Calculating Net Sales, Inventory, and Bad Debt Expenses
School
Ramrao Adik Edu Society, Ramarao Adik Institute of Technology**We aren't endorsed by this school
Course
COMPUTER E 123
Subject
Accounting
Date
Dec 10, 2024
Pages
2
Uploaded by BaronStar117424
Financial AccountingProblem Set 2: Net Sales, Accounts Receivable and Inventory1.Hopkins Company sold $600,000 in merchandise during 2024. Of this amount, $300,000was on credit with terms 2/10, net 30 (1/2 of these amounts were paid within the discountperiod), $200,000 was paid with MasterCard or Visa (there was a 2.5% credit card discount), and the rest was paid in cash. Calculate net sales for 2024 (show all work).2.The Hopkins Company’s balance sheet for December 31, 2023 included the following information:Accounts Receivable (net of Allowance for Doubtful Accounts of $20,000)$300,000The company had credit sales of $800,000 during FY 2024. Historically, the company’s credit manager has estimated 3% of credit sales will not be collected.During FY 2024, the company wrote off customer accounts with a face value of $15,000. At the end of the year, a newly hired analyst presented the credit manager with the following breakdown of outstanding accounts receivable and the probability of customer default:BalanceProbability of notAge of Accounts ReceivableReceivablebeing Collected0-30 days$160,0001%31-6040,0005%61-9030,00010%Over 90 days20,00060%Required:a.If Hopkins Company continues to use its historical percentage-of-credit-sales approach, how much bad debt expense will it recognize for FY2024? b.If Hopkins Company applies the aging-of-accounts receivable method, using the table above, how much bad debt expense will it recognize for FY2024? What will it report as the Net Realizable Value for accounts receivable at 12/31/2024?c.Immediately following the write-off of a customer account, what is the impact on the income statement? On the balance sheet? 3.Assume the following for the Inventory of XYZ Company:UnitsTotal CostBeginning Inventory400$8,000Purchases:March 21002400July 52005000Oct. 23009000Goods Available1000$24.400300 units are in Ending Inventory; 700 units have been sold at $40 each.
a. Determine the Cost of Goods Sold, Ending Inventory and Gross Profit Percentage for each of the following inventory cost flow assumptions: LIFO, FIFO and Average Cost. LIFOFIFOAverage CostA. Cost of Goods Sold$_______$_______ $_______B. Ending Inventory$_______$_______ $_______C. Gross Profit Percentage ____________% __________% Round to 1/10thof 1%b. In periods of rising prices, which inventory method represents the best cash management tool?Explain your answer.c. Determine the Inventory valuation on the balance sheet after applying the Lower of Cost or Market (LCM) under each of the three costing methods. Assume the net realizable value at year end (amount to be recovered; selling price less disposal cost) has dropped to $29 per unit. If any of the three costing methods requires a write down to LCM specify which method requires the write down and how much the write down is. 4. Given the following information, calculate the Days in Inventory and the Days Sales Outstanding for 2024. What two things would you want to compare these ratios to in order to make it meaningful in interpreting financial performance?Dollars in millions20232024Net Sales$4,411.5$4,834.1Cost of goods sold$2,579.8$2,823.9Net Income$472.3$477.4Inventories$756.4$793.3Accounts Receivable$465.2$555.1