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 clinicparticipants wear multiuse (MU) watches. Beyond the normal timekeeping features of most watches, MU watches are able to report temperature, altitude, andbarometric 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 MUwatches available for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2013. Allwatches are sold for $309 each.


Jul. 17 Purchased 57 watches for $8,037 ($141 per watch) on account.
Jul. 31 Sold 44 watches for $13,596 cash.
Aug. 12 Purchased 43 watches for $6,708 ($156 per watch) cash.
Aug. 22 Sold 22 watches for $6,798 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 81 watches for $13,770 ($170 per watch) cash.
Nov. 20 Sold 105 watches for $32,445 cash.
Dec. 4 Purchased 104 watches for $18,096 ($174 per watch) cash.
Dec. 8 Sold 32 watches for $9,888 on account.



Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2013, assuming Suzie uses FIFO to account for inventory. (Omit the "$" sign inyour response.)



Sales revenue $
Cost of goods sold $
Ending inventory $

b. Prepare the gross profit section of a partial income statement for transactions related to MU watches. (Amounts to be deducted should be indicated with minussign. Omit the "$" sign in your response.)


GREAT ADVENTURES, INC.
Partial Income Statement
For the year ended December 31, 2013
$


$



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 areequipped 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 watchesis greatly reduced. As of December 31, the estimated market value of MU watches is only $111 per watch.

a. Record any necessary entry on December 31, 2013, related to this information. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Dec 31


b. For what amount would MU inventory be reported in the December 31, 2013, balance sheet? (Omit the "$" sign in your response.)

MU Inventory $

c. Prepare an updated gross profit section of a partial income statement accounting for this additional information. (Amounts to be deducted should beindicated with minus sign. Omit the "$" sign in your response.)

GREAT ADVENTURES, INC.
Partial Income Statement
For the year ended December 31, 2013
$


$

Answer 1

Sales revenue is equal to Total Gross sales less discounts.
Cost of Goods sold is Opening stock plus Purchases less closing stock.
Ending inventory is the physically counted stock at the end of the accounting period.

Answer 2

Purchases
Jul. 17 Purchased 56 watches for $7,952 ($142 per watch) on account.
Aug. 12 Purchased 42 watches for $6,342 ($151 per watch) cash.
Oct. 27 Purchased 89 watches for $14,507 ($163 per watch) cash.
Dec. 4 Purchased 90 watches for $16,020 ($178 per watch) cash.
Totals 277 units, $44,821

Sales
Jul. 31 Sold 42 watches for $12,936 cash.
Aug. 22 Sold 27 watches for $8,316 on account.
Nov. 20 Sold 108 watches for $33,264 cash.
Dec. 8 Sold 45 watches for $13,860 on account.
Totals 222 units, $68,376 Sales Revenue

When using FIFO, first-in-first-out, the earliest units purchased are the first ones sold and the latest units purchased remain in ending inventory.
277 units - 222 units = 55 units remain in ending inventory.
Since the latest units purchased remain in ending inventory, the entire ending inventory is from the Dec. 4 purchase.

55 units x $178 = $9,790 Ending Inventory

Total Purchases - Ending Inventory = Cost of Goods Sold
44,821 - 9,790 = $35,031 Cost of Goods Sold

Sales Revenue - Cost of Goods Sold = Gross Profit
68,376 - 35,031 = $33,345 Gross Profit

*Note: These two transactions have no affect on the above calculations, so they were not included.
Sep. 19 Paid for watches ordered on July 17.
Sep 27 Received full payment for watches sold on account on August 22.