Need help with B and D
On January 1 2022, Fred started trading as a reseller of refrigerators or "fridges" from his garage in Aurora. He formed his limited liability company with $400,000 cash that he invested in exchange for 400,000 shares of $1 common stock. On that date, the company obtained $20,000 of extra cash by obtaining an interest free small business loan from Denver Bank that is repayable upon demand. During the first year of trading the following events occurred: i. Purchased a warehouse for $400,000 and a delivery van for $50,000. The building and van have estimated useful lives of 40 and 5 years, respectively. The warehouse has no estimated residual (scrap value), but the delivery van can be sold for scrap of $5,000. Straight depreciation is to be charged on the warehouse. Fred is unsure on how best to depreciate the van. ii. In January, the business purchased 400 fridges at $200 per unit, and another 600 fridges at $100 per unit in May. Of the units in the warehouse, 900 units were sold in June for $450 per unit. iii. On 6/1/2022, the business paid $120,000 of employee salaries for the year. iv. Fred developed a process for increasing the efficiency of the compressors within the purchased fridges. He successfully completed development of the process on 12/31/2022, and it will start to be used on 1/1/2023. Fred believes that it will vastly increase the demand for his fridges during the next 10 years, and all units sold during 2023 will incorporate it. He incurred and paid the following research and development expenses on the development project: - $45,000 of development materials for creating the modification process In addition, the following operating costs were incurred from legal activities related to the development process: - $7,000 of legal costs to register the patent for the modification process. - $8,000 of legal costs incurred to successfully defend the patent rights in court on 12/30, although an appeal against this legal judgement may be made during 2023. v. On 12/31, it was discovered that the delivery van has a crack in its engine that reduces operational efficiency. The following information is made available to you about the vehicle in order to test it for asset impairment (the asset is not sold at 12/12): - Book value: as determined by your accounting calculations in part (i) - Selling price: $28,000 (fair value?) - Selling costs: $2,000 - Expected future cash flows from use: $38,000 (undiscounted) - Present value of expected future cash flows: $22,000 vi. On December 31 , the warehouse was found to have a current market price of $500,000. Required Introduce yourself to the people nearby. Work in groups to answer the following: a) Does Fred have to file financial statements with the State of Colorado? Yes, Fred must file financial statements in the state of Colorado because Fred's Fridge's operates out of the state. b) Discuss the appropriate accounting treatment for transactions i,ii,iv,v and vi. c) How much cash does the business have on December 31,2022? d) If the company had to pay interest on the repayable-upon-demand bank loan (presently, it does not), how would this cash outflow be classified on its Statement of Cash flows statement (SOCF)? Would it be classified as an operating, investing, or financing cash inflow, or would it be included elsewhere within the SOCF? This is not a trick question! Consider the terms and condition on the loan... e) Using your answers from part a), calculate Fred's Fricjzes income instatement for the year ended December 312022. f) Prepare a balance sheet for the company as at December 31 2022. How should you list and order assets, liabilities, and equity within your balance sheet? g) Do you think Fred will be happy with the financial statements you prepared
