Question

Examine the financial statements and additional disclosures Jormsvik Corp. Annual Income Statement for the period Sales Revenue, net Cost of goods sold Gross profit Operating Expenses Bad Debt Expense Operating Income Interest expense Tax Expense Net Income 2019 $10,600,000 3,000,000 7,600,000 800,000 920,000 $5,880,000 44,000 $1,167,200 S4,668,800 2018 $9,700,000 2,450,000 7,250,000 750,000 530,000 $5,970,000 47,000 $1,184,600 $4,738,400 12/31/19 12/31/18 Jormsvik Corp. Annual Consolidated Statement of Financial Position Accounts Receivable, net of total allowances of $65.000 and $105,000 for 2019 and 2018, respectively Inventory, net $4,850,000 $3,150,000 ??? ??? Jormsvik Corp. Annual Direct Method Statement of Cash Flows for the period Cash collections from receivables 2019 11,300,000 2018 8,100,000 Footnote disclosures-allowance for doubtful accounts and sales returns (ledger balances of accounts): 12/31/19 12/31/18 Balance of allowance for doubtful accounts $??? $70,000 Balance of allowance for sales returns $25,000 $35,000 Sales discounts $248,500 Jormsvik uses the gross method for accounting for cash discounts. To simplify, assume no accounts were reinstated during 2019 that were previously written off. Also assume that the window on sales returns did not expire for any returns (i.e. there was no overestimate of sales returns). All sales revenue represents credit sales.

Answer 1

Cost of Goods Sold = Op.Inventory + Purchases - Cl.Inventory Purchases = Cl. Inventory + Cost of Goods Sold - Op.Inventory = $ 6,750,000+$ 3,000,000 - $ 8,500,000 = $ 1,250,000 (b) Balance Sheet Inventory on 12/31/2018 = Inventory Value - Inventory Allowance = $ 8,500,000 - $3,000 =$ 8,497,000 Balance Sheet Inventory on 12/31/2019 = Inventory Value - Inventory Allowance = $ 6,750,000 - $ 4,000 =$ 6,746,000 (c) LIFO Reserve = FIFO Inventory - LIFO Inventory FIFO Inventory = LIFO Inventory + LIFO Reserve Opening FIFO Inventory = $ 8,500,000 + $ 45,000 = $ 8,545,000 Closing FIFO Inventory = $ 6,750,000 + $ 8,000 = $ 6,758,000 Cost of Goods Sold = Op.Inventory + Purchases - Cl.Inventory = $ 8,545,000+ $ 1,250,000 - $ 6,758,000 = $ 3,03,7000

Pass journal entry as follows: Account Titles and Explanation Cash Sales Discount Accounts Receivable Debit Credit $11,100,000 $248,500 $11,348,500 % of Sales Discount = Discount) X 100 Gross Sales $248,500 x100 $11,348,500 = 2.19% Sales Debit $248,500 Gross Sales Credit $11,105,000 Sales Discount Sales Return (bal, figure) ($11,105,000-$10,600,000- $248,500) Net Sales $256,500 $10,600,000 $11,105,000 $11,105,000 (1) Sales return for the period = $ 256,500 (2) Sales return allowance Closing Balance Op. Balance + Actual Sales Return - Sales Return Adjusted = $35,000 + Actual Sales Return - $ 256,500 = $ 25,000 Actual Sales Return = $ 25,000 + $ 256,000 - $ 35,000 Actual Sales Return = $ 255,500

The value of accounts receivable write-off is $65,000 as it is the amount by which the gross value of accounts receivable is reduced. Bad Debts shown in the Income statement is the adjusting entry amount and not the actual write-off.