After majoring in entrepreneurship at the Paul J. Hill School of Business, you decided to start Magnificent Closet Inc. (MCI), a store selling designer clothing and handbags.

Just back from buying trips to Montreal, New York and Paris, you need to account for the following transactions that occurred in February 2020:

Date	Transaction
February 3	Purchased $36,000 of handbags from The Bag Ltd. (TBL), terms 1/10, n/30.
February 7	Received a purchase allowance of $5,400 from TBL since the color of the handbags purchased on February 3 differed from what was ordered.
February 14	Sold MCIs best customer, Sandra Derron, spring clothing for $5,000, terms 2/10, n/30. The clothing cost MCI $2,800.
February 18	Sandra Derron returned a dress sold on February 14 for $800. The dress had cost MCI $450 and was returned to inventory.
February 21	Received payment in full from Sandra Derron for clothing purchased on February 14.

Since the clothing and handbags are attractive to thieves, MCI uses a PERPETUAL inventory system so that it is possible to identify and investigate any inventory shortages.

You have decided to prepare the journal entries (in good form) required as a result of these transactions. You intend to provide detailed supporting calculations and round all amounts to the nearest dollar (9 marks).

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According to the unadjusted trial balance as at February 29, MCI has total accounts receivable of $60,000 and an allowance for doubtful accounts with a debit balance of $1,000. After running an aged accounts receivable listing as at February 29 using MCIs accounting software, you have estimated that accounts receivable totaling $1,060 will not be collected. You plan to prepare the journal entry (in good form) necessary to ensure that MCIs accounts receivable are measured at net realizable value as at February 29. You intend to provide detailed supporting calculations and round all amounts to the nearest dollar (2 marks).

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You then determined MCIs receivables turnover and average collection period to be 16.4 times and 22.3 days, respectively. Based on MCIs credit policy (which is the same for all customers) and the ratios you have calculated, you plan to CONCLUDE whether MCI is managing its accounts receivable well AND BRIEFLY EXPLAIN your reasoning (2 marks).

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It is now March 17. Since January and February are typically slower months, you are eager to determine how much net income MCI was able to generate. Therefore, you ran the following MULTIPLE STEP income statement using MCIs accounting software:

Magnificent Closet Inc.

Income Statement

Two Months Ended February 29, 2020

Sales	$?
Sales returns, allowances and discounts	30,000
Net sales	372,000
Cost of goods sold	?
Gross profit	144,000
Operating expenses	?
Income before income taxes	68,000
Income tax expense	18,000
Net income	$50,000

Unfortunately, you spilled your coffee on the income statement before you were able to review it. When you attempted to reprint it, you were unable to do so because MCIs computer froze when installing a Windows update. The IT professional you contacted for assistance has advised it will take the rest of the week to correct the problem. Therefore, you have decided to calculate the amounts that are unreadable (indicated by a ?) rather than waiting until you can reprint it. You intend to clearly label your work, provide detailed supporting calculations and round all amounts to the nearest dollar (3 marks).

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