On January 1, 2021, the general ledger of Big Blast Fireworks included the following account balances: Credit $ Debit 25,500 45,500 3,900 Accounts Cash Accounts receivable Allowance for uncollectible accounts Inventory Land Accounts payable Notes payable (8%, due in 3 years) Common stock Retained earnings Totals 48,000 88,600 26, 200 48,000 74,000 55,500 $ 207,600 $ 207,600 The $48,000 beginning balance of inventory consists of 480 units, each costing $100. During January 2021, Big Blast Fireworks had the following inventory transactions: January 3 Purchased 1,650 units for $183,150 on account ($111 each). January 8 Purchased 1,750 units for $203,000 on account ($116 each). January 12 Purchased 1,850 units for $223,850 on account ($121 each). January 15 Returned 190 of the units purchased on January 12 because of defects. January 19 Sold 5,400 units on account for $810,000. The cost of the units sold is determined using a FIFO perpetual inventory system. January 22 Received $793,000 from customers on accounts receivable. January 24 Paid $580,000 to inventory suppliers on accounts payable. January 27 Wrote off accounts receivable as uncollectible, $2,700. January 31 Paid cash for salaries during January, $137,000. The following information is available on January 31, 2021. a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each. b. At the end of January, $5,800 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 4% will not be collected. C. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31. d. Accrued income taxes at the end of January are $14,100. Requirement General Journal General Ledger Trial Balance Income Statement Balance Sheet Analysis 1. Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 10 assuming a perpetual FIFO inventory system. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances. 2. Record adjusting entries on January 31 in the 'General Journal' tab these are shown as items 11-14). 3. Review the adjusted 'Trial Balance' as of January 31, 2021, in the 'Trial Balance' tab. 4. Prepare a multiple-step income statement for the period ended January 31, 2021, in the 'Income Statement' tab. 5. Prepare a classified balance sheet as of January 31, 2021, in the 'Balance Sheet' tab. 6. Record the closing entries in the 'General Journal' tab (these are shown as items 15-16). 7. Using the information from the requirements above, complete the 'Analysis' tab. Requirement General Journal General Ledger Trial Balance Income Statement Balance Sheet Analysis Using the information from the requirements above, complete the 'Analysis'. (Enter your Inventory Turnover ratio and gross profit ratio value in one decimal place.) Analyze how well Big Blast Fireworks' manages its inventory: (a) Calculate the inventory turnover ratio for the month of January. If the industry average of the inventory turnover ratio for the month of January is 16.6 times, is the company managing its inventory more or less efficiently than other companies in the same industry? The inventory turnover ratio is: times The company managing its inventory more efficiently. (True or False) (b) Calculate the gross profit ratio for the month of January. If the industry average gross profit ratio is 30%, is the company more or less profitable per dollar of sales than other companies in the same industry? The gross profit ratio is: Is the company more or less profitable per dollar of sales? (c) Used together, what might the inventory turnover ratio and gross profit ratio suggest about Big Blast Fireworks' business strategy? Is the company's strategy to sell a higher volume of less expensive items or does the company appear to be selling a lower volume of more expensive items? Based on the inventory turnover ratio and the gross profit ratio, Big Blast Fireworks' business strategy appears to be selling a
