4. Among the transactions of WRY TO TWIST Company for the first two quarters of 20x1 were the following: a. WRY recognized a P200,000 write-down in its inventory during the first quarter. WRY had expected that the write- down will reverse in the second quarter, and in fact, in the second quarter, the recovery exceeded the previous write-down by P40,000. b. WRY provides warranty for its sales. In the first quarter, WRY estimated a 5% warranty obligation on its first quarter sales of P2,000,000. In the second quarter, a change in accounting estimate was made. It was estimated that the cost of warranty should be 10% of total sales. The second quarter sales amounted to P2,400,000. c. WRY has been estimating its bad debt expense as 2% of credit sales. However, in the second quarter, a change was made to the percentage of ending receivable. Under this method, the required balance of the allowance for doubtful accounts as of June 30, 20x1 is computed at P60,000. The allowance has a balance of P10,000 at the beginning of the year. Total write-offs during the first six months of 20x1 amounted to P24,000; recoveries totaled P6,000. Credit sales for the 1st and 2nd quarters amounted to P2,000,000 and P4,000,000, respectively. Requirement: What are the effects of the transactions listed above on profit or loss before tax in the first and second quarter interim financial statements of WRY?
4. Among the transactions of WRY TO TWIST Company for the first two quarters of 20x1 were the following: a. WRY recognized a P200,000 write-down in its inventory during the first quarter. WRY had expected that the write- down will reverse in the second quarter, and in fact, in the second quarter, the recovery exceeded the previous write-down by P40,000. b. WRY provides warranty for its sales. In the first quarter, WRY estimated a 5% warranty obligation on its first quarter sales of P2,000,000. In the second quarter, a change in accounting estimate was made. It was estimated that the cost of warranty should be 10% of total sales. The second quarter sales amounted to P2,400,000. c. WRY has been estimating its bad debt expense as 2% of credit sales. However, in the second quarter, a change was made to the percentage of ending receivable. Under this method, the required balance of the allowance for doubtful accounts as of June 30, 20x1 is computed at P60,000. The allowance has a balance of P10,000 at the beginning of the year. Total write-offs during the first six months of 20x1 amounted to P24,000; recoveries totaled P6,000. Credit sales for the 1st and 2nd quarters amounted to P2,000,000 and P4,000,000, respectively. Requirement: What are the effects of the transactions listed above on profit or loss before tax in the first and second quarter interim financial statements of WRY?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:4. Among the transactions of WRY TO TWIST Company for
the first two quarters of 20x1 were the following:
a. WRY recognized a P200,000 write-down in its inventory
during the first quarter. WRY had expected that the write-
down will reverse in the second quarter, and in fact, in the
second quarter, the recovery exceeded the previous
write-down by P40,000.
b. WRY provides warranty for its sales. In the first quarter,
WRY estimated a 5% warranty obligation on its first
quarter sales of P2,000,000. In the second quarter, a
change in accounting estimate was made. It was
estimated that the cost of warranty should be 10% of total
sales. The second quarter sales amounted to
P2,400,000.
c. WRY has been estimating its bad debt expense as 2%
of credit sales. However, in the second quarter, a change
was made to the percentage of ending receivable. Under
this method, the required balance of the allowance for
doubtful accounts as of June 30, 20x1 is computed at
P60,000. The allowance has a balance of P10,000 at the
beginning of the year. Total write-offs during the first six
months of 20x1 amounted to P24,000; recoveries totaled
P6,000. Credit sales for the 1st and 2nd quarters
amounted to P2,000,000 and P4,000,000, respectively.
Requirement: What are the effects of the transactions listed
above on profit or loss before tax in the first and second
quarter interim financial statements of WRY?
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