Question 3. - Accounting for Inventories Very Ugly Mitch Limited (VUML) is confused about how to account for inventory. The CEO of VUML is from Tasmania, Australia so is short of a few bricks in the wall. Thus, the crack team from Harry, Larry and Mo Consulting have been called in to help. As at December 1, the amount of inventory in stock comprised 20,000 units of stuffed toy camel that cost $92. During the month of December, the following flow of merchandise inventory is noted: 1. On December 3, VUML purchased 16,000 units of stuffed toy camels that cost $85 cach from Mixed Manufacturing Limited. 2. On December 7, VUML purchased 11,000 units of stuffed toy camels that cost $82 each from Poor Style Manufacturing Limited. 3. On December 12, VUML sold 29,400 units of stuffed toy camels for $121 each to Bad Client Limited. 4. On December 17, VUML purchased 18,200 units of stuffed toy camels that cost $95 each from Mixed Manufacturing Limited. 5. On December 22, VUML sold 23,900 units of stuffed toy camels for $116 each Broken Toys Limited. 6. On December 23, VUML purchased 16,100 units of stuffed toy camels that cost $98 each from Good Style Manufacturing Limited. 7. On December 27, VUML sold 15,500 units of stuffed toy camels for $129 each to Bye-Bye Stores Limited. Required: Calculate the sales revenue, ending inventory balance and the cost of goods sold for the month of March using (a) weighted average cost; and (b) FIFO. (The perpetual system is always going be used). [6 Marks) to Question 1. - Purchase and Sale Inventory Case 1 Bad Eyesight Aussie (the owner of Terrible View Limited) sold 1,000 pairs of visors to Dishonest Mitch a long-term customer on December 1, 2020. The sale was for $194,000 (all on credit). The value of the sunglasses was $75,000. As a long-term customer, Bad Eyesight Aussie agreed to offer following terms of 3/15, n/30. Four days (December 4, 2020) after the purchase, Dishonest Mitch called to say that some of the glasses were not well made and he was returning 35% of the purchase. The cost of goods returned originally cost Bad Eyesight Aussie $16,250. On December 7, Dishonest Mitch called to say he was going to return all remaining stock he purchased on December 1, 2020. However, after some swift negotiation Bad Eyesight Aussie convinced Dishonest Mitch to keep all the remaining stock but he would only need to pay $76,000 for the stock he kept. On December 12, 2020 Dishonest Mitch paid 30% of the amount he owed Bad Eyesight Aussie. And on December 21, 2020 he paid the rest Required: Write all relevant journal entries for month of July 2020 for Bad Eyesight Aussie Mitch Limited for the events in Case 1. [1.5 Marks] Case 2 Rotten Wheel Limited is a merchandise company selling running shoes and cosmetics. Ugly Mitch Blueheeler (owner of Rotten Wheel Limited) purchased 10,000 wigs from his best supplier Dinosaur Mother Limited on July 1, 2020. The wigs cost $150,000 and was purchased on credit with the terms 4/15, n/30. Six days after purchase, Rotten Wheel Limited returned 30% of the wigs as they were the wrong colour. Ten days after purchase Rotten Wheel Limited threatened to return all the remaining wigs due to poor quality. However, Dinosaur Mother Limited said that if he kept the remaining stock in full then Rotten Wheel Limited would only have to paid $68,000 for the purchase owed. Rotten Wheel Limited paid 20% of the outstanding balance on July 13, 2020 with the rest paid on July 31, 2020. Required: Write all relevant journal entries for month of July 2020 for Rotten Wheel Limited for the events in Case 2. [1.5 Marks] Question 2.- Provision for Doubtful Debts During the year of 2024, the credit sales of Mixed Enemy Fireworks Limited amounted to $56,600,000. At the end of the financial year (i.e., December 31, 2021) the balance in accounts receivable is $3,200,000. Of this balance $900,000 is found to overdue. The CFO of Mixed Enemy Fireworks Limited examined each of the accounts receivable and found the following: (a) $275,000 were 0 to 30 days old; (b) $420,000 were 31 - 60 days old; (c) $375,000 were 61 to 90 days old; (d) $286,000 were 91 - 120 days old; and (e) the balance was greater than 121 days overdue. The CFO - based on prior experience - estimates that 2% accounts receivable 0 to 30 days overdue will be uncollectible; 8% of the 31 to 60 days overdue; 12% of the 61 to 90 days overdue; 40% of the 91 to 120 days overdue; and 80% greater than 120 days overdue. Assume that accounts receivable not yet overdue are all presumed to be fully collectible. a) Calculate the balance of provision for doubtful debts at the end of 2024 is using the percentage of credit sales approach if assumed 5% of total credit sales during 2024 would eventually be uncollectible. [2 marks] b) Calculate the balance of provision for doubtful debts at the end of 2024 using the aging method. [2 Marks] c) Assume that the balance in the provision for doubtful debts at the end of 2024, before any adjustment, is a credit balance $16,900. Complete the necessary adjusting entry. [1 mark] d) Assume the amount of accounts receivable at the end of 2024 was $400,000. Show the appropriate balance sheet section related to accounts receivable (show a title please but only need portion for accounts receivable). [1 Mark]
