Italian Leather Goods Inc. began 2014 with an inventory of 50,000 units that cost $1,500,000. During the year, the store purchased merchandise on account as follows:

March (40,000 units @ cost of $32) .................................................. $1,280,000

August (40,000 units @ cost of $34) ................................................. 1,360,000

October (180,000 units @ cost of $35) ............................................. 6,300,000

Total purchases ................................................................................. $8,940,000

Cash payments on account totalled $8,610,000.

During 2014, the company sold 260,000 units of merchandise for $12,900,000. Cash accounted for $4,700,000 of this, and the balance was on account. Italian Leather Goods uses the FIFO method for inventories.

Operating expenses for the year were $2,080,000. Italian Leather Goods paid 60% in cash and accrued the rest as accrued liabilities. The company accrued income tax at the rate of 32%.

Requirements

1. Make summary journal entries to record the Italian Leather Goods transactions for the year ended December 31, 2014. The company uses a perpetual inventory system.

2. Prepare a T-account to show the activity in the Inventory account.

3. Prepare the Italian Leather Goods Inc. income statement for the year ended December 31, 2014. Show totals for gross profit, income before tax, and net income.