COMPREHENSIVE PROBLEM 3 : ERICâ??S ELECTRONICS08/18/2015Receivables, Liabilities, and Fixed Assets:

COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS08/18/2015Receivables, Liabilities, and Fixed Assets: This problem has a value of 10% of the final gradeObjectives: 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 evidenceCreate required accounts to record liabilitiesCalculate required adjustmentsCalculate depreciation using various methodsDetermine book value of assetsMake appropriate recommendations regarding asset dispositionsScenario: Eric’s Electronics (EE) sells computer parts. You are the company accountant and have beencharged 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 tospeak with the Bank about the financing options. After determining the best option, you must justifyyour 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 properaccounts are created and maintained.Part 3: 50%The company owns fixed assets and with the expansion it must determine whether assets should bereplaced. You have been asked to provide the required financial information that will support therecommended course of action.MM KLINE1COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS08/18/2015PART 1: Eric’s Electronics has found a perfect location to house the increasing production. Thecompany will need to have $250,000 and anticipates paying off the loan in 15 months. The company hassent you to identify the possible financing options.The bank has several options for loans and is willing to make the following arrangements for Eric’sElectronics: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 theremainder of the amount required to be borrowed.Given these three options, you are required to determine the best option for the company and presentyour finding to the Board of Directors with supporting calculations. Be sure to show the total interestpaid, 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 90days. Historical Data indicates that 4% of monthly sales result in warranty claims. The monthly sales forFebruary were $567,550.The following warranty claims were made against the February sales.3/103/213/314/154/275/055/165/286/016/206/28$75$119$588$1040$52$2775$488$776$1006$38$4593/13 $1453/24 $2814/01$664/17$714/28 $3735/09 $3135/20 $10895/29 $1826/04 $26116/21 $12456/29 $5303/153/274/044/194/295/125/245/306/106/256/30$222$101$218$822$169$781$966$426$490$949$2953/183/294/084/235/025/145/265/316/156/277/01$108$41$951$403$600$385$509$600$745$800$1267Prepare the journal entries to create and close the warranty period for the contingent liability due tosales from February.Post claims to the appropriate T-accounts to illustrate the journal entries.MM KLINE2COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS08/18/2015Part 3 Eric’s Electronics is moving into new facilities and must determine whether it should retain orreplace 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 auseful life of 10 years and a residual value of $15,000. The company depreciates this asset usingDouble 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 yourecommend that the company do and why?2.On July 14, 2011 the company purchased a point of sale computer system for $82,000. Thesystem has a useful life of 8 years and a residual value of $10,000. The company depreciates thisasset using Straight Line. On April 3, 2016 the company has the option to trade this system for anewer model with an MSRP of $100,000. Eric’s Electronics would pay $50,000 in addition to thetrade. What would the journal entry be to record this transaction? What is yourrecommendation and why?3.This year the company purchased a service vehicle on November 11, for $49,000. The vehiclehas a useful life of 7 years or 140,000 miles with a residual value of $7,000. The company isunsure whether to use Straight Line or Units of Production Method. It is anticipated that thevehicle will be driven at least 30,000 miles per year. Which method of depreciation shouldEric’s Electronics use? Provide calculations to justify your position.4. On May 24 of this year Eric’s Electronics purchased the new facility on ½ acre of land for$250,000. Current land cost is $10,000 per acre. The company will use Straight LineDepreciation with a 25 year useful life and a residual value of $50,000. Record the journal entryfor this purchase. Record the journal entry for the first year depreciationMM KLINE3

 

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