ASSIGNMENT: WEEK 3 Homework Purpose: Practice determining how different types of sales and receivables transactions are handled according to US GAAP and how this impacts the companys financials year over year. Scenario: For this exercise, you will need to download the excel document labeled Homework Project Week 3 Template.xls .

Below are a variety of transactions for a Washing Machine Company (WMC). They have traditional stores selling washing machines directly to customers and they also sell to other retailers such as Sears, Home Depot, etc. Occasionally they will receive long term special order contracts to be delivered over in a 1-2 year time frame (new apartment buildings etc.) Requirement 1: Complete the Financial Statement Impact Template For each of the transactions noted below, use the provided Financial Statement Impact Template to record the transactions and create final totals. Note that the template will have some beginning balances in the accounts that you may need to consider. 1 On Sept 4, WMC sold washing machines costing $30,000 for $38,000 on account. All sales are also recorded with a possible sales return which are estimated for 2% of each gross sale. 2 On Sept 18, WMC made an agreement to supply Home Depot with their newest washing machine model when it is ready. $25,000 cash was received from Home Depot for these future products but products will not be delivered until midOctober. 3 On Sept 30, WMC made their quarter end adjustment to the Allowance for Uncollectible Accounts. Management makes the adjustment every quarter end estimating that the allowance for uncollectible accounts should be at 4% of the current balance of Accounts Receivable. Please note that WMCs balance from last period in the Allowance for Uncollectible Accounts is $1450. This is shown the associated Homework Project Week 3 Template.xls. Requirement 2: Answer the following questions about the transactions your recorded a) In transaction 1, what is the purpose of recording the possibility of a sales return? b) Why does WMC record this in a separate account and not just reduce sales revenue directly? c) What if management did not record any estimate for the sales returns in transaction 1? What would be the impact on the Income Statement? Use financial numbers in your answer. d) In regard the allowance for uncollectible accounts. What if WMC decided to estimate this as 2.5% of the current balance of Accounts Receivable? What is the impact on the Balance Sheet? On the Income Statement? Use financial numbers in your answer. e) Assume that WMC has been approached by a local vacuum company who is requesting to display and sell vacuums in WMCs stores. Any unsold vacuums would be returned to the local company and WMC will earn a 4% commission on each sale. Describe how WMC will account for the sale of a vacuum in their revenue?

Date	Transaction	Amount	Balance Sheet
			Assets					Liabilities		SE
			Cash	AR	Allowance for Uncollectible Accounts	Allowance for Sales Returns	Inventory	Accts Pay	Deferred Revenue	Cont. Cap	RE
Beginning Balances			112,000	68,000	1,450	400	120,000	100	4,000	80,000	214,050