Exercise 23-12

Condensed financial data of Sandhill Company for 2020 and 2019 are presented below.

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2020.

Prepare a statement of cash flows using the direct method.

Kailee’s Cookery Pty Ltd sells ovens and access to online cooking classes. On 1 May 2020, Kailee’s Cookery Pty Ltd signs an agreement with Chef School to provide 15 weekly online cooking classes and five ovens. The contract price amounted to $66,000 (GST inclusive), on credit terms n/30 for the ovens and n/60 for the cooking classes. This amount also includes one free service of the oven to be performed six months after the delivery of the ovens to Chef School.

The stand-alone price for the 15 weekly online cooking classes is $33,000 (GST inclusive). The cooking classes will start on 18 May 2020.

The stand-alone price of the ovens is $55,000 (GST inclusive). The six-month service fee for the ovens is usually $1,100 (GST inclusive).

The ovens were delivered on 18 May 2020.

Chef School paid the full amount on 20 May 2020 for the ovens.

By 30 June 2020, 7 online cooking classes were delivered. Chef School has yet to make any payment for the online cooking classes.

Required:

With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process for revenue recognition in regards to the contract with Chef School. List each of the five steps and show any calculations

Crane Construction Inc., which has a calendar year end, has entered into a non-cancellable fixed price contract for $2.9 million beginning September 1, 2020, to build a road for a municipality. It has been estimated that the road construction will be complete by June 2022. The following data pertain to the construction period.

Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.

Using the percentage-of-completion method, prepare the journal entries for 2020 and 2021. (Use Materials, Cash, Payables for costs incurred to date.)

For the Year 2020:

1-

2-

(To record Cost of Construction)

1-

2-

To record progress billings

1-

2-

To record collections

1-

2-

To record revenues

1-

2-

To record construction expenses

Same procedures for 2021:

(Accounts receivable and uncollectible accounts—aging of receivables method)

On December 31, 2019, Ajacks Company reported the following information in its financial statements:

During 2020, the company had the following transactions related to receivables:

a. Sales were $10,560,000, of which $8,448,000 were on account.

b. Collections of accounts receivable were $7,284,000.

c. Writeoffs of accounts receivable were $78,000.

d. Recoveries of accounts previously written off as uncollectible were $8,100. (Note that this amount is not included in the collections referred to in item b above.)

Required

1. Prepare the journal entries to record each of the four items above.
2. Set up T accounts for the Accounts Receivable and the Allowance for Doubtful Accounts and enter their January 1, 2020, balances. Post the entries from part “a” and calculate the new balances in these accounts.
3. Prepare the journal entry to record the bad debts expense for 2020. Ajacks Company uses the aging of accounts receivable method and has prepared an aging schedule, which indicates that the estimated value of the uncollectible accounts as at the end of 2020 is $93,000.
4. Show what would be presented on the statement of financial position as at December 31, 2020, related to accounts receivable.

Marigold Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations.

At December 31, 2020, Marigold Inc. capital accounts were as follows.

Marigold Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Marigold began operations. The state law permits dividends only from retained earnings.

(a) Compute the book value of the common stock at December 31, 2020. (Round answers to 2 decimal places, e.g. $38.50.)

(b) Compute the book value of the common stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $107 per share. (Round answers to 2 decimal places, e.g. $38.50.)

On January 1, 2018, a machine was purchased for $102,500. The machine has an estimated salvage value of $7,580 and an estimated useful life of 5 years. The machine can operate for 113,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2018, 22,600 hrs; 2019, 28,250 hrs; 2020, 16,950 hrs; 2021, 33,900 hrs; and 2022, 11,300 hrs.

Compute the annual depreciation charges over the machine’s life assuming a December 31 year-end for each of the following depreciation methods. (Round answers to 0 decimal places, e.g. 45,892.)

eTextbook and Media

Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)

You are the auditor of Crane Inc., the Canadian subsidiary of a public multinational engineering company that offers a defined benefit pension plan to its eligible employees. Employees are permitted to join the plan after two years of employment, and benefits vest immediately. You have received the following information from the fund trustee for the year ended December 31, 2020:

Other relevant information:

Prepare a pension work sheet for the company. Assume IFRS is followed.

Prepare the employer’s journal entries to reflect the accounting for the pension plan for the year ended December 31, 2020.

Novak Sports began operations on January 2, 2020. The following stock record card for footballs was taken from the records at the end of the year.

A physical inventory on December 31, 2020, reveals that 119 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Novak Football Shop uses the invoice price less discount for recording purchases.

Compute the December 31, 2020, inventory using the FIFO method.

Compute the 2020 cost of goods sold using the LIFO method.

What method would you recommend to the owner to minimize income taxes in 2020 based on the inventory info?

The following data is supplied from the comparative balance sheets and income statement information from Westerman, Inc.

Additional Information:

1. Net Income for 2020 was $40,000.
2. Depreciation expense was $8,000 during 2020.
3. No long term assets were sold during the year.
4. Westerman purchased land for $24,000 during 2020.
5. Notes payable of $8,000 were repaid during the year.
6. Westerman issued new common stock for $24,000 in 2020.
7. Westerman paid cash dividends of $24,000 during the year.

Prepare the Statement of Cash Flows for Westerman using the indirect method.

Provide the following amounts:

What is the total of the net cash flows from operating activities?  

What is the total of the net cash flows from investing activities?   

What is the total of the net cash flows from financing activities?