Aging Approach:
Determine Rogal’s bad personal debt expense pertaining to 2004.
Grow older (Days)
Sum
% Predicted Uncollectible
Poor Debt
Total
Assume that in January you, 2005, $10,50, 000 of specific receivables are recognized as uncollectible and therefore are written off. Does this write-off affect 2005’s income ahead of taxes?
The write-off will not affect the profits before income taxes of the yr 2005. This is because the uncollectible amount is removed from the accounts receivable account of Rogal. This write-off so bad account comes with an impact on the accounts simply on the declaration of financial location by debiting the doubtful accounts and crediting the accounts receivable. The loss or perhaps the expense can be not reported or passed in on the cash flow statement since the bad debt write-off considers under the changing entries intended for calculated money owed expense (Tracy, 2006).
Imagine on January 1, 2006, $10, 000 of certain receivables happen to be identified as uncollectible and are created off, and this no selections on accounts or revenue on bank account were made on that day time. Compute the balance of net accounts receivable on January 1, 2005 (after the write-off) and compare it to the equilibrium of net accounts receivable as of Dec 31, 2004 (immediately prior to the write-off)
The balance of net accounts receivable as of thirty-one December 2004
384, 500 – 13, 760 = 370, 240
The balance of net accounts receivable upon 1 January 2005
370, 240 – 10, 500 = 360, 240
n. Suppose that instead of aging, Rogal uses the percent-of-sales strategy to estimate bad debt expense. Suppose Rogal estimates that one-half of 1 percent of credit product sales are uncollectible. Determine the December thirty-one, 2004 equilibrium in the allowance for doubtful accounts accounts
0. 01 / a couple of x 384, 000 = 1, 920
c. In brief explain why accountant avoid just delay until specific accounts become uncollectible before recognizing any awful debt price
The accountants don’t only wait until particular accounts become uncollectible just before recognizing any bad debt expense mainly because when product sales are made, the revenue is recognized quickly. This feature is considered to get the accounting books to reflect a genuine view pertaining to the decision manufacturers to undertake a realistic assessment from the financial health insurance and future possibilities (Tracy, 2006).
Problem 9-4 (p 192)
a. Compute the value of the ending inventory at December 31, 2003, under FIFO, LIFO, and average price flow assumptions. LTM uses the regular method of products on hand valuation.
Products Available for Sale = 44, 500
Units Distributed = forty one, 000
Devices in Ending Inventory = 3, 500
Cost of Items Sold
Models
Unit Price
Total
Revenue from 1 Jan Products on hand
5, 1000
30
a hundred and fifty, 000
Product sales from 6 Feb Purchases
20, 500
34
680, 000
Sales from 18 Jul Acquisitions
17, 1000
36
612, 000
Revenue from 20 Oct Acquisitions
2, 000
38
76, 000
44, 000
one particular, 518, 1000
FIFO
Stopping Inventory
Units
Unit Expense
Total
Products on hand from 20 Oct Buys
3, 000
38
114, 000
LIFO
Ending Products on hand
Units
Device Cost
Total
Inventory from 20 Oct Purchases
a few, 000
30
9, 000
Average Cost
Ending Inventory
Units
Device Cost
Total
Inventory by 20 Oct Purchases
a few, 000
sixty
180, 1000
b. Compute the major profit made during the year 2003 using FIFO and LIFO
i. FIFO
Sales Income
Units
Product Cost
Total
Sales coming from 1 Jan Inventory
your five, 000
30
150, 1000
Sales via 6 Feb Purchases
20, 000
34
680, 1000
Sales from 18 Jul Purchases
16, 000
thirty six
576, 1000
1, 406, 000
Cost of Goods Distributed
Units
Device Cost
Total
Sales from 1 January Inventory
five, 000
30
150, 1000
Sales by 6 Feb Purchases
20, 000
thirty four
680, 1000
Sales coming from 18 Jul Purchases
17, 000
thirty six
612, 500
Sales from 20 April Purchases
two, 000
38
76, 500
1, 518, 000
Closing Inventory
three or more, 000
38
114, 1000
1, 404, 000
Low Profit
two, 000
2. LIFO
Revenue Revenue
Products
Unit Expense
Total
Sales from you Jan Inventory
5, 1000
30
150, 000
Product sales from six Feb Purchases
20, 000
34
680, 000
Sales from 18 Jul Buys
16, 000
36
576, 000
you, 406, 1000
Cost of Goods Sold
Units
Unit Cost
Total
Sales from one particular Jan Inventory
5, 500
30
one hundred and fifty, 000
Product sales from six Feb Buys
20, 500
34
680, 000
Sales from 18 Jul Purchases
17, 500
36
612, 000
Revenue from twenty Oct Purchases
2, 000
38
seventy six, 000
1, 518, 000
Ending Inventory
3, 000
30
90, 000
you, 428, 000
Gross Earnings
-22, 500
c. Calculate the low profit percentage generated during 2003 using FIFO and LIFO
i actually. FIFO
two, 000 / 1, 406, 000 x 100 = 0. 14%
ii. LIFO
-22, 500 / 1, 406, 1000 x 90 = -1. 56%
d. Name an acceptable reason for LTM to use FIFO
The main reason why LTM should employ FIFO is because the company will not have to deal with inventory that is considered outdated that cannot be sold anymore. The reason is , the method ensures that the most ancient inventory goods are used or perhaps retailed ahead of they become out of date.
e. Brand a practical reason behind LTM to use LIFO
Exactly why LTM ought to use LIFO is that it brings about less taxable cash flow and therefore fewer income tax payments for the company. This implies that in the long run or perhaps when the costs increase substantially, the lower income tax payments will be substantial
farreneheit. If LTM were considering a move from FIFO to LIFO, it would must be concerned with the LIFO conformity rule. Clarify.
Switching via FIFO to LIFO will have to be concerned with the LIFO conformity rule. That may be so , since once the method is employed in calculating the taxes return in the company, then simply no various other method can be used to value the inventory in order to calculate income, profit or loss of the business in the same year which is given to the shareholders or owners and creditors with the company.
g. Assume LTM uses LIFO and the same number of devices were offered. Would the business benefit from getting 1, 000 units for a cost of $40 each on Dec 31, the year 2003? Explain
Product sales Revenue
Products
Unit Expense
Total
Sales from one particular Jan Products on hand
5, 500
30
150, 000
Sales from six Feb Buys
20, 000
34
680, 000
Product sales from 18 Jul Purchases
16, 500
36
576, 000
1, 406, 500
Cost of Goods Sold
Devices
Unit Cost
Total
Revenue from one particular Jan Inventory
5, 000
30
one hundred and fifty, 000
Revenue from 6th Feb Buys
20, 500
34
680, 000
Sales from 18 Jul Acquisitions
17, 500
36
612, 000
Product sales from twenty Oct Purchases
2, 000
38
76, 000
one particular, 518, 000
Ending Inventory
3, 500
40
a hundred and twenty, 000
Purchases
1, 500
40
45, 000
1, 388, 000
Gross Profit
-32, 500
The company would definitely benefit for the reason that ending products on hand would be appreciated at more income00 of $40 and not $38 as ahead of
h. Might your reply to part (g) be a similar if LTM used FIFO? Explain
Product sales Revenue
Units
Unit Price
Total
Revenue from 1 Jan Products on hand
5, 1000
30
150, 000
Revenue from six Feb Buys
20, 1000
34
680, 000
Product sales from 18 Jul Acquisitions
16, 1000
36
576, 000
1, 406, 000
Cost of Merchandise Sold
Devices
Unit Price
Total
Sales from 1 Jan Products on hand
5, 000
30
a hundred and fifty, 000
Revenue from six Feb Buys
20, 1000
34
680, 000
Sales from 18 Jul Buys
17, 1000
36
612, 000
Sales from thirty-one Dec Buy
1, 000
40
45, 000
Product sales from twenty Oct Buys
2, 1000
38
seventy six, 000
1, 558, 1000
Ending Inventory
3, 1000
38
114, 000
you, 404, 1000
Gross Earnings
-38, 000
The company probably would not really profit as the ending products on hand would still be valued at $38
my spouse and i. If LTM decides to change from average cost to FIFO, if, perhaps the cost behavior patterns in evidence in the past year, would it is income end up being higher or perhaps lower than if it had stayed with average cost? Explain
You can actually income will be much higher if this had stayed with the average expense. This is because the typical cost is $60, which is a higher amount when compared to the other rates used in FIFO
j. Suppose LTM was required to make a lower of cost or market adjustment of $4, 000 to its year-end inventory. Make journal items showing two alternative techniques for this write-down
i. FIFO
Dr: Uncollectible Account some, 000 times 38 =152, 000
Crystal reports: Inventory 152, 000
ii. LIFO
Doctor: Uncollectible Account 2, 1000 x 35 = sixty, 000
a couple of, 000 back button 34 = 68, 000
Cr: Inventory 128, 1000
k. Would the records made in part (j) bring about any variations in LTM’s cash flow statement to get 2003? Clarify
The write-off does not impact the income before taxes from the year the year 2003. This is because the uncollectible amount is removed from the accounts receivable consideration of the firm. This write-off to bad account has an impact only on the accounts in the statement of economic position simply by debiting the doubtful accounts and crediting the accounts receivable.
t. If the inventory written straight down in part (j) increased in value $6, 000 in 2004, what should LTM do under generally approved accounting rules? Explain
The company in accordance with the commonly accepted accounting principles should certainly report this sort of information mainly because it has an effect on the accounts receivable bank account. These elements are taken into account for the accounting literature to reflect a true look at for the decision makers to undertake a rational examination of the monetary health and upcoming opportunities (Tracy, 2006).
Trouble 10-2 (p 227)
a. Determine the total amount that Norris would have recently been willing to pay for the security about January one particular, 2003.
500, 000 sama dengan 104%
100/104 x 500, 000 sama dengan $480, 769
b. Imagine interest rates remain
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