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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 21

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What is aging of accounts receivable, and how is it used to account for uncollectible accounts?

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Aging of accounts receivable is the proc...

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Question 22

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In the first year of operations, Ralph's Repair Service recognized $480,000 of service revenue earned on account. The ending accounts receivable balance was $88,000. Ralph estimates that 2% of sales on account will not be collected. During the year, Ralph wrote off a $200 receivable that was determined to be uncollectible. Assume there were no other transactions affecting accounts receivable. Required:What amount of cash was collected in Year 1?What amount of uncollectible accounts expense was recognized in Year 1?What will be Ralph's net realizable value of receivables on the December 31, Year 1 balance sheet?

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$391,800 cash collected$9,600 of uncolle...

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Question 23

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Green Acres Lawn Care provided $600,000 of services to customers during Year 1. All customers paid for the services with credit cards. The company submitted the credit card receipts to the credit card company immediately, and the credit card company paid cash in the amount of face value less a 4 percent service charge.Required:Record the credit card sales and collection of the receivables in the horizontal statements model, below. Show dollar amounts of increases and decreases. For cash flows, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by an event.

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAGable Company collected a receivable due from a credit card transaction company; the credit card fee had previously been recognized when the sale was recorded. Show the effect of collection of the receivable on Gables financial statements.

Max Company's first year in operation was Year 1. The following inventory purchase information comes from Max's accounting records for the year. $\begin{array}{ll}\text { 19-January } & 120 \text { units } @\$ 280 \\20-\text { April } & 240 \text { units }@ \$ 304\\\text { 15-October }&90 \text { units }@\$320\end{array}$ In December Year 1, Max sold 350 units for $480 each. Operating expenses for the year were $30,000, and the tax rate was 30%. Required:Calculate the cost of goods sold by LIFO and by FIFO.What amount of income tax would Max have to pay if it uses LIFO? If it uses FIFO?Assuming that the results for Year 1 are representative of what Max can generally expect, would you recommend that the company use LIFO or FIFO? Explain.

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts. Increase = I Decrease = D Not Affected = NA Stan's Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more surfboards for $250 each. Stan's uses the perpetual inventory system. Assume that 6 surfboards were sold during the period for $350 cash each. Assume that Stan's Surf Shack made the second purchase of surfboards for cash. How would that purchase affect the financial statements?

The following transactions apply to Sam's Skateboards. $\begin{array}{lll}1-\text {-January }& \text { Beginning inventory } & 50 \text { units } @\$ 120 \\12 \text {-January } & \text { Purchase } & 30 \text { units } @\$ 104 \\19 \text {-March } & \text { Sales } & 60 \text { units }@ \$ 190 \\\text { 8-January } & \text { Purchase } & 20 \text { units }@ \$ 116 \\\text { 4-November } & \text { Sales } & 35 \text { units }@ \$ 200\end{array}$ Assume the use of the perpetual inventory method and that all transactions were for cash. Required:Determine the amount of ending inventory using a FIFO cost flow.

If Bowman Company is using LIFO, how would the accountant compute cost of goods sold when recording a sale under the perpetual inventory system?

Define the terms FIFO and LIFO and briefly describe each method.

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = IDecrease = DNot Affected = NAOn November 1, Year 1, Gable Company accepted a credit card as payment for $1,500 of services rendered to one of its customers. Assume the credit card fee of 3% is recorded on the date of the sale. Show the effect of this transaction on Gable's financial statements.

Kona Espresso Machine Company provides services on account to its customers. For Year 2, its beginning balance in Accounts Receivable was $190,000. During the year, the company recognized $904,000 of service revenue earned on account, and the amount of cash collected from accounts receivable was $829,900. During the year, uncollectible accounts of $10,100 were written off. Required:What was the ending balance in Accounts Receivable?

When a credit card sale is recorded, what is the effect on the accounting equation?

On June 14, Year 1, Sure-Fit Shoe Store sold $12,000 of merchandise that cost $8,000 and accepted credit cards as payment. Sure-Fit electronically transmitted the credit card forms to the credit card company which charges a 3% fee to handle such transactions. On June 18, Year 1, Sure-Fit received the proceeds from the credit card company.How will the entry to record the sale of the merchandise on June 14, Year 1, affect the company's financial statements? How will the entry to record the credit card proceeds on June 18, Year 1, affect the company's financial statements?

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below each element. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts. Increase = I Decrease = D Not Affected = NA Stan's Surf Shack purchased 5 surfboards for $200 each. Later it purchased 2 more surfboards for $250 each. Stan's uses the perpetual inventory system. Assume that 6 surfboards were sold during the period for $350 cash each. Assume that Stan's Surf Shack purchased the first five surfboards on account. How would the purchase transaction affect its financial statements?

In an inflationary period, which cost flow method of accounting for inventory will produce the smallest amount of net income? Why?

In an inflationary period, which inventory cost flow method, FIFO or LIFO, is more desirable from a tax standpoint? Why?

The Atkins Company had the following beginning inventory, purchases, and sales of inventory during the first quarter of Year 1: Required:Determine the value of the company's cost of goods sold and ending inventory at the end of March, assuming a perpetual inventory method and FIFO cost flow. Show all calculations.

If Kettler Company loans $24,000 to Beam Company on March 1, Year 1, and the one-year note carries an interest rate of 7%, how much interest revenue will Kettler recognize in Year 1? How much in Year 2?

Jones Company sells exercise bikes. Its beginning inventory was 100 units at $200 per unit. During the year, Jones made two purchases of the bikes: first, a 300-unit purchase at $220 per unit, and then 200 units at $250 per unit. The ending inventory for the year was 250 units. Required:Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Jones uses each of the following methods. (Round intermediate calculations to 2 decimal places. Round final answers to whole dollars.)FIFOLIFOWeighted average

Diaz Company's first year in operation was Year 1. For Year 1, its cost of goods sold using FIFO was $240,000, and its ending inventory was $58,400. If Diaz had used the LIFO cost flow method, its ending inventory would have been $56,000. Required:What would the cost of goods sold have been with LIFO?Based on this information, was Year 1 a period of rising prices or falling prices?