While investigating an auto dealership you calculate the following [refer to the IRS’s ATG on Auto Dealerships]: From "window sticker": MSRP $10,000 Destination Charges 400 MSRP Retail Total $10,400 CASH IN CASH OUT Gross receipt $ 5,000,000 Cost of Goods Sold $ 4,900,000 Sch. C Expenses $ 95,000 Sch. C Depr $ 10,000 Meals $ 1,250 Bureau of Labor Statistics data $ 40,000 Cash In $ 5,000,000 Cash Out $ 5,026,250 From Dealer Invoice:

Vehicle Factory Wholesale Price $9,000 Destination Charges 400 Advertising Association 100 1% of MSRP Holdback 300 3% of MSRP Total Invoice Price $9,800 Holdback: coded amount is (300) 3% of MSRP Inventory Cost to the Dealer $9,500

Do you have any thoughts and what questions would you ask?

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akindeleot akindeleot · Answer 1 · 2020-03-02T18:35:01+01:00

Answer:

With the given data, you asked if I have any thoughts and what questions would I ask?

1) My first thought

Since Journal entry for first case:

Account receivable A/c Dr $9500

Hold back receivable A/c Dr $ 300

To revenue A/c $9,800

Journal entry for Hold back received:

Bank A/c Dr $300

To Hold back A/c $300

I would ask this question:

What entry should the dealer make initially and when the hold back is received?

2) My second thought

Holdback: coded amount is (300) 3% OF MSRP

question: Should the dealer include the hold back in inventory?

Explanation:

I believe this is the interpretation of the question: and my above answers are based on these data below.

While investigating an auto dealership you calculate the following (refer to the IRS's ATG on Auto Dealerships):

From 'window sticker':

MSRP $10,000

Destination Charges 400

MSRP Retail Total $10,400

From Dealer Invoice:

Vehicle Factory Wholesale Price $9,000

Destination Charges 400

Advertising Association is 100, which is 1% of MSRP

Holdback is 300, which is 3% of MSRP

Total Invoice Price $9,800

Holdback: coded amount is (300) 3% OF MSRP

Inventory Cost to the Dealer $9,500