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3220_oli_fall_2013exer_3-1.docx

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ACCT 3220

Fall 2013

Exercise #3

PART I

Presented below is information related to Falco Corp.

July 1	Falco Corp. sold to Legler Co. merchandise having a sales price of $10,000 with terms 2/10, net/60. Falco records its sales and receivables net.
5	Accounts receivable of $12,000 (gross) are factored with Rothchild Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)
Dec. 29	Legler Co. notifies Falco that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

Instructions: Prepare all necessary entries in general journal form for Falco Corp.

PART II

Fiore Corporation factors $250,000 of accounts receivable with Winkler Financing, Inc. on a with recourse basis. Winkler Financing will collect the receivables. The receivables records are transferred to Winkler Financing on August 15, 2014. Winkler Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions:

(a)	What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?

(b)	Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2014, for Fiore to record the sale of receivables, assuming the recourse obligation has a fair value of $3,000.

PART III

Inventory information for Part 311 of Seminole Corp. discloses the following information for the month of June.

June 1	Balance	300 units @ $10	June 10	Sold	200 units @ $24
11	Purchased	800 units @ $11	15	Sold	500 units @ $25
20	Purchased	500 units @ $13	27	Sold	250 units @ $27

Instructions:

(a)	Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO.

(b)	Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO?

(c)	Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO?

(d)	Why is it stated that LIFO usually produces a lower gross profit than FIFO?