CLAUDE CHABOT BICYCLE CASE
Claude Chabot Bicycle, a small bicycle retailer located in Cookshire, was created 25 years ago by Mr. Chabot, a keen cyclist who wanted to offer both high-grade and low-grade bicycles in his home town. Mr. Chabot has a bachelor degree in sport studies. He does the bookkeeping himself.
It's May 15, 2015 and you have just been hired by Mr. Chabot to help him preparing the company's annual financial statements for the year ended December 31, 2014. In the following months, he is going to ask for a loan from the bank in order to expand the company. He asked
your help because he wants your advice to make the company's financial statement as profitable as possible (highest profit). Here is some information about the company's accounting policies:
Since the merchandise sold has serial numbers, the company records sales of inventory with the specific identification method. Once a year, on December 31, Mr. Chabot does a physical count of inventory.
Physical count of Inventory done on December 31, 2014
| Model |
Serial Number |
Cost |
Selling Price |
| GARNEAU MEN AXIS SL-3 |
5445028448 |
$700 |
$1,000 |
| VENTURA RACE ROAD BIKE 54CM |
134398NNS9 |
$800 |
$600 |
| GARNEAU XS 38CM |
340NF7S92-4F |
$300 |
$350 |
| GARNEAU SL2 WOMENS ROAD BIKE 51CM |
999DNHAF93 |
$900 |
$1,500 |
| GARNEAU MOTION CITY 2.0 URBAN 54CM |
4498F0DFNH20 |
$400 |
$600 |
| GIANT ESCAPE 3 18 |
399283FJJ |
$400 |
$300 |
| FOCUS IXALCO PRO XXL 69 CM |
00383JJ3 |
$2,200 |
$1,600 |
|
|
$5,700 |
$5,950 |
Actually, the number reported in the financial statements is $6,000. Mr. Chabot is concerned by the fact that the physical count is different that the amount actually recorded.
He knows that he must adjust the inventory account according to the physical inventory. However he wants to know if he shall report the inventory account at the cost value or at the selling price in the company's balance sheet. He thinks the selling price of $5,950 would be better because higher assets would make his financial statements look better.
In December 2014, Mr Chabot decided to start selling sport shirt explicitly designed for cycling. Here are the transactions related to shirts for the month of December. Mr Chabot did not record any transaction related to the purchase and the sales of shirts because he doesn't know how to do it. He is confused because shirts don't have distinct serial number. He asked you to provide the journal entries to record the purchases and the sales of shirts.