Accounting for Merchandising and Inventory - 3 Parts

Part A.

Because you had such a successful first few months, you are considering other opportunities to develop your business. One opportunity is the sale of high-quality mixers. The owner of Esquiver Supply Co. has approached you to become the exclusive distributor of these fine mixers in your state. The current cost of a mixer is approximately $595, and you would sell each one for $1,150. You need to determine how to account for these mixers. Each appliance has a serial number and can be easily identified.

Part B.

In the end, you decide to use the perpetual inventory system. The following transactions happen during the month of January.

Jan.4Bought five deluxe mixers on account from Esquiver Supply Co. for $2,875, FOB shipping point, terms n/30.

6Paid $100 freight on the January 4 purchase.

7Returned one of the mixers to Esquiver because it was damaged during shipping. Esquiver issues you credit for the cost of mixer plus $20 for the cost of freight that was paid on January 6 for one mixer.

8Collected $375 of the accounts receivable from December 2020.

12Three deluxe mixers are sold on account for $3,450, FOB destination, terms n/30. (Cost of goods sold is $595 per mixer.)

14Paid the $75 of delivery charges for the three mixers that were sold on January 12.

14Bought four deluxe mixers on account from Esquiver Supply Co. for $2,300, FOB shipping point, terms n/30.

17You are concerned that there is not enough cash available to pay for all of the mixers purchased. You invest an additional $1,000 cash in your business.

18Paid $80 freight on the January 14 purchase.

20Sold two deluxe mixers for $2,300 cash. (Cost of goods sold is $595 per mixer.)

28You issued a check to your assistant for all the help the assistant has given you during the month. Your assistant worked 20 hours in January and is also paid the $91 owed at December 31, 2020. (Your assistant new rate as of January 1stis $14 an hour.)

28Collected the amounts due from customers for the January 12 transaction.

30Paid a $145 utility (phone) bill ($75 for the December 2020 accounts payable and $70 for the month of January).

31Paid Esquiver all amounts due.

31Cash dividends of $750 are paid(use owner's withdrawal if not a corporation).

As of January 31, the following adjusting entry data is 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 $1,200 of baking equipment bought in November. (Recall that the baking equipment has a useful life of 5 years or 60 months and no salvage value.)

3.An additional month's worth of interest on your parents' $2,500 loan needs to be accrued. (The interest rate is 6%.)

4.During the month, $110 of insurance has expired.

5.An analysis of the unearned service revenue account reveals that the parties were not scheduled this month. As a result, there is no change to the unearned service revenue account. You hope to complete the remaining parties in February.

6.An inventory count of mixers at the end of January reveals that you have three mixers remaining.

The post-closing trial balance from December 31, 2020 is shown below.

Your Company

Post-Closing Trial Balance

December 31, 2020

AccountdebitCredit

Cash................................................................................................... $885

Accounts Receivable......................................................................... 1450

Supplies.............................................................................................. 570

Prepaid Insurance .............................................................................. 1,210

Equipment ......................................................................................... 1,500

Accumulated Depreciation- Equipment............................................$50

Accounts Payable............................................................................... 200

Salaries Payable................................................................................. 91

Unearned Service Revenue................................................................360

Interest Payable.................................................................................. 9.38

Note Payable...................................................................................... 2,500

Owner's Equity.................................................................................. 3,209.62

$6,420$6,420

Required for Part B

Using the information from previous exercises and the new information above, do the following.

1.Prepare and post the January 2021 transactions.

2.Prepare a trial balance.

3.Prepare and post the adjusting journal entries required.

4.Prepare an adjusted trial balance.

5.Prepare a multiple-step income statement for the month ended January 31, 2021.

Part C.

You are busy establishing both divisions of your business (catering and mixer sales) and completing your business degree. Your goals for the next 11 months are to sell one mixer per month and to hold two to three catering events per week.

The cost of mixers is expected to increase. You have just negotiated new terms with Esquiver that include shipping costs in the negotiated purchase price (mixers will be shipped FOB destination). Assume that you decided to use a periodic inventory system and now must choose a cost flow assumption for her mixer inventory.

The following transactions occur in February to May 2021.

Feb.2You buy two mixers on account from Esquiver Supply Co. for $1,200 ($600 each), FOB destination, terms n/30.

16You sell one mixer for $1,150 cash.

25You pay the amount owed to Esquiver.

Mar.2You buy one mixer on account from Esquiver Supply Co. for $618, FOB destination, terms n/30.

30You sell two mixers for a total of $2,300 cash.

31You pay the amount owed to Esquiver.

Apr.1You buy two mixers on account from Esquiver Supply Co. for $1,224 ($612 each), FOB destination, terms n/30.

13You sell three mixers for a total of $3,450 cash.

30You pay the amounts owed to Esquiver.

May4You buy three mixers on account from Esquiver Supply Co. for $1,875 ($625 each), FOB destination, terms n/30.

27You sells one mixer for $1,150 cash.

Required part C

1.Determine the cost of goods available for sale. Recall that at the end of January, you had three mixers on hand at a cost of $595 each.

2.Calculate the ending inventory under the LIFO, FIFO, and average cost methods,

3.Calculate the cost of goods sold under the LIFO, FIFO, and average cost methods,

4.Calculate the gross profit under the LIFO, FIFO, and average cost methods, and

5.Calculate the gross profit rate under the LIFO, FIFO, and average cost methods.

Thank you