Italian Leather Goods Inc. began 2017 with an inventory of 50,000 units that cost $1,500,000.

QUESTION:

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Italian Leather Goods Inc. began 2017 with an inventory of 50,000 units that cost $1,500,000. During the year, the store purchased merchandise on account as follows:

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March (40,000 units @ cost of $32) …………………………………………………………. $1,280,000

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August (40,000 units @ cost of $34)………………………………………………………….. 1,360,000

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October (180,000 units @ cost of $35)……………………………………………………….. 6,300,000

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Total purchases……………………………………………………………………………………….. $8,940,000

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Cash payments on account totaled $8,610,000.

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During 2017, the company sold 260,000 units of merchandise for $12,900,000. Cash accounted for $4,700,000 of this, and the balance was on the account. Italian Leather Goods uses the FIFO method for inventories.

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Operating expenses for the year were $2,080,000. Italian Leather Goods paid 60% in cash and accrued the rest as accrued liabilities. The company accrued income tax at a rate of 32%.

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Requirements:

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1. Make summary journal entries to record the Italian Leather Goods transactions for the year ended December 31, 2017. The company uses a perpetual inventory system.

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2. Prepare a T-account to show the activity in the Inventory account.

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3. Prepare the Italian Leather Goods Inc. income statement for the year ended December 31, 2017. Show totals for gross profit, income before tax, and net income?

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