ACC 1010 Module 4 Cash, Receivables and Inventory Homework Example

Delaware River Music, Inc.: Cash, Receivables and Inventory Valuation at July and August 2026

Student Name

Bachelor of Science in Business Administration, Thomas Edison State University

ACC-1010: Principles of Financial Accounting

Mentor Name

Month Day, Year

Delaware River Music, Inc.: Cash, Receivables and Inventory Valuation at July and August 2026

This homework values the financial assets and inventory of Delaware River Music, Inc., the composite Hamilton Township instrument store followed in this course's samples. It reconciles the July bank statement with the store's cash records, estimates uncollectible receivables at July 31 using an aging schedule, compares three inventory cost flow methods for the store's best-selling student violin in August and applies the lower of cost or net realizable value rule to discontinued digital keyboards. Each part ends with the journal entries the analysis requires.

Part A: Bank Reconciliation, July 31

The bank statement shows a balance of $21,640; the store's cash account shows $22,485. Reconciling the two identifies items the bank has not yet recorded and items the store has not yet recorded.

Only the book-side items need journal entries, because the bank will clear the deposit in transit and outstanding checks on its own. The store records a $35 debit to bank service charges expense and credit to cash; a $310 debit to accounts receivable and credit to cash for the bounced check, since the family still owes the money; and a $90 debit to cash and credit to advertising expense to correct the overstated check. The reconciliation is also a control. The internal control framework most U.S. companies follow treats control activities, reconciliations and segregation of duties among them, as one of its five components (Committee of Sponsoring Organizations of the Treadway Commission, 2013), and in a small store the owner, not the bookkeeper who writes checks, should review it each month.

Part B: Estimating Uncollectible Accounts

The store's July 31 receivables of $10,940 include amounts owed by two school districts for classroom instrument rentals and by families on rental and payment plans. Past experience at similar stores suggests that older balances are less likely to be collected, so the allowance is estimated with an aging schedule.

Because the allowance account has no balance yet, the adjusting entry debits bad debt expense and credits allowance for doubtful accounts for the full $265. After the entry, the balance sheet reports what the store expects to collect, $10,675. This is the allowance method: the expense is matched with the period of the credit sales, and the specific accounts that later prove uncollectible are written off against the allowance without affecting expense again. Current accounting standards require entities to look ahead when estimating losses on receivables, combining history with today's conditions and supportable predictions (Financial Accounting Standards Board [FASB], 2016), and an aging schedule tuned to this year's local economy is a workable method for a small company to do so.

Part C: Inventory Cost Flow for the Student Violin

The store's SV-200 student violin outfit is its best seller as school orchestras begin. In August it began with 6 outfits costing $140 each, bought 10 at $150 on August 8 and 8 at $158 on August 20, and sold 18 at $289 each. Using a periodic calculation for comparison, 24 outfits costing $3,604 were available for sale and 6 remained at month end.

When purchase costs are rising, FIFO assigns the oldest, cheapest costs to the goods sold and leaves the newest costs in ending inventory, producing the highest gross profit and the most current balance sheet value. LIFO does the reverse, producing the lowest profit and, for a company that uses it for taxes, the lowest taxable income; U.S. rules allow it, while IFRS, used in much of the world, forbids it. Weighted average falls between them. The store should choose the method that best fits how its goods flow and its reporting needs, then apply it consistently. FIFO matches the store's physical flow, since older violins are sold first, and gives the bank a current measure of inventory, so the owners have adopted it.

Part D: Lower of Cost or Net Realizable Value

Four digital keyboards of a model the manufacturer discontinued in August cost the store $520 each. The store expects to sell them at $480 with about $30 each of selling costs, so their net realizable value is $450 each. For inventory costed by FIFO or average cost, the carrying amount may not exceed net realizable value (FASB, 2015). The write-down is $70 per keyboard, or $280, charged to cost of goods sold with inventory reduced by the same amount. The rule prevents the balance sheet from carrying inventory at more than the store can recover from selling it.

References

Committee of Sponsoring Organizations of the Treadway Commission. (2013). Internal control: Integrated framework.

Financial Accounting Standards Board. (2015). Inventory (Topic 330): Simplifying the measurement of inventory (Accounting Standards Update No. 2015-11).

Financial Accounting Standards Board. (2016). Financial instruments, credit losses (Topic 326): Measurement of credit losses on financial instruments (Accounting Standards Update No. 2016-13).