Question

PLEASE EXPLAIN, THANKS

A) Cullumber Inc. is a wholesaler of electronics. It purchased 2600 units of Product X for $2000 each during 2022. The selling price during the year was $2200 per unit. At year end, it had 200 units on hand and due to changes in technology, the selling price will have to be reduced by 35% in order to sell them. The value of each unit of Product X for the year-end inventory presentation should be
a) $2000.

b) $770.

c) $1430.

d) $2200.

B) Novak Corp. sells $6490 of goods on account in the current year and collects $3490 of this. It incurs $4200 in expenses on account during the current year and pays $2600 of them. Novak would report what amount of net income under the cash and accrual bases of accounting, respectively?

a) $3490 on the cash basis and $4200 on the accrual basis.

b) $2290 on the cash basis and $3000 on the accrual basis.

c) $3000 on the cash basis and $2290 on the accrual basis.

d) $890 on the cash basis and $2290 on the accrual basis.

C) On February 1, Splish Brothers Ltd. signed a 6%, twelve-month bank loan payable for $188400 to help finance increases in inventory for the spring and summer season. Assuming no entries have been made previously for the interest on this loan, what is the required adjusting entry for the interest accrued to December 31?

Interest Expense	9420
Interest Payable		9420

Interest Expense	11304
Interest Payable		11304

Interest Expense	10362
Interest Payable		10362

Interest Expense	942
Cash		942

Answer 1

1) Ending Inventory is valued at Lower of cost or Net realizable value.

Cost is $2,000

Net realizable value = [Market price - costs associated with completion of sale] = $2200 * (1-0.35) = $1,430

Lower of cost or NRV is $1,430

So, Value of each unit of ending inventory is valued at $1,430.

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2) In cash basis only cash received and paid are considered.

Cash revenue = $3,490

Cash expense = $2,600

Net income under cash basis = $890

Under Accrual method, Total sales - total expenses need to be considered

Net income = $6,490 - $4,200 = $2,290

Answer is $890 on cash basis and $2,290 on Accrual basis.

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3) Interest expense to be recorded on December 31 is

$188,400 * 6% * 11 months / 12 months

= $10,,362

Interest expense ............... Debit $10,362

To Interest payable .......... Credit $10,362