ACCOUNTING Homework
You must answer all the questions in the proposed business case.
This task assesses the following learning outcomes:
• Critically understand the differences between the methods of valuation of the inventory
• Knowing how to properly elaborate an income statement and determine the ending inventory balance.
• Uncollectible accounts
LAUNCH: WEEK 4 / DELIVERY: 1st November 2020, 23:59HRS ON MOODLE
Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.
BUSINESS CASE (100 points)
Albert Ferrara has recently opened a sweets retail store. The sweets are differentiated by flavor. The most popular ones in the market are Strawberry.
Following we have the sales activity for the first month of the store:
|
Date
|
Strawberry sweets
|
units purchased
|
price per unit
|
units sold
|
sales price per unit
|
|
01-en e
|
Starwberry
|
100
|
2
|
|
|
|
02-en e
|
Starwberry
|
120
|
3
|
|
|
|
03-en e
|
Starwberry
|
|
|
200
|
5
|
|
04-en e
|
Starwberry
|
250
|
2
|
|
|
|
05-en e
|
Starwberry
|
|
|
200
|
5
|
|
06-en e
|
Starwberry
|
100
|
4
|
|
|
|
07-en e
|
Starwberry
|
|
|
50
|
5
|
Besides these transactions, the company has had miscellaneous expenses of 500 per month.
Albert's accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the consequences it may have on his financial situation
Relying on your accounting knowledge, Albert asks you the following questions:
1. Why in your opinion did Albert's accountant recommend the average cost method and what difference is there which the three other methods? Explain the main characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net income in case of price fluctuation.
2. Prepare an Income statement of the company at the end of February using as method of valuation of the inventory the average cost method, FIFO and LIFO for each one of the products sold by Albert, and calculate the balance of the inventory at the end of the month. Explain the calculations.
3. In order to compare with the records made by his accountant, Albert asks you to prepare the different journal entries for the purchases and sales mentioned abovefor each one of the 3 different methods used above.Please take into account that the company uses perpetual inventory.
4. Albert would like to know a forecast of the number of days to sell the inventory based on the results of the month of February. Explain your calculation and the steps followed.
5. Albert expects that the prices of the merchandises will dramatically decrease in the next future as a result of the Covid 19 crisis. Which method of valuation of the inventory would you thus recommend to Albert? Explain your answer.
6. Albert is thinking about selling the sweets on account, and he thinks that the best method to calculate the bad debts allowance is the Income Statement method.
Format your homework according to the give formatting requirements:
1. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the homework, the course title, the student's name, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.