Accounting Methods & Estimates and Their Effects on Net Income Homework Two different companies were organized to sell gec-gaws to the public. Both companies expect this to be a widely used device with increasing Sales each year. With increased enhancements, each year, they expect the sales price per unit to increase each year. Both companies expect to sell 10,000 units, at a selling price of $2,000 each, during their first year of business. Sales are anticipated to increase by 10% (in units - at a compounded rate) during each of the next two years. At the same time, the selling price per unit will increase by a compounded annual rate of 10%. The same supplier provides the devices to both companies. The cost of the product is 60% of the sales price. Like the sales price, the cost will increase cach year. Both companies keep a safety stock equal to 1,000 units at all times. (For example, during the first year each company will purchase 11,000 units - the 10,000 units to be sold plus an additional 1,000 units "just in case." During the second year, 11,000 units will be purchased - 1,000 units will remain from the first year.) Service contracts are available with each hardware device. These contracts cover the device "top to bottom" for a period of four years. The service contract costs $500, for this period, and the price will remain the same for the first three years of business. One- half of all customers purchase the service contract. Selling & Administrative Expenses (Salaries, Advertising, and et. al.) are budgeted to be $1,000,000 during the first year and grow at a compounded rate of 3%. Plant & Equipment costing $600,000 will be purchased at inception and will be depreciated using the Straight-Line method assuming no salvage value. Using an electronic spreadsheet, please complete a three year Budgeted Income Statement for each of the companies using the following assumptions: Bad Debts - This Company estimates that 4% of Total Reviews will prove collectible Depreciation - This Company depreciates its assets over ten year wrvice life inventory valuation Cost of Goods Sold - This Company has adopted the Last-In First-Out (LIFO) method of the life of the contract Company Twe Service Contracts - Management believes that this event will be reden over Bad Debts - This Company estimates that of Total Revenues will prove collectible. Depreciation - This Company depreciate itsus over fifteen year nice life imely valuation Cost of Gerda Sold - This Company has adopted the First line-Out (FIFO) method of year of signing the remaining amount is earned evenly over the life of the Service Contracts - Management argues that due to making the sale, initializing the ce [12] K H Accounting Methods & Estimates Homework Spreadsheet Template Susted Column width OR"Prieto FE ONE Page Wide by ONE Page Tail") [4) [17] (12) [12] [12] [2] 141 [17] [12] B C D Your Name 2 Accounting Methods & Emate Plant & E 000.000 10% Sales 1.000 3 Date 10 Seting Price $ 20005 5 Company One Company The 6 Year Income Sweet 7 Sales 5 Sa $ 1 Service Contracts Service Contracts o Totalleves Total 1 5 11 FIFO Cost of Goods 5 LIFO Couto 1 12 Seling & Admin 1.000.000 3 Sing & Admin 1.000.000 13 15 Deprecato -SET/13 Depreciation 14 ad Debt - GIA14 4 Bad Do 15 Total Expens 5 Tools 17 Nice Nel nome Cettes 19 Serce Contacts Rene Record Revenue Record 20 21 1 - 125500 3 3 To I $ 5 De incom Be Two Comp CITIT 1 28 30 31 Current Control Producten Formula Mints Sugestion Use "Font of 10 Accounting Methods & Estimates and Their Effects on Net Income Homework Two different companies were organized to sell gec-gaws to the public. Both companies expect this to be a widely used device with increasing Sales each year. With increased enhancements, each year, they expect the sales price per unit to increase each year. Both companies expect to sell 10,000 units, at a selling price of $2,000 each, during their first year of business. Sales are anticipated to increase by 10% (in units - at a compounded rate) during each of the next two years. At the same time, the selling price per unit will increase by a compounded annual rate of 10%. The same supplier provides the devices to both companies. The cost of the product is 60% of the sales price. Like the sales price, the cost will increase cach year. Both companies keep a safety stock equal to 1,000 units at all times. (For example, during the first year each company will purchase 11,000 units - the 10,000 units to be sold plus an additional 1,000 units "just in case." During the second year, 11,000 units will be purchased - 1,000 units will remain from the first year.) Service contracts are available with each hardware device. These contracts cover the device "top to bottom" for a period of four years. The service contract costs $500, for this period, and the price will remain the same for the first three years of business. One- half of all customers purchase the service contract. Selling & Administrative Expenses (Salaries, Advertising, and et. al.) are budgeted to be $1,000,000 during the first year and grow at a compounded rate of 3%. Plant & Equipment costing $600,000 will be purchased at inception and will be depreciated using the Straight-Line method assuming no salvage value. Using an electronic spreadsheet, please complete a three year Budgeted Income Statement for each of the companies using the following assumptions: Bad Debts - This Company estimates that 4% of Total Reviews will prove collectible Depreciation - This Company depreciates its assets over ten year wrvice life inventory valuation Cost of Goods Sold - This Company has adopted the Last-In First-Out (LIFO) method of the life of the contract Company Twe Service Contracts - Management believes that this event will be reden over Bad Debts - This Company estimates that of Total Revenues will prove collectible. Depreciation - This Company depreciate itsus over fifteen year nice life imely valuation Cost of Gerda Sold - This Company has adopted the First line-Out (FIFO) method of year of signing the remaining amount is earned evenly over the life of the Service Contracts - Management argues that due to making the sale, initializing the ce [12] K H Accounting Methods & Estimates Homework Spreadsheet Template Susted Column width OR"Prieto FE ONE Page Wide by ONE Page Tail") [4) [17] (12) [12] [12] [2] 141 [17] [12] B C D Your Name 2 Accounting Methods & Emate Plant & E 000.000 10% Sales 1.000 3 Date 10 Seting Price $ 20005 5 Company One Company The 6 Year Income Sweet 7 Sales 5 Sa $ 1 Service Contracts Service Contracts o Totalleves Total 1 5 11 FIFO Cost of Goods 5 LIFO Couto 1 12 Seling & Admin 1.000.000 3 Sing & Admin 1.000.000 13 15 Deprecato -SET/13 Depreciation 14 ad Debt - GIA14 4 Bad Do 15 Total Expens 5 Tools 17 Nice Nel nome Cettes 19 Serce Contacts Rene Record Revenue Record 20 21 1 - 125500 3 3 To I $ 5 De incom Be Two Comp CITIT 1 28 30 31 Current Control Producten Formula Mints Sugestion Use "Font of 10