Because Natalie has had such a successful first few months, she is considering other opportunities to develop her business. One opportunity is the sale of fine European mixers. The owner of Kzinski Supply Co. has approached Natalie to become the exclusive Canadian distributor of these fine mixers. The current cost of a mixer is approximately $525 Canadian, and Natalie would sell each one for $1,050. Natalie comes to you for advice on how to account for these mixers. Each appliance has a serial number and can be easily identified.

Natalie asks you the following questions:
1. “Would you consider these mixers to be inventory? Or should they be classified as supplies or equipment?”
2. “I’ve learned a little about keeping track of inventory using both the perpetual and the periodic systems of accounting for inventory. Which system do you think is better? Which one would you recommend for the type of inventory that I want to sell?”
3. “How often do I need to count inventory if I maintain it using the perpetual system? Do I need to count inventory at all?”

In the end, Natalie decides to use the perpetual inventory system. The following transactions happen during the month of January 2014:

Jan. 6 Purchased and received three deluxe mixers on account from Kzinski Supply Co. for $1,575, FOB shipping point, terms n/30.
7 Paid $60 freight on the January 6 purchase.
8 Returned one of the mixers to Kzinski because it was damaged during shipping. Kzinski issued Cookie Creations a credit note for the cost of the mixer plus $20 for the cost of freight that was paid on January
6 for one mixer.
9 Collected $500 of the accounts receivable from December 2013.
13 Two deluxe mixers were sold on account for $2,100, FOB destination, terms n/30. Th e mixers were sold to Koebel’s Family Bakery, the bakery that is owned and operated by Natalie’s mom and dad. Natalie expects that the mixers will be paid for in early February.
14 Paid the $75 of delivery charges for the two mixers that were sold on January 13.
14 Purchased and received four deluxe mixers on account from Kzinski Supply Co. for $2,100, FOB shipping point, terms n/30.
15 Received a deposit of $125 from another school in Natalie’s area to teach a class during the month of February.
20 Natalie was concerned that there was not enough cash available to pay for all of the mixers purchased. She invested an additional $1,000 cash in Cookie Creations.
21 Paid $80 freight on the January 14 purchase.
21 Sold two deluxe mixers for $2,100 cash.
28 Natalie issued a cheque to her assistant for all the help the assistant has given her during the month. Her assistant worked 20 hours in January and was also paid the $48 owing at December 31, 2013.(Natalie’s assistant earns $12 an hour.)
29 Paid a $154 cell phone bill ($76 for the December 2013 account payable and $78 for the month of January). (Recall that the cell phone is only used for business purposes.)
29 Paid Kzinski all amounts due.

As at January 31, the following adjusting entry data are available:

1. A count of baking supplies reveals that none were used in January.
2. Another month’s worth of depreciation needs to be recorded on the baking equipment bought in November and December. (Recall that the equipment cost $1,550 and has a useful life of three years or 36 months.)
3. An additional month’s worth of interest on her grandmother’s loan needs to be accrued. (Recall that Cookie Creations borrowed $3,000 and the interest rate is 3%.)
4. An analysis of the unearned revenue account reveals that no lessons have been taught during the month of January. As a result, the opening balance in Unearned Revenue is still unearned. Natalie has been in contact with the schools that have provided deposits and lessons have been booked for early February.
5. An inventory count of mixers at the end of January reveals that Natalie has two mixers remaining.

Instructions
Using the information from previous chapters and the new information above, do the following:
(a) Answer Natalie’s questions.
(b) Prepare and post the January 2014 transactions.
(c) Prepare a trial balance.
(d) Prepare and post the adjusting journal entries required.
(e) Prepare an adjusted trial balance.
(f) Prepare a multiple-step income statement for the month ended January 31, 2014.
(g) Calculate gross profit margin and profit margin.