Analyzing and Adjusting Sales Allowances Eide LLC reports the following in its 10K for fiscal years FY 1 through 3 millions FY1 FY2 FY3 Net sales 3040 3338 3740 The company includes the following information in its Schedule II of the 10K Allowance for sales returns Balance Additions charged Balance millions beginning of year to Net Sales Deductions end of year Year Ended December 31 FY1 218 160 120 258 Year Ended December 31 FY2 258 210 148 320 Year Ended December 31 FY3 320 254 298 276 Instructions 1 Use Excel to your calculate answers 2 Do not round your computations in Excel 3 Round answers based on instructions provided in each part if needed a Calculate Gross sales for each year and the Additions charged as a percentage of Gross sales Round percentages to one decimal place millions FY1 FY2 FY3 Gross sales Answer 1 3200 Answer 2 3548 Answer 3 3994 Additions as a of sales Answer 4 5 Answer 5 59 Answer 6 64 What patterns do we observe Sales are Answer 7 increasing Returns as a of sales are Answer 8 increasing Which of the following would not explain the trend in returns Answer 9 Decrease in sales volume b Compute the threeyear total average percentage of Additions charged to Gross sales Round percentage to two decimal places Answer 10 581 Use the average to adjust Net sales Income tax expense at 22 and Net income Round answers to the nearest whole dollar HINT Follow the process shown in Analyst Adjustments 51 Income statement adjustments millions FY1 FY2 FY3 Net sales Answer 11 3014 Answer 12 0 Answer 13 0 Income tax expense at 22 Answer 14 0 Answer 15 0 Answer 16 0 Net Income Answer 17 0 Answer 18 0 Answer 19 0 c Use the average to determine the adjustment that analysts would make to the Allowance for sales returns and allowances Deferred tax liabilities and Retained earnings Round answers to nearest whole dollar HINT Follow the process shown in Analyst Adjustments 51 c Balance sheet adjustments millions FY1 FY2 FY3 Allowance for sales returns and allowances Answer 20 0 Answer 21 0 Answer 22 0 Deferred tax liabilities at 22 Answer 23 0 Answer 24 0 Answer 25 0 Retained Earnings Answer 26 0 Answer 27 0 Answer 28 0 d Determine the percentage of Sales returns and allowances at yearend to Gross sales for each year Round percentage to one decimal place FY1 FY2 FY3 Allowance at yearend to Gross sales Answer 29 81 Answer 30 9 Answer 31 69 Does the pattern match the trend we identified in part a Answer 32 No The allowance Answer 33 decreased in FY3 when Answer 34 deductions exceeded Answer 35 additions e Compute the threeyear total average percentage of the Allowance for sales returns and allowance to Gross sales Round percentage to two decimal places Answer 36 795 Use the average to adjust Net sales Income tax expense at 22 and Net income Round answers to the nearest whole dollar HINT Follow the process shown in Analyst Adjustments 51 Income statement adjustments millions FY1 FY2 FY3 Net sales Answer 37 2946 Answer 38 0 Answer 39 0 Income tax expense at 22 Answer 40 0 Answer 41 0 Answer 42 0 Net Income Answer 43 0 Answer 44 0 Answer 45 0 Determine the adjustment that analysts would make to the Sales returns and allowance Deferred tax liabilities and Retained earnings Round answers to the nearest whole dollar HINT Follow the process shown in Analyst Adjustments 51 Balance sheet adjustments millions FY1 FY2 FY3 Allowance for sales returns Answer 46 0 Answer 47 0 Answer 48 0 Deferred tax liabilities at 22 Answer 49 0 Answer 50 0 Answer 51 0 Retained Earnings Answer 52 0 Answer 53 0 Answer 54 0