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At the start of April, Moreta Manufacturing had 50 accounting professor action gures on hand that cost $10 to manufacture. During the month of April,
At the start of April, Moreta Manufacturing had 50 accounting professor action gures on hand that cost $10 to manufacture. During the month of April, Moreta manufactured 100 more action gures at a cost of $11 per action gure and sold 80 action gures to customers at a price of $20 each.
Required:
A. How much prot did Moreta make during April from the sale of the action
gures? Is there a single answer to this question? Briey explain.
B. Assuming that Moreta chooses the FIFO method of accounting for cost of goods
sold, give the journal entries needed to account for the sale of the action gures,
assuming that customers purchased them on account.
C. Give the adjusting entry that would be needed to account for Moretas estimate
that $100 of the accounts receivable would ultimately be uncollectible.
D. At the end of April, ODonovan, LLC, an aorney for C. Riley, noties Moreta
that Riley plans to sue Moreta. Riley claims that the action gures appear to be
exact likenesses of R. Pfeier, and when she saw one of the action gures in a
store, it caused her severe mental distress because of her past trauma suered in
Pfeiers accounting class many years ago. Riley is claiming damages for pain
and suering of $10 million.
Moretas aorney, Savelson & Sullivan, LLC, advises Moreta that it is probable that Moreta will have to pay some amount of money as a result of this lawsuit,
but it isnt possible to estimate how much the amount might be until the lawsuit is either seled or adjudicated.
Briey explain the proper accounting treatment for these facts under GAAP and provide any journal entry that might be necessary.
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