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Finance and accounts case study term daily news

Conformity, Finance, Finance Economics, Economics And Finance

Excerpt from Term Paper:

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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Category: Essay,

Topic: Accounts receivable, Product sales,

Words: 2606

Published: 01.31.20

Views: 247

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