Accounting and valuation of the inventory

Accounting and valuation of the inventory

title: Accounting and valuation of the inventory

You must answer all the questionsin the proposed business case.
Thistask assesses the following learning outcomes:
 Critically understand the differences between the methods of valuation of the inventory
 Knowing how to properly elaborate an income statement and determine the ending inventory balance.
LAUNCH: WEEK 6 / DELIVERY: 19th July, 2021. 14:00PM CET
Submission file format: Excel document with all the answers, clearly identifying allsteps, results, journals and including comments besides each answer.
BUSINESS CASE (100 points)
Jim hasrecently opened a snack food wholesale company dedicated to the sale of peanuts, almonds and
pistachios. During its first month of activity, the company has made the following transactions:
Kg Price per Kg Amount
February 2: Purchase of Pistachios: 2300 $12 $27,600
Purchase of Almonds: 4000 $6 $24,000
Purchase of Peanuts: 4000 $4 $16,000
February 3: Purchase of Pistachios: 1500 $14 $21,000
Purchase of Almonds: 1500 $7 $10,500
Purchas of Peanuts: 2500 $5 $12,500
February 6: Sold to several clients:
Pistachios: 1900 $21 $39,900
Almonds: 2500 $12 $30,000
Peanuts: 2500 $10 $25,000
February 6: Sold to Fruits Lovers Inc.:
BCO114 ACCOUNTING I Task brief & rubrics
Pistachios: 500 $21 $10,500
Almonds: 750 $13 $9,750
Peanuts: 1500 $9 $13,500
February 12 Purchase of Pistachios: 1350 $15 $20,250
Purchase of almonds: 3000 $8 $24,000
February 13: Sale of peanuts to Peanuts Lovers Inc.: 3250 $9 $29,250
February 14: Purchase of Peanuts 2000 $5 $10,000
Besides these transactions, the company has had the following expenses:
Salaries: $3,750
Electricity bill: $400
Renting of equipment: $1,500
Rent of warehouse and office: $3,250
Miscellaneous: $1,250
Jim’s accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the
consequences it may have on his financial situation.
Relying on your accounting knowledge, Jim asks you the following questions:
1: Why in your opinion did Jim’s accountant recommend the average cost method and what difference is there with the three other methods? Explain the main
characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net
income in case of price fluctuation. (20 points)
2: Prepare an Income statement of the company at the end of February using as method of valuation of the inventory the average cost method, FIFO and LIFO for
each one of the products sold by Jim, and calculate the balance of the inventory at the end of the month. Explain the calculations. (40 points: 30 points for the
calculation and 10 for explanations)
3: In order to compare with the records made by his accountant, Jim asks you to prepare the different journal entries for the purchases and sales mentioned above
for each one of the 3 different methods used above. (20 points)
4: Jim would like to know a forecast of the number of days to sell the inventory based on the results of the month of February. Explain your calculation and the
steps followed. (20 points: 10 for calculation and 10 for explanation)
Rubrics
Descriptor
9-10 The student demonstrates an excellent understanding of the
concepts.
8-8.9 The student demonstrates a good understanding of the concepts.
7-7.9 The student demonstrates a fair understanding of the concepts.
6-6.9 The student demonstrates some, but insufficient understanding of the
concepts.
3-5.9 The student demonstrates insufficient understanding of the concepts.
They may mention some relevant ideas or concepts, although it is
clear that the relationship between them is not understood by the
student.
1-2.9 The student demonstrates insufficient understanding of the concepts
and does not mention any relevant ideas or concepts.
0 The student leaves the question blank or cheats.
95% of the grade based on the approach, calculations and comments, and 5% based on the presentation and look & field of the spreadsheet. Points are at the end
of each question.

 

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Accounting and valuation of the inventory

 
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