Reference no: EM132451573

Problems -

1. Nike and Under Armour both sell sports apparel. Nike has a May 31 year end while Under Armour has a December 31 year end. For both companies, shipments to sporting goods retailers occur mostly in December. Both companies offer 60-day credit terms to retailers. Based on reported information from each company's annual report, all else equal, would you expect Nike to have a (1) higher or lower Accounts Receivable Turnover and (2) higher or lower Days to Collect than Under Armour? Explain briefly.

2. In fiscal year 2014, $1,350 of sales related to license products. The inventory cost Scholastic $580 to manufacture. Additionally, Scholastic pays 7% royalties on these sales. Scholastic incurs royalty expense for the use of certain intellectual property (e.g., when it sells a Star Wars book). This expense is included as part of cost of goods sold. Assume Scholastic has not paid any cash royalties related 2012 yet.

Prepare the journal entries that Scholastic made in 2014 (1) related to the sale of the licensed products and (2) record royalty expense.

3. Scholastic permits customers to return any item for any reason within 60 days of sale. Scholastic estimates that 20% of its sales in May 2014 will be returned in July 2014. According to GAAP, does Scholastics record the effect of these returned products on its income statement in 2014 or 2015? Briefly explain why.