Keystone Computers
Keystone Computers & Networks Accounting Issues Case
By Martin Esquivias (1331134)
Econ 112 Auditing Attestation
Ringo Company Receivable: After reviewing the account receivable for Ringo Pistachio Company, I have determined that the account is now a loss contingency. After close consideration, I have concluded that FASB ASC 450-20 is applicable to this situation. The codification requires the accrual of a loss when it is probable that an asset has been impaired at the date of the financial statements and when the amount of the loss can be reasonably estimated. Since Ringo Company received a “going concern” modification it is probable that the account receivable has been impaired. Our analysis also indicated that if bankruptcy does occur, then we should expect to recover 50-60 cents on the dollar. In this case, when the amount is estimated on a range, then we should require the accrual of the minimum cost to stay on the conservative side. In this case, we expect to recover 50-60 cents so we are expected to lose 40-50 cents. 77000 x 40% = 30,800. The journal entry would be as follows: Bad Debt Expense 30,800 Allowance for Doubtful Accounts 30,800
Inventory:
While working with the inventory at Keystone Computers & Networks, I have determined that the company needs to record an inventory write down to reflect a lower cost or market value. According to FASB ASC 330-10-35, “a departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost.” Since the company plans on selling the computers at retail price, but the market value of the computers would decrease 10-15% every six months, then a write-down to lower of cost or market is required. 1st quarter: $110,000 x 35% x 97.5% = 37537.50 2nd quarter : $110,000 x 30% x 92.5% = 30525.00 3rd quarter $110,000 x 25% x 87.5% = 24062.50 4th quarter: $110,000 x 10% x 82.5% = 9,075.00 Total Net Realizable Value = $101,200.00
Less:
By Martin Esquivias (1331134)
Econ 112 Auditing Attestation
Ringo Company Receivable: After reviewing the account receivable for Ringo Pistachio Company, I have determined that the account is now a loss contingency. After close consideration, I have concluded that FASB ASC 450-20 is applicable to this situation. The codification requires the accrual of a loss when it is probable that an asset has been impaired at the date of the financial statements and when the amount of the loss can be reasonably estimated. Since Ringo Company received a “going concern” modification it is probable that the account receivable has been impaired. Our analysis also indicated that if bankruptcy does occur, then we should expect to recover 50-60 cents on the dollar. In this case, when the amount is estimated on a range, then we should require the accrual of the minimum cost to stay on the conservative side. In this case, we expect to recover 50-60 cents so we are expected to lose 40-50 cents. 77000 x 40% = 30,800. The journal entry would be as follows: Bad Debt Expense 30,800 Allowance for Doubtful Accounts 30,800
Inventory:
While working with the inventory at Keystone Computers & Networks, I have determined that the company needs to record an inventory write down to reflect a lower cost or market value. According to FASB ASC 330-10-35, “a departure from the cost basis of pricing the inventory is required when the utility of the goods is no longer as great as their cost.” Since the company plans on selling the computers at retail price, but the market value of the computers would decrease 10-15% every six months, then a write-down to lower of cost or market is required. 1st quarter: $110,000 x 35% x 97.5% = 37537.50 2nd quarter : $110,000 x 30% x 92.5% = 30525.00 3rd quarter $110,000 x 25% x 87.5% = 24062.50 4th quarter: $110,000 x 10% x 82.5% = 9,075.00 Total Net Realizable Value = $101,200.00
Less: