(Answered) Intergrative

"Please see attachment for full problem description.;Note: The blue cells are for data entry. Enter text in the T cells, formulas in the F cells, dollars or numbers in the $ cells;Integrative;The following income statement, statement of cash flows, and additional information are available;for PEK Company;PEK COMPANY;INCOME STATEMENT;FOR THE YEAR ENDED DECEMBER 31, 2010;Sales revenue $1,250,000;Cost of goods sold 636,500;Gross profit $613,500;Depreciation on plant equipment $58,400;Depreciation on buildings 12,000;Interest expense 33,800;Other expenses 83,800 188,000;Income before taxes $425,500;Income tax expense (30% rate) 127,650;Net income $297,850;PEK COMPANY;STATEMENT OF CASH FLOWS;FOR THE YEAR ENDED DECEMBER 31, 2010;Cash flows from operating activities;Net income $297,850;Adjustments to reconcile net income to net cash provided;by operating activities (includes depreciation expense) 83,200;Net cash provided by operating activities $381,050;Cash flows from financing activities;Dividends (35,000);Net increase in cash $346,050;Additional information;a. Beginning inventory and purchases for the one product the company sells are as follows;UNITS UNIT COST;Beginning inventory 50,000 $2.00;Purchases;February 5 25,000 2.10;March 10 30,000 2.20;April 15 40,000 2.50;June 16 75,000 3.00;September 5 60,000 3.10;October 3 40,000 3.25;b. During the year, the company sold 250,000 units at $5 each.;c. PEK uses the periodic FIFO method to value its inventory and the straight-line method to depreciate all of its;long-term assets.;d. During the year-end audit, it was discovered that a January 3, 2010, transaction for the lump-sum purchase;of a mixing machine and a boiler was not recorded. The fair market values of the mixing machine and the;boiler were $200,000 and $70,000, respectively. Each asset has an estimated useful life of ten years with;no residual value expected. The purchase of the assets was financed by issuing a $270,000 five-year;promissory note directly to the seller. Interest of 8% is paid annually on December 31.;Required;1. Prepare a revised income statement and a revised statement of cash flows to take into account the;omission of the entry to record the purchase of the two assets. (Hint: You will need to take into account any;change in income taxes as a result of changes in any income statement items. Assume that income taxes;are paid on December 31 of each year.);PEK COMPANY;INCOME STATEMENT;FOR THE YEAR ENDED DECEMBER 31, 2010;Sales revenue F;Cost of goods sold F;Gross profit F;Depreciation on plant equipment F;Depreciation on buildings F;Interest expense F;Other expenses F F;Income before taxes F;Income tax expense (30% rate) F;Net income F;PEK COMPANY;STATEMENT OF CASH FLOWS;FOR THE YEAR ENDED DECEMBER 31, 2010;Cash flows from operating activities;Net income F;Adjustments to reconcile net income to net cash provided;by operating activities (includes depreciation expense) F;Net cash provided by operating activities F;Cash flows from financing activities;Dividends F;Net increase in cash F;Supplemental Schedule of Noncash Investing and Financing Activities;T;2. Assume the same facts as in (1), except that the company is considering the use of an accelerated method;rather than the straight-line method for the assets purchased on January 3, 2010. All other assets would;continue to be depreciated on a straight-line basis. Prepare a revised income statement and a revised;statement of cash flows assuming that the company decides to use the accelerated method for these two;assets rather than the straight-line method, resulting in incremental depreciation of $49,091 for 2010.;PEK COMPANY;INCOME STATEMENT;FOR THE YEAR ENDED DECEMBER 31, 2010;Sales revenue F;Cost of goods sold F;Gross profit F;Depreciation on plant equipment F;Depreciation on buildings F;Interest expense F;Other expenses F F;Income before taxes F;Income tax expense (30% rate) F;Net income F;PEK COMPANY;STATEMENT OF CASH FLOWS;FOR THE YEAR ENDED DECEMBER 31, 2010;Cash flows from operating activities;Net income F;Adjustments to reconcile net income to net cash provided;by operating activities (includes depreciation expense) F;Net cash provided by operating activities F;Cash flows from financing activities;Dividends F;Net increase in cash F;Supplemental Schedule of Noncash Investing and Financing Activities;T;Treat the answers in requirements (3) and (4) as independent of the other parts.;3. Assume that PEK decides to use the LIFO method rather than the FIFO method to value its inventory and;recognize cost of goods sold for 2010. Compute the effect (amount of increase or decrease) this would have;on cost of goods sold, income tax expense, and net income.;a. LIFO cost of goods sold;Units Cost Total Cost;N $ F;N $ F;N $ F;N $ F;N $ F;N $ F;N $-;Total LIFO cost of goods sold F;Total FIFO cost of goods sold F;Increase in cost of goods sold F;b. Additional cost of goods sold F;Times the tax rate %;Decrease in income tax expense F;c. Additional cost of goods sold F;Decrease in income taxes F;Decrease in net income F;4. Assume that PEK failed to record an estimate of bad debts for 2010. (Bad debt expense is normally;included in ""other expenses."") Before any adjustment, the balance in Allowance for Doubtful Accounts;is $8,200. The credit manager estimates that 3% of the $800,000 of sales on account will prove to be;uncollectible. Based on this information, compute the effect (amount of increase or decrease) of recognition;of the bad debt estimate on other expenses, income tax expense, and net income.;a. Sales on account F;Times estimated uncollectibles %;Increase in other expenses F;b. Increase in other expenses F;Times the tax rate %;Decrease in income tax expense F;c. Increase in other expenses F;Decrease in income taxes F;Decrease in net income F;Attachments;Intergrative.xls"
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Intergrative

 


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