SIMPSON Corp. Prepares its financial statements under U.S. GAAP

During the Year 2018:

1. The company begins operations on January 1, 2018. The company is started by issuing 800,000 shares of common stock for $20,000,000 ($1 Par value stock)
2. The company immediately purchases $2,000,000 in inventory for cash and sells $200,000 of this inventory to customer #1 for $250,000 on credit.
3. A larger sale of $500,000 (inventory cost $400,000) is made to customer #2 on Credit.
4. Simpson estimates warranty expense as 1% of sales and Bad Debt Expense as 2 % of sales. (Also note there is an additional sale in December)
5. In January, the company pays $24,000 dollars for a property insurance policy. The term of the policy is two years.
6. The company immediately purchases a machine for $700,000 cash on January 1^st and depreciates it over 7 years (depreciation is recorded straight line at year end and there is no salvage value)
7. The company immediately purchases a building to house its manufacturing operations for $2,000,000 cash. The building is depreciated on a straight-line basis over 20 years.
8. On June 1, customer #1 pays us $40,000 of the amount due and customer #2 pays us $60,000 of the amount due.
9. During June, $100,000 dollars of research and development expenses are incurred. $40,000 of this amount has not been paid as of yearend (i.e. remains a payable).
10. On June 1st, a customer gives Simpson $400,000 in cash for services. 80% of these services are rendered during 2018.
11. On June 30^th, the company sells its building to an investment partnership for $2,150,000 and leases it back for a period of 10 years. (record building depreciation through June 30^th before recording the sale)
12. On December 1, 2018, the company purchases inventory from a vendor in Europe for 150,000 Euros on credit to be paid 1/31/19. The Euro spot rate on 12/1/18 date is 1.08. The Euro spot rate at 12/31/18 is 1.15.   In order to hedge this transaction; the company enters into a two-month forward contract to purchase 150,000 Euros on 1/31/19. The forward contract rate at 12/1/18 is 1.11.   The Forward contract rate at 12/31/18 is 1.14. The Forward Contract is classified as a cash flow hedge of a foreign currency accounts payable. Use .90 as the discount rate

13. On December 1, 2018, the company sold inventory costing $200,000 for 300,000 pesos to a foreign customer. Payment is expected to be received in late January 2019. The company did not hedge this transaction. The peso spot rate was 1.20 on 12/1/18 and 1.22 on 12/31/18.
14. At year end it is determined that the value of the future cash flows associated with the machine are $500,000 (undiscounted)

Required:

Using a separate excel spreadsheet, journalize the transactions and create the Balance Sheet and Income Statement for year-end 2018. When creating your financial statements classify the balance sheet (Show totals for Total Assets, Total Liabilities, and Total Liabilities and Shareholders’ Equity).

Answer rating: 100% (QA)

ANSWER Journal Entries Date Account Titles and Explanation Debit Credit Jan 1 Cash 20000000 Common S... View the full answer