29 Jun SCENARIO: SPOILED BABY CORP (SPC) SELLS BABY BUGGIES
Question
SCENARIO: SPOILED BABY CORP (SPC) SELLS BABY BUGGIES
Part 1:
The company went to the bank to borrow $500,000. You are required to negotiate the best deal. The Board of Directors has asked for you to justify your position.
Part 2:
Recent changes in the law require SPC to warranty its products for 90 days and you have set up the required accounts. Use the data provided to make the appropriate journal entries.
Part 3:
The company began an equipment replacement project and you were required to determine the Book Value of its fixed assets and make decisions regarding the purchase, trades, and disposition of various assets during the year. Use the data provided to record the transactions AND justify your decisions.
Spoiled Baby Corp sells baby buggies and has decided to expand its operations. It needs to borrow $500,000 for 18 months and has sent you to negotiate with the bank.
The bank is more than willing to lend the money to the company and is offering the company a discounted note at 6%. Mr. Moneybags, the banker, has indicated that this is quite a deal and non-discounted notes are currently being charged 6.2% APR
As the company accountant you must provide the necessary information to support your recommendation to the Board of Directors.
Spoiled Baby Corp (SPC) sells baby buggies. Recent changes in the law required SPC to warranty its products for 90 days and you must set up the required accounts. Historical Data indicates that 6% of monthly sales result in warranty claims. The June 20×1 monthly sales are $481,000.
The following warranty claims were made against June sales.
July 8 210 July 14 450
July 16 900 July 21 385
July 26 421 July 28 772
Aug 4 1,795 Aug 8 921
Aug 14 267 Aug 17 1,022
Aug 25 186 Aug 27 755
Aug 29 548 Aug 30 899
Sept 2 111 Sept 3 219
Sept 5 1,135 Sept 14 816
Sept 18 242 Sept 24 987
Sept 27 147 Sept 28 1,587
Sept 29 788 Sept 30 489
Oct 1 1188 Oct 8 1387
Oct 14 489 Oct 17 577
Oct 21 1,967 Oct 27 927
Oct 28 683 Oct 29 492
Oct 30 897 Oct 31 1572
Prepare the Journal entries required to create and close the warranty period.
Spoiled Baby Corp sells baby buggies and has begun an equipment replacement project. You are required to determine the Book Value of each of its fixed assets and make decisions regarding the purchases, trades, and disposition of various assets.
Indicate your recommendation and justify your position for each of the following events.
1. SPC purchased a tube extruder on April 3, 2007 for $27,000. It has a useful life of 10 years and a residual value of $4,000. SPC used double declining balance depreciation for this asset. On February 19, 2012 SPC has an offer to sell this unit for 8,000.
2. SPC purchased a winding machine on July 28, 2012 for $21,000. It has a useful life of 6 years or 12,000 hours. It has a residual value of $3,000. SPC is unsure whether to use straight line depreciation or units of production. It anticipates using the equipment approximately 3000 hours each year.
3. SPC purchased a funneling machine on February 9, 2009 for $72,000. It has a useful life of 5 years and a residual value of $12,000. SPC has used Straight line depreciation for this equipment. SPC has determined that this equipment no longer meets its needs and has decided to exchange this unit for a new model. The new Model has a MSRP of $100,000. On December 28, 2012 SPC will exchange its equipment for the new Model and pay $77,000.
4. SPC has a fully piece of equipment that is currently fully depreciated on its books. This equipment is no longer used and SPC wants to get rid of it. The cost of the equipment is $10,000. The company has been offered $300 for its parts. What is the journal entry that would record this transaction?
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