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Take Home Quiz #5 - due in class. Due Tuesday, November 8 This is an individual-take home Quiz #5 worth 25 points. You may use your textbook and visit with the TA's. However, you are NOT to work with any person on this Take Home Quiz #5. Yes, we trust you will do the right thing . This quiz is a great review for the final exam if you work on this by yourself. If you cheat just to get the 25 points you will miss the significant points on the final exam. Please do this quiz by yourself and do not share your answers with your classmates. Chapter 7 questions Problem 1 The following information was abstracted from the 2017 financial statements of Jennings Company: Sales Accounts Receivable, December 31, 2017 Allowance for Doubtful Accounts Sales discounts Sales returns *30% related to credit sales $747,000 128,000 1,220 18,000 12,400 * (credit balance) * * Prepare the adjusting entry for doubtful accounts expense under each of the following assumptions: (a) (b) 3 percent of current accounts receivable are uncollectible. 2.5 percent of net credit sales are uncollectible. 1 Problem 2 From inception of operations to December 31, 2017, Harris Corporation provided for uncollectible accounts receivable under the allowance method. Provisions were made monthly at 2 percent of credit sales; 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. Harris's usual credit terms are net 30 days. The credit balance in the allowance for doubtful accounts was $260,000 at January 1, 2017. During 2017, credit sales totaled $18,000,000, interim provisions for doubtful accounts were made at 2 percent of credit sales, $180,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $30,000. Harris 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: Classifications by Month of Sale November-December 2017 July-October 2017 January-June 2017 Prior to January 1, 2017 Balance in Each Category $2,280,000 1,200,000 800,000 260,000* Estimated % Uncollectible 2% 15% 25% 80% *Based on the review of collectability of the account balances in the "Prior to January 1, 2017" aging category, additional receivables totaling $120,000 were written off on December 31, 2017 meaning that of the $260,000 in this aging category, $120,000 was written off on December 31, 2017. The "Prior to January 1, 2017" aging category has an ending balance, after the write offs, of $140,000. Effective with the year ended December 31, 2017, Harris adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Required: (a) (b) (c) Prepare a T-account that analyzing the changes in the allowance for doubtful accounts for the year ended December 31, 2017. Prepare the journal entry for the year-end adjustment to the allowance for doubtful accounts balance as of December 31, 2017. What is the estimated net realizable value at December 31, 2017 after all the adjusting entries have been made? 2 Problem 3 Reynolds Corp. factors $400,000 of accounts receivable with Mateer Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to Mateer Finance, which will receive the collections. Mateer Finance assesses a finance charge of 1 percent of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale. Required: a. Prepare the journal entry on July 1, 2017, for Reynolds Corp. to record the sale of receivables without recourse. b. Prepare the journal entry on July 1, 2017, for Mateer Finance Corporation to record the purchase of receivables without recourseplease think through this. c. Explain the difference between sale of receivables with recourse as oppose to without recourse. Problem 4 Robinson Corp. makes a loan to Susan Co. and receives in exchange a four-year, $40,000 note bearing interest at 10 percent annually on December 31, 2017. The market rate of interest for note of similar risk is 12 percent. Payment of the note are received at the end of each year starting December 31, 2018. a. What is the present value of the note receivable? b. Was the note issued (or exchange) for a discount or premium? Support your answer and record the necessary journal entry from Robinson perspective! 3 Problem 5 - Conceptual questions: You will need more space to answer these questions then what is provided. 1. Explain how the accounting for bad debts can be used for earnings management. 2. Indicate three reasons why a company might sell its receivables to another company. 3. Moon Hardware is planning to factor some of its receivables. The cash received will be used to pay for inventory purchases. The factor has indicated that it will require \"recourse\" on the sold receivables. Explain to the controller of Moon Hardware what \"recourse\" is and how the recourse will be reflected in Moon's financial statements after the sale of the receivables. 4. What is the accounts receivable turnover ratio, and what type of information does it provide? 4 Chapter 8 questions Problem 1 Yale Department Store maintains separate inventory records for each type of merchandise it sells. The inventory records for product type X show the following for the month of September. Beginning inventory; 9/1 Purchase, 9/8 Sale, 9/13 Purchase, 9/19 Sale, 9/22 Purchase, 9/26 Purchase, 9/29 Sale, 9/30 Units 200 150 130 50 80 100 50 80 Unit Cost $3.00 3.20 Unit Selling Price $5.00 3.50 5.25 3.55 3.60 5.50 Required 1. Assume that Yale uses a perpetual inventory system. Calculate the cost of ending inventory and the cost of goods sold for September under the following inventory valuation methods: Ending Inventory Cost of Goods Sold FIFO in dollars NOT units LIFO in dollars NOT units Average (moving) Cost in dollars NOT units Use the back side of this sheet for your calculations! 2. September was a month of increasing inventory acquisition cost for Yale. Will FIFO or LIFO yield the lower net income under these circumstances? Explain why. 3. Given that Yale uses the LIFO method for external reporting, what amount is considered LIFO Reserve if the FIFO method was used for internal purposes for the month of September? 4. Assume that Yale has a 40% tax rate. How much tax savings will be generated if Yale uses the LIFO method for inventory valuation? 5 Problem 2 - conceptual questions 1. Identify four methods of assigning cost to ending inventory and cost of goods sold and briefly explain the difference in the methods. 2. It's common in the electronics industry for unit costs of raw materials inventories to decline over time. In this environment, explain the difference between LIFO and FIFO, in terms of the effect on income and financial position. Assume that inventory quantities remain the same for the period. 3. Describe the ratios used by financial analysts to monitor a company's investment in inventories. 4. Identify any differences between U.S. GAAP and International Financial Reporting Standards in the methods allowed to value inventory. 6