Question

1/As of December 31, 2018, Amy Jo's Appliances had unadjusted account balances in accounts receivable of $305,000 and $930 in the allowance for uncollectible accounts, following 2018 write-offs of $6,390 in bad debts. An analysis of Amy Jo's December 31, 2018, accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for 2018 should be:

Multiple Choice

• $6,390.

• $6,100.

• $5,170.

• None of these answer choices are correct.

2/ Nu Company reported the following pretax data for its first year of operations.

Net sales		2,970
Cost of goods available for sale		2,380
Operating expenses		800
Effective tax rate		30	%
Ending inventories:
If LIFO is elected		940
If FIFO is elected		1,080

What is Nu's gross profit ratio if it elects LIFO? (Round your answer to the nearest whole percentage.)

Multiple Choice

• 61%.

• 21%.

• 52%.

• 56%.

3/ Bond Company adopted the dollar-value LIFO inventory method on January 1, 2018. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

	Ending Inventory
Year	At Current Cost				At Base Year Cost				Cost Index
1/1/2018	$	306,000			$	306,000				1.00
12/31/2018		339,560				326,500				1.04
12/31/2019		433,100				355,000				1.22

Under the dollar-value LIFO method, the inventory at December 31, 2019, should be

Multiple Choice

• $362,090.

• $355,000.

• $355,820.

• None of these answer choices are correct.

   

4/ Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

	Skis				Boots				Apparel				Supplies
Selling price	$	178,000			$	152,000			$	112,000			$	68,000
Cost		148,000				140,000				78,400				47,600
Replacement cost		118,000				122,000				116,000				43,600
Sales commission		10	%			10	%			10	%			10	%

ry of apparel would be valued at:

Multiple Choice

• $116,000.

• $100,800.

• $78,400.

• $104,880.

Answer 1

Solution 1:

Bad debt expense for 2018 = Accounts receivable*2% - Unadjusted balance of Allowance account

= $305000*2% - $930

= $5,170

Hence third option is correct.

Solution 2:

Gross profit = Net Sales - Cost of goods sold LIFO = $2970 - ($2380-$940) = $1,530

Gross profit ratio = Gross profit / net sales = $1530 / $2970 = 52%

Hence, third option is correct.

Solution 3:

Computation of inventory at base year prices and change from prior year
Year	At current cost	Price index (Percentage)	Inventory at base year prices	Change from Prior Years
01-01-2018	$3,06,000	1	$3,06,000	$0
12/31/2018	$3,39,560	1.04	$3,26,500	$20,500
12/31/2019	$4,33,100	1.22	$3,55,000	$28,500

Inventory at December 31, 2019 = ($306000*1) + ($20500*1.04) + ($28500*1.22) = $362,090

Hence first option is correct.

Solution 4:

NRV of Apparel = Selling price - sales commission = $112000 - ($112000*10%) = $112000 - $11200= 100,800

Cost = $78,400

Since cost is less than NRV, Inventory of Apparel would be valued at = $78,400

Hence Third option is correct.