Question

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 10,000 units, at a selling price of $2,000 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 60% of the sales price. Like the sales price, the cost will increase each year. Both companies keep a safety stock equal to 1,000 units at all times. (For example, during the first year each company will purchase 11,000 units - the 10,000 units to be sold plus an additional 1,000 units “just in case." During the second year, 11,000 units will be purchased - 1,000 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 $500, 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 $1,000,000 during the first year and grow at a compounded rate of 3%. Plant & Equipment costing $600,000 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

Sucemie Statenorit Sales Searice Contacts Total revenue Company, Two Yeau 1 $ 20,000,000 $ 1875,000 $ 21,8756300 year 2 2. year3 3 $24,200,000 $29,282,860 $ 2,062,500 $2,250,00 $ 26262,500 $ 31,532,000 LIFO Cost of goods sold Selling & Admin (3.1) Depreciation (10 year) Bad debts (4.1) Total Expenses $ 12,000,000 $ 1,020,000 $ 60,000 $ 875,000 $13,935,000 $ 14,520,000 $17,38,200 $1,030,000 $ 1,060,900 $ 60,00 60,oo $ 1,050.50 $ 1,261, 280 $ 16,660.500 $ 19,699,380 Net Income $ 7,940,670 $ 9,602,00 $ 11,832,620 Service Contacts yeau 1 Revenue Recognisation Yeau 1 Yeau 2 2. $ 625,00 $_687,500 cookings | $625,00 $ 687,500 62.5ion $ 687.50 $ 1,875, 02 $ 2862.50 Contact Signed 10,000 X 0.5 X 500 11,020 * 0.5 X500 12,00 x 0.5 K520 Total 2 year $_750,00 $ 750,000 $ 750,000 $2,250,00 3 year 2 2 year 1 1. Difference in Net Income Between two company $ 160,000 Scanned with CamScanner year? . $ 380,220 $ 536.000 cs

Comfanyone frcome Statement Sales Service Contact 20.000.000 2.000.000 22,000,000 24.200,000 2,200,000 26.400.000 29.282 ioco 2,420, OUD 31, 702 000 Total Revenue TC $ 13,000,000 FIFO Cost of goods sald Shoo.com Selling -8. Admin (3-1) | $1,000,000 Depreciation (15) $ 40,000 Bad debt (300) $ 660,000 $ 13,900,000 $ 14,400,000 $1,630,00 $ 1.830,000 $ 40,000 $ 792,00 $ 16,262,000 $ 17,437.200 $4,060, owo $ 1.060,90 $40,000 $ 951,060 $ 19,489,160 ( Total Expenses Net Income $ 8,100,022 $ 10,138,000 $ 12 1212,840 Service contacts year Contact Signed 10/12D XOS XSCO 11, at 20:5X522 12,100 70-5 X 570 Total Revenue Recogneieda Yeart . year2 . year? 1.000,00 (404) 2100,00 (404) 1.210,00 Coule 560,000 (207) 550.000 (2001) 605,000 (204) 900.000 (207) 550.00 (201) 605,00 (204) $ 2,000,000 $ 2200,620 $_2,420,00 2 3 year 1 year 2 year3 Current Cost of Product (per unit) $ 1,200 $ 1,320 $1.452 CS Scammet witte CamScanner