Problem 1.
Tappan industrial sells machinery on the installment plan.On September 1 2005, Tappan enterd into an installment sale contract with Western Productions for a six year period. Equal annual payments under the installment sale are $187,500 and are due on August 31 of each year beginning in 2006.
Additional Information:
a) The cost of the machinery sold was $637,500.
b) The implicit interest rate on the installment sale is 10%.
Compute the income or loss before taxes that Tappan should record for the year ended December 31, 2005, as a result of the above transaction, assuming that circumstances are such that the collection of the installments due under the contract
1) is reasonably assured
2) cannot be reasonably assured.
Problem 2.
Northstar Sales Corp. was organized on january 1, 2004. On December 31, 2005, the company lost most of its inventory in a warehouse fire just before the year-end count of inventory was taken. Data from the records disclosed the following:
|
|
|
|
|
|
2004 |
2005 |
| Inventory, January 1 |
|
|
|
|
$0.0 |
$173,120.0 |
| Purchases during the year |
|
|
|
$860,000.0 |
$692,000.0 |
| Purchases returns and allowance during the year |
|
$46,120.0 |
$64,600.0 |
| Sales during the year |
|
|
|
|
$788,000.0 |
$836,000.0 |
| sales returns and allowances during the year |
|
$16,000.0 |
$20,000.0 |
On january 1 2005 Northstar pricing policy was changed so that the gross profit rate would be 3 percentage points higher than the one earned in 2004.
Salvaged undamaged merchandise was marked to sell at $24000 while damaged merchandise marked to sell at $16000 had an estimated net realizable value of $3600
Required: Determine the company's inventory loss due to the fire that occurred on December 31 2005