Task: Final Assignment (33.3% of the Final grade)
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)
Following we have the sales activity for the first month of the store:
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. (20 points)
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. (30 points for the calculation)
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 above for each one of the 3 different methods used above. Please take into account that the company uses perpetual inventory. (20 points)
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. (10 points: 5 for calculation and 5 for explanation)
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. (10 points)
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.
His estimation is 2% of sales. Prepare the journal entries that should be done this month. Explain how would you calculate the allowance using the Balance Sheet approach, which additional information would you need? (10 points)
|9-10||The student demonstrates an excellent understanding of the concepts.|
|8-8.9||The student demonstrates a good understanding of the concepts.|
|7-7.9||The student demonstrates a fair understanding of the concepts.|
|6-6.9||The student demonstrates some, but insufficient understanding of the concepts.|
|3-5.9||The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.|
|1-2.9||The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.|
|0||The student leaves the question blank or cheats.|
95% of the grade based on the approach, calculations and comments, and 5% based on the presentation and look & field of the spreadsheet.
Points are at the end of each question.
DateStrawberry sweetsunits purchasedprice per unitunits soldsales price per unit