From an analysis of the april bank statement you

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From an analysis of the April bank statement, you discover cancelled checks of $4,200 for cash purchases during the period April 1–10. Deposits during the same period totaled $18,500. Of that amount, 60% were collections on accounts receivable, and the balance was cash sales. Correspondence with the company’s principal suppliers revealed $12,400 of purchases on account from April 1 to April 10. Of that amount, $1,600 was for merchandise in transit on April 10 that was shipped FOB destination. CRITICAL THINKING w w w . w i l e y . c o m / c o l l e g e / w e y g a n d t PDF Watermark Remover DEMO : Purchase from to remove the watermark
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Broadening Your Perspective 297 Correspondence with the company’s principal customers produced acknowledgments of credit sales totaling $37,000 from April 1 to April 10. It was estimated that $5,600 of credit sales will never be acknowledged or recovered from customers. Inwood Company reached an agreement with the insurance company that its fire-loss claim should be based on the average of the gross profit rates for the preceding 2 years. The financial statements for 2008 and 2009 showed the following data. 2009 2008 Net sales $600,000 $480,000 Cost of goods purchased 404,000 356,000 Beginning inventory 60,000 40,000 Ending inventory 80,000 60,000 Inventory with a cost of $17,000 was salvaged from the fire. Instructions With the class divided into groups, answer the following. (a) Determine the balances in (1) Sales and (2) Purchases at April 10. * (b) Determine the average profit rate for the years 2008 and 2009. ( Hint : Find the gross profit rate for each year and divide the sum by 2.) * (c) Determine the inventory loss as a result of the fire, using the gross profit method. Communication Activity BYP6-5 You are the controller of Small Toys Inc. Janice LeMay, the president, recently men- tioned to you that she found an error in the 2009 financial statements which she believes has corrected itself. She determined, in discussions with the Purchasing Department, that 2009 ending inventory was overstated by $1 million. Janice says that the 2010 ending inventory is correct. Thus she assumes that 2010 income is correct. Janice says to you, “What happened has happened—there’s no point in worrying about it anymore.” Instructions You conclude that Janice is incorrect.Write a brief, tactful memo to Janice, clarifying the situation. Ethics Case BYP6-6 B. J. Ortiz Wholesale Corp. uses the LIFO method of inventory costing. In the cur- rent year, profit at B. J. Ortiz is running unusually high. The corporate tax rate is also high this year, but it is scheduled to decline significantly next year. In an effort to lower the current year’s net income and to take advantage of the changing income tax rate, the president of B. J. Ortiz Wholesale instructs the plant accountant to recommend to the purchasing department a large purchase of inventory for delivery 3 days before the end of the year. The price of the inventory to be purchased has doubled during the year, and the purchase will represent a major portion of the ending inventory value.
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