Question
I need some help with the 2 questions at the bottom please. Bell Farm and Garden Equipment reported the following information for 2018: Net Sales
I need some help with the 2 questions at the bottom please.
Bell Farm and Garden Equipment reported the following information for 2018:
Net Sales of Equipment
$2,450,567
Other Income
6,786
Cost of Goods Sold
1,425,990
Selling, General, and Administrative Expense
325,965
Net Operating Income
$705,398
Selected information from the balance sheet as of December 31, 2018, follows:
Cash and Marketable Securities
$113,545
Inventory
248,600
Accounts Receivable
82,462
Property, Plant, and EquipmentNet
335,890
Other Assets
5,410
Total Assets
$785,907
Assume that a major customer returned a large order to Bell on December 31, 2018. The amount of the sale had been $146,800 with a cost of sales of $94,623. The return was recorded in the books on January 1, 2019. The company president does not want to correct the books. He argues that it makes no difference as to whether the return is recorded in 2018 or 2019. Either way, the return has been duly recognized.
Required
1.Assume that you are the CFO for Bell Farm and Garden Equipment Co. How would a memo to the president explaining how omitting the entry on December 31, 2018, could cause the financial statements to be misleading to investors and creditors. Explain how omitting the return from the customer would affect net income and the balance sheet.
2.Why might the president want to record the return on January 1, 2019, instead of December 31, 2018?
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