# Step-by-Step: MU Watches Transactions Let's prepare the **Income Statement** and **Balance Sheet** for the described transactions, assuming the year-end is December 31, 2028. We'll use the **FIFO** (First-In, First-Out) method for inventory, since it's the most common unless otherwise stated. --- ## 1. List of Transactions Let’s summarize the purchases and sales: ### Purchases | Date | Units | Cost/Unit | Total Cost | Payment Type | |--------------|-------|-----------|------------|--------------| | July 17 | 50 | $150 | $7,500 | On Account | | August 12 | 40 | $160 | $6,400 | Cash | | October 27 | 80 | $170 | $13,600 | Cash | | December 4 | 100 | $180 | $18,000 | On Account | | **Total** | 270 | | $45,500 | | ### Sales | Date | Units | Price/Unit | Total Revenue | Cash/Account | |--------------|-------|------------|---------------|--------------| | July 31 | 40 | $500 | $20,000 | Cash | | August 22 | 30 | $500 | $15,000 | On Account | | November 20 | 90 | $500 | $45,000 | Cash | | December 8 | 40 | $500 | $20,000 | On Account | | **Total** | 200 | | $100,000 | | --- ## 2. Calculate Cost of Goods Sold (FIFO) We need to determine the cost of the 200 watches sold, using FIFO: ### Inventory Flow **Beginning Inventory:** None. #### Purchases and Sales Chronology (FIFO): 1. **July 17:** Buy 50 @ $150 2. **July 31:** Sell 40 (all from July 17 batch) - 10 units remain from July 17 batch 3. **August 12:** Buy 40 @ $160 4. **August 22:** Sell 30 - 10 from July 17 batch (now depleted) - 20 from August 12 batch (20 remain from August 12 batch) 5. **October 27:** Buy 80 @ $170 6. **November 20:** Sell 90 - 20 from August 12 batch (now depleted) - 70 from October 27 batch (10 remain from October 27 batch) 7. **December 4:** Buy 100 @ $180 8. **December 8:** Sell 40 - 10 from October 27 batch (now depleted) - 30 from December 4 batch (70 remain from December 4 batch) --- ### Detailed COGS Calculation #### 1. **July 31 Sale (40 units):** - 40 × $150 (from July 17 batch) = **$6,000** #### 2. **August 22 Sale (30 units):** - 10 × $150 (left from July 17 batch) = **$1,500** - 20 × $160 (from August 12 batch) = **$3,200** - **Total:** $1,500 + $3,200 = **$4,700** #### 3. **November 20 Sale (90 units):** - 20 × $160 (left from August 12 batch) = **$3,200** - 70 × $170 (from October 27 batch) = **$11,900** - **Total:** $3,200 + $11,900 = **$15,100** #### 4. **December 8 Sale (40 units):** - 10 × $170 (left from October 27 batch) = **$1,700** - 30 × $180 (from December 4 batch) = **$5,400** - **Total:** $1,700 + $5,400 = **$7,100** --- **Total COGS:** \[ \begin{align*} \text{COGS} &= \$6,000 + \$4,700 + \$15,100 + \$7,100 \\ &= \$32,900 \end{align*} \] --- ## 3. Ending Inventory **Units Purchased:** 50 + 40 + 80 + 100 = 270 **Units Sold:** 40 + 30 + 90 + 40 = 200 **Units Remaining:** 270 - 200 = **70 units** **Composition of Ending Inventory (FIFO):** - All 70 from the December 4 batch @ $180/unit. **Ending Inventory Value:** 70 × $180 = **$12,600** --- ## 4. Income Statement (for 2028 second half) | Item | Amount | |----------------------|-----------| | **Sales Revenue** | $100,000 | | **Cost of Goods Sold** | $32,900 | | **Gross Profit** | $67,100 | > **Note:** No other expenses given. --- ## 5. Balance Sheet Items (as of Dec 31, 2028) ### A. Assets - **Cash** Let's calculate cash step-by-step: **Inflows:** - Sales for cash: - July 31: $20,000 - November 20: $45,000 - AR collections: - September 27: $9,000 (partial collection from August 22 sale) **Outflows:** - Purchases for cash: - August 12: $6,400 - October 27: $13,600 - Payment for July 17 purchase: - September 19: $7,500 **Net Cash Calculation:** \[ \text{Cash Inflows} = \$20,000 + \$45,000 + \$9,000 = \$74,000 \] \[ \text{Cash Outflows} = \$6,400 + \$13,600 + \$7,500 = \$27,500 \] \[ \text{Net Cash} = \$74,000 - \$27,500 = \$46,500 \] > **Note:** This assumes there was no starting cash balance and that all other transactions are as listed. - **Accounts Receivable** - August 22: $15,000 sale on account; $9,000 collected, $6,000 remains. - December 8: $20,000 sale on account; none collected by year-end. \[ \text{Accounts Receivable} = \$6,000 + \$20,000 = \$26,000 \] - **Inventory** - 70 units @ $180 = **$12,600** ### B. Liabilities - **Accounts Payable** - July 17: $7,500 purchase, paid September 19: **$** - December 4: $18,000 purchase, unpaid by year-end: **$18,000** ### C. Equity - **Retained Earnings** - Add gross profit for the period: $67,100 --- ## 6. Financial Statements ### Income Statement (2028 Second Half) | **Item** | **Amount** | |-----------------------|-------------| | Sales | $100,000 | | Cost of Goods Sold | $32,900 | | **Gross Profit** | $67,100 | --- ### Balance Sheet (as of Dec 31, 2028) | **Assets** | | |-----------------------|-------------| | Cash | $46,500 | | Accounts Receivable | $26,000 | | Inventory | $12,600 | | **Total Assets** | $85,100 | | **Liabilities & Equity** | | |-------------------------|---------| | Accounts Payable | $18,000 | | Retained Earnings | $67,100 | | **Total Liabilities & Equity** | $85,100 | --- ## **Summary Table** | **Item** | **Amount** | |-----------------|------------| | Sales | $100,000 | | COGS | $32,900 | | Gross Profit | $67,100 | | Cash | $46,500 | | Accounts Receivable | $26,000 | | Inventory | $12,600 | | Accounts Payable| $18,000 | | Retained Earnings| $67,100 | --- ## **Key Points** - **Gross profit:** $67,100 - **Ending inventory:** $12,600 (70 units @ $180 each) - **Accounts Receivable:** $26,000 (from August and December credit sales) - **Accounts Payable:** $18,000 (December purchase unpaid) - **All calculations use FIFO for inventory.** --- **If you need the statement in a different format or more details (e.g., with T-accounts), let me know!**