Computer Tech Limited was started in early 2021 and continued to operate until early 2024, when it was wound up due to disputes between the two principal owners. When it started, the company considered two sets of accounting policies. i (Click the icon to view accounting policy set 1.) i (Click the icon to view accounting policy set 2.) Actual events, cash flows, and transactions are as follows. (Click the icon to view the data.) Required Accounting policy set 1 a. Use straight-line depreciation method on the firm's only asset. The computer cost $950,000 and has an estimated useful life of four years. b. Estimate warranty expense as 8% of sales. Estimate bad debts expense as 5% of sales. C. Accounting policy set 2 a. Use 50% declining-balance method for depreciation. Estimate warranty expense as 10% of sales. b. C. The year-end allowance for doubtful accounts should be 40% of gross accounts receivable. Data table Sales (all on account) Warranties paid Proceeds on disposal of computer Accounts receivable collected in year Accounts receivable written off in year All other expenses (paid in cash in the year incurred) $ 2021 2022 2023 3,100,000 $ 3,000,000 $2,750,000 $ 248,000 240,000 281,875 2,697,000 2,400,000 2,612,500 93,000 90,000 137,500 2,170,000 2,100,000 1,856,250 2024 I 360,000 129,600 380,000 1,000,000 180,000 252,000 Requirement a. Derive net income for 2021 to 2024 using the first set of accounting policies. For the year-end balance for 2024, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved. (Enter a "0" for any zero balances.) 2021 2022 2023 2024 Sales Operating expenses Warranty expense Bad debt expense Depreciation expense Gain on disposal Net income Requirement b. Derive net income for 2021 to 2024 using the second set of accounting policies. For the year-end balance for 2024, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved. (Use a minus sign or parentheses for a loss. Enter a "0" for any zero balances.) 2021 2022 2023 2024 Sales Operating expenses Warranty expense Bad debt expense or recovery Depreciation expense Gain on disposal Net income (loss) Requirement c. Derive the annual net cash flows for 2021 to 2024. Begin by calculating the annual net cash flow for 2021 and then for 2022, 2023, and 2024. (Use a minus sign or parentheses for a cash outflow. Enter a "0" for any zero balances.) 2021 2022 2023 2024 Collections Cash operating expenses Warranty expense paid Purchase of capital asset Proceeds on disposal of capital asset Net cash flow Requirement d. What is the sum of the net income for the four years for the two sets of accounting policies? What is the sum of the net cash flows for the four years? What does this tell us about net income and accrual accounting? Compare the 4-year totals for cash flow and income. Comment on the similarities and differences. Sum of the net income over four years using accounting policy set 1: Sum of the net income over four years using accounting policy set 2: Sum of the net cash flows over four years: What does this tell us about net income and accrual accounting? These sums show that, from a company's beginning to its end (cradle to grave), the sum of net income and cash flows Requirement e. Why were the net incomes different between the two sets of accounting policies? The differences in net incomes for the two scenarios is the result of using different methods of accruing Requirement f. What caused the net income in 2024 to be so high for the second set of accounting policies? The net income for 2024 is significantly higher using accounting policy set 2 than set 1. This is due to the fact that the first set of accounting policies recorded This means in later years and when the firm was wound up must be reversed Computer Tech Limited was started in early 2021 and continued to operate until early 2024, when it was wound up due to disputes between the two principal owners. When it started, the company considered two sets of accounting policies. i (Click the icon to view accounting policy set 1.) i (Click the icon to view accounting policy set 2.) Actual events, cash flows, and transactions are as follows. (Click the icon to view the data.) Required Accounting policy set 1 a. Use straight-line depreciation method on the firm's only asset. The computer cost $950,000 and has an estimated useful life of four years. b. Estimate warranty expense as 8% of sales. Estimate bad debts expense as 5% of sales. C. Accounting policy set 2 a. Use 50% declining-balance method for depreciation. Estimate warranty expense as 10% of sales. b. C. The year-end allowance for doubtful accounts should be 40% of gross accounts receivable. Data table Sales (all on account) Warranties paid Proceeds on disposal of computer Accounts receivable collected in year Accounts receivable written off in year All other expenses (paid in cash in the year incurred) $ 2021 2022 2023 3,100,000 $ 3,000,000 $2,750,000 $ 248,000 240,000 281,875 2,697,000 2,400,000 2,612,500 93,000 90,000 137,500 2,170,000 2,100,000 1,856,250 2024 I 360,000 129,600 380,000 1,000,000 180,000 252,000 Requirement a. Derive net income for 2021 to 2024 using the first set of accounting policies. For the year-end balance for 2024, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved. (Enter a "0" for any zero balances.) 2021 2022 2023 2024 Sales Operating expenses Warranty expense Bad debt expense Depreciation expense Gain on disposal Net income Requirement b. Derive net income for 2021 to 2024 using the second set of accounting policies. For the year-end balance for 2024, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved. (Use a minus sign or parentheses for a loss. Enter a "0" for any zero balances.) 2021 2022 2023 2024 Sales Operating expenses Warranty expense Bad debt expense or recovery Depreciation expense Gain on disposal Net income (loss) Requirement c. Derive the annual net cash flows for 2021 to 2024. Begin by calculating the annual net cash flow for 2021 and then for 2022, 2023, and 2024. (Use a minus sign or parentheses for a cash outflow. Enter a "0" for any zero balances.) 2021 2022 2023 2024 Collections Cash operating expenses Warranty expense paid Purchase of capital asset Proceeds on disposal of capital asset Net cash flow Requirement d. What is the sum of the net income for the four years for the two sets of accounting policies? What is the sum of the net cash flows for the four years? What does this tell us about net income and accrual accounting? Compare the 4-year totals for cash flow and income. Comment on the similarities and differences. Sum of the net income over four years using accounting policy set 1: Sum of the net income over four years using accounting policy set 2: Sum of the net cash flows over four years: What does this tell us about net income and accrual accounting? These sums show that, from a company's beginning to its end (cradle to grave), the sum of net income and cash flows Requirement e. Why were the net incomes different between the two sets of accounting policies? The differences in net incomes for the two scenarios is the result of using different methods of accruing Requirement f. What caused the net income in 2024 to be so high for the second set of accounting policies? The net income for 2024 is significantly higher using accounting policy set 2 than set 1. This is due to the fact that the first set of accounting policies recorded This means in later years and when the firm was wound up must be reversed