Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses increased by 2 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.

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Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The vertical analysis indicates that the cost of goods sold as a percent of sales (INCREASED/DECREASED)

by 5 percentage points, while selling expenses (INCREASED/DECREASED)

by 2 percentage points, and administrative expenses INCREASED/DECREASED

by 1 percentage points. Thus, net income as a percent of sales (INCREASED/DECREASED)

by 2 percentage points. (INCREASED/DECREASED)

Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Current Year Previous Year Sales $620,000 $539,000 Cost of goods sold 353,400 274,890 Selling expenses 105,400 107,800 Administrative expenses 117,800 91,630 Income tax expense 18,600 26,950 a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers. Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31 Current year Amount Current year Percent Previous year Amount Previous year Percent Sales $620,000 % $539,000 % Cost of goods sold 353,400 % 274,890 % Gross profit $ % $ % Selling expenses 105,400 % 107,800 % Administrative expenses 117,800 % 91,630 % Total operating expenses $ % $ % Income from operations % % Income tax expense 18,600 % 26,950 % Net income $ % $ % b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 6 percentage points, while selling expenses by 3 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.

Pig and Whistle Company, a small company following ASPE, is adjusting and correcting its books at the end of 2017. In reviewing its records, it compiles the following information.

a) Pig and Whistle has failed to accrue sales commissions payable at the end of each of the last two years, as follows:

B) In reviewing the December 31, 2018 inventory, Pig and Whistle discovered errors in its inventory-taking procedures that have caused inventories for the last three years to be incorrect, as follows:

Pig and Whistle has already made an entry that recognized the incorrect December 31, 2018 inventory amount.

C) In 2018, Pig and Whistle changed the depreciation method on its office equipment from double-declining-balance to straight-line because of a change in the pattern of benefits received. The equipment had an original cost of $160,000 when purchased on January 1, 2016. At that time, it was estimated that the office equipment had an eightyear useful life and no residual value. Depreciation expense recorded prior to 2018 under the double-declining- balance method was $70,000. Pig and Whistle has already recorded 2018 depreciation expense of $22,500 using the double-declining-balance method.

D) Before 2018, Pig and Whistle accounted for its income from long-term construction contracts on the completed- contract basis because it was unable to reliably measure the degree of completion or the estimated costs to complete. Early in 2018, Pig and Whistle changed to the percentage-of-completion basis for financial accounting purposes. The change was a result of experience with the project and improved ability to estimate the costs to completion and therefore the percentage complete. The completed-contract method will continue to be used for tax purposes. Income for 2018 has been recorded using the percentage-of-completion method. The following information is available:

Required:

1) Prepare the necessary journal entries at December 31, 2018 to record the above corrections and changes as appropriate. The books are still open for 2018. As Pig and Whistle has not yet recorded its 2018 income tax expense and payable amounts, tax effects for the current year may be ignored. Pig and Whistle’s income tax rate is 25%. Assume that Pig and Whistle applies the taxes payable method of accounting for income taxes.

QUESTION 1                                                                                                            

The Cutting Department of Oak Ltd has the following production and manufacturing cost data for March:

(Assume that the company uses the weighted-average method of accounting for units and costs)

1. Determine the equivalent units for July for the Finishing Department.                                     
2. Compute the costs per equivalent unit for July for the Finishing Department.                        
3. Determine the total cost of ending work in process inventory.                                                     
4. Determine the total cost of units transferred out.                                                                           

For each of the following financial situations, calculate the optimal cash discount percentage (each bullet is a separate answer, solve each bullet)

• Cash discount period = 5 days, credit period = 75 days, and annual cost of capital = 15%  

• Cash discount period = 10 days, credit period = 30 days, and annual cost of capital = 12%  

• Cash discount period = 10 days, credit posted = 45 days, and annual cost of capital = 18%  

• Cash discount period = 10 days, credit period = 30 days, and annual cost of capital = 22% 8.

If the annualized cost of trade credit is 7.37%, what is the net trade credit period? Assume a discount percentage of 1% for payments received on or before 20 days

A. 50 Days  

B. 70 days  

C. 30 days  

D. 40 days  

LO3 Discuss the key stages in a construction project, and how Building Information Modelling informs the different stages

P6 Identify, with examples, modern construction processes and sequences used within today’s industry, highlighting the way they respond to sustainability needs.

P7 Explain contract planning techniques used within micro and macro projects.

P8 Identify where BIM impacts upon operations and construction companies.

There are several differences between IFRS and GAAP in regards to revenue recognition. First, there are differences in the conditions that must exist to recognize revenue from the sale of goods. For example, under IFRS, one of the conditions is that “The entity has transferred to the buyer the significant risks and rewards of the goods.” Where as one of the GAAP conditions is simply that “Delivery has occurred.” Second, there are differences in recognizing revenue from construction contracts. For example, in GAAP, “If certain criteria are met, the percentage-of-completion method is used. If those criteria are not met, the completed contract method is used.” In IFRS, “The completed contract method is prohibited. If the percentage-of-completion method is not used because the final outcome cannot be reliably estimated, revenue is limited to the amount of recoverable costs incurred.” Third, there are differences in recognizing revenue involving contingent consideration. For example, under IFRS, if there is “the probability that economic benefits associated with the transaction will flow to the entity…revenue might be recognized prior to resolution of the contingency.” However, with GAAP, “Revenue related to contingent consideration should not be recognized until the contingency is resolved.” Lastly, in regards to customer loyalty programs, “there is not specific guidance related to accounting for customer loyalty programs. However, IFRS states that “Credits awarded to program participants must be treated as a separately identifiable component of a sales transaction.” PLEASE COMMENT ON THIS POST

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