Accounting

Part E

Swift Classified Ads.has always used the Direct Write-off method to account for uncollectible account expense. The company’s revenues, uncollectible write offs, and year-end receivables for 2012 were as follows:

Year | Revenue | Write-Offs | Receivables at Year-End |

2012 | $140,000 | $3,600 | $12,000 |

The business is applying to MayBank for a bank loan, and the loan officer has asked for figures based on the Allowance method of accounting for uncollectible accounts expense. In the past, uncollectible account expenses have run about 4% of revenues.

Catherine has asked you to compute and provide the following information for the banker:

a) How much more or less would net income be for 2012 if Swift Classified Ads were to use the Allowance method for uncollectible account expense? Please use the percentage-of-sales method.

b. How much of the receivables balance at the end of 2012 does Swift Classified Ads actually expect to collect? (Disregard beginning account receivable balance for the purpose of this question.)

c. Explain to Catherine why net income is more or less using the Allowance method versus the Direct Write-off method for uncollectible.

Part F

In order to amplify her business revenue, Catherine started to sell to her clients souvenir items since 1 January 2012.

The following information on the purchases and sales of the cuddly teddy bear is available as of December 31, 2012.

Beginning inventory (250 units)………………………………………………………$2,500Total purchases for 2012 (500 units)………………………………………………...$6,000

Total sales for 2012……………………………………………………………………$7,200

Ending inventory (by physical count)………………………………………………..350 units

a. What factors will you consider in choosing between the Perpetual and Periodic inventory systems? Based on the available data, which type of inventory system (Perpetual or Periodic) is likely being used by Swift Classified Ads to account for inventory transactions? Explain your answer....