On January 1, 2021, the general ledger of Big Blast Fireworks includes the following account balances: Accounts Cash Accounts Receivable Allowance for Uncollectible Accounts Inventory Land Accounts Payable Notes Payable (8%, due in 3 years) Common Stock Retained Earnings Totals Debit Credit $ 24,300 42,500 $ 2,700 42,000 79,600 29, 200 42,000 68,000 46,500 $188,400 $188,400 The $42,000 beginning balance of inventory consists of 420 units, each costing $100. During January 2021, Big Blast Fireworks had the following inventory transactions: January 3 Purchase 1,050 units for $115,500 on account ($110 each). January 8 Purchase 1,150 units for $132,250 on account ($115 each). January 12 Purchase 1,250 units for $150,000 on account ($120 each). January 15 Return 160 of the units purchased on January 12 because of defects. January 19 Sell 3,600 units on account for $576,000. The cost of the units sold is determined using a FIFO perpetual inventory system. January 22 Receive $529,000 from customers on accounts receivable. January 24 Pay $359,000 to inventory suppliers on accounts payable. January 27 Write off accounts receivable as uncollectible, $2,100. January 31 Pay cash for salaries during January, $110,000. 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. The company estimates future uncollectible accounts. The company determines $5,200 of accounts receivable on January 31 are past due, and 30% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 5% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.) 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 $13,500. Post-closing Big Blast Fireworks Multiple-Step Income Statement For the year ended January 31, 2021 Gross Profit $ $ 0 0 Total Operating Expenses Operating Income 0 Income Before Taxes 0 $ 0 0 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 13 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 31%, 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
