Question

Great Adventures Problem AP6-1 (GL)

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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 $540 each.

Jul.		17		Purchased 56 watches for $8,400 ($150 per watch) on account.
Jul.		31		Sold 44 watches for $23,760 cash.
Aug.		12		Purchased 44 watches for $7,040 ($160 per watch) cash.
Aug.		22		Sold 34 watches for $18,360 on account.
Sep.		19		Paid for watches purchased on July 17.
Sep.		27		Receive cash of $11,016 for watches sold on account on August 22.
Oct.		27		Purchased 90 watches for $15,300 ($170 per watch) cash.
Nov.		20		Sold 94 watches for $50,760 cash.
Dec.		4		Purchased 104 watches for $18,720 ($180 per watch) on account.
Dec.		8		Sold 44 watches for $23,760 on account.

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 $100 per watch.

1. Record each of the transactions listed above in the 'General Journal' tab, assuming Suzie uses FIFO to account for inventory. Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances.

2. Record adjusting entries on December 31, 2022, in the 'General Journal' tab.

3. Review the adjusted 'Trial Balance' as of December 31, 2022, in the 'Trial Balance' tab.

4. Prepare a multiple-step income statement for the period ended December 31, 2022, in the 'Income Statement' tab.

5. Prepare a classified balance sheet as of December 31, 2022, in the 'Balance Sheet' tab.

6. Record the closing entries in the 'General Journal' tab.

Answer 1

Solution: