Julia has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios. The companys name is The Nuthouse.The Nuthouse was founded during 2020. Julias passion, longevity and wealth of knowledge in the industry led to The Nuthouse expanding rapidly, creating a network of partners that spans farming operations in the key growing territories of South Africa, Australia, Kenya, Malawi, Zimbabwe, Mozambique and Brazil.

During February, its first month of activity, The Nuthouse made the following transactions:

Kg Price per Kg Amount February 1: Purchase of stock Purchase of Pistachios 3 000 $11 $33 000 Purchase of Almonds: 4 500 $6 $27 000 Purchase of Peanuts: 6 500 $4 $26 000 February 2: Purchase of stock Purchase of Pistachios 2 000 $13 $26 000 Purchase of Almonds: 2 500 $7 $17 500 Purchase of Peanuts: 3 000 $5 $15 000 February 4: Sold to several clients Sale of Pistachios: 2 500 $21 $52 500 Sale of Almonds: 3 000 $12 $36 000 Sale of Peanuts: 3 500 $8 $28 000 February 5: Sold to Fruits Lovers Inc. Sale of Pistachios: 1 000 $21 $21 000 Sale of Almonds: 1 500 $12 $18 000 Sale of Peanuts: 2 000 $9 $18 000 February 11: Purchase of stock Purchase of Pistachios 2 000 $15 $30 000 Purchase of almonds: 2 500 $9 $22 500 February 12: Sale to Peanuts Lovers Inc. Sale of Peanuts: 4 000 $9 $36 000 February 13: Purchase of stock Purchase of Peanuts 6 500 $5 $32 500 February 18: Sold to several clients Sale of Pistachios: 1 500 $22 $33 000 Sale of Almonds: 2 000 $14 $28 000 Sale of Peanuts: 3 500 $10 $35 000 February 24: Purchased from various suppliers Purchase of Pistachios: 1 500 $14 $21 000 Purchase of Almonds: 1 500 $10 $15 000 Purchase of Peanuts: 1 500 $5 $7 500

Over and above these transactions, the company has had the following expenses:

Salaries $5 650 Electricity bill $560 Rental expense: Equipment $1 150 Rental expense: Warehouse and office $1 550 Miscellaneous expenditure $1 050 Rental income: Subletting of office space to Fruity-Loops Inc. $2 500

The companys accountant recommended that they should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the consequences it may have on their financial situation.

The GBSB Accounting class of the 2021 Fall semester decided to create a network of students that provide companies with a second opinion based on their technical know-how in accounting. This company is called Global Accountants Inc. and was created to assist companys in understanding and accounting for their business transactions accurately - the students are at the forefront of technical accounting concepts, especially after their recent studies in Inventory processes and valuation methods. Julia wanted a second opinion and has found your advisory services online. Relying on your accounting knowledge, Julia asks you the following questions:

QUESTION 1

Why in your opinion did Julias accountant recommend the average cost method? Name and explain the main characteristics of the 3 methods of valuation of the inventory. Explain the consequences each valuation method may have on the valuation of the inventory in the above scenario and the determination of the net income in case of price fluctuation

QUESTION 2

Prepare an Income statement of the company at the end of February for each one of the products sold by Julia using the following methods of valuation of the inventory: You can ignore all tax consequences.

The average cost method FIFO method and

Calculate the balances of the inventory at the end of the month for each valuation method and provide explanations of the calculations.

QUESTION 3

In order to compare with the records made by her accountant, Julia asks you to prepare the journal entries for all the purchases and sales of the products using the FIFO method valuation.

Rubric: Summative Assessment 2 Criteria Accomplished (A) Proficient (B) Partially proficient (C) Borderline (D) Fail (F) Weight on assessment Problem identification The business issue has been correctly identified, with a competent and comprehensive explanation of key driving forces and considerations. Impact on company operations has been correctly identified. Thorough analysis of the issue is presented. The student correctly identified the issue(s), taking into account a variety of environmental and contextual drivers. Key case information has been identified and analyzed. The student correctly identified the case (issues), considering obvious environmental/contextual drivers. There is evidence of analysis, but it lacks depth. The student correctly identified the issue(s) but analysis was weak. An absence of context the work is basically descriptive with little analysis. The student failed to correctly identify the issue(s); analysis was incorrect or too superficial to be of use; information was misinterpreted. 30% Information gathering The student showed skill in gathering information and analyzing it for the purposes of filling the information gaps identified. Comprehensive and relevant. Relevant information gaps were identified and additional relevant information was found to fill them. At least two different types of sources were used. The student demonstrates coherent criteria for selecting information but needs greater depth. The student correctly identified at least one information gap and found relevant information, but which was limited in scope. Some evidence of sound criteria for selecting information but not consistent throughout. Needs expansion. An information gap was identified and the student found additional information to fill it. However, this was limited in scope. Weak criteria for the selection of necessary information. Information was taken at face value with no questioning of its relevance or value. Gaps in the information were not identified or were incorrect. 20% Conclusions The student evaluated, analyzed, synthesized all information provided to create a perceptive set of conclusions to support the decisions and solutions. The student evaluated, analyzed and synthesized to create a conclusion(s) which support decisions and solutions. The student reached conclusions, but they were limited and provided minimal direction for decision-making and solutions. The conclusion was reasonable but lacked depth and would not be a basis for suitable strategy development. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand. 25% Solutions The student used problem solving techniques to make thoughtful, justified decisions about difficult and conflicting issues. A realistic solution was chosen which would provide maximum benefit to the company. Alternative solutions were explored and ruled out. The student used problem solving techniques to make appropriate decisions about complex issues. Relevant questions were asked and answered. A realistic solution was chosen. Alternatives were identified, explored and ruled out. The student used problem-solving techniques to make appropriate decisions about simpler issues. The solution has limited benefit but does show understanding of implications of the decision. Alternatives were mentioned but not explored. The student used problem solving techniques to make decisions about simpler issues but disregarded more complex issues. Implications of the decision were not considered. Alternatives were not offered. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand. 25%