Assessment 3

Use this template to record your answers to Parts 1–4 in Assessment 3, Section 1. Submit the completed template for your assessment.

Part 1: Receivables Reporting

Problem 1

825,000 x 2% = 16,500 – 3,500 = $13,000

Problem 2

Accounts Receivable – Accounts Uncollected = Net Realizable Value (NRV) 962,500 – 99,000 = 863,500

Problem 3

Bad Debt Expense: $1,155,000 x 1.5% = $17,325

Allowance for Doubtful Accounts as of January 1, 2018: $9,350

$17,325 + $9,350 = $26,675

$26,675 + $4,400 = $31,075

$31,075 – $16,500 = $14,575

Allowance for Doubtful Accounts as of December 31, 2018: $14,575

Problem 4

Bad Debt Expense: $46,200

Allowance for Doubtful Accounts: $46,200

Allowance for Doubtful Accounts: $13,200 Accounts Receivable: $13,200

(to write off uncollected accounts)

Balance in Allowance for Doubtful Accounts: $46,200 – $13,200 = $33,000 Balance in Accounts Receivable: $522,500 + $33,000 = $555,500

Problem 5

Doubtful Accounts: $451,000 x 2% = $9,020

Allowance for Doubtful Accounts: $15,400 + $9,020 = $23,520

Bad Debt Expense: $23,520

Part 2: Inventory Issues

Problem 1

List Price x (1 – First Discount Rate)(1 – Second Discount Rate = Cost of Inventory

= $330,000 x (1 – 0.15)(1 – 0.10)

= $330,000 x (0.85)(0.90)

= $252,450

Problem 2

Beginning Inventory + Purchases = Inventory

$605,000 + $37,950 = $642,950

Problem 3

Because no date was associated with the units issued or sold, the periodic (rather than perpetual) inventory method must be assumed.

FIFO inventory cost:	Purchases			Cost of Goods Sold			Inventory
Date	Units	Cost	Total	Unit	Cost	Total	Units	Cost	Total
May 1							825	$10.00	$8,250
May 9	1,100	$10.50	$11,550				825 1,100	$10.00 $10.50	$19,800
May 17	1,925	$11.00	$21,175				825 1,100 1,925	$10.00 $10.50 $11.00	$40,975
May 26	550	$11.50	$6,325				825 1,100 1,925 550	$10.00 $10.50 $11.00 $11.50	$47,300
May 31							605 550	$11.00 $11.00	$6,655 $6,325 $12,980
LIFO inventory cost:	Purchases			Cost of Goods Sold			Inventory
Date	Units	Cost	Total	Units	Cost	Total	Units	Cost	Total
May 1							825	$10.00	$8,250
May 9	1,100	$10.50	$11,550				825 1,100	$10.00 $10.50	$19,800
May 17	1,925	$11.00	$21,175				825 1,100 1,925	$10.00 $10.50 $11.00	$40.975
May 26	550	$11.50	$6,325				825 1,100 1,925 550	$10.00 $10.50 $11.00 $11.50	$47,300
May 31				550 1,925 770	$11.50 $11.00 $10.50	$6,325 $21,175 $8,085	330 825	$10.50 $11.00	$3,465 $8,250 $11,715
Average-cost:	Purchases			Cost of Goods Sold			Inventory
Date	Units	Cost	Total	Units	Cost	Total	Units	Cost	Total
May 1							825	$10.00	$10.00
May 9	1,100	$10.50	$11,550				825 1,100	$10.00 $10.50	$10.29
May 17	1,925	$11.00	$21,175				825 1,100 1,925	$10.00 $10.50 $11.00	$10.64
May 26	550	$11.50	$6,325				825 1,100 1,925 550	$10.00 $10.50 $11.00 $11.50	$10.75
May 31				3,245	$10.75	$34,883.75	1,155	$10.75
Totals
Ending inventory							$12,416.25

Problem 4

Computation of price indexes:

12/31/17	138,600	138,600/132,000 = 1.05
	132,000

12/31/18	157,696	157,696/140,800 = 1.12
	140,800

            Dollar-value LIFO inventory 12/31/17:

110,000 x 1.00	110,000
22,000 x 1.05	23,100
Dollar-value LIFO inventory	$133,100

            Dollar-value LIFO inventory 12/31/18:

110,000 x 1.00	110,000
22,000 x 1.05	23,100
8,800 x 1.12	9,856
Dollar-value LIFO inventory	$142,956

Problem 5

The inventoriable costs for 2018 are:

Merchandise Purchase for Resale		$500,140
Freight-In		$12,100
Inventoriable cost………………………………………………………………….		$512,240

Note: Freight-out is a selling expense. Interest on notes payable is a period expense. Neither is an inventoriable cost.

Part 3: Acquisition Costs of Realty

Item		Land		Land Improvements		Building		Other Accounts
(a)								($151,250)
(b)						$151,250
(c)		$4,400
(d)		$3,850
(e)						$3,300
(f)						($550)
(g)						$12,100
(h)		$100,000
(i)		$4,950
(j)				$2,200
(k)		$6,050
(l)		($2,720)
(m)						$7,150
(n)				$10,450
(o)		$7,700
(p)						$1,650

Part 4: Depreciating Plant Assets

a)        

1. Depreciable Base Computation:

Purchase Price		$40,400
Less: Discount Received		808
Net Price		39,592
Add:
Freight in Cost	568
Preparation and Installation Cost	2,090	2,658
Cost of Machine		42,250
Less: Salvage Value		750
Depreciable Value		$41,500

Depreciable Base Computation: Straight Line Method: (41,500/8) x (8/10) = 5,187.50 x 0.8

= $4,150

2. Sum-of-the-years’-digits for 2018

1. 2018: 41,500 x (8/36) x (8/10) = $7,304

2019: 41,500 x (8/36) x (4/10) + 41500 x (7/36) x (8/10) = $9,960

3. Double-declining balance for 2018

Useful Life is 8 years: (1/8) x 2 = 25% 41,500 x 25% x (8/10) = $8,300                       

b) I would recommend the straight-line method of depreciation. This method allows the company to calculate depreciation in equal amounts for each accounting period over the life of the machine.

Plant Assets

Changing the depreciation method for plant assets is an effective tool or approach to be used in the management of earnings. That is because the frequency of change in depreciation charges is dependent on several factors. They include the years of manufacturing and the wear and tear that has been incurred while using the asset. Therefore, the cost of the assets will not remain and prone to changes in the future where there will be further depreciation. Therefore, adjusting the method will be suitable since all the factors of consideration, such as the years of manufacturing, will have been considered.

Changing estimated valuable assets lives can be used to manage earnings since there is capitalization, and a value will be attached to each valuable asset based on depreciation. In the process, earnings will be managed since there will be value for money from capitalization. Earnings will not be used to purchase assets with longer functional life and high depreciation since they will not provide the needed services for long. There will be high expenses on such an occasion, and the organization will be operating at a loss.

Impaired losses is a term in accounting used to describe a situation where there is a decline in the new carrying value for an asset to greater levels when compared to the undisclosed cash flow in the future. However, in such a situation, the assets are the same. It can be used as an earnings management tool by reporting it in the same section of the income statement where the operating income and expenses are placed. For example, there will be a reduction in the number of profits the business entity reports for a period and no implication on the cash flow balance.

Memo

To: Company President

From: [Students Name]

Date:

Re: Concerns and Objection of the Company President

As the consultant for your company, it has come to my attention that issues are being raised about using the direct write-off method and the Accounts Receivable Aging Method. At the moment, there uses the former approach by the organization to determine future debts. However, there is a need to consider the latter for several reasons. I want to inform you that change is inevitable for a manufacturing organization primarily due to advancements in the needs of the consumers.

Actual financial statements are good in decision-making at the moment, and however, if there is a need for growth, there is a need to focus on future predictions. The organization might be performing well at the moment but consider changes in the market expected to take place in the future. It will pose a risk to the organization leading to its failure if no action is taken in creating a contingency plan. The most effective approach to use to realize possible threats in the future is the Accounts Receivable Aging Method.

The bad debt for the firm has indeed been the same in the past three years, making it easy to make a prediction. However, that might be due to the allowances in the doubtful accounts, which can change at any time. Therefore, the only practical approach that can be used in dealing with the changes in the Accounts Receivables Aging Methods is to provide an estimate of the bad debts and equally provide information on the total amount that needs to be written off.

It will be a good idea to consider the change. Thank you for your corporation.