The Chocolate Company had the following transactions during January 2014:
1. A customer that had an account receivable with the company in the amount of $10,000 called and said they could not pay on time. You, the CFO, told them they could pay it all back in 120 days, but they would need to pay it back with 5% interest. How does this impact The Chocolate Company’s net income, and by how much?
2. A supplier’s invoice stated “8/10, n30”. What does this mean? Should you take the supplier up on this deal when paying bills this month?
3. Prices of chocolate are going up. Would it be better for the company’s net income if they used FIFO or LIFO to value their inventory?
4. The company paid $120,000 for 12 months of rent (January 2014 to December 2014) on the chocolate-making facility. How does this impact the company’s January net income? How about its net income for the year ended December 31, 2014?
5. Another customer told you they were going bankrupt and could not pay $500 of their accounts receivable. How does this impact net income if your company uses the allowance method? What if they use the direct write-off method instead?
6. You received your bank statement for January and noticed there was a service charge because the bank had printed a new box of checks for you. You had not previously recorded this transaction in your books. How does this impact net income?