This will be recorded as an expense at the same time

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This will be recorded as an expense at the same time the sale is recorded. (it can be recorded as a net sale for a lower amount too) Versa Training Services provides instruction on how to do well on the SAT/ACT examin- ation. Versa has attained phenomenal growth by offering its customers/parents of cus- tomers a credit card pay option. The following events pertain to a new course that was recently established by Versa. 1. Versa accepted credit card payments for $8,000 of instructional services it provided to student candidates. The credit card company charged Versa a 5 percent service fee. 2. Versa collected the receivable due from the credit card company. Required How much did accepting the credit card cost Versa? (8000) x (.05) = 400 What is the net revenue made from these services? Reduces profit by 400 Does this always make sense to offer? Depends! Depends on how much they make per the transaction and will they lose money now with that fee Inventory Cost Flow methods: There are 4 acceptable methods to value inventory and cost of goods sold 1. Specific identification 2. First in first out (FIFO) 3. Last in first out (LIFO) 4. Weighted average Specific Identification – items need to be unique such as a car (VIN #) or a computer. T-shirts would not work with this method. Inventory is valued with items that are still on hand and cost of goods sold is based on units that have been sold. First In First Out – method to value inventory that prices it based on the first stuff purchased, is the first inventory sold Last in first out – method values inventory based on the most recent purchases sold first. DOES NOT MAKE sense but SAVES BIG BUCKS FOR TAXES. SMALL PERCENT OF AMERICAN COMPANIES USE IT, BUT THEY ARE SAVING MILLIONS IN TAXES. Weighted Average – CALCULATE AVERAGE COST PER UNIT AND THEN VALUE ENDING INVENTORY AND COST OF GOODS SOLD USING THE 5-5
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Chapter 05 - Accounting for Receivables and Inventory Cost Flow AVERAGE. Impact on Financial statements Balance sheet- Inventory ( in a period of rising prices) FIFO inventory will have highest value LIFO inventory will have the lowest value Weighted average always in the middle Income statement Cost of Goods sold (in a period of rising prices) FIFO cost of goods sold will have lowest value (and therefore highest net income) LIFO cost of goods sold will have highest value (and therefore lowest net income) Weighted average always in the middle THIS HAS A TAX IMPACT TOO!!! Expensive to adopt LIFO but can save a lot in taxes. John Smith purchased two toy cars to resell. The cars were identical in every re- spect except that John purchased them at different times for different costs. The first car purchased cost $25. The second one purchased cost $31. John sold one of the cars for $40. John’s other operating expenses were $5. Based on this information alone, what was John’s net income?
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