The Outdoor Store began 2014 with 80000 units of inventory that cost $48000. Dur
ID: 2779557 • Letter: T
Question
The Outdoor Store began 2014 with 80000 units of inventory that cost $48000. During 2014, The outdoor Store purchased merchandise on account for $434000:
Cash payments on account totaled $390000 during the year (ignore purchase discounts). The Outdoor Store's sales during 2014 consisted of 580000 units of inventory for $1160000, all on account. The company uses the FIFO inventory method. Cash collections from customers were $565000. Operating expenses totaled $250700, of which The Outdoor Store paid $163000 in cash. The Outdoor Store credited Accrued Liabilities for the remainder. At December 31, The Outdoor Store accrued income tax expense at the rate of 40% of income before tax.
Requirement 1: Show how the Outdoor Store would compute cost of goods sold for 2014.
Units Total Cost
Units sold from beginning inventory _____ _____
Units sold from Purchase 1 _____ _____
Units sold from Purchase 2 _____ _____
Units sold from purchase 3 _____ _____
Cost of goods sold 580000 _____
Requirement 2: Prepare the Outdoor Store's income statement for 2014. Show totals for the gross profit and income before tax.
Account names: Accounts Payable, accounts receivable, advertising expense, cost of goods sold, gross profit, income before tax, income tax expense, inventory, operating expenses, purchases, salary expense, sales revenue.
The Outdoor Store
Income Statement
Year Ended December 31, 2014
_________ ______
_________ ______
_________ ______
_________ ______
_________ ______
_________ ______
Net Income ______
Requirement 3: Make summary journal entries to record the Outdoor Store's transactions for the year, assuming the company uses a perpetual inventory system.
Begin with the single entry to record the purchases.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Next, record the cash payments on account.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Now record the sales made on account. (Do not yet record cash collections or the cost related to the sales. We will do this in the following journal entries.)
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Record the inventory transaction associated with the sale of merchandise.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Record the collection of cash from customers.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Record the operating expenses.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Finally, record the entry to accrue income tax.
Accounts Debit Credit
_________ _____ _____
_________ _____ _____
_________ _____ _____
_________ _____ _____
Requirement 4: Determine the FIFO cost of the Outdoor Store's ending inventory at December 31, 2014, two ways:
a. Use a T-account.
b. Multiply the number of units on hand by the unit cost.
Number of units in ending inventory _____
Unit cost of ending inventory at FIFO _____
FIFO cost of ending inventory ______
Requirement 5:Determine the Outdoor Store's gross profit percentage, rate of inventory turnover, and net income as a percentage of sales for the year. In the Outdoor Store's industry, a gross profit percentage of 40%, and inventory turnover of 6 times per year, and a net income percentage of 7% are considered excellent. How well does the Outdoor Store compare to these industry averages? (round to one decimal place, X.X)
Purchase 1: 150,000 units costing $135,000 Purchase 2: 270,000 units costing 243,000 Purchase 3: 140,000 units costing 56,000Explanation / Answer
Ans 1 Units Total Cost Units sold from beginning inventory 80,000.00 48,000.00 Units sold from Purchase 1 1,50,000.00 1,35,000.00 Units sold from Purchase 2 2,70,000.00 2,43,000.00 Units sold from Purchase 3 80,000.00 32,000.00 Cost of Goods Sold 5,80,000.00 4,58,000.00 Ans 2 Income Statement Sales revenue 11,60,000.00 Cost of Goods Sold -4,58,000.00 Gross Profit 7,02,000.00 Operating Expense 2,50,700.00 Operating margin 4,51,300.00 Income Tax Expenses 1,80,520.00 Net Income After Tax 2,70,780.00 Ans 3 Account Head & explainations Debit Credit Inventory 4,34,000.00 Accounts Payable 4,34,000.00 Accounts Payable 3,90,000.00 Cash 3,90,000.00 Account Receivable 11,60,000.00 Sales Revenue 11,60,000.00 Cost of Goods Sold 4,58,000.00 Inventory 4,58,000.00 Cash 5,65,000.00 Accounts Receivable 5,65,000.00 Operating Expense 2,50,700.00 Cash 1,63,000.00 Accrued Expenses 87,700.00 Income Tax Expense 1,80,520.00 Provision for Income Tax 1,80,520.00
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