Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 3, Problem 2CIC
To determine
Explain the reason behind decline in net income and increase in cash flow from operations in year 8 and 10.
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Greenfield Consultants conducts analyses of public policy issues. The company has two units: Government (with various U. S. government agencies as the only clients) and Corporate (with several corporations as clients). Government business is charged based on the total costs (direct and indirect) plus a 15 percent fee (profit). Corporate clients are charged a fixed fee negotiated at the beginning of the project.
During the planning process for the following year, the controller has estimated costs for the two units.
Corporate
Government
Total
Direct costs
$
860,000
$
3,440,000
$
4,300,000
Direct contract hours worked
2,800
5,600
8,400
The controller expects indirect costs to total $9.9 million next year. Revenues from Corporate clients are expected to be $3.0 million.
Required:
a. Suppose Greenfield chooses to allocate indirect cost based on direct cost.
1. What cost would be allocated to the two units (Corporate and Government)?
2. What total…
Supplier Corp, enters into a government contract during the year to provide computer equipment for $2,000,000. The contract consists of a single performance obligation to
provide specified equipment in three years. Total costs estimated by Supplier Corp. for the contract are $1,400,000. The equipment is highly specialized and has no
alternative uses. As negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp. in the event of a contract
cancellation. Actual costs incurred during the first year of the contract were $640,000 including unexpected cost overruns of $80,000 due to labor inefficiencies.
Assume that at the end of the second year of the contract, the estimate of total costs has increased to $1,500,000 million due to an increase in cost of materials. Actual costs
incurred to date are $1,125,000, excluding year one inefficiencies.
a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted…
Supplier Corp. enters into a government contract during the year to provide computer equipment for $3,200,000. The
contract consists of a single performance obligation to provide specified equipment in three years. Total costs estimated by
Supplier Corp. for the contract are $2,240,000. The equipment is highly specialized and has no alternative uses. As
negotiated in the contract, any costs incurred by Supplier Corp. plus a specified profit margin will be paid to Supplier Corp.
in the event of a contract cancellation. Actual costs incurred during the first year of the contract were $1,024,000 including
unexpected cost overruns of $128,000 due to labor inefficiencies.
Assume that at the end of the second year of the contract, the estimate of total costs has increased to $2,400,000 million
due to an increase in cost of materials. Actual costs incurred to date are $1,800,000, excluding year one inefficiencies.
a. Calculate (1) recognized revenue, (2) the gross profit, and (3) adjusted…
Chapter 3 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 3 - Need for a Statement of Cash Flows. The accrual...Ch. 3 - Articulation of the Statement of Cash Flows with...Ch. 3 - Classification of Interest Expense. Under U.S....Ch. 3 - Prob. 4QECh. 3 - Classification of Changes in Short-Term Financing....Ch. 3 - Classification of Cash Flows Related to...Ch. 3 - Treatment of Non-Cash Exchanges. The acquisition...Ch. 3 - Computing Cash Collections from Customers....Ch. 3 - Computing Cash Payments to Suppliers. Lowes...Ch. 3 - Computing Cash Payments for Income Taxes. Visa...
Ch. 3 - Interpreting the Relation between Net Income and...Ch. 3 - Interpreting the Relation between Net Income and...Ch. 3 - Interpreting Relations among Cash Flows from...Ch. 3 - Interpreting Relations among Cash Flows from...Ch. 3 - Interpreting the Statement of Cash Flows. The...Ch. 3 - Interpreting the Statement of Cash Flows. Texas...Ch. 3 - Interpreting the Statement of Cash Flows. Tesla...Ch. 3 - Interpreting the Statement of Cash Flows. Gap Inc....Ch. 3 - Prob. 19PCCh. 3 - Prob. 20PCCh. 3 - Interpreting the Statement of Cash Flows....Ch. 3 - Extracting Performance Trends from the Statement...Ch. 3 - Interpreting a Direct Method Statement of Cash...Ch. 3 - Prob. 24PCCh. 3 - Preparing a Statement of Cash Flows from Balance...Ch. 3 - Prob. 26PCCh. 3 - Preparing a Statement of Cash Flows from Balance...Ch. 3 - Prob. 1AICCh. 3 - Prob. 1BICCh. 3 - Prob. 1CICCh. 3 - Prob. 1DICCh. 3 - Prob. 1EICCh. 3 - Prob. 1FICCh. 3 - Prob. 1GICCh. 3 - Prob. 1HICCh. 3 - Prob. 2AICCh. 3 - Prob. 2BICCh. 3 - Prob. 2CICCh. 3 - Prob. 2DICCh. 3 - Prob. 2EICCh. 3 - Prob. 2FICCh. 3 - Prob. 3IC
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