AHammer Corporation Wrote Off $185,000 of Obsolete Inventory at December

question 30

Essay

A.Hammer Corporation wrote off $185,000 of obsolete inventory at December 31,2011.
Required:
What effect did this write-off have on the company's 2011 current and quick ratios?
B.Assume that Hammer Company did not write off their inventory.How will this affect the company's financial position?

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Definitions:

Deferral Method

An accounting practice where certain revenues and expenses are deferred to future accounting periods, rather than being recognized immediately.

Encumbrance System

A financial accounting system used primarily by governments that tracks commitments made against funds before they are actually spent, ensuring that appropriations are not exceeded.

Expenditure Basis

An accounting method where expenses are recognized and recorded at the point when the obligation is incurred.

Purchase Orders

Purchase orders are official documents issued by a buyer committing to pay the seller for the supply of specific goods or services at agreed upon prices and terms.