Reference no: EM131750619
Economy Appliance Co. manufactures low-price, no-frills appliances that are in great demand for rental units. Pricing and cost information on Economy's main products are as follows.
Refrigerator $500 ($260)
Range $560 ($275)
Stackable washer/dryer unit $700 ($400)
Customers can contract to purchase either individually at the stated prices or a three-item bundle with a price of $1,800. The bundle price includes delivery and installation. Economy provides delivery and installation as a standalone service for any of its products for a price of $100.
Instructions Respond to the requirements related to the following independent revenue arrangements for Economy Appliance Co.
(a) On June 1, 2014, Economy sold 100 washer/dryer units without installation to Laplante Rentals for $70,000. Laplante is a newer customer and is unsure how this product will work in its older rental units. Economy offers a 60-day return privilege and estimates, based on prior experience with sales on this product, 4% of the units will be returned. Prepare the journal entries for the sale and related cost of goods sold on June 1, 2014.
(b) YellowCard Property Managers operates upscale student apartment buildings. On May 1, 2014, Economy signs a contract with YellowCard for 300 appliance bundles to be delivered and installed in one of its new buildings. YellowCard pays 20% cash at contract signing and will pay the balance upon delivery and installation no later than August 1, 2014. Prepare journal entries for Economy on (1) May 1, 2014, and (2) August 1, 2014, when all appliances are delivered and installed.
(c) Refer to the arrangement in part (b). It would help YellowCard secure lease agreements with students if the delivery and installation of the appliance bundles can be completed by July 1, 2014. YellowCard offers a 10% bonus payment if Economy can complete delivery and installation by July 1, 2014. Economy estimates its chances of meeting the bonus deadline to be 60%, based on a number of prior contracts of similar scale. Repeat the requirement for part (b), given this bonus provision. Assume installation is completed by July 1, 2014.
(d) Epic Rentals would like to take advantage of the bundle price for its 400-unit project; on February 1, 2014, Economy signs a contract with Epic for delivery and installation of 400 bundles. Under the agreement, Economy will hold the appliance bundles in its warehouses until the new rental units are ready for installation. Epic pays 10% cash at contract signing. On April 1, 2014, Economy completes manufacture of the appliances in the Epic bundle order and places them in the warehouse. Economy and Epic have documented the warehouse arrangement and identified the units designated for Epic. The units are ready to ship, and Economy may not sell these units to other customers. Prepare journal entries for Economy on (1) February 1, 2014, and (2) April 1, 2014.
|
Which proforma financial statements should be drawn up
: How would you determine the overall planning horizon for a firm and the basic time unit (for example, yearly, quarterly, monthly).
|
|
Evaluate the income tax issues for tom
: With regard to the proposed ownership and capitalization, evaluate the income tax issues for Tom if the business is operated.
|
|
Appropriate protection mechanism for software
: What are some reasons a patent is an appropriate protection mechanism for software? What are some arguments why it is not?
|
|
Calculating and interpreting an average collection period
: Assume that a firm's sales have changed rapidly, either because of seasonality or because of rapid growth. What, if any, problems might this cause.
|
|
Prepare journal entries for economy
: Economy may not sell these units to other customers. Prepare journal entries for Economy on
|
|
Discuss about manufacturing or trading enterprises
: One often finds that regulated utilities, such as telephone companies or pipelines, earn a much higher net operating margin than manufacturing or trading.
|
|
Dramatic decreases in the value of the primary assets
: Some industries, such as the real estate industry in 1982 and the oil industry in 1985, have been subject to dramatic decreases in the value of their primary.
|
|
What are the implications for the internal audit function
: What are the implications for the Internal Audit function if management fails to respond appropriately to an observation warranting corrective action
|
|
The clinic uses the following revenue and cost formulas
: the clinic uses the following revenue and cost formulas in its budgeting, where q is the number of patient-visits
|