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Tasya [4]
3 years ago
9

Torres Company uses the gross method and a perpetual inventory system. Assuming the following entries, compute the amount that T

orres Company received on May 12.
a. May 1 Sold goods costing $3,000 to Campbell Company on account, $5,000, terms 1/10, n/30. The goods are shipped FOB Shipping Point, Freight Prepaid by Seller, $110.
b. May 7 Campbell Company returned undamaged merchandise previously purchased on account, $200.
c. May 12 Received the amount due from Campbell Company.
Business
1 answer:
Karo-lina-s [1.5K]3 years ago
6 0

Answer:

Torres Company received  $4,800 on May 12.

Explanation:

<u>When The Sale was made, the following entries apply :</u>

J1

Trade Receivable $5,000 (debit)

Sales Revenue $5,000 (credit)

J2

Cost of Sales $3,000 (debit)

Merchandise $3,000 (credit)

J3

Freight Expenses $110 (debit)

Cash $110 (credit)

<u>When Campbell Company returned Merchandise :</u>

J1

Sales Revenue $200 (debit)

Trade Receivable $200 (credit)

<u>When Campbell Company pays for the goods</u>

The payment is made 2 days out of the discount period, therefore not eligible for discount.

<em>Settle amount in full less Return Allowance of $200</em>

Trade Receivable $4,800 (debit)

Cash  $4,800 (credit)

Conclusion :

Torres Company received  $4,800 on May 12.

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Complete question :

A company is considering constructing a plant to manufacture a proposed new product. The land costs $350,000, the building costs $600,000, the equipment costs $250,000, and $150,000 additional working capital is required. It is expected that the product will result in sales of $900,000 per year for 10 years, at which time the land can be sold for $450,000, the building for $400,000, and the equipment for $50,000. All of the working capital would be recovered at the EOY 10. The annual expenses for labor, materials, and all other items are estimated to total $500,000. If the company requires a MARR of 15% per year on projects of comparable risk, determine if it should invest in the new product line. Use the AW method.

Answer: $182,800

Explanation:

Given the following :

land costs = $350,000

building costs = $600,000

equipment costs = $250,000

additional working capital = $150,000

Expected sales per year for 10 years = $900,000

Salvage value After (10years):

Cost of land = $450,000

Building = $400,000

Equipment = $50,000

All working capital will be recovered at end of year, Hence, working capital will be $150,000

Annual expenses = $500,000

MARR = 15% per annum

Total amount invested = $(350,000 + 600,000 + 250,000 + 150,000) = $1,350,000

Expected sales per Annum = annual revenue = $900,000

Expenditure per year = $500,000

Net income = Revenue - Expenditure

Net income = $900,000 - $500,000 = $400,000

Worth or valuation of investment after 10 years :

($450,000 + $50,000 + $400,000 + $150,000)

= $1,050,000

Hence,

Capital recovery factor : (A/P, 15%, 10) = 0.199

Sinking fund table : (A/F, 15%, 10) =0.049

NET ANNUAL WORTH :

-Initial investment(A/P, 15%, 10) + annual net income + salvage value(A/F, 15%,10)

= - 1,350,000(0.199) + 400,000 + 1,050,000(0.049)

= $182,800

The investment is economically justified as the net annual worth yields a positive value.

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