1.The Branch Company sells inventory costing $22,500 to a customer for $30,000.
ID: 2420391 • Letter: 1
Question
1.The Branch Company sells inventory costing $22,500 to a customer for $30,000. Because of significant uncertainties surrounding the transaction, the installment sales method is viewed as proper. In the first year, the company collects $8,000. On the first day of the following year, the customer defaults and the company repossesses the inventory which now has a fair value of only $11,000. What is the company's loss on this default?
2.A construction company is hired by the state government on January 1, Year One to build a section of a new highway. The sales price is $100 million and the company estimates that the work will cost $92 million. During Year One, $18 million is spent on the work and the company's engineers believe that work costing $72 million is left to be completed. During Year Two, another $39 million is spent but $38 million of work is now estimated to remain. If the company is applying the percentage of completion method, what is the impact on net income to be recognized in Year Two?
Explanation / Answer
Answer 1
First year recovery
8000
Fair value of inventory repossessed
11000
Cost of the inventory
-22500
Loss on default
-3500
Answer 2.
Net income in year to $1
Cost spent in year 1
18
Estimation of Cost of work left
72
Estimation of total cost
90
L2+L1
% of completion till year 2
20%
L1/L3
Revenue recognised in year 1
20
100*L4
Cost spent in year 1
18
Cost spent in year 2
39
Total cost spent till date
57
L9+L8
Estimation of Cost of work left
38
Estimation of total cost
95
L11+L10
% of completion till year 2
60%
L10/L12
Particulars
Year 2
Sales price
100
% of completion till date
60%
Revenue recognisation till date
60
L18*L17
Revenue recognised in year 1
20
Year 2 revenue
40
L19-L20
Cost spent in year 2
39
Net income in year 2
1
L21-L22
First year recovery
8000
Fair value of inventory repossessed
11000
Cost of the inventory
-22500
Loss on default
-3500
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.