On January 1, 2024, the general ledger of Big Blast Fireworks included the following account balances: The

Question:

On January 1, 2024, the general ledger of Big Blast Fireworks included the following account balances:

The $30,000 beginning balance of inventory consists of 300 units, each costing $100. During January 2024, Big Blast Fireworks had the following inventory transactions:

Jan.

3 Purchased 1,200 units for $126,000 on account ($105 each).
8 Purchased 1,300 units for $143,000 on account ($110 each).
12 Purchased 1,400 units for $161,000 on account ($115 each).
15 Returned 100 of the units purchased on January 12 because of defects.
19 Sold 4,000 units on account for $600,000. The cost of the units sold is
determined using a FIFO perpetual inventory system.
22 Received $580,000 from customers on accounts receivable.
24 Paid $410,000 to inventory suppliers on accounts payable.
27 Wrote off accounts receivable as uncollectible, $2,500.
31 Paid cash for salaries during January, $128,000.

Required:
1. Record each of the transactions listed above in the “General Journal” tab (these are shown as items 1–13), assuming a perpetual FIFO inventory system. 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 January 31 in the “General Journal” tab (these are shown as items 14–18):
a. At the end of January, the company estimates that the remaining units of inventory are expected to sell in February for only $100 each.
b. At the end of January, $4,000 of accounts receivable are past due, and the company estimates that 40% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 4% will not be collected.
c. Accrued interest expense on notes payable for January. Interest is expected to be paid each December 31.
d. Accrued income taxes at the end of January are $12,300.
3. Review the adjusted “Trial Balance” as of January 31, 2024, in the “Trial Balance” tab.
4. Prepare a multiple-step income statement for the period ended January 31, 2024, in the “Income Statement” tab.
5. Prepare a classified balance sheet as of January 31, 2024, in the “Balance Sheet” tab.
6. Record closing entries in the “General Journal” tab (these are shown as items 19–21).
7. Using the information from the requirements above, complete the “Analysis” tab.
a. Calculate the inventory turnover ratio for the month of January. If the industry average of the inventory turnover ratio for the month of January is 18.5 times, is the company managing its inventory more or less efficiently than other companies in the same industry?
b. Calculate the gross profit ratio for the month of January. If the industry average gross profit ratio is 33%, is the company more or less profitable per dollar of sales than other companies in the same industry?
c. Used together, what might the inventory turnover ratio and gross profit ratio suggest about Big Blast Fireworks’ business strategy? Is the company’s strategy to sell a higher volume of less expensive items or does the company appear to be selling a lower volume of more expensive items?