Concept explainers
1.
To identify: the amount deducted by each company on the income statement related to inventory.
1.
Answer to Problem 14E
The amount deducted by the each company on the income statement related to inventory is the amount of the cost of goods sold of each company. The amounts deducted by each company on the income statement are shown below.
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Table (1)
Explanation of Solution
The amount deducted by the each company on the income statement related to inventory is the amount of cost of goods sold.
2.
To identify: the total amount, each company pay out in cash during the period related to inventory purchased with cash and on account.
2.
Explanation of Solution
The total amount, each company pay out in cash during the period related to inventory purchased with cash and on account are shown as below.
Corporation A | B Unlimited | C Cycles | |
Cash purchases | $ 200 | $ 0 | $ 200 |
Payments on account |
0 | 160 | 160 |
Total cash paid | $ 200 | $ 160 | $ 360 |
Table (2)
3.
the difference amount of the requirements 1 and 2 for each company.
3.
Explanation of Solution
The difference amount is determined as follows:
Corporation A | B Unlimited | C Cycles | |
Cost of goods sold |
$ 175 | $ 175 | $ 350 |
Total cash paid | 200 | 160 | 360 |
Difference | $ (25) | $ 15 | $ (10) |
Table (3)
4.
To identify: the amount of increase (decrease) for each company’s inventory and accounts payable.
4.
Answer to Problem 14E
The amount increased (decreased) by each company’s inventory and accounts payable.
Corporation A | B Unlimited | C Cycles | |
Inventory increase | $ 25 | $ 25 | $ 50 |
Accounts payable increase |
0 | 40 | 40 |
Table (4)
Explanation of Solution
Calculate the increase (decrease) inventory for each company.
Calculate the increase (decrease) inventory for each company.
5.
To identify: the amounts that each company added (deduct) from the net income to convert from accrual to cash basis using indirect method of presentation.
5.
Answer to Problem 14E
The amounts added or deducted under indirect method is as follows:
Corporation A | B Unlimited | C Cycles | |
Subtract : inventory increase |
$ (25) | $ (25) | $ (50) |
Add: accounts payable increase |
0 | 40 | 40 |
Total | $ (25) | $ 15 | $ (10) |
Table (5)
Explanation of Solution
To convert the net income from accrual basis to cash basis under indirect method is as follows:
Adjustments to the net income:
Add: accounts payable increased
Less: increase in inventory
6.
To describe: the similarities between the requirements 3 and 5. Explain the reasons.
6.
Explanation of Solution
Requirement 3 and 5 for each company should be similar. Because the requirement 3 is to determinethe difference amount of the requirements 1 and 2 for each company that is difference between the cash basis and accrual based amounts by identifying that were recorded during the year.
In the requirement 5 it was toidentify that the amounts each company added (deducted) from the net income to convert from accrual to cash basis using indirect method of presentation. It determines the changes in the year end balances of the accounts affected by the inventory purchases.
Both the requirements are having same goal which is to adjust the net income as per the cash basis. These two are having same goals but different directions to achieve the goal.
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Chapter 12 Solutions
Fundamentals Of Financial Accounting
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