Course Project, Notes to Consolidated Financial Statements

eminences to Consolidated Financial Statements product line 1 vocation and Summary of Significant Accounting Principles (10 stops) Description of Business The Open-Road Motorcycle caller-out is the largest online retailer of salvage call motorcycles. We atomic number 18 focused on delivery the customer the best value on entry level motorcycles by providing lower hurts than our competitors. Our motorcycles are sold all over the United States, and we before recollective acquire 30 stores all across the country. Property, Plant and Equipment each property, build and equipment are express at cost and disparaged over their useful lives.All dispraise expense incurred is derived exploitation the straight line method. We do not depreciate our land. We estimate our useful life for our assets accordingly buildings have a 40 grade life, computer equipment has a 5 year life and the amelio rove equipment a 15 year life. The estimated lives of our assets are reviewed periodic ally to make up ones mind if every impairment is present so the useful lives and depreciation can be adjusted for accuracy. Short- call Investments All of our investments are comprised of trading securities comprised of debt instruments in distinct industries.The securities are reported at fair value with any unsuccessful gains and losses stated on exculpate income. Securities that are still held at the end of the fiscal year are evaluated and are adjusted if necessary. memorial Valuation All of our merchandise on our website is recorded at cost or fair value, whichever is lower. The salvage motorcycle stocktaking is recorded at cost. We value our inventory using the average method. If the motorcycle is considered unsellable, it becomes disassembled and sold for split.All move received from motorcycles that have been disassembled are not recorded because the cost has already been recorded from the original purchase. The motorcycle would be compose off as a loss on give th e sack income and all gross gross from the parts are considered gains and are stated on net income. Refer to tincture 2. be of Goods Sold Our Costs of goods sold is the cost of the motorcycles purchased, direct roil and depreciation expense. It includes all shipping and handling cost, air freight, train, and truck costs in received the merchandise and or motorcycles. Revenue RecognitionAll revenue generated from sales of inventory are realized when it has been earned. Generally when the item purchased arrives and the ownership transfers. All shipping and handling costs are included in the sales price. Revenues earned from sales are stated net of tax. Sales from disassembled motorcycles are listed as gains or losses on net income. Advertising Costs All costs associated with the marketing our website, which include television and internet ads, are expensed when incurred. Typically our advertising costs stay the same every year at $4 million, since our beginning in 2006. Accounts ReceivablesWe record accounts receivables at net realizable value. This value is the remainder of the criterion due on sales on credit less estimated uncollec circuit card totalitys. We calculate our estimated amount based on past write-offs. Our company credit policy ex operates a 30 twenty-four hour period period in which the full payment is due upon completion of sale. The item must have a prepayment of at-least 50% of the motorcycle sales price before it is shipped. We believe that because of this policy the amount of uncollectable revenue is reduces and sales have developmentd. Contingencies Our company is currently involved in a lawsuit pending a settlement agreement.A former employee was injured in an accident involving unseasonable handling of the shipment. The settlement is considered probable and the estimated cost is $2 million. This amount is stated in current liabilities. Refer to melodic phrase 4. Pension and Other moorageretirement well-being Plans Our company nominates to pension off and other postretirement health care plans for all of our employees. We lend 3% of gross wages into a retirement fund specify by each employee. Refer to note 11. Note 2 Inventories Our inventory is comprised of salvaged motorcycles and fully repaired motorcycles.Inventories are valued at the lower of cost or market. We base our cost on the average cost method. Repaired motorcycles have title and labor costs included in the basis of valuation. Inventories consisted of the following (in millions) celestial latitude 31, 2011 2010 Salvage motorcycle inventory $ 300 $310 Repaired motorcycle inventory $250 $200Total inventories $550 $510 Note 3 Property, Plant and Equipment The following table exemplifys our property, make up and equipment (in millions) December 31, 2011 2010 worldly concern $ 600 $ 550 Buildings and garages 900 700 Machinery, repair and computers 00 350 1,900 1,600 Less accumulated depreciation 350 300 Property, plant and equipment net $ 1,550 $ 1,300 Note 4 Contingencies and LiabilitiesOur company is currently involved in a lawsuit that is pending a settlement. The approximate amount of the settlement is $2 million. We have determined that the contingency is probable and the amount of the settlement is accurate. This amount is stated on the consolidated balance sheet for the current period. Note 5 Changes in Accounting Principles or Estimates We are currently using the average cost method for inventory valuation in entrust of LIFO.We have determined this method is more accurate for valuation because prices tend to fluctuate and may skew net income unfavorably. Note 6 Post Balance Sheet Events Our company continually evaluates its motorcycle inventory to determine cost and its ability to sell. If a significant amount of inventory is deemed old or unsellable, it is adjusted in the next period. The amount is deducted from inventory and written off as a loss.The motorcycles then become disassembled and all revenue generate from the parts are considered a gain. Note 7 Mergers and Acquisitions We belatedly acquired prime Paint Jobs Company during the year for $50 million. We acquired all buildings, land, equipment and real patents on paint jobs. We have decided to expand our operations by completely restoring salvage motorcycles for a lower price. The following table illustrates the assets and liabilities received from the purchase (in millions)Cash $ 3 Inventory 10 Equipment 35 Property, plant and Equipment 45 Total assets acquired 93 Accounts payable 40 Long-term debt 40 Total liabilities acquired 80 Total net assets acquired $13 Note 8 Lease Obligations We currently choose a special modification motorcar that restores the engine and parts to 95%. The lease agreement is based on a 5 year term for $500,000 a year. The following table illustrates our payments for the term of the lease.Years ending December 31, Lease Payments 2011 $500,000 2012 $500,000 2013 $500,000 2014 $500,0 00 2015 $500,000 Total cost of the lease $2,500,000 Note 9 EPS Our company has 200,000 shares authorized with 100,000 big. We have no preferred stock or treasury stock. The following table will illustrate the current and previous earnings per share. 2011 2010Net Income (in millions) $ 5 $ 4 Number of shares outstanding 100,000 100,000 EPS $50 $40 Note 10 Long-Term Debt With the acquisition of Pristine Paint Jobs, we acquired $40 million in long-term debt. Our long term debt prior to the acquisition was $25 million. Our long term debt consists of a $25 million note payable at a fixed bear on rate of 1. 5 percent due December 31, 2040.The following illustrates the long term debts acquired from the purchase of Pristine Paint Jobs. * $20 million derive principal amount of notes due November 20, 2035, at a fixed rate of 1 percent and * $20 million total principal amount of notes due November 20, 2035, at a fixed rate of 1. 5 percent. Note 11 Employee Pension Obligations We continu e to contribute to employee retirement plans for all of our employees. These pension plans are funded and are based on salaries and years of service. The total character for the year is $10 million. In 2010 our total contribution was $9 million. We contribute 3% of employee wages into the plan. The increase in contribution is due to the increase of our workforce.