The Outdoor Store began 2014 with 80000 units of inventory that cost $48000. During 2014, The outdoor Store purchased merchandise on account for $434000:

	Purchase 1:	150,000 units costing	$135,000
	Purchase 2:	270,000 units costing	243,000
	Purchase 3:	140,000 units costing	56,000

Cash payments on account totaled $390000 during the year (ignore purchase discounts). The Outdoor Store's sales during 2014 consisted of 580000 units of inventory for $1160000, all on account. The company uses the FIFO inventory method. Cash collections from customers were $565000. Operating expenses totaled $250700, of which The Outdoor Store paid $163000 in cash. The Outdoor Store credited Accrued Liabilities for the remainder. At December 31, The Outdoor Store accrued income tax expense at the rate of 40% of income before tax.

Requirement 1: Show how the Outdoor Store would compute cost of goods sold for 2014.

Units Total Cost

Units sold from beginning inventory _____ _____

Units sold from Purchase 1 _____ _____

Units sold from Purchase 2 _____ _____

Units sold from purchase 3 _____ _____

Cost of goods sold 580000 _____

Requirement 2: Prepare the Outdoor Store's income statement for 2014. Show totals for the gross profit and income before tax.

Account names: Accounts Payable, accounts receivable, advertising expense, cost of goods sold, gross profit, income before tax, income tax expense, inventory, operating expenses, purchases, salary expense, sales revenue.

The Outdoor Store

Income Statement

Year Ended December 31, 2014

_________ ______

_________ ______

_________ ______

_________ ______

_________ ______

_________ ______

Net Income ______

Requirement 3: Make summary journal entries to record the Outdoor Store's transactions for the year, assuming the company uses a perpetual inventory system.

Begin with the single entry to record the purchases.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Next, record the cash payments on account.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Now record the sales made on account. (Do not yet record cash collections or the cost related to the sales. We will do this in the following journal entries.)

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Record the inventory transaction associated with the sale of merchandise.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Record the collection of cash from customers.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Record the operating expenses.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Finally, record the entry to accrue income tax.

Accounts Debit Credit

_________ _____ _____

_________ _____ _____

_________ _____ _____

_________ _____ _____

Requirement 4: Determine the FIFO cost of the Outdoor Store's ending inventory at December 31, 2014, two ways:

a. Use a T-account.

b. Multiply the number of units on hand by the unit cost.

Number of units in ending inventory _____

Unit cost of ending inventory at FIFO _____

FIFO cost of ending inventory ______

Requirement 5:Determine the Outdoor Store's gross profit percentage, rate of inventory turnover, and net income as a percentage of sales for the year. In the Outdoor Store's industry, a gross profit percentage of 40%, and inventory turnover of 6 times per year, and a net income percentage of 7% are considered excellent. How well does the Outdoor Store compare to these industry averages? (round to one decimal place, X.X)

	Industry			"Better" or "Worse"
	Average	The Outdoor Store		than average?
Gross profit percentage:	40%	_______	%	______
Inventory turnover:	6 times	_______	times	______
Net income as a percent of sales:	7%	_______	%	______