Problem - 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 2013. All watches are sold for $316 each.
Jul. 17 Purchased 58 watches for $8,932 ($154 per watch) on account.
Jul. 31 Sold 41 watches for $12,956 cash.
Aug. 12 Purchased 41 watches for $6,765 ($165 per watch) cash.
Aug. 22 Sold 28 watches for $8,848 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 83 watches for $14,608 ($176 per watch) cash.
Nov. 20 Sold 103 watches for $32,548 cash.
Dec. 4 Purchased 104 watches for $19,032 ($183 per watch) cash.
Dec. 8 Sold 35 watches for $11,060 on account.
a) Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2013, assuming Suzie uses FIFO to account for inventory.
b) Prepare the gross profit section of a partial income statement for transactions related to MU watches.
c) 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 market value of MU watches is only $116 per watch.
Record any necessary entry on December 31, 2013, related to this information.
d) For what amount would MU inventory be reported in the December 31, 2013, balance sheet?
e) Prepare an updated gross profit section of a partial income statement accounting for this additional information.