/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q4CA. Shawnee Corp., a household appli... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 8: Q4CA. (page 436)

Shawnee Corp., a household appliances dealer, purchases its inventories from various suppliers. Shawnee has consistently stated its inventories at FIFO cost.

Instructions

Shawnee is considering alternate methods of accounting for the cash discounts it takes when paying its suppliers promptly.From a theoretical standpoint, discuss the acceptability of each of the following methods.

(a) Financial income when payments are made.

(b) Reduction of cost of goods sold for the period when payments are made.

(c) Direct reduction of the purchase cost.

Short Answer

Expert verified

a) Acceptable

b) Not acceptable

c) Note acceptable

Step by step solution

01

Step1: Financial income when payments are made

A cash discount is like an income for the business. It is earned when obligations are paid off. So this is an acceptable way of recording the cash discount received.

02

Step 2: Reduction of cost of goods sold for the period when payments are made.

This is not an acceptable way of recognizing the cash discount. A cash discount is received on the selling price and is earned when the obligation is paid. On the other hand cost of goods sold is based on inventory acquisition costs. So this is not a GAAP-acceptable practice.

03

Step 3: Direct reduction of the purchase cost.

This is also not an acceptable method. Cash discounts are received on the selling price. In contrast, the purchase cost is incurred at the time of purchasing goods. So the income earned is not matched with the expense incurred.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The dollar-value LIFO method was adopted by Enya Corp. on January 1, 2017. Its inventory on that date was \(160,000. On December 31, 2017, the inventory at prices existing on that date amounted to \)140,000. Theprice level at January 1, 2017, was 100, and the price level at December 31, 2017, was 112.

Instructions

(a) Compute the amount of the inventory at December 31, 2017, under the dollar-value LIFO method.

(b) On December 31, 2018, the inventory at prices existing on that date was $172,500, and the price level was 115. Computethe inventory on that date under the dollar-value LIFO method.

Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis鈥� records.

Price Ending Inventory Ending Inventory

Date Index at Base Prices at Dollar-Value LIFO

December 31, 2017 105 \(92,000 \)92,600

December 31, 2018 ? 97,000 98,350

Instructions

Calculate the index used for 2018 that yielded the above results.

Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the year ended December 31, 2017.

Inventory at December 31, 2017 (based on physical count of goods in Dimitri鈥檚 plant, at cost, on December 31, 2017) \(1,520,000

Accounts payable at December 31, 2017 1,200,000

Net sales (sales less sales returns) 8,150,000

Additional information is as follows.

1. Included in the physical count were tools billed to a customer f.o.b. shipping point on December 31, 2017. These tools had a cost of \)31,000 and were billed at \(40,000. The shipment was on Dimitri鈥檚 loading dock waiting to be picked up by the common carrier.

2. Goods were in transit from a vendor to Dimitri on December 31, 2017. The invoice cost was \)76,000, and the goods were shipped f.o.b. shipping point on December 29, 2017.

3. Work in process inventory costing \(30,000 was sent to an outside processor for plating on December 30, 2017.

4. Tools returned by customers and held pending inspection in the returned goods area on December 31, 2017, were not included in the physical count. On January 8, 2018, the tools costing \)32,000 were inspected and returned to inventory. Credit memos totaling \(47,000 were issued to the customers on the same date.

5. Tools shipped to a customer f.o.b. destination on December 26, 2017, were in transit at December 31, 2017, and had a cost of \)26,000. Upon notification of receipt by the customer on January 2, 2018, Dimitri issued a sales invoice for \(42,000.

6. Goods, with an invoice cost of \)27,000, received from a vendor at 5:00 p.m. on December 31, 2017, were recorded on a receiving report dated January 2, 2018. The goods were not included in the physical count, but the invoice was included in accounts payable at December 31, 2017.

7. Goods received from a vendor on December 26, 2017, were included in the physical count. However, the related \(56,000 vendor invoice was not included in accounts payable at December 31, 2017, because the accounts payable copy of the receiving report was lost.

8. On January 3, 2018, a monthly freight bill in the amount of \)8,000 was received. The bill specifically related to merchandise purchased in December 2017, one-half of which was still in the inventory at December 31, 2017. The freight charges were not included in either the inventory or in accounts payable at December 31, 2017.

Instructions

Using the format shown below, prepare a schedule of adjustments as of December 31, 2017, to the initial amounts per Dimitri鈥檚 accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31, 2017, amounts. If the transactions would have no effect on the initial amount shown, enter NONE.

Accounts Net

Inventory Payable Sales

Initial amounts \(1,520,000 \)1,200,000 \(8,150,000

础诲箩耻蝉迟尘别苍迟蝉鈥攊苍肠谤别补蝉别

(decrease)

1

2

3

4

5

6

7

8

Total adjustments

Adjusted amounts \) \( \)

Presented below are transactions related to Tom Brokaw, Inc.

May 10 Purchased goods billed at \(15,000 subject to cash discount terms of 2/10, n/60.

11 Purchased goods billed at \)13,200 subject to terms of 1/15, n/30.

19 Paid invoice of May 10.

24 Purchased goods billed at $11,500 subject to cash discount terms of 2/10, n/30.

Instructions

(a) Prepare general journal entries for the transactions above under the assumption that purchases are to be recorded at net amounts after cash discounts and that discounts lost are to be treated as financial expense.

(b) Assuming no purchase or payment transactions other than those given above, prepare the adjusting entry required on May 31 if financial statements are to be prepared as of that date.

The following information relates to the Jimmy Johnson Company.

Ending Inventory Price

Date (End-of-Year Prices) Index

December 31, 2013 $ 70,000 100

December 31, 2014 90,300 105

December 31, 2015 95,120 116

December 31, 2016 105,600 120

December 31, 2017 100,000 125

Instructions

Use the dollar-value LIFO method to compute the ending inventory for Johnson Company for 2013 through 2017.
See all solutions

Recommended explanations on Business Studies Textbooks

Strategic Analysis

Read Explanation

Introduction to Business

Read Explanation

Business Development

Read Explanation

Nature of Business

Read Explanation

Corporate Finance

Read Explanation

Change Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.