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

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Super Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The fiscal year of Super Buy ends each June 30. Assume you are dealing with a single Super Buy store in San Diego, California. The San Diego store began 2014 with an inventory of 23,000 units that cost a total of $1,196,000. During the year, the store purchased merchandise on account.

August (28,000 units at $54)................................. $1,512,000

March (48,000 units at $58)................................. 2,784,000

May (58,000 units at $64) .................................... 3,712,000

Total purchases..................................................... $8,008,000

Cash payments on account totaled $7,860,000. During fiscal 2014, the store sold 153,000 units of merchandise for $15,682,500, of which $5,400,000 was for cash and the balance was on account. Super Buy uses the average-cost method for inventories. Operating expenses for the year were $4,500,000. Super Buy paid 50% in cash and accrued the rest as accrued liabilities. The store accrued income tax at the rate of 35%.

 

Requirements

1. Make summary journal entries to record the store’s transactions for the year ended June 30, 2014. Super 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 June 30, 2014. Show totals for gross profit, income before tax, and net income.