Late in December, the next generation of multiuse (MU II) watches is released. I
ID: 2353353 • Letter: L
Question
Late in December, the next generation of multiuse (MU II) watches is released. In addition to all of the features of the MU watch, the MU II watches are equipped with a global positioning system (GPS) and have the ability to download and play songs and videos off the internet. The demand for the original MU watches is greatly reduced. As of December 31, the estimated market value of MU watches is only $102 per watch.a. Record any necessary entry on December 31, 2013, related to this information.
b. For what amount would MU inventory be reported in the December 31, 2013, balance sheet?
c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.
Explanation / Answer
Purchases Jul. 17 Purchased 56 watches for $7,952 ($142 per watch) on account. Aug. 12 Purchased 42 watches for $6,342 ($151 per watch) cash. Oct. 27 Purchased 89 watches for $14,507 ($163 per watch) cash. Dec. 4 Purchased 90 watches for $16,020 ($178 per watch) cash. Totals 277 units, $44,821 Sales Jul. 31 Sold 42 watches for $12,936 cash. Aug. 22 Sold 27 watches for $8,316 on account. Nov. 20 Sold 108 watches for $33,264 cash. Dec. 8 Sold 45 watches for $13,860 on account. Totals 222 units, $68,376 Sales Revenue When using FIFO, first-in-first-out, the earliest units purchased are the first ones sold and the latest units purchased remain in ending inventory. 277 units - 222 units = 55 units remain in ending inventory. Since the latest units purchased remain in ending inventory, the entire ending inventory is from the Dec. 4 purchase. 55 units x $178 = $9,790 Ending Inventory Total Purchases - Ending Inventory = Cost of Goods Sold 44,821 - 9,790 = $35,031 Cost of Goods Sold Sales Revenue - Cost of Goods Sold = Gross Profit 68,376 - 35,031 = $33,345 Gross Profit *Note: These two transactions have no affect on the above calculations, so they were not included. Sep. 19 Paid for watches ordered on July 17. Sep 27 Received full payment for watches sold on account on August 22.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.