a. Calculate Doner Company’s Year 1 purchasing power gain or loss on net monetary items. b. Determine Doner Company’s Year 1 income AND Balance Sheets on a general purchasing power basis (ignore income taxes).
Doner Company Inc. begins operations on January 1, Year 1. The company’s
unadjusted financial statements for the year ended December 31, Year 1,
appear as follows:
Date Transaction Cost Useful Life GPI
January 15, Year 1 . . . . . . . . . Purchase Machine X $ 20,000 4 years 100
March 20, Year 1 . . . . . . . . . . Purchase Machine Y 55,000 5 years 110
October 10, Year 1 . . . . . . . . Purchase Machine Z 130,000 10 years 130
December 31, Year 1 . . . . . . . 140
April 15, Year 2 . . . . . . . . . . . Sold Machine X 160
December 31, Year 2 . . . . . . . 180
Cash and receivables . . . . . . . . . . . . . . . . . . . . . . $20,000 $35,000
Fixed assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 45,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000 $80,000
Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000 $15,000
Contributed capital . . . . . . . . . . . . . . . . . . . . . . . 55,000 55,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . — 10,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000 $80,000
Income Statement, Year 1
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000)
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (35,000)
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Revenues and expenses occur evenly throughout the year; revenues and other
expenses are realized in terms of monetary assets (cash and receivables).
General price indexes for Year 1 are as follows:
1/1/Y1 . . . . . . . . . . . . . . . . . 100
Average Y1 . . . . . . . . . . . . . 120
12/31/Y1 . . . . . . . . . . . . . . 150
equired:
a. Calculate Doner Company’s Year 1
monetary items.
b. Determine Doner Company’s Year 1 income AND Balance Sheets on a general purchasing
power basis (ignore income taxes).
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