Nice Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Nice Buy ends each February 28. Assume you are dealing with a single Nice Buy store in Dallas, Texas. The Dallas store began 2010 with an inventory of 21,000 units that cost a total of $1,050,000. During the year, the store purchased merchandise on account as follows:

April (31,000 units at $51).................................... $1,581,000

August (51,000 units at $55)................................. 2,805,000

November (61,000 units at $61) ........................... 3,721,000

Total purchases..................................................... $8,107,000

Cash payments on account totaled $7,707,000. During fiscal year 2010, the store sold 148,000 units of merchandise for $14,208,000, of which $4,900,000 was for cash and the balance was on account. Nice Buy uses the average cost method for inventories. Operating expenses for the year were $3,750,000. Nice Buy paid 70% in cash and accrued the rest as accrued liabilities. The store accrued income tax at the rate of 30%.

Requirements

1. Make summary journal entries to record the stores transactions for the year ended

February 28, 2010. Nice Buy uses a perpetual inventory system.

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

3. Prepare the stores income statement for the year ended February 28, 2010. Show totals for gross profit, income before tax, and net income.