Question 1: Describe the key aspects of Manufactured Homes’ business. Does the company have a viable business? • Manufactured Homes sells affordable fully furnished and carpeted mobile homes in the southeast of the United States of America. These Potential customers for Manufactured Homes include individuals seeking a single-family primary residence but lacking the ability to purchase conventional housing, retirees, and those wanting a second home for vacation purposes. The company targets individuals in the low-income category, which is a segment of the manufactured homes market in the company’s seven state area. The company’s customers are typically between the ages of 18 and 40, blue-collar workers in manufacturing, service and …show more content…
Question 3: Describe and show the journal entries illustrating how the company accounts for the transfer of its accounts receivable to financial institutions. Is this accounting treatment reasonable? What are the key assumptions made under this approach? Do you agree with these assumptions? • The company sells the majority of its retail intstallment contracts to unrelated financial institutions on a recourse basis at an agreed upon interest rate which is below the contractual interest rate of the installment contract. Under this agreement, Manufactured Homes is responsible for payment to the financial institution if the customer fails to make the payments specified in the installment contract. • At the time of the sale, the company receives immediate payment for the stated principal amount of the installment contract and a portion of the finance participation resulting from the interest rate differential. The remainder of the interest rate differential is retained by the financial institution as a security against credit losses and is paid to the company in proportion to customer payments received by the financial institution. • The journal entries are: Dr. Cash Cr. Accounts receivable Dr. Cash Dr. Finance participation receivable Cr. Finance participation income • The company accounts for these transactions as sales in accordance with Statement of Financial Accounting Standards No. 77, ‘’Reporting
1. Describe the impact the three proposed accounting methods (full revenue recognition, deferral of revenue, and partial revenue recognition) would have on the company’s financial statements: 1) at the time of the sale, and 2) in future periods.
DQ 1: What are the differences between the direct and indirect presentation of cash flows? What are the advantages and disadvantages of the direct and indirect methods and which does the Financial Accounting Standards Board (FASB) favor and why?
Manufactured Homes is engaged principally in the retail sale of new and used manufactured single-family homes and targets individuals in the low income category. Manufactured Homes focuses on the lower end of the market, according to the company this has two advantages:
f) To evaluate the material misstatement in the accounts, I think both of the consolidated income statement and the three financial statements are useful. We need to use the information properly from all the financial statements. However the consolidated income statement is the most useful one. If there is a significant change in an account balance comparing with preceding two years, the auditor will examine whether there a material misstatement exists. For instance, the bad debt expense as a percent of net sales in 2011, 2010 and 2009 are 0.56%, 0.70% and 0.69%, respectively. There should
‘Cash and cash equivalents’ include certain short-term investments and, in some cases, bank overdrafts. Like IFRS, ‘cash and cash equivalents’ include certain shortterm investments, although not necessarily the same short-term investments as under IFRS. Unlike IFRS, bank overdrafts are considered a form of short-term financing, with changes therein classified as financing activities. The statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. Like IFRS, the statement of cash flows presents cash flows during the period, classified by operating, investing and financing activities. The separate components of a single transaction are classified as operating, investing or financing. Unlike IFRS, cash receipts and payments with attributes of more than one class of cash flows are classified based on the predominant source of the cash flows unless the underlying transaction is accounted for as having different components. Cash flows from operating activities may be presented using either the direct method or the indirect method. If the direct method is used, then an entity presents a reconciliation of profit or loss to net cash flows from operating activities; however, in our experience practice varies regarding the measure of profit or loss used. Like IFRS, cash flows from operating activities may be presented using either the direct method or the indirect method. Like IFRS, if
The transactions completed by Franklin Company during January, its first month of operations, are listed below. Assume that Franklin Company uses the following journals: Cash Receipts (CR), Cash Payments (CP), Revenue (R), Purchases (P), and General (G). Assume that it uses Accounts Receivable and Accounts Payable Subsidiary Ledgers as well as a General Ledger. Indicate by letters which journal would be used for each transaction. Also indicate if the entry requires a posting to a subsidiary ledger.
If Seller fails to comply with this contract for any other reason, Seller will be in default and Buyer may, as Buyer's sole and exclusive remedy, terminate this contract and receive from Seller the deposit, thereby releasing both parties from the contract.
Why is it necessary to use comparative balance sheets, a current income statement, and certain transaction data in preparing a statement of cash flows?
Question 1: Describe the key aspects of Manufactured Homes’ business. Does the company have a viable business?
Manufactured Homes (MH) uses the installment sales method for recognizing revenue. Using this installment sales method assumes that the customer probably will not default and there is little risk for the company. As cash is supposed to come in, revenues are matched with expenses. However, if the customer defaults, then there are many future expenses that cannot be matched with corresponding revenue. The company usually sold its installment contracts to unrelated financial institutions and was responsible for payments to the financial institution if the customer defaulted. Thus, MH bore risk for the houses it sold. MH charged its customers a portion above the market rate, and the financial institution paid MH a portion
The mortgagor regularly releases the home loan through quarterly installments made for the duration of the life of the home loan. In some cases, the mortgagor may wish to make a single amount installment before the due date, which is taken care of distinctively in various state jurisdictions. For the most part, if the mortgagor wishes to pony up all required funds, he may end up noticeably subject to a prepayment charge notwithstanding the single amount installment. In any case, keeping in mind the end goal to have the capacity to make a singular amount installment on the home loan, the prerequisite is that such a provision empowering the mortgagor to make a single amount installment must exist in the home loan agreement. In situations when such a condition does not exist and when the law is discreet on the matter, majority courts hold that the mortgagor does not have a privilege to prepayment under the perfect tender in time rule, which expresses that a mortgagor may not prepay his obligations before the due date.
IN CONSIDERATION OF THE COVENANTS and agreements contained in this Sales Agreement the parties to this Agreement agree as follows:
Manufactured homes are intended to be affordable, and due to this, materials may be on the lower end of quality. That's not to say all are poorly
In order to test his hypothesis, the author followed the Dechow and Dichev (2002), which examines the standard deviations of residuals from a regression of accounts receivable accruals on corresponding cash flow realizations. The model uses information related to accounts receivable, sales cash collected during the periods, and errors in accounts receivable accruals (sresid). The author
Marketing is critical to its success and future profitability The basic market need is a delightful B&B serving the Eugene area. The physical structure that houses the B&B has been specially engineered..