Chen Hardware Store purchases inventory in crates of merchandise, so each unit of inventory is a crate of tools or building supplies. Assume you are dealing with a single department in the store. Assume the department began the year with an inventory of 40 units that cost a total of $6,000. During the year, the department purchased merchandise on account as follows:
April 30 (60 units at $145) ................................. $ 8,700
July 31 (100 units at $145) ................................. 14,500
October 31 (200 units at $140) ............................ 28,000
Total purchases .............................................. $51,200
Cash payments on account during the year totalled $58,000.
During the year, the department sold 380 units of merchandise for $175,000, as follows:
March 31: .............................................. 30 units
June 30: ................................................ 50 units
September 30: ......................................... 90 units
December 31: ......................................... 210 units
Of the sales revenue, $103,000 was from cash sales and the balance was on account. Assume Chen uses the FIFO method for inventories. Department operating expenses for the year were $86,000. The department paid two-thirds of the operating expenses in cash and incurred the rest on account.
Required
1. Make summary journal entries to record the department transactions for the year ended December 31, 2014. Chen uses a perpetual inventory system.
2. Determine the FIFO cost of the store's ending inventory at December 31, 2014. Use a T-account.
3. Prepare the department's income statement for the year ended December 31, 2014. Include a complete heading, and show totals for the gross margin and net income.