Question

ALL QUESTIONS MUST BE ANSWERED

Inventory 30 POINTS

Compute the inventory methods for TV Vison. Suppose TV Vison started March with an inventory of 50 plasma TVs that cost $2,010 each, for a total beginning inventory value of $100,500. During March, the firm made the following purchases:

March 2     200 TVs for $2,000 each

March 10    150 TVs for $1,800 each

March 20    100 TVs for $1,500 each

March 29 50 TVs for $1,000 each

During March, the firm made the following sales:

         March 5     110 TVs for $4,000 each

         March 12    160 TVs for $4,000 each

         March 25    150 TVs for $4,000 each

Instructions:

A] Using periodic inventory record keeping, calculate the cost of goods sold for the month and the ending inventory at the end of the month. Do these calculations using THREE METHODS, Weighted Average Cost, FIFO, and LIFO.

B] All other operating expenses amount to $250,000. Calculate net income using each of the three methods.

C] Using the perpetual inventory record keeping, calculate the ending inventory and cost of goods sold for TV Vison adopting the LIFO and FIFO methods.

D] Why do companies avoid the perpetual weighted moving average method of calculating inventory costs?

                                    Bad Debt 20 POINTS

M&M Inc. has a problem with accounts receivables reaching a very high dollar amount. You assignment is determine bad debt expense that must be posted at 12/31/2019. Total account receivables for 2019 is $1,000,000.

The head of the AR department for M&M Inc. provides an aging analysis worksheet below.

Accounts Receivable 0-60 days                 $250,000

Accounts Receivable 61-90 days      $175,000

Accounts Receivable 91-120 days    $375,000

Accounts Receivable 121-180 days $125,000

Accounts Receivable Over 180 days $75,000

In previous years, M&M Inc. had use various percentages to describe the risk associated with old accounts. This year the company selected the following percentages {2%; 5%; 15%; 20; and finally 25%}.

If the company had, a zero balance in the allowance account then what would the bad debt expense entry be for the year 2019?

If the company had a $1,200 credit balance in the allowance account, then what would be the expense entry for the year 2019?

If the company had a $5,000 debit balance in the allowance account then what would be the expense entry for the year 2019?

                                        CASH FLOW QUESTIONS 20 POINTS

C Company’s current year income statement reports the following:

Sales                                        $825,000

Cost of Goods Sold                $550,000

Gross Profit                          $275,000

C Company’s comparative balance sheets show the following:

                                                      End of Year                  Beginning of the Year

Accounts receivable                     $71,000                                   $60,000

Inventory                                     $109,000                                  $96,000

Accounts payable                          $31,000                                  $37,000

Compute the cash received from customers and the cash paid for inventory purchases.

Determine the Cash Paid for Taxes during the year using the following information. Five Points

Tax Expense    $100,000 for the year

Tax Payable at the beginning of the year   $73,000

Tax Payable at the end of the year         $19,000     

                                  Depreciation Expense 15 POINTS

Edgy Inc. acquired $250,000 in equipment in 2019 and wishes for you to calculate its depreciation expense journal entry at the end year for years ending 12/31/2019; 12/31/2020; and 12/31/2021.

Machine A was acquired on January 2, 2019 for $100,000. Useful life is five years.

Machine B was acquired on June 30, 2019. Useful life is four years.

What is the total depreciation expense for years 2019, 2020, and 2021 using Double Declining Balance: Sum-of-the-Digits: and Straight Line Depreciation.

                                             EQUITY EVENTS 10 POINTS

From a company’s perspective explain the significance of the following events

Stock Splits

Stock Dividends

Cash Dividends

Answer 1

Solution of the above problem is as under:

Calculation of Bad Debt

M&M Inc.
Ageing Analysis of Accounts Receivable Department of M&M Inc.
Particulars	Ageing	Amount ($)	Risk Associated with Old Accounts	Allowance for Doubtful Debts
Accounts Receivable	0-60 Days	250000	2%	5000
Accounts Receivable	61-90 Days	175000	5%	8750
Accounts Receivable	91-120 Days	375000	15%	56250
Accounts Receivable	121-180 Days	125000	20%	25000
Accounts Receivable	Over 180 Days	75000	25%	18750
Total		1000000		113750

Calculation of Amount of Bad Debt Expense that must be posted at 31/12/2019

a) Company had a Zero Balance in the allowance account

Account Titles and Explanation	Debit ($)	Credit ($)
Bad Debt Expense A/c Dr.	113750
To Allowance for Doubtful Debt A/c		113750
(Being Bad Debt recorded in the books)

b) Company had a $1200 Credit Balance in the allowance account

Account Titles and Explanation	Debit ($)	Credit ($)
Bad Debt Expense A/c Dr.	112550
To Allowance for Doubtful Debt A/c		112550
(Being Bad Debt recorded in the books, under the percentage of receivables method)

Note: Under Percentage of Sales Method, though the company had a credit balance of $1200 in the allowance account but the adjusting entry would still be of $113750. However, the Balance Sheet would show $1000000 Accounts Receivable less $(113750+1200)=$114950 allowance for Doubtful Accounts.

c) Company had a $5000 Debit Balance in the allowance account

Account Titles and Explanation	Debit ($)	Credit ($)
Bad Debt Expense A/c Dr.	118750
To Allowance for Doubtful Debt A/c		118750
(Being Bad Debt recorded in the books, difference recorded)

Cash Flow Question

Computation of Cash Received from Customers and Cash paid for Inventory Purchases

Accounts Receivable A/c
Dr.			Cr.
Particulars	Amount ($)	Particulars	Amount ($)
To Bal b/d	60000	By Cash A/c	814000
To Sales	825000
		By Bal C/d	71000
	885000		885000
Inventory A/c
Dr.			Cr.
Particulars	Amount ($)	Particulars	Amount ($)
To Bal b/d	96000	By Cost of Goods Sold	550000
To Accounts Payable	563000
		By Bal c/d	109000
	659000		659000
Accounts Payable A/c
Dr.			Cr.
Particulars	Amount ($)	Particulars	Amount ($)
		By Bal b/d	37000
To Cash A/c	569000	By Inventory A/c	563000
To Bal c/d	31000
	600000		600000

Hence, Cash received from Customers is $814000 and Cash paid to Suppliers is $569000

Computation of Cash Paid for Taxes

Tax Payable A/c
Dr.			Cr.
Particulars	Amount ($)	Particulars	Amount ($)
To Cash A/c	154000	By Bal b/d	73000
		By Tax Expenses A/c	100000
To Bal c/d	19000
	173000		173000

Hence, Cash paid for Tax Expenses is $154000