24 sing songs ltd started operations on january 1 2009 during its first year of oper 4306303

24 sing songs ltd started operations on january 1 2009 during its first year of oper 4306303

24) Sing Songs Ltd. started operations on January 1, 2009.  During its first year of operations, the company had a choice of accounting policies:

Accounting Option 1

Accounting Option 2

Inventory valuation

FIFO

Average cost

Bad debt expense

7% of sales

Allowance: 20% of closing (gross) accounts receivable

Warranty expense

5% of sales

Allowance: an analysis of sales and repairs

Assume that the company selected Accounting Option 1. Using the following information about activities for 2009-2011, derive the net income for each year:

2009

2010

2011

Sales (all on account)

10,500,000

13,500,000

14,100,000

Inventory purchases (paid immediately)

4,500,000

3,000,000

2,900,000

Ending inventory value: FIFO

1,800,000

2,000,000

2,150,000

Ending inventory value: Average cost

1,710,000

1,750,000

2,150,000

Collections

9,500,000

12,500,000

7,165,000

Amounts actually written off

100,000

250,000

750,000

Warranties actually paid

180,000

500,000

525,000

Estimated warranty payable ending balance based on ageing analysis of sales

385,000

525,000

700,000

Depreciation expense

1,100,000

1,100,000

1,100,000

All other operating expenses (paid immediately)

2,500,000

2,800,000

3,000,000

25) Sing Songs Ltd. started operations on January 1, 2009.  During its first year of operations, the company had a choice of accounting policies:

Accounting Option 1

Accounting Option 2

Inventory valuation

FIFO

Average cost

Bad debt expense

7% of sales

Allowance: 20% of closing (gross) accounts receivable

Warranty expense

5% of sales

Allowance: an analysis of sales and repairs

Assume that the company selected Accounting Option 2. Using the following information about activities for 2009-2011, derive the net income for each year:

2009

2010

2011

Sales (all on account)

10,500,000

13,500,000

14,100,000

Inventory purchases (paid immediately)

4,500,000

3,000,000

2,900,000

Ending inventory value: FIFO

1,800,000

2,000,000

2,150,000

Ending inventory value: Average cost

1,710,000

1,750,000

2,150,000

Collections

9,500,000

12,500,000

7,165,000

Amounts actually written off

100,000

250,000

750,000

Warranties actually paid

180,000

500,000

525,000

Estimated warranty payable ending balance based on ageing analysis of sales

385,000

525,000

700,000

Depreciation expense

1,100,000

1,100,000

1,100,000

All other operating expenses (paid immediately)

2,500,000

2,800,000

3,000,000

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