Assignment #4 1 FI 105 | Session 4 Assignment #4 1. Using the following information analyze the accounts receivable and the allowance for doubtful accounts for this company: 2011 2010 Sales $6,700 $7,500 Accounts Receivable, Net 202 320 Allowance for doubtful accounts 3 12 2. The following calculations have been made for Coos Company: Growth Rate Net Sales 10.5% Total Accounts Receivable 21.3% Allowance for doubtful accounts 2.6% Current Year Prior Year Allowance for doubtful accounts as a percentage of total accounts receivable 3.8% 5.4% a. Analyze the accounts receivable and allowance for doubtful accounts. b. What other information would be useful for the analysis completed in part a? 3. Using the following excerpts from the most recent annual report of Health Supplements, Inc., a leading manufacturer of nutritional supplements, analyze the accounts receivable and allowance for doubtful accounts. Be sure to show all calculations and write a thorough interpretation of those calculations. Assignment #4 2 Concentrations of Credit Risk Credit risk with respect to receivables is concentrated with our three largest customers, whose receivable balances collectively represented 75% of gross accounts receivable at June 30, 2011 and 79% at June 30, 2010. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base. Health Supplements, Inc. Valuation and Qualifying Accounts For the Years Ended June 30, 2011, 2010 and 2009 a) Explain how inventory is valued if the FIFO method is used. b) Explain how inventory is valued if the LIFO method is used. c) Why would a manager choose the FIFO method during an inflationary period? d) Why would a manager choose the LIFO method during an inflationary period? 4. If a firm chooses to use the FIFO method of inventory valuation instead of the LIFO Assignment #4 3 method, explain the impact of deflation on the amounts shown on the balance sheet for inventory and on the income statement for cost of goods sold. 5. Using the following information calculate the ending inventory balance and the cost of goods sold expense that would be reported at the end of the year if the following inventory valuation methods are used: a. FIFO b. LIFO c. Average cost Units Purchase Price Beginning inventory 8 $5 Purchase #1 10 $6 Purchase #2 14 $7 Purchase #3 12 $6 Sales 40 6. Using the following information calculate the ending inventory balance and the cost of goods sold expense that would be reported at the end of the year if the following inventory valuation methods are used: a. FIFO b. LIFO c. Average cost Units Purchase Price Beginning inventory 20 $12 Purchase #1 100 $11 Purchase #2 85 $10 Purchase #3 90 $9 Sales 235
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