizCon, a consulting firm, has just completed its first year of operations. The company's sales...
Scenario: BizCon, a consulting firm, has just completed its first year of operations. The company's sales growth was explosive. To encourage clients to hire its services, BizCon offered 180-day financing - meaning its largest customers do not pay for nearly 6 months. Because BizCon is a new company, its equipment suppliers insist on being paid cash on delivery. Also, it had to pay up front for 2 years of insurance. At the end of the year, BizCon owed employees for one full month of salaries, but due to a cash shortfall, it promised to pay them the first week of next year.
As the senior accountant, the Chief Financial Officer has asked you to prepare a memo to be sent to management notifying them of the delayed wage payments.
Prepare the memo in a maximum 700 words including the following information to better outline the situation:
Explain how cash and accrual accounting differs for each of the events listed in the above scenario and describe the proper accrual accounting.
Assess how at the end of the year, BizCon reported a favorable net income, yet the company's management is concerned because the company is very short of cash. Explain to management how BizCon could have positive net income and yet run out of cash.
Solutions
ekkarill92 answered 1 year agoRelated Solutions
BizCon, a consulting firm, has just completed its first year of operations. The company’s sales growth...
BizCon, a consulting firm, has just completed its first year of
operations. The company’s sales growth was explosive. To encourage
clients to hire its services, BizCon offered 180-day
financing—meaning its largest customers do not pay for nearly 6
months. Because BizCon is a new company, its equipment suppliers
insist on being paid cash on delivery. Also, it had to pay up front
for 2 years of insurance. At the end of the year, BizCon owed
employees for one full month...
Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal...
Flaherty, Inc., has just completed its first year of operations.
The unit costs on a normal costing basis are as follows:
Manufacturing costs (per unit):
Direct materials (2 lbs. @ 1.45): $2.90
Direct labor (0.4 hr. @ 16.00): $6.40
Variable overhead (0.4 hr. @ 5.00): $2.00
Fixed overhead (0.4 hr. @ 7.00): $2.80
Total: $14.10
Selling and administrative costs:
Variable: $1.90 per unit
Fixed: $221,500
During the year, the company had the following activity:
Units produced: 26,000
Units sold: 23,400...
Bellingham line has just completed its first year operations. The unit costs on a normal costing...
Bellingham line has just completed its first year operations.
The unit costs on a normal costing
basis are as follows:
Manufacturing cost per unit
Direct materials (2kgs @ $2) $4.00
Direct hours (1.5hrs @ $9) $13.50
Variable overhead (1.5hrs @ $2) $3.00
Fixed overhead (1.5hrs @$3) $4.50
Total $25.00
Selling and administrative costs:
Variable cost per unit
$5.00
Fixed cost $190.00
During the year the company had the following activities:
Units produced 24 000
Units sold 21 500
Unit selling...
Part A: Ranier Ltd. has just completed its first year of operations on December 31, 20X1....
Part A: Ranier Ltd. has just completed its first year of
operations on December 31, 20X1. Net income for the year was $570.
During the year, equipment costing $800 was purchased when the
company paid cash of $640 and issued common shares worth $160. Near
the end of the year, equipment costing $60 with accumulated
depreciation of $16 was sold for $54. At the end of the year,
accounts receivable was $250, accounts payable was $36 and
accumulated depreciation was...
Part A: Ranier Ltd. has just completed its first year of operations on December 31, 20X1....
Part A: Ranier Ltd. has just completed its first year of operations
on December 31, 20X1. Net income for the year was $570. During the
year, equipment costing $800 was purchased when the company paid
cash of $640 and issued common shares worth $160. Near the end of
the year, equipment costing $60 with accumulated depreciation of
$16 was sold for $54. At the end of the year, accounts receivable
was $250, accounts payable was $36 and accumulated depreciation was...
SnapShot Company, a commercial photography studio, has just completed its first full year of operations on...
SnapShot Company, a commercial photography studio, has just
completed its first full year of operations on December 31, 2015.
General ledger account balances before year-end
adjustments follow; no adjusting entries have been made to the
accounts at any time during the year. Assume that all balances are
normal.
Cash
$2,150
Accounts Payable
$1,910
Accounts Receivable
3,800
Unearned Photography Fees
2,600
Prepaid Rent
12,600
Common Stock
24,000
Prepaid Insurance
2,970
Photography Fees Earned
34,480
Supplies
4,250
Wages Expense
11,000
Equipment
22,800...
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement...
Whitman Company has just completed its first year of operations.
The company’s absorption costing income statement for the year
follows:
Whitman Company
Income Statement
Sales (41,000 units × $44.60 per unit)
$
1,828,600
Cost of goods sold (41,000 units × $20 per unit)
820,000
Gross margin
1,008,600
Selling and administrative expenses
471,500
Net operating income
$
537,100
The company’s selling and administrative expenses consist of
$307,500 per year in fixed expenses and $4 per unit sold in
variable expenses. The...
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement...
Whitman Company has
just completed its first year of operations. The company’s
absorption costing income statement for the year appears below:
Whitman Company
Income Statement
Sales (42,000 units × $44.60 per unit)
$
1,873,200
Cost of goods
sold (42,000 units × $24 per unit)
1,008,000
Gross
margin
865,200
Selling and
administrative expenses
483,000
Net operating
income
$
382,200
The company’s selling
and administrative expenses consist of $315,000 per year in fixed
expenses and $4 per unit sold in variable...
QUESTION 3 (12 marks) Part A: Ranier Ltd. has just completed its first year of operations...
QUESTION 3
Part A: Ranier Ltd. has just completed its first year of operations
on December 31, 20X1. Net income for the year was $570. During the
year, equipment costing $800 was purchased when the company paid
cash of $640 and issued common shares worth $160. Near the end of
the year, equipment costing $60 with accumulated depreciation of
$16 was sold for $54. At the end of the year, accounts receivable
was $250, accounts payable was $36 and accumulated...
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement...
Whitman Company has
just completed its first year of operations. The company’s
absorption costing income statement for the year follows:
Whitman Company
Income Statement
Sales (38,000
units × $41.60 per unit)
$
1,580,800
Cost of goods
sold (38,000 units × $24 per unit)
912,000
Gross
margin
668,800
Selling and
administrative expenses
475,000
Net operating
income
$
193,800
The company’s selling
and administrative expenses consist of $285,000 per year in fixed
expenses and $5 per unit sold in variable expenses. The...
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