E9.4 (LO 1) The condensed balance sheet as of December 31, 2020, for Van Den Boom...

 

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E9.4 (LO 1) The condensed balance sheet as of December 31, 2020, for Van Den Boom Enterprises follows: Assets Liabilities and Shareholders' Equity Current assets $40,000 Liabilities $35,000 55,000 Land 50,000 Shareholders' equity Total liabilities and shareholders' equity Total assets $90,000 $90,000 Sales and operating expenses (other than amortization) are predicted to be $65,000 and $20,000, respec- tively, across all three years in the future - 2021, 2022, and 2023. All sales and operating expenses are received or paid in cash. On January 1, 2021, Van Den Boom pays $40,000 cash for an intangible asset. a. Assume that Van Den Boom Enterprises engaged in operating activities only during 2021, 2022, and 2023. Prepare income statements for 2021, 2022, and 2023 and the balance sheet as of December 31 for 2021, 2022, and 2023, assuming the $40,000 cash payment is treated in each of the following ways: (1) Immediately expensed. (2) Capitalized and amortized evenly over two years. (3) Capitalized and amortized evenly over three years. b. Compute the total income recognized over the three-year period under each assumption above. e. What is interesting about the December 31, 2023, balance sheet prepared under all three assumptions? E9.4 (LO 1) The condensed balance sheet as of December 31, 2020, for Van Den Boom Enterprises follows: Assets Liabilities and Shareholders' Equity Current assets $40,000 Liabilities $35,000 55,000 Land 50,000 Shareholders' equity Total liabilities and shareholders' equity Total assets $90,000 $90,000 Sales and operating expenses (other than amortization) are predicted to be $65,000 and $20,000, respec- tively, across all three years in the future - 2021, 2022, and 2023. All sales and operating expenses are received or paid in cash. On January 1, 2021, Van Den Boom pays $40,000 cash for an intangible asset. a. Assume that Van Den Boom Enterprises engaged in operating activities only during 2021, 2022, and 2023. Prepare income statements for 2021, 2022, and 2023 and the balance sheet as of December 31 for 2021, 2022, and 2023, assuming the $40,000 cash payment is treated in each of the following ways: (1) Immediately expensed. (2) Capitalized and amortized evenly over two years. (3) Capitalized and amortized evenly over three years. b. Compute the total income recognized over the three-year period under each assumption above. e. What is interesting about the December 31, 2023, balance sheet prepared under all three assumptions?

Answer rating: 100% (QA)

Solution a 1 Income Statement in Particulars 2021 2022 2023 Sales 65000 65000 65000 Less Operating Expense 20000 20000 20000 Amortization 40000 0 0 Ne... View the full answer