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 2022. All watches are sold for $500 each.

Jul.		17		Purchased 50 watches for $7,500 ($150 per watch) on account.
Jul.		31		Sold 40 watches for $20,000 cash.
Aug.		12		Purchased 40 watches for $6,400 ($160 per watch) cash.
Aug.		22		Sold 30 watches for $15,000 on account.
Sep.		19		Paid for watches purchased on July 17.
Sep.		27		Receive cash of $9,000 for watches sold on account on August 22.
Oct.		27		Purchased 80 watches for $13,600 ($170 per watch) cash.
Nov.		20		Sold 90 watches for $45,000 cash.
Dec.		4		Purchased 100 watches for $18,000 ($180 per watch) on account.
Dec.		8		Sold 40 watches for $20,000 on account.

Required:

1-a. Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2022, 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.

Answer 1

Perpetual FIFO No of Unit I 10 80 70 Ans 1-a Perpetual inventory System: In this system, the cost of sales and inventories are updated on every sales and purchase transactions. First in, first out method (FIFO): In this method it is assumed that inventory which is purchased first will be sold first and the inventory will consist of recent purchases. Purchase Cost of Good Sold Perpetual FIFO Ending inventory-Perpetual FIFO Cost Per Unit Total No of Unit Cost Per Unit Total No of Unit Cost Per Unit Total Jul 17 50 $150.00 $7,500.00 Jul 31 $ 150.00 6000 10 $150.00 $1,500.00 Aug 12 $160.00 $6,400.00 $150.00 $1,500.00 $160.00 $6,400.00 $7,900.00 Aug 22 $150.00 $1,500.00 $160.00 $3,200.00 $160.00 $3,200.00 $4,700.00 $3,200.00 Oct 27 $170.00 $13,600.00 $160.00 $3,200.00 $170.00 $13,600.00 $16,800.00 Nov 20 20 $160.00 $3,200.00 $170.00 $1,700.00 $170.00 $11,900.00 90 $15,100.00 10 $1,700.00 Dec 4 100 $180.00 $18,000.00 $170.00 $1,700.00 100 $180.00 $18,000.00 110 $19,700.00 Dec 8 10 $170.00 $1,700.00 70 $180.00 $12,600.00 30 $180.00 $5,400.00 40 $7,100.00 $12,600.00 Total 220 $38,000.00 200 $32,900.00 Inventory Cost $12,600.00 Sales Revenue (200x $500] $1,00,000 Cost of good Sold $32,900 Ending Inventory $12,600 Ans 1-b MU Watches Income Statement For the year ended December 31, 2022 Sales $1,00,000 Less: Cost of Good sold ($32,900) Gross Profit $67,100 10