Contract License In-house First cost, $ -2 -20 Annual cost, $ per year -1 -0.2 -4 Annual income, 2.5 1.3 8 $ per year Life, years 5 10
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Harmony Auto Group sells and services imported and domestic cars. The owner is considering the outsourcing of all its newcarwarranty servicework toWinslow, Inc., a private repair service that works on any make and year car. Both a 5-year contract basis or 10-year license agreement are available fromWinslow. Revenue from the manufacturer will be shared with no added cost incurred by the car/warranty owner. Alternatively, Harmony can continue to do warranty work in-house. Use the estimates made by the Harmony owner to perform an annualworth evaluation at 10% per year to select the best option. All dollar values are in millions.
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- Bought delivery van P850,000 terms 20% down and the balance payable in oneyear. Required: 1. Record the transaction in the general journal.Financial Statement Violations of U.S. GAAP The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2019: Notes to Financial Statements: 1. Long-Term Lease. Under the terms of a 5-year, noncancelable lease for a building, Allen is obligated to make annual rental payments of 40,000 in each of the next 4 fiscal years. 2. Pension Plan. Substai1tially all employees are covered by Allens defined benefit pension plan. Pension expense is equal to the total of pension benefits accrued and paid to retired employees during the year. Because it is a defined benefit plan that is paid every year, no pension liability exists. 3. Patent. The patent had an estimated remaining life of 10 years at the time of purchase. Allens patent was purchased from Apex Corporation on January 1, 2019, for 250,000. 4. Deferred Income Tax Payable. The entire balai1ce in the Deferred Income Tax Payable account arose from tax-exempt municipal bonds that were held during the previous fiscal year, giving rise to a difference between taxable income and reported net earnings for the fiscal year ended October 31, 2019. The deferred liability amount was calculated on the basis of past tax rates. 5. Warrants. On January 1, 2018, one common stock warrant was issued to shareholders of record for each common share owned. An additional share of common stock is to be issued upon exercise of 10 stock warrants and receipt of an amount equal to par value. For the 6 months ended October 31, 2019, the average market value for Allens common stock was 5 per share and no warrants had yet been exercised. 6. Contingent Liability. On October 31, 2019, Allen was contingently liable for product warranties in an amount estimated to aggregate 75,000. Required: Next Level Review the preceding financial state1nents and related notes. Identify any inclusions or exclusions from them that would be in violation of GAAP, and indicate corrective action to be taken. Do not comment as to format or style. Respond in the following order: 1. Balance sheet 2. Notes 3. Income statement 4. Statement of retained earnings 5. GeneralABC Company sells appliance service contracts agreeing to repair appliance for 2-year period. ABC Company’s past experience is that, of the total amount for repairs on service contracts, 40% is incurred evenly during the 1st contract year and 60% evenly during the second contract year. Receipts from service contracts for the 2 years ended December 31, 2021, are as follows: 2020, P500,000; 2021, P600,000. Receipts from contracts are credited to unearned service contract revenue. Assume that all contract sales are made evenly during the year.
- Marie Company grants Lyn Company first three months rent-free under a three-year operating lease. The lease is effective April 1, 2021 and provides for a monthly rental of P12,000, payment of which will begin on July 1, 2021. How much is the rent income reported in Marie Company’s profit or loss for the year ended December 31, 2021? 99,00072,000144,000108,000Daisy incorporated sells equipment on installment basis aat 25% mark up on cost. Installment sales for the past four years were: 4,906,660 in 2018, 3,560,900 in 2019, 7,840,480 in 2020 and 8,960,690 on 2021. Terms of the sale are as follows; Down payment of 10%, 15% of the balance is collected in the year of sale, 20% a year after sale, 35% two years after the year of sale, and the remaining amountwill be collected three years after the year of sale. Determine the realized gross profit in 2021A property pays the Kone elevator contract on May 1, 2020 for a 12 month period in the amount of $17,450. The contract covers the period April 1, 2020 through March 31, 2021. At the end of the calendar year 2020 (12/31/2020)- what is my balance in accrued expenses related to this contract?
- Problem 10-27 (AICPA Adapted)On December 31, 2020, Ames Company leased equipment for 10 years. Theentity contracted to pay P 400, 000 annual rent on December 31, 2020 andon December 31 of each of the next time years.The lease liability was recorded at P 2, 700, 000 on December 31, 2020before the first payment.The equipment’s useful life is 12 years and the interest rate implicit in thelease is 10%.The entity used the straight line method to depreciate all equipment.1. In recording the December 31, 2021 payment by what amount shouldthe lease liability be reduced?a. 270, 000b. 230, 000c. 225, 000d. 170, 0002. What is the interest expense for 2021?a. 270, 000b. 230, 000c. 200, 000d. 03. What is the lease liability on December 31, 2021?a. 2, 700, 000b. 2, 300, 000c. 2, 130, 000Ferol Company acquired rights to a patent from Rachal Company requiring an advance royalty payment when agreement was signed. Ferol Company remits royalties earned and due under the agreement on October 31 each year. Additionally, on the same date, Ferol Company pays in advance estimated royalties for the next year. Ferol Company adjusts prepaid royalties at year-end. Information for the year ended December 31, 2021 is as follows: 01/01/2021 Prepaid royalties 75,000 10/31/2021 Royalty payment (charged to royalty expense) 1,350,000 12/31/2021 Year-end credit adjustment to royalty expense 165,000 Under the cash basis of accounting, Ferol Company’s royalty expense for 2021 is Group of answer choices 1,185,000 1,255,000 1,350,000 1,260,000Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its customer for $882,000 ($294,000 per year). $294,000 per year is the standalone selling price for one year of maintenance service. At the end of the second year, both parties agree to modify the maintenance contract as follows: (1) the fee for the third year is reduced to $231,000, and (2) the contract is extended for an additional two years for $420,000 ($210,000 per year). The standalone selling price for one year of service at the time of modification is $252,000. Maintenance fees are billed annually by Traders Inc. a. Record Traders Inc.’s journal entry to recognize revenue for each of the first two years of the contract. Assume that the contract price was paid in cash. Account Name Dr. Cr. Answer Answer Answer Answer Answer Answer Year one entry. Answer Answer Answer Answer Answer Answer Year two entry. b.…
- Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its customer for $252,000 ($84,000 per year). $84,000 per year is the standalone selling price for one year of maintenance service. At the end of the second year, both parties agree to modify the maintenance contract as follows: (1) the fee for the third year is reduced to $66,000, and (2) the contract is extended for an additional two years for $120,000 ($60,000 per year). The standalone selling price for one year of service at the time of modification is $72,000. Maintenance fees are billed annually by Traders Inc. a. Record Traders Inc.’s journal entry to recognize revenue for each of the first two years of the contract. Assume that the contract price was paid in cash. Account Name Dr. Cr. AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales…On 1 january 2018’ a machine was purchased for $40,000 rate of deprecetion @10 p.a.prepare machinary account for 3 years when deprection charged under fixed installment method.2020 2019 Receivable from Construction contract Costs incurred each year. Construction in progress Partial billings on contract Collection each year P252,000 P240,000 460,800 292,800 873,600 240,000 720,000 2,167,000 8. The gross profit recognize from the long term construction contract is: 2019 2020 a. P52,800 P52,800 P547,200 b. P40,800 P240,000 C. d. P40,800 P307,200 P120,000
