ACC422

Question 7

Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers. On August 1, 2017, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge. Kimmel also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2017, and mature on September 30, 2019. Kimmel’s operating cycle is less than one year.

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Using the net method, how should Kimmel account for the sales discounts at the date of sale? What is the rationale for the amount recorded as sales under the net method?

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Using the net method, what is the effect on Kimmel’s sales revenues and net income when customers do not take the sales discounts?

Question 8

From inception of operations to December 31, 2017, Buffalo Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Buffalo’s usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was $138,500 at January 1, 2017. During 2017, credit sales totaled $9,063,900, the provision for doubtful accounts was determined to be $181,278, $90,639 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,240. Buffalo installed a computer system in November 2017, and an aging of accounts receivable was prepared for the first time as of December 31, 2017. A summary of the aging is as follows.

Based on the review of collectibility of the account balances in the “prior to 1/1/17” aging category, additional receivables totaling $62,900 were written off as of December 31, 2017. The 76% uncollectible estimate applies to the remaining $88,800 in the category. Effective with the year ended December 31, 2017, Buffalo adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

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(a)

Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2017. Show supporting computations in good form. (Hint: In computing the 12/31/17 allowance, subtract the $62,900 write-off.)

Headland Company sells one product. Presented below is information for January for Headland Company.

Headland uses the FIFO cost flow assumption. All purchases and sales are on account.

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(a)

Assume Headland uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 105 units. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Blue Company was formed on December 1, 2016. The following information is available from Blue’s inventory records for Product BAP.

A physical inventory on March 31, 2017, shows 1,936 units on hand.

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(a)

Prepare schedule to compute the ending inventory at March 31, 2017, under FIFO inventory method.

Presented below is information related to Oriole Company.

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Compute the ending inventory at retail.

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Compute a cost-to-retail percentage under the following conditions. (Round ratios to 2 decimal places, e.g. 78.74%)

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Which of the methods in (b) above does the following?

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Compute ending inventory at lower-of-cost-or-market. (Round ratio to 2 decimal places, e.g. 78.74% and final answer to 0 decimal places, e.g. 6,225.)

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Compute cost of goods sold based on (d). (Round answer to 0 decimal places, e.g. 6,225.)

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Compute gross margin based on (d). (Round answer to 0 decimal places, e.g. 6,225.)