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ACTG 303 Intermediate Accounting III Fall 2014 - Case Study ? Huff & Puff, Inc.

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Question;Assume the following:A. The current date is December 28, 2014.B. You are the controller for Huff & Puff, Inc., a health club gym and health fooddistributor.C. The president of the company has informed you that the company will be applying fora bank loan. As part of the loan application, the bank wants financial statements forthe year ending December 31, 2014. The president is concerned that the company?sfinancial statements will not be strong enough to obtain the loan so she has suggestedhow you should account for certain transactions during the last month of the year.D. Prior to the transactions below Huff & Puff, Inc. is reporting net income of $70,000.These are the transactions in question:1.Health Club Memberships: Huff & Puff, Inc. received $300,000 on December 1,2014 as payment for health club memberships for the period December 1, 2014 ? May31, 2015. The president has told you to recognize $300,000 of revenue in 2014.2. Sale of Merchandise: The company recently shipped merchandise to another companyowned by the president?s brother. On December 27, 2014 Huff & Puff, Inc. received acheck for $450,000 from the company. While in the president?s office, you heard her sayto her brother on the phone, ?Don?t worry about the cost for this stuff. I know you don?twant it. Don?t worry. You have a full right of return for 90 days. Just hold onto ituntil March 15, 2015 and then return all of it. We?ll give you a full refund when yousend it back.? The merchandise cost Huff & Puff, Inc. $200,000.3. Advertising: On December 20, 2014 Huff & Puff, Inc. paid $60,000 for radio and TVadvertising. The president has suggested that you record the transaction in PrepaidAdvertising and amortize the cost over a 12-month period beginning January 1, 2015because ?that?s when payment will benefit the company.?4. Instructors? Salaries: Fitness instructors performed services for Huff & Puff, Inc. fromDecember 1 ? December 24, 2014 for which they will receive $80,000. The presidentindicated, ?There?s no need to record those salary expenses until we pay them on January5, 2015.?Required:1. Describe how each of the transactions should be accounted for in accordance withgenerally accepted accounting principles (GAAP). Also indicate how the transactionswould be reported in the company?s year-end Income Statement and Balance Sheet.Support your reasoning with the concepts you have learned from the ?Logic Principles?and ?Prepaids & Accruals? lectures covered in your D2L audios and Lecture Notebook.2. Show the journal entry(ies) that would be made for each of the transactions, labeled?Journal Entries - President?s Suggestions?.3. Show a second set of journal entry(ies) that would be made for each of the transactions,labeled ?Journal Entries - GAAP?.4. Prepare a schedule showing what net income will be, labeled ?Net Income - President?sSuggestions?. Begin your schedule with ?Net Income Before Transactions? of $70,000.(Show and label all calculations.)5. Prepare a second schedule showing what net income will be, labeled ?net Income GAAP?. Begin your schedule with ?Net Income Before Transactions? of $70,000.(Show and label all calculations.)

 

Paper#39748 | Written in 18-Jul-2015

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