Question

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 2022. All watches are sold for $498 each.

Jul.		17		Purchased 48 watches for $7,104 ($148 per watch) on account.
Jul.		31		Sold 38 watches for $18,924 cash.
Aug.		12		Purchased 38 watches for $6,004 ($158 per watch) cash.
Aug.		22		Sold 28 watches for $13,944 on account.
Sep.		19		Paid for watches purchased on July 17.
Sep.		27		Receive cash of $16,200 for watches sold on account on August 22.
Oct.		27		Purchased 78 watches for $13,104 ($168 per watch) cash.
Nov.		20		Sold 88 watches for $43,824 cash.
Dec.		4		Purchased 116 watches for $20,648 ($178 per watch) on account.
Dec.		8		Sold 38 watches for $18,924 on account.

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 $98 per watch.

a. Record any necessary adjustment on December 31, 2022, related to this information. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

b. For what amount would MU inventory be reported in the December 31, 2022, balance sheet?

c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.

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 2022. All watches are sold for $498 each.

Jul.		17		Purchased 48 watches for $7,104 ($148 per watch) on account.
Jul.		31		Sold 38 watches for $18,924 cash.
Aug.		12		Purchased 38 watches for $6,004 ($158 per watch) cash.
Aug.		22		Sold 28 watches for $13,944 on account.
Sep.		19		Paid for watches purchased on July 17.
Sep.		27		Receive cash of $16,200 for watches sold on account on August 22.
Oct.		27		Purchased 78 watches for $13,104 ($168 per watch) cash.
Nov.		20		Sold 88 watches for $43,824 cash.
Dec.		4		Purchased 116 watches for $20,648 ($178 per watch) on account.
Dec.		8		Sold 38 watches for $18,924 on account.

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 $98 per watch.

a. Record any necessary adjustment on December 31, 2022, related to this information. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

b. For what amount would MU inventory be reported in the December 31, 2022, balance sheet?

c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.

Answer 1

Ans-(a)

Adjustment will be required for the impairment of Inventory value.This impairment has happened because of technology.There is a higher and improved version of the watch in market and henvce its value / sale price has dropped.

Assumed that Average Cost method of Inventory valuation is used.Basis this the Closing Inventory value in books would be :

Closing Stock is valued at $ 177

The NRV is $ 98

Therefore there is an impairment loss of :

15577 - 98*88 = 15577 - 8624 = 6953

Entry for Adjustment:

If assumed to be adjusted to CoGS

If considered material and one off then

We are here taking the adjustment to CoGS since revised Gross Profit Margins are desired to be calculated

Ans-(b)

The Inventory will beshown at Net Realisable value in Balance sheet i.e $ 8624

Ans-(c)