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PART 2: OPEN-ENDED PROBLEMS P1. Accounts receivable (1) P1.1. How can bad debt accounting be used for earnings management? P1.2. Before adjusting entries, at the
PART 2: OPEN-ENDED PROBLEMS P1. Accounts receivable (1) P1.1. How can bad debt accounting be used for earnings management? P1.2. Before adjusting entries, at the end of 2021, Wimpy Co.'s trial balance was as following: Dr Cr Cash and cash equivalents 27,900 Accounts receivable 5,200 Allowance for doubtful accounts 800 Inventory 18,600 Long-term investments 40,000 Accounts payable 3,700 Unearned revenue 1,200 Notes payable 3,000 Common stock 50,000 Retained earnings 25,800 Revenues 13,500 Bad debt expense 4,300 Utilities expense 2,000 98,000 98,000 a. Assuming that an additional 5% of net accounts receivables will be uncollectible, what is the appropriate journal entry to record the bad debt expense? S b. Assume that a total of 10% of gross accounts receivable will be uncollectible. Instead of Allowance for doubtful accounts of $800 credit, the balance was $800 debit. What is the appropriate journal entry to record the bad debt expense? P2. Inventory (2) P2.1. In what way do different inventory estimation methods affect cash flow? P.2.2. How does the choice of different inventory methods affect the income statement? p.2.3. What is the difference between LIFO and FIFO inventory estimation methods? P.2.4. Which inventory method, in your opinion, is the best and why? P.2.5. The following records show Muriel's company transactions in February 2022: Date Description Units Unit cost Beginning balance 600 $4.50 Feb 2 Purchase 800 $4.75 Feb 7 Purchase 1,200 $4.80 Feb 16 Purchase 550 $5.20 Feb 21 Sale 750 Feb 25 Sale 1,640 Feb 28 Purchase 1,000 $5.50 Assuming periodic inventory system, compute ending inventory and cost of goods sold at the end of February using (a) FIFO, (b) LIFO, and (c) average-cost. Assuming the unit selling price is $10.50, which method will result in the highest income tax expense? 6
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