Xavier Computer Limited Was Started in Early 2019 and Continued

question 42

Essay

Xavier Computer Limited was started in early 2019 and continued to operate until early 2022, when it was wound up due to disputes between the two principal shareholders. When it started, the company used the following accounting policies:
1. Use 50% declining-balance depreciation for the firm's only asset, a computer which cost $1,100,000 and has an estimated useful life of four years.
2. Estimate warranty expense as 10% of sales.
3. The year-end allowance for doubtful accounts should be 40% of gross accounts receivable.
Derive net income for 2019 to 2021. For the year-end balance for 2022, assume accounts receivable, allowance for doubtful accounts, and the warranty accrual are $0, as the firm wound itself up during the year and all timing differences have been resolved.
$$\begin{array} { | l | r | r | r | r | } \hline & 2019 & 2020 & 2021 & 2022 \\\hline \text { Sales (all on account) } & 3,400,000 & 3,600,000 & 4,100,000 & 410,000 \\\hline \begin{array} { l } \text { Warranties paid } \\\text { Proceeds on disposal of } \\\text { computer }\end{array} & 272,000 & 288,000 & 420,250 & 147,600 \\\hline \begin{array} { l } \text { Accounts receivable collected in } \\\text { the year }\end{array} & 2,958,000 & 2,880,000 & 3,895,000 & 1,126,000 \\\hline \begin{array} { l } \text { Accounts receivable written off } \\\text { in the year }\end{array} & 102,000 & 108,000 & 205,000 & 236,000 \\\hline \begin{array} { l } \text { All other expenses (paid in cash } \\\text { in the year incurred) }\end{array} & 2,380,000 & 2,520,000 & 2,767,500 & 287,000 \\\hline\end{array}$$

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Definitions:

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit of a good affects the overall cost of production.

Joint Monthly Profit

The combined profit earned by two or more partners or businesses in a single month.

Cartel

An organization of sellers designed to coordinate supply and price decisions so that the joint profits of the members will be maximized. A cartel will seek to create a monopoly in the market for its product.

Monopolist

A single seller in a market who has significant control over the price and supply of a product or service.