Learning Objectives 1, 2: Show how to account for inventory in a perpetual systemusing the average-costing method) Western Trading Company purchases inventory in cratesof merchandise; each crate of inventory is a unit. The fiscal year of Western Trading ends eachJanuary 31. Assume you are dealing with a single Western Trading store in Nashville, Tennessee. The Nashville store began the year with an inventory of 20,000 units that cost a total of$1,060,000. During the year, the store purchased merchandise on account as follows:July (29,000 units at $59) ..................................... $1,711,000November (49,000 units at $63) ........................... 3,087,000December (59,000 units at $69)............................ 4,071,000Total purchases..................................................... $8,869,000Cash payments on account totaled $8,541,000. During fiscal year 2018, the store sold 155,000units of merchandise for $15,887,500, of which $4,900,000 was for cash and the balance wason account. Eastern Trading and all of its stores use the average-cost method for inventories.The Nashville store’s operating expenses for the year were $2,250,000. It paid 70% in cash andaccrued the rest as accrued liabilities. The store accrued income tax at the rate of 40%.Requirements1. Make summary journal entries to record the store’s transactions for the year ended January31, 2018. Western Trading and all of its stores use a perpetual inventory system. Roundaverage cost per unit to two decimal places and round all other amounts to the nearest dollar.2. Prepare a T-account to show the activity in the Inventory account.3. Prepare the store’s income statement for the year ended January 31, 2018. Show totals forgross profit, income before tax, and net income.
Learning Objectives 1, 2: Show how to account for inventory in a perpetual system
using the average-costing method) Western Trading Company purchases inventory in crates
of merchandise; each crate of inventory is a unit. The fiscal year of Western Trading ends each
January 31. Assume you are dealing with a single Western Trading store in Nashville, Tennessee. The Nashville store began the year with an inventory of 20,000 units that cost a total of
$1,060,000. During the year, the store purchased merchandise on account as follows:
July (29,000 units at $59) ..................................... $1,711,000
November (49,000 units at $63) ........................... 3,087,000
December (59,000 units at $69)............................ 4,071,000
Total purchases..................................................... $8,869,000
Cash payments on account totaled $8,541,000. During fiscal year 2018, the store sold 155,000
units of merchandise for $15,887,500, of which $4,900,000 was for cash and the balance was
on account. Eastern Trading and all of its stores use the average-cost method for inventories.
The Nashville store’s operating expenses for the year were $2,250,000. It paid 70% in cash and
accrued the rest as accrued liabilities. The store accrued income tax at the rate of 40%.
Requirements
1. Make summary
31, 2018. Western Trading and all of its stores use a perpetual inventory system. Round
average cost per unit to two decimal places and round all other amounts to the nearest dollar.
2. Prepare a T-account to show the activity in the Inventory account.
3. Prepare the store’s income statement for the year ended January 31, 2018. Show totals for
gross profit, income before tax, and net income.
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