Sing Songs Ltd. started operations on January 1, 2019. During its first year of operations, the company had a choice of accounting policies:
$$\begin{array} { | l | l | l | }
\hline & \text { Accounting Option 1 } & \text { Accounting Option } 2 \
\hline \text { Inventory valuation } & \text { FIFO } & \text { Average cost } \
\hline \text { Bad debt expense } & 7 \% \text { of sales } & \begin{array} { l }
\text { Allowance: } 20 \% \text { of } \
\text { losing (gross) accounts } \
\text { receivable }
\end{array} \
\hline \text { Warranty expense } & 5 \% \text { of sales } & \begin{array} { l }
\text { Allowance: an analysis } \
\text { of sales and repairs }
\end{array} \
\hline
\end{array}$$ Explain why net income would not be the same under both accounting options.

Question

Sing Songs Ltd. started operations on January 1, 2019. During its first year of operations, the company had a choice of accounting policies:
 $$\begin{array} { | l | l | l | } 
\hline & \text { Accounting Option 1 } & \text { Accounting Option } 2 \
\hline \text { Inventory valuation } & \text { FIFO } & \text { Average cost } \
\hline \text { Bad debt expense } & 7 \% \text { of sales } & \begin{array} { l } 
\text { Allowance: } 20 \% \text { of } \
\text { losing (gross) accounts } \
\text { receivable }
\end{array} \
\hline \text { Warranty expense } & 5 \% \text { of sales } & \begin{array} { l } 
\text { Allowance: an analysis } \
\text { of sales and repairs }
\end{array} \
\hline
\end{array}$$ Explain why net income would not be the same under both accounting options.

Quizplus · Accepted Answer

The Answer of Sing Songs Ltd. started operations on January 1, 2019. During its first year of operations, the company had a choice of accounting policies:
 $$\begin{array} { | l | l | l | } 
\hline & \text { Accounting Option 1 } & \text { Accounting Option } 2 \
\hline \text { Inventory valuation } & \text { FIFO } & \text { Average cost } \
\hline \text { Bad debt expense } & 7 \% \text { of sales } & \begin{array} { l } 
\text { Allowance: } 20 \% \text { of } \
\text { losing (gross) accounts } \
\text { receivable }
\end{array} \
\hline \text { Warranty expense } & 5 \% \text { of sales } & \begin{array} { l } 
\text { Allowance: an analysis } \
\text { of sales and repairs }
\end{array} \
\hline
\end{array}$$ Explain why net income would not be the same under both accounting options.

Sing Songs Ltd Explain Why Net Income Would Not Be the Same Under