Because Natalie has had such a successful first few months, she is considering other opportunities to develop
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Question:
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 distributor
of these fine mixers in her state. The current cost of a mixer is approximately $ and
Natalie would sell each one for $ 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.
Would you consider these mixers to be inventory? Or should they be classified as
supplies or equipment?
Ive 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?
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.
Jan. Bought five deluxe mixers on account from Kzinski Supply Co for $ FOB
shipping point, terms n
Paid $ freight on the January purchase.
Returned one of the mixers to Kzinski because it was damaged during shipping.
Kzinski issues Cookie Creations credit for the cost of mixer plus $ for the cost of
freight that was paid on January for one mixer.
Collected $ of the accounts receivable from December
Three deluxe mixers are sold on account for $ FOB destination, terns n
Cost of goods sold is $ per mixer.
Paid the $ of delivery charges for the three mixers that were sold on January
Bought four deluxe mixers on account from Kzinski Supply Co for $ FOB
shipping point, terms n
Natalie is concerned that there is not enough cash available to pay for all of the
mixers purchased. She invests an additional $ cash in Cookie Creations.
Paid $ freight on the January purchase.
Sold two deluxe mixers for $ cash. Cost of goods sold is $ per mixer.
Natalie issued a check to her assistant for all the help the assistant has given her
during the month. Her assistant worked hours in January and is also paid the
$ owed at December Natalies assistant earns $ an hour.
Collected the amounts due from customers for the January transaction.
Paid a $ cellphone bill $ for the December account payable and $
for the month of JanuaryRecall that the cellphone is used only for business
purposes.
Paid Kzinski all amounts due.
Natalie withdrew $ cash for personal use.
As of January the following adjusting entry data is available.
A count of baking supplies reveals that none were used in January.
Another months worth of depreciation needs to be recorded on the $ of baking
equipment bought in November. Recall that the baking equipment has a useful life of
years or months and no salvage value.
An additional months worth of interest on her grandmothers $ loan needs to be
accrued. The interest rate is
During the month, $ of insurance has expired.
An analysis of the unearned revenue account reveals that Natalie has not had time to
teach any of these lessons this month because she has been so busy selling mixers. As
a result, there is no change to the unearned revenue account. Natalie hopes to complete
the remaining lessons in February.
An inventory count of mixers at the end of January reveals that Natalie has three mixers
remaining.
Instructions
a Answer Natalies questions.
b Prepare and post the January transactions.
c Prepare a trial balance.
d Prepare and post the adjusting journal entries required.
e Prepare an adjusted trial balance.
f Prepare a multiplestep income statement for the month ended January
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