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

1) a)

Calculation of Sales Revenue

Calculation of Cost of Goods Sold & Closing Inventory as on 31/12/2019

Closing

Units

Value per

Watch

Total Cost of Goods Sold(COGS) = 7379+1570+4509+3340+13629+1770+6919=39116

Total Purchase = 8949+7849+15399+21318=53515

Closin Inventory Value = 14399

1)b)

2) a) As per IFRS, Inventory should be valued at lower of Cost or Net Realizable value.

Due to the release of multiuse(MU II) watches, the net realizable value of MU watches reduced to $ 107 per watch as compared to its cost $ 187, hence closing inventory should be valued at $ 107 and the difference of $ 80 shall be charged to the income statement

Inventory written off A/C Dr (80*77) 6160

To Closing Inventory 6160

b) Closing Inventory Value as at 31/12/2019 = 107*77 = $ 8239 or 14399-6160= $ 8239

c)

Date Units value per watch Total 31/7 47 307 14429 22/8 37 307 11359 20/11 97 307 29779 8/12 47 307 14429 Total 69996

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