Prepare comparative balance sheets and income statements

Assignment Help Financial Accounting

Reference no: EM13174223

BIKE Company starts with $3,000 cash to finance its business plan of producing bike helmets using a simple assembly process. During the first month of business, the company signs sales contracts for 1,300 units (sales price of $9 per unit), produces 1,200 units (production cost of $7 per unit), ships 1,100 units, and collects in full for 900 units. Production costs are paid at the time of production. The company has only two other costs: (1) sales commissions of 10% of selling price when the company collects from the customer, and (2) shipping costs of $0.20 per unit paid at time of shipment. Selling price and all costs per unit have been constant and are likely to remain the same.
Required:

a. Prepare comparative (side-by-side) balance sheets and income statements for the first month of BIKE Company for each of the following three alternatives: (1) Revenue is recognized at the time of shipment. (2) Revenue is recognized at the time of collection. (3) Revenue is recognized at the time of production. Note: Net income for each of these three alternatives is (1) $990, (2) $810, and (3) $1,080, respectively.

b.The method where revenue is recognized at the time of collection, known as installment method, is acceptable for financial reporting in unusual and special cases. Why is Bike Company likely to prefer this method for tax purpose?

c. Comment on the usefulness of the installment method for a credit analyst in using both the balance sheet and income statement.

Reference no: EM13174223

Questions Cloud

Define water and methylene chloride : A student performs an extraction using water and methylene chloride. Which is the top layer and which is

State what name label is given to the hybridized orbitals : What name (label) is given to the hybridized orbitals of SF6. Explain how this label applies to the orbitals of the free atoms.

Effect of the equilibrium price and quantity of orange juice : The price of apple juice decreases, and the wage rate paid to orange grove workers increases-equilibrium price_________equilibrium quantity________

What is the volume of so2 in the air sample : analysis. To a 500 mL air sample at 700 torr and 38 deg C, she adds 20.00mL of 0.01017 M aqueous iodine which reacts as follows:

Prepare comparative balance sheets and income statements : Prepare comparative (side-by-side) balance sheets and income statements for the first month of BIKE Company for each of the following three alternatives, Revenue is recognized at the time of shipment.

Explain why is it important to rigorously exclude moisture : Why is it important to rigorously exclude moisture when performing a Grignard reaction

What specific properties are mentioned in the organization : What specific properties are mentioned in the organization of the real periodic table? How do they relate to the current model (pages 192 - 193)?

Define a galvanic voltaic cell consists of an electrode : A galvanic (voltaic) cell consists of an electrode composed of chromium in a 1.0M Chromium(II) ion solution and another electrode composed of silver in a 1.0M silver ion solution, connected by a salt bridge.

State compounds in order of reactivity toward nitration : Rank the following compounds in order of reactivity toward nitration with HNO3

User Account

All Pages