Town & Country Gift Ideas began 20X6 with 60,000 units of inventory that cost $36,000. During 20X6, Town & Country purchased merchandise on account for $352,500 as follows:
|
Purchase 1 |
(100,000 units costing) |
$ 65,000 |
|
Purchase 2 |
(270,000 units costing) |
175,500 |
|
Purchase 3 |
(160,000 units costing) |
112,000 |
Cash payments on account totaled $326,000 during the year. Town & Country’s sales during 20X6 consisted of 520,000 units of inventory for $660,000, all on account. The company uses the FIFO inventory method. Cash collections from customers were $630,000. Operating expenses totaled $240,500, of which Town & Country paid $211,000 in cash. Town & Country credited Accrued Liabilities for the remainder. At December 31, Town & Country accrued income tax expense at the rate of 35% of income before tax.
Required
1. Make summary journal entries to record Town & Country’s transactions for the year, assuming the company uses a perpetual inventory system.
2. Determine the FIFO cost of Town & Country’s ending inventory at December 31, 20X6 2 ways:
a. Use a T account.
b. Multiply the number of units on hand by the unit cost.
3. Show how Town & Country would compute cost of goods sold for 20X6.
4. Prepare Town & Country’s income statement for 20X6. Show totals for the gross profit and income before tax.
5. Determine Town & Country’s gross profit percentage, rate of inventory turnover, and net income as a percentage of sales for the year. In Town & Country’s industry, a gross profit percentage of 40%, an inventory turnover of 6 times per year, and a net income percentage of 7% are considered excellent. How well does Town & Country compare to these industry averages?