TR3-1 Accounting Income versus Economic Income (LO3.1, LO3.2): (Intermediate Accounting vol.1 by Beechy et.al. 8th Edition)

On 1 January 20X1, Tyler Trading Corp. was incorporated by Jim Tyler, who owned all the common shares. His original investment was $100,000. Transactions over the subsequent three years were as follows: 02 January 20X1 Purchased 20 units for resale at $5,000 each. Throughout 20X1 Sold 12 units for an average of $8,000 each. 31 December 20X1 Remaining eight units have a selling market value of $6,000 each. 15 July 20X2 Bought six units for resale at $7,000 each. Throughout 20X2 Sold nine units at an average of $12,000 each. 31 December 20X2 Remaining five units have a selling market value of $10,000 each. Throughout 20X3 Sold all five remaining units at $9,000 each.

Required: 1. Calculate accounting income, based on transactions, for 20X1, 20X2, and 20X3. Assume FIFO.

2. Calculate economic income, based on events or changes in value, for 20X1, 20X2, and 20X3.

3. Compare total accounting income with total economic income, and explain your findings.

4. In what ways is accounting income superior to economic income? In what ways is economic income superior? Use the accounting principles from Chapter 2 to explain.

TR3-7 Held-for-Sale Asset (LO3.9, LO3.10):

On 13 September 20X1, Nitish Corp.s board of directors moved the companys operations into a newly constructed building and declared its old building available for sale. The original cost of the old building was $20 million; it was 40% depreciated. Other information is as follows:

On 15 September, a professional appraisal of the old building estimated its value as $10 million.

On 24 September, Nitish engaged a commercial property developer to place the building on the market for $10 million. Despite some softness in the market the developer expects to be able to sell the building within the next nine months. The developer charges a commission of 6% on final sale.

By 31 December, the commercial real estate market had softened considerably. Although the developer held the official asking price at $10 million, Nitish and the developer agreed they would consider offers as low as $8.5 million.

Despite receiving several lowball offers from prospective buyers over the first two months of 20X2, Nitishs management did not accept any of the offers.

By 31 March 20X2, the end of Nitishs first reporting quarter, the market had improved considerably. The developer relisted the property at $11.5 million, its newly appraised value.

On 27 April 20X2, Nitishs board accepted an offer of $11.7 million.

Required:

Prepare the appropriate general journal entries to record the information above.