Question

Accounting methods and estimates and their effect on net income. I need help filling out the excel spreadsheet, please!

Accounting Methods & Estimates and Their Effects on Net Income Homework Two different companies were organized to sell gee-gaws to the public. Both companies expect this to be a widely used device with increasing Sales each year. With increased enhancements, each year, they expect the sales price per unit to increase each year. Both companies expect to sell 25,000 units, at a selling price of $1,000 each, during their first year of business. Sales are anticipated to increase by 10% (in units - at a compounded rate) during each of the next two years. At the same time, the selling price per unit will increase by a compounded annual rate of 10%. The same supplier provides the devices to both companies. The cost of the product is 70% of the sales price. Like the sales price, the cost will increase each year. Both companies keep a safety stock equal to 2,000 units at all times. (For example, during the first year each company will purchase 27,000 units - the 25,000 units to be sold plus an additional 2,000 units "just in case. During the second year, 27,500 units will be purchased -2,000 units will remain from the first year.) Service contracts are available with each hardware device. These contracts cover the device "top to bottom" for a period of four years. The service contract costs $300, for this period, and the price will remain the same for the first three years of business. One- half of all customers purchase the service contract. Selling & Administrative Expenses (Salaries, Advertising, and et. al.) are budgeted to be $2,000,000 during the first year and grow at a compounded rate of 4%. Plant & Equipment costing $900,000 will be purchased at inception and will be depreciated using the Straight-Line method assuming no salvage value. Using an electronic spreadsheet, please complete a three year Budgeted Income Statement for each of the companies using the following assumptions:

Answer 1

your name						10%	sales	25,000	27,500	30,250
accounting methods and estimates			plant & equip	900,000		10%	selling price	1,000	1,100	1,210
date
company one						company two
income statement		year 1	year 2	year 3		income statement		year 1	year 2	year 3
sales		25,000,000	30,250,000	36,602,500		sales		25,000,000	30,250,000	36,602,500
service contracts		937,500	1,968,750	3,103,125		service contracts		1,500,000	2,400,000	3,390,000
total revenues		25,937,500	32,218,750	39,705,625		total revenues		26,500,000	32,650,000	39,992,500
cost of goods sold		17,500,000	21,175,000	25,621,750		cost of goods sold		17,500,000	21,035,000	25,467,750
selling & admin		2,000,000	2,080,000	2,163,200		selling & admin		2,000,000	2,080,000	2,163,200
depreciation		90,000	90,000	90,000		depreciation		60,000	60,000	60,000
bad debts		1,296,875	1,610,938	1,985,281		bad debts		1,060,000	1,306,000	1,599,700
total expenses		20,886,875	24,955,938	29,860,231		total expenses		20,620,000	24,481,000	29,290,650
net income		5,050,625	7,262,813	9,845,394		net income		5,880,000	8,169,000	10,701,850
service contracts						service contracts
			revenue recognized					revenue recognized
yr	contratcs signed	year 1	year 2	year 3		yr	contratcs signed	year 1	year 2	year 3
1	3,750,000	937,500	937,500	937,500		1	3,750,000	1,500,000	750,000	750,000
2	4,125,000		1,031,250	1,031,250		2	4,125,000		1,650,000	825,000
3	4,537,500			1,134,375		3	4,537,500			1,815,000
	total	937,500	1,968,750	3,103,125			total	1,500,000	2,400,000	3,390,000
		year 1	year 2	year 3				year 1	year 2	year 3
current cost of		700	770	847		difference in net income		829,375	906,188	856,456
product per unit						between two companies

below is the calculation of cost of goods sold for your reference. It is not in the correct format. I have attached it just for you to have a look.

fifo	in	price	amount	out	price	amount		units	price	amount
year 1	27,000	700	18,900,000	25,000	700	17,500,000	in	27,000	700	18,900,000
							balance	2,000	700	1,400,000
year 2	27,500	770	21,175,000	2,000	700	1,400,000	opening	2,000	700	1,400,000
				25,500	770	19,635,000	in	27,500	770	21,175,000
					cogs	21,035,000	balance	2,000	770	1,540,000
year 3	30,250	847	25,621,750	2,000	770	1,540,000	opening	2,000	770	1,540,000
				28,250	847	23,927,750	in	30,250	847	25,621,750
					cogs	25,467,750	balance	2,000	847	1,694,000
lifo	in	price	amount	out	price	amount		units	price	amount
year 1	27,000	700	18,900,000	25,000	700	17,500,000	in	27,000	700	18,900,000
							balance	2,000	700	1,400,000
year 2	27,500	770	21,175,000	27,500	770	21,175,000	opening	2,000	700	1,400,000
							in	27,500	770	21,175,000
							balance	2,000	700	1,400,000
year 3	30,250	847	25,621,750	30,250	847	25,621,750	opening	2,000	700	1,400,000
							in	30,250	847	25,621,750
							balance	2,000	700	1,400,000