Reference no: EM132511933
Point 1: Ivanhoe Industries manufactures sump-pumps. Its most popular product is called the Super Soaker, which has a retail price of $1,280 and costs $540 to manufacture. It sells the Super Soaker on a standalone basis directly to businesses. Ivanhoe also provides installation services for these commercial customers, who want an emergency pumping capability (with regular and back-up generator power) at their businesses. Ivanhoe also distributes the Super Soaker through a consignment agreement with Menards.
Income data for the first quarter of 2020 from operations other than the Super Soaker are as follows.
Revenues: $8,630,000
Expenses: $7,345,000
Ivanhoe has the following information related to two Super Soaker revenue arrangements during the first quarter of 2020.
1. Ivanhoe sells 30 Super Soakers to businesses in flood-prone areas for a total contract price of $55,800. In addition to the pumps, Ivanhoe also provides installation (at a cost of $160 per pump). On a standalone basis, the fair value of this service is $220 per unit installed. The contract payment also includes a $10 per month service plan for the pumps for 3 years after installation (Ivanhoe's cost to provide this service is $8 per month). The Super Soakers are delivered and installed on March 1, 2020, and full payment is made to Ivanhoe. Any discount is applied to the pump/installation bundle.
2. Ivanhoe ships 300 Super Soakers to Menards on consignment. By March 31, 2020, Menards has sold two-thirds of the consigned merchandise at the listed price of $1,280 per unit. Menards notifies Ivanhoe of the sales, retains a 5% commission, and remits the cash due Ivanhoe.
Question:
Question 1.) Determine Ivanhoe Industries' 2020 first-quarter net income. (Ignore taxes.)
Question 2.) Determine free cash flow for Ivanhoe Industries for the first quarter of 2020. In the first quarter, Ivanhoe had depreciation expense of $193,000 and a net increase in working capital (change in accounts receivable and accounts payable) of $275,000. In the first quarter, capital expenditures were $502,000; Ivanhoe paid dividends of $131,000.