Question

Inventory 30 POINTS

Compute the inventory methods for TV Vison. Suppose TV Vison started March with an inventory of 50 plasma TVs that cost $2,010 each, for a total beginning inventory value of $100,500. During March, the firm made the following purchases:

March 2     200 TVs for $2,000 each

March 10    150 TVs for $1,800 each

March 20    100 TVs for $1,500 each

March 29 50 TVs for $1,000 each

During March, the firm made the following sales:

         March 5     110 TVs for $4,000 each

         March 12    160 TVs for $4,000 each

         March 25    150 TVs for $4,000 each

Instructions:

A] Using periodic inventory record keeping, calculate the cost of goods sold for the month and the ending inventory at the end of the month. Do these calculations using THREE METHODS, Weighted Average Cost, FIFO, and LIFO.

B] All other operating expenses amount to $250,000. Calculate net income using each of the three methods.

C] Using the perpetual inventory record keeping, calculate the ending inventory and cost of goods sold for TV Vison adopting the LIFO and FIFO methods.

D] Why do companies avoid the perpetual weighted moving average method of calculating inventory costs?

                                    Bad Debt 20 POINTS

M&M Inc. has a problem with accounts receivables reaching a very high dollar amount. You assignment is determine bad debt expense that must be posted at 12/31/2019. Total account receivables for 2019 is $1,000,000.

The head of the AR department for M&M Inc. provides an aging analysis worksheet below.

Accounts Receivable 0-60 days                 $250,000

Accounts Receivable 61-90 days      $175,000

Accounts Receivable 91-120 days    $375,000

Accounts Receivable 121-180 days $125,000

Accounts Receivable Over 180 days $75,000

In previous years, M&M Inc. had use various percentages to describe the risk associated with old accounts. This year the company selected the following percentages {2%; 5%; 15%; 20; and finally 25%}.

If the company had, a zero balance in the allowance account then what would the bad debt expense entry be for the year 2019?

If the company had a $1,200 credit balance in the allowance account, then what would be the expense entry for the year 2019?

If the company had a $5,000 debit balance in the allowance account then what would be the expense entry for the year 2019?

                                        CASH FLOW QUESTIONS 20 POINTS

C Company’s current year income statement reports the following:

Sales                                        $825,000

Cost of Goods Sold                $550,000

Gross Profit                          $275,000

C Company’s comparative balance sheets show the following:

                                                      End of Year                  Beginning of the Year

Accounts receivable                     $71,000                                   $60,000

Inventory                                     $109,000                                  $96,000

Accounts payable                          $31,000                                  $37,000

Compute the cash received from customers and the cash paid for inventory purchases.

Determine the Cash Paid for Taxes during the year using the following information. Five Points

Tax Expense    $100,000 for the year

Tax Payable at the beginning of the year   $73,000

Tax Payable at the end of the year         $19,000     

                                  Depreciation Expense 15 POINTS

Edgy Inc. acquired $250,000 in equipment in 2019 and wishes for you to calculate its depreciation expense journal entry at the end year for years ending 12/31/2019; 12/31/2020; and 12/31/2021.

Machine A was acquired on January 2, 2019 for $100,000. Useful life is five years.

Machine B was acquired on June 30, 2019. Useful life is four years.

What is the total depreciation expense for years 2019, 2020, and 2021 using Double Declining Balance: Sum-of-the-Digits: and Straight Line Depreciation.

                                             EQUITY EVENTS 10 POINTS

From a company’s perspective explain the significance of the following events

Stock Splits

Stock Dividends

Cash Dividends

Answer 1

Solution of the above problem (Inventory) is as under:

A) Periodic Inventory Method

Calculation of Cost of Goods Sold and Cost of Ending Inventory using Periodic Inventory Method
Date	Particulars	Quantity (In Units)	Unit Cost ($)	Value ($)	Quantity Balance	Value Balance
Mar-01	Beginning Inventory	50	2010	100500	50 units @ $2010	100500
Mar-02	Purchase	200	2000	400000	50 units @ $2010 200 units @ $2000	500500
Mar-10	Purchase	150	1800	270000	50 units @ $2010 200 units @ $2000 150 units @ $1800	770500
Mar-20	Purchase	100	1500	150000	50 units @ $2010 200 units @ $2000 150 units @ $1800 100 units @ $1500	920500
Mar-29	Purchase	50	1000	50000	50 units @ $2010 200 units @ $2000 150 units @ $1800 100 units @ $1500 50 units @ $1000	970500
	Total Units and Cost	550		970500

Note: Total Units Sold during the Month of March is: (110+160+150) Units = 420 Units. Therefore Ending Inventory is: (550-420) Units= 130 Units

a) Calculation of Cost of Ending Inventory and Cost of Goods Sold under FIFO Method

Cost of Ending Inventory (130 Units) is:	80 units @ $ 1500 50 units @ $ 1000	170000
Cost of Goods Sold (420 Units)	50 units @ $2010 200 units @ $2000 150 units @ $1800 20 units @ $1500	800500

b) Calculation of Cost of Ending Inventory and Cost of Goods Sold under LIFO Method

Cost of Ending Inventory (130 Units) is:	50 units @ $2010 80 units @ $2000	260500
Cost of Goods Sold (420 Units)	50 units @ $1000 100 units @ $1500 150 units @ $1800 120 units @ $2000	710000

c) Calculation of Cost of Ending Inventory and Cost of Goods Sold under Weighted Average Method

Weighted Average Cost:	Total Cost / Total Units	970500/550	$    1,764.55
Cost of Ending Inventory (130 Units) is:	130 units* $1764.55	229391.50
Cost of Goods Sold (420 Units)	420 units* $1764.55	741111.00

B) Computation of Net Income under each of the above method:

Statement showing calculation of Net Income using all the three methods
	FIFO	LIFO	Weighted Average
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales Revenue (420 units @ $4000)	1680000	1680000	1680000
Less: Cost of Goods Sold	-800500	-710000	-741111
Contribution Margin	879500	970000	938889
Less: Operating Expenses	-250000	-250000	-250000
Net Income	629500	720000	688889

C) Perpetual Inventory Method

Calculation of Cost of Goods Sold and Cost of Ending Inventory using FIFO Perpetual Inventory Method
Date	Particulars	Quantity (In Units)	Unit Cost ($)	Value ($)	Quantity Balance	Value Balance
Mar-01	Beginning Inventory	50	2010	100500	50 units @ $2010	100500
Mar-02	Purchase	200	2000	400000	50 units @ $2010 200 units @ $2000	500500
Mar-05	Sale	-110	50 units @ $2010 60 units @ $2000	-220500	140 units @ $2000	280000
Mar-10	Purchase	150	1800	270000	140 units @ $2000 150 units @ $1800	550000
Mar-12	Sale	-160	140 units @ $2000 20 units @ $1800	-316000	130 units @ $1800	234000
Mar-20	Purchase	100	1500	150000	130 units @ $1800 100 units @ $1500	384000
Mar-25	Sale	-150	130 units @ $1800 20 units @ $1500	-264000	80 units @ $1500	120000
Mar-29	Purchase	50	1000	50000	80 units @ $1500 50 units @ $1000	170000
	Total Units and Cost	130		170000
Therefore,
Cost of Goods Sold = $ (220500+316000+264000) = $800500
Cost of Ending Inventory (130 Units) = $ 170000

Calculation of Cost of Goods Sold and Cost of Ending Inventory using LIFO Perpetual Inventory Method
Date	Particulars	Quantity (In Units)	Unit Cost ($)	Value ($)	Quantity Balance	Value Balance
Mar-01	Beginning Inventory	50	2010	100500	50 units @ $2010	100500
Mar-02	Purchase	200	2000	400000	50 units @ $2010 200 units @ $2000	500500
Mar-05	Sale	-110	110 units @ $2000	-220000	50 units @ $2010 90 units @ $2000	280500
Mar-10	Purchase	150	1800	270000	50 units @ $2010 90 units @ $2000 150 units @ $1800	550500
Mar-12	Sale	-160	150 units @ $1800 10 units @ $2000	-290000	50 units @ $2010 80 units @ $2000	260500
Mar-20	Purchase	100	1500	150000	50 units @ $2010 80 units @ $2000 100 units @ $1500	410500
Mar-25	Sale	-150	100 units @ $1500 50 units @ $2000	-250000	50 units @ $2010 30 units @ $2000	160500
Mar-29	Purchase	50	1000	50000	50 units @ $2010 30 units @ $2000 50 units @ $1000	210500
	Total Units and Cost	130		210500
Therefore,
Cost of Goods Sold = $ (220000+290000+250000) = $760000
Cost of Ending Inventory (130 Units) = $ 210500

D) Under the moving average inventory method, the average cost of each inventory item in stock is re-calculated after every inventory purchase. This method tends to yield inventory valuations and cost of goods sold results that are in-between those derived under the first in, first out (FIFO) method and the last in, first out (LIFO) method.

Since the moving average cost changes whenever there is a new purchase, the method can only be used with a perpetual inventory tracking system; such a system keeps up-to-date records of inventory balances. Not suitable if you are using Periodic Inventory System

Hence Companies avoid the perpetual weighted average moving average method of calculating inventory cost as it is costly and time consuming