ORIE 3150 Homework #4 Fall 2011 Answers

# ORIE 3150 Homework #4 Fall 2011 Answers - ORIE 3150...

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ORIE 3150 Homework #4 Due Wednesday, October 5, 2011 1. LIFO inventory costing is not allowed in the United Kingdom (UK). Thus, all companies based there use FIFO. You are examining the financial statements from Leicester Manufacturing, a UK firm. Inventory replenishment costs have varied somewhat over the past two years. Which will be more accurate, the Inventory account on the balance sheet, or the Cost of Goods Sold figure on the income statement? Explain briefly. Answer: Inventory on the balance sheet will contain the costs associated with the most recently purchased items, and as a result will be more accurate, that is, those values will more closely reflect the cost that would be paid today for those items. 2. Avioni Fashions uses the aging method for estimating uncollectible accounts. On February 1, 2005, Accounts Receivable had a balance of \$383,341 (debit), and Allowance for Uncollectible Accounts had a balance of \$43,000 (credit). During the year, the company had sales on account of \$3,724,000, accounts written off of \$44,300, and collections from customers of \$3,214,000. As past of the year end adjusting procedures on January 31, 2006, the company performs an aging of its accounts and finds: Total \$849,041 % Uncollectible Not Due \$478,423 2% 1 – 30 \$158,278 4 31 – 60 \$112,716 20 61 – 90 \$58,222 30 91+ days \$41,402 50 a. find the end-of-year balances in Accounts Receivable and Allowance for Uncollectible Accounts prior to adjustments. Clearly Accounts Receivable has a debit balance of \$849,041, read from above. Allowance for Uncollectible Accounts has a debit balance of \$1,300. b. Compute the necessary end of year adjustments needed to Accounts Receivable. Accounts Receivable is not adjusted at year end. c. Provide the journal entry needed to record Bad Debt Expense for the fiscal year ended January 31, 2006.

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