Q: How did you derive the accrued expense balance of $478,008 (versus $721,126); that is, could you explain- mathematically-how you arrived at $478,008 in accrued expenses?
A: In Exercise 2, we asked that you use only $478,008 of the 2007 accrued expense balance in computing accounts (accrued liabilities) payable days. We did so because the actual 2007 increase in accrued expenses exceeded the companies operating expenses – excluding non-cash charges and interest expense – for 2007, which is not possible.
Therefore, we estimated that some portion of the 2007 accrued expense balance really reflect amounts due to contractors, engineers, and other professionals for services provided in developing construction sites rather than for operating expenses. Only by asking management or the accountant could we determine the proper amount to use, however.
A: In Exercise 2, we asked that you use only $478,008 of the 2007 accrued expense balance in computing accounts (accrued liabilities) payable days. We did so because the actual 2007 increase in accrued expenses exceeded the companies operating expenses – excluding non-cash charges and interest expense – for 2007, which is not possible.
Therefore, we estimated that some portion of the 2007 accrued expense balance really reflect amounts due to contractors, engineers, and other professionals for services provided in developing construction sites rather than for operating expenses. Only by asking management or the accountant could we determine the proper amount to use, however.