Part B. For item items 7-9, answer the following questions: 1. Did the accountant calculate each situation correctly? 2. If not, how should each situation be calculated (include the correct answer)? 3. How would the accountant's incorrect calculations affect the financial statements? 7. Bakersfield purchased specialized equipment from Wayne Company on January 1,2017 for $900,000. On the same date, it leased this equipment to Sears Company for 5 years, the useful life of the equipment. The lease payments begin January 1, 2017 and are made every 6 months until July 1 , 2021. Bakersfield wants to earn 10% annually on its investment. The accountant calculated the amount of each rent as follows using the "Various Factors" provided below. $900,000/6.14457= $146,470.79 8. On May 1, Bakersfield factored $1,600,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Bakersfield was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. 9. On March 1, 2017, Bakersfield purchased land for an office site by paying $2,700,000 cash. Construction began on the office building on March 1 . The following expenditures were incurred for construction: The office was completed and ready for occupancy on July 1 . To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 9\%, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000,12%, 6-year note payable dated January 1, 2017. The accountant calculated weighted-average accumulated expenditures on]the construction project during 2017 as follows: (1,800,000+2,520,000+4,500,000+4,800,000)4/12=$4,540,000 Part B. For item items 7-9, answer the following questions: 1. Did the accountant calculate each situation correctly? 2. If not, how should each situation be calculated (include the correct answer)? 3. How would the accountant's incorrect calculations affect the financial statements? 7. Bakersfield purchased specialized equipment from Wayne Company on January 1,2017 for $900,000. On the same date, it leased this equipment to Sears Company for 5 years, the useful life of the equipment. The lease payments begin January 1, 2017 and are made every 6 months until July 1 , 2021. Bakersfield wants to earn 10% annually on its investment. The accountant calculated the amount of each rent as follows using the "Various Factors" provided below. $900,000/6.14457= $146,470.79 8. On May 1, Bakersfield factored $1,600,000 of accounts receivable with Quick Finance on a without recourse basis. Under the arrangement, Bakersfield was to handle disputes concerning service, and Quick Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Quick Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts. 9. On March 1, 2017, Bakersfield purchased land for an office site by paying $2,700,000 cash. Construction began on the office building on March 1 . The following expenditures were incurred for construction: The office was completed and ready for occupancy on July 1 . To help pay for construction, and purchase of land $3,600,000 was borrowed on March 1, 2017 on a 9\%, 3-year note payable. Other than the construction note, the only debt outstanding during 2017 was a $1,500,000,12%, 6-year note payable dated January 1, 2017. The accountant calculated weighted-average accumulated expenditures on]the construction project during 2017 as follows: (1,800,000+2,520,000+4,500,000+4,800,000)4/12=$4,540,000
