COMPREHENSIVE PROBLEM 3 : ERIC’S


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Could you review the attached document and let me know if you can help with Parts 1-3? Tutor1.docx COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS 08/18/2015 Receivables, Liabilities, and Fixed Assets: This problem has a value of 10% of the final grade Objectives: Demonstrate application of accounting concepts related to debt and fixed assets. Calculation of interest on discounted and non-discounted notes. Recommend best financing option and provide supporting evidence Create required accounts to record liabilities Calculate required adjustments Calculate depreciation using various methods Determine book value of assets Make appropriate recommendations regarding asset dispositions Scenario: Eric’s Electronics (EE) sells computer parts. You are the company accountant and have been charged with making several decisions regarding the company’s future. Part 1: 10% The company has outgrown its current facility and must borrow $250,000. The company has sent you to speak with the Bank about the financing options. After determining the best option, you must justify your selection to the Board of Directors. Part 2: 40% Eric’s Electronics offers a warranty on its parts of 90 days. You must make certain that the proper accounts are created and maintained. Part 3: 50% The company owns fixed assets and with the expansion it must determine whether assets should be replaced. You have been asked to provide the required financial information that will support the recommended course of action. MM KLINE 1 COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS 08/18/2015 PART 1: Eric’s Electronics has found a perfect location to house the increasing production. The company will need to have $250,000 and anticipates paying off the loan in 15 months. The company has sent you to identify the possible financing options. The bank has several options for loans and is willing to make the following arrangements for Eric’s Electronics: 1. 15 month Discounted Note at 5% 2. 15 month Note at 5.5% 3. 15 month Discounted Note for $225,000 at 4.5% concurrent with a 3 month note at 7.5% for the remainder of the amount required to be borrowed. Given these three options, you are required to determine the best option for the company and present your finding to the Board of Directors with supporting calculations. Be sure to show the total interest paid, the interest rate, and the amount of the Note. PART 2: Eric’s Electronics sells computer parts. The company is required to warranty its products for 90 days. Historical Data indicates that 4% of monthly sales result in warranty claims. The monthly sales for February were $567,550. The following warranty claims were made against the February sales. 3/10 3/21 3/31 4/15 4/27 5/05 5/16 5/28 6/01 6/20 6/28 $75 $119 $588 $1040 $52 $2775 $488 $776 $1006 $38 $459 3/13 $145 3/24 $281 4/01 $66 4/17 $71 4/28 $373 5/09 $313 5/20 $1089 5/29 $182 6/04 $2611 6/21 $1245 6/29 $530 3/15 3/27 4/04 4/19 4/29 5/12 5/24 5/30 6/10 6/25 6/30 $222 $101 $218 $822 $169 $781 $966 $426 $490 $949 $295 3/18 3/29 4/08 4/23 5/02 5/14 5/26 5/31 6/15 6/27 7/01 $108 $41 $951 $403 $600 $385 $509 $600 $745 $800 $1267 Prepare the journal entries to create and close the warranty period for the contingent liability due to sales from February. Post claims to the appropriate T-accounts to illustrate the journal entries. MM KLINE 2 COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS 08/18/2015 Part 3 Eric’s Electronics is moving into new facilities and must determine whether it should retain or replace various fixed assets. Complete the analysis of each of the following transactions. 1. On March 19, 2007 the company purchased a diagnostic system for $197,000. The system has a useful life of 10 years and a residual value of $15,000. The company depreciates this asset using Double Declining Balance. On July 18, 2016 the company has an offer to sell the system for $19,000. Show the journal entry that would record this transaction. What would yo

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