Now that operations for outdoor clinics and TEAM events are running smoothly, Suzie thinks of another area for business expansion. She notices that a few clinic participants wear multiuse (MU) watches. Beyond the normal timekeeping features of most watches, MU watches are able to report temperature, altitude, and barometric pressure. MU watches are waterproof, so moisture from kayaking, rain, fishing, or even diving up to 100 feet won’t damage them. Suzie decides to have MU watches available for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2019. All watches are sold for $296 each.
Jul. 17 Purchased 46 watches for $6,716 ($146 per watch) on account.
Jul. 31 Sold 36 watches for $10,656 cash.
Aug. 12 Purchased 36 watches for $5,616 ($156 per watch) cash.
Aug. 22 Sold 26 watches for $7,696 on account.
Sep. 19 Paid for watches ordered on July 17.
Sep. 27 Received full payment for watches sold on account on August 22.
Oct. 27 Purchased 76 watches for $12,616 ($166 per watch) cash.
Nov. 20 Sold 86 watches for $25,456 cash.
Dec. 4 Purchased 112 watches for $19,712 ($176 per watch) cash.
Dec. 8 Sold 36 watches for $10,656 on account.
1-a. Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2019, assuming Suzie uses FIFO to account for inventory.
1-b. Prepare the gross profit section of a partial income statement for transactions related to MU watches.
2. Late in December, the next generation of multiuse (MU II) watches is released. In addition to all of the features of the MU watch, the MU II watches are equipped with a global positioning system (GPS) and have the ability to download and play songs and videos off the internet. The demand for the original MU watches is greatly reduced. As of December 31, the estimated net realizable value of MU watches is only $96 per watch.
a. Record any necessary adjustment on December 31, 2019, related to this information.
b. For what amount would MU inventory be reported in the December 31, 2019, balance sheet?
c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.