Financial Accounting Day 8

A company has the following per unit original costs and market values for its inventory. Lower of cost or market is applied to individual items. Part A: 50 units with a cost of $5, and market value of $4.50 Part B: 75 units with a cost of $6, and market value of $6.50 Part C: 160 units with a cost of $3, and market value of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory reported on the balance sheet should be:

$1,075.00.

A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account. The maturity value of the note is

$10,150

Assume ABC uses the average cost method of inventory valuation. What unit cost would be used to determine the amount in ending inventory or cost of goods sold?

$13.60

Assume a firm uses the Percentage of Credit Sales Method to estimate its bad debts expense. If sales are $100,000 and the firm does not expect to collect 2% of these sales, how much bad debt expense will the firm record if the allowance for doubtful accounts (AFDA) has a balance of $3,000 before any adjustment?

$2,000

Assume ABC sells two items and uses the LIFO method of inventory valuation. What amount would appear for cost of goods sold on the income statement?

$31

A firm uses the percentage of receivables method for estimating bad debts. Based on an aging schedule, the firm expects $50,000 of receivables to be uncollectible. If credit sales are $5,000,000 and the Allowance for Doubtful Accounts has a beginning balance of $5,000 before any adjustment, how much will the firm record as bad debts expense?

$45,000

Assume ABC sells two items and uses the FIFO method of inventory valuation. What amount would appear in ending inventory on the balance sheet?

$46

Assume a firm starts off the period with 10 units, each with a value of $5. Then the firm buys 10 units at a cost of $7 and 8 more units at a cost of $10. After these purchases, the firm sells 20 units at a selling price of $15 per unit. Assuming that the firm uses the FIFO inventory costing method, how much gross margin will the firm recognize on the sale of these 20 units?

180

Assume a firm starts off the period with 10 units, each with a value of $5. Then the firm buys 10 units at a cost of $7 and 8 more units at a cost of $10. After these purchases, the firm sells 20 units at a selling price of $15 per unit. Assuming that the firm uses the LIFO inventory costing method, what is the value of the ending inventory that the firm will report on the balance sheet after the sale of these 20 units?

40

If a firm inadvertently overstates their inventory, which of the following is true?

Cost of goods sold will be understated.

Why is the method of valuing inventory important?

The inventory valuations method chosen determines the value of inventory on the balance sheet and the cost of goods sold expense on the income statement, two items having considerable impact on the financial position of a company.

Which of the following statements is false for a company that uses the allowance method of accounting for uncollectible accounts?

The journal entry to write off an uncollectible account receivable decreases net income.

At the end of the year, Michelle's Bike Shop incorrectly recorded its inventory as $280,000 instead of the correct amount of $350,000. The effects on the balance sheet and income statement would be:

assets, retained earnings, and net income all understated by $70,000

When a company uses the allowance method of accounting for uncollectible receivables, the entry to reinstate a previously written off account would include

increasing Allowance for Doubtful Accounts

When a business writes-off a bad account, the impact on the accounting equation will be:

no effect on total assets

Under the allowance method, when a year-end adjustment is made for estimated uncollectible accounts

total assets decrease

Deacon Co. uses the allowance method of determining bad debt expense. It collects $250 from a customer that Deacon had previously written-off. As a result of collecting this $250, its:

total assets remains the same