1st EditionGlencoe McGraw-Hill548 explanations
8th EditionEugene F. Brigham, Joel F Houston267 explanations
4th EditionRoselyn Morris, Steven Mintz442 explanations
11th EditionBradford D. Jordan, Randolph W. Westerfield, Stephen A. Ross1,432 explanations
ACCOUNTINGIn an effort to boost sales in the current year, Roy's Gym has implemented a new program where members do not have to pay for their annual membership until the end of the year. The program seems to have substantially increased membership and revenues. Below are year-end amounts.
$$
\begin{matrix}
\text{ } & \text{Membership Revenues} & \text{Accounts Receivable}\\ \hline
\text{Last year} & \text{$\$ 150,000$} & \text{$\$ 6,000$}\\
\text{Current year} & \text{$450,000$} & \text{$170,000$}\\
\end{matrix}
$$
Arnold, the owner, realizes that many members have not paid their annual membership fees by the end of the year. However, Arnold believes that no allowance for uncollectible accounts should be reported in the current year because none of the nonpaying members' accounts have proven uncollectible. Arnold wants to use the direct write-off method to record bad debts, waiting until the end of next year before writing off any accounts. 1. Do you agree with Arnold's reasoning for not reporting any allowance for future uncollectible accounts? Explain. 2. Suppose that similar programs in the past have resulted in uncollectible accounts of approximately 70%. If Arnold uses the allowance method, what should be the balance of Allowance for Uncollectible Accounts at the end of the current year? 3. Based on your answer in Requirement 2, for what amount will total assets and expenses be misstated in the current year if Arnold uses the direct write-off method? Ignore tax effects. ACCOUNTINGDuring 2018, Noval Company sells 270 units of inventory for $100 each. The company has the following inventory purchase transactions for 2018.$
$$
\begin{matrix}
\text{Date} & \text{Transaction} & \text{Number of Units} & \text{Unit Cost} & \text{Total Cost}\\ \hline \text{Jan. 1} & \text{Beginning inventory} & \text{70} & \text{$\$ 83$} & \text{\$5,810}\\
\text{Apr. 7} & \text{Purchase} & \text{190} & \text{85} & \text{$16,150$}\\
\text{Oct. 9} & \text{Purchase} & \underline{90} & \text{87} & \underline{7,830}\\
\text{ } & \text{ } & \underline{\underline{350}} & \text{ } & \underline{\underline{\$29,790}}\\
\end{matrix}
$$
$ 1. Calculate ending inventory, cost of goods sold, and gross profit for 2018, assuming the company uses LIFO with a periodic inventory system. 2. To comply with IFRS, the company decides to instead account for inventory using FIFO. Calculate ending inventory, cost of goods sold, and gross profit for 2018. 3. Explain the effects in the company's income statement and balance sheet of using FIFO instead of LIFO to account for inventory.
