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PART I

Presented below is information related to Sanford Corp.

July   1    Sanford Corp. sold to Legler Co. merchandise having a sales price of $10,000 with terms 2/10, net/60. Sanford records its sales and receivables net.

July   5   Accounts receivable of $12,000 (gross) are factored with Rothchild Credit Corp. without recourse at financing charge of 9%. Cash is received for proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)

Dec. 29    Legler Co. notifies Sanford that it is bankrupt and will pay only 10% of its account. Give the entry to prepare off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)
Instructions:  Prepare all essential entries in general journal form for Sanford Corp.

PART II

Gringo Corporation factors $250,000 of accounts receivable with Winkler Financing, Inc. on a with recourse basis. Winkler Financing would collect the receivables. The receivables records are transferred to Winkler Financing on August 15, 20X1. Winkler financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions:

(a) What conditions should be met for transfer of receivables with recourse to be accounted for as a sale?

(b) Suppose the conditions from part (a) are met. Prepare the journal entry on August 15, 20X1, for Gringo to record the sale of receivables, assuming the recourse obligation has a fair value of $3,000.

PART III

Inventory information for Part 311 of Seminole Corp. discloses following information for the month of June.

June  1    Balance        300 units @ $10    June 10    Sold    200 units @ $24
       11    Purchased    800 units @ $11            15    Sold    500 units @ $25
       20    Purchased    500 units @ $13            27    Sold    250 units @ $27

Instructions:

(a) Suppose that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO.

(b) Suppose that perpetual inventory method is used and costs are find outd at the time of each withdrawal, what is the value of the ending inventory at LIFO?

(c) Suppose that perpetual inventory method is used and costs are find outd at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO?

(d) Why is it stated that LIFO usually produces lower gross profit than FIFO?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M93741

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