Now that operations for outdoor clinics and TEAM events are running smoothly, Su

Question

Now that operations for outdoor clinics and TEAM events are running smoothly, Suzle thinks of another area for buslness expansion. She notices that a few clinic particlpants wear multiuse (MU) watches. Beyond the normal timekeeping features of most watches, MU watches are able to report temperature, altitude, and barometric pressure. MU watches are waterproof, so moisture from kayaking, raln, fishing, or even diving up to 100 feet won't damage them. Suzie decides to have MU watches avallable for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2016. All watches are sold for $294 each. Jul. 17 Purchased 44 watches for $6,336 ($144 per watch) on account. Jul. 31 Sold 34 watches for $9,996 cash. Aug. 12 Purchased 34 watches for $5,236 ($154 per watch) cash. Aug. 22 Sold 24 watches for $7,056 on account. Sep. 19 Pald for watches ordered on July 17. Sep 27 Recelved full payment for watches sold on account on August 22. Oct. 27 Purchased 74 watches for $12,136 ($164 per watch) cash. Nov. 20 Sold 84 watches for $24,696 cash. Dec. 4 Purchased 108 watches for $18,792 ($174 per watch) cash. Dec. 8 Sold 34 watches for $9,996 on account.

Explanation / Answer

part 1)

Number of watches purchased = 44+34+74+108 = 260 watches

Number of watches sold = 34+24+84+34 = 176 watches

Closing stock = 260 - 176 = 84 watches

As FIFO method is being used, the closing inventory will comprise of the watches purchased on DEc 4.

cost of closing stock = 84 x $174 = $14616

Sales Revenue = 176 x $294 = $51744

Cost of goods sold

= cost of purchase - Cost of closing inventory

=(44*144+34*154+74*164+108*174 ) - $14616 = $42500 - $14616 = $27884

Sales Revenue = $51744

Cost of goods sold = $27884

Cost of ending inventory = $14616

part 2)

part 3)

Loss On Inventory Valuation...............................Dr. $6720

Inventory........................................................................Cr. $6720

(Loss in the valuation of inventory due to reduction of market price to $94 per unit recorded)

b)

The amount of inventory to be reported i the balance sheet as on 31st december

= 84 x $94

= $7896

c)

Gross Profit Sales ($) 51744 Less: Cost of goods sold ($) 27884 Gross profit ($) 23860

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