Partial Balance Sheet

1405 Words Sep 14th, 2010 6 Pages
exercises

Exercise 5-1
Installment sales; alternative recognition methods

( LO1 LO2 On June 1, 2006, the Luttman and Dowd Company sold inventory to the Ushman Corporation for $400,000. Terms of the sale called for a down payment of $100,000 and four annual installments of $75,000 due on each June 1, beginning June 1, 2007. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $150,000. The company uses the perpetual inventory system.

Required:
1. Compute the amount of gross profit to be recognized from the installment sale in 2006, 2007, 2008, 2009, and 2010 using point of delivery revenue recognition. Ignore interest charges.
2. Repeat
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Prepare the necessary journal entries for the following dates (ignoring interest charges):

1. November 15, 2006, and 2. February 15, 2007.

Exercise 5-5
Evaluating efficiency of asset management

( LO6 The year 2006 income statement of Garret & Sons Music Company reported net sales of $10 million, cost of goods sold of $6 million, and net income of $1 million. The following table shows the company's comparative balance sheets for 2006 and 2005:

($ in 000s) Assets: 2006 2005 Cash $ 240 $ 280 Accounts receivable 800 600 Inventory 850 700 Property, plant, and equipment (net) 2,600 2,520 Total assets $4,490 $4,100 Liabilities and Shareholders’ Equity: Current liabilities $ 720 $ 650 Notes payable 600 1,000 Paid-in capital 2,000 2,000 Retained earnings 1,170 450 Total liabilities and shareholders equity $4,490 $4,100

Some industry averages for the company’s line of business are: _______________________________________

inventory turnover 6 times average collection period 28 days asset turnover 2 times _______________________________________

Required: Assess Garret & Son's asset management relative to its industry.

Exercise 5-6
Profitability ratios

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