# Net Realizable Value

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• Published : February 3, 2013

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COMPREHENSIVE PROBLEM (Chapters 6, 7, and 8)
Case A Req. 1 (in millions) Allowance for uncollectible accounts (XA, +A) 1 ............. Accounts receivable (A)............................................ Req. 2 Cash collections for 2008 2 were \$5,711 million. Allowance for Uncollectible Accounts 20 Beg. 5 Bad debt Write-offs ? expense 13 End.

12 12

Accounts Receivable Beg. 558 Sales 5,710 ? Collections ? Write-offs End. 545

-

= Net Realizable Value 538

532

1 Beg. allowance \$20 + Bad debt expense \$5 – Write-offs ? = End. Allowance \$13 Write-offs = \$12 2 Beg. accounts receivable \$558 + Sales \$5,710 – Write-offs \$12 – Collections ? = End. accounts receivable \$532 Collections = \$5,711 Req. 3 2006 2007 2008 Net Income 510 497 \$(312) ÷ Net Sales 4,700 5,695 \$5,710 = Net Profit Margin 10.85% 8.73% (5.46)%

The company’s net profit margin has fallen each year while net sales have risen, with a net loss reported in 2008. This suggests that, although Dr Pepper Snapple’s management has generated increasing sales revenue over time, it is having greater difficulty each year controlling costs and expenses. Case B Req. 1 The company should record bad debt expense of \$13,900 for 2011. Req. 2 Under current assets on the 2011 balance sheet: Accounts receivable, net of the allowance for doubtful accounts of \$12,400 Accounts Receivable Allowance for Uncollectible Accounts 1,500 Unadj. bal. Bad debt 13,900 expense 12,400 End.

\$607,600
Net = Realizable Value

End. 620,000

607,600

Unadj. allowance bal. \$(1,500) + Bad debt expense ? = End. bal. \$12,400 Bad debt expense = \$13,900 Case C Req. 1 The company should record bad debt expense of \$481,350 for 2012. Req. 2 Under current assets on the 2012 balance sheet: Accounts receivable, net of the allowance for doubtful accounts of \$490,550

\$5,349,450

Accounts Receivable

-

End. 5,840,000

Allowance for Uncollectible Accounts 9,200 Unadj. bal. Bad debt 481,350 expense 490,550 End.

Net = Realizable Value

5,349,450

Sales revenue \$160,450,000 x Bad debt rate x .003 Bad debt expense \$ 481,350 Unadj. allowance bal. \$9,200 + Bad debt expense \$481,350 = End. bal. \$490,550 Case D Req. 1 11/13 Purch 11/4 Purch Beg. 500 300 100 @ \$21 = \$10,500 @ \$19 = \$ 5,700 @ \$18 = \$ 1,800 Units 100 800 900 (700) 200 Cost \$ 1,800 16,200 \$18,000

Beginning Purchases Available for sale Less: Sales Ending a. FIFO Cost of ending inventory: Layer  200 units x \$21 = \$4,200

Cost of goods sold: Layers (100 x \$18) + (300 x \$19) + (300 x \$21) = \$1,800 + \$5,700 + \$6,300 = \$13,800 OR

8-2

Cost of goods available for sale purch.) Less: Cost of ending inventory Cost of goods sold

\$18,000 (\$1,800 beg. + \$16,200 4,200 \$13,800

b. LIFO Cost of ending inventory: Layers  (100 units x \$18) + (100 units x \$19) \$1,800 + \$1,900 = \$3,700 Cost of goods sold: Layers (500 x \$21) + (200 x \$19) = \$10,500 + \$3,800 = \$14,300 OR Cost of goods available for sale purch.) Less: Cost of ending inventory Cost of goods sold c. Weighted average Cost of ending inventory: Cost of goods available for sale purch.) ÷ Number of goods available Cost per unit \$18,000 (\$1,800 beg. + \$16,200 3,700 \$14,300

\$18,000 (\$1,800 beg. + \$16,200 ÷ 900 units \$20 per unit

200 units ending inventory x \$20 per unit cost = \$4,000 ending inventory cost Cost of goods sold: 700 units sold x \$20 per unit cost = \$14,000 cost of goods sold OR Cost of goods available for sale purch.) Less: Cost of ending inventory Cost of goods sold \$18,000 (\$1,800 beg. + \$16,200 4,000 \$14,000

Req. 2 a. Gross profit under FIFO method Sales revenue (700 units sold x \$50) Less: Cost of goods sold Gross profit

\$35,000 13,800 \$21,200

Gross profit percentage = \$21,200 gross profit ÷ \$35,000 sales = .6057 or 60.57%

b. Net income under LIFO method Sales revenue Less: Cost of goods sold Gross profit Operating expenses Pretax income Income tax expense Net income

\$35,000 14,300 20,700 16,000 4,700 1,410 \$3,290

c. The...