1 Assume that Madison Corp has agreed to construct a new basketball arena for Gator Town for $70 million dollars Construction of the new arena begins in July, 2012 and is expected to be completed in March 2014 At the signing of the contract Madison Corp estimates that the new arena will cost $60 million dollars to build Given the following cost and building schedule determine the cumulative degree of completion and how much revenue and gross margin Madison Corp should recognize in years 2012, 2013 and 2014 Costs incurred Estimated costs Year to date Remaining 2012 $18,000,000 $42,000,000 2013 $48,000,000 $12,000,000 2014 $60,000,000 $0 2 Pronto, Inc is a major producer of printing equipment Pronto uses a LIFO cost flow assumption for inventories The company's tax rate is 35 Below is selected financial data for the company Pronto, Inc Selected Financial Data December 31, 2013 2012 2011 (amounts in thousands) Inventories (LIFO) $ 48,454 $ 42,369 $ 45,388 Total Assets 395,685 384,545 378,122 Common Shareholders Equity 102,754 98,564 89,455 Sales $546,258 $488,965 Cost of Goods Sold 393,857 348,920 Interest Expense 14,253 15,689 Net Income 24,581 21,025 Required a The excess of FIFO over LIFO inventories was $25 million on December 31, 2013, $28 5 million on December 31, 2012 and $22 million on December 31, 2011 Compute the cost of goods sold for Pronto, Inc for years 2013 and 2012 assuming that it had used a FIFO assumption b Compute the inventory turnover ratio for Pronto, Inc for years 2013 and 2012 using a LIFO cost flow assumption c Compute the inventory turnover ratio for Pronto, Inc for years 2013 and 2012 using a FIFO cost flow assumption d Compute the rate of return on assets for years 2013 and 2012 based on the reported amounts Disaggregate ROA into profit margin and asset turnover components e Compute the rate of return on assets for years 2013 and 2012 assuming that Pronto, Inc had used the FIFO method of accounting for inventories Disaggregate ROA into profit margin and asset turnover components 3 Under U S GAAP, application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and cash flow statement Compare and contrast the effect of the two methods on each financial statement and determine the advantages and disadvantages of each method

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1. Assume that Madison Corp. has agreed to construct a new basketball arena for Gator Town for $70 million dollars. Construction of the new arena

1. Assume that Madison Corp. has agreed to construct a new basketball arena for Gator Town for $70 million dollars. Construction of the new arena begins in July, 2012 and is expected to be completed in March 2014. At the signing of the contract Madison Corp. estimates that the new arena will cost $60 million dollars to build. Given the following cost and building schedule determine the cumulative degree of completion and how much revenue and gross margin Madison Corp. should recognize in years 2012, 2013 and 2014.

	Costs incurred	Estimated costs
Year	to date	Remaining
2012	$18,000,000	$42,000,000
2013	$48,000,000	$12,000,000
2014	$60,000,000	$0

2. Pronto, Inc. is a major producer of printing equipment. Pronto uses a LIFO cost-flow assumption for inventories. The company's tax rate is 35%. Below is selected financial data for the company.

Pronto, Inc.
Selected Financial Data
December 31,	2013	2012	2011
(amounts in thousands)
Inventories (LIFO)	$ 48,454	$ 42,369	$ 45,388
Total Assets	395,685	384,545	378,122
Common Shareholders Equity	102,754	98,564	89,455

Sales	$546,258	$488,965
Cost of Goods Sold	393,857	348,920
Interest Expense	14,253	15,689
Net Income	24,581	21,025

Required:

a.	The excess of FIFO over LIFO inventories was $25 million on December 31, 2013, $28.5 million on December 31, 2012 and $22 million on December 31, 2011. Compute the cost of goods sold for Pronto, Inc. for years 2013 and 2012 assuming that it had used a FIFO assumption.
b.	Compute the inventory turnover ratio for Pronto, Inc. for years 2013 and 2012 using a LIFO cost-flow assumption.
c.	Compute the inventory turnover ratio for Pronto, Inc. for years 2013 and 2012 using a FIFO cost-flow assumption.
d.	Compute the rate of return on assets for years 2013 and 2012 based on the reported amounts. Disaggregate ROA into profit margin and asset turnover components.
e.	Compute the rate of return on assets for years 2013 and 2012 assuming that Pronto, Inc. had used the FIFO method of accounting for inventories. Disaggregate ROA into profit margin and asset turnover components. 3.Under U.S. GAAP, application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and cash flow statement. Compare and contrast the effect of the two methods on each financial statement and determine the advantages and disadvantages of each method.