![]() Prepare the entry to adjust Allowance for Doubtful Accountīad debts are estimated to be 7% of receivablesĬr Allowance for Uncollectible Accounts $ 17,632Ĭr Allowance for doubtful accounts $ 5,944.Prepare an income statement for the company under variable costing. The company's product cost of $20 per unit is computed as follows.įixed overhead ($800,000 / 100,000 units) $ 8 per unit Selling and administrative expenses consist of $450,000 in annual fixed expenses and $1.75 per unit in variable selling and administrative expenses. Selling and administrative expenses 590,000 The absorption costing income statement for this year follows. During this first year, the company produced 100,000 units and sold 80,000 units. Problem 19-2A Variable costing income statement and conversion to absorption costing income LO P2, P3 Trez Company began operations this year. FalseĮxplaination: When the cost of capital is 13%, NPV of project A is negative and NPV of project B is positive. If the cost of capital is 13%, Project A's NPV will be higher than Project B's. TrueĮxplaination: This is an opposite answer to option A.Į. If the cost of capital is 9%, Project B's NPV will be higher than Project A's. ![]() FalseĮxplaination: IRR is dependent on pattern of cashflows rather than cost of capital.ĭ. If the cost of capital is greater than 14%, Project A's IRR will exceed Project B's. If the cost of capital is 6%, Project B's NPV will be higher than Project A's. FalseĮxplaination: Cost of capital here is higher than 8%, NPV of project A will be lower than that of project B.ī. If the cost of capital is 9%, Project A's NPV will be higher than Project B's. We will go through each of the answer options:Ī. When discount rate is lower than 8%, NPV of project A will increase faster than project B's. ![]() Given, both projects have same NPV at 8%, when discount rate is higher than 8%, NPV of project A will decrease faster than that of project B because project A's IRR is lower than project B's IRR. IRR is the discount rate point where NPV equal to 0. We can say that the working capital would be reduced by 10% if the average age of its inventory from 73 days to 63 days. If we calculate the ratio between the new cash conversion cycle and the former one, we can estimate the reduction in working capital: ![]() Operating cycle = (365/5) + 60 = 73 + 60 = 133 daysĬash conversion cycle = Average inventory age+Average collection period-Average payment periodĬash conversion cycle = 73 + 60 - 35 = 98 daysī) If the annual cost of good sold is $2.4 million and the inventory turns over 5 times a year, the average inventory has a value of $480.000.Ĭ) To calculate the effect of reducing the average age of inventory in working capital, we calculate the cas conversion cycle for the new situation:Ĭash conversion cycle = 63 + 60 - 35 = 88 days Operating cycle = Average inventory age+Average collection period The inventory age is equal to the average number of days that products pass between purchase and sale, equal to the ratio between the number of days of the year and the number of times the inventory turns over annually. The cash conversion cycle is similar tothe the operating cycle, but it takes into account the average payment period of the firm. B) The the dollar value of inventory held by the firm is $480.000.Ĭ) The working capital would be reduced by 10% if the average age of its inventory from 73 days to 63 days.Ī) The operating cycle is the average time period between the acquisition of inventory and the receipt of cash from the inventory's sale.
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