Chiller Company Case Study

Even though Mr. Fordham mentions that he in his “Statement of Cost of Goods Manufactured for Year Ended Dec. 31 1956” that he depreciated $24,000 of Plant and Equipment, I decided to change the depreciation schedule so that PP&E would be fully depreciated by the end of the 5 year period. Thus, I used a straight-line depreciation schedule that accumulated $40,000 worth of depreciation per year, which was spread evenly across the 12 months of this Balance Sheet (or $3,333.33 per month).

These economic adjustments are justified. If the corporation were experiencing a decline in sales this would also mean that they were using machinery less. Therefore, causing much less wear and tear damages to the machinery, which would definitely justify why the increase in the useful life expectancy of the asset.

6. Note 8 states Harnischfeger’s allowance for doubtful accounts. Compute the ratio of the allowance to gross receivables (receivables before the allowance) in 1983 and 1984. What would the allowance have been if the company maintained the ratio at the 1983 level? How much did the pre-tax income increase as a result of the changed ratio in 1984?

6. Note 8 states Harnischfeger’s allowance for doubtful accounts.  Compute the ratio of the allowance to gross receivables (receivables before the allowance) in 1983 and 1984.  What would the allowance have been if the company maintained the ratio at the 1983 level?  How much did the pre-tax

On December 31, MD purchased lumber costing $4,410 which was received that day; however, it was not included in the inventory count or in accounts payable. The issue is whether the inventory should be included in the December 31, 2014 year end or not until the lumber was put into production in January.

d. Two items of equipment (a sprayer and an injector) were purchased and put into service in early January 2009. They are being depreciated with the straight-line method using these facts and estimates.

With the product it produces and the machine itself being so unique it would be very difficult to reliably measure how long this will last. Even conveying this scenario to independent industry experts would not result in anything more than judgment and estimates due to its distinctiveness. This is one key problem area with IFRSs; it is principles based which means that rather than following a solid set of rules, accountants use their own judgment.

* Investment in plant upgrades that provide the greatest benefit for each plant, which is most likely any of them except for plant upgrade: C.

Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)

Estimated machinery life: 3 years (after which there will be zero value for the equipment and no further cost savings)

ML had developed a policy of selling manual machines and renting automatic machines. Manual machines did not cost much, did not require service, and could be modified to attach different fasteners inexpensively. Automatic machines were rented on an annual basis because they would have been more expensive to sell and it provided annual income to ML. However, about 700 of the rented machines were returned each year. During the time that machines were in inventory, ML would modify the machines to attach different fasteners. This was expensive with an average cost per modification of $2000. If all 700 machines were modified during a given year this would have cost $1.4 million per year. It was also industry practice to provide preventative maintenance and

Net book value at end of year 1 is $8,793. Less what you received on the sale $7,500. Gives you a disposal loss of $1,293 using the straight-line method of depreciation. You then add the disposal loss from the previous years depreciation $1,880, which results in a total income statement impact of $3,173.

Starbucks Corps had its gross account receivables for the year 2015 increase by 14.44% which led to its net receivables increase by $88,000,000 which translates to an increase of 13.95% of the net account receivables. This was followed by an increase in doubtful debts through the previous year by 6.12% to %6,700,000 from the ear 2014. This is due to the increase in the number also sales which led to the increase in account receivables and also doubtful debts in 2015. The risk that the company undertook also increases in line with the increase in account receivables.

c) In relation to the plant, explain the adjustment required to the deferred tax account.