Homework Assignment #3 – Due November 8, 2015
Problem 1 (40 points)
Pinkerton Energy Company builds specially designed blades
for generators used in wind energy farming operations. The company started the year with the
following accounts receivable position:
Accounts receivable |
$ 10,500,000 |
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Less: |
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$ 10,179,500
During the year, a customer, Black Point Power Company, was
devastated by an unusually severe storm.
At that time, Pinkerton concluded that it was highly unlikely that Black
Point would ever be able to pay its outstanding balance of $150,000. This account was written off against the
allowance account. Much later in the
year, Black Point was rescued by a group of investors who offered to pay
$90,000 toward the unpaid balance, provided Pinkerton would permanently forgive
the other $60,000 and resume selling product to Black Point. Pinkerton agreed, and has since resumed doing
business with Black Point.
During the year, sales on account amounted to |
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During the year, accounts written-off (not |
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(a) |
Prepare summary journal entries: |
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To restore the portion of the Black Point |
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To record the collection of the Black Point |
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To record sales on account |
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To record collections on account |
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To record the write-off of accounts |
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To establish the correct balance in the allowance |
Problem 2 (60 points)
Blue Star Corporation is a newly formed entity |
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Date |
Purchases |
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7-Jan |
50 units @ $15,000 each |
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15-Mar |
70 units @ $16,000 each |
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16-Jun |
30 units @ $16,500 each |
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3-Aug |
90 units @ $17,000 each |
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11-Oct |
25 units @ $17,200 each |
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Sales for this first year of operation amounted |
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(a) |
If Blue Star uses the first-in, first-out (FIFO) |
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(b) |
If Blue Star uses the last-in, first-out (LIFO) |
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(c) |
If Blue Star uses the weighted-average inventory |
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(d) |
Which of the above techniques produces the |