value to report on its balance sheet in a particular period. (1) Discuss the steps involved in determining the cost of shoes inventory as reported on the company’s balance sheet (15 points), and (2) use an example to show the impact of purchase discounts and allowances received by the company on the cost of shoes inventory (10 points). (Points : 25)
In the most recent year of operations, Bertha’s Games
sold merchandise costing $80,000 for $170,000. All merchandise was sold under a one-year warranty. At the time of sale, Bertha estimated that warranty claims would amount to 4% of sales. During the year, she replaced defective merchandise for $3,000. All transactions were cash transactions.
i. Prepare journal entries to record all transactions related to the warranty.
ii. Based solely on the above information, determine Bertha’s Games operating income for the year.
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HVB Corp. had the following situations during the last 4 years of operation:
i. The Allowance for Uncollectible Accounts has a $2,300 credit balance prior to adjustment. Net credit sales during 2011 are $600,000 and 5% are estimated to be uncollectible. Accounts Receivable has a balance of $110,000 on Dec 31, 2011.
ii. The Allowance for Uncollectible Accounts has a $1200 debit balance prior to adjustment. Based on an aging schedule of accounts receivable prepared on December 31, 2012, $17,900 of accounts receivable are estimated to be uncollectible. Accounts Receivable has a balance of $104,000 on Dec 31, 2012.
iii. The Allowance for Uncollectible Accounts has a $1,200 credit balance prior to adjustment. Based on an aging schedule of accounts receivable prepared on December 31, 2013, $28,000 of accounts receivable are estimated to be uncollectible. Accounts Receivable has a balance of $87,000 on Dec 31, 2013.
iv. The Allowance for Uncollectible Accounts has a $650 debit balance prior to adjustment. Net credit sales during 2014 are $800,000 and 2% are estimated to be uncollectible. Accounts Receivable has a balance of $135,000 on Dec 31, 2014.
****Prepare the adjusting journal entries needed for these years
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