To practice recording an exchange of PPE and to determine the effects of the exchange on the financial statements.
On December 15th, Terry's management decided to trade in one of their machines for a newer model. After long discussions with their auditors, Terry's management has decided that the change in capacity between the old and new machines makes this an exchange without substance. The old machine originally cost $670,000 and had been fully depreciated to its $50,300 salvage value. The new machine typically sells for $841,000, but the vendor offered Terry a $73,000 trade-in discount on the old machine if the balance is paid in cash. Terry's management was excited about the deal, since they would have been able to sell the old machine for only $50,300 if they had tried to dispose of it on the open market.
What would the adjusting entry/entries be using the below accounts?
ROA Following the adjusting entries?
Current Ratio Following the adjusting entries?
Asset Turnover Following the adjusting entries?
Terry Co. Mum-step Income Statement Terry Co. Balance Sheet Terry Co. Statement of Cash Flows For the Year Ended December 31 Year 2 As of 12l31IYear 2 Sales Revenue Year 2 Year 1 For Year Ended 12I31IYear 2 Cash Flow from Operations Sales Revenue $29,700,000 Asset Net Income $3,556,882 Less: Sales Discounts $356,400 Current Assets Adjustments: Sales Returns $1,410,750 $1,767,150 Cash $1,682,000 $1,485,000 Change In AIR 7 ($742,500) Net Sales Revenue $27,932,850 AIR I $2,673,000 II $2,524,500 Change in Inventory $568,400 Allowance for Bad Debts ($148,500) ($742,500) Change in Prepaid Insurance ($47,250) Cost of Goods Sold Inventory $3,589,600 $4,158,000 Change in Prepaid Rent ($74,250) Cost of Goods Sold $16,208,255 Prepaid Insurance $492,750 $445,500 Depreciation & Amortization $1 ,782,000 Gross Prot $11,724,595 Prepaid Rent $371,250 $297,000 Change In A/P ($1,283,172) Total Current Assets $8,660,100 $8,167,500 Change in Income Tax Payable $264,240 Operating Activities Long-term lnvestrnents Change in Uneamed Revenue $297,000 Selling Expenses Loans to other businesses $1,188,000 $1,188,000 Change in Wages Payable $14,850) $749,618 Advertising Expense $556,875 Expansion Fund $891 ,000 $891 ,000 Net Cash Flow from Operations $4,306,500 Miscellaneous Selling Expenses $144,788 Total Longterm Investments $2,079,000 $2,079,000 Sales Force Salaries Expense $408,375 PPE Cash Flow from Investments Selling Commissions Expense $1 ,485,000 Land $3,267,000 $2,079,000 Purchase of Land ($1,188,000) Shipping Expense $243,169 Building $2,376,000 $2,376,000 Purchase of Equipment ($4,455,000) $2,838,207 Equipment $8,316,000 $3,861,000 Net Cash Flow from Investments ($5,643,000) Administrative Expenses Accumulated Depreciation ($4,752,000) ($2,970,000) Executive Salaries Expense $1,299,375 Total PPE $9,207,000 $5,346,000 Cash Flow from Flnanclng Depreciation Expense $1 ,782,000 Intangible Assets Repayment of Loans ($148,500) Insurance Expense $256,163 Patents, net $445,500 $445,500 Issuance of Notes Payable $1,782,000 Miscellaneous Admin, Expenses $14,664 Total Assets $20 391 600 $16,038,000 Payments of Dividends ($100,000) Ofce Supplies Expense $115,088 Net Cash Flow from Financing $1,533,500 Consulting and Legal Fees $13,563 Liabilities and Stockholders' Equity Utilities Expense $222,750 Current Liabilities Net Increase (Decrease) in Cash $197,000 Total Administrative Expenses $3,708,603 $6,546,810 Accounts Payable $498,828 $1,782,000 Cash, January 1, Year2 $1,485,000 Income from Operations $5,177,785 Income Tax Payable $561,240 $297,000 Cash, December 31, Year 2 $1,682,000 Uneamed Revenue $742,500 $445,500 Other Gains and Losses Wages Payable $356,400 $371,250 Rent Revenue $92,813 Current Portion of Loan Payable $148,500 $148,500 Interest Expense ($189,338) ($96,525) Total Cunent Liabilities $2,307,468 $3,044,250 Income from Continuing Operations before Taxes $5,081,260 Long-term Debt Income Tax Expense ($1,524,378) Loan Payable $742,500 $891,000 Net Income $3,556,882 Notes Payable $4,158,000 $2,376,000 Total Long-term Debt $4,900 00 $ 267,000 EPS $1.05 Total Liabilities $7,207,968 $6,311,250 Stockholders' Equity Common Stock $3,400,000 $3,400,000 ($1 par, 5,000,000 authorized, 3,400,000 outstanding) Additional Paid-In Capital $891,000 $891 ,000
