Question based on reworded problems 3.8 from the reference text (Flynn (2009) from page 82&83 of the textbook: The table shows the compressed income statement of a company. Please fill in the blanks and complete the income statements by using the information given below. Past Year Next Year $18,232,000 $18,232,000 Allowances for bad debt $182,000 $182,000 Net revenue $18,050,000 $18,050,000 Revenue COGS Contribution margin Contribution margin % $12,179,000 $5,871,000 32.2% $12, 179,000 $5,871,000 32.2% SG&A: All items except Depreciation Depreciation $2,796,000 $2,796,000 $2,430,000 ? Operating income Other income Net income $645,000 $400,000 $1,045,000 ? $0 ? ? $3.475000 Operating cash flow Net cash flow ? ? 1? In the next year, an existing piece of equipment which had an original cost of $14,000,000 (no salvage value was assumed at the time the original depreciation schedule was created and 7 years for the depreciation period), and an accumulated depreciation of $10,000,000 is retired for a salvage value of $4,000,000. A new piece of equipment is bought and installed early in the next year for $21,000,000. Management determines to use the same depreciation period of 7 years for the new piece of equipment that it had used for the old piece of equipment. Assume the depreciation for all items other than the new piece of equipment is unchanged. Using the straight-ling depreciation, answer the following questions: How long was the old piece of equipment in service? Is an extraordinary adjustment required at the time of its retirement? What are the cash flow from operations and net cash flow in the past year and in the next year? Was the company sound in buying the piece of equipment? Why? If the salvage value of the old piece of equipment was $1,000,000 instead of $4,000,000, assume that you show the impact of unrecovered depreciation on the old piece of equipment in other income. What is the value of other income next year in this case? Does cash flow from operations change? Question based on reworded problems 3.8 from the reference text (Flynn (2009) from page 82&83 of the textbook: The table shows the compressed income statement of a company. Please fill in the blanks and complete the income statements by using the information given below. Past Year Next Year $18,232,000 $18,232,000 Allowances for bad debt $182,000 $182,000 Net revenue $18,050,000 $18,050,000 Revenue COGS Contribution margin Contribution margin % $12,179,000 $5,871,000 32.2% $12, 179,000 $5,871,000 32.2% SG&A: All items except Depreciation Depreciation $2,796,000 $2,796,000 $2,430,000 ? Operating income Other income Net income $645,000 $400,000 $1,045,000 ? $0 ? ? $3.475000 Operating cash flow Net cash flow ? ? 1? In the next year, an existing piece of equipment which had an original cost of $14,000,000 (no salvage value was assumed at the time the original depreciation schedule was created and 7 years for the depreciation period), and an accumulated depreciation of $10,000,000 is retired for a salvage value of $4,000,000. A new piece of equipment is bought and installed early in the next year for $21,000,000. Management determines to use the same depreciation period of 7 years for the new piece of equipment that it had used for the old piece of equipment. Assume the depreciation for all items other than the new piece of equipment is unchanged. Using the straight-ling depreciation, answer the following questions: How long was the old piece of equipment in service? Is an extraordinary adjustment required at the time of its retirement? What are the cash flow from operations and net cash flow in the past year and in the next year? Was the company sound in buying the piece of equipment? Why? If the salvage value of the old piece of equipment was $1,000,000 instead of $4,000,000, assume that you show the impact of unrecovered depreciation on the old piece of equipment in other income. What is the value of other income next year in this case? Does cash flow from operations change
