All 4 problems are independent problems and should be considered separately.
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ACC224 Case 2 Due: 7PM EST on November 2, 2020 General Instructions: All 4 problems are independent problems and should be considered separately. Problem 1: Accounting for Bad Debts Newton Company is looking to calculate the amount of bad debt expense for the current year. The management is considering changing from using the percentage of revenue methodology to the aging methodology. Currently, there is a positive (credit) balance in the allowance for uncollectible accounts of $3,500. During the current year, sales revenue totaled $2,350,000. Historically, the company has reserved 3.0% of revenue as uncollectible accounts. Their aging of accounts receivable shows the following:
Current
31-60 days
61-90 days
91-120 days
Over 120 days
Total
Total 465,000 200,000 85,000 45,000 14,000 809,000
Estimated % Uncollectible
1%
2%
3%
10%
70%
Required:
1. Calculate the amount of uncollectible accounts expense for the current year using the percentage of revenue methodology.
2. Calculate the amount of uncollectible accounts expense for the current year using the aging methodology.
3. Which methodology is acceptable under U.S. Generally Accepted Accounting Principles?
Problem 2: Bank Reconciliation On May 31, 2020, Shell Company had a cash balance in its general ledger of $6,675. The company’s bank statement from Key Bank showed a May 31 balance of $8,240. The following other information was gathered from a comparison of the bank statement and the company records:
a. Shell’s May 31 deposit of $1,000 did not appear on the bank statement. b. The bank’s general service charge for the month was $100. c. The bank collected a note receivable of $1,500 for Shell Company along with an additional $58
for interest. The bank deducted a $30 fee for this service. Shell Company had not accrued any interest on the note. Shell Company also was not aware of the collection of the note until it reviewed the bank statement.
d. Shell’s bookkeeper erroneously recorded a payment to Williams Company for $192 as $129. The check cleared the bank for the correct amount of $192. The original check was written to Williams Company for a repair of equipment at Shell Company.
e. Shell’s outstanding checks at May 31 totaled $1,200. Required:
1. Prepare a bank reconciliation as of May 31. 2. Prepare the necessary journal entries to update the records of Shell Company.
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Problem 3: Inventory Cost Flow Methodologies James Company, a new start up retail company, has the following inventory transactions during the month of January:
Date Transaction Units Unit Cost Unit Selling Price
January 2 Purchase 45 $15
January 3 Sale 35 $24
January 8 Purchase 80 $18
January 21 Sale 70 $28
January 30 Purchase 25 $23
The CFO is currently working on setting the inventory accounting policy for the startup company and has asked your assistance in providing information on the various inventory methodologies under GAAP. Required:
1. Prepare individual schedules showing the calculation of cost of goods sold and ending inventory under the following inventory cost flow methodologies:
a. FIFO, periodic b. FIFO, perpetual c. LIFO, periodic d. LIFO, perpetual e. Weighted average method, round the average cost per unit to 2 decimal places. f. Moving average method, round the average cost per unit to 2 decimal places.
2. Prepare a schedule that compares the income statements using the methodologies in number 1 above, assuming that operating expenses for the month of January are $1,000 and the income tax rate is 25%. (You do not need to show earnings per share information)
Problem 4: Dollar-Value LIFO Barn Company adopted the dollar-value LIFO method for inventory valuation at the beginning of 2018. The following information about the inventory at the end of each year is available from Barn’s records:
Year Current Costs Index
2017 $125,000 1.00
2018 $140,000 1.06
2019 $160,000 1.12
2020 $166,000 1.20
2021 $176,000 1.31
Required:
1. Calculate the dollar-value LIFO inventory at the end of 2018, 2019, 2020 and 2021.