Please provide the working and calculations for the requirec sections.
ACCY112: Accounting In Organisations Autumn 2016- School of Accounting, Economics and Finance Assignment Question 2 - Week 7 QUESTION 1 Johanna owns Campus Fashion. From its inception Campus Fashion has sold goods on 25% cash and the remaining on a 90 day credit basis. At 31 December 2015, the trial balance of Campus Fashion contained the following amounts before any adjustments; Debits Allowance for Doubtful Debt Credits 2,310 Sales Revenue 796,500 Credit Sales Return and Allowances 43,200 The beginning balance of Accounts Receivable at 1 January 2015 was $563,000 and Johanna had collected $590,000 from credit sales during 2015. The following Accounts Receivable were deemed uncollectible during 2015: Simon Fashion $14,316 Gleason Footwear $12,384 Required: 1) Based on the information given, a. Which method of accounting for bad debts is Campus Fashion using? How can you tell? b. Show the general journal entry required to write off the bad debts. 2) Johanna currently estimates the bad debts expense based on 6% of net credit sales revenue. He has decided to compare the current method with an ageing method of the accounts receivable method. Johanna after analysing industry averages and prior year's activity, he has determined that an Allowance for Doubtful Debt of 8% of the outstanding accounts receivable is required. a. Prepare the general journal entry to adjust the Allowance for Doubtful Debt at 31 December 2015 under i. The net credit sales method ii. The aging of accounts receivable method b. Determine the balance in the Allowance for Doubtful Debts account under both methods. 1 QUESTION 2 ChemCo International Ltd sells specialty chemicals and salt. Recently, its speciality chemical business was reorganised due to lack of market demand for the products. ChemCo International Ltd currently uses the periodic inventory system with weighted average cost flow assumption. The sales and purchases of the speciality chemicals in March 2016 were: March Specialty Chemicals (unit) 100 Cost Per unit Price Per unit $60 1 Beginning inventory $55 3 Purchased 134 10 Sold 109 12 Purchased 125 $65 15 Purchased 68 $70 20 Sold 121 $73 24 Sold 45 $75 $70 Required: 1) Calculate the cost of inventory at 31 March 2016 and the cost of sales for March under the current cost flow assumption that ChemCo International Ltd uses. 2) Due to low demand for the specialty chemicals, ChemCo International Ltd has decided to change the cost flow assumption. a. Prepare the income statement up to the gross profit stage under FIFO, LIFO and weighted average cost flow assumptions. (Provide your calculations for the cost of inventory on hand and cost of sales under FIFO and LIFO cost flow assumptions). b. Compare your results obtained in part a under the different cost flow assumptions and explain why your results are or are not the same? 3) Assuming that ChemCo International Ltd was using the perpetual inventory method, prepare general journal entries to record the 3rd and 10th of March 2016 transactions using FIFO method, assuming that the purchases and sales were on credit (determine and journalise the cost of sales at the time of sales). 2
