Best Way purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of best Way ends each January 31. Assume you are dealing with a single Best Way store in Cleveland, Ohio. The Cleveland store began 2012 with an inventory of 22,000 units that costs a total of $1,100,000. During the year, the store purchased merchandise on account as follows:
Jul (31,000 units at $58) $ 1,798,000
Nov ( 51,000 units at $ 62) 3,162,000
Dec ( 61,000 units at $ 68) 4,148,000
Total purchases $9,108,000
Cash payments on account totaled $8,708,000. During fiscal year 2012 the store sold 147,000 units of merchandise for $14,112,000,of which $5,200,000 was for cash and the balance was on account. Best Way uses the averaged-cost method for inventories. Operating expenses for the year were $ 2,000,000. Best Way paid 70% in cash and accrued the rest as accrued liabilities. The store accrued income tax at the rate of 35%.
Requirements:
1. Make summary journal entries to record the store's transactions for the year ended January 31, 2012. Best Way uses a perpetual inventory system.
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, 2012. Show totals for gross profit, income before tax and net income.