ACC 225 ACC225 Module 5 Homework Assignment Solution (AAU Online)
Part I: Short Response
1.Why is the purchase of inventory for resale to customers classified as an operating activity rather than an investing activity?
2.What are three generally practiced controls for cash and what is the purpose of each control?
3.Explain why the accounting profession requires the use of the allowance method of accounting for losses due to bad debts rather than the direct write-off method.
4.Why is it more difficult to account for the inventory of a manufacturing firm than for that of a merchandising firm?
5.Is the accounting for purchase discounts and purchase returns the same with the perpetual and the periodic inventory methods? If not, what are the differences?
6.Computing Net Sales: Using the following data, compute net sales.
7.Recognizing Revenue: James Dee Company cleans the outside walls of buildings. The average job generates revenue of $800,000 and takes about two weeks to complete. Customers are required to pay for a job within 30 days of its completion. James Dee Company guarantees its work for five years: if the building walls get dirty within five years, James Dee will clean them again at no charge. James Dee is considering recognizing revenue using one of the following methods:
8.Goods in Transit: Collin Wholesale sold $5,000 inventory to Jennifer Company on December 27, year 1, with shipping terms of FOB destination. The inventory arrived on January 2, year 2. Which company owns the inventory at year-end (December 31, year 1)?
9.Errors in Ending Inventory: Arellano Company uses a periodic inventory system and overstated its ending inventory by $20,000. How will this inventory error affect reported net income for the company?
Part II: Application
1.What Should Be Included in Inventory?
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