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, Suzie thinks of another area for business expansion. She notices that a few clinic participants 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, rain, fishing, or even diving up to 100 feet won’t damage them. Suzie decides to have MU watches available for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2019. All watches are sold for $307 each.

Jul. 17 Purchased 57 watches for $8,949 ($157 per watch) on account.
Jul. 31 Sold 47 watches for $14,429 cash.
Aug. 12 Purchased 47 watches for $7,849 ($167 per watch) cash.
Aug. 22 Sold 37 watches for $11,359 on account.
Sep. 19 Paid for watches ordered on July 17.
Sep. 27 Received full payment for watches sold on account on August 22.
Oct. 27 Purchased 87 watches for $15,399 ($177 per watch) cash.
Nov. 20 Sold 97 watches for $29,779 cash.
Dec. 4 Purchased 114 watches for $21,318 ($187 per watch) cash.
Dec. 8 Sold 47 watches for $14,429 on account.

1-a. Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2019, assuming Suzie uses FIFO to account for inventory.
  1-b. Prepare the gross profit section of a partial income statement for transactions related to MU watches.
  

2. 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 net realizable value of MU watches is only $107 per watch.

a. Record any necessary adjustment on December 31, 2019, related to this information.

b. For what amount would MU inventory be reported in the December 31, 2019, balance sheet?

c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.

Explanation / Answer

Calculation of sales revenue All amount in dollar Date Purchase Sale Inventory Quantity Rate per watch Amount Quantity Rate per watch Amount Quantity Rate per watch Amount Jul.17 57 157 8949 57 157 8949 Jul.31 47 307 14429 10 157 1570 Aug. 12 47 167 7849 10 157 1570 47 167 7849 Aug, 22 10 307 3070 20 167 3340 27 307 8289 Total 37 307 11359 Oct, 27 87 177 15399 20 167 3340 87 177 15399 Nov, 20 20 307 6140 10 177 1770 77 307 23639 Total 97 307 29779 Dec, 4 114 187 21318 10 177 1770 114 187 21318 Dec,8 47 307 14429 77 187 14399 Total 53515 69996 1A. Sales revenue = 14429+11359+29779+14429 = 69996 Cost of goods sold = purchase- inventory = 53515 - 14399 = 39116 Ending inventory 14399 1B. Gross profit =Sales revenue- cost of goods sold = 69996-39116 = 30880 1A. As resale value decrese to 107 the closing inventory will be 77*107 = 8239 and diffential of 14399 - 8239 = 6160 will be adjusted in the inventory and charged to cost of goods sold. Inventory 8239 Gross profit = 30880- 6160 = 24720

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