College Coasters is a San Antonio based merchandiser specializing in logo-adorned drink coasters. The company reported the following balances in its unadjusted trial balance at December 1.
The company buys coasters from one supplier. All amounts in Accounts Payable on December 1 are owed to that supplier. The inventory on December 1 consisted of 1,000 coasters, all of which were purchased in a batch on July 10 at a unit cost of $ 0.50. College Coasters records its inventory using perpetual inventory accounts and the FIFO cost flow method.
During December, the company entered into the following transactions. Some of these trans-actions are explained in greater detail below.
1. Purchased 500 coasters on account from the regular supplier on 12/1 at a unit cost of $ 0.52, with terms of 2/10, n/30.
2. Purchased 1,000 coasters on account from the regular supplier on 12/2 at a unit cost of $ 0.55, with terms of 2/10, n/30.
3. Sold 2,000 coasters on account on 12/3 at a unit price of $ 0.90.
4. Collected $ 1,000 from customers on account on 12/4.
5. Paid the supplier $ 1,600 cash on account on 12/18.
6. Paid employees $ 500 on 12/23, of which $ 300 related to work done in November and $ 200 was for wages up to December 22.
7. Loaded 1,000 coasters on a cargo ship on 12/31 to be delivered to a customer in Hawaii. The sale was made FOB destination with terms of 2/10, n/30. Other relevant information includes the following at 12/31:
8. College Coasters has not yet recorded $ 200 of office expenses incurred in December on account.
9. The company estimates that the equipment depreciates at a rate of $ 10 per month. One month of depreciation needs to be recorded.
10. Wages for the period from December 2331 are $ 100 and will be paid on January 15.
11. The $ 600 of Prepaid Rent relates to a six-month period ending on May 31 of next year.
12. The company incurred $ 789 of income tax but has made no tax payments this year.
13. No shrinkage or damage was discovered when the inventory was counted on December 31.
14. The company did not declare dividends and there were no transactions involving common stock.
Required:
1. Analyze the accounting equation effects of items 114.
2. Prepare journal entries required for items 114.
3. Summarize the journal entries in T-accounts. Be sure to include the balances on December 1 as beginning account balances. Calculate ending balances and prepare a trial balance. (If you are completing this requirement in Connect, your journal entries will have been posted to T-accounts and a trial balance will have been prepared automatically.)
4. Prepare the year-end Income Statement and classified Balance Sheet, using the formats presented in Exhibits 6.9 and 4.11.
5. Calculate to one decimal place the inventory turnover ratio and days to sell, assuming that inventory was $ 500 on January 1 of this year. Evaluate these measures in comparison to an inventory turnover ratio of 21.0 during the previous year