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Can someone please provide me with answers to this case study please. Thank You! All relevant information is attached. rev. 5/27/16 PennsylvaniatStatetUniversity ACCTGt471:tIntermediatetFinancialtAccountingtI Summer 2016

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Can someone please provide me with answers to this case study please. Thank You! All relevant information is attached.

image text in transcribed rev. 5/27/16 Pennsylvania\tState\tUniversity ACCTG\t471:\tIntermediate\tFinancial\tAccounting\tI Summer 2016 (5/16 6/24/15) CASE\tSTUDY\t-\tPART\t1 This is the first of a two-part case study. You should complete Part 1 of the case study individually; however, you will be able to work in groups of no more than two for Part 2. You should already have the tools to complete Task A, but you may need to wait until we cover future chapters before you are able to complete Task B. Refer to the syllabus for due dates. Summary On January 1, 2014, two companies began operations to sell home heating units. Eads Heater, Inc. is located in Eads, Colorado, and Glenwood Heating, Inc. is in Glenwood Springs, Colorado. The companies operate under similar economic conditions and have identical operations during the year. However, the manager of each company makes different accounting choices and estimates when applying Generally Accepted Accounting Principles (GAAP) to prepare the company's financial statements. Task\tA\t-\tInitial\tTransactions Both companies have completed identical transactions during the first year of operations (2014). The transactions for each company are listed below. (a) On January 1, each company issued 26,000 shares of $0.10 par value common stock for $160,000. Both companies commenced operations on this date. (b) On January 2, each company borrowed $400,000 by issuing a 20-year, 7% note that specified interest plus $20,000 principal is due September 30 each year, beginning on September 30, 2014. (c) On January 3, each company purchased land and a building for $420,000 cash. Both managers allocated $70,000 to the land and $350,000 to the building. (d) On January 5, each company purchased equipment at a cost of $80,000. Both purchases were made in cash. (e) Each company sells one model of home heating unit, and made the following credit purchases during the year. You may record all the purchases in one transaction. Date January 10 No. of Units 40 Cost per Unit $1,000 March 14 60 1,100 June 1 20 1,150 September 15 62 1,200 October 30 28 1,300 1 of 4 ACCTG 471: Intermediate Financial Accounting I Case Study - Part A (f) Each company sold 160 units for $398,500 during the year. All sales were on credit. You will only record the sales component of this transaction for now. Management has not yet determined how inventory and cost of goods sold will be valued. Therefore, management will use the periodic inventory system and record cost of goods sold at the end of the year. (g) $299,100 was collected during the year on the sales described in (f). (h) $213,360 was paid on the purchases made in (e). (i) On September 30, the first $20,000 principal payment plus nine months' interest was made on the note payable described in (b). (j) A total of $34,200 was paid for a variety of expenses, such as advertising, supplies, insurance, and wages. These expenses are recorded in an account called \"other operating expenses.\" (k) Dividends of $0.90 per share were paid to common shareholders on December 1. (l) Management made an adjusting entry to accrue three months' interest on the note payable in (b) and (i) above. Requirement Record journal entries for these transactions (a-l) for Eads' and Glenwood's first year of operations. You should record the transactions in such a way that I can clearly follow your process; you may want to record the transactions in T-accounts as well. Although not required, it will likely be helpful to prepare a trial balance after recording the transactions. The following table contains a basic chart of accounts that will be used by either or both companies throughout this case study. However, you will not use all accounts when recording the transactions above. Assets Cash Accounts receivable Inventory Land Building Equipment Leased equipment Allowance for uncollectible accounts Accumulated depreciationbuilding Accumulated depreciationequipment Accumulated depreciationleased equipment Liabilities Accounts payable Interest payable Note payable Lease payable Equity (including revenues & expenses) Common stock Additional paid-in capital Sales Cost of goods sold Bad debt expense Depreciation expense Interest expense Other operating expenses Rent expense Income tax expense Dividends Retained earnings 2 of 4 ACCTG 471: Intermediate Financial Accounting I Case Study - Part A Task\tB\t-\tImplementation\tof\tAccounting\tEstimates\tunder\tGAAP It is now December 31, 2014, and each manager must make several decisions. (m) Each manager must estimate the amount of accounts receivable that will probably not be collected. They make the following estimates: Glenwood Heating, Inc. 1% of ending accounts receivable will be uncollectible Eads Heaters, Inc. 5% of ending accounts receivable will be uncollectible (n) Neither manager recorded cost of goods sold at the time of sale. They have taken a physical inventory, and now must determine the values of cost of goods sold and ending inventory. They decide to use the following inventory methods: Glenwood Heating, Inc. First-in, first-out (FIFO) Eads Heaters, Inc. Last-in, last-out (LIFO) (o) Both managers determine that the expected lives and salvage values of the building and equipment owned by each company are as follows: Building Equipment Useful Life 30 years Salvage Value $50,000 08 years $58,000 It is now time to record depreciation expense for the year. The managers decide to use the following depreciation methods: Glenwood Heating, Inc. Building Straight-line Equipment Straight-line Eads Heaters, Inc. Straight-line Double-declining balance (p) On January 1, 2014, each company negotiated the use of a large piece of operating equipment. Both managers agreed to a $16,000 payment on December 31, 2014, at which time they would decide the terms for using the equipment in the future. On December 31, when making the payment, the managers negotiated the following terms: Glenwood Heating, Inc. Although the owner of the equipment agreed to let Glenwood rent the equipment for $16,000 again next year, he would not guarantee that price beyond 2015. Management decided to rent the equipment on a yearly basis and signed an agreement to pay $16,000 on both December 31, 2014 and December 31, 2015. 3 of 4 ACCTG 471: Intermediate Financial Accounting I Case Study - Part A Eads Heaters, Inc. The owner of the equipment and Eads management negotiated a capital lease agreement. The present value of the lease agreement is $92,000. The contract contained the following details: Lease term 8 years 8% Interest rate Annual payment Payment date $16,000 December 31 The first two payments of $16,000 are to be allocated to between interest and principal as follows: December 31, 2014 Interest $7,360 Principal $8,640 Total $16,000 December 31, 2015 $6,670 $9,330 $16,000 The manager decides to compute depreciation using straight-line depreciation with a useful life equal to the eight-year lease term and no salvage value. (q) Both managers are concerned about income taxes. They both realize that companies generally keep a second set of books for tax reporting purposes, but are not sure about the differences between income reported according to GAAP and income as defined by the tax authorities. They also realize that they need to make an estimated tax payment in order to avoid late payment penalties. Both managers talk to their CPAs and are told to pay 25 percent of their GAAP income to the IRS to help avoid late penalties. Thus, each manager estimated a provision for income taxes of 25 percent of their GAAP income and made a payment for that amount to the IRS. Requirement Record the last five transactions (m-q) outlined above. Although not required, it will likely be helpful to prepare a trial balance after recording these transactions prior to the preparation of financial statements. Additionally, prepare the following financial statements for each company for the current year (2014): (1) income statement (multiple-step) (2) statement of cash flows (direct method) (3) balance sheet (classified) 4 of 4 Running head: FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING [Insert Name] [Institutional Affiliation] 1 FINANCIAL ACCOUNTING 2 Journal entries for Glenwood Inc for 2014 a). Jan 1 2014 Debit Cash Credit $160,000 Common stock $160,000 To record the issuance of 26,000 shares of $0.10 par value common stock for $160,000 b). Jan 2 2014 Debit Cash Credit $400,000 Note payable $400,000 To record issuance of 20-year, 7% note for borrowed amount of $400,000 c). Jan 3 2014 Debit Land $70,000 Building $350,000 Cash Credit $420,000 To record the purchase of land and building worth $420,000 d). Jan 5 2014 Debit Equipment Credit $80,000 Cash $80,000 To record the purchase of equipment costing $80,000 by use of cash e). Debit Purchase Sundry creditors Credit $5,750 $5,750 FINANCIAL ACCOUNTING 3 To record the credit purchase of 5,750 from respective creditors f). Debit Sundry debtors Credit $398,500 Credit sales $398,500 To record the credit sales of 160 units for $398,500 g). Debit Cash Credit $229,100 Credit receivables $229,100 To record part of the credit sales collection amounting to $229,100 h). Debit Sundry creditors Credit $213,360 Cash $213,360 To record a portion of payment to credit purchases amounting to $213,360 i). Debit Note payable $20,000 Interest expense $21,000 Cash Credit $41,000 To record the principal amount $20,000 plus nine months interest $21,000 j). Debit Expenses Sundry creditors Credit $34,200 $34,200 FINANCIAL ACCOUNTING 4 To record expenses paid amounting to $34,200 k). Debit Dividends Credit $144,000 Dividends payable $144,000 To record the dividends paid in December 1 2014 l). Debit Accrued Principal $60,000 Interest expense $7,000 Account payable Credit $67,000 To record the three months interest on note payable Eads Heaters Inc Journal entries for 2014 a). Jan 1 2014 Debit Cash Credit $160,000 Common stock $160,000 To record the issuance of 26,000 shares of $0.10 par value common stock for $160,000 b). Jan 2 2014 Debit Cash Credit $400,000 Note payable $400,000 To record issuance of 20-year, 7% note for borrowed amount of $400,000 c). Jan 3 2014 Debit Land $70,000 Credit FINANCIAL ACCOUNTING Building 5 $350,000 Cash $420,000 To record the purchase of land and building worth $420,000 d). Jan 5 2014 Debit Equipment Credit $80,000 Cash $80,000 To record the purchase of equipment costing $80,000 by use of cash e). Debit Purchase Credit $5,750 Sundry creditors $5,750 To record the credit purchase of 5,750 from respective creditors f). Debit Sundry debtors Credit $398,500 Credit sales $398,500 To record the credit sales of 160 units for $398,500 g). Debit Cash Credit $229,100 Credit receivables $229,100 To record part of the credit sales collection amounting to $229,100 h). Debit Sundry creditors $213,360 Credit FINANCIAL ACCOUNTING Cash 6 $213,360 To record a portion of payment to credit purchases amounting to $213,360 i). Debit Note payable $20,000 Interest expense $21,000 Cash Credit $41,000 To record the principal amount $20,000 plus nine months interest $21,000 j). Debit Expenses Credit $34,200 Sundry creditors $34,200 To record expenses paid amounting to $34,200 k). Debit Dividends Credit $144,000 Dividends payable $144,000 To record the dividends paid in December 1 2014 l). Debit Accrued Principal $60,000 Interest expense $7,000 Account payable To record the three months interest on note payable Credit $67,000 FINANCIAL ACCOUNTING 7 TASK B m). Doubtful calculation Glenwood inc 1%*229,360= $2,293.6 Debit Bad debt expense Credit $2,293.6 Provision for doubtful debts $2,293.6 n). Cost of goods sold Glenwood inc. FIFO COGS = Beginning inventory + purchases-ending inventory 0+239,800-(22*1200+28*1300)= 177,000 o). Glenwood Building 350,000-50,000/30= 10,000 per year Equipment 70,000-8,000/8= $7,750 p). Glenwood Inc Debit Lease expense Cash q). 25%*227,066.4= 56,766.6 Credit 16,000 16,000 FINANCIAL ACCOUNTING 8 Eads Heaters transactions m). Eads Heaters 5%*229,360= $11,468 Debit Bad debt expense Credit $11,468 Provision for doubtful debts $11,468 n). cost of goods sold Eads Heaters LIFO COGS = Beginning inventory + purchases-ending inventory 0+239,800-(10*1100+40*1000) = $188,800 o). Eads Heaters Inc Building 350,000-50,000/30,000= 10,000 Equipment 70,000*12.5%= 8,750 p). Glenwood inc Debit Lease expense Credit 16,000 Cash 16,000 Eads Heaters Inc Debit Credit FINANCIAL ACCOUNTING Principal 8,640 Interest expense 7,360 9 Cash 16,000 q). 25%*217,892=54,473 Glenwood Inc. Income statement as at 31st December 2014 Sales $398,500 Less: cost of sales Purchases $239,800 Closing stock 62,800 Gross profit 177,000 221,500 Less expense Interest expense 28,000 Lease expense 16,000 Bad expense $2,293.6 46,294 Net income 175,206 Retained profit $175,206 FINANCIAL ACCOUNTING 10 Eads Heaters, Inc. Income statement as at 31st December 2014 Sales $398,500 Less: cost of sales Purchases $239,800 Closing stock 51,000 188,800 Gross profit 209,700 Less expense Interest expense 28,000 Lease expense 16,000 Bad expense $11,468 55,468 Net income 154,232 Retained profit $154,232 Glenwood Inc. Cash flow statement as at December 2014 Cash receipt from customers 394,515 Cash paid to suppliers 213,360 Interest paid (28,000) Income tax paid (56,766.6) Dividend paid (144,000) Cash from operating activities (47,611.6) Cash from investing activities Purchase of land and building (420,000) Cash outflow from investing activities (420,000) Cash flow from financing activities Proceeds from issuance of share capital 160,000 FINANCIAL ACCOUNTING Issuance of long-term borrowing 11 400,000 Lease liabilities (16,000) Cash flow from financing lease 544,000 Cash at the end of the period 76,388.4 Eads Heaters Inc. Cash flow statement as at December 2014 Cash receipt from customers 394,515 Cash paid to suppliers 213,360 Interest paid (28,000) Income tax paid (56,766.6) Dividend paid (144,000) Cash from operating activities (47,611.6) Cash from investing activities Purchase of land and building (420,000) Cash outflow from investing activities (420,000) Cash flow from financing activities Proceeds from issuance of share capital 160,000 Issuance of long-term borrowing 400,000 Lease liabilities (16,000) Cash flow from financing lease 544,000 Cash at the end of the period 76,388.4 FINANCIAL ACCOUNTING 12 Glenwood Inc. Balance sheet as at 31st December 2014 Non-current assets Cost Acc. Depreciation Net book vale Building 350,000 10,000 340, 000 Equipment 70, 000 7,750 62,250 Current assets Cash and cash equivalent Account receivables 229,100 Less: bad debts 2,294 Total assets 13,076 226,806 $642,432 Equity and liabilities Share capital 160,000 Non-current liabilities Long-term debt 400,000 Current liabilities Trade creditors 41,432 Note payable 41,000 Total equity and liabilities $642,432 FINANCIAL ACCOUNTING 13 Heaters Inc. Balance sheet as at 31st December 2014 Non-current assets Cost Acc. Depreciation Net book vale Building 350,000 10,000 340, 000 Equipment 70, 0000 8,750 61,250 Current assets Cash and cash equivalent Account receivables 229,100 Less: bad debts 11,468 Total assets 84,683 217,632 $703,565 Equity and liabilities Share capital 160,000 Non-current liabilities Long-term debt 400,000 Current liabilities Trade creditors 102,565 Note payable 41,000 Total equity and liabilities $703,565 Running head: FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING [Insert Name] [Institutional Affiliation] 1 FINANCIAL ACCOUNTING 2 Journal entries for Glenwood Inc for 2014 a). Jan 1 2014 Debit Cash Credit $160,000 Common stock $160,000 To record the issuance of 26,000 shares of $0.10 par value common stock for $160,000 b). Jan 2 2014 Debit Cash Credit $400,000 Note payable $400,000 To record issuance of 20-year, 7% note for borrowed amount of $400,000 c). Jan 3 2014 Debit Land $70,000 Building $350,000 Cash Credit $420,000 To record the purchase of land and building worth $420,000 d). Jan 5 2014 Debit Equipment Credit $80,000 Cash $80,000 To record the purchase of equipment costing $80,000 by use of cash e). Debit Purchase Sundry creditors Credit $5,750 $5,750 FINANCIAL ACCOUNTING 3 To record the credit purchase of 5,750 from respective creditors f). Debit Sundry debtors Credit $398,500 Credit sales $398,500 To record the credit sales of 160 units for $398,500 g). Debit Cash Credit $229,100 Credit receivables $229,100 To record part of the credit sales collection amounting to $229,100 h). Debit Sundry creditors Credit $213,360 Cash $213,360 To record a portion of payment to credit purchases amounting to $213,360 i). Debit Note payable $20,000 Interest expense $21,000 Cash Credit $41,000 To record the principal amount $20,000 plus nine months interest $21,000 j). Debit Expenses Sundry creditors Credit $34,200 $34,200 FINANCIAL ACCOUNTING 4 To record expenses paid amounting to $34,200 k). Debit Dividends Credit $144,000 Dividends payable $144,000 To record the dividends paid in December 1 2014 l). Debit Accrued Principal $60,000 Interest expense $7,000 Account payable Credit $67,000 To record the three months interest on note payable Eads Heaters Inc Journal entries for 2014 a). Jan 1 2014 Debit Cash Credit $160,000 Common stock $160,000 To record the issuance of 26,000 shares of $0.10 par value common stock for $160,000 b). Jan 2 2014 Debit Cash Credit $400,000 Note payable $400,000 To record issuance of 20-year, 7% note for borrowed amount of $400,000 c). Jan 3 2014 Debit Land $70,000 Credit FINANCIAL ACCOUNTING Building 5 $350,000 Cash $420,000 To record the purchase of land and building worth $420,000 d). Jan 5 2014 Debit Equipment Credit $80,000 Cash $80,000 To record the purchase of equipment costing $80,000 by use of cash e). Debit Purchase Credit $5,750 Sundry creditors $5,750 To record the credit purchase of 5,750 from respective creditors f). Debit Sundry debtors Credit $398,500 Credit sales $398,500 To record the credit sales of 160 units for $398,500 g). Debit Cash Credit $229,100 Credit receivables $229,100 To record part of the credit sales collection amounting to $229,100 h). Debit Sundry creditors $213,360 Credit FINANCIAL ACCOUNTING Cash 6 $213,360 To record a portion of payment to credit purchases amounting to $213,360 i). Debit Note payable $20,000 Interest expense $21,000 Cash Credit $41,000 To record the principal amount $20,000 plus nine months interest $21,000 j). Debit Expenses Credit $34,200 Sundry creditors $34,200 To record expenses paid amounting to $34,200 k). Debit Dividends Credit $144,000 Dividends payable $144,000 To record the dividends paid in December 1 2014 l). Debit Accrued Principal $60,000 Interest expense $7,000 Account payable To record the three months interest on note payable Credit $67,000 FINANCIAL ACCOUNTING 7 TASK B m). Doubtful calculation Glenwood inc 1%*229,360= $2,293.6 Debit Bad debt expense Credit $2,293.6 Provision for doubtful debts $2,293.6 n). Cost of goods sold Glenwood inc. FIFO COGS = Beginning inventory + purchases-ending inventory 0+239,800-(22*1200+28*1300)= 177,000 o). Glenwood Building 350,000-50,000/30= 10,000 per year Equipment 70,000-8,000/8= $7,750 p). Glenwood Inc Debit Lease expense Cash q). 25%*227,066.4= 56,766.6 Credit 16,000 16,000 FINANCIAL ACCOUNTING 8 Eads Heaters transactions m). Eads Heaters 5%*229,360= $11,468 Debit Bad debt expense Credit $11,468 Provision for doubtful debts $11,468 n). cost of goods sold Eads Heaters LIFO COGS = Beginning inventory + purchases-ending inventory 0+239,800-(10*1100+40*1000) = $188,800 o). Eads Heaters Inc Building 350,000-50,000/30,000= 10,000 Equipment 70,000*12.5%= 8,750 p). Glenwood inc Debit Lease expense Credit 16,000 Cash 16,000 Eads Heaters Inc Debit Credit FINANCIAL ACCOUNTING Principal 8,640 Interest expense 7,360 9 Cash 16,000 q). 25%*217,892=54,473 Glenwood Inc. Income statement as at 31st December 2014 Sales $398,500 Less: cost of sales Purchases $239,800 Closing stock 62,800 Gross profit 177,000 221,500 Less expense Interest expense 28,000 Lease expense 16,000 Bad expense $2,293.6 46,294 Net income 175,206 Retained profit $175,206 FINANCIAL ACCOUNTING 10 Eads Heaters, Inc. Income statement as at 31st December 2014 Sales $398,500 Less: cost of sales Purchases $239,800 Closing stock 51,000 188,800 Gross profit 209,700 Less expense Interest expense 28,000 Lease expense 16,000 Bad expense $11,468 55,468 Net income 154,232 Retained profit $154,232 Glenwood Inc. Cash flow statement as at December 2014 Cash receipt from customers 394,515 Cash paid to suppliers 213,360 Interest paid (28,000) Income tax paid (56,766.6) Dividend paid (144,000) Cash from operating activities (47,611.6) Cash from investing activities Purchase of land and building (420,000) Cash outflow from investing activities (420,000) Cash flow from financing activities Proceeds from issuance of share capital 160,000 FINANCIAL ACCOUNTING Issuance of long-term borrowing 11 400,000 Lease liabilities (16,000) Cash flow from financing lease 544,000 Cash at the end of the period 76,388.4 Eads Heaters Inc. Cash flow statement as at December 2014 Cash receipt from customers 394,515 Cash paid to suppliers 213,360 Interest paid (28,000) Income tax paid (56,766.6) Dividend paid (144,000) Cash from operating activities (47,611.6) Cash from investing activities Purchase of land and building (420,000) Cash outflow from investing activities (420,000) Cash flow from financing activities Proceeds from issuance of share capital 160,000 Issuance of long-term borrowing 400,000 Lease liabilities (16,000) Cash flow from financing lease 544,000 Cash at the end of the period 76,388.4 FINANCIAL ACCOUNTING 12 Glenwood Inc. Balance sheet as at 31st December 2014 Non-current assets Cost Acc. Depreciation Net book vale Building 350,000 10,000 340, 000 Equipment 70, 000 7,750 62,250 Current assets Cash and cash equivalent Account receivables 229,100 Less: bad debts 2,294 Total assets 13,076 226,806 $642,432 Equity and liabilities Share capital 160,000 Non-current liabilities Long-term debt 400,000 Current liabilities Trade creditors 41,432 Note payable 41,000 Total equity and liabilities $642,432 FINANCIAL ACCOUNTING 13 Heaters Inc. Balance sheet as at 31st December 2014 Non-current assets Cost Acc. Depreciation Net book vale Building 350,000 10,000 340, 000 Equipment 70, 0000 8,750 61,250 Current assets Cash and cash equivalent Account receivables 229,100 Less: bad debts 11,468 Total assets 84,683 217,632 $703,565 Equity and liabilities Share capital 160,000 Non-current liabilities Long-term debt 400,000 Current liabilities Trade creditors 102,565 Note payable 41,000 Total equity and liabilities $703,565

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