Chapter 6
Sabretooth Dentistry realizes that $1,000 of its accounts receivable will be uncollectible. Sabretooth Dentistry's allowance for uncollectible accounts has a credit balance of $3,200. Prepare the journal entry to write off part of the accounts receivable.
Allowance for Uncollectible Accounts 1,000
Accounts Receivable 1,000
In an inflationary period, this inventory costing method produces the highest cost of goods sold out of the three.
Hint: average cost, LIFO & FIFO
LIFO (Last in, First out)
Riptide LLC had sales revenue totaling $30,000 in 2023 and accounts receivable balances of $10,000, $16,000 & $14,000 in 2022, 2023 & 2024, respectively. What is its Accounts Receivable Turnover for 2023?
Accounts Receivable Turnover (ART) = Sales Revenue/Average Accounts Receivable
Accounts Receivable Turnover = 2.31
In 2023, Wolverine & Nightcrawler have a sales revenue totaling $50,000 and a cost of goods sold of $20,000. Compute its gross profit margin for 2023.
Gross Profit Margin = (Sales Revenue - Cost of Goods Sold)/Sales Revenue
Gross Profit Margin = 0.60
The following is an earnings management strategy where a company uses power over customers to increase sales.
Hint: Examples include: mischaracterization transaction as arm's length, channel stuffing, income smoothing & big bath
Channel stuffing
When does LIFO liquidation occur?
Occurs when the quantity sold exceeds the quantity purchased
Riptide LLC had sales revenue totaling $30,000 in 2023 and accounts receivable balances of $10,000, $16,000 & $14,000 in 2022, 2023 & 2024, respectively. What is its Average Collection Period for 2023?
Average Collection Period (ACP) = Average Accounts Receivable/Average Daily Sales
Average Collection Period = 158.17 Days
Riptide LLC has a cost of goods sold of $20,000 and $25,000 in 2022 and 2023, respectively. The company also had ending inventories of $10,000 and $13,000 in 2022 and 2023, respectively. Compute its inventory turnover for 2023.
Inventory Turnover = Cost of Goods Sold/Average Inventory
Inventory Turnover = 2.17
During 2023, Toad & Co. have a sales revenue of $20,000. Of the sales $5,000 are cash sales and the remaining are credit sales. It is estimated that 5% of credit sales will be uncollectible. What is the journal entry to account for the estimated uncollectible accounts receivable, assuming it is calculated as a percentage of sales?
Bad Debt Expense 750
Allowance for Uncollectible Accounts 750
Slipstream Surf Shop has a beginning inventory of 100 units @ $200 for a total of $20,000. During 2023, they make the following purchases: 500 units @ $225, 200 units @ $250 and 100 units @ $300. During 2023, they sell 650 units of inventory. Compute the 2023 cost of goods sold and ending inventory under the FIFO costing method.
COGS: $145,000
Ending Inventory: $67,500
Phoenix & Co have a Net Operating Profit After Taxes (NOPAT) of $10,000 for 2023, sales revenue totaling $25,000 for 2023, operating assets totaling $30,000 and $25,000 for 2022 and 2023, respectively, and operating liabilities totaling $17,000 and $20,000 for 2022 and 2023, respectively. Compute its Net Operating Profit Margin.
Net Operating Profit Margin (NOPM) = NOPAT/Sales Revenue
Net Operating Profit Margin = 0.40
What does inventory turnover tell you?
Indicates how quickly inventory is being sold.
Quicksilver Corp. agreed to build an office building for $30,000. It is estimated that it will take 3 years to complete the building, with $10,000 estimated costs in Y1, $4,000 estimated costs in Y2 & $6,000 in Y3. Assuming Quicksolver Corp. recognizes revenue over time according to percentage of completion, what is the revenue that should be recognized for years 1, 2 & 3?
Year 1: $15,000
Year 2: $6,000
Year 3: $9,000
Slipstream Surf Shop has a beginning inventory of 100 units @ $200 for a total of $20,000. During 2023, they make the following purchases: 500 units @ $225, 200 units @ $250 and 100 units @ $300. During 2023, they sell 650 units of inventory. Compute the 2023 cost of goods sold and ending inventory under the Average Cost method.
COGS: $153,472.22
Ending Inventory: $59,027.78
What does RNOA (Return on Net Operating Assets) tell you?
Measure of how well the company is performing relative to its core objective
What does average inventory days outstanding tell you?
Indicates how long inventories are held before being sold.
A seller estimates that 2.3% of its sales revenue will be uncollectible for the current year. Sales totaled $156,000. What is the uncollectible amount?
•The uncollectible amount is:
•$156,000 × 2.3% = $3,588
•The company estimates that $3,588 will prove uncollectible.
Slipstream Surf Shop has a beginning inventory of 100 units @ $200 for a total of $20,000. During 2023, they make the following purchases: 500 units @ $225, 200 units @ $250 and 100 units @ $300. During 2023, they sell 650 units of inventory. Compute the 2023 cost of goods sold and ending inventory under the LIFO costing method.
COGS: $158,750
Ending Inventory: $53,750
Net Operating Profit Margin (NOPM) tell you?
Focuses on the overall operating profitability of a company relative to its sales revenue.
What is the LIFO reserve?
The difference between LIFO cost and the current value of inventory.
LIFO reserve = FIFO ending inventory cost ‒ LIFO ending inventory cost