Financial Accounting Assignment

In this assignment, you need to review and provide answers to the questions related to the financial summary of Aigrette, Inc. for the quarter.

This Week’s Scenario:

It’s Monday morning and time for the weekly management meeting. Mr. Morton goes over some personnel issues with the management group and he has you review the financial summary for the quarter. The meeting goes well, and as the other managers head back to their offices, Mr. Morton asks you to stay for a few minutes.

“I’m really pleased with your progress,” he says. “I think we are almost ready for the auditors. I was going through the notes Sofia left with me, and I found one last note that we need to address. Sofia said we would need to disclose some information about our segments. I guess she meant the two divisions we have. Anyway, she drafted the comments she thought we would need to include. You can look them over and see if they look okay.”

“Sounds good,” you respond as he hands you the note. “I’ll start on that this morning.”

“Great! Just send me a memo and a copy of any changes you think need to be made. One other thing,” he says. “At lunch the other day the auditors mentioned they would need to look at our quality of earnings. I just nodded, but I have no idea what they were talking about! How can earnings be anything but good?”

“I know exactly what they mean,” you respond. “I’ll be glad to explain it to you.”

“Oh, I don’t have time right now!” Mr. Morton exclaims. “Just put it in the memo.”

You head back to your office to read Sofia’s note.

Barry: I know the auditors will want some information about our divisions for the financial statements this year, so here they are. This should be all they need to know. S. Koffler

Aigrette, Inc. Division Discussion

Aigrette, Inc. operates two divisions—a car division and a sport utility division. The car division is our primary focus and generates about 75 percent of the net income of the company. The plant that produces cars is located in Hennepin, Illinois, and the SUV division is in Brownstown, Illinois. The SUV plant is smaller than the auto plant because it produces fewer vehicles.

This Week’s Tasks:

Your memo to Mr. Morton should be double-spaced and three- to four-pages long. It should also include a discussion of the required segment disclosures, along with an explanation and evaluation of Aigrette’s quality of earnings. Use the financial statements from last week for your discussion.

In this assignment, you need to review and provide answers to the questions related to Aigrette’s financial statements.

10 years

No

No

$100,000

None

None

None

None

None

None

$5,000

Assembly Equipment	Welding Equipment
Yearly rental (paid at beginning of year)	$10,500	$11,000
Lease term	12 years		10 years
Estimated economic life	20 years
Purchase option			No	$5,000 at end of lease
Renewal option
Fair market value at beginning of lease		$100,000	$75,000
Cost of asset to lessor
Guaranteed residual value							None		$5,000
Unguaranteed residual value
Executory costs
Paid by Panache	$1,000 per year
Paid by lessor (maintenance)	$1,000 per year (est.)
Implicit rate of lessor	Not known	8%
Estimated fair market value at end of lease	$10,000
Date lease was entered into	January 1, 2010	January 1, 2011

Aigrette

Aigrette Company

as at 31 December

Current GAAP
20X1 20X2 20X3
Income

355,556.00

Due

12,000.00 10,000.00

Tax

after Tax

10,000.00 – 0 – 0

668,254.90 869,054.70 1,178,054.40

Aigrette Company

Current GAAP

20X1 20X2 20X3

869,054.70

102,699.90 210,799.80 308,999.70

658,254.90 869,054.70 1,178,054.40

658,254.90 869,054.70 1,178,054.40

																																																																																																																																																																													Aigrette Company
Statement of Comprehensive		Income		Statement of Financial Position 30 December
		Current GAAP
							20X1												20X2										20X3
	111,111.00			222,222.00			333,333.00		Closing Stock		444,444.00				355,556.00
			Rental Income	3,000.00		12,000.00			10,000.00		Other Assets	200,399.80	480,076.50	788,165.10
		Tax		11,411.10		23,422.20		34,333.30
	Total Income before Tax	114,111.00	234,222.00	343,333.00				Current Liabilities														– 0
– 11,411.10	– 23,422.20	– 34,333.30		668,254.90					869,054.70				1,178,054.40
		Net Income		102,699.90		210,799.80		308,999.70
	Non – Current Liabilities
		Retained Earnings	655,554.90	855,554.70	1,155,554.40
	Accumulated OCI	2,700.00	13,500.00		22,500.00
	Statement of Changes in Equity as at 31 December
	At the start of the year		555,555.00			658,254.90
	Total Income/Loss
	At the end of the year

Aigrette – GAAP – Working

20X2

20X3

Current Liabilities 20X1

20X2

Retained Earnings

Rental Income 20X1

20X2

20X3

	Other Assets		This is a balancing figure on the balance sheet
	Closing Stock		Impaired stock of 88, 888 decuted from original closing stock to give 355, 556
	Stock remains as per question and impairment in 20X2
12, 000 – Amount of rent to be invoiced in 20X2
10, 000 – Amount of rent to be invoiced in 20X3
	20X3	There are no current liabilities since client is not obliged to continue in tenancy
	Non – Current Liabilities		Amounts due to be invoiced after more than 12 months of the accounting period
			20X1	10, 000 to be invoiced in 20X3 as per above rule
	Breakdown as per statement of changes in equity
Invoiced 3 months to December 20X1 at 1, 000 per month
Invoiced 12 months to December 20X1 at 1, 000 per month
Invoiced 10 months to October 20X1 at 1, 000 per month

Aigrette Company – FASB

Aigrette Company Aigrette Company

Statement of Financial Position 30 December

FASB – Fantasy GAAP
20X1 20X2 20X3 20X1 20X2 20X3

Income 111,111.00 222,222.00 333,333.00 Closing Stock 444,444.00 355,556.00 355,556.00

Rental Income

– 0 – 0 Other Assets

11,411.10 23,422.20 34,333.30

Total Income before Tax

222,222.00 333,333.00 Current Liabilities – 0 – 0 – 0

Tax

Net Income after Tax

– 0 Non – Current Liabilities – 0 – 0 – 0

846,054.70 1,123,554.40

Net Income

299,999.70 Accumulated OCI 22,500.00 – 0 – 0

656,054.90 846,054.70 1,123,554.40

Aigrette Company
Statement of Changes in Equity as at 31 December
FASB – Fantasy GAAP

20X1 20X2 20X3

At the start of the year 555,555.00 656,054.90 846,054.70
Total Income/Loss 100,499.90 189,999.80 299,999.70
At the end of the year 656,054.90 846,054.70

656,054.90 846,054.70 1,146,054.40

Statement of Comprehensive Income as at 31 December
		FASB – Fantasy GAAP
25,000.00	200,199.80	467,076.50	733,665.10
Tax Due
136,111.00
– 13,611.10	– 22,222.20	– 33,333.30					656,054.90						846,054.70			1,123,554.40
122,499.90	199,999.80			299,999.70
FASB GAAP Revenue	– 22,000.00	– 10,000.00
Retained Earnings	633,554.90
	100,499.90		189,999.80
	1,146,054.40

Aigrette – FASB – Working

Other Assets This is a balancing figure on the balance sheet
Closing Stock 20X2 Impaired stock of 88, 888 decuted from original closing stock to give 355, 556
20X3 Stock remains as per question and impairment in 20X2

Current Liabilities 20X1

20X2 None since all income realised in 20X1
20X3 None since all income realised in 20X1

Non – Current Liabilities Amounts due to be invoiced after more than 12 months of the accounting period

20X1 None since all income realised in 20X1

Retained Earnings Breakdown as per statement of changes in equity

Rental Income 20X1

20X2

20X3 None since all was realised in 20X1

			None since all income realised in 20X1
Realised entire amount of 25, 000
	None since all was realised in 20X1