Big Buy purchases inventory in crates of merchandise; each crate of inventory is a unit

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Big Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Big Buy ends each January 31. Assume you are dealing with a single Big Buy store in Miami, Florida. Te Miami store began 2014 with an inventory of 20,000 units that cost a total of $1,060,000. During the year, the store purchased merchandise on account as follows:

Jul (32,000 units at $58)....................................... $1,856,000

Nov (52,000 units at $62)..................................... 3,224,000

Dec (62,000 units at $68)...................................... 4,216,000

Total purchases..................................................... $9,296,000

Cash payments on account totaled $8,968,000. During fiscal year 2014, the store sold 154,000 units of merchandise for $15,785,000, of which $5,500,000 was for cash and the balance was on account. Big Buy uses the average-cost method for inventories. Operating expenses for the year were $3,750,000. Big Buy paid 70% in cash and accrued the rest as accrued liabilities. Te store accrued income tax at the rate of 40%.

 

Requirements

1. Make summary journal entries to record the store’s transactions for the year ended January 31, 2014. Big Buy uses a perpetual inventory system.

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

3. Prepare the store’s income statement for the year ended January 31, 2014. Show totals for gross profit, income before tax, and net income.