Delux Technologies makes and sells only one product, a high-quality processor for mainframe computers. Delux was recently approached by Imagination Station, a large computer manufacturer, about purchasing their company. Imagination Station is engaging in a. related diversification, b. focused offerentiation c. related diversification d. vertical integratione. differentiation

d. vertical integration

Explanation:

The strategy used by "Imagination Station" above is an example of "vertical integration." This is a type of strategy that allows a company to have control over its production steps.

Since Imagination Station manufactures computers, it wants to control its own supply of processor by trying to purchase Deluxe Technology. Having full control of supplying its own processors would mean an increase in the company's revenue because they have the ultimate power to reduce their cost.

So, this explains the answer.

Explanation:

Prepare the journal entry to record the sale of merchandise on account, and the cost of goods sold.

DateParticularsDebitCredit

May 24Accounts receivable – O T Cafe$18,450

Sales $18,450

(To record sale of merchandise on account)

May 24Cost of merchandise sold$11,000

Merchandise inventory $11,000

(To record the cost of goods sold)

Table (1)

Sale on account increases accounts receivable and sales revenue account. Hence, an increase in accounts receivable (asset account) is debited with $18,450 and an increase in sales revenue (stockholders’ equity account) is credited with $18,450.

Cost of goods sold is $11,000. Thus the expense incurred must be recognized by increasing cost of goods sold account and the merchandise inventory which is sold out should be decreased to record the inventory which is sold out. Hence, an increase in Cost of goods sold (expense account) is debited with $11,000 and a decrease in Merchandise inventory (asset account) is credited with $11,000.

2.

Prepare the journal entry to record the collection of cash and write-off of uncollectible accounts, under direct write-off method.

DateParticularsDebitCredit

September 30Cash$6,000

Allowance for doubtful accounts$12,450

Account receivable – O T Cafe $18,450

(To record cash collection and write-off of uncollectible account receivable )

Table (2)

To record the collection of cash on account, cash account must be increased and accounts receivable must be decreased by $6,000.

To record this write-off of uncollectible receivables of $12,450 ($18,450−$6,000)($18,450−$6,000) under allowance method, both allowance for doubtful accounts and accounts receivable must be decreased by $12,450