Jonah Electronics Corporation ("JEC") is in the business of selling electronics products. On December 2, 2019, JEC sent a purchase order to its Korean supplier to purchase 50 computers at a total invoice value of $60,000 on the basis of FOB Shipping Point. Shipping costs from Korea to JEC's warehouse are $5,000 and import duties are 10% of the invoice value. The Korean supplier always offers payment terms of 3/10, net 30, but JEC never takes the discount. The computers were received at JEC's warehouse in Burnaby on December 31, 2019. During the actual shipment of the computers from Korea to Canada, the computers were damaged. Management of JEC estimates that the cost to repair the damaged goods would be $19,000. After repairing the damaged goods, the computers can be sold to customers for $1,800 per unit. Sales commissions are 8% of the selling price. In addition, JEC offers all of its customers free delivery and installation at no additional price to the customer, even though delivery and installation involves a cost to JEC of $30 per computer. At December 31, 2019, the Korean supplier would charge $1,150 per unit, FOB Shipping Point, and there are no changes expected for shipping costs and import duties. JEC uses a perpetual inventory system. Required: (A) If management of JEC is motivated to meet its debt-to-equity covenant, then which inventory cost flow assumption would most likely be used for computers? Explain/J ustify your answer. (3 Marks) (B) On what basis should the cost flow assumption choice really be made? Why? (2 Marks) (C) What should be the balance of JEC's Inventory" account as at December 31, 2019 (prior to any write down of inventory)? Show your work. (2 Marks) (D) Prepare the joumal entry to write down the inventory. (3 Marks) Jonah Electronics Corporation ("JEC") is in the business of selling electronics products. On December 2, 2019, JEC sent a purchase order to its Korean supplier to purchase 50 computers at a total invoice value of $60,000 on the basis of FOB Shipping Point. Shipping costs from Korea to JEC's warehouse are $5,000 and import duties are 10% of the invoice value. The Korean supplier always offers payment terms of 3/10, net 30, but JEC never takes the discount. The computers were received at JEC's warehouse in Burnaby on December 31, 2019. During the actual shipment of the computers from Korea to Canada, the computers were damaged. Management of JEC estimates that the cost to repair the damaged goods would be $19,000. After repairing the damaged goods, the computers can be sold to customers for $1,800 per unit. Sales commissions are 8% of the selling price. In addition, JEC offers all of its customers free delivery and installation at no additional price to the customer, even though delivery and installation involves a cost to JEC of $30 per computer. At December 31, 2019, the Korean supplier would charge $1,150 per unit, FOB Shipping Point, and there are no changes expected for shipping costs and import duties. JEC uses a perpetual inventory system. Required: (A) If management of JEC is motivated to meet its debt-to-equity covenant, then which inventory cost flow assumption would most likely be used for computers? Explain/J ustify your answer. (3 Marks) (B) On what basis should the cost flow assumption choice really be made? Why? (2 Marks) (C) What should be the balance of JEC's Inventory" account as at December 31, 2019 (prior to any write down of inventory)? Show your work. (2 Marks) (D) Prepare the joumal entry to write down the inventory
