Dragonfly Limited (Dragonfly), a diversified electronics firm headquartered in Singapore, reported the following income statement information for its year ended December 31, Year 7. Dragonfly applies Singapore financial reporting standards and reports its results in thousands of Singapore dollars ($). In answering this problem, assume Dragonfly uses either U.S. GAAP or IFRS; for purposes of this problem, this choice will not matter.
Year 7
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 460,830
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (416,378)
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,452
Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,558
Selling and Marketing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,714)
General and Administrative Costs. . . . . . . . . . . . . . . . . . . . . . . (20,254)
Development Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,232)
Finance Costs, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,692)
Gain on Sale of Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,546
Share in Results of Associated Companies . . . . . . . . . . . . . . . (2)
Profit Before Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,662
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,094)
Profit (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,568
Portion of Profit Owned by Minority Interests . . . . . . . . . . . . . . (567)
Portion of Profit Owned by Shareholders . . . . . . . . . . . . . . . . . 3,135
Assume that Dragonfly supplied additional information about the following six hypothetical transactions or events that happened during Year 7, with all monetary amounts reported in thousands of Singapore dollars.
a. In January Year 7, Dragonfly collected $1,000 cash from customers who had purchased items on credit in December Year 6. Dragonfly had delivered the items by mid- December Year 6. Dragonfly recognized January revenues of $1,000.
b. On February 2, Year 7, the firm agreed to supply a customer with $25,000 of high-end electronics products. On this date, Dragonfly recognized revenues of $25,000 and cost of sales of $18,000 reflecting the carrying value of the high-end inventory. Dragonfly delivered on the agreement in September Year 7.
c. On June 4, Year 7, Dragonfly sold some land it had purchased many years earlier, prior to the boom in the real estate market. The carrying value of the land on the firm’s books was $454, and Dragonfly sold it for $7,000. Dragonfly recorded a gain on the sale of the land of $6,546.
d. During Year 7, the firm incurred $1,232 in development costs associated with a new product that the firm had developed; the firm expensed these costs. The product design and manufacture is nearly complete. The firm’s auditor has decided that Dragonfly should have capitalized the development costs.
e. In December Year 7, Dragonfly recognized interest income on investments in marketable securities of $230. The firm included this income in sales revenues.
f. Dragonfly spent $15,000 for advertising in Year 7. Because Dragonfly management believed the advertising would result in future income, it capitalized the expenditures as an asset. No amortization of the asset has yet taken place. For each transaction, determine whether revenues and expenses for Year 7 are over- or understated.