Finman Case Study Essay Example

would cost over P20 million to replace at today’s prices. And that’s just it – either you spend a fortune on maintenance or else you’re constantly in the market for the latest and greatest new equipment. ” Your reply: “So, how can I help? ”

President: “Now that you know a little about our business, I’ll have my son show you the equipment records. He’s our business manager. We’ve got to sell and replace some of our light-duty trucks. We need to get a handle on the value of some of the older equipment. What the books say, and what it’s really worth, are two different things. I’d like to know what the accounting consequences of selling various pieces of equipment would be because I don’t want to be selling anything at a loss. ” Your reply: “Ok. I’ll have a chat with your son and daughter and get back to you. ”

After your discussion with the President’s daughter, you analyzed the Accounts Receivable details as of December 31, 2010, and prepared the following aging schedule:

You’ve noted that the company has not written-off any Accounts Receivable as uncollectible during the past several years. The Allowance for Bad Debts account is part of the Chart of Accounts, but has never been used. No cash discounts have been offered to customers, and the company does not employ a collection agency. Reminder invoices are sent to customers with outstanding balances at the end of every quarter.

After your discussion with the President’s son, you analyzed the 2010 equipment records related to the three items that the company wishes to sell at this time:

The President’s son explained that the company uses

the straight-line depreciation method. You have recalculated the annual depreciation adjustments through December 31, 2010, and are satisfied that the company has made the proper entries. The estimated market values were recently obtained through the services of a qualified, independent appraiser that you had recommended to the President’s son.

GUIDE QUESTIONS:

1. Explain the President’s statement, “I keep telling her that the money is better off in our hands than in someone else’s! ”
2. What is your overall reaction concerning the company’s management of Accounts Receivable? What suggestions would you make to the President that may prove helpful in the collection process?
3. What accounting advice would you give concerning the Accounts Receivable balance of P98,000,000 at December 31, 2010?
4. Explain the President’s statement, “We need to get a handle on the value of some of the older equipment. What the books say, and what it’s really worth, are two different things. ”
5. Write the journal entries to show the effect of selling each of the three assets for their respective estimated market values.
6. Explain to the President why the statement “I don’t want to be selling anything at a loss” does not make economic sense.