Question 15 (21 marks) Purple Beverages Inc. sells only one product, the very popular and strong...

 

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Question 15 (21 marks) Purple Beverages Inc. sells only one product, the very popular and strong Purple Rain drink. The drinks are sold to local fraternity and sorority clubs. Purple Beverages Inc. had the following balances at January 1, 2018: Cash Inventory Accounts receivable 8,000 debit (1000 units of purple rain drink x $4 per unit) 4,000 debit 10,000 debit Allowance for doubtful accounts 1,000 credit Contributed capital Retained earnings 15,000 credit 6,000 credit Other information: 1. Purple Beverages Inc. uses the perpetual method to account for its inventory and values its inventory using the First-in First-Out basis. 2. Purple Beverages Inc. uses the aging method to determine its allowance for doubtful accounts using the following rates: Accounts not yet due 1% Accounts 1-60 days overdue 10% Accounts over 60 days overdue 20% 3. Trade terms are 2/10, net 30 on sales. No discount is available for early payment to suppliers. The following were the only transactions that occurred during the first quarter of 2018: Jan 15 Received $9,500 cash from the collection of accounts receivable. Jan 30 Wrote off the remaining accounts receivable as uncollectible. Feb 1 Purchased 1000 units of purple rain drink at $5 per unit. Paid in cash. Feb 10 Sold 1,000 units of purple rain drink at $7 per unit to the Gamma My Drinka Sorority on credit. Feb 19 Received full payment from the Gamma My Drinka Sorority for the Feb. 10 sale. Feb 23 Purchased 2000 units of purple rain drink at $6 per unit. Paid in cash. Feb. 25 Sold 2000 units of purple rain drink at $8 per unit to the Sigma Big Ralph Fraternity on credit. Mar 25 Received 1000 units of purple rain drink back from the Sigma Big Ralph Fraternity. The goods were returned due to low sales. The low sales were as a result of some fool in the accounting area scheduling a midterm the day after St. Patrick's Day. Sigma Big Ralph Fraternity was given full credit for the goods returned. Required 1. Prepare the necessary journal entries to record all transactions during the quarter and any necessary adjusting journal entries at the end of the quarter. Ignore income taxes. 2. Prepare a multi-step income statement for the quarter ended March 31, 2018. Ignore income taxes. 3. Would income be higher or lower if the average cost method was used to value inventory (Please just indicate "higher", "lower", or "same". No calculation is required). Question 15 (21 marks) Purple Beverages Inc. sells only one product, the very popular and strong Purple Rain drink. The drinks are sold to local fraternity and sorority clubs. Purple Beverages Inc. had the following balances at January 1, 2018: Cash Inventory Accounts receivable 8,000 debit (1000 units of purple rain drink x $4 per unit) 4,000 debit 10,000 debit Allowance for doubtful accounts 1,000 credit Contributed capital Retained earnings 15,000 credit 6,000 credit Other information: 1. Purple Beverages Inc. uses the perpetual method to account for its inventory and values its inventory using the First-in First-Out basis. 2. Purple Beverages Inc. uses the aging method to determine its allowance for doubtful accounts using the following rates: Accounts not yet due 1% Accounts 1-60 days overdue 10% Accounts over 60 days overdue 20% 3. Trade terms are 2/10, net 30 on sales. No discount is available for early payment to suppliers. The following were the only transactions that occurred during the first quarter of 2018: Jan 15 Received $9,500 cash from the collection of accounts receivable. Jan 30 Wrote off the remaining accounts receivable as uncollectible. Feb 1 Purchased 1000 units of purple rain drink at $5 per unit. Paid in cash. Feb 10 Sold 1,000 units of purple rain drink at $7 per unit to the Gamma My Drinka Sorority on credit. Feb 19 Received full payment from the Gamma My Drinka Sorority for the Feb. 10 sale. Feb 23 Purchased 2000 units of purple rain drink at $6 per unit. Paid in cash. Feb. 25 Sold 2000 units of purple rain drink at $8 per unit to the Sigma Big Ralph Fraternity on credit. Mar 25 Received 1000 units of purple rain drink back from the Sigma Big Ralph Fraternity. The goods were returned due to low sales. The low sales were as a result of some fool in the accounting area scheduling a midterm the day after St. Patrick's Day. Sigma Big Ralph Fraternity was given full credit for the goods returned. Required 1. Prepare the necessary journal entries to record all transactions during the quarter and any necessary adjusting journal entries at the end of the quarter. Ignore income taxes. 2. Prepare a multi-step income statement for the quarter ended March 31, 2018. Ignore income taxes. 3. Would income be higher or lower if the average cost method was used to value inventory (Please just indicate "higher", "lower", or "same". No calculation is required).